<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 1999.
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GLOBESPAN SEMICONDUCTOR INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 3674 75-2658218
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
100 SCHULZ DRIVE
RED BANK, NJ 07701
(732) 345-7500
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT J. MCMULLAN
CHIEF FINANCIAL OFFICER
GLOBESPAN SEMICONDUCTOR INC.
100 SCHULZ DRIVE
RED BANK, NJ 07701
(732) 345-7500
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
SCOTT C. DETTMER, ESQ. BARRY E. TAYLOR, ESQ.
GUNDERSON DETTMER STOUGH TREVOR J. CHAPLICK, ESQ.
VILLENEUVE FRANKLIN & HACHIGIAN, LLP WILSON SONSINI GOODRICH & ROSATI
155 CONSTITUTION DRIVE PROFESSIONAL CORPORATION
MENLO PARK, CA 94025 650 PAGE MILL ROAD, PALO ALTO, CA 94303
(650) 321-2400 (650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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
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TITLE OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
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Common Stock ($0.001 par value)........... $55,000,000 $15,290
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</TABLE>
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o). 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 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION -- MARCH 29, 1999
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PROSPECTUS
, 1999
GLOBESPAN SEMICONDUCTOR INC.
LOGO
SHARES OF COMMON STOCK
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GLOBESPAN SEMICONDUCTOR INC.:
- - We are a leading worldwide developer of chip sets for digital subscriber line
(DSL) products.
- - GlobeSpan Semiconductor Inc.
100 Schulz Drive
Red Bank, New Jersey 07701
(732) 345-7500
PROPOSED SYMBOL & MARKET:
- - GSPN/NASDAQ
THE OFFERING:
- - We are offering all of the shares in this offering.
- - The underwriters have an option to purchase an additional
shares from us to cover over-allotments.
- - This is our initial public offering and no public market currently exists for
our shares. We anticipate that the initial public offering price will be
between $ and $ per share.
- - We plan to use the net proceeds from this offering for working capital,
repayment of certain indebtedness, potential acquisitions of technology or
businesses and other general corporate purposes.
- - Closing: , 1999
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<CAPTION>
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Per Share Total
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<S> <C> <C>
Public offering price: $ $
Underwriting fees:
Proceeds to GlobeSpan:
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</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
SG COWEN
THOMAS WEISEL PARTNERS LLC
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR A SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
<PAGE> 3
TABLE OF CONTENTS
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Page
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 5
Note Regarding Forward-Looking
Statements........................ 20
Use of Proceeds..................... 20
Dividend Policy..................... 20
Certain Information................. 20
Capitalization...................... 21
Dilution............................ 22
Selected Financial Data............. 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 24
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business............................ 32
Management.......................... 44
Certain Transactions................ 54
Principal Stockholders.............. 61
Description of Capital Stock........ 63
Shares Eligible for Future Sale..... 65
Underwriting........................ 67
Legal Matters....................... 69
Experts............................. 69
Additional Information.............. 70
Index to Financial Statements....... F-1
</TABLE>
i
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information that you should consider before buying shares in the offering. You
should read this entire prospectus carefully.
OUR BUSINESS
GlobeSpan Semiconductor Inc. is a leading worldwide developer of advanced
digital subscriber line (DSL) integrated circuits (chip sets) which enable
high-speed data transmission over the existing network of copper telephone wires
known as the local loop. Our products enable data transmission at rates over 100
times faster than today's 56 Kbps modems when deployed at each end of these
copper telephone wires. We sell our integrated circuits as chip sets to
manufacturers of DSL equipment for incorporation into products that are sold to
telecommunications service providers and end users. To date, we have shipped
more than one million DSL chip sets, representing a significant share of this
emerging market, to a broad base of leading communications equipment
manufacturers, including Ascom Hasler AG, Cisco Systems, LG Information &
Communications, NEC Corporation, Paradyne Corporation and Westell Technologies.
Our products target the rapidly growing market for high-speed data
transmission applications such as Internet access, telecommuting and branch
office internetworking. International Data Corporation estimates that the number
of Internet users worldwide was approximately 69 million in 1997 and will reach
approximately 320 million in 2002. In order to enable these applications,
equipment manufacturers are designing DSL systems around increasingly complex
integrated circuits which account for a significant portion of the value-added,
proprietary content of such systems. While equipment manufacturers have in-depth
systems knowledge, they often lack the core technology and expertise necessary
to develop these integrated circuits internally and are turning to DSL
integrated circuit developers that possess the core technologies and expertise
required to bring high performance, cost-effective solutions to market.
Our objective is to maximize our number of design wins with both new and
existing customers which creates an opportunity to sell our chip sets in volume
quantities, capitalize on the success of any one of our customers' DSL products
and increase the likelihood of follow-on design wins. We are successful in
capturing design wins because:
- We have a long history of DSL development experience;
- We have sold over one million chip sets;
- We offer a broad suite of DSL chip sets;
- Our chip sets provide system-on-a-chip functionality differentiated by
high performance and software flexibility;
- Our chip sets offer a competitive total system cost;
- We apply advanced systems-level expertise;
- We sell comprehensive reference design guides and offer strong technical
support to accelerate customers' time to market; and
- Our chip sets are designed to comply with industry standards.
We believe these advantages and design attributes position us as the
preferred design partner and chip set supplier for DSL equipment manufacturers.
Our strategy is to maintain and grow our leading design win position by:
- Targeting all applications in the DSL market and providing the chip set
technologies necessary to enable these applications;
- Strengthening and broadening our technology competencies to maintain our
leading position in the DSL market;
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- Leveraging our advanced systems-level expertise to develop and offer chip
sets that can be cost effectively incorporated into complete DSL systems;
and
- Continuing to actively participate in the formulation of critical
standards for the high-speed data transmission market.
We were formed as an independent company in July 1996 as part of the
divestiture of AT&T Paradyne Corporation by Lucent Technologies and commenced
operations in August 1996. Prior to the divestiture, our business was operated
as the Advanced Transmission Technology Division of AT&T Paradyne Corporation.
2
<PAGE> 6
THE OFFERING
Common stock offered...................... shares
Common stock to be outstanding after this
offering.................................. shares
Use of proceeds........................... We intend to use the estimated
net proceeds from this
offering for working capital,
repayment of certain indebtedness,
potential acquisitions of
technology or businesses and other
general corporate purposes.
Proposed Nasdaq National Market symbol.... GSPN
- ------------------------------
Except as otherwise indicated, information in this prospectus is based on the
following assumptions:
- The number of shares of our common stock to be outstanding after the
offering is based on shares outstanding as of December 31, 1998 and
assumes no exercise of the underwriters' over-allotment option. All share
numbers assume a one-for-three reverse stock split to be effected prior
to the completion of this offering.
- The number of shares includes shares of common stock to be
issued upon the "net exercise" of our outstanding warrant held by Lucent
Technologies. The warrant is currently exercisable for 1,312,500 shares
of our common stock at an exercise price of $6.72 per share. The warrant
can either be exercised by payment of the exercise price in cash or by a
net exercise. A net exercise means that the aggregate exercise price of
the warrant is deemed to be paid by the warrant holder by giving up
shares of our common stock, in lieu of paying cash, based on the fair
market value of such shares at the time of the net exercise. See "Certain
Transactions."
- The number of shares excludes:
1,977,535 shares of common stock available for issuance under our 1996
Equity Incentive Plan as of December 31, 1998, 1,892,931 of which were
subject to outstanding options at a weighted average price of $3.55 per
share at December 31, 1998;
1,000,000 shares of common stock available for issuance under our 1999
Equity Incentive Plan, which was approved by the board of directors in
March 1999 and by the stockholders in , 1999;
250,000 shares of common stock available for issuance under our 1999
Director Stock Plan, which was approved by the board of directors in March
1999 and by the stockholders in , 1999; and
400,000 shares of common stock available for issuance under our Employee
Stock Purchase Plan, which was approved by the board of directors in March
1999 and by the stockholders in , 1999.
- The rights, preferences and privileges of our capital stock assumes the
filing, upon the approval of our stockholders, of the amended and
restated certificate of incorporation. See "Description of Capital
Stock."
3
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY THE COMPANY
--------------------------- ----------------------------------------
SEVEN FIVE
YEARS ENDED MONTHS MONTHS
DECEMBER 31, ENDED ENDED YEARS ENDED DECEMBER 31,
---------------- JULY 31, DECEMBER 31, -------------------------
1994 1995 1996 1996 1997 1998
------- ------ -------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............... $ 380 $1,695 $ 1,597 $ 2,360 $ 22,546 $ 31,464
Gross profit............... 380 1,695 1,597 1,864 14,981 21,582
(Loss) income from
operations............... (4,845) 435 (2,419) (800) 1,051 (7,912)
Net (loss) income.......... $(4,845) $ 435 $(2,419) $ (800) $ 842 $ (7,829)
======= ====== ======= =========== =========== ===========
(Loss) earnings per share:
Basic.................... $ (0.07) $ 0.07 $ (0.65)
=========== =========== ===========
Diluted.................. $ (0.07) $ 0.07 $ (0.65)
=========== =========== ===========
Shares used in computing
(loss) earnings per
share:
Basic.................... 11,437,500 11,515,538 12,084,711
Diluted.................. 11,437,500 12,706,432 12,084,711
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1998
--------------------
AS
ACTUAL ADJUSTED
------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 12 $
Working capital (deficit)................................... (2,655)
Total assets................................................ 13,430
Long-term liabilities, less current portion................. 5,506
Total stockholders' (deficit) equity........................ (1,293)
</TABLE>
The financial data under the heading "Predecessor Company" is for our
business when it was the Advanced Transmission Technology Division of AT&T
Paradyne Corporation. We were formed in July 1996 as part of the divestiture of
AT&T Paradyne Corporation by Lucent Technologies and commenced operations in
August 1996. For more information on the divestiture, see "Certain Transactions"
and Note 1 of the Notes to Financial Statements.
See Note 9 of the Notes to Financial Statements for an explanation of the
method used to calculate earnings per share. Earnings per share data is not
presented for the Predecessor Company since the Predecessor Company did not have
its own capital structure. As a result, this information would not be
meaningful.
The balance sheet data as of December 31, 1998, as adjusted, gives effect
to our receipt of the net proceeds from the sale of shares of common stock
offered hereby at an assumed public offering price of $ per share, after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by us. It also gives effect to the net exercise of the
outstanding warrant held by Lucent Technologies and the repayment of certain
indebtedness. See "Use of Proceeds" and "Capitalization."
4
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RISK FACTORS
Before you invest in our common stock, you should be aware of various
risks, including those described below. You should carefully consider these risk
factors, together with all of the other information included in this prospectus,
before you decide whether to purchase shares of our common stock.
WE HAVE ONLY BEEN OPERATING AS AN INDEPENDENT COMPANY SINCE AUGUST 1996, AND
THIS LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR PROSPECTS
We have only been operating as an independent company since August 1996,
and we only began shipping chip sets in volume in January 1997. We have not had
a long history of generating significant revenues. Many of our chip sets have
only recently been introduced. As a result of our limited operating history, we
have limited historical financial data that can be used in evaluating our
business and its prospects and in projecting future operating results. You must
consider our prospects in light of the risks, expenses and difficulties we might
encounter because we are at an early stage of development in a new and rapidly
evolving market.
OUR QUARTERLY OPERATING RESULTS WILL FLUCTUATE BECAUSE OF MANY FACTORS, AND A
SUBSTANTIAL DETERIORATION IN ANY OF THESE FACTORS WOULD HARM OUR BUSINESS
Our revenues and operating results have varied in the past and are likely
to vary in the future from quarter to quarter. A number of reasons are likely to
cause these variations, including:
- The timing and rate of deployment of DSL services by telecommunications
service providers;
- The size and timing of orders from, and shipments to, existing and new
customers of our chip sets;
- Loss of a significant customer, or a significant decrease in purchases by
significant current customers, such as Cisco Systems or NEC Corporation,
or volume purchases from such customers at discounted average per unit
selling prices;
- The mix of chip sets shipped in a quarter with different gross margins;
- The pricing of our products as competition among DSL chip set suppliers
increases;
- The level of market acceptance of our products and the products offered
or sold by our competitors;
- Our ability to introduce new products and technologies on a timely basis;
- The availability of foundry capacity and the expense of having our chip
sets manufactured by Lucent Technologies or other foundries in the
future;
- The size and timing of expenses, including operating expenses and
expenses of developing new products and product enhancements;
- Our ability to hire and retain key personnel;
- Costs associated with future litigation, including litigation relating to
the use or ownership of intellectual property;
- Acquisition costs or other non-recurring charges in connection with the
acquisition of companies, products or technologies;
- Foreign currency and exchange rate fluctuations which may make our
dollar-denominated products more expensive in foreign markets or could
expose us to currency rate fluctuation risks if our sales become
denominated in foreign currencies; and
- General global economic conditions which could adversely affect sales to
our customers.
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<PAGE> 9
In addition to the above factors, we sell our products based on individual
purchase orders. We do not have long-term customer purchase contracts upon which
we can rely. We do not have a substantial non-cancelable backlog of orders and
our revenues in each quarter depend largely on orders booked and shipped in the
quarter. Although in some circumstances we charge our customers an order
cancellation penalty, our customers can generally cancel or reschedule orders
upon short notice. For these reasons, we typically base our product plans and
expenses on forecasts of customer demand. Because we incur significant product
development and marketing expenses before we generate revenues associated with
these expenses, if revenues are below our projections, then our operating
results will vary and our losses will increase.
Further, we expect that decreasing average per unit selling prices of our
chip sets due to competition and volume discounts to our large customers will
cause variations in our operating results. These declines in average per unit
selling prices will generally lead to declines in gross margins for these
products. For example, Paradyne Corporation is currently entitled to purchase
our chip sets at preferential prices. If Paradyne Corporation increases its
orders from us, our gross margins could be materially adversely affected. See
"Certain Transactions."
A substantial deterioration in any of the foregoing factors will seriously
harm our business, financial condition and results of operations. Because the
foregoing factors could cause significant variations in our revenues and
operating results, we believe that annual and quarter-to-quarter comparisons of
our operating results are not necessarily meaningful. Investors should not rely
on the results of any one quarter or series of quarters as an indication of our
future performance.
WE EXPECT TO INCUR FUTURE LOSSES
We incurred net losses of $0.8 million in the five months ended December
31, 1996, earned net income of $0.8 million in 1997 and incurred net losses of
$7.8 million in 1998. As of December 31, 1998, we had an accumulated deficit of
$7.8 million. We expect to incur net losses for the foreseeable future, and
these losses may be substantial. Further, we expect to incur substantial
negative cash flow in the future. Because of continuing substantial capital
expenditures and product development, sales, marketing and administrative
expenses, we will need to generate significant quarterly revenues to achieve
profitability and positive cash flow. To increase revenues and achieve
profitability, we primarily need to increase sales of our current products and
successfully develop, market and sell our new products. If we do achieve
profitability and positive cash flow, we may not be able to sustain or increase
profitability or cash flow on a quarterly or annual basis. We generated net
operating loss ("NOL") carryforwards for income tax purposes of approximately
$4.8 million through December 31, 1998. These NOL carryforwards have been
recorded as a deferred tax asset of approximately $2.1 million. Based upon our
history of operating losses and other presently known factors we may not
generate sufficient taxable income prior to the expiration of these NOL
carryforwards in order to receive the benefit of them and we have reduced our
deferred tax assets to zero with a full valuation allowance.
THE LOSS OF ONE OR MORE OF OUR KEY CUSTOMERS WOULD ADVERSELY AFFECT OUR BUSINESS
AND RESULTS OF OPERATIONS
A relatively small number of customers account for a large percentage of
our net revenues. Our business will be seriously harmed if we do not generate as
much revenue as we expect from these customers, or experience a loss of any of
our significant customers, particularly Cisco Systems or NEC Corporation, or
suffer a substantial reduction in orders from such customers. In the five months
ended December 31, 1996 and the years ended December 31, 1997 and 1998, our
customers who individually represented at least five percent of our net revenues
accounted for 85.5%, 72.6% and 70.1%, respectively, of our net revenues. In
1996, our top three customers were Lucent Technologies, LG Information &
Communications and Ascom Hasler AG, which accounted for 27.2%, 15.9% and 12.0%
of our net revenues, respectively. In 1997, our top three customers were LG
Information & Communications, Ascom Hasler AG and Westell Technologies, which
accounted for 21.4%, 12.5%
6
<PAGE> 10
and 9.6% of our net revenues, respectively. In 1998, our top three customers
were Cisco Systems, NEC Corporation and Ascom Hasler AG, which accounted for
48.3%, 12.6% and 9.2% of our net revenues, respectively. We do not have purchase
contracts with any of our customers that obligate them to continue to purchase
our products and these customers could cease purchasing our products at any
time. Furthermore, it is possible that DSL equipment manufacturers, such as
Cisco Systems, NEC Corporation and Ascom Hasler AG, may design and develop
internally, or acquire, their own chip set technology, rather than continue to
purchase chip sets from third parties such as us. We expect that sales of our
products to relatively few customers will continue to account for a significant
portion of our net revenues for the foreseeable future.
BECAUSE OF OUR LONG PRODUCT DEVELOPMENT PROCESS AND SALES CYCLE, WE INCUR
SUBSTANTIAL EXPENSES BEFORE WE EARN ASSOCIATED NET REVENUES
We develop products prior to receiving orders from our customers.
Accordingly, we incur substantial product development expenditures prior to
generating any revenues from sales of such products. In addition, we have a long
sales cycle because we do not receive orders for our chip sets during the period
that our customers test and evaluate our chip sets for incorporation into their
DSL products. This test and evaluation period typically lasts from three to six
months or longer. If our chip sets are initially selected for use in a
customer's DSL equipment, we refer to this as a design win. Achieving a design
win generally requires us to incur additional expenditures with no assurance
that we will secure the design win. Further, a design win is solely an
indication that a potential customer may incorporate our chip sets into a DSL
product and is not a binding commitment of any kind. Therefore, a design win is
not a guarantee that we will sell chip sets.
Even after we secure a design win for a product, we may not ultimately sell
volume quantities of our chip sets for that product. Volume production of the
DSL equipment manufacturer's product which incorporates our chip sets typically
does not begin until three to six months or more after we are awarded the design
win. A design win will translate into volume shipments of our chip sets only if
our customers' products are successful. In addition, sales of our chip sets are
subject to delays or cancellations due to our customers':
- Internal budgets;
- Product development delays;
- Inability to reach agreement on pricing or other terms of sale;
- Procedures for approving purchases and deploying new technologies in
their products;
- Delays in receiving orders due to service provider deployment delays;
- Inability to deliver products in volume;
- Technological obsolescence; and
- Changes in product lines.
Once a DSL equipment manufacturer has designed a supplier's chip set into
its products, the DSL equipment manufacturer may be reluctant to change its
source of chip sets due to the significant costs associated with qualifying a
new supplier. Accordingly, the failure to achieve design wins with key DSL
equipment manufacturers who have chosen a competitor's chip set could create
barriers to future sales opportunities with such DSL equipment manufacturers.
BECAUSE THE DSL MARKET IS RAPIDLY EVOLVING AND HAS ONLY RECENTLY DEVELOPED, OUR
BUSINESS WILL BE HARMED IF OUR NEW PRODUCTS ARE NOT SUCCESSFUL
The market for chip sets for DSL products is characterized by:
- Intense competition;
- Rapid technological change;
- Frequent new product introductions by our competitors;
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<PAGE> 11
- Changes in customer demands; and
- Evolving industry standards.
Any of these factors could make our products obsolete or unmarketable. To
compete, we must innovate and introduce new products. Our business will be
seriously harmed if these innovations and new products are not successful.
DSL products utilize different coding techniques to transmit data reliably
over copper telephone wires. These coding techniques, or line codes, include two
bits per quadrant (2B1Q), carrierless amplitude phase modulation (CAP), discrete
multitone modulation (DMT) and pulse amplitude modulation (PAM). To date, most
large volume DSL service deployments have used the 2B1Q and CAP line codes.
Recently, U.S. and international standards bodies have defined additional
standards specifications which incorporate the DMT and PAM line codes for DSL
applications. We are anticipating sizeable deployments based upon these
additional standards. We have recently introduced products based on these
standards and are dedicating significant resources to achieving design wins for
these chip sets.
Substantially all of our product revenues to date have come from the sale
of chip sets that use the CAP line code. We have not commercially shipped chip
sets based on the 2B1Q, DMT or PAM line codes and we cannot be certain that
these chip sets will be successful. To the extent our customers award design
wins to our competitors for their next-generation products, including products
based on the DMT line code, our business would be adversely affected. If we fail
to successfully introduce new products on a timely and cost-effective basis that
meet customer requirements and are compatible with evolving industry standards,
then our business, financial condition and results of operations will be
seriously harmed.
WE RELY ON INTELLECTUAL PROPERTY RIGHTS ACQUIRED FROM LUCENT TECHNOLOGIES TO
CONDUCT OUR BUSINESS, AND THESE RIGHTS ARE SUBJECT TO CERTAIN RESTRICTIONS
Upon our formation, Lucent Technologies granted to us a number of
intellectual property rights. They assigned to us certain patents and granted us
a license under other patents. They also gave us the right to extend immunity
under patents and the right to use certain trade secrets and know-how. All of
these rights are subject to various restrictions and/or conditions. These
restrictions and/or conditions apply to the types of chip sets we sell. They
also apply to the uses of our products and the types of products into which our
chip sets can be incorporated. The restrictions and/or conditions also apply to
our ability to sublicense or extend our rights to parties who manufacture our
chip sets and to our customers and their end-user customers. The restrictions
and/or conditions also apply to the transfer of our rights to third parties that
may wish to purchase our company. We believe that we currently have all the
intellectual property rights from Lucent Technologies that we need to continue
to conduct our business. We also believe that we are exercising the rights
granted to us by Lucent Technologies within the scope of the applicable
restrictions and/or conditions. Nevertheless, the provisions of the agreement
describing the scope of the license and immunity rights and restrictions are
ambiguous and Lucent Technologies might not agree with our interpretations. If
Lucent Technologies adopts a conflicting interpretation or otherwise asserts
that we do not have the rights we think we have, we will need to defend
ourselves or negotiate for additional rights. It is even possible that we could
be prevented from selling some of our products that depend on these rights or
immunities. In any case, the process of negotiation or defense would be
time-consuming and expensive, and whether or not it is successful would have a
negative impact on our ability to conduct our business.
WE RELY ON LUCENT TECHNOLOGIES TO MANUFACTURE SUBSTANTIALLY ALL OF OUR CHIP SETS
We do not own or operate a semiconductor fabrication facility. We depend on
Lucent Technologies to timely deliver to us sufficient quantities of
fully-assembled and tested chip sets on a turnkey basis. We have had a series of
manufacturing arrangements with Lucent Technologies, the
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<PAGE> 12
latest of which became effective in March 1999. Under this agreement, Lucent
Technologies will fill our orders for our current chip sets in accordance with
agreed-upon quantity, price, lead-time and other terms. The agreement also
contains procedures for establishing Lucent Technologies as a manufacturer of
future chip sets for us. This agreement, however, does not guarantee that Lucent
Technologies will adequately fill our orders for current chip sets (either in
quantity or timing), or that we will be able to negotiate mutually satisfactory
terms for manufacturing our future chip sets. Further, although the March 1999
agreement has a term of three years for the supply of current chip sets, Lucent
Technologies has the right to discontinue the supply of any chip set upon 12
months' notice (as long as Lucent Technologies fills our orders for commercially
reasonable quantities of that chip set during the notice period). In addition,
Lucent Technologies' ability to manufacture our chip sets is limited by its
available capacity, and under some circumstances Lucent Technologies may
allocate its available capacity to its other customers. Any disruption in
availability of our products would have a serious adverse impact on our
business. If we are required for any reason to seek a new manufacturer of our
chip sets, a new manufacturer of our chip sets may not be available and in any
event switching to a new manufacturer would require six months or more and would
involve significant expense and disruption to our business.
Each of our DSL products contains two chips: a digital signal processing
chip and an analog front end chip. Lucent Technologies manufactures both the
digital signal processing chip and the analog front end chip. Our chip sets
utilize certain circuits owned by Lucent Technologies, and we do not have a
license to these circuits. Although we have independently designed functionally
equivalent circuits, we have not established a manufacturing source for chip
sets that use these replacement circuits, and such chip sets have never been
produced. Further, replacing our chip sets that use circuits owned by Lucent
Technologies with newly designed products that use our own replacement circuits
may in turn require our customers to redesign or re-qualify their products in
certain respects. Establishing additional sources for manufacturing our products
independent of the circuits owned by Lucent Technologies would be expensive and
disruptive to our business.
From time to time there are shortages in world wide foundry capacity. To
address foundry capacity constraints, other semiconductor suppliers that rely on
third-party foundries use various arrangements, including equity investments or
loans to independent component manufacturers in exchange for guaranteed
production capacity, joint ventures to own and operate foundries or "take or
pay" contracts that commit a company to purchase specified quantities of
components over extended periods. While we are not currently a party to any of
these types of arrangements, and they may not be available to us, we may enter
into arrangements like these in the future. Any of these arrangements could
require us to commit substantial capital. The need to commit substantial capital
could require us to obtain additional debt or equity financing, which could
dilute our earnings or the ownership of our stockholders.
It is possible that our customers or potential customers may limit the
amount of business they do with us until we establish additional sources of
manufacturing for our chip sets.
WE COULD BECOME INVOLVED IN DISPUTES WITH LUCENT TECHNOLOGIES, AND ANY SUCH
DISPUTE WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS
Although we do not currently anticipate any dispute with Lucent
Technologies, because Lucent Technologies is a source of our intellectual
property, the principal manufacturer of our chip sets, a significant
stockholder, a competitor and a potential customer, we could in the future
become involved in disputes with Lucent Technologies. This risk is heightened by
the ambiguity inherent in the divestiture agreements among Lucent Technologies,
Paradyne Corporation and us. We cannot be certain that we would prevail in any
such dispute and, regardless of whether we prevail, any such dispute would be
expensive and time-consuming and would harm our business. Further, because we
rely on Lucent Technologies, we may be reluctant to enforce our rights in any
such dispute. For example, we recently sent Lucent Technologies a letter that
inquired whether Lucent Technologies was misappropriating our intellectual
property in connection with the development of a competing
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DSL chip set. In response to discussions with Lucent Technologies about this
letter, we have decided not to pursue any claim against Lucent Technologies in
connection with past acts relating to digital subscriber loop analog chip
(DSLAC) technology. Lucent Technologies also has a warrant to purchase our
common stock which provides that we shall not enter into any transaction
directly or indirectly, with or for the benefit of any related party other than
transactions entered into on a basis no less favorable to us than would be
obtainable in a comparable arms' length transaction with a third party that is
not a related party. We have entered into several transactions with Paradyne
Corporation and Communication Partners, L.P., who are related parties, and there
can be no assurance that Lucent Technologies would consider that all of these
transactions were on terms obtainable in a comparable arms' length transaction.
Lucent Technologies is currently a competitor of ours. Upon our formation,
Lucent Technologies retained a license to use all patents that were assigned to
us, including in products that compete with our chip sets. Lucent Technologies'
ability to compete with us could be enhanced by this license.
WE MAY BE REQUIRED TO OBTAIN LICENSES ON TERMS THAT WOULD ADVERSELY AFFECT OUR
BUSINESS TO SELL INDUSTRY STANDARD COMPLIANT CHIP SETS
We have received correspondence, including a proposed licensing agreement,
from Amati Corporation (which was recently acquired by Texas Instruments)
stating that they believe that they own a number of patents that are required to
be compliant with the American National Standards Institute (ANSI) standard
specification T1.413. This industry standard is based on the DMT line code. We
have introduced products that we believe are compliant with this industry
standard, and we may be required to obtain a license to these Amati Corporation
patents. We are currently evaluating the patents and proposed licensing terms.
If these patents are valid and essential to the implementation of products that
are compliant with this industry standard, then Amati Corporation may be
required to offer us a license on commercially reasonable, non-discriminatory
terms. Because there are currently no established terms for such a license, we
may be unable to agree with Amati Corporation on acceptable license terms. If
these patents are valid, but not essential to the implementation of products
that are compliant with this industry standard, and they apply to our products
and we do not modify our products so they become non-infringing, then Amati
Corporation would not be obligated to offer us a license on reasonable terms or
at all. If we are not able to agree on license terms and as a result fail to
obtain a required license, then we could be sued and be liable for substantial
monetary damages or have the sale of our products stopped by an injunction. We
could also be subject to similar claims like the Amati Corporation claim by
third parties in the future.
THIRD PARTIES MAY CLAIM THAT OUR, OR OUR CUSTOMER'S, PRODUCTS INFRINGE ON THEIR
INTELLECTUAL PROPERTY RIGHTS
There is a significant risk that third parties, including current and
potential competitors, will claim that our products, or our customer's products,
infringe on their intellectual property rights. The owners of such intellectual
property rights may bring infringement claims against us. Any such litigation,
whether or not determined in our favor or settled by us, would be costly and
divert the attention of our management and technical personnel. For example, on
February 5, 1997 we received an inquiry from Telecommunications Research
Laboratories as to whether our product lines in the area of rate adaptive
digital subscriber loop technology may be infringing any of the claims of U.S.
patent no. 5,023,869 held by Telecommunications Research Laboratories. Upon
review of such patent, we responded in a letter dated March 11, 1997 that our
products based on rate adaptive digital subscriber loop technology do not
infringe any claims of patent no. 5,023,869. Inquiries with respect to the
coverage of our intellectual property, such as the Telecommunications Research
Laboratories' inquiry, could develop into litigation. Further, one of our
customers received a letter dated March 22, 1996 from Telebit Corporation (which
was subsequently acquired by Cisco Systems, Inc.) claiming that it owns patents
it believes are essential to, and useful in the manufacture, use and sale of
products complying with the American National Standards Institute ASDSL standard
T1.413-1995. We examined the merits of Telebit Corporation's claims in light of
our then current products that
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used the CAP line code, but we have not reviewed the merits of the claim with
respect to our recently introduced chip sets that use the DMT line code. In the
event of an adverse ruling for an intellectual property infringement claim, we
could be required to obtain a license or pay substantial damages or have the
sale of our products stopped by an injunction. In addition, if a customer of our
chip sets cannot acquire a required license on commercially reasonable terms,
that customer may choose not to use our chip sets. We have obligations to
indemnify our customers under some circumstances for infringement of third-party
intellectual property rights. If any such claims are made, our business could be
harmed.
OUR EFFORTS TO PROTECT OUR INTELLECTUAL PROPERTY MAY NOT BE ADEQUATE
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or obtain and use information that
we regard as proprietary. In the past, competitors have recruited our employees
who have had access to our proprietary technologies, processes and operations.
Our competitors' recruiting efforts, which we expect will continue, expose us to
the risk that such employees will misappropriate our intellectual property. For
example, in June 1998, we filed suit against three former employees who recently
began employment with one of our competitors. Our lawsuit alleges
misappropriation of trade secrets. See "Business -- Litigation." Also, another
company, Singapore Telecommunications Limited (Singapore Telecom), has prior
rights to the GlobeSpan mark in one or more countries outside the United States,
in connection with services involving the transmission and broadcast of
satellite communications. Singapore Telecom's rights in the GlobeSpan mark may
limit our ability to use or market under the GlobeSpan name in certain
territorial regions outside the United States.
We rely in part on patents to protect our intellectual property. We have 28
patents in the United States and 15 patents from other countries. Our patents
principally cover various aspects of systems and features relating to
telecommunications technologies and telecommunications products, including
certain aspects specifically pertaining to the CAP line code and DSL
communications systems and devices. Our patents have expiration dates ranging
from 2009 to 2017. In addition, we have 42 patent applications pending in the
United States Patent and Trademark Office. We also have 53 patent applications
pending in various countries other than the United States. These patents may
never be issued. Even if these patents are issued, taken together with our
existing patents, they may not provide sufficiently broad protection to protect
our proprietary rights, or they may prove to be unenforceable. To protect our
proprietary rights, we also rely on a combination of copyrights, trademarks,
trade secret laws, contractual provisions, licenses and maskwork protection
under the Federal Semiconductor Chip Protection Act of 1984. In particular, we
rely on these measures to protect our intellectual property because as a fabless
semiconductor company we have third parties, including competitors such as
Lucent Technologies, manufacture our chip sets. We also enter into
confidentiality agreements with our employees, consultants and customers and
seek to control access to, and distribution of, our other proprietary
information. There is no guarantee that such safeguards will protect our
intellectual property and other valuable competitive information.
The laws of some foreign countries do not protect our proprietary rights to
as great an extent as do the laws of the United States, and many U.S. companies
have encountered substantial infringement problems in such countries, some of
which are countries in which we have sold and continue to sell products. There
is a risk that our means of protecting our proprietary rights may not be
adequate. For example, our competitors may independently develop similar
technology, duplicate our products or design around our patents or our other
intellectual property rights. If we fail to adequately protect our intellectual
property, it would be easier for our competitors to sell competing products.
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OUR INDUSTRY IS HIGHLY COMPETITIVE, AND WE CANNOT ASSURE YOU THAT WE WILL BE
ABLE TO EFFECTIVELY COMPETE
The DSL chip set market is intensely competitive. We expect competition to
intensify as current competitors expand their product offerings and new
competitors enter the market. We believe that we must compete on the basis of a
variety of factors, including:
- Time to market;
- Functionality;
- Conformity to industry standards;
- Performance;
- Price;
- Breadth of product lines;
- Product migration plans; and
- Technical support.
We believe our principal competitors include:
- For ADSL products based on the American National Standards Institute
standard T1.413, Alcatel, Analog Devices, Motorola and Texas Instruments,
among others;
- For G.lite products based on the International Telecommunications Union
standard G.992.2, Alcatel, Analog Devices, Centillium Technology
Corporation, Lucent Technologies and Texas Instruments, among others; and
- For HDSL, SDSL, MSDSL and HDSL2 products, Conexant Systems, Level One
Communications and MetaLink, among others.
In addition to these competitors, there have been growing numbers of
announcements by other integrated circuit companies that they intend to enter
the DSL chip set market.
Further, many of our customers face competition from companies, such as
Orckit Communications and PairGain Technologies, which design their own chip
sets. Because these companies do not purchase all of their chip sets from
suppliers such as us, if these competitors displace our customers in the DSL
equipment market, our customers would no longer need our products.
Many of our competitors have greater name recognition, their own
manufacturing capabilities, significantly greater financial and technical
resources, and the sales, marketing and distribution strengths that are normally
associated with large multinational companies. These competitors may also have
pre-existing relationships with our customers or potential customers. These
competitors may compete effectively with us because in addition to the
above-listed factors, they more quickly introduce new technologies, more rapidly
or effectively address customer requirements or devote greater resources to the
promotion and sale of their products than we do. Further, in the event of a
manufacturing capacity shortage, these competitors may be able to manufacture
products when we are unable to do so.
As the DSL market matures, the industry may become subject to increasing
price competition driven by the lowest cost providers of chip sets. We
anticipate that average per unit selling prices of DSL chip sets will continue
to decline as product technologies mature. If we are unable to reduce our costs
sufficiently to offset declines in the average per unit selling prices or are
unable to introduce new higher performance products with higher average per unit
selling prices, our operating results will be seriously harmed. Since we do not
manufacture our own products, we may be unable to negotiate volume discounts
with our foundries in order to reduce the costs of manufacturing our chip sets
in response to declining average per unit selling prices. Many of our
competitors are larger with greater resources and therefore may be able to
achieve greater economies of scale and would be less vulnerable to price
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competition. Our inability to achieve manufacturing efficiencies would have an
adverse impact on our operating results.
OTHER TECHNOLOGIES FOR THE HIGH-SPEED DATA TRANSMISSION MARKET WILL COMPETE
EFFECTIVELY WITH OUR PRODUCTS
Our products are competing with a variety of different high-speed data
access technologies, including cable modems, satellite and other wireless
technologies. Many of these technologies will compete effectively with our
products. All of our products are deployed in networks that use standard copper
telephone wires. Copper telephone wires have physical properties that limit the
speed and distance over which data can be transmitted. In general, data
transmission rates over copper telephone wires are slower over longer distances
and faster over shorter distances. If any technology that is competing with DSL
technology is more reliable, faster, less expensive, reaches more customers or
has other advantages over DSL technology, then the demand for our products and
our revenues and gross margins may decrease.
OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS, AND THESE
OFFICERS AND PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE
We depend upon the continuing contributions of our key management, sales,
customer support and product development personnel. The loss of such personnel
could seriously harm us. Only Armando Geday, our President and Chief Executive
Officer, is subject to an employment agreement; however, we cannot be sure that
we can retain Mr. Geday's services. In addition, we have not obtained key-man
life insurance on any of our executive officers or key employees. Because DSL
technology is specialized and complex, we need to recruit and train qualified
technical personnel. However, there are many employers competing to hire
qualified technical personnel and we have had difficulty attracting and
retaining such personnel. We expect to continue to have difficulty hiring and
retaining qualified personnel. Further, our competitors have recruited our
employees and may do so in the future.
IF LEADING DSL EQUIPMENT MANUFACTURERS DO NOT INCORPORATE OUR CHIP SETS IN
SUCCESSFUL PRODUCTS, OUR BUSINESS WILL BE HARMED
We rely upon DSL equipment manufacturers, such as Cisco Systems and NEC
Corporation, to design our chip sets into their DSL products. We further rely on
these products to be successful, and if they are not, we will not sell our chip
sets in volume quantities. Accordingly, we must correctly anticipate the price,
performance and functionality requirements of these DSL equipment manufacturers.
We must also successfully develop products that meet these requirements and make
such products available on a timely basis and in sufficient quantities. Further,
if there is consolidation in the DSL equipment manufacturing industry, or if a
small number of DSL equipment manufacturers otherwise dominate the market for
DSL equipment, then our success will depend upon our ability to establish and
maintain relationships with these market leaders. If we do not anticipate trends
in the DSL market and meet the requirements of DSL equipment manufacturers, or
if we do not successfully establish and maintain relationships with leading DSL
equipment manufacturers, then our business, financial condition and results of
operations will be seriously harmed.
WE DEPEND UPON TELECOMMUNICATIONS SERVICE PROVIDERS TO DEPLOY DSL TECHNOLOGIES
The success of our products is dependent upon the decision by
telecommunications service providers to deploy DSL technologies and the timing
of the deployment. Factors that will impact such deployment include:
- A prolonged approval process, including laboratory tests, technical
trials, marketing trials, initial commercial deployment and full
commercial deployment;
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- The development of a viable business model for DSL services, including
the capability to market, sell, install and maintain DSL services;
- Cost constraints, such as installation costs and space and power
requirements at the telecommunications service provider's central office;
- Varying and uncertain conditions of the local loop, including the size
and length of the copper wire, electrical interference and interference
with existing voice and data telecommunications services;
- Challenges of interoperability among DSL equipment manufacturers'
products;
- Evolving industry standards for DSL technologies; and
- Government regulation.
Although a number of telecommunications service providers have commenced
commercial deployment of DSL services using DSL products that incorporate our
chip sets, if these telecommunications service providers do not expand their
deployment of DSL services, or if additional telecommunications service
providers do not offer DSL services on a timely basis, then our business,
financial condition and results of operations will be seriously harmed.
WE NEED TO SUCCESSFULLY MANAGE THE RECENT RAPID EXPANSION IN OUR OPERATIONS AND
THE ASSUMPTION OF SERVICES PREVIOUSLY PERFORMED FOR US BY PARADYNE CORPORATION
Since our formation, Paradyne Corporation has provided us with certain
services, including legal, accounting and tax support, information systems and
facilities management. Although we now perform many of these functions, Paradyne
Corporation still provides certain services, such as insurance and retirement
plan administration. We expect to perform an increasing number of the remaining
services currently provided by Paradyne Corporation. If we do not successfully
manage this transition, our business, financial condition and results of
operations will be seriously harmed. Further, from December 31, 1997 to December
31, 1998, we increased from 93 to 177 total employees. This growth has placed
and will continue to place a significant strain upon our management, operating
and financial systems and other resources. To accommodate this expansion of
operations, we must continue to implement and improve information systems,
procedures and controls and expand, train, motivate and manage our work force.
SALES TO CUSTOMERS BASED OUTSIDE OF NORTH AMERICA HAVE ACCOUNTED FOR A
SIGNIFICANT PORTION OF OUR REVENUES WHICH EXPOSES US TO INHERENT RISKS OF
INTERNATIONAL BUSINESS
The following table shows the percentage of our net revenues which we
derived from sales to customers based outside of North America for the time
periods indicated:
<TABLE>
<CAPTION>
TIME PERIOD PERCENTAGE OF NET REVENUES
----------- --------------------------
<S> <C>
Five Months Ended December 31, 1996 40.0 %
Year Ended December 31, 1997 49.2 %
Year Ended December 31, 1998 32.6 %
</TABLE>
We expect that sales to such international customers will continue to
account for a significant portion of our net revenues for the foreseeable
future. Accordingly, we are subject to risks inherent in our international
business activities, including:
- Unexpected changes in regulatory requirements;
- Tariffs and other trade barriers, including current and future import and
export restrictions;
- Difficulties in collecting accounts receivables;
- Difficulties in staffing and managing international operations;
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- Potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
- The burdens of complying with a wide variety of foreign laws
(particularly with respect to intellectual property) and license
requirements;
- The risks related to international political instability and to the
recent global economic turbulence and adverse economic circumstances in
Asia;
- Risks that changes in foreign currency exchange rates will make our
products comparatively more expensive;
- Risks that although our product sales are currently denominated in U.S.
dollars, if we denominate product sales in foreign currencies in the
future, then we will experience risk of loss due to fluctuations in the
value of foreign currencies;
- Difficulties in protecting intellectual property rights in certain
foreign countries; and
- Limited ability to enforce agreements and other rights in certain foreign
countries.
In 1998, 9.4% of our net revenues were derived from customers based in
Asian countries. Because of the continuing economic instability in Asia, sales
of our chip sets to customers in this region may be adversely affected.
IF WE DELIVER PRODUCTS WITH DEFECTS, OUR CREDIBILITY WILL BE HARMED, AND THE
SALES AND MARKET ACCEPTANCE OF OUR PRODUCTS WILL BE ADVERSELY AFFECTED
Our products are complex and have contained errors, defects and bugs when
introduced. If we deliver products with errors, defects or bugs, our credibility
and the market acceptance and sales of our products could be harmed. Further, if
our products contain errors, defects and bugs, then we may be required to expend
significant capital and resources to alleviate such problems. Defects could also
lead to product liability as a result of product liability lawsuits against us
or against our customers. We have agreed to indemnify our customers in some
circumstances against liability from defects in our products. A successful
product liability claim could seriously harm our business, financial condition
and results of operations.
WE ARE CONTROLLED BY A PRINCIPAL STOCKHOLDER
Upon completion of this offering, executive officers and directors and
their affiliates, including Communication Partners, L.P., will own, in the
aggregate, approximately % of our outstanding common stock. The purchasers
of common stock in this offering will not have sufficient voting power to elect
any members of our board of directors. As a result, our current stockholders
will be able to exercise control over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions, which could have the effect of delaying or preventing a
change of control of our company.
Communication Partners, L.P. will own approximately % of GlobeSpan after
the offering and will be able to exercise control over GlobeSpan subject to the
fiduciary duties of its representatives on the board of directors under Delaware
law. The interests of Communication Partners, L.P. may not always coincide with
our interests or the interests of other stockholders. Communication Partners,
L.P., through its representatives on the board of directors, could cause us to
enter into transactions or agreements which we would not otherwise consider
absent Communication Partners, L.P.'s influence. Communication Partners, L.P.
also is currently the majority owner of Paradyne Corporation. See "Certain
Transactions."
Our current board of directors consists of Messrs. Coulter, Deb, Epley,
Geday, Geeslin and Stanton. Our board of directors has also created an Executive
Committee consisting of Messrs. Coulter, Deb, Epley and Geday. Of the current
members of the board of directors and the Executive Committee, Messrs. Epley,
Geeslin and Stanton are also currently directors of, and have direct or
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indirect equity interests in, Paradyne Corporation, which is a customer of ours.
In addition, Dipanjan Deb, a director of GlobeSpan, is employed by the Texas
Pacific Group, which is the majority stockholder of the general partner of
Communication Partners, L.P. Accordingly, our continuing supplier relationship
with Paradyne Corporation, and any other potential business dealings between
Paradyne Corporation and us, could create conflicts of interest for the
GlobeSpan directors.
OUR BUSINESS COULD BE AFFECTED BY YEAR 2000 ISSUES
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century of the year. Many existing
electronic systems, including computer systems, use only the last two digits to
refer to a year. Therefore, these systems may recognize a date using "00" as
1900 rather than the year 2000. If not corrected, these electronic systems could
fail or create erroneous results when addressing dates on and after January 1,
2000.
In assessing the effect of the Year 2000 Issue on GlobeSpan, we determined
that we need to evaluate four general areas:
- Supplier relationships;
- Internal infrastructure;
- Products sold to customers; and
- Other third-party relationships.
Supplier Relationships. We are a "fabless" semiconductor company and
therefore rely on third party manufacturers to manufacture our chip sets. To
date, Lucent Technologies manufactures substantially all of our chip sets. If
Lucent Technologies is affected by the Year 2000 Issue, our supply of chip sets
could be delayed or eliminated. Any disruption in our supply of chip sets from
Lucent Technologies would seriously harm our business, financial condition and
results of operations. We are currently seeking assurances from Lucent
Technologies that their manufacturing of our chip sets will be unaffected by the
Year 2000 Issue but have not received such assurances to date.
Internal Infrastructure. The Year 2000 Issue could also affect our internal
systems, including both our information technology and non-information
technology systems. We have initiated an assessment of our material internal
information technology systems, including third-party software and hardware
technology. Based upon representations received from these third-party software
and hardware suppliers, we do not believe that our material internal information
technology systems will be affected by the Year 2000 Issue. We have also
initiated an assessment of our non-information technology internal systems, such
as our test facility. Based on our preliminary assessment, we do not believe
that our material non-information technology internal systems will be affected
by the Year 2000 Issue. However, we may experience serious unanticipated
problems and costs caused by undetected errors or defects in the technology used
in our internal information technology and non-information technology systems.
Products Sold to Customers. Our chip sets and DSL reference design guides
do not contain two digit date codes and therefore are generally unaffected by
the Year 2000 Issue. However, once shipped, our chip sets are incorporated into
system and board-level products which we do not develop. The performance of our
chip sets could be affected if a Year 2000 Issue exists in a different component
of a customer's product. We have not, and will not, assess the existence of
these potential problems in our customers' products.
We do not currently have any information concerning the Year 2000
compliance status of our customers. Our current or future customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience significant costs to remedy problems,
or they may face litigation costs. In either case, Year 2000 issues could reduce
or eliminate the budgets that current or potential customers could have for
purchases of our products
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and services. As a result, our business, results of operations or financial
condition could be materially adversely affected.
Other Third-Party Relationships. We rely on outside vendors for utilities
and telecommunication services as well as climate control, building access and
other infrastructure services. We are not capable of independently evaluating
the Year 2000 compliance of the systems utilized to supply these services. We
cannot assure you that these suppliers will resolve any or all Year 2000 Issues
with these systems before the occurrence of a material disruption to our
business. Any failure of these third parties to resolve Year 2000 Issues with
their systems in a timely manner could have a material adverse effect on our
business, financial condition or results of operations.
We have not developed a contingency plan to address situations that may
result if we are unable to achieve Year 2000 readiness of our critical
operations, and we do not plan to do so in the future. Any investigations we
have undertaken with respect to Year 2000 Issues have been funded from available
cash, and these costs have not been separately accounted for. To date, these
costs have not been significant.
WE HAVE CERTAIN ANTITAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION
OF OUR COMPANY
Certain provisions of our certificate of incorporation and bylaws and the
provisions of Delaware law could have the effect of delaying, deferring or
preventing an acquisition of GlobeSpan. For example, we have authorized but
unissued shares of preferred stock which could be used to fend off a takeover
attempt, our stockholders may not take actions by written consent and our
stockholders are limited in their ability to make proposals at stockholder
meetings. See "Description of Capital Stock" for a further discussion of these
provisions.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL
We expect the net proceeds from this offering, our current cash and cash
equivalents and cash from commercial borrowing availability under credit
facilities will meet our working capital and capital expenditure needs for at
least one year. After that, we may need to raise additional funds, and we cannot
be certain that we will be able to obtain additional financing on favorable
terms, if at all. We may also require additional capital for the acquisition of
businesses, products and technologies that are complementary to ours. Further,
if we issue equity securities, the ownership percentage of our stockholders
would be reduced, and the new equity securities may have rights, preferences or
privileges senior to those of existing holders of our common stock. If we cannot
raise needed funds on acceptable terms, we may not be able to develop or enhance
our products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements, which could seriously harm our
business, operating results and financial condition.
OUR STOCK PRICE MAY BE VOLATILE
Prior to this offering, you could not buy or sell our common stock on a
public market. An active public market for our common stock may not develop or
be sustained after this offering. We negotiated and determined the initial
public offering price with the representatives of the underwriters based upon
several factors. This price may vary from the market price after this offering.
The market price of our common stock will likely fluctuate significantly in
response to the following factors, some of which are beyond our control:
- Variations in our quarterly operating results;
- Changes in financial estimates of our revenues and operating results by
securities analysts;
- Changes in market valuations of integrated circuit companies;
- Announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
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- Loss of or decrease in sales to a major customer or failure to complete
significant transactions;
- Loss or reduction in manufacturing capacity from Lucent Technologies;
- Additions or departures of key personnel;
- Future sales of our common stock;
- Stock market price and volume fluctuations attributable to inconsistent
trading volume levels of our stock;
- Commencement of or involvement in litigation; and
- Announcements by us or our competitors of key design wins and product
introductions.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY CLASS ACTION LITIGATION DUE TO STOCK
PRICE VOLATILITY
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. We may be the target of similar litigation in the future. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could cause serious harm to our business, financial
condition and results of operations.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE
After this offering, we will have shares of common stock
outstanding. Of these shares, the sold in this offering will be
freely tradable without restriction under the Securities Act except for any
shares purchased by "affiliates" of GlobeSpan as that term is defined in Rule
144 of the Securities Act. As of March 11, 1999, the remaining 12,268,723 shares
of common stock held by existing stockholders are "restricted shares" as that
term is defined in Rule 144, and will be available for sale in the public market
as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
- ---------------- -----------------------------
<C> <S>
0 At the date of this prospectus.
0 90 days after the date of this prospectus.
12,268,723 180 days after the date of this prospectus or afterwards.
</TABLE>
The above table assumes the effectiveness of certain lock-up arrangements
with the underwriters under which the stockholders have agreed not to sell or
otherwise dispose of their shares of common stock. Most of the shares that will
be available for sale after the 180th day after the date of this prospectus or
afterwards will be subject to certain volume limitations because they are held
by affiliates of GlobeSpan. In addition, we cannot assure you that these lock-up
restrictions will not be removed prior to 180 days after the offering without
prior notice by the underwriters.
As of March 12, 1999, there were options to purchase 2,007,055 shares of
our common stock outstanding. Should the holders of these options exercise their
options, there will be additional shares eligible for sale 180 days after the
date of this prospectus.
If our stockholders sell substantial amounts of the common stock, including
shares issued upon the exercise of outstanding options, in the public market,
the market price of our common stock could fall. For more detailed information
regarding future sales of our common stock, please see "Shares Eligible for
Future Sale" and "Underwriting."
OUR CURRENT STOCKHOLDERS WILL BENEFIT FROM THIS OFFERING
The initial public offering price is expected to be substantially higher
than the current book value per share of our outstanding common stock. Existing
stockholders have paid an average of $0.50 per share for their common stock
which is considerably less than the amount to be paid for such common stock in
this offering. As a result, investors purchasing common stock in this offering
will incur immediate and substantial dilution. In addition, we have issued
options to acquire common stock at
18
<PAGE> 22
prices significantly below the initial public offering price. To the extent such
outstanding options are ultimately exercised, there will be further dilution to
investors in this offering.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE RETURN
The principal purposes of this offering are to increase our equity capital,
to create a public market for our shares, to facilitate our future access to
public equity markets and to provide increased visibility and credibility for us
in a marketplace in which many of our current and potential competitors are or
are expected to be publicly held companies. We are effecting the offering at
this time because we believe that favorable market conditions currently exist
for the public offering of stock of companies within our industry. As of the
date of this prospectus, we have no specific plans to use the net proceeds from
the offering other than for repayment of certain indebtedness and general
corporate purposes and plan to invest the net proceeds in short-term,
investment-grade, interest-bearing securities. Accordingly, our management will
retain broad discretion to allocate a substantial portion of the net proceeds
from this offering to uses that the stockholders may not deem as desirable, and
there can be no assurance that these proceeds can or will yield a significant
return.
WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS
We currently intend to retain all future earnings to fund the development
and growth of our business and, therefore, we do not anticipate paying any
dividends. Additionally, our lines of credit currently prohibit the payment of
dividends.
19
<PAGE> 23
NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements, trend analyses and other information contained in this
prospectus regarding markets for our products and trends in net revenues, gross
margin and anticipated expense levels, and any statement that contains the words
"anticipate," "believe," "plan," "estimate," "expect," "intend" and other
similar expressions, constitute forward-looking statements. These
forward-looking statements are subject to business and economic risks, including
those risks identified in "Risk Factors" and elsewhere in this prospectus and
our actual results of operations may differ significantly from those contained
in the forward-looking statements because of such risks. The cautionary
statements made in this prospectus apply to all forward-looking statements
wherever they appear in this prospectus.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the
shares of common stock that we are offering will be
approximately $ million at an assumed initial public offering price of
$ per share and after deducting estimated offering expenses of $
and underwriting discounts and commissions payable by GlobeSpan. After we retire
our approximately $7.5 million of aggregate outstanding indebtedness to
BankAmerica Business Credit, Inc. and Communication Partners, L.P., the net
proceeds we will receive from the offering will be approximately $
million, or $ million if the underwriters' over-allotment option is
exercised in full. We intend to use these remaining proceeds primarily for
additional working capital. Although we may use a portion of the net proceeds to
acquire technology or businesses that are complementary to our business, we have
no current plans in this regard. Pending such uses, we plan to invest the net
proceeds in short-term, interest-bearing, investment grade securities. Another
primary purpose of the offering is to create a public market for our common
stock and facilitate our future access to public capital markets.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the foreseeable
future. Additionally, our lines of credit currently prohibit the payment of
dividends.
CERTAIN INFORMATION
Our principal executive offices are located at 100 Schulz Drive, Red Bank,
New Jersey 07701, and our telephone number is (732)345-7500. Our logo and
certain titles and logos of our publications and products mentioned in this
prospectus are our service marks or trademarks. Each trademark, trade name or
service mark of any other company appearing in this prospectus belongs to its
holder.
20
<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998:
- On an actual basis;
- On a pro forma basis to reflect the net exercise of Lucent Technologies'
warrant to purchase shares of our common stock upon completion of this
offering; and
- On a pro forma as adjusted basis to reflect the sale of the shares of
common stock offered hereby (assuming an initial public offering price of
$ per share) and the application of the net proceeds we will receive
from the offering in the manner described in "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term portion of capital lease obligations, less current
portion................................................... $ 506 $ 506 $ 506
Subordinated note payable to Communication Partners, L.P.... 5,000 5,000 --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value, 3,000,000 shares
authorized; no shares issued or outstanding, actual, pro
forma and pro forma as adjusted......................... -- -- --
Common stock, $0.001 par value, 15,555,300 shares
authorized; 12,265,265 shares issued and outstanding,
actual; shares issued and outstanding, pro forma;
issued and outstanding, pro forma as adjusted....... 12
Stock purchase warrant.................................... 3,654
Additional paid-in capital................................ 3,629
Notes receivable from stock sales......................... (725)
Deferred stock compensation............................... (76)
Accumulated deficit....................................... (7,787)
------ ------ ------
Total stockholders' (deficit) equity.................... (1,293)
------ ------ ------
Total capitalization.................................. $4,213 $ $
====== ====== ======
</TABLE>
The outstanding share information excludes the following:
- 1,892,931 shares of common stock issuable on exercise of outstanding
options as of December 31, 1998 with a weighted average exercise price of
$3.55 per share,
- 84,604 shares of common stock reserved for grant and issuance under our
1996 Equity Incentive Plan as of December 31, 1998.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and the Notes thereto included elsewhere in this prospectus. See "Use
of Proceeds" and "Management--Employee Benefit Plans."
21
<PAGE> 25
DILUTION
Our pro forma net tangible book deficit as of December 31, 1998 was
approximately $ million, or approximately $ per share. Pro forma net
tangible book deficit per share represents the amount of our total tangible
assets less total liabilities, divided by the total number of shares of our
common stock outstanding on a pro forma basis. Pro forma share amounts include
common stock outstanding and shares of common stock to be issued at
the closing of this offering upon net exercise of an outstanding warrant held by
Lucent Technologies.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in the offering made hereby and the pro forma net tangible book value per
share of common stock immediately after completion of this offering. After
giving effect to our sale of shares of common stock in this offering at
an assumed initial offering price of $ per share and after deducting the
estimated underwriting discounts and commissions and estimated offering expenses
and the application of the estimated net proceeds therefrom, our pro forma net
tangible book value as of December 31, 1998 would have been $ million or $
per share. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution of $ per
share to purchasers of common stock in the offering, as illustrated in the
following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book deficit per share as of
December 31, 1998...................................... $
Increase in pro forma net tangible book value per share
attributable to new investors..........................
-------
Pro forma net tangible book value per share after the
offering..................................................
-------
Dilution per share to new investors......................... $
=======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1998, the differences between existing stockholders and the new investors with
respect to the number of shares of common stock purchased from GlobeSpan, the
total consideration paid and the average price per share paid, before deducting
the underwriting discounts and commissions and estimated offering expenses
payable by GlobeSpan.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 12,265,265 % $ 6,122,000 % $0.50
Net exercise of warrant..... -- --
New stockholders............
---------- ----- ----------- -----
Totals............ 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
The foregoing discussion and tables assume no exercise of any stock options
outstanding as of December 31, 1998. As of December 31, 1998, there were options
outstanding to purchase a total of 1,892,931 shares of common stock with a
weighted average exercise price of $3.55 per share. To the extent that any of
these options are exercised, there will be further dilution to new investors.
See "Risk Factors--Our Current Stockholders will Benefit From This Offering,"
"Management--1999 Stock Option Plan," "Description of Capital Stock," and Note
10 of Notes to Financial Statements.
22
<PAGE> 26
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
The following selected financial data as of December 31, 1997 and 1998, and
for the seven months ended July 31, 1996, the five months ended December 31,
1996 and the years ended December 31, 1997 and 1998, was derived from financial
statements audited by PricewaterhouseCoopers LLP, independent accountants. The
selected financial data for the years ended December 31, 1994 and 1995 of the
Predecessor Company represent the financial position of the Advanced
Transmission Technology Division of AT&T Paradyne prior to the divestiture in
July 1996 and was derived from the unaudited financial statements of the
Predecessor Company. This information should be read in conjunction with the
financial statements, including the notes thereto, included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY THE COMPANY
-------------------------------------- ---------------------------------------
SEVEN FIVE
YEARS ENDED MONTHS MONTHS YEARS ENDED
DECEMBER 31, ENDED ENDED DECEMBER 31,
------------------------ JULY 31, DECEMBER 31, ------------------------
1994 1995 1996 1996 1997 1998
---------- ----------- ----------- ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues....................... $ 380 $ 1,695 $ 1,597 $ 2,360 $ 22,546 $ 31,464
Cost of sales...................... -- -- -- 496 7,565 9,882
---------- ----------- ----------- ----------- ---------- -----------
Gross profit....................... 380 1,695 1,597 1,864 14,981 21,582
Operating expenses
Research and development, net.... 4,223 183 2,524 1,616 8,358 18,694
Selling, general and
administrative................. 1,002 1,077 1,492 644 4,572 10,217
Amortization and other........... -- -- -- 404 1,000 583
---------- ----------- ----------- ----------- ---------- -----------
Total operating expenses....... 5,225 1,260 4,016 2,664 13,930 29,494
---------- ----------- ----------- ----------- ---------- -----------
(Loss) income from operations...... (4,845) 435 (2,419) (800) 1,051 (7,912)
Interest income (expense), net..... -- -- -- -- 91 (134)
---------- ----------- ----------- ----------- ---------- -----------
(Loss) income before income
taxes............................ (4,845) 435 (2,419) (800) 1,142 (8,046)
Provision (benefit) for income
taxes............................ -- -- -- -- 300 (217)
---------- ----------- ----------- ----------- ---------- -----------
Net (loss) income.................. $ (4,845) $ 435 $ (2,419) $ (800) $ 842 $ (7,829)
========== =========== =========== =========== ========== ===========
(Loss) earnings per share:
Basic............................ $ (0.07) $ 0.07 $ (0.65)
=========== ========== ===========
Diluted.......................... $ (0.07) $ 0.07 $ (0.65)
=========== ========== ===========
Shares used in computing
(loss) earnings per share:
Basic............................ 11,437,500 11,515,538 12,084,711
Diluted.......................... 11,437,500 12,706,432 12,084,711
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1997 1998
---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $ 875 $ 12
Working capital (deficit)................................................................. 2,423 (2,655)
Total assets.............................................................................. 10,215 13,430
Long-term liabilities, less current portion............................................... -- 5,506
Retained earnings (accumulated deficit)................................................... 42 (7,787)
Total stockholders' equity (deficit)...................................................... 6,448 (1,293)
</TABLE>
See Note 9 of Notes to the Financial Statements for an explanation of the
method used to calculate earnings per share. Earnings per share data is not
presented for the Predecessor Company, since the Predecessor Company did not
have its own capital structure. As a result, this information would not be
meaningful.
23
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the Financial
Statements of GlobeSpan and the Notes thereto included elsewhere in this
prospectus. Our discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties, such as our plans,
objectives and intentions. GlobeSpan's actual results may differ materially from
those indicated in such forward-looking statements. See "Note Regarding
Forward-Looking Statements."
OVERVIEW
GlobeSpan Semiconductor Inc. is a leading worldwide developer of advanced
digital subscriber line (DSL) integrated circuits which enable high-speed data
transmission over the existing network of copper telephone wires known as the
local loop. We sell our integrated circuits as chip sets to manufacturers of DSL
equipment for incorporation into products which are sold to telecommunications
service providers and end users. Our products target the rapidly growing market
for high-speed data transmission applications such as Internet access,
telecommuting and branch office internetworking. We currently outsource the
manufacturing of our integrated circuits, which enables us to concentrate our
resources on the design, development and marketing of our chip set solutions. To
date, we have shipped more than one million DSL chip sets to a broad base of
leading communications equipment manufacturers.
We were formed as an independent company in July 1996 as part of the
divestiture of AT&T Paradyne Corporation by Lucent Technologies and commenced
operations in August 1996. Prior to the divestiture, our business was operated
as the Advanced Transmission Technology Division of AT&T Paradyne Corporation.
This division was primarily engaged in the development of high-speed DSL
solutions. We refer to this division as our predecessor company, although it was
not operated as a separate entity.
The predecessor company generated substantially all of its revenues through
July 1996 from the license of DSL technology and related fees and customer
funded research and development. These revenues are not representative of our
current business, results of operations or prospects.
From the date of our formation in August 1996 through December 1996, we
continued to earn a substantial portion of our revenues from amounts paid by
third party-licensees of our technology. Beginning in early 1997, we
repositioned GlobeSpan as a product company focused on developing, marketing and
selling DSL chip sets and reference design guides. Since the repositioning,
royalty revenues from licensees have been a less significant part of our
business. In the pro forma year ended December 31, 1996 and the years ended
December 31, 1997 and 1998, revenues from licensees accounted for 76.0%, 8.6%
and 1.0% of our net revenues, respectively.
Today, substantially all of our net revenues are derived from the sale of
DSL chip sets and reference design guides. We recognize revenues at the time we
ship our DSL products. We typically sell our products with a 60 day warranty,
and we reserve for estimated product returns, which to date have not been
significant. We have historically generated substantially all of our revenues
from our DSL products that use the CAP line code. In 1998, we introduced a
number of new chip sets incorporating additional features and other line code
technologies, including 2B1Q, DMT and PAM. These new product introductions have
substantially expanded our DSL product offerings, although revenues from such
products have been insignificant. In conjunction with repositioning GlobeSpan as
a product company, we invested extensively in research and development projects
and personnel and have expanded our sales, marketing, general and administrative
capabilities. This investment has led to significant hiring which began in early
1997. Our overall headcount increased from 35 employees
24
<PAGE> 28
at December 31, 1996 to 177 employees at December 31, 1998. In particular,
during this period we hired 97 additional engineers to develop new products and
target future growth opportunities.
Historically, a significant portion of our net revenues in any quarter or
annual period has been derived from sales to relatively few customers, and we
expect this trend to continue. In the five months ended December 31, 1996 and
the years ended December 31, 1997 and 1998, our customers who individually
represented at least five percent of our net revenues accounted for 85.5%, 72.6%
and 70.1%, of our net revenues in such periods, respectively. In 1996, our top
three customers were Lucent Technologies, LG Information & Communications and
Ascom Hasler AG, which accounted for 27.2%, 15.9% and 12.0% of our net revenues,
respectively. In 1997, our top three customers were LG Information &
Communications, Ascom Hasler AG and Westell Technologies, which accounted for
21.4%, 12.5% and 9.6% of our net revenues, respectively. In 1998, our top three
customers were Cisco Systems, NEC Corporation and Ascom Hasler AG, which
accounted for 48.3%, 12.6% and 9.2% of our net revenues, respectively. We do not
have purchase contracts with any of our customers that obligate them to continue
to purchase our products, and they could cease purchasing products from us at
any time. Because fluctuations in orders from our major customers could cause
our net revenues to fluctuate significantly in any given quarter or annual
period, we do not believe that period-to-period comparisons of our financial
results are necessarily meaningful and should not be relied upon as an
indication of future performance.
Historically, a significant portion of our net revenues has been derived
from customers outside of North America, and we expect this trend to continue.
In 1998, approximately 32.6% of our net revenues were derived from customers
outside of North America, of which 11.8% were derived from customers based in
Europe, 9.4% were derived from customers based in Asia and 11.4% were derived
from customers based in other international markets. All of our net revenues to
date have been denominated in United States dollars.
Competition and technological change in the rapidly evolving DSL market has
and may continue to influence our quarterly and annual net revenues and results
of operations. Average selling prices of our chip sets and associated gross
margins tend to be higher at the time we introduce new products and decline over
time due to competitive pressures. We expect this pattern to continue with
existing and future products. Further, our gross margins are impacted by our
customer concentration and product mix. For example, purchases from our major
customers are generally at lower average selling prices and certain of our
products, such as discrete components, are generally lower margin products.
Our product development and marketing strategy is focused on generating
design wins with DSL equipment manufacturers. The sales cycle for design wins
includes detailed testing and evaluation of our products, followed by a product
development cycle. Due to these cycles, which may be up to 12 months or longer,
and because the end-user market for DSL services is an emerging market, we
invest significantly in research and development and marketing in advance of
generating substantial revenues related to these investments. Additionally, the
rate and timing of customer orders may vary significantly from month to month.
To date, our backlog has not been significant, has fluctuated from quarter to
quarter, and has not been predictive of quarterly results. Accordingly, if sales
of our products do not occur when we expect and we are unable to predict or
adjust our estimates on a timely basis, our expenses and inventory levels may
increase as a percentage of net revenues and total assets, respectively.
Our net losses have resulted from our significant investment in our
research and development and in building sales and marketing and general and
administrative infrastructure. These expenses have exceeded our gross profits.
We expect to continue to invest significantly in this infrastructure in advance
of realizing revenues associated with such expenses. Accordingly, we expect to
incur substantial operating losses for the foreseeable future.
25
<PAGE> 29
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain statement
of operations data. Our results of operations are reported as a single business
segment.
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY THE COMPANY
-------------- --------------------------------------------------
SEVEN FIVE
MONTHS MONTHS YEARS ENDED DECEMBER 31,
ENDED ENDED ---------------------------------
JULY 31, DECEMBER 31, PRO FORMA
1996 1996 1996 1997 1998
-------------- ------------- ----------- ------- -------
(UNAUDITED)
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................ $ 1,597 $2,360 $ 3,957 $22,546 $31,464
Cost of sales....................... -- 496 496 7,565 9,882
------- ------ ------- ------- -------
Gross profit........................ 1,597 1,864 3,461 14,981 21,582
Operating expenses:
Research and development.......... 2,524 1,616 4,140 8,358 18,694
Selling, general and
administrative.................. 1,492 644 2,136 4,572 10,217
Amortization and other............ -- 404 404 1,000 583
------- ------ ------- ------- -------
Total operating
expenses...................... 4,016 2,664 6,680 13,930 29,494
------- ------ ------- ------- -------
(Loss) income from operations....... (2,419) (800) (3,219) 1,051 (7,912)
Interest income (expense), net...... -- -- -- 91 (134)
------- ------ ------- ------- -------
(Loss) income before income taxes... (2,419) (800) (3,219) 1,142 (8,046)
Provision (benefit) for income
taxes............................. -- -- -- 300 (217)
------- ------ ------- ------- -------
Net (loss) income................... $(2,419) $ (800) $(3,219) $ 842 $(7,829)
======= ====== ======= ======= =======
</TABLE>
The following table sets forth, for the periods indicated, certain
statement of operations data as a percentage of net revenues. Our results of
operations are reported as a single business segment.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
PRO FORMA
1996 1997 1998
STATEMENT OF OPERATIONS DATA: --------- --------- ---------
<S> <C> <C> <C>
Net revenues................................................ 100.0% 100.0% 100.0%
Cost of sales............................................... 12.5 33.6 31.4
--------- --------- ---------
Gross profit................................................ 87.5 66.4 68.6
--------- --------- ---------
Operating expenses:
Research and development.................................. 104.6 37.1 59.4
Selling, general and administrative....................... 54.0 20.3 32.5
Amortization and other.................................... 10.2 4.4 1.9
--------- --------- ---------
Total operating expenses................................ 168.8 61.8 93.7
--------- --------- ---------
(Loss) income from operations............................... (81.3) 4.7 (25.1)
Interest income (expense), net.............................. 0.0 0.4 (0.4)
--------- --------- ---------
(Loss) income before income taxes........................... (81.3) 5.1 (25.6)
Provision (benefit) for income taxes........................ 0.0 1.3 (0.7)
--------- --------- ---------
Net (loss) income........................................... (81.3)% 3.7% (24.9)%
========= ========= =========
</TABLE>
26
<PAGE> 30
RESULTS OF OPERATIONS IN THE PRO FORMA YEAR ENDED DECEMBER 31, 1996 AND THE
YEARS ENDED DECEMBER 31, 1997 AND 1998
Net Revenues. Our net revenues from product sales are recognized upon
shipment of DSL chip sets and reference design guides. Our net revenues were
$4.0 million, $22.5 million, and $31.5 million in the pro forma year ended
December 31, 1996 and the years ended December 31, 1997 and 1998, respectively.
These amounts represent increases of 470% from 1996 to 1997 and 39.6% from 1997
to 1998. The increase in revenues from 1996 to 1997 was primarily due to an
increase in product sales as we transitioned from generating revenues from
licensees to generating revenues from the sale of products. The increase in
revenues from 1997 to 1998 was primarily due to the increases in unit volume
shipments to existing customers, the expansion of our customer base and the
introduction of new products. Net revenues from customers outside of North
America represented 40.0%, 49.2% and 32.6% of our net revenues in the five
months ended December 31, 1996 and the years ended December 31, 1997 and 1998,
respectively. Net revenues from customers outside of North America decreased as
a percentage of net revenues from 1997 to 1998 as a result of reduced shipments
to existing customers in Asia due to an economic downturn in a number of
countries in this region. We expect that revenues generated from customers
outside of North America will continue to account for a significant percentage
of our net revenues. See "Risk Factors--Sales to Customers Based Outside of
North America Have Accounted For a Significant Portion of Our Revenues Which
Exposes Us to Inherent Risks of International Business."
Cost of Sales and Gross Profit. Cost of sales consists of the costs of
having our chip sets manufactured on a turnkey basis by our suppliers. Gross
profit represents net revenues less cost of sales. Our gross profit was $3.5
million, $15.0 million and $21.6 million in the pro forma year ended December
31, 1996 and the years ended December 31, 1997 and 1998, respectively. These
amounts represent an increase of 333% from 1996 to 1997 and 44.1% from 1997 to
1998. Our gross margin was 87.5%, 66.4%, and 68.6% in the pro forma year ended
December 31, 1996 and the years ended December 31, 1997 and 1998, respectively.
The decrease in gross margin from 1996 to 1997 was directly related to a
reduction in revenues from licensees and to an increase in product revenues. The
increase in gross margin from 1997 to 1998 resulted from an expanded customer
base and lower supplier costs based on greater volumes purchased. The increase
in gross profit dollars was the result of higher unit sales. We expect that
gross margin will decrease due to a number of factors, including pressures on
average selling prices and customer and product mix. In consideration for
modifying pricing terms for the sale of GlobeSpan products under certain
cooperative development agreements with Paradyne Corporation, GlobeSpan agreed
to pay a license fee to Paradyne Corporation on products sold to all customers
up to an aggregate amount of $1.5 million. As of March 1999, GlobeSpan had
incurred and paid approximately $300,000 to Paradyne Corporation under such
arrangement. In connection with terminating the cooperative development
agreements and entering into a new Supply Agreement effective December 1998 with
Paradyne Corporation, GlobeSpan agreed to pay Paradyne Corporation the remaining
$1.2 million which was expected to be incurred during 1999. The $1.2 million
will be paid during 1999 and expensed in the first quarter of 1999 as a cost of
sales.
Research and Development. Research and development expenditures is
primarily comprised of salaries and related expenses of employees engaged in
research, design and development activities. It also includes related supplies,
license fees for acquired technologies used in research and development,
equipment expenses and depreciation and amortization. Our research and
development expenditures were $4.1 million, $8.4 million and $18.7 million, in
the pro forma year ended December 31, 1996 and the years ended December 31, 1997
and 1998, respectively. These amounts represent increases of 102% from 1996 to
1997 and 124% from 1997 to 1998. Research and development expenditures
represented 105%, 37.1% and 59.4% of net revenues in the pro forma year ended
December 31, 1996 and the years ended December 31, 1997 and 1998, respectively.
The increase in dollars in 1997 resulted from increased headcount and
depreciation expense due to increased fixed assets. The decrease in research and
development expenditures as a percentage of net
27
<PAGE> 31
revenues in 1997 resulted from higher net revenues. The increase in dollars and
as a percentage of net revenues in 1998 resulted from a significant increase in
development efforts in advance of anticipated revenues from such efforts. In
particular, we added a significant number of new personnel and related support.
In 1999, our research and development expenditures will increase due to planned
increases in personnel, material costs and depreciation resulting from increased
capital investment.
Selling, General and Administrative. Selling, general and administrative
expense is primarily comprised of salaries and related costs for sales, general
and administrative personnel as well as general non-personnel related expenses.
Our selling, general and administrative expense was $2.1 million, $4.6 million
and $10.2 million in the pro forma year ended December 31, 1996 and the years
ended December 31, 1997 and 1998, respectively. These amounts represent
increases of 114% from 1996 to 1997 and 123% from 1997 to 1998. Selling, general
and administrative expense represented 54.0%, 20.3%, and 32.5% of net revenues
in the pro forma year ended December 31, 1996 and the years ended December 31,
1997 and 1998, respectively. The increase in dollars in 1997 and 1998, and as a
percentage of net revenues in 1998, resulted from the addition of sales,
marketing, management and administrative personnel and related expenses,
including increased commissions, and general business costs. In 1999, we will
increase the dollar amount we spend on selling, general and administrative
expense.
Amortization and Other. Amortization expense is related to the core
technology we acquired in connection with the divestiture by Lucent Technologies
of AT&T Paradyne. Amortization was provided on a straight-line basis commencing
in August 1996 through July 1998. Our expense for amortization of core
technology was $0.4 million, $1.0 million and $0.6 million, in the pro forma
year ended December 31, 1996 and the years ended December 31, 1997 and 1998,
respectively. These amounts represent an increase of 148% from 1996 to 1997 and
a decrease of 41.7% from 1997 to 1998.
Interest Income (Expense), Net. Interest income (expense), net is comprised
of interest expense from bank borrowings and other debt, net of interest earned
on invested cash, and other non-operating expenses. Interest income increased by
$0.1 million for the year ended December 31, 1997 due to higher levels of
invested cash and decreased by $0.2 million resulting in interest expense of
$0.1 million for the year ended December 31, 1998. The increase in interest
expense resulted from bank borrowings and other debt.
Income Taxes. We use the liability method of accounting for income taxes
prescribed by Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes (see Note 8 of Notes to Financial Statements). Our effective
tax rate for the year ended December 31, 1997 was 26.3%, which differed from the
federal statutory rate primarily due to the utilization of the net operating
loss carryforwards generated in 1996 and a reduction of the valuation allowance
recorded against deferred tax assets. Since we generated a loss in 1998, a
benefit was recorded reflecting a loss carry-back for taxes paid in 1997.
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QUARTERLY RESULTS
The following table sets forth certain unaudited selected quarterly results
of operations data for the eight quarters ended December 31, 1998, as well as
such data expressed as a percentage of our net revenues. This data has been
derived from unaudited financial statements that, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such information when read in conjunction
with our annual audited financial statements and related notes thereto appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------------------------------
MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30, SEP 30, DEC 31,
1997 1997 1997 1997 1998 1998 1998 1998
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues......................... $2,950 $4,115 $7,670 $7,811 $7,568 $7,683 $7,765 $8,448
Cost of sales........................ 1,068 1,364 3,058 2,075 1,848 2,312 2,328 3,394
------ ------ ------ ------ ------ ------- ------- -------
Gross profit......................... 1,882 2,751 4,612 5,736 5,720 5,371 5,437 5,054
Operating expenses
Research and development........... 1,283 1,467 2,240 3,368 3,249 4,286 5,020 6,139
Selling, general and
administrative................... 777 765 1,204 1,826 1,443 2,556 3,022 3,196
Amortization of core technology.... 250 250 250 250 250 250 83 0
------ ------ ------ ------ ------ ------- ------- -------
Total operating expenses......... 2,310 2,482 3,694 5,444 4,942 7,092 8,125 9,335
------ ------ ------ ------ ------ ------- ------- -------
(Loss) income from operations........ $ (428) $ 269 $ 918 $ 292 $ 778 $(1,721) $(2,688) $(4,281)
====== ====== ====== ====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET REVENUES
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................ 36.2 33.1 39.9 26.6 24.4 30.1 30.0 40.2
------ ------ ------ ------ ------ ------- ------- -------
Gross profit......................... 63.8 66.9 60.1 73.4 75.6 69.9 70.0 59.8
Operating expenses
Research and development........... 43.5 35.7 29.2 43.1 42.9 55.8 64.6 72.7
Selling, general and
administrative................... 26.3 18.6 15.7 23.4 19.1 33.3 38.9 37.8
Amortization of core technology.... 8.5 6.1 3.3 3.2 3.3 3.3 1.1 0.0
------ ------ ------ ------ ------ ------- ------- -------
Total operating expenses......... 78.3 60.3 48.2 69.7 65.3 92.3 104.6 110.5
------ ------ ------ ------ ------ ------- ------- -------
(Loss) income from operations........ (14.5)% 6.5% 12.0% 3.7% 10.3% (22.4)% (34.6)% (50.7)%
====== ====== ====== ====== ====== ======= ======= =======
</TABLE>
Our quarterly operating results have varied significantly in the past and
will continue to do so in the future due to a number of factors including, but
not limited to, changes in average selling prices, product mix, customer mix and
pricing from foundries. In addition, the timing of reserves and level of
research and development expenditures could cause quarterly operating results to
fluctuate. Accordingly, our operating results for any given quarter or series of
quarters are not necessarily indicative of our results for any future period. To
date, our backlog has not been significant, has fluctuated from quarter to
quarter, and has not been predictive of quarterly results.
In the quarter ended December 31, 1997, our cost of sales decreased in
dollars and as a percentage of revenues despite an increase in net revenues,
producing a higher gross profit and gross margin. This was primarily due to
higher average selling prices and lower costs on products purchased from our
foundry. In the quarter ended June 1998, selling, general and administrative
expenses increased due primarily to the addition of executive officers and
related hiring expenses. In the quarter ended September 1998, our selling,
general and administrative expenses increased due to increased hiring and the
sublease of office space from Paradyne Corporation. In connection with the
relocation of Paradyne Corporation's office, we reimbursed certain of Paradyne
Corporation's moving expenses. In the quarter ended December 31, 1998, gross
profit decreased in dollars and as a percentage of net revenues from the prior
quarter primarily due to a relative increase in sales volume of lower margin
products to a major customer. In addition, research and development expenses
increased in the quarter ended December 31, 1998 primarily due to increased
hiring and license fees of approximately $750,000 to acquire technology used in
the development of our products.
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<PAGE> 33
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations from initial contributions
of capital, borrowings on our lines of credit and, in 1997, from ongoing
operations. As of December 31, 1998, we had a working capital deficit of
approximately $2.7 million and $0.01 million in cash and cash equivalents. We
finance and expect to continue to finance our operations from existing sources
of capital and the net proceeds from this offering.
Net cash generated by operating activities was $0.9 million in the year
ended December 31, 1997. Net cash used in operating activities was $0.7 million
and $3.4 million in the five months ended December 31, 1996 and the year ended
December 31, 1998, respectively. The increase from 1996 to 1997 and the decrease
from 1997 to 1998 was primarily due to the timing of expenditures.
Net cash used in investing activities was $2.0 million, $3.4 million, and
$4.8 million in the five months ended December 31, 1996 and the years ended
December 31, 1997 and 1998, respectively, and related primarily to capital
expenditures to support our expanded operations. We may increase our capital
expenditures in 1999.
Cash provided from financing activities was $6.0 million, $0.06 million and
$7.3 million in the five months ended December 31, 1996 and the years ended
December 31, 1997 and 1998, respectively, and was provided by an equity
investment from Communication Partners, L.P., bank borrowings and other debt. As
of December 31, 1998, we had a revolving line of credit of up to $5.0 million
from BankAmerica Business Credit which bears interest at the bank's reference
rate plus 1.0%, of which approximately $2.5 million was outstanding. We also had
a subordinated borrowings line of credit from Communication Partners, L.P. of up
to $10.0 million bearing interest at 8.0%, of which approximately $5.0 million
was outstanding. We will use a portion of the net proceeds of this offering to
repay all outstanding indebtedness under both the revolving line of credit and
the subordinated line of credit, each of which will be available for future
borrowings following such repayment. We have no plans to borrow under either the
revolving line of credit or the subordinated line of credit immediately
following this offering. Our revolving line of credit contains certain financial
covenants and restrictions as to various matters including our ability to pay
cash dividends or to effect mergers or acquisitions, incur certain other
indebtedness or to make certain investments without the bank's prior approval.
Borrowings under the revolving line of credit are secured by substantially all
of our assets. The revolving line of credit expires January 2000; $5.0 million
of the subordinated line of credit expires in March 2000 and $5.0 million in May
2003. See "Use of Proceeds."
We believe that the net proceeds from this offering, our existing cash and
cash equivalents and our cash generated from operations, if any, will be
adequate to meet our anticipated cash needs for working capital and capital
expenditures at least through the end of 1999. Our future capital requirements
will depend on many factors, including research and development expenditures,
the growth of our sales and marketing efforts and our ability to generate cash
through operations. Thereafter, if cash generated from operations and financing
activities is insufficient to satisfy our working capital requirements, we may
need to borrow funds under our revolving line of credit and/or subordinated line
of credit, or seek additional funding through additional bank borrowings, sales
of securities or other means. There can be no assurance that we will be able to
raise any such capital on terms acceptable to us, if at all.
OUR BUSINESS COULD BE AFFECTED BY YEAR 2000 ISSUES
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century of the year. Many existing
electronic systems, including computer systems, use only the last two digits to
refer to a year. Therefore, these systems may recognize a date using "00" as
1900 rather than the year 2000. If not corrected, these electronic systems could
fail or create erroneous results when addressing dates on and after January 1,
2000.
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<PAGE> 34
In assessing the effect of the Year 2000 Issue on GlobeSpan, we determined
that we need to evaluate four general areas:
- Supplier relationships;
- Internal infrastructure;
- Products sold to customers; and
- Other third-party relationships.
Supplier Relationships. We are a "fabless" semiconductor company and
therefore rely on third party manufacturers to manufacture our chip sets. To
date, Lucent Technologies manufactures substantially all of our chip sets. If
Lucent Technologies is affected by the Year 2000 Issue, our supply of chip sets
could be delayed or eliminated. Any disruption in our supply of chip sets from
Lucent Technologies would seriously harm our business, financial condition and
results of operations. We are currently seeking assurances from Lucent
Technologies that their manufacturing of our chip sets will be unaffected by the
Year 2000 Issue but have not received such assurances to date.
Internal Infrastructure. The Year 2000 Issue could also affect our internal
systems, including both our information technology and non-information
technology systems. We have initiated an assessment of our material internal
information technology systems, including third-party software and hardware
technology. Based upon representations received from these third-party software
and hardware suppliers, we do not believe that our material internal information
technology systems will be affected by the Year 2000 Issue. We have also
initiated an assessment of our non-information technology internal systems, such
as our test facility. Based on our preliminary assessment, we do not believe
that our material non-information technology internal systems will be affected
by the Year 2000 Issue. However, we may experience serious unanticipated
problems and costs caused by undetected errors or defects in the technology used
in our internal information technology and non-information technology systems.
Products Sold to Customers. Our chip sets and DSL reference design guides
do not contain two digit date codes and therefore are generally unaffected by
the Year 2000 Issue. However, once shipped, our chip sets are incorporated into
system and board-level products which we do not develop. The performance of our
chip sets could be affected if a Year 2000 Issue exists in a different component
of a customer's product. We have not, and will not, assess the existence of
these potential problems in our customers' products.
We do not currently have any information concerning the Year 2000
compliance status of our customers. Our current or future customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience significant costs to remedy problems,
or they may face litigation costs. In either case, Year 2000 issues could reduce
or eliminate the budgets that current or potential customers could have for
purchases of our products and services. As a result, our business, results of
operations or financial condition could be materially adversely affected.
Other Third-Party Relationships. We rely on outside vendors for utilities
and telecommunication services as well as climate control, building access and
other infrastructure services. We are not capable of independently evaluating
the Year 2000 compliance of the systems utilized to supply these services. We
cannot assure you that these suppliers will resolve any or all Year 2000 Issues
with these systems before the occurrence of a material disruption to our
business. Any failure of these third parties to resolve Year 2000 Issues with
their systems in a timely manner could have a material adverse effect on our
business, financial condition or results of operations.
We have not developed a contingency plan to address situations that may
result if we are unable to achieve Year 2000 readiness of our critical
operations, and we do not plan to do so in the future. Any investigations we
have undertaken with respect to Year 2000 Issues have been funded from available
cash, and these costs have not been separately accounted for. To date, these
costs have not been significant.
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<PAGE> 35
BUSINESS
INDUSTRY BACKGROUND
The Local Loop Has Become the Bottleneck to High-Speed Data Access
Vast amounts of data are carried over the Internet and private
communications networks. International Data Corporation estimates that the
number of Internet users worldwide was approximately 69 million in 1997 and will
reach approximately 320 million in 2002. As the number of end users accessing
these networks grows and their use of data-intensive applications increases, the
volume of data transmitted over these networks will also continue to grow.
In order to accommodate increasingly high volumes of data,
telecommunications service providers have invested significant resources to
upgrade central office switching centers and the interconnecting infrastructure,
known as the backbone. While these capacity constraints continue to be addressed
through the use of high-speed digital and fiber-optic equipment, the network of
twisted pair copper telephone wires that connects end users to central office
switching centers, known as the local loop, remains a bottleneck that limits
high-speed data transmission.
[Graphic depicting impairment of high-speed data transmission over copper
telephone
wires connecting end users to telecommunications service providers' central
office switching centers.]
According to the International Telecommunications Union, more than 700
million copper telephone wires have been installed worldwide primarily by local
telecommunications service providers. This local loop infrastructure was
originally designed for lower-speed voice traffic rather than higher-speed data
transmission. As a result, access to the Internet and private communications
networks using standard dial-up connections over the local loop has typically
been limited to data transmission rates of only 28.8 Kbps to 56 Kbps, often
requiring several minutes to several hours to download large data-intensive
files. This bottleneck has frustrated end users and limited the capability of
service providers to deliver high-speed applications such as efficient Internet
access, telecommuting and branch office internetworking.
New Competition to Provide High-Speed Data Access
The Telecommunications Act of 1996 has enabled new entrants, such as
competitive local exchange carriers (CLECs) and Internet service providers
(ISPs) to offer data and voice services over the local loop. In addition,
providers of other access technologies, including cable and wireless companies,
are challenging traditional telecommunications service providers. As the volume
of data traffic increases, both traditional and emerging telecommunications
service providers are rushing to deploy high-speed data services, which has
become a key competitive service offering.
DSL Technology Enables High-Speed Data Transmission Over Copper Telephone Wire
Digital subscriber line (DSL) technology utilizes sophisticated digital
signal processing techniques to achieve high-speed data transmission over
existing copper telephone wires. DSL equipment, when deployed at each end of a
copper telephone wire, enables data transmission speeds of 128 Kbps to 52 Mbps,
depending on the length and condition of the copper telephone wire.
DSL technology addresses different high-speed data transmission service
requirements resulting in several configuration options. Symmetric transmission
technologies, such as high bit rate DSL (HDSL), symmetric DSL (SDSL) and
multi-rate symmetric DSL (MSDSL), provide equal data transmission rates between
the central office and the end user. These configurations are therefore most
ideally suited for applications such as telecommuting and branch office
internetworking, which require equal data transmission rates in both directions.
Asymmetric transmission technologies, such as asymmetric DSL (ADSL) and
rate-adaptive asymmetric DSL (RADSL), provide greater downstream transmission
rates towards the end user than upstream from the end user. Applications
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<PAGE> 36
most efficiently served by asymmetric technologies include Internet access where
data traffic flows primarily downstream.
DSL products utilize different coding techniques to transmit data reliably
over copper telephone wires. These coding techniques, or line codes, include two
bits per quadrant (2B1Q), carrierless amplitude phase modulation (CAP), discrete
multitone modulation (DMT), and pulse amplitude modulation (PAM). 2B1Q, CAP and
PAM are used for symmetric applications. CAP and DMT are used for asymmetric
applications. To date, most large volume DSL service deployments have used CAP
and 2B1Q line codes.
The Demands of DSL Service Providers
DSL services are in the initial phases of worldwide deployment. To present
a compelling alternative to other data transmission services, DSL services must:
- Reach a large potential end user base;
- Provide low equipment, installation and maintenance costs; and
- Be tested and proven through field deployment.
Telecommunications service providers rely on DSL equipment manufacturers to
meet these requirements.
The Opportunity for Developers of DSL Integrated Circuits
DSL equipment manufacturers are striving to meet the requirements of
telecommunications service providers by designing high performance DSL products.
In order to minimize time-to-market, development costs and product size, DSL
equipment manufacturers use increasingly complex integrated circuits which
account for a large portion of the value-added proprietary content of such
products. However, DSL equipment manufacturers often lack the core technology
expertise in signal processing, signal conversion and communications algorithms
that is required to develop these integrated circuits. In addition, these
solutions must overcome real-world impairments of the local loop, such as line
noise, which could otherwise degrade data transmission performance. As a result
of these factors, DSL equipment manufacturers are turning to a new breed of
integrated circuit developers that possess the core technology and expertise
required to develop DSL chip sets. Successful solutions must offer field-proven
technology, high performance, high levels of system integration, low power
consumption, flexibility to enhance features and performance, rapid time-to-
market and competitive total system cost.
THE GLOBESPAN SOLUTION
GlobeSpan Semiconductor Inc. is a leading worldwide developer of DSL
integrated circuits which enable high-speed data transmission over the local
loop. We sell our integrated circuits to manufacturers of DSL equipment for
incorporation into products which are sold to telecommunications service
providers and end users. We believe we provide our customers with significant
value created by our leading DSL integrated circuit chip sets, our long heritage
in the DSL market, our understanding of DSL equipment manufacturers, service
provider and end user needs, and our strong sales and support organizations. Key
elements of our solution include:
Long History of DSL Experience. We have leveraged six years of field
experience in implementing DSL technology to successfully bring proven DSL chip
set solutions to market. Our core engineering team includes several individuals
who were early developers of DSL technology at AT&T Bell Labs in 1988.
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One Million Chip Sets Sold. We have established a proven track record,
having shipped more than one million DSL chip sets. This represents a
significant share of the emerging DSL integrated circuit market.
Broad Suite of DSL Chip Sets. We offer a broad suite of DSL solutions,
including ADSL, RADSL, HDSL, HDSL2, SDSL and MSDSL chip sets which use the 2B1Q,
CAP, DMT and PAM line codes.
Complete System-on-a-Chip. Our system-on-a-chip solutions provide
significant density, power and cost advantages by integrating the functionality
of multiple discrete components, such as memory, microprocessors or framers,
onto a single chip.
High Performance. Our chip sets are capable of performing billions of
operations per second. We believe the high performance capability of our chip
sets enables us to deliver one of the industry's longest reach per data
transmission rate which allows telecommunications service providers to offer
services to a larger customer base.
Software Flexibility. Our chip sets are highly programmable. Our customers
are able to enhance or reconfigure their products through downloads of our
software rather than through costly replacement or modification of their
installed DSL system products. This flexibility enables telecommunications
service providers to optimize performance and keep pace with changing industry
requirements, including features and standards compliance.
Competitive Total System Cost. Our high levels of integration lead to low
power consumption and density advantages, thereby maximizing the number of
transceivers that can be incorporated into a DSL central office system. Higher
transceiver density enables telecommunications service providers to connect a
larger number of end users with their central office equipment thereby reducing
total cost per end user.
Advanced Systems-Level Expertise. Our systems-level expertise enables us to
offer chip sets which can be cost effectively incorporated into complete DSL
systems and which contribute to optimizing the performance of these systems in
the local loop environment. As a result we provide comprehensive step-by-step
DSL reference design guides that enable our customers to rapidly bring robust
DSL systems to market.
Strong Technical Support. We provide superior technical support throughout
the design and test process to minimize our customers' cost and time to deploy.
We also provide comprehensive field support to ensure that our customers'
products perform optimally in real world environments.
Standards Compliance. We actively participate in the formulation of DSL
standards which enables us to monitor industry trends and refine our product
development efforts to bring standards-compliant solutions to market.
We believe these compelling advantages and design attributes position us as
the preferred design partner and supplier of integrated circuits for all DSL
applications.
STRATEGY
Our objective is to be the leading provider of integrated circuits for all
DSL applications. Key elements of our strategy include:
Maximize Design Win Market Share. Our strategy is to maximize the number of
design wins with both new and existing customers. A design win represents a
customer's initial commitment to develop a product incorporating our chip sets.
We believe design wins are strategically important because once a customer has
designed our chip sets into its product, that customer is more likely to
continue to choose our solutions for additional products. Furthermore, achieving
the broadest number of design wins creates an opportunity to capitalize on the
success of any one of our customers' DSL products. We maximize our ability to
compete for design wins by leveraging our extensive sales
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<PAGE> 38
representative organization to access the greatest number of customers and
further penetrate our existing customer base.
Target All Applications Within the DSL Market. Our strategy is to provide
the necessary technologies to enable all applications within the DSL market. We
have introduced or announced chip sets based upon ADSL, RADSL, HDSL, HDSL2, SDSL
and MSDSL technologies which use 2B1Q, CAP, DMT and PAM line codes. Our chip
sets are used in both central office and customer locations to enable high speed
data applications such as Internet access, telecommuting and branch office
internetworking. We will continue to monitor industry trends and refine our
product development efforts to target emerging DSL applications.
Strengthen and Broaden Technology Leadership. Our strategy is to continue
to build upon our strong technology core competencies to maintain our position
as a technology leader in the DSL market. We are currently investing substantial
development resources in system-level knowledge, communications algorithms,
signal processing and signal conversion. Specifically, we are devoting resources
to extend reach by enhancing our high performance algorithms and to increase
system integration by embedding more system functions on a single integrated
circuit. We invest significant resources in research and development and will
continue to work closely with our customers to develop new and enhanced
solutions that address next-generation DSL market opportunities.
Leverage Advanced Systems-Level Expertise. Our strategy is to leverage our
advanced systems-level expertise to develop and market chip sets that can be
cost effectively and rapidly incorporated into complete DSL systems manufactured
by our customers. This strategy enables our customers to optimize
time-to-market, performance and system cost. By working closely with our
customers throughout the design and deployment process, we gain valuable
insights and are often able to anticipate their needs and incorporate
value-added functionality onto our chip sets. We gain additional insights by
continually testing our solutions against real-world models of DSL networks to
verify their performance in harsh and unpredictable deployment environments. We
have built a state-of-the-art system test facility which we use to validate the
performance of our chip sets and which we make readily available to our
customers to test their DSL systems. We plan to continue to expand and improve
this capability. Furthermore, we will continue to provide comprehensive
reference design guides that enable our customers to apply our systems-level
expertise to their products.
Drive Industry Standards. We actively participate in the formulation of
critical standards for high-speed data transmission markets. We believe such
participation accelerates and expands the development of markets for our
products and provides valuable insights and relationships which assist us in
directing our product development efforts to target emerging market
opportunities.
TECHNOLOGY CORE COMPETENCY
Our key competitive advantage is founded in our technology expertise
encompassing the entire DSL design process from the development of custom
integrated circuits to their integration into a system solution. To address the
technology challenges of DSL transmission, we have developed and will continue
to build upon our primary technology core competencies, including systems-level
knowledge, communications algorithms, digital signal processing and signal
conversion.
Systems-Level Knowledge. Our systems-level knowledge has been developed
through years of field installation experience and working relationships with
over 100 equipment manufacturer customers. As a result, we have an advantage in
understanding the harsh and varying conditions of the local loop. This
environment is characterized by various impairments that impact DSL operations
and make reliable high-speed data transmission difficult to achieve. These
factors include bridge taps, cross-talk from adjacent wires in the same wire
bundle, signal attenuation and impulse noise spikes, among others. To minimize
the effects of these impairments, we will continue to incorporate our
understanding of these factors into our DSL chip set designs. We have also
leveraged our systems-level expertise to create a state-of-the-art system test
facility to validate the performance and operation of new DSL designs. We have
invested significant resources in automating our test facility
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<PAGE> 39
to maximize the efficiency and repeatability of our tests. We will continue to
make our test facility readily available to our customers to verify the
performance of their DSL products.
Communications Algorithms. A key component of our continued success is the
expertise that we have developed in the areas of communications theory and
algorithms. Communications algorithms are the processes and techniques used to
transform a digital data stream into a specially-conditioned analog signal
suitable for transmission across copper telephone wires. At the receiving end of
the copper telephone wire, our algorithms process the analog signal and
transform this data into a digital form without introducing data errors. We
invest significant resources to maintain our technology leadership in the
development of communications system algorithms in the areas of start-up
training, coding for forward error correction, line codes, echo cancellation,
adaptive equalizers, digital filter design and transmission line analysis. Our
broad theoretical knowledge base, coupled with our extensive DSL field
experience, has enabled our technology team to generate comprehensive DSL system
models utilizing computer-aided design tools. These models are used to design
our complex algorithms and to determine performance and architectural
requirements for our digital communications processor and analog front end
chips. Ultimately, the knowledge gained from these simulations, combined with
the advantages of our programmable platform, enables us to optimize algorithm
designs for specific DSL applications across a broad range of local loop
conditions.
Digital Signal Processing. Digital signal processing, as it relates to DSL
applications, is a means of encoding digital data for transmission over
bandwidth limited media, such as copper telephone wires, and recovering the
encoded data at the receiving end. This process requires very high-speed, high-
precision silicon engines to meet the performance specifications of
telecommunications service providers. We are a leader in the design of
high-performance, low-power, silicon-efficient, digital communications
processors which optimize digital signal processing for DSL applications. Our
digital communications processor is based on a proprietary architecture that
incorporates concurrent multi-tasking, multi-processor digital signal processing
engines. Our digital communications processor architecture provides system
design flexibility without the inherent power and costs normally associated with
conventional, general purpose digital signal processors. The performance and
flexibility of our digital communications processor enables our customers to
implement multiple DSL configurations using different line codes through a
simple software download.
Signal Conversion. Signal conversion is a component of our solution that
transforms digital signals into analog signals that are suitable for
transmission over copper telephone wires. Our analog front end includes a custom
integrated circuit that performs the signal conversion function, as well as a
combination of discrete components such as resistors, capacitors, linear
amplifiers and transformers. Our analog front end provides several programmable
analog functions critical to achieving high-speed and long-reach performance.
Our analog front end is capable of operating over a wide array of signal
amplitudes and frequency ranges associated with different line codes.
PRODUCTS
We offer a broad suite of DSL chip set solutions. A typical product
offering includes a chip set, consisting of a digital communications processor
and an analog front end, a DSL reference design guide and software.
Our DSL chip sets are software programmable, enabling a broad range of data
transmission rates, performance enhancements, feature upgrades and compliance
with industry standards. We have been producing high volumes of our current chip
sets for over two years and have shipped more than one million chip sets. Our
comprehensive step-by-step DSL reference design guides include schematics, bills
of materials, circuit board layouts, application interface programs and debug
guides. Our DSL reference design guides enable equipment manufacturers to bring
robust systems to market quickly and cost-effectively.
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Our chip sets and reference design guides are optimized for specific DSL
applications, resulting in a variety of configuration options. Our products
offer alternative packaging and bus interface options, and standards-based line
codes.
HDSL. High bit rate digital subscriber line (HDSL) is a cost-effective
alternative to traditional repeatered T1 and E1 data services for business
applications. HDSL provides symmetric transmission over two pairs of copper
telephone wires at data transmission rates of T1 (1.544 Mbps)/ E1 (2.048 Mbps).
We currently offer HDSL chip sets using CAP or 2B1Q line codes which incorporate
a single or dual channel digital communications processor and an analog front
end. Our HDSL product is the first chip set capable of implementing both line
codes recommended by the American National Standards Institute Technical Report
TR28 draft 2 and the International Telecommunications Union standard G.991.
HDSL2. HDSL2 is a next generation HDSL configuration that provides
symmetric transmission over one pair of copper telephone wires rather than two
pairs, resulting in a more network-efficient and cost-effective solution. We
currently offer HDSL2 chip sets using the PAM line code which incorporate a
single channel digital communications processor and an analog front end. Our
HDSL2 chip set is designed to meet the HDSL2 draft standard T1E1 4/99-006 R1
currently being defined in the United States by the American National Standards
Institute.
SDSL. Symmetric digital subscriber line (SDSL) is a cost-effective
alternative to traditional repeatered T1 and E1 data services for business
applications. SDSL provides symmetric transmission over one pair of copper
telephone wires and provides T1/E1 data rates. We currently offer SDSL chip sets
using the CAP line code which incorporate a single or dual channel digital
communications processor and an analog front end. Our SDSL chip set is designed
to meet the International Telecommunications Union G.991.1 standard.
MSDSL. Multi-rate symmetric digital subscriber line (MSDSL) is used to
provide cost-effective symmetric transmission over one pair of copper telephone
wires at data transmission rates ranging from 144 Kbps to 2.3 Mbps depending
upon the available data transmission rates of the relevant service provider. We
currently offer MSDSL chip sets using the CAP or 2B1Q line codes which
incorporate a single or dual channel digital communications processor and an
analog front end.
ADSL and RADSL. Asymmetric digital subscriber line (ADSL) and rate adaptive
asymmetric digital subscriber line (RADSL) are used to provide cost effective,
high-speed local loop access for Internet and other applications where data
flows downstream to the end user faster than it does upstream from the end user.
ADSL provides asymmetric transmission over one pair of copper telephone wires
with downstream data transmission rates ranging from 90 Kbps to 8.0 Mbps and
upstream data transmission rates ranging from 45 Kbps to 1.1 Mbps. ADSL allows
the telephone line to be used simultaneously for voice and data transmission. We
currently offer ADSL chip sets which incorporate an analog front-end and a dual
channel digital communications processor chip using the CAP line code or a
single channel digital communications processor chip using the DMT line code, or
a single channel digital communications processor using both CAP and DMT line
codes. Our ADSL chip sets are designed to meet the American National Standards
Institute standard specification T1.413 for the 8 Mbps DMT line code
configuration and the International Telecommunications Union standard G.992.2
for the 1.5 Mbps DMT line code configuration (commonly called G.lite).
37
<PAGE> 41
The following table summarizes our DSL product families, their key
functions, data transmission rates and introduction dates.
<TABLE>
<C> <S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
PRODUCT DATA INTRO.
FAMILY FUNCTION TRANSMISSION RATES DATE
- -------------------------------------------------------------------------------------------------------------------
GS9070 ASIC chip used to connect our G2710, G7060, or Not Applicable 1Q99
G7061 chip sets to PCI bus and V.90 voice band
modems for PC applications.
- -------------------------------------------------------------------------------------------------------------------
G7070 Multi-mode RADSL single channel chip set for Downstream -- 90 Kbps to 8.0 Mbps 4Q98
asymmetric transmission over one wire pair using Upstream -- 45 Kbps to 1.1 Mbps
DMT or CAP line code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G7060 RADSL single channel chip set for asymmetric Downstream -- 90 Kbps to 8.0 Mbps 4Q98
transmission over one wire pair using DMT line Upstream -- 45 Kbps to 1.1 Mbps
code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G7061 RADSL (G.lite) single channel chip set for Downstream -- 90 Kbps to 1.5 Mbps 4Q98
asymmetric transmission over one wire pair using Upstream -- 45 Kbps to 540 Kbps
DMT line code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G2237 HDSL2 single channel chip set for symmetric T1 (1.544 Mbps)/E1 (2.048 Mbps) 4Q98
transmission over one wire pair using PAM line
code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G2232 SDSL single or dual channel chip set for T1 (1.544 Mbps)/E1 (2.048 Mbps) 4Q98
symmetric transmission over one wire pair using
CAP line code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G2216 MSDSL single or dual channel chip set for 144 Kbps to 1.1 Mbps 4Q98
symmetric transmission over one wire pair using
2B1Q line code. Includes integrated framer and
analog front end.
- -------------------------------------------------------------------------------------------------------------------
G2214 MSDSL single or dual channel chip set for 144 Kbps to 2.3 Mbps 4Q98
symmetric transmission over one wire pair using
CAP line code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G2710 RADSL single or dual channel chip set for Downstream -- 90 Kbps to 7.2 Mbps 3Q98
asymmetric transmission over one wire pair using Upstream -- 45 Kbps to 1.1 Mbps
CAP line code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G2213 HDSL dual channel chip set for symmetric T1 (1.544 Mbps)/E1 (2.048 Mbps) 3Q98
transmission over two wire pairs using CAP line
code. Includes integrated framer.
- -------------------------------------------------------------------------------------------------------------------
G2212 HDSL dual channel chip set for symmetric T1 (1.544 Mbps)/E1 (2.048 Mbps) 3Q98
transmission over two wire pairs using 2B1Q line
code. Includes integrated framer and analog front
end.
- -------------------------------------------------------------------------------------------------------------------
MDT-x6-01 MSDSL single channel chip set for symmetric 144 Kbps to 1.1 Mbps 3Q98
transmission over one wire pair using 2B1Q line
code.
- -------------------------------------------------------------------------------------------------------------------
HDT-12-0x HDSL single channel chip set for symmetric T1 (1.544 Mbps)/E1 (2.048 Mbps) 4Q97
transmission over two wire pairs using 2B1Q line
code.
- -------------------------------------------------------------------------------------------------------------------
MDT-x4-01 MSDSL single channel chip set for symmetric 144 Kbps to 2.3 Mbps 2Q97
transmission over one wire pair using CAP line
code.
- -------------------------------------------------------------------------------------------------------------------
SDT-32-03 SDSL single channel chip set for symmetric T1 (1.544 Mbps)/E1 (2.048 Mbps) 1Q97
transmission over one wire pair using CAP line
code.
- -------------------------------------------------------------------------------------------------------------------
HDT-13-0x HDSL single channel chip set for symmetric T1 (1.544 Mbps)/E1 (2.048 Mbps) 2Q96
transmission over two wire pairs using CAP line
code.
- -------------------------------------------------------------------------------------------------------------------
RDT-x0-01 RADSL single channel chip set for asymmetric Downstream -- 90 Kbps to 7.2 Mbps 2Q96
transmission over one wire pair using CAP line Upstream -- 45 Kbps to 1.1 Mbps
code.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 42
SALES, MARKETING AND TECHNICAL SUPPORT
Our strategy is to expand the breadth of our customer base by leveraging
our extensive worldwide sales representative organization, comprised of
approximately 31 firms with over 250 professionals. This organization is
directed by our six sales managers and is supported by our technical marketing
professionals, applications engineers and development engineers. Our sales
effort has resulted in a customer base of more than 100 DSL equipment
manufacturers who have purchased chip sets and DSL reference design guides. Our
strategy has enabled us to spread our sales efforts across a much larger base of
customers than would otherwise be possible using only a direct sales model.
Furthermore, it has been our experience that once we successfully penetrate a
new account, we become better positioned to secure additional design wins.
Providing comprehensive DSL reference design guides to our customers is
integral to our sales strategy. Our design materials are intended to enable our
customers to effectively incorporate our chip sets into their DSL systems and to
achieve a faster time-to-market. This reduces the necessary level of customer
support and allows for a greater allocation of our sales effort to target future
design wins.
We provide superior technical support throughout the design and test
process to accelerate our customers' time-to-market. We also provide
comprehensive field support to ensure that our customers' products perform
optimally in real world deployment environments.
CUSTOMERS
We sell our products worldwide to over 100 companies that manufacture data
communications products. Customers from which we recognized at least $500,000 in
revenues in 1998 include Ascom Hasler AG, C-Com Corporation, Cisco Systems, LG
Information & Communications, NEC Corporation, Paradyne Corporation, Schmid
Telecommunications and Westell Technologies. Our chip sets are incorporated by
our customers into the following products:
- Digital subscriber line access multiplexers (DSLAMs), which are used to
terminate up to hundreds of lines in a central office and aggregate them
onto high-speed lines for transmission to the communications backbone;
- DSL modems, which are customer premises products that enable high-speed
data transmission over the local loop;
- DSL-compatible routers, which are used to connect one or more personal
computers to the local loop; and
- Personal computer DSL cards, which are used to connect a personal
computer directly to the local loop.
Our customers market their products to public and private
telecommunications service providers. These service providers include
traditional telephone companies, competitive local exchange carriers, Internet
service providers, businesses and government entities.
We depend on a relatively small number of customers for a large percentage
of our revenues. In the five months ended December 31, 1996 and the years ended
December 31, 1997 and 1998, our customers who individually represented at least
five percent of our net revenues accounted for 85.5%, 72.6% and 70.1%,
respectively, of our total net revenues. In 1996, our top three customers were
Lucent Technologies, LG Information & Communications and Ascom Hasler AG which
accounted for 27.2%, 15.9% and 12.0% of our net revenues, respectively. In 1997,
our top three customers were LG Information & Communications, Ascom Hasler AG
and Westell Technologies, which accounted for 21.4%, 12.5% and 9.6% of our net
revenues, respectively. In 1998, our top three customers were Cisco Systems, NEC
Corporation and Ascom Hasler AG, which accounted for 48.3%, 12.6% and
39
<PAGE> 43
9.2% of our net revenues, respectively. We do not have purchase contracts with
any of our customers that obligate them to continue to purchase our products and
these customers could cease purchasing our products at any time. See "Risk
Factors--The Loss of One or More of Our Key Customers Would Adversely Affect Our
Business and Results of Operations."
RESEARCH AND DEVELOPMENT
Our core engineering team, including several individuals who were early
developers of DSL technology at AT&T Bell Labs, has substantial expertise in DSL
technology. Since our founding in August 1996, we have invested significant
resources to expand our research and development group. As of December 31, 1998,
approximately 80 of our approximately 123 research and development engineers had
advanced degrees, including approximately 25 with Ph.Ds. These engineers are
involved in advancing our technology core competencies and our product
development activities. Recently, we have been devoting a significant portion of
our research and development expenditures to products incorporating new features
and line codes, such as 2B1Q, DMT and PAM.
We believe that we must continually enhance the performance and flexibility
of our current products, and successfully introduce new products to maintain our
leadership position. In 1999, our research and development expenditures will
increase due to planned increases in personnel, material costs and depreciation
resulting from higher capital expenditures. Our research and development
expenditures in the pro forma year ended December 31, 1996, and the years ended
December 31, 1997 and 1998, were $4.1 million, $8.4 million and $18.7 million,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
MANUFACTURING
Our manufacturing objective is to produce reliable, high quality integrated
circuits at competitive prices and to achieve on-time delivery of our products
to our customers. We outsource the manufacturing of our integrated circuits
which enables us to concentrate our resources on the design, development and
marketing of our products where we believe we have greater competitive
advantages, and to eliminate the high cost of owning and operating a
semiconductor wafer fabrication facility.
Our long-term strategy is to qualify new foundries to provide additional
manufacturing capacity and to access diverse manufacturing technologies. We
intend to secure multiple sources of wafer fabrication to reduce our dependence
on any single foundry. There can be no assurance that we will be able to
successfully qualify and implement such arrangements.
We do not own or operate a semiconductor fabrication facility. We depend on
Lucent Technologies to timely deliver to us sufficient quantities of
fully-assembled and tested chip sets on a turnkey basis. We have had a series of
manufacturing arrangements with Lucent Technologies, the latest of which became
effective in March 1999. Under this agreement, Lucent Technologies will fill our
orders for our current chip sets in accordance with agreed-upon quantity, price,
lead-time and other terms. The agreement also contains procedures for
establishing Lucent Technologies as a manufacturer of future chip sets for us.
This agreement, however, does not guarantee that Lucent Technologies will
adequately fill our orders for current chip sets (either in quantity or timing),
or that we will be able to negotiate mutually satisfactory terms for
manufacturing our future chip sets. Further, although the March 1999 agreement
has a term of three years for the supply of current chip sets, Lucent
Technologies has the right to discontinue the supply of any chip set upon 12
months' notice (as long as Lucent Technologies fills our orders for commercially
reasonable quantities of that chip set during the notice period). In addition,
Lucent Technologies' ability to manufacture our chip sets is limited by its
available capacity, and under some circumstances Lucent Technologies may
allocate its available capacity to its other customers. Any disruption in
availability of our products would have a serious adverse impact on our
business. If we are required for any reason to seek a new
40
<PAGE> 44
manufacturer of our chip sets, a new manufacturer of our chip sets may not be
available and in any event switching to a new manufacturer would require six
months or more and would involve significant expense and disruption to our
business.
COMPETITION
The DSL chip set market is intensely competitive. We expect competition to
intensify as current competitors expand their product offerings and new
competitors enter the market. We believe that we must compete on the basis of a
variety of factors, including time to market, functionality, conformity to
industry standards, performance, price, breadth of product lines, product
migration plans, and technical support.
We believe our principal competitors include:
- For ADSL products based on the American National Standards Institute
standard T1.413, Alcatel, Analog Devices Inc., Motorola and Texas
Instruments, among others;
- For G.lite products based on the International Telecommunications Union
standard G.992.2, Alcatel, Analog Devices Inc., Centillium Technology
Corporation, Lucent Technologies and Texas Instruments, among others; and
- For HDSL, SDSL, MSDSL and HDSL2 products, Conexant Systems, Level One
Communications and MetaLink, among others.
In addition to these competitors, there have been growing numbers of
announcements by other integrated circuit companies that they intend to enter
the DSL chip set market.
Further, many of our customers face competition from companies, such as
Orckit Communications and PairGain Technologies, which design their own chip
sets. Because these companies do not purchase all of their chip sets from
suppliers such as us, if these competitors displace our customers in the DSL
equipment market, our customers would no longer need our products, and our
business, financial condition and results of operations would be seriously
harmed.
Many of our competitors have greater name recognition, their own
manufacturing capabilities, significantly greater financial and technical
resources, and the sales, marketing and distribution strengths that are normally
associated with large multinational companies. These competitors may also have
pre-existing relationships with our customers or potential customers. These
competitors may compete effectively with us because in addition to the
above-listed factors, they more quickly introduce new technologies, more rapidly
or effectively address customer requirements or devote greater resources to the
promotion and sale of their products than we do. Further, in the event of a
manufacturing capacity shortage, these competitors may be able to manufacture
products when we are unable to do so.
As the DSL market matures, the industry may become subject to increasing
price competition driven by the lowest cost providers of chip sets. We
anticipate that average per unit selling prices of DSL chip sets will continue
to decline as product technologies mature. If we are unable to reduce our costs
sufficiently to offset declines in the average per unit selling prices or are
unable to introduce new higher performance products with higher average per unit
selling prices, our operating results will be seriously harmed. Since we do not
manufacture our own products, we may be unable to negotiate volume discounts
with our foundries in order to reduce the costs of manufacturing our chip sets
in response to declining average per unit selling prices. Many of our
competitors are larger with greater resources and therefore may be able to
achieve greater economies of scale and would be less vulnerable to price
competition. Our inability to achieve manufacturing efficiencies would have an
adverse impact on our operating results.
41
<PAGE> 45
INTELLECTUAL PROPERTY
Our success depends significantly upon our ability to protect our
intellectual property. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or obtain and
use information that we regard as proprietary. In the past, competitors have
recruited our employees who have had access to our proprietary technologies,
processes and operations. Our competitors' recruiting efforts, which we expect
will continue, expose us to the risk that such employees will misappropriate our
intellectual property. For example, in June 1998, we filed suit against three
former employees who recently began employment with one of our competitors. Our
lawsuit alleges misappropriation of trade secrets. See "-- Litigation."
We rely in part on patents to protect our intellectual property. We have 28
patents in the United States and 15 patents in other countries. Our patents
principally cover various aspects of systems and features relating to
telecommunications technologies and telecommunications products, including
certain aspects specifically pertaining to particular DSL algorithms and DSL
communications systems. Our patents have expiration dates ranging from 2009 to
2017. In addition, we have 42 patent applications pending in the United States
Patent and Trademark Office. We also have 53 patent applications pending in
various countries other than the United States. These patents may never be
issued. Even if these patents are issued, taken together with our existing
patents, they may not provide sufficiently broad protection to protect our
proprietary rights, or they may prove to be unenforceable. To protect our
proprietary rights, we also rely on a combination of copyrights, trademarks,
trade secret laws, contractual provisions, licenses and maskwork protection
under the Federal Semiconductor Chip Protection Act of 1984. We also enter into
confidentiality agreements with our employees, consultants and customers and
seek to control access to, and distribution of, our other proprietary
information.
The laws of some foreign countries do not protect our proprietary rights to
as great an extent as do the laws of the United States, and many U.S. companies
have encountered substantial infringement problems in such countries, some of
which are countries in which we have sold and continue to sell products. There
is a risk that our means of protecting our proprietary rights may not be
adequate. For example, our competitors may independently develop similar
technology, duplicate our products or design around our patents or our other
intellectual property rights. If we fail to adequately protect our intellectual
property, it would be easier for our competitors to sell competing products.
EMPLOYEES
As of December 31, 1998, we had 177 full-time employees, including 123
employees engaged in research and development, 30 engaged in sales and marketing
and 24 engaged in general and administrative activities. Our employees are not
represented by any collective bargaining agreements, and we have never
experienced a work stoppage. We believe our employee relations are good.
PROPERTIES
We sublease our facility in Red Bank, New Jersey, which has approximately
50,000 square feet, pursuant to a sublease agreement that expires April 2002.
This facility comprises our headquarters, administration, sales and marketing
and research and development departments. We believe we have adequate space, and
any additional space required will be available to us on commercially reasonable
terms.
LITIGATION
In June 1998, we filed suit against Hanan Herzberg, Selvaraj Seetharaman
and Xiao-Feng Qi in the Superior Court of New Jersey seeking compensatory
damages, costs and attorneys' fees and injunctive relief based on allegations of
misappropriation of trade secrets. In April 1998, the defendants terminated
their employment with our company and subsequently began employment with Level
One
42
<PAGE> 46
Communications, a competitor in the DSL industry. No counterclaim has been
asserted against us. Due to the nature of litigation and because the lawsuit is
at an early stage, we cannot ascertain the availability of injunctive relief or
other equitable remedies or estimate the total expenses, possible recovery or
settlement value, if any, that may be ultimately awarded or incurred in
connection with this suit. We believe that this matter will not have a material
adverse effect on our results of operations or financial condition. However,
this litigation could be time consuming and costly, and there can be no
assurance that we will necessarily prevail given the inherent uncertainties in
litigation.
43
<PAGE> 47
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of GlobeSpan, and their
ages as of March 11, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Armando Geday(c)........................ 37 President, Chief Executive Officer and
Director
Robert McMullan......................... 44 Chief Financial Officer, Vice President,
Treasurer and Secretary
Thomas Sennhauser....................... 44 Chief Operating Officer
Nicholas Aretakis....................... 37 Vice President, Worldwide Sales
Clete Gardenhour........................ 60 Vice President, Business Development
Daniel Amrany........................... 47 Chief Technology Officer
Angelo Stephano......................... 37 Vice President, Worldwide Marketing
Russ Bell............................... 42 Vice President, Technology Planning
James Coulter(a)(c)..................... 39 Director
Dipanjan Deb(b)......................... 29 Director
Thomas Epley(a)(c)...................... 58 Director
Keith Geeslin(b)........................ 46 Director
David Stanton(a)(c)..................... 36 Director
</TABLE>
- ------------------------------
(a) Member of Compensation Committee
(b) Member of Audit Committee
(c) Member of Executive Committee
Armando Geday has served as President and Chief Executive Officer of
GlobeSpan since April 1997 and as a director of GlobeSpan since April 1997. From
June 1986 to March 1997, Mr. Geday was Vice President and General Manager of the
Multimedia Communications Division of Rockwell Semiconductor Systems. Prior to
June 1986, Mr. Geday held several other marketing and general management
positions at Rockwell. Prior to Rockwell, Mr. Geday was product marketing
manager at Harris Semiconductor. Mr. Geday received a B.S. in Electrical
Engineering from the Florida Institute of Technology.
Robert McMullan has served as Chief Financial Officer of GlobeSpan since
July 1998. From November 1990 to March 1998, Mr. McMullan was employed by The
BISYS Group, Inc., an outsourcer to the financial services industry, where he
served as Executive Vice President and Chief Financial Officer. Mr. McMullan
received a B.A. in Business Administration from St. Michael's College.
Thomas Sennhauser has served as Chief Operating Officer of GlobeSpan since
June 1998. From November 1993 to May 1998, Mr. Sennhauser was at Siemens
Microelectronics, Inc., where he was Vice President of Signal Processing
Integrated Circuits. From 1990 to 1992, Mr. Sennhauser was Managing Director of
the largest foreign subsidiary of Societe Suisse de Microelectronique et
Horlogerie, and from 1980 to 1989, worked at Intel Corporation in various
marketing and manufacturing positions. Mr. Sennhauser received two Masters
degrees, one in International Management from the American Graduate School of
International Management, and the other in Electrical Engineering from the Swiss
Federal Institute of Technology, Zurich, Switzerland.
Nicholas Aretakis has served as Vice President, Worldwide Sales of
GlobeSpan since May 1998. From July 1994 to April 1998, Mr. Aretakis served as
Vice President of Marketing and Sales at ESS Technology, Inc., a developer of
audio, digital video and modem/fax communication semiconductors and software
products for the personal computing industry. Prior to joining ESS Technology
Inc., Mr.
44
<PAGE> 48
Aretakis held senior sales and marketing positions at SEEQ Technology, Inc., a
developer of LAN and memory semiconductors and software, and Microchip
Technology, a manufacturer of RISC-based microcontrollers and specialized memory
products. Mr. Aretakis received a B.A. in Mathematics from Hobart College and a
B.S. in Electrical Engineering from Columbia University.
Clete Gardenhour has served as Vice President, Business Development of
GlobeSpan since May 1998. From August 1996 to August 1998, Mr. Gardenhour was
Executive Director of Worldwide Sales for GlobeSpan. From January 1992 to August
1996, Mr. Gardenhour was responsible for technology planning and business
development of DSL technology with AT&T Paradyne Corporation and served as
Senior Vice President and General Manager of Paradyne's Modem and Network
Management business. Mr. Gardenhour received a B.S. in Electrical Engineering
from the Georgia Institute of Technology and a Masters degree in Management of
Technology from the University of Miami.
Daniel Amrany has served as Chief Technology Officer of GlobeSpan since
October 1998. From August 1996 to October 1998, Mr. Amrany was director of VLSI
development for GlobeSpan. In January 1985, Mr. Amrany founded Amra-Tech, a VLSI
consulting firm, which developed the VLSI devices for Bell Labs' voice band
modems and DSL products. Mr. Amrany served as Vice President of Amra-Tech from
January 1985 to August 1996. Prior to 1985, Mr. Amrany worked at Perkin-Elmer,
ITT Industries and Intel Corporation. Mr. Amrany holds more than ten patents in
various telecom, digital TV, and semiconductor disciplines and received a B.S.
in Electrical Engineering from Tel Aviv University.
Angelo Stephano has served as Vice President, Marketing of GlobeSpan since
August 1998. From June 1996 to August 1998, Mr. Stephano was the Director of
Marketing for Rockwell Semiconductor Systems' Multimedia Communications
Division. From June 1994 to June 1996, Mr. Stephano was the Manager of Marketing
for the same division of Rockwell International. Mr. Stephano received a B.S. in
Electrical Engineering from Syracuse University.
Russ Bell has served as Vice President, Technology Planning of GlobeSpan
since March 1999. From January 1998 to March 1999, Mr. Bell was Director,
Technology Planning of GlobeSpan. From July 1984 to January 1998 Mr. Bell held a
number of positions at Advanced Micro Devices including Director of
Communications Technology, Director of Corporate Strategic Marketing and
Director of Applications Engineering. Mr. Bell received a B.S. in Electrical
Engineering from the Southern Technical Institute and a Masters degree in
Information and Computer Science from the Georgia Institute of Technology.
James Coulter has served as a director of GlobeSpan since May 1998. Mr.
Coulter has served as a managing partner of Texas Pacific Group since 1992. Mr.
Coulter currently serves as a director of America West Holdings Corp., Beringer
Wine Estates Holdings, Inc., Oxford Health Plans Inc., and several privately
held companies, including Communications Partners L.P. Mr. Coulter received a
B.A. in Business from Dartmouth College and an M.B.A. from the Stanford Graduate
School of Business.
Dipanjan Deb has served as a director of GlobeSpan since March 1999. Mr.
Deb has been employed by Texas Pacific Group since November 1998 where he is
responsible for technology-related investments. From August 1991 to June 1994,
Mr. Deb was employed at BancBoston Robertson Stephens. Mr. Deb rejoined
BancBoston Robertson Stephens in June 1996 and served as their Director of
Semiconductor Banking until October 1998. Prior to rejoining BancBoston
Robertson Stephens in 1996, Mr. Deb worked as a management consultant at
McKinsey & Company. Mr. Deb received a B.S. from the University of California at
Berkeley in Electrical Engineering and an M.B.A. from the Stanford Graduate
School of Business.
Thomas Epley has served as a director of GlobeSpan since August 1996 and
Chairman of the Board from August 1996 to March 1999. Mr. Epley has also served
as President of Paradyne Credit
45
<PAGE> 49
Corporation, an affiliate of GlobeSpan, since August 1996. Mr. Epley was the CEO
and President of GlobeSpan from August 1996 to April 1997, and the President and
CEO of Paradyne Corporation, an affiliate of GlobeSpan from August 1996 to April
1997. From May 1991 to April 1996, Mr. Epley was the CEO of Technicolor, an
entertainment media company. Mr. Epley currently serves as Chairman of Paradyne
Corporation and as Chairman of MEM Solutions, a microelectrical and mechanical
systems company. Mr. Epley received a B.S. in Mechanical Engineering from the
University of Cincinnati and an M.B.A. from Northwestern University.
Keith Geeslin has served as a director of GlobeSpan since August 1996. Mr.
Geeslin is a General Partner of The Sprout Group, where he has been employed
since July 1984. In addition, he is a general or limited partner of a series of
investment funds associated with The Sprout Group, a division of DLJ Capital
Corporation, a subsidiary of Donaldson, Lufkin & Jenrette. Mr. Geeslin is a
director of SDL, Inc. and several privately held companies, including Paradyne
Corporation, a related party to GlobeSpan. Mr. Geeslin received a B.S.E.E.
degree from Stanford University, an M.A. degree in Philosophy, Politics and
Economics from Oxford, and an M.S. degree in Engineering and Economic Systems
from Stanford University.
David Stanton has served as a director of GlobeSpan since June 1996. Mr.
Stanton is a partner of Texas Pacific Group, where he has been employed since
1994. Prior to joining Texas Pacific Group, Mr. Stanton was a venture capitalist
with Trinity Ventures, where he specialized in information technology, software
and telecommunications investing. Mr. Stanton currently serves as a director of
Denbury Resources, Inc., and several private companies, including Paradyne
Corporation, a related party to GlobeSpan. Mr. Stanton received a B.S. in
Chemical Engineering from Stanford University and an M.B.A. from the Stanford
Graduate School of Business.
BOARD OF DIRECTORS AND COMMITTEES
Following the offering, our board of directors will consist of six
directors, each holding office until the next annual meeting of stockholders.
The board of directors has a Compensation Committee, an Audit Committee and
an Executive Committee.
Compensation Committee. The Compensation Committee of the board of
directors reviews and makes recommendations to the board regarding all forms of
compensation provided to the executive officers and directors of GlobeSpan and
its subsidiaries including stock compensation and loans. In addition, the
Compensation Committee reviews and makes recommendations on stock compensation
arrangements for all employees of GlobeSpan. As part of the foregoing, the
Compensation Committee also administers our 1999 Equity Incentive Plan and
Employee Stock Purchase Plan. The current members of the Compensation Committee
are James Coulter, Thomas Epley and David Stanton.
Audit Committee. The Audit Committee of the board of directors reviews and
monitors the corporate financial reporting and the internal and external audits
of GlobeSpan, including, among other things, our internal audit and control
functions, the results and scope of the annual audit and other services provided
by our independent auditors and our compliance with legal matters that have a
significant impact on our financial reports. The Audit Committee also consults
with our management and our independent auditors prior to the presentation of
financial statements to stockholders and, as appropriate, initiates inquiries
into aspects of our financial affairs. In addition, the Audit Committee has the
responsibility to consider and recommend the appointment of, and to review fee
arrangements with our independent auditors. The current members of the Audit
Committee are Dipanjan Deb and Keith Geeslin.
Executive Committee. Our board of directors has created an executive
committee consisting of Messrs. Coulter, Deb, Epley and Geday. The executive
committee is authorized to act with respect to
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all matters arising before the board, except for matters which require
stockholder approval or where prohibited by Delaware law, including a sale of
our company.
DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS
Directors of GlobeSpan who are not employees receive $1500 for
participation in meetings of the board of directors. Non-employee directors of
GlobeSpan who also serve on either the Compensation or the Audit Committees
receive $750 for participation in the committee meetings. Upon and following
this offering, directors will be eligible for automatic option grants under our
1999 Director Stock Plan. See "1999 Director Stock Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of December 31, 1998, the Compensation Committee of the board of
directors consisted of Messrs. Epley and Stanton and Mr. William Stensrud. In
March 1999, Mr. Stensrud resigned from the board of directors and was replaced
by Mr. Coulter on the Compensation Committee.
Mr. Epley is a current director of GlobeSpan, was Chairman of our board of
directors from August 1996 to March 1999 and was CEO and President of GlobeSpan
from August 1996 to April 1997. Mr. Epley is also a director of Paradyne
Corporation, is Chairman of their board of directors, is a member of their
compensation committee and was their CEO and President from August 1996 to April
1997. Mr. Epley also has a pecuniary interest in the GlobeSpan shares held by
Communication Partners, L.P., which upon the closing of this offering will own
over % of our common stock and 85% of the common stock of Paradyne
Corporation.
Mr. Stanton and Mr. Stensrud also have a pecuniary interest in the
GlobeSpan shares held by Communication Partners, L.P., which upon the closing of
this offering will own over % of our common stock and 85% of the common
stock of Paradyne Corporation.
For a further description of interlocking transactions, see "Certain
Transactions."
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EXECUTIVE COMPENSATION
The following table sets forth compensation information for the fiscal year
ended December 31, 1998 paid by us for services by our Chief Executive Officer
and our two other highest-paid executive officers whose total salary and bonus
for such fiscal year exceeded $100,000, collectively referred to below as the
Named Executive Officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------------
---------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- --------------------------- -------- -------- --------------------- ------------
<S> <C> <C> <C> <C>
Armando Geday............... $215,004 $110,000(a) -- --
President and Chief
Executive Officer
Thomas Sennhauser(c)........ 80,780 60,000(b) 77,775 $37,396(e)
Chief Operating Officer
Nicholas Aretakis(d)........ 87,704 60,000(b) 77,775 79,227(e)
Vice President, Worldwide
Sales
</TABLE>
- ------------------------------
(a) The board has not determined Mr. Geday's entire bonus for 1998.
(b) GlobeSpan has not determined Mr. Sennhauser's or Mr. Aretakis' entire bonus
for 1998.
(c) Mr. Sennhauser started employment with us in June 1998.
(d) Mr. Aretakis started employment with us in May 1998.
(e) Represents reimbursed relocation expenses.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the
fiscal year ended December 31, 1998 to each of the Named Executive Officers. No
stock appreciation rights were granted to these individuals during such year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES STOCK
UNDERLYING % OF TOTAL PRICE APPRECIATION
OPTIONS OPTIONS GRANTED EXERCISE FOR OPTION TERM(D)
GRANTED TO EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (A) 1998(B) (C) DATE 5% 10%
---- ---------- --------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Armando Geday........................ -- -- -- -- -- --
Thomas Sennhauser.................... 77,775 12.6% $12.00 05/31/08 $586,947 $1,487,440
Nicholas Aretakis.................... 77,775 12.6 12.00 05/27/08 586,947 1,487,440
</TABLE>
- ------------------------------
(a) Each of the options listed in the table is immediately exercisable. The
shares purchasable under the options may be repurchased by us at the
original exercise price paid per share if the optionee ceases service before
vesting in such shares. The repurchase right lapses for Mr. Sennhauser's
option, and he vests as to 25% of the option shares upon completion of 12
months of service from the vesting start date; he vests as to 6.25% of the
option shares upon the completion of every three-month period of service
over the next three years thereafter. The repurchase right lapses for Mr.
Aretakis' option and he vests as to 33 1/3% of the option shares upon
completion of 12 months of service from the vesting start date; he vests as
to 8.33% of the option shares upon the completion of every
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three-month period of service over the next two years thereafter. Each of
the options has a ten-year term, but the term may end earlier if the
optionee ceases service with us.
(b) Based on a total of 618,625 option shares granted to our employees under our
1996 Equity Incentive Plan during 1998.
(c) The exercise price was equal to the fair market value of our common stock as
valued by our board of directors on the date of grant. The exercise price
may be paid in cash or through a cashless exercise procedure involving a
same-day sale of the purchased shares.
(d) The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent our prediction of our stock price
performance. The potential realizable value at 5% and 10% appreciation is
calculated by assuming that the exercise price on the date of grant
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of
its term at the appreciated price.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the year-end number
and value of unexercised options for each of the Named Executive Officers. No
options or stock appreciation rights were exercised by these executive officers
in 1998, and no stock appreciation rights were outstanding at the end of that
year.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
HELD AT HELD AT
DECEMBER 31, 1998(A) DECEMBER 31, 1998(B)
--------------------- ------------------------
NAME VESTED(B) UNVESTED VESTED UNVESTED
---- --------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Armando Geday.......................... 203,569 261,731 $2,239,259 $2,879,041
Thomas Sennhauser...................... -- 77,775 -- --
Nicholas Aretakis...................... -- 77,775 -- --
</TABLE>
- ------------------------------
(a) The options are immediately exercisable for all of the option shares, but
any shares purchased under those options may be repurchased by us at the
original exercise price paid per share, if the optionee ceases service with
us before vesting in such shares. The heading "Vested" refers to shares that
are no longer subject to repurchase; the heading "Unvested" refers to shares
subject to repurchase as of December 31, 1998.
(b) Based on the fair market value of our common stock as determined by our
board of directors at the end of 1998 of $12.00 per share, less the exercise
price payable for such shares.
CHANGE OF CONTROL ARRANGEMENTS AND EMPLOYMENT AGREEMENTS
Upon certain defined events causing a change in control of GlobeSpan, an
option or other award under the 1999 Equity Incentive Plan will become fully
exercisable and fully vested if the option or award is not assumed by the
surviving corporation or its parent or if the surviving corporation or its
parent does not substitute another award on substantially the same terms.
Except for Mr. Armando Geday, our President and Chief Executive Officer,
none of our executive officers have an employment agreement with GlobeSpan, and
they may resign at any time and GlobeSpan may terminate their employment at any
time. GlobeSpan entered into an employment agreement with Mr. Geday, dated April
1, 1997.
The employment agreement with Mr. Geday provided for a base salary of
$200,000 per year in 1997. Mr. Geday is eligible to earn quarterly and two-level
revenue bonuses based upon goals and revenue targets as determined by our board
of directors and Mr. Geday. Under the employment agreement, we granted to Mr.
Geday an option for 465,300 shares of our common stock. If a
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<PAGE> 53
corporate transaction occurs in which more than 50.0% of our stock is
transferred, then 50.0% of Mr. Geday's unvested options will become vested. If
we are valued at more than $100.0 million in such corporate transaction, then
100% of Mr. Geday's unvested options will become vested. If we terminate Mr.
Geday's employment without cause or he resigns for good reason, then he will be
paid as severance any bonuses that have been earned by him and will continue to
receive his base salary until the earlier of the date that is 12 months from his
termination date or the date on which he starts comparable employment. The
aggregate severance payment will not be less than $500,000 prorated for the
number of months that Mr. Geday is entitled to receive his base salary as a
severance benefit. In addition, if we terminate Mr. Geday without cause or he
resigns for good reason, his option will become vested, as if he provided
another 18 months of service following his termination date, and his vested
option will have a 10-year term from the date of his employment agreement.
Mr. McMullan, our Chief Financial Officer, Vice President and Secretary,
received an offer letter from us in which we promised that if a change in
control occurs within 18 months after his employment start date and Mr. McMullan
is not offered a comparable position with comparable responsibilities with the
acquiring entity, then any portion of his option that is not yet exercisable or
vested will become fully exercisable or vested. If the change in control occurs
outside of the 18-month period following his employment start date and Mr.
McMullan is not offered a comparable position with comparable responsibilities
with the acquiring entity, then his option becomes vested for 50.0% of his
unvested shares.
EMPLOYEE BENEFIT PLANS
1999 Equity Incentive Plan. Our board of directors adopted GlobeSpan's
1999 Equity Incentive Plan in March 1999 and our stockholders will also be asked
to approve the adoption of the plan. We have reserved 1,000,000 shares of common
stock for issuance under the 1999 Equity Incentive Plan. Any shares not yet
issued under our 1996 Equity Incentive Plan as of the date of this offering will
also be available for grant under the 1999 Equity Incentive Plan. As of each
year, commencing with the date of this offering and continuing on each May 1 in
2000 through 2002, the number of shares reserved for issuance under the 1999
Equity Incentive Plan will be increased automatically by 5.0% of the total
number of shares of common stock then outstanding or, if less, by 1,000,000
shares. We have not granted any options under the 1999 Equity Incentive Plan.
Under the 1999 Equity Incentive Plan, the eligible individuals are: employees,
non-employee members of the board of directors and consultants. The types of
awards that may be made under the 1999 Equity Incentive Plan are options to
purchase shares of common stock, stock appreciation rights, restricted shares
and stock units. Options may be incentive stock options that qualify for
favorable tax treatment for the optionee under Section 422 of the Internal
Revenue Code of 1986 or nonstatutory stock options not designed to qualify for
such favorable tax treatment. With limited restrictions, if shares awarded under
the 1999 Equity Incentive Plan or the 1996 Equity Incentive Plan are forfeited,
then those shares will again become available for new awards under the 1999
Equity Incentive Plan.
The Compensation Committee of our board of directors administers the 1999
Equity Incentive Plan. The Committee has complete discretion to make all
decisions relating to the interpretation and operation of the 1999 Equity
Incentive Plan, including the discretion to determine which eligible individuals
are to receive any award, and to determine the type, number, vesting
requirements and other features and conditions of each award.
The exercise price for incentive stock options granted under the 1999
Equity Incentive Plan may not be less than 100% of the fair market value of the
common stock on the option grant date. The exercise price for non-qualified
options granted under the 1999 Equity Incentive Plan may not be less than 85% of
the fair market value of the common stock on the option grant date. The exercise
price may be paid in cash or in outstanding shares of common stock. The exercise
price may also be paid by using a cashless exercise method, a pledge of shares
to a broker or promissory note. The purchase
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<PAGE> 54
price for newly issued restricted shares awarded under the 1999 Equity Incentive
Plan may be paid in cash, by promissory note or by the rendering of past or
future services.
The committee may reprice options and may modify, extend or assume
outstanding options and stock appreciation rights. The committee may accept the
cancellation of outstanding options or stock appreciation rights in return for
the grant of new options or stock appreciation rights. The new option or right
may have the same or a different number of shares and the same or a different
exercise price.
Upon certain defined events causing a change in control of GlobeSpan, an
option or other award under the 1999 Equity Incentive Plan will become fully
exercisable and fully vested if the option or award is not assumed by the
surviving corporation or its parent or if the surviving corporation or its
parent does not substitute another option or award on substantially the same
terms. If an optionee or other participant under this Plan is involuntarily
terminated within 12 months after a change in control in which the option or
award was assumed or substituted, then the option or award becomes fully
exercisable and vested. A change in control includes:
- A merger or consolidation of GlobeSpan after which our then current
stockholders own less than 50.0% of the surviving corporation;
- Sale of all or substantially all of the assets of GlobeSpan;
- A proxy contest that results in replacement of more than one-third of the
directors over a 24-month period; or
- An acquisition of 50.0% or more of GlobeSpan's outstanding stock by a
person other than by a person related to GlobeSpan, such as a corporation
owned by the stockholders of GlobeSpan.
If a merger or other reorganization occurs, the agreement of merger or
reorganization may provide that outstanding options and other awards under the
1999 Equity Incentive Plan shall be assumed by the surviving corporation or its
parent, shall be continued by us if we were a surviving corporation, shall have
accelerated vesting and then expire early, or shall be cancelled for a cash
payment.
Our board of directors may amend or terminate our 1999 Equity Incentive
Plan at any time. If the board amends the Plan, stockholder approval of the
amendment will be sought only if required by an applicable law. The 1999 Equity
Incentive Plan will continue in effect indefinitely unless the board decides to
terminate the Plan earlier.
Employee Stock Purchase Plan. Our board of directors adopted our Employee
Stock Purchase Plan in March 1999, and our stockholders will be asked to approve
the adoption of the Plan. We have reserved 400,000 shares of common stock for
issuance under the Employee Stock Purchase Plan. As of May 1 each year beginning
in 2000, 2001 and 2002, the number of shares reserved for issuance under the
Employee Stock Purchase Plan will be increased automatically by 2.0% of the
total number of shares of common stock outstanding or, if less, 400,000 shares.
The Employee Stock Purchase Plan is intended to qualify under Section 423 of the
Internal Revenue Code. Two overlapping offering periods each with a duration of
24 months will commence on May 1 and November 1 each calendar year. However, the
first offering period will commence on the effective date of this offering and
end on April 30, 2001. Purchases of common stock will occur on April 30 and
October 31 each calendar year during an offering period. The Compensation
Committee of our board of directors administers our Employee Stock Purchase
Plan. Each employee of GlobeSpan is eligible to participate if he or she is
employed by us for more than 20 hours per week and for more than five months per
year.
The Employee Stock Purchase Plan permits each eligible employee to purchase
common stock through payroll deductions. Each employee's payroll deductions may
not exceed 15.0% of the employee's cash compensation. The initial period during
which payroll deductions will be accumulated will begin on the effective date of
this offering and end on October 31, 1999. No more than
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<PAGE> 55
1,000 shares may be purchased on any purchase date. The price of each share of
common stock purchased under the Employee Stock Purchase Plan will be 85.0% of
the lower of (A) the fair market value per share of common stock on the date
immediately before the first date of the applicable offering period or (B) the
fair market value per share of common stock on the purchase date. In the case of
the first offering period, the price per share under the plan will be 85.0% of
the price offered to the public in this offering. Employees may end their
participation in the Employee Stock Purchase Plan at any time. Participation
ends automatically upon termination of employment with us.
If a change in control of GlobeSpan occurs, the Employee Stock Purchase
Plan will end and shares will be purchased with the payroll deductions
accumulated to date by participating employees, unless this Plan is assumed by
the surviving corporation or its parent. Our board of directors may amend or
terminate the Employee Stock Purchase Plan at any time. If our board of
directors increases the number of shares of common stock reserved for issuance
under the Employee Stock Purchase Plan, it must seek the approval of our
stockholders.
1999 Director Stock Plan. Our board of directors adopted our 1999 Director
Stock Plan in March 1999, and our stockholders will also be asked to approve the
adoption of the Plan. Under the 1999 Director Stock Plan, non-employee members
of our board of directors will be eligible for option grants and other awards.
A maximum of 250,000 shares of common stock has been authorized for
issuance under the 1999 Director Stock Plan. No shares have been issued yet
under the 1999 Director Stock Plan.
We may grant options to purchase shares of common stock under the 1999
Director Stock Plan. Options may only be nonstatutory stock options not designed
to qualify for favorable tax treatment. With limited restrictions, if shares
awarded under the 1999 Director Stock Plan are forfeited, then those shares will
again become available for new awards under the 1999 Director Stock Plan.
The exercise price for options granted under the 1999 Director Stock Plan
may not be less than 100% of the fair market value of the common stock on the
option grant date. Optionees may pay the exercise price in cash or in
outstanding shares of common stock. Optionees may also pay the exercise price by
using a cashless exercise method or a pledge of shares to a broker. Each option
will have a maximum term of ten years, but will terminate earlier if the
optionee ceases to be a member of the board of directors.
The committee may reprice options and may modify, extend or assume
outstanding options. The committee may accept the cancellation of outstanding
options in return for the grant of new options. The new option may have the same
or a different number of shares and the same or a different exercise price.
Upon certain defined events causing a change in control of GlobeSpan, an
option or other award granted under the 1999 Director Stock Plan will become
fully exercisable and fully vested and will terminate unless the option or award
is not assumed by the surviving corporation or its parent. Change in control has
the same definition as under the 1999 Equity Incentive Plan.
The 1999 Director Stock Plan grants options to non-employee directors
pursuant to an automatic grant provision at defined intervals beginning on the
effective date of this offering. The 1999 Director Stock Plan grants to each
non-employee director an option to purchase 5,000 shares of common stock on the
effective date of this offering at the initial public offering price; and the
Plan will grant to each such director another option to purchase 5,000 shares of
common stock on the date of the 2001 annual stockholders' meeting, if the
director continues serving on the board following this annual stockholders'
meeting. The 1999 Director Stock Plan grants to each person who becomes a
non-employee director following the effective date of this offering an option to
purchase 5,000 shares of common stock on the date on which he or she is
initially elected or appointed to the board; and each such new director will be
granted another option to purchase 5,000 shares of common stock at
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<PAGE> 56
the annual stockholders' meeting in the calendar year following the year in
which he or she initially became a board member. However, a new director will
not receive the second option to purchase 5,000 shares of common stock if he or
she resigns at that annual stockholders' meeting. At each annual stockholders'
meeting following the annual meeting during which each non-employee director
received the second option to purchase 5,000 shares of common stock, the 1999
Director Stock Plan grants to each continuing director an option to purchase
2,500 shares of common stock. Each option becomes exercisable and vested upon
the director's completion of 12 months of service during which he or she
attended at least 75% of the board meetings.
Our board of directors may amend or modify the 1999 Director Stock Plan at
any time. The 1999 Director Stock Plan will terminate in March 2009, unless the
board of directors decides to terminate the plan sooner.
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CERTAIN TRANSACTIONS
INITIAL FORMATION
We were formed in August 1996 as part of the divestiture of AT&T Paradyne
Corporation by Lucent Technologies. Prior to this divestiture, AT&T Paradyne
Corporation operated a communications technologies business. In the divestiture,
our principal stockholder, Communication Partners, L.P. (i) formed a subsidiary,
Paradyne Acquisition Corp., to acquire AT&T Paradyne Corporation (later renamed
Paradyne Corporation); and (ii) formed another subsidiary, CAP Acquisition Group
(later renamed GlobeSpan Semiconductor Inc.), to acquire certain other assets
from AT&T Paradyne Corporation and from Lucent Technologies. Also in the
divestiture, Communication Partners, L.P. formed other subsidiaries to acquire
certain other assets of Lucent Technologies and/or AT&T Paradyne Corporation.
Communication Partners, L.P. currently owns approximately 93.2% of our
outstanding common stock and after this offering will own approximately %.
Communication Partners, L.P. also beneficially owns approximately 85.0% of the
outstanding capital stock of Paradyne Corporation. Our current board of
directors consists of Messrs. Coulter, Deb, Epley, Geday, Geeslin and Stanton.
Our board of directors has also created an executive committee consisting of
Messrs. Coulter, Deb, Epley and Geday. Of the current members of the board of
directors and the executive committee, Messrs. Epley, Geeslin and Stanton are
directors of both GlobeSpan and Paradyne Corporation. Mr. Stensrud was a member
of the board of directors of both GlobeSpan and Paradyne Corporation until his
resignation from GlobeSpan's board of directors in March 1999. Mr. Stensrud will
continue as a board member of Paradyne Corporation. In addition, Messrs. Epley,
Stanton, Coulter and Geeslin, directors of GlobeSpan, all have a pecuniary
interest in the shares held by Communication Partners, L.P. Mr. Stanton is the
sole director and President of Communication GenPar, Inc., the general partner
of Communication Partners, L.P. Mr. Epley is the Chairman of Paradyne
Corporation.
DIVESTITURE TRANSACTIONS
In the divestiture, Communication Partners, L.P., through GlobeSpan and
Paradyne Corporation, paid $2.0 million in cash to Lucent Technologies for the
assets that we acquired. In addition, we issued Lucent Technologies a warrant to
purchase our common stock. The warrant, as amended, expires upon the first to
occur of June 30, 2001 or the sale of our company or all of our assets. The
warrant is currently exercisable for 1,312,500 shares of our common stock at an
exercise price of $6.72 per share. This warrant can either be exercised by
payment of the exercise price in cash or by a "net exercise." A "net exercise"
means that the aggregate exercise price of the warrant is deemed to be paid by
the warrant holder by giving up our common stock, in lieu of paying cash, based
on the fair market value of such shares at the time of net exercise.
In this prospectus we have assumed that the warrant will be net exercised.
By its terms, the warrant will be deemed to be automatically net exercised at
the closing of this offering if the price of our common stock in this offering
is $ per share or higher. We have assumed that the price will be at the
mid-point of the anticipated price range, $ per share, and that the warrant
will be net exercised for shares. However, at any time prior to
the closing of this offering, Lucent Technologies can exercise the warrant for
up to 1,312,500 shares of our common stock by payment of the exercise price in
cash. Further, if the price of our common stock in this offering is below $
per share, then the warrant will remain outstanding and exercisable for up to
1,312,500 shares of our common stock and will remain net exercisable.
Lucent Technologies has registration rights for any shares of common stock
issued upon exercise of the warrant. The registration rights include one right
to demand that we register the shares for sale to the public on a registration
statement and an unlimited number of "piggyback" registration rights. These
"piggyback" rights mean that Lucent Technologies can request that we register
its shares on most registration statements that we otherwise elect to file.
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The warrant also has a covenant which provides that we shall not enter into
any transaction directly or indirectly with or for the benefit of any related
party other than transactions entered into on a basis no less favorable to us
than would be obtainable in a comparable arms' length transaction with a third
party that is not a related party. We have entered into several transactions
with Paradyne Corporation and Communication Partners, L.P. and there can be no
assurance that Lucent Technologies would consider that all of these transactions
were on terms obtainable in a comparable arms' length transaction. Any dispute
with Lucent Technologies would be expensive, time-consuming and, if we do not
prevail, would likely cause serious harm to our business, financial condition
and results of operations.
Lucent Technologies Intellectual Property Agreement. As part of the
divestiture, we entered into an intellectual property agreement with Lucent
Technologies and Paradyne Corporation. Under this agreement, Lucent Technologies
irrevocably assigned to us and our successors all rights in particular listed
patents related to CAP line code technology. We, in turn, granted to Lucent
Technologies a non-exclusive, non-transferable, irrevocable worldwide,
royalty-free license to develop, manufacture, test or repair any products or
services using the assigned patents.
Under this agreement, Lucent Technologies also granted to us other
intellectual property rights and immunities, subject to a number of restrictions
and/or conditions. Specifically, Lucent Technologies granted us a non-exclusive,
non-transferable, irrevocable, worldwide, royalty-free license under certain
patents owned or controlled by Lucent Technologies as of the date of the
divestiture to develop, manufacture, sell, test or repair our products, or
convey to any customer of our products the right to use and resell such
products. Lucent Technologies also granted us the right to extend immunity to
our licensees and customers under particular listed Lucent Technologies patents
when those licensees and customers need to use technical information claimed in
those patents to manufacture our products. These other intellectual property
rights are subject to several conditions and restrictions on what kind of
products are within the scope of the rights and immunities, when the rights and
immunities can be exercised and for how long, and whether the rights and
immunities can be transferred to other parties and when. These other
intellectual property rights will become subject to a predetermined royalty if
we sell all or part of our business that exercises these rights and more than
six years have elapsed from the date of the divestiture. Some of these
conditions and restrictions relating to the exercise of the other intellectual
property rights are ambiguous, and could be interpreted in more than one way. We
believe that the ambiguous, conditions and restrictions will not affect our
current and proposed business in a material manner, either because we no longer
rely on the rights and immunities granted by Lucent Technologies, or because the
amount of our business that would be affected is not material. Nevertheless,
these ambiguous conditions and restrictions could require us to negotiate with
Lucent Technologies for additional rights, or to defend against assertions by
Lucent Technologies that our business exceeds the scope of the rights and
immunities. If we are unsuccessful in such negotiations or defense, we might not
be able to sell some of our products, or such sales might be subject to
limitations on how those products can be used.
All three parties to this agreement granted to each other reciprocal rights
in their respective technical information only to the extent reasonably
necessary to support the other rights and licenses granted to each party under
the agreement.
Lucent Technologies Noncompetition Agreement. As part of the divestiture,
we entered into a Noncompetition Agreement with Lucent Technologies and Paradyne
Corporation. Under this agreement, Lucent Technologies agreed not to compete
with us (with a separate agreement not to compete with Paradyne Corporation), in
strictly limited circumstances subject to several exemptions and exclusions.
AT&T Trademark and Patent License. As part of the divestiture, AT&T
Corporation (Lucent Technologies' sole stockholder at the time), entered into a
Trademark and Patent Agreement with us and Paradyne Corporation. Under this
agreement, AT&T granted us a license under particular
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listed AT&T patents to develop, manufacture, test or repair our products
existing as of the date of the divestiture.
ADDITIONAL TRANSACTIONS WITH LUCENT TECHNOLOGIES
Lucent Technologies Supply Agreement. As part of the divestiture, we
entered into a Supply Agreement with Lucent Technologies and Paradyne
Corporation. This agreement remains in effect for four years from the date of
the divestiture. Under this agreement, we and Paradyne Corporation agreed to
sell listed products (and modifications specific to the listed products) to
Lucent Technologies. Lucent Technologies may purchase such products for prices
and at discounts that are at least as good as those offered by us to any of our
other customers for comparable products under comparable terms. We must give
Lucent Technologies one year's notice of discontinuation of any of the listed
products. We believe that none of the products listed in this agreement are
currently products that we currently sell.
Lucent Technologies currently manufactures substantially all of our chip
sets. In the five months ended December 31, 1996 and the years ended December
31, 1997 and 1998, we paid Lucent Technologies a total of $0.5 million, $7.7
million and $10.1 million, respectively, for the manufacture of these chip sets,
including components, computer equipment and software, training and consulting,
maintenance and repairs. In March 1999 we entered into a manufacturing agreement
with Lucent Technologies under which Lucent Technologies has agreed to
manufacture our chip sets in accordance with certain pricing quotations and
volume forecasts. This agreement may be terminated by Lucent Technologies upon
one year's notice. Lucent Technologies currently manufactures substantially all
of our chip sets, and we expect that Lucent Technologies will continue to
manufacture substantially all of our chip sets for the foreseeable future.
As part of our previous business model, Lucent Technologies paid us certain
fees in connection with the manufacture and sale of chip sets to GlobeSpan
customers. During the five months ended December 31, 1996 and the year ended
December 31, 1997, Lucent Technologies paid us a total of $635,000 and $185,000,
respectively, for such fees pursuant to standard terms and conditions. In the
year ended December 31, 1997, Lucent Technologies paid us $10,000 for chip set
sales related to Lucent Technologies' development of certain DSL products.
ADDITIONAL TRANSACTIONS WITH COMMUNICATION PARTNERS, L.P.
Sale of Common Stock. In addition to the 7,437,500 shares of stock issued
to Communication Partners, L.P. as part of the formation of GlobeSpan, we issued
a total of 4,000,000 shares of common stock to Communication Partners, L.P. at a
price of $1.00 per share on November 27, 1996.
Subordinated Revolving Promissory Note. On December 15, 1998, we amended
our existing Subordinated Revolving Promissory Note with Communication Partners,
L.P. The note had an outstanding principal balance of $5.0 million at the time
of such amendment. The amendment provides that we can borrow up to an additional
$5.0 million under the note. Subject to the terms and conditions of the amended
note, the amount remaining on the note over $5.0 million becomes due and payable
on March 31, 2000. The remaining $5.0 million is payable on May 1, 2003. Amounts
outstanding may be repaid and reborrowed at any time during the term of the
note, and the interest rate is set at 8% per annum. We intend to use the
proceeds from this offering to retire this debt.
Amendment of the Lucent Technologies Warrant. In August 1998 we agreed to
amend the warrant held by Lucent Technologies. As originally issued, the warrant
would have expired upon the repayment by Paradyne Corporation of its outstanding
long-term debt to Lucent Technologies. In August 1998, Paradyne Corporation and
Lucent Technologies agreed to settle this long-term debt in an aggregate
principal and interest amount of approximately $65.7 million. As a term of such
settlement, we agreed to amend the warrant so that it did not expire upon the
repayment of the
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indebtedness. The amendment also extended the term of the warrant by an
additional year. We agreed to this warrant amendment in consideration of
$100,000 in loan forgiveness from Communication Partners, L.P. which we received
in March 1999. Because the warrant amendment was deemed to have indirectly
benefited Communication Partners, L.P., we have accounted for the amendment as a
$3.7 million distribution to Communication Partners, L.P. which was reflected as
an adjustment to our paid-in capital. See Note 7 of the Notes to Financial
Statements. This value was based on the increase in the fair market value of the
warrant resulting from the extension of the outstanding warrant term.
ADDITIONAL TRANSACTIONS WITH PARADYNE CORPORATION
Paradyne Corporation Cross License. As part of the divestiture, we entered
into a cross-license agreement with Paradyne Corporation. We believe the purpose
of this agreement was to ensure that both we and Paradyne Corporation had the
same intellectual property rights in connection with our and their respective
products both before and after the divestiture. Under the agreement each party
granted to the other party a non-exclusive, royalty-free license to the patents
Lucent Technologies assigned to the granting party in the divestiture, for use
in the other party's products that existed as of the date of the divestiture,
and modifications to those products. Under the agreement each party also granted
to the other party a non-exclusive, royalty-free license to the granting party's
other technical information and intellectual property for the same use. These
grants apply to technical information and other intellectual property in
existence at the date of the divestiture, or developed later and relating to the
other party's products that existed at the divestiture or modifications to these
products. Paradyne Corporation also granted us a non-exclusive, irrevocable,
royalty-free license to use several listed trademarks. The rights granted are
perpetual, subject to the expiration of patent and copyright terms.
Royalty Payments by Paradyne Corporation. As part of our earlier business
model and in conjunction with their license to reproduce GlobeSpan software,
Paradyne Corporation paid GlobeSpan a total of $235,000 in royalty payments in
1996. This payment reflected the cost of a chip set reference design guide and a
right to use fee. The rates were determined in accordance with a License
Agreement dated September 11, 1995.
Reimbursement for Chip Set Purchases. In 1996, as our business model
shifted from licensing to selling chip sets, we purchased chip sets from Lucent
Technologies through Paradyne Corporation for sale to our customers through
Paradyne Corporation. Paradyne Corporation paid Lucent Technologies for these
chip sets on our behalf and we reimbursed Paradyne Corporation for their cost.
In connection with purchases made by Paradyne Corporation on our behalf in 1996,
we paid Paradyne Corporation a total of $194,000 in 1997.
Cooperative Development Agreement/Termination Agreement/Supply
Agreement. In November 1996, we entered into a Cooperative Development Agreement
and a related rider agreement with Paradyne Corporation. Under the terms of
these agreements, we provided Paradyne Corporation with a broad, royalty-free,
unrestricted license to use our technical information and patents for any
purpose related to Paradyne Corporation's products. We also granted to Paradyne
Corporation the right to acquire our chip sets at prices not to exceed cost plus
15%. The term of these agreements was 10 years, and Paradyne Corporation had the
right to extend it for an additional 10 year term. In addition, Paradyne
Corporation leased certain assets and equipment to us for an annual lease fee of
$1.00. Effective December 1998, GlobeSpan and Paradyne Corporation terminated
these agreements pursuant to a Termination Agreement whereby both parties
affirmed that the technology licensing provisions were never implemented. The
Termination Agreement further provided that we agreed, effective July 1998, to
pay Paradyne $1.5 million in license fees, that the parties agreed that $316,000
of these fees had been paid as of the effective date of the Termination
Agreement, and that we will pay to Paradyne Corporation the $1,184,000 balance
within 30 days of the effective date of this initial public offering. In
conjunction with the signing of the Termination Agreement, we entered into a
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four year Supply Agreement which gives Paradyne Corporation preferential pricing
and other terms in connection with the purchase of our products by Paradyne
Corporation. Under the terms of this Supply Agreement, we are required to honor
Paradyne Corporation's orders for our products in quantities at least consistent
with Paradyne Corporation's past ordering practices and must afford Paradyne
Corporation at least the same priority for its orders as we afford other
similarly situated customers. We also granted Paradyne Corporation immunity
under our intellectual property rights for all Paradyne Corporation customers
that purchase Paradyne Corporation products that incorporate our products. We
have been selling products to Paradyne Corporation pursuant to these terms since
July 1998. In 1997 and 1998, Paradyne Corporation paid to us a total of $373,000
and $962,000, respectively, for products purchased from us pursuant to the
agreements described in this paragraph.
Inventory Repurchases from Paradyne Corporation. In December 1997 and
September 1998, we purchased from Paradyne Corporation certain GlobeSpan chip
sets which it held in its inventory in the amounts of $98,000 and $29,000,
respectively. We purchased these chip sets for resale to other customers.
Payments to Paradyne Corporation. For a period following the divestiture,
Paradyne Corporation agreed to provide us with certain staffing services,
including legal and human resources; certain administrative services, including
risk management, patent management, tax management, and accounting support;
certain operational services, including office communications and
telecommunications systems management, facilities management and rent, and other
services until such time as we could provide similar services on our own. Though
certain services are now provided directly by GlobeSpan facilities and
employees, other services, group insurance and retirement administration are
still provided by Paradyne Corporation. This agreement can be terminated by
GlobeSpan on 60 days' notice. For these services, we paid Paradyne Corporation,
a total of $155,000 and $231,000 for the years ended December 31, 1997 and 1998.
Because we do not expect to rely on Paradyne Corporation for these services
after this offering, we anticipate that these expenses will not continue in
fiscal year 1999. In 1998, we subleased additional office space from Paradyne
Corporation. In connection with the relocation of the Paradyne Corporation
offices, we reimbursed approximately $392,000 of Paradyne Corporation's moving
expenses.
Purchase of Fixed Assets. In 1997 we purchased fixed assets from Paradyne
Corporation approximating $350,000. In 1998, we agreed to purchase certain fixed
assets from Paradyne Corporation related to the subleased Red Bank facility.
This payment totaled $1.4 million and included costs to remodel offices
previously used by Paradyne Corporation, the purchase of furniture and certain
fixtures within the office facility. These assets were transferred at their net
book value since the transaction involved entities under common control.
Various Insurance Policies. Pursuant to insurance policies issued by
insurers who are Best 'A' rated covering liability, director and officer's
insurance, property and casualty and workers' compensation, the directors and
officers of Communication Partners, L.P., Communication GenPar, Inc., Paradyne
Corporation, Paradyne Acquisition Corp., Paradyne Credit Corp. and GlobeSpan are
all covered under the same insurance policy with up to $10.0 million of
liability collectively. The term of the policy is from August 1, 1998 to July
31, 1999 and GlobeSpan's portion of the premium amount is approximately $85,000.
We expect that we will not share insurance policies with Paradyne Corporation
after this offering. We will have our own Director and Officer's Insurance
policy in effect prior to the close of this offering.
401(k) Plan. GlobeSpan currently participates in a 401(k) plan covering
substantially all employees which is maintained by Paradyne Corporation.
Effective April 1, 1999, GlobeSpan will adopt its own 401(k) plan for its
employees. Contributions paid by Paradyne Corporation on behalf of GlobeSpan
amounted to approximately $45,000, $242,000 and $348,000 for the five months
ended December 31, 1996 and the years ended December 31, 1997 and 1998,
respectively. All payments made by Paradyne Corporation on behalf of GlobeSpan
have been reimbursed to Paradyne
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Corporation. We are now making direct contributions to Paradyne Corporation's
401(k) plan on behalf of our employees, but we expect to initiate our own 401(k)
plan in 1999.
Real Property Agreements. In an agreement dated August 1997 and
subsequently amended in August 1998, we entered into a sublease with Paradyne
Corporation at 100 Schulz Drive, Red Bank, New Jersey. We currently pay Paradyne
Corporation approximately $68,000 a month for approximately 50,000 rentable
square feet. After October 2001, the rent will increase to approximately $79,000
a month for a period of six months. We are also responsible for the cost of our
own utilities, including electricity, telephone, HVAC system and I/S expenses.
The sublease will expire in April 2002.
EMPLOYMENT RELATED AGREEMENTS
We entered into an employment agreement with Armando Geday, our President
and Chief Executive Officer and a Director. See "Risk Factors--Management of
Growth; Dependence on Key Personnel" and "Management--Employment Agreements."
We entered into an employment agreement on August 29, 1997 with Thomas
Epley, who served as our Chairman of the board of directors through March 1999
and who is a director. Mr. Epley's employment agreement is at-will and provides
for an annualized base salary of $150,000 for the first twelve months of the
agreement and an annualized salary of $100,000 for the second twelve months of
the agreement. If Mr. Epley's employment is terminated without cause or for
"good reason" including assignment to a lesser position, a reduction in base
salary or a change in control of GlobeSpan, Mr. Epley will receive the remainder
of his base salary and benefits through July 31, 1999. Mr. Epley is subject to a
covenant not to compete and a noninterference requirement as long as GlobeSpan
is making payments to him under this contract.
LOANS TO CERTAIN EXECUTIVES
On November 3, 1997, we loaned $149,850 to George Malek, Vice President of
Engineering in connection with his purchase of 150,000 shares of our common
stock. The full recourse note covering this loan accrues interest at the rate of
5.94% per annum. The principal balance of this note and the accrued interest are
payable at either the earlier of termination of employment or five years from
the date of the promissory note. The loan is secured by the shares of common
stock acquired with the loan, and those shares are held in escrow by GlobeSpan.
All such shares purchased pursuant to this loan are subject to repurchase by
GlobeSpan if Mr. Malek terminates his employment prior to becoming fully vested
in these shares. The largest aggregate amount of indebtedness outstanding during
1998 was approximately $160,000 and the balance due as of March 11, 1999 was
approximately $162,000.
On October 28, 1997, we loaned $149,850 to Daniel Amrany, Chief Technology
Officer in connection with his purchase of 150,000 shares of our common stock.
The full recourse note covering this loan accrues interest at the rate of 6.06%
per annum. The principal balance of this note and the accrued interest are
payable at either the earlier of termination of employment or five years from
the date of the promissory note. The loan is secured by the shares of common
stock acquired with the loan, and those shares are held in escrow by GlobeSpan.
All such shares purchased pursuant to this loan are subject to repurchase by
GlobeSpan if Mr. Amrany terminates his employment prior to becoming fully vested
in these shares. The largest aggregate amount of indebtedness outstanding during
1998 was approximately $161,000 and the balance due as of March 11, 1999 was
approximately $162,000.
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INDEMNIFICATION PROVISIONS
Our amended and restated certificate of incorporation limits the liability
of our directors for monetary damages arising from a breach of their fiduciary
duty as directors, except to the extent otherwise required by the Delaware
General Corporation Law. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
Our bylaws provide that we shall indemnify our directors and officers to
the fullest extent permitted by Delaware law, including in circumstances in
which indemnification is otherwise discretionary under Delaware law. Prior to
the close of this offering, we will enter into indemnification agreements with
our officers and directors containing provisions that may require us, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance if available on reasonable terms.
All future transactions, including any loans from GlobeSpan to its
officers, directors, principal stockholders or affiliates, will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested member of the board of directors or, if required by law, a
majority of disinterested stockholders. These transactions, if any, will be on
terms no less favorable to GlobeSpan than could be obtained from unaffiliated
third parties.
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PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of GlobeSpan's common stock as of March 12, 1999, by the following individuals
or groups:
- Each person or entity who is known by GlobeSpan to own beneficially more
than 5.0% of GlobeSpan's outstanding stock;
- Each of the Named Executive Officers;
- Each director of GlobeSpan; and
- All directors and executive officers as a group.
Unless otherwise indicated, the address of each of the individuals listed
in the table is c/o GlobeSpan Semiconductor Inc., 100 Schulz Drive, Red Bank, NJ
07701. Except as otherwise indicated, and subject to community property laws
where applicable, the persons named in the table have sole voting and investment
power with respect to all shares of common stock shown held by them.
Applicable percentage ownership in the following table is based on
12,268,723 shares of common stock outstanding as of March 12, 1999. To the
extent that any shares are issued upon exercise of options, warrants or other
rights to acquire GlobeSpan's capital stock that are presently outstanding or
granted in the future or reserved for future issuance under GlobeSpan's stock
plans, there will be further dilution to new public investors. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities, subject to community property laws, where applicable.
Shares of our common stock subject to options that are presently exercisable or
exercisable within 60 days of March 12, 1999 are deemed to be outstanding and
beneficially owned by the person holding such options for the purpose of
computing the percentage of ownership of such person but are not treated as
outstanding for the purpose of computing the percentage of any other person.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
----------------------- -----------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
Communication Partners, L.P.(a)............. 11,437,500 93.2% 11,437,500 %
Lucent Technologies Inc.(b)................. 1,312,500 9.7 1,312,500
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
James Coulter(c)............................ -- -- --
Dipanjan Deb................................ -- -- --
Thomas Epley(d)............................. -- -- --
Keith Geeslin(e)............................ -- -- --
David Stanton(f)............................ 11,437,500 93.2 11,437,500
Armando Geday(g)............................ 465,300 3.7 465,300
Nicholas Aretakis(h)........................ 77,775 * 77,775
Thomas Sennhauser(h)........................ 77,775 * 77,775
All directors and executive officers as a
group(i) (8 persons)........................ 12,136,125 93.6 12,136,125
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1.0%
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(a) Communication GenPar, Inc., the general partner of Communication Partners,
L.P., has beneficial ownership of the shares held by Communication
Partners, L.P. David Stanton is the sole director and President of
Communication GenPar, Inc. The address of Communication Partners, L.P. is
201 Main Street, Suite 2420, Fort Worth, TX 76102.
(b) Represents a warrant held by Lucent to purchase 1,312,500 shares of our
common stock and assumes a cash exercise of the warrant. If Lucent
exercises the warrant pursuant to a net exercise provision, they will own
shares before the offering, representing % of the total
outstanding shares of GlobeSpan, and shares after the offering,
representing % of the total outstanding shares of GlobeSpan. The
address of Lucent Technologies is 10 Independence Blvd., Warren, NJ 07059.
(c) Mr. Coulter, through various investment partnerships and corporations, has
a pecuniary interest in the shares held by Communication Partners, L.P.
(d) Mr. Epley, a limited partner of Communication Partners, L.P., has a
pecuniary interest in the shares held by Communication Partners, L.P.
(e) Mr. Geeslin, through various investment partnerships and corporations, has
a pecuniary interest in the shares held by Communication Partners, L.P.
(f) Mr. Stanton is the sole director and President of Communication GenPar,
Inc., the general partner of Communication Partners, L.P. Additionally, Mr.
Stanton, through various investment partnerships and corporations, has a
pecuniary interest in the shares held by Communication Partners, L.P.
(g) Includes 465,300 shares subject to options which are exercisable within 60
days of March 12, 1999.
(h) Includes 77,775 shares subject to options which are exercisable within 60
days of March 12, 1999.
(i) Includes 698,625 shares subject to options which are exercisable within 60
days of March 12, 1999.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
On the closing of this offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, $.001 par value, and 10,000,000 shares of
Preferred Stock, $.001 par value.
COMMON STOCK
As of March 11, 1999, there were 12,268,723 shares of common stock
outstanding that were held of record by approximately 53 stockholders. There
will be shares of common stock outstanding (assuming no exercise
of the underwriters' over-allotment option and assuming no exercise after
December 31, 1998, of outstanding options) after giving effect to the sale of
the shares of common stock to the public offered hereby.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The holders of common stock are
entitled to receive dividends on a pro rata basis, if any, declared from time to
time by the board of directors out of legally available funds. See "Dividend
Policy." In the event of the liquidation, dissolution or winding up of
GlobeSpan, the holders of common stock are entitled to share on a pro rata basis
in all assets remaining after payment of liabilities. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
On the closing of this offering, 10,000,000 shares of preferred stock will
be authorized and no shares will be outstanding. The board of directors has the
authority to issue the preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions of the preferred stock,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of
GlobeSpan without further action by the stockholders and may adversely affect
the voting and other rights of the holders of common stock. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others. At present, we have no plans to issue any of the preferred
stock.
WARRANT
As of March 11, 1999, Lucent Technologies held a warrant to purchase
1,312,500 shares of our common stock at an exercise price of $6.72 per share.
This warrant can either be exercised by payment of the exercise price in cash or
by a net exercise. By its terms, the warrant will be deemed to be automatically
net exercised at the closing of this offering if the price of our common stock
in this offering is $ per share or higher. We have assumed that the warrant
will be at the mid-point of the anticipated price range, $ per share, and
that the warrant will be net exercised for shares. However, at any
time prior to the closing of this offering, Lucent Technologies can exercise the
warrant for up to 1,312,500 shares of our common stock by payment of the
exercise price in cash. Further, if the price of our common stock in this
offering is below $ per share, then the warrant will remain outstanding and
exercisable for up to 1,312,500 shares of our common stock and will remain net
exercisable.
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REGISTRATION RIGHTS
Pursuant to the terms of the warrant held by Lucent Technologies, Lucent
Technologies is entitled to certain rights with respect to the registration of
the shares issuable upon the exercise of the warrant under the Securities Act.
If we propose to register any of our securities under the Securities Act, either
for our own account or for the account of other security holders, Lucent
Technologies is entitled to notice of such registration and to include the
shares of common stock issuable upon exercise of the warrant in such
registration at our expense. Additionally, Lucent Technologies may require us to
file one additional registration statement within one year of our initial public
offering. These registration rights are subject to certain conditions and
limitations, among them the lock-up agreement effective for 180 days following
the closing of this offering and the right of the underwriters of an offering to
limit the number of shares included in such registration.
ANTITAKEOVER EFFECTS OF DELAWARE LAW AND PROVISIONS OF OUR AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION AND BYLAWS
Amended and Restated Certificate of Incorporation and Bylaws. Our amended
and restated certificate of incorporation provides that, effective upon the
closing of this offering, all stockholder actions must be effected at a duly
called meeting and not by a consent in writing. Our bylaws provide that our
stockholders may call a special meeting of stockholders only upon a request of
stockholders owning at least 25.0% of our capital stock. These provisions of our
amended and restated certificate of incorporation and bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of GlobeSpan. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of our board of directors and in the
policies formulated by our board of directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of
GlobeSpan. These provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal. The provisions also are intended to discourage
certain tactics that may be used in proxy fights. However, such provisions could
have the effect of discouraging others from making tender offers for our shares
and, as a consequence, they also may inhibit fluctuations in the market price of
our shares that could result from actual or rumored takeover attempts. Such
provisions also may have the effect of preventing changes in our management.
Delaware Antitakeover Law. GlobeSpan is subject to Section 203 of the
Delaware General Corporation Law, an antitakeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless the
"business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an "interested stockholder" is a person who, together with affiliates
and associates, owns or within three years prior to the determination of
interested stockholder status, did own, 15.0% or more of a corporation's voting
stock. The existence of this provision may have an antitakeover effect with
respect to transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is ChaseMellon
Shareholder Services, Inc.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock of
GlobeSpan, and there can be no assurance that a significant public market for
the common stock will develop or be sustained after this offering. Future sales
of substantial amounts of common stock, including shares issued upon exercise of
outstanding options and warrants, in the public market following this offering
could adversely affect market prices prevailing from time to time and could
impair GlobeSpan's ability to raise capital through sale of its equity
securities. As described below, no shares currently outstanding will be
available for sale immediately after this offering because of certain
contractual restrictions on resale. Sales of substantial amounts of common stock
of GlobeSpan in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of GlobeSpan to raise equity
capital in the future.
Upon completion of this offering, GlobeSpan will have outstanding
shares of common stock based upon shares outstanding as of March 11,
1999, assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options or warrants prior to completion of this
offering. Of these shares, the sold in this offering will be freely
tradable without restriction under the Securities Act except for any shares
purchased by "affiliates" of GlobeSpan as that term is defined in Rule 144 of
the Securities Act. The remaining 12,268,723 shares of common stock held by
existing stockholders are "restricted shares" as that term is defined in Rule
144. All such restricted shares are subject to lock-up agreements providing
that, with certain limited exceptions, the stockholder will not offer, sell,
contract to sell or otherwise dispose of any common stock or any securities that
are convertible into common stock for a period of 180 days after the date of
this prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation. As a result of these lock-up agreements,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, none of these shares will be eligible for resale
until 181 days after the date of this prospectus. Beginning 181 days after the
date of this prospectus, approximately 11,437,500 restricted shares will be
eligible for sale in the public market, all of which are subject to volume
limitations under Rule 144. Additionally, 248,750 shares will be eligible for
sale without restrictions under Rule 144(k) and 1,533,238 shares will be
eligible for sale under Rule 701. Donaldson, Lufkin & Jenrette Securities
Corporation may, at their sole discretion, and at any time without notice,
release all or any portion of the securities subject to lock-up agreements.
In general, the volume limitations under Rule 144, as currently in effect,
provide that beginning 90 days after the date of this prospectus, a person who
has beneficially owned restricted shares for at least one year including the
holding period of any prior owner except an affiliate would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
- 1.0% of the number of shares of GlobeSpan common stock then
outstanding which will equal approximately shares immediately
after this offering; or
- the average weekly trading volume of the GlobeSpan common stock
during the four calendar weeks preceding the filing of Form 144 with
respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about GlobeSpan. Under Rule 144(k), a person who is not deemed to have been an
affiliate of GlobeSpan at any time during the three months preceding a sale and
who has beneficially owned the shares proposed to be sold for at least two years
including the holding period of any prior owner except an affiliate, is entitled
to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement of Rule 144. Any employee, officer or director of or
consultant to GlobeSpan who purchased shares under a written
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compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. Absent an
ability to sell shares in compliance with Rule 144(k), all holders of Rule 701
shares are required to wait until 90 days after the date of this prospectus
before selling such shares. However, all Rule 701 shares are subject to lock-up
agreements and will only become eligible for sale at the earlier of the
expiration of the 180-day lock-up agreements or no sooner than 90 days after the
offering upon obtaining the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation.
Within 90 days following the effectiveness of this offering, GlobeSpan will
file a Registration Statement on Form S-8 registering shares of common stock
subject to outstanding options or reserved for future issuance under its stock
plans. As of March 11, 1999, options to purchase a total of 2,007,055 shares
were outstanding and 1,334,604 shares were reserved for future issuance under
GlobeSpan's 1999 Equity Incentive Plan and 1999 Director Stock Plan. All such
options are subject to lock-up agreements. Common stock issued upon exercise of
outstanding vested options or issued under GlobeSpan's purchase plan, other than
common stock issued to affiliates of GlobeSpan, will be available for resale in
the open market 181 days after the close of this offering.
Lucent Technologies holds a warrant to purchase 1,312,500 shares of common
stock, assuming the warrant is cash exercised, and shares of common
stock if the warrant is net exercised. This warrant is subject to a lock-up
agreement. Beginning six months after the date of this offering, Lucent
Technologies will be entitled to certain registration rights for sale of the
warrant shares in the public market. See "Description of Capital
Stock--Registration Rights." Registration of such shares under the Securities
Act would result in such shares becoming freely tradable without restriction
under the Securities Act, except for shares purchased by affiliates, immediately
upon the effectiveness of such registration.
66
<PAGE> 70
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated 1999, the underwriters named below, who are
represented by Donaldson, Lufkin & Jenrette Securities Corporation, BancBoston
Robertson Stephens Inc., SG Cowen Securities Corporation and Thomas Weisel
Partners LLC, have severally agreed to purchase from GlobeSpan the respective
number of shares of common stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS: OF SHARES
------------- ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
BancBoston Robertson Stephens Inc...........................
SG Cowen Securities Corporation.............................
Thomas Weisel Partners LLC..................................
--------
Total.......................................................
========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The underwriters are obligated to purchase and
accept delivery of all the shares of common stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The underwriters initially propose to offer the shares of GlobeSpan common
stock in part directly to the public at the initial public offering price set
forth on the cover page of this prospectus and in part to certain dealers
(including the underwriters) at such price less a concession not in excess of
$ per share. The underwriters may allow, and such dealers may re-allow, to
certain other dealers a concession not in excess of $ per share. After the
initial offering of the common stock, the public offering price and other
selling terms may be changed by the representatives of the underwriters at any
time without notice. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in the offering over the Internet. The underwriters have
agreed to allocate a limited number of shares to DLJdirect Inc. for sale to
brokerage account holders.
GlobeSpan has granted to the underwriters an option, exercisable within 30
days after the date of this prospectus, to purchase, from time to time, in whole
or in part, up to an aggregate of additional shares of common
stock at the initial public offering price less underwriting discounts and
commissions. The underwriters may exercise such option solely to cover over-
allotments, if any, made in connection with the offering. To the extent that the
underwriters exercise such option, each underwriter will become obligated,
subject to certain conditions, to purchase its pro rata portion of such
additional shares based on such underwriter's percentage underwriting commitment
as indicated in the preceding table.
GlobeSpan has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the underwriters may be required to make in respect thereof.
67
<PAGE> 71
Each of GlobeSpan, its executive officers, directors, stockholders, option
holders and its warrant holder have agreed, subject to certain exceptions, not
to
- Offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, or
- Enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock
for a period of 180 days after the date of this prospectus without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation. In
addition, during such 180-day period, GlobeSpan has also agreed not to file any
registration statement with respect to, and each of its executive officers,
directors, and certain stockholders of GlobeSpan has agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of GlobeSpan's common stock or any securities convertible into or
exercisable or exchangeable for common stock without the prior written consent
of Donaldson, Lufkin & Jenrette Securities Corporation. However, Donaldson,
Lufkin & Jenrette Securities Corporation may, in its sole discretion, release
all or any portion of the securities subject to the lock-up agreements.
Prior to the offering, there has been no established trading market for
GlobeSpan's common stock. The initial public offering price of the shares of
GlobeSpan's common stock offered hereby was determined by negotiation among
GlobeSpan and the representatives of the underwriters. The factors considered in
determining the initial public offering price included the history of and the
prospects for the industry in which GlobeSpan competes, the past and present
operations of GlobeSpan, the historical results of operations of GlobeSpan, the
prospects for future earnings of GlobeSpan, the recent market prices of
securities of generally comparable companies and the general condition of the
securities markets at the time of the offering.
Other than in the United States, no action has been taken by GlobeSpan or
the underwriters that would permit a public offering of the shares of common
stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of common stock offered hereby may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisements in connection with the offer and sale of any shares of common
stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons with this prospectus should inform
themselves about and observe any restrictions relating to the offering and the
distribution of this prospectus. This prospectus does not constitute an offer to
sell or solicitation of an offer to buy any shares of common stock offered
hereby in any jurisdiction in which such an offer or a solicitation is unlawful.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has co-managed fifteen public offerings of equity
securities and has acted as an underwriter in an additional five public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with us
pursuant to the underwriting agreement entered into in connection with this
offering.
Under Rule 2720 of the Conduct Rules of the National Association of
Securities Dealers, Inc., GlobeSpan is considered an affiliate of Donaldson,
Lufkin & Jenrette Securities Corporation. This offering is being conducted in
accordance with Rule 2720, which provides that, among other things, when an NASD
member participates in the underwriting of an affiliate's equity securities, the
offering price can be no higher than that recommended by a "qualified
independent underwriter" (QIU)
68
<PAGE> 72
meeting certain standards. In accordance with this requirement,
has assumed the responsibilities of acting as QIU and will
recommend a price in compliance with the requirements of Rule 2720. In
connection with this offering, is performing due diligence
investigations and reviewing and participating in the preparation of this
prospectus and the registration statement of which this prospectus forms a part.
In connection with the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of
GlobeSpan's common stock. Specifically, the underwriters may overallot the
offering, creating a syndicate short position. The underwriters may bid for and
stabilize the price of the common stock. In addition, the underwriting syndicate
may reclaim selling concessions from syndicate members and selected dealers if
they repurchase previously distributed common stock in syndicate covering
transactions, in stabilizing transactions or otherwise. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
GlobeSpan by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, 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 GlobeSpan Semiconductor Inc. as of December 31,
1997 and 1998, and for the five months ended December 31, 1996 and for each of
the two years in the period ended December 31, 1998 included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants given on the authority of said firm as experts in
auditing and accounting.
69
<PAGE> 73
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 common stock offered hereby. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits and
schedules to the registration statement. For further information with respect to
GlobeSpan and such common stock offered hereby, reference is made to the
registration statement and the exhibits and schedules filed as a part of the
registration statement. Statements contained in this prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete; reference is made in each instance to the copy of such contract or
document filed as an exhibit to the registration statement. Each such statement
is qualified in all respects by such reference to such exhibit. You may inspect
a copy of the registration statement without charge at the Securities and
Exchange Commission's principal office in Washington, D.C. and obtain copies of
all or any part thereof upon payment of certain fees from the public reference
section of the Securities and Exchange Commission at the Securities and Exchange
Commission's principal office, 450 Fifth Street, N.W., Washington, D.C. 20549,
or at the Securities and Exchange Commission's regional offices in New York,
located at 7 World Trade Center, Suite 1300, New York, New York 10048, or in
Chicago, located at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The Securities and Exchange Commission maintains an Internet site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission. The Securities and Exchange Commission's World Wide Web address is
www.sec.gov.
GlobeSpan intends to furnish holders of its common stock with annual
reports containing, among other information, audited financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited condensed financial information for the first three
quarters of each fiscal year. GlobeSpan intends to furnish such other reports as
it may determine or as may be required by law.
70
<PAGE> 74
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ADVANCED TRANSMISSION TECHNOLOGY DIVISION (A DIVISION OF
AT&T PARADYNE):
Report of Independent Accountants......................... F-2
Statement of Net Assets................................... F-3
Statement of Operations and Changes in Net Assets......... F-4
Statement of Cash Flows................................... F-5
Notes to Financial Statements............................. F-6
GLOBESPAN SEMICONDUCTOR INC.:
Report of Independent Accountants......................... F-8
Balance Sheets............................................ F-9
Statements of Operations.................................. F-10
Statements of Changes in Stockholders' Equity............. F-11
Statements of Cash Flows.................................. F-12
Notes to Financial Statements............................. F-13
</TABLE>
F-1
<PAGE> 75
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
GlobeSpan Semiconductor Inc.
In our opinion, the accompanying statement of net assets and the related
statement of operations and of cash flows present fairly, in all material
respects, the financial position of the Advanced Transmission Technology
Division of AT&T Paradyne Corporation, ("ATT"), the predecessor entity of
GlobeSpan Semiconductor Inc., at July 31, 1996 and the results of its operations
and its cash flows for the period from January 1, 1996 through July 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of ATT's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Tampa, Florida
August 28, 1998
F-2
<PAGE> 76
ADVANCED TRANSMISSION TECHNOLOGY DIVISION
(A DIVISION OF AT&T PARADYNE CORPORATION)
STATEMENT OF NET ASSETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JULY 31,
1996
--------
<S> <C>
CURRENT ASSETS:
Contract receivable (Note 3).............................. $ --
----
$ --
====
LIABILITIES AND DIVISION DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 69
Contingency (Note 3)...................................... --
----
Net assets............................................. $(69)
====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 77
ADVANCED TRANSMISSION TECHNOLOGY DIVISION
(A DIVISION OF AT&T PARADYNE CORPORATION)
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
JULY 31,
1996
------------
<S> <C>
Revenues.................................................... $1,597
Expenses:
Research and development.................................. 2,524
General and administrative................................ 1,492
------
Total expenses......................................... 4,016
------
Net loss.................................................... (2,419)
Net assets, beginning of period............................. 992
Advances from AT&T Paradyne............................... 1,358
------
Net assets, end of period................................. $ (69)
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 78
ADVANCED TRANSMISSION TECHNOLOGY DIVISION
(A DIVISION OF AT&T PARADYNE CORPORATION)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
JULY 31,
1996
--------------
<S> <C>
CASH FLOW USED IN OPERATING ACTIVITIES:
Net loss.................................................. $(2,419)
Decrease in receivables................................ 1,000
Increase in accrued expenses........................... 61
-------
Net cash used in operating activities....................... (1,358)
-------
Cash flow from financing activities -- advances from
Paradyne............................................... 1,358
-------
Net cash flows.............................................. $ --
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 79
ADVANCED TRANSMISSION TECHNOLOGY DIVISION
(A DIVISION OF AT&T PARADYNE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BASIS OF PRESENTATION, SUBSEQUENT ACQUISITION AND RELATED PARTY TRANSACTIONS
Pursuant to a Purchase Agreement dated June 18, 1996, three direct
wholly-owned subsidiaries and two indirect wholly-owned subsidiaries of
Communication Partners, L.P. (formerly known as Paradyne Partners, L.P.)
acquired certain assets of AT&T Paradyne Corporation from its parent company,
Lucent Technologies Inc. ("Lucent"), in exchange for $146 million in cash and
notes and the assumption of certain liabilities effective July 31, 1996. The
assets and liabilities were purchased by four separate operating subsidiaries of
Communication Partners, L.P. including GlobeSpan Technologies (subsequently
GlobeSpan Semiconductor Inc.) (the "Company").
Assets acquired by the Company for $2.0 million consisted of certain
research and development activities, patents and customer licenses related to
carrierless amplitude phase modulation technique (generally referred to as "CAP
Technology") which is used to transmit data over copper telephone wires. In
addition, certain customer rent and lease agreements of AT&T Paradyne
Corporation were acquired directly by Rental Acquisition Corp. and Lease
Acquisition Corp., and certain net assets relating to the manufacturing,
marketing and research activities for data communications and networking
products for commercial end users and network service providers were acquired by
Paradyne Corporation (all of which are direct or indirect subsidiaries of
Communication Partners, L.P.). Paradyne Corporation also entered into a product
distribution agreement with Lucent. Additionally, certain assets and liabilities
of AT&T Paradyne Corporation were retained by Lucent or disposed of prior to the
transaction. All assets and liabilities and activities acquired by subsidiaries
of Communication Partners, L.P., other than the Company, or retained by Lucent
have been excluded from the accompanying financial statements.
Prior to July 31, 1996, the CAP Technology was developed through the
Advanced Transmission Technology Division ("ATT") of AT&T Paradyne Corporation,
a wholly-owned subsidiary of Lucent Technologies, which is the "predecessor
entity" to the Company. The accompanying financial statements reflect the
historical financial condition, results of operations and cash flows of ATT
which were acquired by the Company, on a carve out basis, as if it had been an
independent reporting entity for the period presented.
2. SIGNIFICANT ACCOUNTING POLICIES:
The significant accounting principles and practices used in the preparation
of the accompanying financial statements are summarized below:
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 periods presented. Actual results could differ from those estimates.
F-6
<PAGE> 80
ADVANCED TRANSMISSION TECHNOLOGY DIVISION
(A DIVISION OF AT&T PARADYNE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
REVENUE RECOGNITION
Licensing fees are recognized when ATT has completed delivery of technical
specifications and performed all required services under the related agreements.
Commissions and right to use fees are recognized upon shipment of product by the
licensees, in accordance with the agreements.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred and approximated
$2.5 million for the seven months ended July 31, 1996.
ALLOCATION OF RELATED PARTY EXPENSES
The accompanying financial statements include $689 of other expenses that
have been charged to the Company from AT&T Paradyne Corporation. Rent expense
was allocated on a pro rata basis computed on the number of employees. Other
fees were allocated based on negotiations with the related party. Management
believes that such amounts include all significant costs incurred to support the
Company.
3. TECHNOLOGY DEVELOPMENT AGREEMENT AND CONTINGENCY
In July 1995, AT&T Paradyne entered into a technology development agreement
with Bell Atlantic Network Services, Inc. ("Bell Atlantic"). Under the terms of
the agreement, ATT provided use of certain DSL technologies to third party
suppliers for the purpose of development of DSL network access products
incorporating CAP Technology. Bell Atlantic paid $5.0 million under the
agreement in return for the right to receive up to $7.0 million of commission
fees based on future sales of products to Bell Atlantic and other qualified
third party companies, as defined in the agreement. While the Company could be
liable for paying a commission fee to Bell Atlantic, the triggering of this fee
would result from future revenue. No fees have yet been paid under this
agreement. All research and development requirements of the agreement were
completed by ATT in 1995 and the final $1.0 million of cash was received in
January 1996.
F-7
<PAGE> 81
The reverse stock split and recapitalization described in Note 14 to the
financial statements has not been consummated at March 12, 1999. When it has
been consummated, we expect to be in a position to render the following report:
PricewaterhouseCoopers, LLP
Florham Park, New Jersey
February 12, 1999, except as to Note 14 which is as of March 12, 1999
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
GlobeSpan Semiconductor Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in stockholders' equity and cash flows present fairly, in
all material respects, the financial position of GlobeSpan Semiconductor Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from inception through December 31, 1996 and for each of the two
years ended December 31, 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 audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Florham Park, New Jersey
February 12, 1999, except as to Note 14 which is as of March 12, 1999
F-8
<PAGE> 82
GLOBESPAN SEMICONDUCTOR INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 875 $ 12
Accounts receivable, less allowance for doubtful accounts
of $49 and $61, respectively........................... 4,520 3,823
Accounts receivable from affiliates....................... 447 73
Inventories............................................... 119 912
Prepaid income taxes...................................... -- 1,178
Prepaid expenses and other current assets................. 229 564
------- -------
Total current assets................................... 6,190 6,562
Deferred tax asset.......................................... 500 --
Property and equipment, net................................. 2,941 6,680
Core technology............................................. 584 --
Other assets................................................ -- 188
------- -------
Total assets........................................... $10,215 $13,430
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit........................... $ -- $ 2,466
Accounts payable.......................................... 1,488 2,131
Accounts payable to affiliates............................ 1,164 327
Accrued expenses and other liabilities.................... 32 1,482
Payroll and benefit related liabilities................... 1,083 2,519
Current portion of capital lease obligations.............. -- 292
------- -------
Total current liabilities.............................. 3,767 9,217
------- -------
Subordinated note payable to Communication Partners, L.P.... -- 5,000
Capital lease obligations, less current portion............. -- 506
------- -------
Total liabilities...................................... 3,767 14,723
------- -------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.001; 3,000,000 shares
authorized; none issued or outstanding................. -- --
Common stock, par value $0.001; 15,555,300 shares
authorized; 12,286,674 and 12,265,265 shares issued and
outstanding, respectively.............................. 12 12
Stock purchase warrant.................................... 1 3,654
Additional paid-in capital................................ 7,239 3,629
Notes receivable from stock sales......................... (794) (725)
Deferred stock compensation............................... (52) (76)
Retained earnings (accumulated deficit)................... 42 (7,787)
------- -------
Total stockholders' equity (deficit)................... 6,448 (1,293)
------- -------
Total liabilities and stockholders' equity............. $10,215 $13,430
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 83
GLOBESPAN SEMICONDUCTOR INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FIVE MONTHS YEARS ENDED
ENDED DECEMBER 31,
DECEMBER 31, --------------------------
1996 1997 1998
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES:
Net product sales (including related party
amounts of $0, $373 and $962 for 1996,
1997 and 1998, respectively)............. $ 951 $ 20,615 $ 31,154
Other revenues (including related party
amounts of $235, $0 and $0 for 1996, 1997
and 1998, respectively).................. 1,409 1,931 310
----------- ----------- -----------
Total revenues........................... 2,360 22,546 31,464
Cost of sales (including related party amounts
of $0, $293 and $1,042 for 1996, 1997 and
1998, respectively)......................... 496 7,565 9,882
----------- ----------- -----------
Gross profit.................................. 1,864 14,981 21,582
----------- ----------- -----------
OPERATING EXPENSES:
Research and development (Note 2)........... 1,616 8,358 18,694
Selling, general and administrative (Note
12)...................................... 644 4,572 10,217
Amortization and other (Note 2)............. 404 1,000 583
----------- ----------- -----------
Total operating expenses................. 2,664 13,930 29,494
----------- ----------- -----------
(Loss) income from operations................. (800) 1,051 (7,912)
Interest income (expense), net................ -- 91 (134)
----------- ----------- -----------
(Loss) income before income taxes............. (800) 1,142 (8,046)
Income tax provision (benefit)................ -- 300 (217)
----------- ----------- -----------
Net (loss) income............................. $ (800) $ 842 $ (7,829)
=========== =========== ===========
(Loss) earnings per share:
Basic....................................... $ (0.07) $ 0.07 $ (0.65)
=========== =========== ===========
Diluted..................................... $ (0.07) $ 0.07 $ (0.65)
=========== =========== ===========
Shares used in computing net (loss) earnings
per share (Note 9)
Basic....................................... 11,437,500 11,515,538 12,084,711
Diluted..................................... 11,437,500 12,706,432 12,084,711
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 84
GLOBESPAN SEMICONDUCTOR INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES RETAINED
COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED EARNINGS
------------------- STOCK PAID-IN FROM STOCK (ACCUMULATED
SHARES AMOUNT WARRANT CAPITAL STOCK SALES COMPENSATION DEFICIT)
---------- ------ ------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in the Company by
Communication Partners,
L.P........................ 11,437,500 $11 $ 1 $ 5,989 $ -- $ -- $ --
Net loss................... -- -- -- -- -- -- (800)
Asset allocation charge.... -- -- -- 106 -- -- --
---------- --- ------ ------- ----- ---- -------
Balance at December 31,
1996....................... 11,437,500 11 1 6,095 -- -- (800)
Net income................. -- -- -- -- -- -- 842
Asset allocation charge.... -- -- -- 244 -- -- --
Exercise of employee stock
options.................. 849,174 1 -- 848 (794) -- --
Non-employee stock
options.................. -- -- -- 52 -- (52) --
---------- --- ------ ------- ----- ---- -------
Balance at December 31,
1997....................... 12,286,674 12 1 7,239 (794) (52) 42
Net loss................... -- -- -- -- -- -- (7,829)
Distribution to
Communication Partners,
L.P. (Note 7)............ -- -- 3,653 (3,653) -- -- --
Exercise of employee stock
options.................. 42,654 -- -- 61 -- -- --
Non-employee stock
options.................. -- -- -- 44 -- (44) --
Amortization of
non-employee stock
options.................. -- -- -- -- -- 20 --
Benefit from exercise of
nonqualified stock
options.................. -- -- -- 2 -- -- --
Repayment of note
receivable............... -- -- -- -- 5 -- --
Forfeiture of restricted
stock.................... (64,063) -- -- (64) 64 -- --
---------- --- ------ ------- ----- ---- -------
Balance at December 31,
1998....................... 12,265,265 $12 $3,654 $ 3,629 $(725) $(76) $(7,787)
========== === ====== ======= ===== ==== =======
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Investments in the Company by
Communication Partners,
L.P........................ $ 6,001
Net loss................... (800)
Asset allocation charge.... 106
-------
Balance at December 31,
1996....................... 5,307
Net income................. 842
Asset allocation charge.... 244
Exercise of employee stock
options.................. 55
Non-employee stock
options.................. --
-------
Balance at December 31,
1997....................... 6,448
Net loss................... (7,829)
Distribution to
Communication Partners,
L.P. (Note 7)............ --
Exercise of employee stock
options.................. 61
Non-employee stock
options.................. --
Amortization of
non-employee stock
options.................. 20
Benefit from exercise of
nonqualified stock
options.................. 2
Repayment of note
receivable............... 5
Forfeiture of restricted
stock.................... --
-------
Balance at December 31,
1998....................... $(1,293)
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 85
GLOBESPAN SEMICONDUCTOR INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIVE MONTHS YEARS ENDED
ENDED DECEMBER 31,
DECEMBER 31, -----------------
1996 1997 1998
------------ ------- -------
<S> <C> <C> <C>
CASH FLOW (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Net (loss) income....................................... $ (800) $ 842 $(7,829)
Adjustments to reconcile net (loss) income to cash (used
in) provided by operating activities:
Deferred income taxes................................ -- (500) 500
Provision for bad debts.............................. -- 49 12
Provision for inventory obsolescence................. -- -- 95
Amortization and depreciation........................ 523 1,702 2,657
Changes in assets and liabilities:
(Increase) decrease in accounts receivable........... (1,701) (3,315) 1,059
(Increase) in inventories............................ -- (119) (888)
(Increase) in prepaid expenses and other............. -- (229) (1,698)
Increase (decrease) in accounts payable.............. 1,086 1,589 (194)
Increase in accrued expenses and other current
liabilities........................................ 218 874 2,886
------- ------- -------
Net cash (used in) provided by operating activities....... (674) 893 (3,400)
------- ------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures.................................... (40) (3,359) (4,810)
Purchase of net assets of the Company................... (2,000) -- --
------- ------- -------
Net cash used in investing activities..................... (2,040) (3,359) (4,810)
------- ------- -------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from borrowings under subordinated note
payable.............................................. -- -- 5,000
Proceeds from borrowings under line of credit........... -- -- 2,466
Proceeds from issuance of common stock.................. 4,000 55 61
Proceeds from repayment of notes receivable............. -- -- 5
Repayments of capital lease borrowings.................. -- -- (185)
Equity investments in the Company....................... 2,000 -- --
------- ------- -------
Net cash provided by financing activities................. 6,000 55 7,347
------- ------- -------
Net increase (decrease) in cash and cash equivalents...... 3,286 (2,411) (863)
Cash and cash equivalents at beginning period............. -- 3,286 875
------- ------- -------
Cash and cash equivalents at end of period................ $ 3,286 $ 875 $ 12
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid:
Interest............................................. $ -- $ -- $ 145
======= ======= =======
Income taxes......................................... $ -- $ 1,000 $ 492
======= ======= =======
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES:
Notes receivable for sale of stock...................... $ -- $ 794 $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 86
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Pursuant to a Purchase Agreement dated June 18, 1996, three direct
wholly-owned subsidiaries and two indirect wholly-owned subsidiaries of
Communication Partners, L.P. (formerly Paradyne Partners, L.P.), acquired
certain assets of AT&T Paradyne Corporation from its parent company, Lucent
Technologies Inc. ("Lucent"), in exchange for $146 million in cash and notes and
the assumption of certain liabilities effective July 31, 1996. The assets and
liabilities were purchased by four separate operating subsidiaries of
Communication Partners, L.P., including GlobeSpan Technologies (subsequently
GlobeSpan Semiconductor Inc.) (the "Company").
Assets acquired by the Company for $2.0 million consisted of certain
research and development activities, patents and customer licenses related to
carrierless amplitude phase modulation technique (generally referred to as "CAP
Technology") which is used to transmit data over copper telephone wires. In
addition, certain customer rent and lease agreements of AT&T Paradyne
Corporation were acquired directly by Rental Acquisition Corp. and Lease
Acquisition Corp., and certain net assets relating to the manufacturing,
marketing and research activities for data communications and networking
products for commercial end users and network service providers were acquired by
Paradyne Corporation (all of which are direct or indirect subsidiaries of
Communication Partners, L.P.). Paradyne Corporation also entered into a product
distribution agreement with Lucent. Additionally, certain assets and liabilities
of AT&T Paradyne Corporation were retained by Lucent or disposed of prior to the
transaction. All assets and liabilities and activities acquired by subsidiaries
of Communication Partners, L.P., other than the Company, or retained by Lucent
have been excluded from the accompanying financial statements.
The accompanying financial statements include the accounts of the Company.
See discussion of related party transactions in Notes 7 and 12. As of December
31, 1998, Communication Partners owned a substantial portion of the Company's
outstanding stock.
The Company is a leading worldwide developer of advanced digital subscriber
line (DSL) integrated circuits which enable high-speed data transmission over
the existing network of copper telephone wires known as the local loop. The
Company sells integrated circuits as chip sets to manufacturers of DSL equipment
for incorporation into products which are sold to telecommunications service
providers and end users.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting principles and practices used in the preparation
of the accompanying financial statements are summarized below:
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 periods presented. These estimates include assessing the
collectability of accounts receivable, the use and recoverability of inventory,
the realizability of deferred tax assets and useful lives or amortization
periods of intangible assets. Actual results could differ from those estimates.
The markets for the Company's
F-13
<PAGE> 87
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
products are characterized by intense competition, rapid technological
development and frequent new product introductions, all of which could impact
the future value of the Company's assets.
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment to the customer,
when no significant vendor obligations exist and collection of the resulting
receivable is probable. Licensing fees are recognized when the Company has
completed delivery of technical specifications and performed all required
services under the related agreements. Commissions and right to use fees are
recognized upon shipment of product by the licensees, in accordance with the
agreements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories, substantially all of which are finished goods, are stated at
the lower of cost or market. Cost is determined on a first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the related assets,
ranging from three to five years. Leasehold improvements are amortized on a
straight-line basis over the lesser of the terms of the leases or the estimated
useful lives of the assets. Gains or losses on disposals of property and
equipment are recorded in current operations.
CORE TECHNOLOGY
Core technology, which consists of patents, trademarks and technical
know-how of $2,000 acquired by the Company at inception (see Note 1) is stated
at acquisition cost, which approximates fair value. Amortization is provided on
a straight-line basis over the estimated useful life of two years. The estimated
useful life was based primarily on the expected utilization of the assets and
rapid technological changes in the integrated circuit and telecommunications
industries. The recoverability of carrying values is evaluated on a recurring
basis. Amortization expense associated with such core technology was $417,
$1,000 and $583 for the five months ended December 31, 1996 and the years ended
December 31, 1997 and 1998, respectively, such that as of December 31, 1998 this
core technology was fully amortized.
FINANCIAL INSTRUMENTS
The carrying value of accounts receivable, accounts payable and borrowings
under the revolving credit agreement approximate their fair values due to the
relatively short-term nature of these instruments. The estimated fair value of
the outstanding borrowings under the subordinated note payable at December 31,
1998 was approximately $4,906.
F-14
<PAGE> 88
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PRODUCT WARRANTIES
The Company provides purchasers of its products with certain warranties
that correspond with the warranties from its contract manufacturers. Warranty
expense has been immaterial for all periods presented.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in connection with the research and development of the
Company's products and enhancements to existing products are expensed as
incurred unless technological feasibility has been established. Based on the
Company's product development process, technological feasibility is established
upon completion of a working model. Costs incurred by the Company between
completion of the working model and the point at which the product is ready for
general release have not been material. Accordingly, research and development
costs have been expensed as incurred.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which
requires use of the asset and liability method. Deferred income taxes are
recorded for temporary differences between financial statement carrying amounts
and the tax bases of assets and liabilities. Deferred tax assets and liabilities
reflect the tax rates expected to be in effect for the years in which the
differences are expected to reverse. A valuation allowance is provided if it is
more likely than not that some or all of the deferred tax asset will not be
realized.
STOCK SPLITS
In 1996, the board of directors approved an 8.75 to 1 stock split. In
November 1997, the board of directors approved a 2 to 1 stock split. In February
1998, the board of directors approved a 1.5 to 1 stock split. All share, stock
option and stock warrant information included in the accompanying financial
statements and related notes have been restated for all periods to reflect these
stock splits. (See Note 14).
3. CONCENTRATION OF RISK AND CUSTOMER INFORMATION
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash equivalents and trade receivables.
The Company does not generally require collateral from its customers and
substantially all of its trade receivables are unsecured. At December 31, 1997
and 1998, five of the Company's customers accounted for $3,582 (79.2%) and
$3,492 (91.3%) of net accounts receivable, respectively.
Sales to three customers amounted to approximately $1,301 (55.1%), $9,818
(43.5%) and $22,042 (70.1%) of total revenues for the five months ended December
31, 1996 and for the years ended December 31, 1997 and 1998, respectively.
F-15
<PAGE> 89
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company's sales to overseas customers are denominated in the U.S.
dollar. Revenues by geographic region for the five months ended December 31,
1996 and the years ended December 31, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEARS ENDED DECEMBER 31,
DECEMBER 31, -------------------------
1996 1997 1998
------------ ---------- -----------
<S> <C> <C> <C>
Net revenues:
North America................................... $1,417 $11,458 $21,214
Europe.......................................... 313 3,940 3,712
Mexico/Latin America............................ -- 98 3,063
Asia............................................ 406 6,964 2,973
Australia....................................... 224 86 502
------ ------- -------
$2,360 $22,546 $31,464
====== ======= =======
</TABLE>
A single vendor manufactures substantially all of the chip sets sold by the
Company. Purchases from this vendor approximated 94%, 98% and 81% of total
inventory purchases for the five months ended December 31, 1996 and the years
ended December 31, 1997 and 1998, respectively. If this vendor were to become
unwilling or unable to continue to manufacture these chip sets in required
volumes, the Company would have to identify and qualify acceptable alternative
vendors. The inability to develop alternative sources, if required in the
future, could result in delays or reductions in product shipments.
4. TECHNOLOGY LICENSING AGREEMENTS
The Company entered into technology licensing and right to use agreements
whereby the Company receives fees for the use and/or sale of specific patented
technology. Revenues from these agreements amounted to $1,409, $1,931 and $310
for the five months ended December 31, 1996 and the years ended December 31,
1997 and 1998, respectively. (See Note 12).
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-----------------
1997 1998
------ -------
<S> <C> <C>
Computers and equipment..................................... $3,028 $ 5,110
Office furniture and fixtures............................... 68 131
Software.................................................... 266 1,991
Leasehold improvements...................................... 37 1,099
Property under capital leases............................... -- 861
------ -------
3,399 9,192
Less: accumulated depreciation.............................. (458) (2,512)
------ -------
$2,941 $ 6,680
====== =======
</TABLE>
F-16
<PAGE> 90
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Included in operating expenses is depreciation expense of $106, $702 and
$2,054 for the five months ended December 31, 1996 and the years ended December
31, 1997 and 1998, respectively. Of such amounts, $106 and $244 for the five
months ended December 31, 1996 and the year ended December 31, 1997,
respectively, represent a non-cash allocation of depreciation expense from
Paradyne for the use of specified assets, which was recorded as a capital
contribution. Accumulated amortization on assets accounted for as capital
leases, amounted to approximately $47 as of December 31, 1998.
6. REVOLVING CREDIT AGREEMENT
In May 1998, the Company entered into a revolving credit agreement with
BankAmerica Business Credit, Inc. ("BABC") pursuant to which the Company may
borrow the lesser of a borrowing base or $5.0 million ("the Available
Facility"). The borrowing base is equal to 85.0% of eligible receivables, as
defined. Outstanding borrowings on the Company's revolving credit facility bear
interest, payable on a monthly basis, at a rate of 1.0% in excess of the
reference rate announced by BABC. For the year ended December 31, 1998, the
weighted average interest rate was 9.1%. Interest related to this facility was
approximately $50 for the year ended December 31, 1998. The revolving credit
agreement expires on January 31, 2000 and is automatically renewable for
additional one-year terms unless terminated by the Company or BABC.
A portion of the revolving credit facility is available for the issuance of
merchandise or standby letters of credit provided that the aggregate undrawn
amount of all such outstanding merchandise and standby letters of credit does
not exceed $1.0 million. The Company is charged a fee equal to 1.5% per annum on
the aggregate face amount of each outstanding standby letter of credit and 0.75%
per annum on the aggregate face amount of each outstanding merchandise letter of
credit, which is payable on a monthly basis. As of December 31, 1998, the
Company had no outstanding letters of credit under this agreement.
The Company is charged a commitment fee of 0.5% per annum, payable on a
quarterly basis, on the difference between $5.0 million and the sum of average
daily outstanding amount of the revolving credit facility and the average
undrawn face amount of all outstanding letters of credit. Commitment fees
relating to the above facility amounted to $13 for the year ended December 31,
1998. (See Note 12 for related party borrowings).
Substantially all of the Company's assets are pledged as collateral under
the BABC revolving credit agreement. Under the terms of the credit agreement,
the Company is required to maintain an account with BABC to which all customer
payments are remitted and applied against the outstanding balance under the
revolving credit agreement. Accordingly, the entire outstanding balance has been
classified as a current liability as of December 31, 1998. The credit agreement
also contains various covenants which, among other things, restrict certain
corporate actions including, but not limited to, mergers, sales of assets and
payment of dividends. As discussed in Note 12, the Company purchased certain
assets from Paradyne Corporation in December 1998, which constituted a violation
of the revolving credit agreement. This violation was waived by BABC.
7. STOCK PURCHASE WARRANT
In connection with the Company's inception (see Note 1), the Company issued
a warrant to acquire 1,312,500 shares of its common stock at an exercise price
of $6.72 per share to Lucent. The warrant was due to expire upon payment or
transfer by Paradyne Corporation, an affiliated company
F-17
<PAGE> 91
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
("Paradyne"), of Paradyne's long-term debt maturing June 30, 2000 and upon the
sale or merger of the Company (as provided in the Stock Warrant Agreement) at a
price less than the exercise price. The warrant includes other provisions,
including certain anti-dilution provisions.
In August 1998, Paradyne settled its outstanding long-term debt due June
30, 2000. As a term of such settlement, the Company agreed to extend the
exercise period of the outstanding stock purchase warrant to the earlier of June
30, 2001 or the consummation of a qualifying business combination, as defined.
In connection therewith, the Company recorded a $3,653 distribution to the
Parent based on the increase in the fair value of the warrant resulting from the
extension of the outstanding warrant term. (See Note 14).
8. INCOME TAXES
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
----------------
1997 1998
----- -------
<S> <C> <C>
Amortization of intangibles................................. $ 491 $ 670
Inventory obsolescence reserve.............................. -- 38
Depreciation................................................ (52) (190)
Accrued expenses............................................ -- 386
Other....................................................... 61 25
Net operating loss carryforwards............................ -- 2,121
----- -------
500 3,050
Less valuation allowance.................................... -- (3,050)
----- -------
Net deferred tax asset...................................... $ 500 $ --
===== =======
</TABLE>
As of December 31, 1997, the Company did not provide a valuation allowance
against its net deferred tax asset based on the net income generated during 1997
and management's expectations at such time that the Company's deferred tax
assets would be realized through future earnings. Subsequent to 1997, the
Company has modified its strategic plan and anticipates continuing investments
to research and development and corporate infrastructure in advance of revenues.
As such, as of December 31, 1998, the Company has established a full valuation
allowance against its net deferred tax asset based on management's current
belief that it is more likely than not that the benefits related to such net
deferred tax asset will not be realized.
F-18
<PAGE> 92
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
FIVE MONTHS YEARS ENDED
ENDED DECEMBER 31,
DECEMBER 31, ----------------
1996 1997 1998
------------ ----- -------
<S> <C> <C> <C>
Current:
Federal............................................... $(112) $ 700 $ (649)
State................................................. (16) 100 (23)
----- ----- -------
(128) 800 (672)
----- ----- -------
Deferred:
Federal............................................... (122) (172) (1,834)
State................................................. (18) (60) (761)
Change in valuation allowance......................... 268 (268) 3,050
----- ----- -------
128 (500) 455
----- ----- -------
Income tax provision (benefit).......................... $ -- $ 300 $ (217)
===== ===== =======
</TABLE>
The Company has generated net operating loss carryforwards of approximately
$4,800 as of December 31, 1998, which are due to expire in 2013. Section 382 of
the Internal Revenue Code of 1986, as amended, places a limitation on the
utilization of federal net operating loss carryforwards when an ownership change
occurs. Generally, an ownership change occurs when a greater than 50% change in
ownership takes place over a three-year test period. The annual utilization of
net operating loss carryforwards generated prior to such change in ownership is
limited, in any one year, to a percentage of the fair market value of the
Company at the time of the ownership change.
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. income tax rate to income before
taxes as follows:
<TABLE>
<CAPTION>
FIVE MONTHS YEARS ENDED
ENDED DECEMBER 31,
DECEMBER 31, ----------------
1996 1997 1998
------------- ----- -----
<S> <C> <C> <C>
U.S. statutory rate...................................... (34.0)% 34.0% (34.0)%
State taxes.............................................. (5.0) 2.0 (6.6)
Other.................................................... 0.5 6.3 0.0
Net operating loss utilized.............................. 0.0 (10.0) 0.0
Change in valuation allowance............................ 38.5 (6.0) 37.9
----- ----- -----
Effective tax rate....................................... 0.0% 26.3% (2.7)%
===== ===== =====
</TABLE>
9. EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No.
128, Earnings per Share ("FAS 128"), which requires the presentation of basic
earnings per share ("Basic EPS") and diluted earnings per share ("Diluted EPS")
by all entities that have publicly traded common stock or potential common
stock. FAS 128 also requires the presentation of earnings per share by an entity
that has made a filing or is in the process of filing with a regulatory agency
in preparation for the sale of those securities in a public market. Basic EPS is
computed by dividing income available to
F-19
<PAGE> 93
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during the period. The computation of Diluted EPS does not
assume conversion, exercise or contingent exercise of securities that would have
an anti-dilutive effect on earnings. The dilutive effect of the outstanding
stock warrants and options was computed using the treasury stock method.
The computations of Basic EPS and Diluted EPS for the five months ended
December 31, 1996 and the years ended December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
FIVE MONTHS ENDED DECEMBER 31, 1996
Net loss............................................. $ (800)
Basic EPS:
Income available to common stockholders............ $ (800) 11,437,500 $(0.07)
Effect of dilutive stock options................... -- -- --
------- ----------- ------
Diluted EPS:
Income available to common stockholders plus
assumed conversions............................. $ (800) 11,437,500 $(0.07)
======= =========== ======
YEAR ENDED DECEMBER 31, 1997
Net income........................................... $ 842
Basic EPS:
Income available to common stockholders............ $ 842 11,515,538 $ 0.07
Effect of dilutive stock options................... -- 1,190,894 --
------- ----------- ------
Diluted EPS:
Income available to common stockholders plus
assumed conversions............................. $ 842 12,706,432 $ 0.07
======= =========== ======
YEAR ENDED DECEMBER 31, 1998
Net loss............................................. $(7,829)
Basic EPS:
Income available to common stockholders............ $(7,829) 12,084,711 $(0.65)
Effect of dilutive stock options................... -- -- --
------- ----------- ------
Diluted EPS:
Income available to common stockholders plus
assumed conversions............................. $(7,829) 12,084,711 $(0.65)
======= =========== ======
</TABLE>
As of December 31, 1996 and 1998, the Company had outstanding options,
restricted stock and a warrant to purchase an aggregate 3,138,000 and 3,374,181
shares of common stock, respectively, which are not included in the calculation
of earnings per share for such periods, due to the anti-dilutive nature of these
instruments.
10. STOCK OPTION PLAN
In December 1996, the Company adopted the 1996 Equity Incentive Plan (the
"1996 Plan") pursuant to which, as amended, nonqualified or incentive stock
options, stock bonus and restricted stock awards (collectively, "Stock Awards")
to purchase up to 2,805,300 of the Company's common
F-20
<PAGE> 94
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
stock may be granted to employees, directors and consultants. Stock Awards
granted under the 1996 Plan generally vest in equal installments over a
four-year period. The exercise price of incentive stock options granted under
the 1996 Plan may not be less than the fair market value of the underlying
shares (110% of the fair market value in the case of a 10% voting shareholder)
at the grant date. Each stock option is exercisable for ten years (five years in
the case of a 10% voting stockholder) from the date of grant. Through December
31, 1998, no stock options had been granted to a 10% stockholder.
Under the 1996 Plan, certain individuals to whom stock options have been
granted may elect to exercise those options prior to the lapse of the full
vesting period. Upon termination of employment, the Company may repurchase any
unvested shares issued pursuant to such election at the exercise price. During
the year ended December 31, 1998, the Company repurchased 64,063 shares under
such provision. At December 31, 1996, 1997 and 1998, there were 0, 420,000 and
168,750 shares, respectively, issued and outstanding that were subject to this
repurchase provision.
Stock bonuses and restricted stock awards issued under the 1996 Plan
provide that shares awarded may not be sold or otherwise transferred until
restrictions established by the underlying agreements have elapsed. Upon
termination of employment, the Company may repurchase shares upon which
restrictions have not lapsed. The 1996 Plan provides that the price for each
restricted stock award shall not be less than 85% of the fair market value of
the share at the date of grant.
Notes receivable from stock sales result from the exercise of stock options
for promissory notes. The notes are full recourse promissory notes bearing
interest at variable rates ranging from 5.94% to 6.16% and are collateralized by
the stock issued upon exercise of the stock options. The notes including accrued
interest thereon mature five years from the date of exercise.
F-21
<PAGE> 95
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
A summary of the status of the Company's stock option plan through December
31, 1998 is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE PER SHARE
------------------------------------------
$1.00 $4.00 $6.00 $12.00 TOTAL
--------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Options outstanding at August 1,
1996............................ -- -- -- -- --
Granted......................... 1,825,500 -- -- -- 1,825,500
--------- ------- ------- ------- ---------
Options outstanding at December
31, 1996........................ 1,825,500 -- -- -- 1,825,500
Granted......................... 612,600 -- -- -- 612,600
Exercised....................... (849,174) -- -- -- (849,174)
Forfeited....................... (223,000) -- -- -- (223,000)
--------- ------- ------- ------- ---------
Options outstanding at December
31, 1997........................ 1,365,926 -- -- -- 1,365,926
Granted......................... -- 114,000 155,083 349,542 618,625
Exercised....................... (37,175) (3,979) (1,500) -- (42,654)
Forfeited....................... (21,850) (16,000) (8,716) (2,400) (48,966)
--------- ------- ------- ------- ---------
Options outstanding at December
31, 1998........................ 1,306,901 94,021 144,867 347,142 1,892,931
========= ======= ======= ======= =========
Weighted average remaining life on
outstanding options............. 7.97 8.68 9.16 9.39 8.36
========= ======= ======= ======= =========
</TABLE>
Outstanding options at December 31, 1998 have a weighted average exercise
price of $3.55 per share. At December 31, 1998, 1,268,874 shares of the
outstanding stock options were vested and 84,604 additional stock options were
available for grant.
EMPLOYEE STOCK OPTIONS
The Company accounts for stock options granted to employees in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Accordingly, no compensation has been recorded since grants are made
at fair market value. Had the compensation cost for the Stock Option Plan been
determined based on the fair value at the grant dates for awards under the 1996
Plan consistent with the method of Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ("FAS 123"), the Company's net
(loss) income on a pro forma basis would have been ($800), $823 and ($9,236) for
the five months ended December 31, 1996 and the years ended December 31, 1997
and 1998, respectively, calculated with the use of the Black Scholes
option-pricing model. The following assumptions were used for the five months
ended December 31, 1996 and the year ended December 31, 1997 and 1998: (1)
risk-free interest rate of 6.2%, 6.6% and 4.6%, respectively; (2) dividend yield
of 0.00%; (3) expected life of five years; and (4) volatility of .001%. Results
may vary depending on the assumptions applied within the model.
F-22
<PAGE> 96
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NON-EMPLOYEE OPTIONS
In fiscal 1997 and 1998, the Company granted 669,000 and 16,500 stock
options, respectively, to non-employees. In accordance with the requirements of
FAS 123, the Company recorded $52 and $44, respectively, reflecting the
estimated fair value of these options utilizing the Black Scholes option-pricing
model. The Company will amortize this obligation to expense over the period
services are performed.
11. COMMITMENTS AND CONTINGENCIES
In October 1996, the Company became the sub-tenant of Paradyne under a
noncancelable operating lease for office and research and development facilities
located in Red Bank, New Jersey which expires April 30, 2002. In addition, the
Company leases certain computer and office equipment under agreements that are
classified as capital leases, the net book value of which was $814 at December
31, 1998. Minimum required future lease payments under the Company's capital and
operating leases at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
YEARS ENDED DECEMBER 31,
1999................................................... $361 $ 813
2000................................................... 294 813
2001................................................... 240 835
2002................................................... 7 317
2003................................................... 4 --
---- ------
Total minimum lease payments...................... 906 $2,778
======
Less: amount representing interest.......................... (108)
----
Present value of net minimum lease payments................. 798
Less: current portion....................................... (292)
----
$506
====
</TABLE>
Rent expense for the five months ended December 31, 1996 and the years
ended December 31, 1997 and 1998 approximated $126, $467 and $868, respectively,
and is included in operating expenses.
In July 1995, AT&T Paradyne entered into a technology development agreement
with Bell Atlantic Network Services, Inc. ("Bell Atlantic"). Under the terms of
the agreement, the Company's predecessor entity provided use of certain Digital
Subscriber Line ("DSL") technologies to third party suppliers for the purpose of
development of DSL network access products incorporating CAP technology. Bell
Atlantic paid $5.0 million under the agreement in return for the right to
receive up to $7.0 million of commission fees based on future sales of products
to Bell Atlantic or other qualified third party companies, as defined in the
agreement. In connection with the Company's inception (see Note 1), this
agreement was assigned to the Company as the successor entity. No commission
fees have been accrued related to this agreement since such fees are only
payable based on future sales. Through the year ended December 31, 1998, no fees
have been paid to Bell Atlantic under this agreement. All research and
development requirements of the agreement were completed by the Company's
predecessor entity in 1995.
F-23
<PAGE> 97
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The semiconductor and telecommunications industries are characterized by
substantial litigation regarding patent and other intellectual property rights.
The Company is party to various inquiries or claims in connection with these
rights. Although the ultimate outcome of these matters is not presently
determinable, management believes that the resolution of these matters will not
have a material adverse effect on the Company's financial position and results
of operations.
12. RELATED PARTY TRANSACTIONS
In 1996, the Company entered into a license agreement with Paradyne
Corporation for the use of certain technologies. Total revenues related to the
use of these agreements was $235 for the five months ended December 31, 1996 and
has been included in other revenue.
During the years ended December 31, 1997 and 1998, the Company recorded
product sales of $373 and $962, respectively, related to goods sold to Paradyne
Corporation. Such sales reflect, through June 30, 1998, a discount, equal to
cost plus 15%, provided to Paradyne pursuant to a Cooperative Development
Agreement. In July 1998, the Company revised its discounted pricing arrangement
with Paradyne which had existed under the Cooperative Development Agreement.
Paradyne agreed to modify the pricing terms such that Paradyne purchased
products from the Company at preferential prices. In exchange, the Company
agreed to pay a 1.25% fee based on net revenues up to an aggregate amount of
$1.5 million. The Company recorded a charge of $381, which is included in cost
of sales, related to the agreement during the year ended December 31, 1998. In
addition, Paradyne Corporation provided operating, management and other
administrative services for the Company of $0, $155 and $231 for the five months
ended December 31, 1996 and the years ended December 31, 1997 and 1998,
respectively. (See Notes 11 and 13).
In fiscal 1997, the Company purchased fixed assets from Paradyne
approximating $350. In February and December 1998, the Company purchased fixed
assets from Paradyne for an aggregate cost of $1,442. These assets were sold at
their net book value since the transaction involved entities under common
control.
In 1997, the Company paid Paradyne $194 as a reimbursement for their cost
of chip sets purchased on GlobeSpan's behalf. These payments were equal to the
amount paid by Paradyne for the initial purchase of the inventory.
In December 1997 and September 1998, the Company purchased from Paradyne
certain GlobeSpan chip sets which it held in its inventory in the amounts of $98
and $29, respectively. GlobeSpan purchased these chip sets for resale to other
customers.
In December 1998, the Company subleased additional office space from
Paradyne (see related disclosure in Note 11). In connection therewith, the
Company reimbursed approximately $392 of Paradyne's moving expenses, the cost of
which is included in operating expenses for the year ended December 31, 1998.
GlobeSpan is covered under a group insurance policy with Paradyne for an
annual premium amount of $85.
In May 1998, the Company entered into a subordinated credit agreement with
Communication Partners in the aggregate principal amount of $5.0 million. Such
loan bears interest at a rate of 8.0% payable on a monthly basis and expires on
May 1, 2003. Outstanding borrowings under this loan agreement may be prepaid at
any time, without penalty, subject to limitations contained in the BABC
F-24
<PAGE> 98
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
revolving credit agreement. Interest related to this facility approximated $95
for the period ended December 31, 1998. In December 1998, the amount available
under the credit agreement was increased to $10.0 million, of which $5.0 million
expires on March 31, 2000.
13. DEFINED CONTRIBUTION PLAN
The Company participates in a 401(k) plan covering substantially all
employees, which is maintained by Paradyne. Benefits vest based on number of
years of service. The Company's policy is to match two-thirds of an employee's
contributions, up to 6.0% of an employee's annual salary. Additionally, the
board of directors may grant discretionary contributions based on an employee's
age. Contributions to the plan paid by Paradyne on behalf of the Company
amounted to approximately $45, $242 and $348 for the five months ended December
31, 1996 and the years ended December 31, 1997 and 1998, respectively. In
addition, the Company accrued $179 for discretionary contributions as of
December 31, 1998.
14. SUBSEQUENT EVENTS
REVERSE STOCK SPLIT AND RECAPITALIZATION
On March 12, 1999, the Company's board of directors approved the amendment
of the certificate of incorporation to effect a 1-for-3 reverse stock split
applicable to all issued and outstanding shares of its common stock and
increased its authorized capital to 10,000,000 shares of preferred stock, $0.001
par value and 100,000,000 shares of common stock $0.001 par value. The 1-for-3
reverse stock split and the increase in the authorized preferred shares has not
been approved by the Company's stockholders and is contingent upon the closing
of the Company's proposed initial public offering of its common stock (the
"IPO"). All share, stock option and stock warrant information included in these
financial statements and related footnotes have been restated for all periods to
reflect this reverse stock split and recapitalized for all periods presented.
TERMINATION AGREEMENT WITH PARADYNE
In March 1999, the Company and Paradyne agreed to terminate the Cooperative
Development Agreement (see Note 12). In connection with such termination
agreement, the Company agreed to pay Paradyne an aggregate of $1.5 million, less
the amounts previously paid of approximately $0.3 million (or approximately $1.2
million) to terminate the July discount pricing arrangement with Paradyne
Corporation. Such payment will be made in 1999 and will be charged to cost of
sales. In addition, GlobeSpan and Paradyne Corporation as part of the
Termination Agreement affirmed that the earlier technology license provisions of
the Cooperative Development Agreement were never implemented. In conjunction
with the signing of the Termination Agreement, GlobeSpan and Paradyne
Corporation also entered into a four-year Supply Agreement which gave Paradyne
Corporation preferential pricing and other terms in connection with the sale by
GlobeSpan of products to Paradyne Corporation. In addition, under the terms of
the Supply Agreement, GlobeSpan is required to honor Paradyne Corporation's
orders for GlobeSpan's products in quantities at least consistent with Paradyne
Corporation's past ordering practices and must afford Paradyne Corporation at
least the same priority for Paradyne Corporation's orders as GlobeSpan affords
its other similarly situated customers. GlobeSpan also granted Paradyne
Corporation a standard customer immunity under GlobeSpan's intellectual property
rights with respect to any of Paradyne Corporation's products which incorporate
GlobeSpan's products.
F-25
<PAGE> 99
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
AMENDMENT TO THE LUCENT TECHNOLOGIES WARRANT
In March 1999, Communication Partners forgave $100 of the subordinated note
payable (see Note 6), as consideration for the extension of the outstanding
warrant. (See Note 7).
AMENDMENT TO THE 1996 EQUITY INCENTIVE PLAN
On March 12, 1999, the Company's board of directors approved an increase in
the number of shares reserved for issuance under the 1996 Plan to 3,205,300. The
increase in shares has not been approved by the Company's stockholders and is
contingent upon the closing of the Company's proposed IPO.
EMPLOYEE STOCK PURCHASE PLAN
On March 12, 1999, the Company's board of directors approved the adoption
of an Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan has
not been approved by the Company's stockholders and is contingent upon the
closing of the Company's IPO. Upon adoption of the Purchase Plan by the
stockholders and closing of the Company's IPO, the Company will reserve 400,000
shares of its common stock for issuance under the Purchase Plan, which shall
automatically increase each year beginning May 1, 2000, by the lesser of 2.0% of
the total number of shares of common stock then outstanding or 400,000 shares.
The Purchase Plan will permit each eligible employee, as defined, to purchase
shares of the Company's common stock through payroll deductions, provided that
the aggregate amount of each employee's payroll deductions does not exceed 15.0%
of his cash compensation. Purchases of common stock will occur on April 30 and
October 31 of each year. The Purchase Plan, if and when approved by the
Company's stockholders, will be administered by the Compensation Committee of
the board of directors in accordance with the terms of the Purchase Plan.
1999 Equity Incentive Plan
On March 12, 1999, The Company's board of directors approved the adoption
of the 1999 Equity Incentive Plan (the "1999 Plan"). The 1999 Plan has not been
approved by the Company's stockholders and is contingent upon the closing of the
Company's IPO. Upon adoption of the 1999 Plan by the stockholders and closing of
the Company's IPO, the Company will reserve 1,000,000 shares of its common
stock, together with the shares of common stock remaining available for issuance
under the 1996 Plan, for issuance under the 1999 Plan. Subject to stockholder
approval, the number of shares reserved for issuance under the 1999 Plan shall
automatically increase each year beginning May 1, 2000, by the lesser of 5.0% of
the total number of shares of common stock then outstanding or 1,000,000 shares.
Under the 1999 Plan, the Company may grant incentive or nonqualified stock
options, stock appreciation rights, restricted stock or stock units to
employees, non-employee directors and consultants. The 1999 Plan, if and when
approved by the Company's stockholders, will be administered by the Compensation
Committee of the board of directors in accordance with the terms of the 1999
Plan.
1999 Director Stock Plan
On March 12, 1999, the Company's board of directors approved the adoption
of the 1999 Director Stock Plan (the "Director Plan"). The Director Plan has not
been approved by the
F-26
<PAGE> 100
GLOBESPAN SEMICONDUCTOR INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Company's shareholders and is contingent upon the closing of the Company's IPO
of its common stock. Upon adoption of the Director Plan by the stockholders and
closing of the Company's IPO, the Company will reserve 250,000 shares of its
common stock for issuance under the Director Plan. Under the Director Plan, the
Company may only grant nonqualified stock options to non-employee directors. The
1999 Plan provides for automatic grants to non-employee directors of the Company
at defined intervals beginning on the effective date of the Company's IPO. Each
non-employee director of the Company will be granted an option to purchase 5,000
shares of common stock at the IPO price upon consummation of the Company's IPO
and an additional option to purchase 5,000 shares of common stock on the date of
the Company's annual stockholders' meeting in the year 2001, provided that the
director continues to serve as a director of the Company. Each non-employee
director elected to serve following the consummation of the IPO will be granted
an option to purchase 5,000 shares of common stock on the date he or she is
first elected to the board of directors and an additional option to purchase
5,000 shares of common stock on the date of the Company's annual stockholder's
meeting in the calendar year following such initial election. At each annual
stockholder's meeting following the annual meeting during which each
non-employee director received the second option to purchase 5,000 shares of
common stock, each non-employee director will be granted an option to purchase
2,500 shares of common stock. Stock options granted pursuant to the Director
Plan vest upon the director's completion of twelve months of service during
which he or she attended at least 75% of the meetings of the Company's board of
directors.
F-27
<PAGE> 101
(inside cover)
Color Photo of GlobeSpan products. Picture shows a digital communication
processor chip, an analog front end chip, and a DSL reference design guide and
DSL development system.
(Front Cover fold out)
Color graphic of a Telecommunication Service providers local loop network
deploying an HDSL Internet service and an HDSL business data service. The
graphic shows the digital subscriber line access multiplexer and HDSL modem in
the central office. It also shows the ADSL modem in the residential end user
location and the HDSL modem in the business end user location. The picture also
shows DSL equipment located in a multidwelling unit location to provide Internet
access to end users living in the dwelling unit.
<PAGE> 102
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
GLOBESPAN SEMICONDUCTOR INC. LOGO
SHARES OF COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
SG COWEN
THOMAS WEISEL PARTNERS LLC
------------------------------
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of GlobeSpan
have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock may be required
to deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as an underwriter and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by GlobeSpan in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 15,290
NASD fee.................................................... 6,500
Nasdaq National Market listing fee.......................... 30,000
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 400,000
Blue sky fees and expenses.................................. 10,000
Transfer agent fees......................................... 10,000
Miscellaneous fees and expenses............................. 128,210
----------
Total............................................. $1,300,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII, Section 6, of the Registrant's
bylaws provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Registrant's certificate
of incorporation provides that, pursuant to Delaware law, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
as directors to GlobeSpan and its stockholders. This provision in the
certificate of incorporation does not eliminate the directors' fiduciary duty,
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 GlobeSpan for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. Prior to the closing of this offering, the
Registrant will enter into Indemnification Agreements with its officers and
directors, a form of which is attached as Exhibit 10.1 hereto and incorporated
herein by reference. The Indemnification Agreements provide the Registrant's
officers and directors with further indemnification to the maximum extent
permitted by the Delaware General Corporation Law. Reference is made to Section
of the Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying
officers and directors of the Registrant against certain liabilities.
II-1
<PAGE> 104
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 7, 1996, Registrant has issued and sold the following securities
(which numbers do not reflect the 8.75 for 1 split effected on November 25,
1996, the 2 for 1 split effected on October 16, 1997, the 1.5 for 1 split
effected on February 25, 1998, or the reverse 1 for 3 split to be effected prior
to this offering):
(1) On June 7, 1996, Registrant issued 1,000 shares in a private
placement of its common stock at a purchase price of $1.00 per share, for
cash in the aggregate amount of $1,000, to Communication Partners, L.P.
pursuant to the divestiture of GlobeSpan.
(2) On July 31, 1996, Registrant issued a warrant for 150,000 shares
of its common stock, with an exercise price of $58.83, to Lucent
Technologies in connection with the divestiture of GlobeSpan.
(3) On November 25, 1996, Registrant issued an aggregate of 4,000,000
shares in a private placement of its common stock, at a purchase price of
$1.00 per share, for cash in the aggregate amount of $4,000,000, to
Communication Partners, L.P. pursuant to a Common Stock Purchase Agreement.
(4) As of March 11, 1999, Registrant has sold and issued 897,369
shares of its common stock for an aggregate purchase price of $916,985 to
employees and consultants pursuant to direct issuance and to exercises of
options under its 1996 Option Plan.
The sale of the above securities was deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by
an issuer not involving any public offering or transactions pursuant to
compensation benefit plans and contracts relating to compensation as provided
under such Rule 701. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access, through their relationships
with the Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<S> <C>
1.1* Form of Underwriting Agreement (preliminary form).
3.1 Certificate of Incorporation of the Registrant, as amended
to date.
3.2 Form of Restated Certificate of Incorporation to be filed
upon the closing of the offering made pursuant to this
Registration Statement.
3.3 Bylaws of the Registrant.
3.4 Bylaws of the Registrant effective upon the close of the
offering made pursuant to this Registration Statement.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2* Specimen Common Stock certificate.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian.
10.1 Form of Indemnification Agreement.
10.2 1999 Equity Incentive Plan.
10.3 Employee Stock Purchase Plan.
10.4 1999 Director Stock Plan.
10.5 Business Loan Agreement between BankAmerica Business Credit
and Registrant, dated May 14, 1998.
</TABLE>
II-2
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<S> <C>
10.6 Warrant for the purchase of Common Stock made by the
Registrant and held by Lucent Technologies Inc., dated July
31, 1996.
10.7* Amendment to Warrant for the purchase of Common Stock made
by the Registrant and held by Lucent Technologies Inc.,
dated August 28, 1998.
10.8 Real Property Lease between Paradyne Corporation and Shav
Associates, dated October 8, 1996.
10.9 Real Property Sublease by and between Registrant and
Paradyne Corporation, dated December 10, 1997.
10.10 Amendment to Real Property Sublease by and between
Registrant and Paradyne Corporation, dated January 1, 1999.
10.11* Termination Agreement between Registrant and Paradyne
Corporation, dated , 1999.
10.12 Subordinated Promissory Note between Registrant and
Communication Partners, L.P., dated December 15, 1998.
10.13* Bill of Sale between Registrant and Paradyne, dated
, 1999.
10.14 Employment Agreement between Registrant and Armando Geday,
dated April 1, 1997.
10.15 Employment Agreement between Registrant and Thomas Epley,
dated August 29, 1997.
10.16* Supply Agreement between Registrant and Lucent, dated July
31, 1996.
10.17* Intellectual Property Agreement among Registrant, Lucent and
Paradyne, dated July 31, 1996.
10.18* Noncompetition Agreement between Registrant, Paradyne and
Lucent dated July 31, 1996.
10.19* Trademark and Patent Agreement between Registrant, Paradyne
and Lucent dated July 31, 1996.
10.20* Intercompany Services Agreement between Registrant and
Paradyne dated July 31, 1996.
10.21* Tax Matters Agreement between Registrant and Paradyne dated
July 31, 1996.
10.22* Purchase Agreement among Registrant, Lucent, Paradyne,
Rental Acquisition Corp. and Lease Acquisition Corp. dated
July 31, 1996.
10.23* Supply Agreement between Registrant and Paradyne dated
, 1999.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule for EDGAR Filing.
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act,
II-3
<PAGE> 106
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of 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 Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 107
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto,
State of California, on this 12th day of March, 1999.
GLOBESPAN SEMICONDUCTOR INC.
By: /s/ ARMANDO GEDAY
---------------------------------------
Armando Geday
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Armando Geday and Robert McMullan, and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to sign any registration statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, and all post-effective amendments thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, 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 might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C> <C>
/s/ ARMANDO GEDAY President, Chief Executive Officer March 12, 1999
- ------------------------------------------------ (Principal Executive Officer) and
Armando Geday Director
/s/ ROBERT MCMULLAN Chief Financial Officer March 12, 1999
- ------------------------------------------------ (Principal Financial and Accounting
Robert McMullan Officer)
/s/ THOMAS EPLEY Director March 12, 1999
- ------------------------------------------------
Thomas Epley
/s/ KEITH GEESLIN Director March 12, 1999
- ------------------------------------------------
Keith Geeslin
/s/ DAVID STANTON Director March 12, 1999
- ------------------------------------------------
David Stanton
/s/ DIPANJAN DEB Director March 12, 1999
- ------------------------------------------------
Dipanjan Deb
/s/ JAMES COULTER Director March 12, 1999
- ------------------------------------------------
James Coulter
</TABLE>
II-5
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<S> <C>
1.1* Form of Underwriting Agreement (preliminary form).
3.1 Certificate of Incorporation of the Registrant, as amended
to date.
3.2 Form of Restated Certificate of Incorporation to be filed
upon the closing of the offering made pursuant to this
Registration Statement.
3.3 Bylaws of the Registrant.
3.4 Bylaws of the Registrant effective upon the close of the
offering made pursuant to this Registration Statement.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2* Specimen Common Stock certificate.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian.
10.1 Form of Indemnification Agreement.
10.2 1999 Equity Incentive Plan.
10.3 Employee Stock Purchase Plan.
10.4 1999 Director Stock Plan.
10.5 Business Loan Agreement between BankAmerica Business Credit
and Registrant, dated May 14, 1998.
10.6 Warrant for the purchase of Common Stock made by the
Registrant and held by Lucent Technologies Inc., dated July
31, 1996.
10.7* Amendment to Warrant for the purchase of Common Stock made
by the Registrant and held by Lucent Technologies Inc.,
dated August 28, 1998.
10.8 Real Property Lease between Paradyne Corporation and Shav
Associates, dated October 8, 1996.
10.9 Real Property Sublease by and between Registrant and
Paradyne Corporation, dated December 10, 1997.
10.10 Amendment to Real Property Sublease by and between
Registrant and Paradyne Corporation, dated January 1, 1999.
10.11* Termination Agreement between Registrant and Paradyne
Corporation, dated March 16, 1999.
10.12 Subordinated Promissory Note between Registrant and
Communication Partners, L.P., dated December 15, 1998.
10.13* Bill of Sale between Registrant and Paradyne, dated
, 1999.
10.14 Employment Agreement between Registrant and Armando Geday,
dated April 1, 1997.
10.15 Employment Agreement between Registrant and Thomas Epley,
dated August 29, 1997.
10.16* Supply Agreement between Registrant and Lucent, dated July
31, 1996.
10.17* Intellectual Property Agreement among Registrant, Lucent and
Paradyne, dated July 31, 1996.
10.18* Noncompetition Agreement between Registrant, Paradyne and
Lucent dated July 31, 1996.
10.19* Trademark and Patent Agreement between Registrant, Paradyne
and Lucent dated July 31, 1996.
10.20* Intercompany Services Agreement between Registrant and
Paradyne dated July 31, 1996.
10.21* Tax Matters Agreement between Registrant and Paradyne dated
July 31, 1996.
10.22* Purchase Agreement among Registrant, Lucent, Paradyne,
Rental Acquisition Corp. and Lease Acquisition Corp. dated
July 31, 1996.
</TABLE>
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<S> <C>
10.23* Supply Agreement between Registrant and Paradyne dated
, 1999.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule for EDGAR Filing.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
AMENDMENT AND RESTATEMENT
OF
CERTIFICATE OF INCORPORATION
OF
GLOBESPAN TECHNOLOGIES, INC.
(originally incorporated under the name CAP Acquisition Corp.)
GLOBESPAN TECHNOLOGIES INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation") DOES
HEREBY CERTIFY:
FIRST: The original Certificate of Incorporation of GlobeSpan
Technologies Inc. (formerly CAP Acquisition Corp.) was filed with the Secretary
of State of Delaware on June 7, 1996.
SECOND: The Amended and Restated Certificate of Incorporation of
GlobeSpan Technologies Inc. in the form attached hereto as Exhibit A has been
duly adopted in accordance with the provisions of Sections 245 and 242 of the
General Corporation Law of the State of Delaware (the "DGCL") by the directors
and stockholders of the Corporation. Written consent was given by the sole
stockholder of the Corporation in accordance with Section 228 of the DGCL.
THIRD: The Amended and Restated Certificate of Incorporation so adopted
reads in full as set forth in Exhibit A attached hereto and is hereby
incorporated herein by this reference.
IN WITNESS WHEREOF, GLOBESPAN TECHNOLOGIES INC. has caused this
Certificate to be signed by the Chairman of the Board and the Treasurer this
27th day of November, 1996.
GLOBESPAN TECHNOLOGIES INC.
By:
-----------------------------
Thomas E. Epley
Chairman of the Board
ATTEST:
By:
- ---------------------------------------
Patrick M. Murphy
Vice President, Treasurer and
Chief Financial Officer
<PAGE> 2
Exhibit A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GLOBESPAN TECHNOLOGIES, INC.
ARTICLE 1
The name of the Company is GlobeSpan Technologies Inc.
ARTICLE 2
The registered office of the Company in the State of Delaware is
located at 15 E. North Street, Dover, Kent County, Delaware 19901. The name of
its Registered Agent at the above address is Incorporating Services, Ltd.
ARTICLE 3
The purpose of the Company is to engage in any lawful act or
activity for which a corporation may be organized under the Delaware General
Corporation Law.
ARTICLE 4
The total number of shares of stock which the Company has
authority to issue is 18,000,000 shares of capital stock, classified as (a)
three million (3,000,000) shares of preferred stock, par value $0.001 per share
("Preferred Stock"), and (b) fifteen million (15,000,000) shares of common
stock, par value $0.001 per share ("Common Stock"). Upon the filing of this
Amended and Restated Certificate of Incorporation with the Secretary of State of
the State of Delaware, each outstanding share of Common Stock of the Company
shall be reconstituted as 8.75 shares of Common Stock of the Company.
The designations, powers, preferences, rights, qualifications,
limitations, and restrictions of the Preferred Stock and Common Stock are as
follows:
1. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time
in one or more classes or series, the shares of each class or series to have
those designations, powers, preferences, rights, qualifications, limitations and
restrictions that are stated and expressed here and in the resolutions(s)
providing for the issue of such class or series adopted by the Board of
Directors as prescribed in this Certificate.
(b) Authority is expressly granted to and vested in the
Board of Directors to authorize the issuance of the Preferred Stock from time to
time in one or more classes or series, and with respect to each class or series
of the Preferred Stock, to fix and state
2
<PAGE> 3
by resolution(s) adopted from time to time providing for the issuance of
Preferred Stock, the following:
(i) whether or not the class or series is to
have voting rights, full, special or limited, or is to be without voting rights,
and whether or not the class or series is to be entitled to vote as a separate
class either alone or together with the holders of one or more other classes or
series of stock;
(ii) the number of shares to constitute the
class or series and the designations of those shares;
(iii) the preferences, and, if any, the
relative, participating, optional, or other special rights, and, if any, the
qualifications, limitations or restrictions of those shares with respect to any
class or series;
(iv) whether or not the shares of any class or
series will be redeemable at the option of the Company or the holders of those
shares, or upon the happening of any specified event, and, if redeemable, the
redemption price(s) (payable in the form of cash, notes, securities, or other
property), and the time(s) at which, and the terms upon which, such shares will
be redeemable and the manner of redemption;
(v) whether or not the shares of a class or
series will be subject to the operation of a retirement or sinking fund to be
applied to the purchase or redemption of such shares for retirement, and, if
such retirement or sinking fund are to be established, the annual amount of such
fund, and the terms relative to the operation of such fund;
(vi) the dividend rate; whether dividends are
payable in cash, Company stock, or other property; the conditions upon which and
the time when such dividends are payable, the preference to or the relation to
the payment of dividends payable on any other class(es) or series of stock;
whether or not such dividends will be cumulative or noncumulative; and if
cumulative, the date(s) from which such dividends will accumulate;
(vii) the preferences, if any, and the amounts
of those preferences which the holders of any such class or series will be
entitled to receive upon the voluntary or involuntary dissolution of, or upon
any distribution of the assets of, the Company;
(viii) whether or not the shares of any class or
series, at the option of the Company or the holder of such shares, or upon the
happening of any specified event, will be convertible into or exchangeable for,
the shares of any other class(es) or of any other series of the same or any
other class(es) of stock, securities, or other Company property and the
conversion price(s) or ratio(s) or the rate(s) at which such exchange may be
made, with those adjustments, if any, as may be stated or provided for in such
resolutions; and
(ix) any other special rights and protective
provisions with respect to any class or series as may seem advisable to the
Board of Directors.
(c) The shares of each class or series of the Preferred
Stock may vary from the shares of any other class or series in any or all of the
foregoing respects. The Board of
3
<PAGE> 4
Directors may increase the number of shares of the Preferred Stock designated
for any existing class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for any
other class or series. The Board of Directors may decrease the number of shares
of the Preferred Stock designated for any existing class or series by a
resolution subtracting from such class or series authorized and unissued shares
of the Preferred Stock designated for such existing class or series, and the
shares so subtracted shall become authorized, unissued, and undesignated shares
of the Preferred Stock.
2. Provisions Relating to the Common Stock.
(a) Each share of Common Stock of the Company will have
identical rights and privileges in every respect. The holders of Common Stock
shares will be entitled to vote upon all matters submitted to a vote of the
Company stockholders and will be entitled to one vote for each share of Common
Stock held.
(b) Subject to the prior rights and preferences, if any,
applicable to shares of the Preferred Stock or any series of the Preferred
Stock, the holders of the Common Stock shares will be entitled to receive such
dividends (payable in cash, stock, or otherwise) as may be declared on the
Common Stock by the Board of Directors at any time out of any Company funds
legally available for such dividends.
(c) In the event of any voluntary or involuntary
liquidation, dissolution, or winding-up of the Company, after distribution in
full of the preferential amounts, if any, to be distributed to the holders of
the Preferred Stock shares or any series of the Preferred Stock, the holders of
the Common Stock shares will be entitled to receive all of the remaining Company
assets available for distribution to its stockholders, pro rata in proportion to
the number of shares of Common Stock held by them. A liquidation, dissolution,
or winding-up of the Company, as such terms are used in this Paragraph (c), will
not be deemed to be occasioned by or to include any consolidation or merger of
the Company with or into any other corporation(s) or other entity or any
transfer of all or a part of the Company assets.
3. General.
(a) Subject to the foregoing provisions of this
Certificate, the Company may issue shares of its Preferred Stock and Common
Stock from time to time for such consideration (not less than the par value
thereof) as may be fixed by the Board of Directors, which is expressly
authorized to fix the same in its absolute discretion subject to the foregoing
conditions. Shares so issued for which the consideration has bee paid or
delivered to the Company will be deemed fully paid stock and will not be liable
to any further call or assessment thereon, and the holders of such shares will
not be liable to any further call or assessment thereon, and the holders of such
shares will not be liable for any further payments in respect of such shares.
(b) The Company has authority to create and issue rights
and options entitling their holders to purchase shares of the Company's capital
stock of any class or series or other securities of the Company, and such rights
and options will be evidenced by instrument(s) approved by the Board of
Directors. The Board of Directors is empowered to set the exercise
4
<PAGE> 5
price, duration, times for exercise, and other terms of such options or rights;
provided, however, that the consideration to be received for any shares of
capital stock subject thereto may not be less than the par value of those
shares.
ARTICLE 5
Unless, and except to the extent that, the By-Laws of the Company
(the "By-Laws") so require, the election of directors need not be by written
ballot.
ARTICLE 6
The board of directors of the Company (the "Board of Directors")
may from time to time adopt, amend or repeal the By-Laws, subject to the power
of the stockholders to adopt any By-Laws or to amend or repeal any By-Laws
adopted, amended or repealed by the Board of Directors.
ARTICLE 7
To the fullest extent that the Delaware General Corporation Law
as its exists on the date hereof or as it may hereafter be amended permits the
limitations or elimination of the liability of directors, no director will be
liable to the Company or its stockholders for monetary damage for breach of
fiduciary duty as a director. Any repeal or amendment of this Article will not
adversely affect any limitation on the personal liability or alleged liability
of a director arising from an act or omission of that director occurring prior
to the time of such repeal or amendment.
5
<PAGE> 6
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
GLOBESPAN TECHNOLOGIES INC.
Pursuant to Section 242 of the General Corporation Law of the
State of Delaware (the "Act"), the undersigned corporation herein adopts the
following Amendment to Certificate of Incorporation.
1. The name of the corporation is Globespan Technologies Inc.
(the "Company").
2. The following amendment to the Certificate of Incorporation of
the Company was duly adopted by a written consent of a majority shareholder
given in accordance with Section 228 of the Act and the directors of the Company
on October 16, 1997 in accordance with Section 242 of the Act. Notice of such
action pursuant to Section 228 has been given to those shareholders who have not
consented in writing.
3. The first paragraph of Article Four of the Certificate of
Incorporation of the Company is hereby deleted in its entirety with the
following first paragraph of Article Four being substituted in its place:
"ARTICLE FOUR
The total number of shares of capital stock that the
Company has authority to issue is 34,110,600 shares of capital
stock, classified as (a) three million (3,000,000) shares of
preferred stock, par value $0.001 per share ("Preferred Stock"),
and (b) thirty one million one hundred and ten thousand six
hundred (31,100,600) shares of common stock, par value $0.001 per
share ("Common Stock"). Upon the filing of this amended Article
Four with the Secretary of State, each outstanding share of
Common Stock of the Company shall be reconstituted as 2 shares of
Common Stock of the Company.
The undersigned officer of the Company, for the purpose of
amending the Certificate of Incorporation of the Company, does make and file
this Certificate of Amendment to the Certificate of Incorporation, hereby
declaring and certifying the facts herein are true and accordingly has set his
hand on November 21, 1997.
Globespan Technologies Inc.
a Delaware corporation
By:
---------------------------
James L. Slattery
Vice President & Secretary
6
<PAGE> 7
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
GLOBESPAN TECHNOLOGIES INC.
Pursuant to Section 242 of the General Corporation Law of the
State of Delaware (the "Act"), the undersigned corporation herein adopts the
following Amendment to Certificate of Incorporation.
1. The name of the corporation is Globespan Technologies Inc.
(the "Company").
2. The following amendment to the Certificate of Incorporation of
the Company was duly adopted by a written consent of the majority shareholder
given in accordance with Section 228 of the Act and the directors of the Company
on October 16, 1997 in accordance with Section 242 of the Act. Notice of such
action pursuant to Section 228 has been given to those shareholders who have not
consented in writing.
3. Article One of the Certificate of Incorporation of the Company
is hereby deleted in its entirety with the following new Article One being
substituted in its place:
ARTICLE ONE
The name of the Company is Globespan Semiconductor Inc.
The undersigned officer of the Company, for the purpose of
amending the Certificate of Incorporation of the Company, does make and file
this Certificate of Amendment to the Certificate of Incorporation, hereby
delcaring and certifying the facts herein are true and accordingly has set his
hand on November 21, 1997.
Globespan Technologies Inc.
a Delaware corporation
By:
----------------------------
James L. Slattery
Vice President & Secretary
7
<PAGE> 8
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
GLOBESPAN SEMICONDUCTOR INC.
Pursuant to Section 242 of the General Corporation Law of the
State of Delaware (the "Act"), the undersigned corporation hereby adopts the
following Amendment to Certificate of Incorporation.
1. The name of the corporation is Globespan Semiconductor Inc.
(the "Company").
2. The following amendment to the Certificate of Incorporation of
the Company was duly adopted by a written consent of the majority shareholder
given in accordance with Section 228 of the Act and the directors of the Company
on 19 February 1998 in accordance with Section 242 of the Act. Notice of such
action pursuant to Section 228 has been given to those shareholders who have not
consented in writing.
3. The first paragraph of Article Four of the Certificate of
Incorporation of the Company is hereby deleted in its entirety with the
following first paragraph of Article Four being substituted in its place.
"ARTICLE FOUR
The total number of shares of capital stock that the
Company has authority to issue is 49,665,900 shares of capital
stock, classified as (a) three million (3,000,000) shares of
preferred stock, par value $0.001 per share ("Preferred Stock"),
and (b) forty six million six hundred and sixty five thousand
nine hundred (46,665,900) shares of common stock, par value
$0.001 per share ("Common Stock"). Upon the filing of this
amended Article Four with the Secretary of State, each
outstanding share of Common Stock of the Company shall be
reconstituted as 1.5 shares of Common Stock of the Company."
The undersigned officer of the Company, for the purpose of
amending the Certificate of Incorporation of the Company, does make and file
this Certificate of Amendment to the Certificate of Incorporation, hereby
declaring and certifying the facts herein are true and accordingly has set his
hand on February 25, 1998.
Globespan Technologies Inc.
a Delaware corporation
By:
-----------------------------
James L. Slattery
Vice President & Secretary
8
<PAGE> 9
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
GLOBESPAN SEMICONDUCTOR INC.
OF THE STATE OF DELAWARE
UNDER SECTION 242 OF THE GENERAL CORPORATION LAW
Globespan Semiconductor Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the "Company"),
does hereby certify:
FIRST: That pursuant to a unanimous written consent of the Company's
Board of Directors (the "Board") dated ___________, resolutions were adopted
setting forth a proposed amendment to the Amended and Restated Certificate of
Incorporation of the Company, as filed with the Secretary of State of Delaware
on November 27, 1996 and amended on July 24, 1997, November 25, 1997 and
February 26, 1998 (the "Restated Certificate"), declaring said amendment to be
advisable and proposing to submit said amendment to the stockholders of the
Company for consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Board hereby authorizes a reverse stock split of
outstanding shares of common and preferred stock of the Company in a split ratio
of 1 for 3 (the "Stock Split"), subject to the approval of the stockholders of
the Company;
RESOLVED FURTHER, that the Board hereby authorizes an increase of the
Company's authorized capital stock to an amount equal to 100,000,000 shares of
authorized common stock and 3,000,000 shares of authorized preferred stock
following the effectiveness of the stock split:
The first paragraph of Article IV of the Restated Certificate of the
Company is hereby deleted in its entirety and replacing it with the following:
"The total number of shares of stock which the Company has authority to
issue is one hundred three million (103,000,000) shares of capital stock
classified as (a) three million (3,000,000) shares of preferred stock, par value
$.001 per share ("Preferred Stock"), and (b) one hundred million (100,000,000)
shares of common stock, par value $.001 per share ("Common Stock"). Upon the
filing of this amended Article IV with the Secretary of State, each outstanding
share of Common Stock shall be converted into .333 shares of Common Stock, and
each outstanding share of Preferred Stock shall be converted into .333 shares of
Preferred Stock."
SECOND: That in lieu of a meeting and vote of stockholders, the holders
of a majority of the outstanding stock of the Company entitled to vote have
given their written consent to said amendment in accordance with the provisions
of Section 228 of the General Corporation Law of the State of Delaware.
<PAGE> 10
THIRD: That the aforesaid amendment was duly adopted in accordance with
applicable provisions of Sections 242 and 228 of the General Corporation Law of
the State of Delaware.
<PAGE> 11
IN WITNESS WHEREOF, said Globespan Semiconductor Inc. has caused this
Certificate to be signed by a duly authorized officer this ____ day of
___________, 1999.
-----------------------------
Robert McMullan
Chief Financial Officer
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
GLOBESPAN SEMICONDUCTOR INC.
A DELAWARE CORPORATION
(PURSUANT TO SECTIONS 228, 242 AND 245
OF THE DELAWARE GENERAL CORPORATION LAW)
Globespan Semiconductor Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law")
DOES HEREBY CERTIFY:
FIRST: That this corporation was originally incorporated on
June 7, 1996, pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Amended and Restated Certificate of
Incorporation of this corporation, declaring said amendment and restatement to
be advisable and in the best interests of this corporation and its stockholders,
and authorizing the appropriate officers of this corporation to solicit the
consent of the stockholders therefor, which resolution setting forth the
proposed amendment and restatement is as follows:
"RESOLVED, that the Amended and Restated Certificate of
Incorporation of this corporation, as amended, be amended and restated in its
entirety as follows:
ARTICLE I
The name of the corporation is Globespan Semiconductor Inc.
(the "Corporation").
ARTICLE II
The address of the registered office of this corporation in
the State of Delaware is 15 E. North Street, Dover, Kent County. The name of its
registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
<PAGE> 2
ARTICLE IV
The Corporation is authorized to issue two classes of stock to
be designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of shares of Common Stock authorized to be issued is One
Hundred Million (100,000,000), par value $0.001 per share, and the number of
Preferred Stock authorized to be issued is Ten Million (10,000,000), par value
$0.001 per share.
The Preferred Stock may be issued from time to time in one or
more series, without further stockholder approval. The Board of Directors is
hereby authorized, in the resolution or resolutions adopted by the Board of
Directors providing for the issue of any wholly unissued series of Preferred
Stock, within the limitations and restrictions stated in this Amended and
Restated Certificate of Incorporation (the "Restated Certificate"), to fix or
alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them, and to increase or
decrease the number of shares of any series subsequent to the issue of shares of
that series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, 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.
ARTICLE V
Except as otherwise provided in this Restated Certificate, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from
time to time by the Bylaws or by amendment thereof duly adopted by the Board of
Directors or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless
the Bylaws of the Corporation shall so provide.
ARTICLE VIII
Except as otherwise provided in this Restated Certificate, any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at an annual or special meeting of the stockholders of the
Corporation, and no action required to be taken or that may be taken at any
annual or special meeting of the stockholders of the Corporation may be taken by
written consent.
2
<PAGE> 3
ARTICLE IX
A director of the Corporation shall, to the fullest extent
permitted by the General Corporation Law as it now exists or as it may hereafter
be amended, not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law, or (iv) for any transaction from
which the director derived any improper personal benefit. If the General
Corporation Law is amended after approval by the stockholders of this Article IX
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this
Article IX by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of, or
increase the liability of any director of this Corporation with respect to any
acts or omissions of such director occurring prior to, such repeal or
modification.
ARTICLE X
In addition to any vote of the holders of any class or series
of the stock of the Corporation required by law or by this Restated Certificate,
the affirmative vote of the holders of a majority of the voting power of all of
the then outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend or repeal any provision of this Restated Certificate of
Incorporation.
ARTICLE XI
To the fullest extent permitted by applicable law, the
Corporation is authorized to provide indemnification of (and advancement of
expenses to) agents of the Corporation (and any other persons to which General
Corporation Law permits the Corporation to provide indemnification) through
bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
General Corporation Law, subject only to limits created by applicable General
Corporation Law (statutory or non-statutory), with respect to actions for breach
of duty to the Corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing
provisions of this Article XI shall not adversely affect any right or protection
of a director, officer, agent, or other person existing at the time of, or
increase the liability of any director of the Corporation with respect to any
acts or omissions of such director, officer or agent occurring prior to, such
amendment, repeal or modification.
3
<PAGE> 4
* * *
THIRD: The foregoing Restated Certificate was approved by the
holders of the requisite number of shares of said corporation in accordance with
Section 228 of the General Corporation Law of the State of Delaware.
FOURTH:That said Restated Certificate was duly adopted in
accordance with the provisions of Section 242 and 245 of the General Corporation
Law of the State of Delaware.
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned has signed this
Certificate this ___ day of _______ 1999.
----------------------------------------
Armando Geday
President and Chief Executive Officer
ATTEST:
- --------------------------------
Robert McMullan
Secretary
<PAGE> 1
Exhibit 3.3
BY-LAWS
OF
CAP ACQUISITION CORP.
A Delaware Corporation
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent............................................ 1
1.2 Other Offices.......................................................... 1
ARTICLE TWO: STOCKHOLDERS
2.1 Annual Meeting......................................................... 1
2.2 Special Meeting........................................................ 2
2.3 Place of Meetings...................................................... 2
2.4 Notice................................................................. 2
2.5 Voting List............................................................ 2
2.6 Voting of Shares....................................................... 3
2.7 Quorum................................................................. 3
2.8 Required Vote; Withdrawal of Quorum.................................... 3
2.9 Method of Voting; Proxies.............................................. 4
2.10 Record Date............................................................ 4
2.11 Conduct of Meeting..................................................... 5
2.12 Inspectors............................................................. 5
2.13 Consent of Stockholders in Lieu of Meeting............................. 6
ARTICLE THREE: DIRECTORS
3.1 Management............................................................. 7
3.2 Number; Election; Term; Qualification.................................. 7
3.3 Change in Number....................................................... 7
3.4 Removal and Resignation................................................ 7
3.5 Vacancies.............................................................. 8
3.6 Place of Meetings...................................................... 8
3.7 First Meeting.......................................................... 8
3.8 Regular Meetings....................................................... 9
3.9 Special Meetings; Notice............................................... 9
3.10 Quorum; Majority Vote.................................................. 9
3.11 Order of Business...................................................... 9
3.12 Presumption of Assent.................................................. 10
3.13 Compensation........................................................... 10
3.14 Action Without a Meeting............................................... 10
</TABLE>
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<TABLE>
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ARTICLE FOUR: COMMITTEES
4.1 Designation............................................................ 10
4.2 Number; Qualification; Term............................................ 10
4.3 Authority.............................................................. 11
4.4 Committee Changes...................................................... 11
4.5 Regular Meetings....................................................... 11
4.6 Special Meetings....................................................... 11
4.7 Quorum; Majority Vote.................................................. 11
4.8 Minutes................................................................ 11
4.9 Compensation........................................................... 12
4.10 Responsibility......................................................... 12
ARTICLE FIVE: GENERAL PROVISIONS RELATING TO MEETINGS
5.1 Notice................................................................. 12
5.2 Waiver of Notice....................................................... 12
5.3 Telephone and Similar Meetings......................................... 12
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Election; Term of Office............................... 13
6.2 Removal................................................................ 13
6.3 Vacancies.............................................................. 13
6.4 Authority.............................................................. 13
6.5 Compensation........................................................... 13
6.6 Chairman of the Board.................................................. 14
6.7 President.............................................................. 14
6.8 Vice Presidents........................................................ 14
6.9 Treasurer.............................................................. 14
6.10 Assistant Treasurers................................................... 15
6.11 Secretary.............................................................. 15
6.12 Assistant Secretaries.................................................. 15
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.1 Certificates for Shares................................................ 15
7.2 Consideration for Shares............................................... 16
7.3 Replacement of Lost or Destroyed Certificates.......................... 16
7.4 Transfer of Shares..................................................... 16
7.5 Registered Stockholders................................................ 17
7.6 Regulations............................................................ 17
7.7 Legends................................................................ 17
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ARTICLE EIGHT: INDEMNIFICATION OF DIRECTORS AND OFFICERS
8.1 Right to Indemnification............................................... 17
8.2 Advancement of Expenses................................................ 19
8.3 Nonexclusivity of Right to Indemnification............................. 19
8.4 Insurance.............................................................. 19
8.5 Continued Rights....................................................... 19
ARTICLE NINE: MISCELLANEOUS PROVISIONS
9.1 Dividends.............................................................. 20
9.2 Reserves............................................................... 20
9.3 Books and Records...................................................... 20
9.4 Fiscal Year............................................................ 20
9.5 Seal................................................................... 20
9.6 Securities of Other Corporations....................................... 20
9.7 Invalid Provisions..................................................... 21
9.8 Attestation by the Secretary........................................... 21
9.9 Headings; Table of Contents............................................ 21
9.10 References............................................................. 21
9.11 Amendments............................................................. 21
</TABLE>
<PAGE> 5
BY-LAWS
OF
CAP ACQUISITION CORP.
A Delaware Corporation
PREAMBLE
The by-laws of the Company ("By-Laws") are subject to, and governed by,
the General Corporation Law of the State of Delaware (the "Delaware General
Corporation Law") and the certificate of incorporation of CAP Acquistion Corp.,
a Delaware corporation (the "Company"). In the event of a direct conflict
between the provisions of these By-Laws and the mandatory provisions of the
Delaware General Corporation Law or the provisions of the certificate of
incorporation of the Company (the "Certificate of Incorporation"), such
provisions of the Delaware General Corporation Law or the Certificate of
Incorporation, as the case may be, will be controlling.
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. The registered office and registered
agent of the Company will be as designated from time to time by the appropriate
filing by the Company in the office of the Secretary of State of the State of
Delaware.
1.2 Other Offices. The Company may also have offices elsewhere, both
within and without the State of Delaware, as the board of directors of the
Company (the "Board of Directors") may from time to time determine or as the
business of the Company may require.
ARTICLE TWO: STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the Company
(the "Stockholders") will be held each calendar year on the date and at the time
and place as designated from time to time by the Board of Directors and stated
in the notice of the meeting or in a duly executed waiver of notice of such
meeting. If the date chosen for the meeting is a legal holiday, then the meeting
will be held on the following business day, at the time specified in the notice
or waiver of notice of the meeting. At such meeting, the Stockholders will elect
directors and transact such other business as may properly be brought before the
meeting.
<PAGE> 6
2.2 Special Meeting. A special meeting of the Stockholders may be called
at any time by the chairman of the board of the Company (the "Chairman of the
Board"), the president of the Company (the "President"), the Board of Directors,
or the Stockholders of not less than ten percent of all shares entitled to vote
at such meeting. The date, time and place of the special meeting are to be
designated by the person(s) calling the meeting and must be stated in the notice
of the special meeting or in a duly executed waiver of notice of such meeting.
Only the business stated or indicated in the notice of the special meeting or in
a duly executed waiver of notice of the meeting may be conducted at the special
meeting.
2.3 Place of Meetings. Meetings of Stockholders will be held at the
principal office of the Company unless another place, within or without the
state of Delaware, is designated for meetings in the manner provided in Sections
2.1 and 2.2.
2.4 Notice. Except as otherwise provided by law, written or printed
notice stating the place, day and time of each meeting of the Stockholders and,
in case of a special meeting, the purpose(s) for which the meeting is called,
must be delivered not less than ten nor more than 60 days before the date of the
meeting, either personally or by mail, by or at the direction of the President,
the secretary of the Company (the "Secretary") or the officer or person(s)
calling the meeting, to each Stockholder of record entitled to vote at the
meeting. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the Stockholder at his address as it appears on the
Company records.
2.5 Voting List. At least ten days before each meeting of Stockholders,
the secretary or other officer of the Company who has charge of the Company's
stock ledger must prepare a complete list of Stockholders entitled to vote at
the meeting, arranged in alphabetical order, with the address of each
Stockholder and number of shares registered in the name of each Stockholder. For
a period of ten days prior to such meeting, the list must be kept on file at a
place within the city where the meeting is to be held, which place must be
specified in the notice of meeting or a duly executed waiver of notice of such
meeting or, if not specified in the notice, at the place where the meeting is to
be held. The voting list will be open to examination by any Stockholder during
ordinary business hours. The list must also be produced at the meeting and kept
there at all times during the meeting and may be inspected by any Stockholder
present. The stock ledger is the only evidence as to who are the Stockholders
entitled to examine the list.
2.6 Voting of Shares. Treasury shares, shares of the Company's own
capital stock belonging to it or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
is held, directly or indirectly, by the Company, are neither entitled to vote
nor be counted for quorum purposes. Nothing in this section is to be construed
as limiting the right of the Company to vote stock, including but not limited to
its own stock, held by it in a fiduciary capacity. All persons holding Company
stock in a fiduciary capacity are entitled to vote the shares so held. Persons
whose stock is pledged are entitled to vote, unless in the transfer by the
pledgor on the books of the Company, he has expressly empowered the pledgee to
vote thereon, in which case only the pledgee, or his proxy, may represent such
stock and vote thereon.
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2.7 Quorum. The holders of a majority of the outstanding shares entitled
to vote on a matter, present in person or by proxy, will constitute a quorum at
any meeting of Stockholders, except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. If a quorum is not present, in
person or by proxy, at any meeting of Stockholders, the Stockholders entitled to
vote at the meeting and who are present, in person or by proxy, may adjourn the
meeting. If no Stockholder entitled to vote is present, any officer of the
Company may adjourn the meeting without notice other than announcement at the
meeting (unless the Board of Directors, after such adjournment, fixes a new
record date for the adjourned meeting), until a quorum is present, in person or
by proxy. At any adjourned meeting at which a quorum is present, in person or by
proxy, any business may be transacted which may have been transacted at the
original meeting had a quorum been present; provided that, if the adjournment is
for more than 30 days or if after the adjournment, a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting must be given to
each Stockholder of record entitled to vote at the adjourned meeting.
2.8 Required Vote; Withdrawal of Quorum. Directors of the Company are to
be elected, at a Stockholders meeting at which a quorum is present, by a
plurality of the votes of the shares entitled to vote on the election of
directors and present in person or represented by proxy. In all other matters,
except the election of directors and those otherwise provided by law, the
Certificate of Incorporation or these By-Laws, the affirmative vote of the
majority of shares present in person or represented by proxy at a meeting at
which a quorum is present, and entitled to vote on the subject matter, will be
the act of the Stockholders. The Stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Stockholders to leave less than a quorum.
2.9 Method of Voting; Proxies. Except as otherwise provided in the
Certificate of Incorporation or by law, each outstanding share is entitled to
one vote on each matter submitted to a vote at a Stockholders meeting. Elections
of directors need not be by written ballot. At any Stockholders meeting, every
Stockholder having the right to vote or to express consent or dissent to
corporate action in writing without a meeting may do so either in person or by a
proxy executed in writing by the Stockholder or by his duly authorized
attorney-in-fact, or any other means permitted by law. No proxy will be valid
after three years from the date of its execution, unless otherwise provided in
the proxy. If no date is stated in a proxy, such proxy will be presumed to have
been executed on the date of the meeting at which it is to be voted. Each proxy
will be revocable unless it expressly provides that it is irrevocable and is
coupled with an interest sufficient in law to support an irrevocable power or is
otherwise made irrevocable by law.
2.10 Record Date.
(a) Meetings of Stockholders. In order that the Company 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 a record date, which
record date may not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors, and which record date may not be more
than 60 nor less then ten days before the date of such meeting. If no
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<PAGE> 8
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 will
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 will
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) Action Without A Meeting. In order that the Company 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 may not
precede the date upon which the resolution fixing the record is adopted by the
Board of Directors, and which date may not be more than ten days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, 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 law, will be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Company by delivery to its registered office in this State, its principal place
of business or an officer or agent of the Company having custody of the book in
which proceedings of meetings of Stockholders are recorded. Delivery made to the
Company's registered office must 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 will be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action.
(c) Dividends, Distributions, Other Actions. In order for the Company to
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 a record
date, which record date may not precede the date upon which the resolution
fixing the record date is adopted, and which record date may not be more than 60
days prior to such action. If no record date is fixed, the record date for
determining Stockholders for any such purpose will be at the close of business
on the day of which the Board of Directors adopts the resolution relating
thereto.
2.11 Conduct of Meeting. The Chairman of the Board, if such office has
been filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the President will preside at all meetings of Stockholders. The
Secretary will keep the records of each meeting of Stockholders. In the absence
or inability to act of any such officer, the officer's duties must be performed
by the officer given the authority to act for the absent or non-acting officer
under these By-Laws or by some person(s) appointed at the meeting.
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<PAGE> 9
2.12 Inspectors. The Board of Directors may, in advance of any meeting
of Stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof and make a written report thereof. If any of the inspectors
so appointed fails to appear or act or if inspectors have not been appointed,
the chairman of the meeting may appoint one or more inspectors. Each inspector,
before entering upon the discharge of his duties, must take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors are to
determine the number of shares of capital stock of the Company outstanding and
the voting power of each, the number of shares represented at the meeting, the
existence of a quorum and the validity and effect of proxies. Furthermore, they
are to receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the results and do such acts as are proper
to conduct the election or vote with fairness to all Stockholders. On request of
the chairman of the meeting, the inspectors must make a report in writing of any
challenge, request or matter determined by them and must execute a certificate
of any fact found by them. No director or candidate for the office of director
may act as an inspector of an election of directors. Inspectors need not be
Stockholders.
2.13 Consent of Stockholders in Lieu of Meeting. Except as otherwise
provided by law or by the Certificate of Incorporation, any action required to
be taken, or which may be taken, by law, the Certificate of Incorporation or
these By-Laws, at any annual or special meeting of Stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent(s) in
writing, setting forth the action taken, is signed by the holders of shares 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 the holders of
all shares entitled to vote on the action were present and voted, provided that
(a) such consent is executed and delivered in a manner consistent with Delaware
law and (b) prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent is given to those Stockholders
who have not consented in writing.
ARTICLE THREE: DIRECTORS
3.1 Management. The business and affairs of the Company will be managed
by and under the Board of Directors. Subject to the restrictions imposed by law,
the Certificate of Incorporation or these By-Laws, the Board of Directors may
exercise all the powers of the Company.
3.2 Number; Election; Term; Qualification. The number of directors which
constitutes the entire Board of Directors may not be less than one. The first
Board of Directors will consist of the number of directors named by the
Incorporator of the Company. Thereafter, within the limits above specified, the
number of directors which constitutes the entire Board of Directors will be
determined by resolution of the Board of Directors or by resolution of the
Stockholders at the annual meeting or at a special meeting called for that
purpose. Except as otherwise required by law, the
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<PAGE> 10
Certificate of Incorporation or these By-Laws, the directors will be elected at
an annual meeting of Stockholders at which a quorum is present and in accordance
with the provisions for election of directors set forth in Section 2.8, supra.
Each director chosen in this manner will hold office until the first annual
meeting of Stockholders held after his election and until his successor is
elected and qualified or, if earlier, until his death, resignation, or removal
from office. No director need be a Stockholder of the Company or a Delaware
resident. Acceptance of the office of director may be expressed orally or in
writing.
3.3 Change in Number. A decrease in the number of directors constituting
the entire Board of Directors will not have the effect of shortening the term of
any incumbent director.
3.4 Removal and Resignation. At any meeting of Stockholders or, whenever
permitted by law and the Certificate of Incorporation, without a meeting by
their written consents thereto, any director or the entire Board of Directors
may be removed, with or without cause, by a vote of the holders of a majority of
the shares then entitled to vote on the election of directors; provided,
however, that if the Stockholders have the right to cumulate votes in the
election of directors pursuant to the Certificate of Incorporation, if less than
the entire Board of Directors is to be removed, no one of the directors may be
removed if the votes cast against his removal would be sufficient to elect him
if then cumulatively voted at an election of the entire Board of Directors.
Any director may resign at any time. The resignations must be made in
writing and will take effect at the time specified therein, or if no time is
specified, at the time of its receipt by the Chairman of the Board, if any, the
President or the Secretary. The acceptance of a resignation will not be
necessary to make it effective, unless expressly so provided in the resignation.
3.5 Vacancies. Vacancies and newly-created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director. Each director so chosen will hold office until the first
annual meeting of Stockholders held after his election and until his successor
is elected and qualified or, if earlier, until his death, resignation or removal
from office. If there are no directors in office, an election of directors may
be held in the manner provided by statute. If, at the time of filling any
vacancy or any newly-created directorship, the directors then in office
constitute less than a majority of the whole Board of Directors (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any Stockholder(s) holding at least 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 office. Except as otherwise provided in these By-Laws, when one or more
directors 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,
will have the power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation(s) become effective, and each director so chosen
will hold office as provided in these By-Laws with respect to the filling of
other vacancies.
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<PAGE> 11
3.6 Place of Meetings. The Board of Directors may hold its meetings and
may have an office(s) in such place(s), within or without the State of Delaware,
as the Board of Directors may from time to time determine or as is specified in
the notice of such meeting or duly executed waiver of notice of such meeting.
3.7 First Meeting. Each newly elected Board of Directors may hold its
first organizational meeting, if a quorum is present, immediately after and at
the same place as the annual meeting of Stockholders. Notice of such meeting is
not necessary.
3.8 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such times and places as designated from time to time by
resolution of the Board of Directors and communicated to all directors.
3.9 Special Meetings; Notice. Special meetings of the Board of Directors
will be held whenever called by the Chairman of the Board, the President or any
director. The Secretary must give notice or the person calling the special
meeting must cause notice to be given of each special meeting to each director
at least one day before the meeting. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice or waiver of notice of such meeting. Unless
limited by law, by the Certificate of Incorporation or by the By-Laws, any and
all business may be transacted at any special meeting of directors.
3.10 Quorum; Majority Vote. At all meetings of the Board of Directors, a
majority of the directors fixed in the manner provided in these By-Laws will
constitute a quorum for the transaction of business. If a quorum is not present
at a meeting, a majority of the directors present or any director solely present
may adjourn the meeting, without further notice other than an announcement at
the meeting until a quorum is present. Unless the act of a greater number is
required by law, the Certificate of Incorporation or these By-Laws, the act of a
majority of the directors present at a meeting at which a quorum is in
attendance will be the act of the Board of Directors. At any time that the
Certificate of Incorporation provides that directors elected by the holders of a
class or series of stock will have more or less than one vote per director on
any matter, every reference in these By-Laws to a majority or other proportion
of directors will refer to a majority or other proportion of the votes of such
directors.
3.11 Order of Business. At meetings of the Board of Directors, business
shall be transacted in such order as the Board of Directors may determine. The
Chairman of the Board, if any, and, if none or if the Chairman of the Board is
absent or otherwise unable to act, the President is to preside at all meetings
of the Board of Directors. In the absence or inability to act of either officer,
a chairman is to be chosen by the Board of Directors from among the directors
present. The Secretary is to act as the secretary of each meeting of the Board
of Directors unless the Board of Directors appoints another person to act as
secretary of the meeting. The regular minutes of the proceedings must be placed
in the minute book of the Company.
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<PAGE> 12
3.12 Presumption of Assent. A director of the Company who is present at
any meeting of the Board of Directors at which action on any Company matter is
taken will be presumed to have assented to the action unless his dissent is
entered in the minutes of the meeting or unless he files his written dissent to
such action with the person acting as secretary of the meeting before the
adjournment thereof or forwards any dissent by certified or registered mail to
the Secretary immediately after the adjournment of the meeting. Such right to
dissent does not apply to a director who voted in favor of such action.
3.13 Compensation. The Board of Directors has the authority to fix the
compensation, including fees and reimbursement of expenses, paid to directors
for attendance at regular or special meetings of the Board of Directors or any
committee thereof; provided, however, that nothing contained herein be construed
to preclude any director from serving the Company in any other capacity or
receiving compensation therefor.
3.14 Action Without a Meeting. Unless otherwise restricted by the
Certificate of Incorporation or By-Laws, any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing(s) are filed with the minutes of
proceedings of the Board, or committee.
ARTICLE FOUR: COMMITTEES
4.1 Designation. The Board of Directors may, by resolution adopted by a
majority of the entire Board of Directors, designate one or more committees.
4.2 Number; Qualification; Term. Each committee will consist of one or
more directors appointed by resolution adopted by a majority of the entire Board
of Directors. The Board of Directors may designate one or more directors as
alternate members of any committee. Any such alternate member may replace any
absent or disqualified member at any meeting of the committee. If no alternate
committee members have been so appointed to a committee or each alternate
committee member is absent or disqualified, the member(s) of the committee
present at any meeting and not disqualified from voting, whether or not a quorum
is present, 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. The
number of committee members may be increased or decreased by resolution adopted
by a majority of the entire Board of Directors. Each committee member shall
serve as such until the earliest of (a) the expiration of his term as director,
(b) his resignation as a committee member or as a director, or (c) his removal
as a committee member or as a director.
4.3 Authority. Each committee, to the extent expressly provided in the
resolution establishing such committee, will have and may exercise all of the
authority of the Board of Directors in the management of the business and
property of the Company except to the extent expressly restricted by law, the
Certificate of Incorporation or these By-Laws. A committee of the
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Board of Directors may be given the power and authority to declare a dividend,
to authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to the Delaware General Corporation Law.
4.4 Committee Changes. The Board of Directors will have the power at any
time to fill vacancies in, to change the membership of, and to discharge any
committee.
4.5 Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated by the committee and
communicated to all its members.
4.6 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting must cause notice of such special meeting, including the time
and place of such special meeting, to be given to each committee member at least
two days before the meeting. Neither the business to be transacted at, nor the
purpose of, any special meeting of any committee need be specified in the notice
or waiver of notice of the special meeting.
4.7 Quorum; Majority Vote. At meetings of any committee, a majority of
the number of members designated by the Board of Directors will constitute a
quorum for the transaction of business. If a quorum is not present at a meeting
of any committee, a majority of the members present may adjourn the meeting,
without notice, other than an announcement at the meeting, until a quorum is
present. The act of a majority of the members present at any meeting at which a
quorum is in attendance will be the act of the committee, unless the act of a
greater number is required by law, the Certificate of Incorporation or these
By-Laws.
4.8 Minutes. The minutes of the proceedings of each committee must be
prepared and the committee must report the minutes to the Board of Directors
upon the request of the Board of Directors. The minutes of the proceedings of
each committee must be delivered to the Secretary for placement in the Company's
minute books.
4.9 Compensation. Committee members may, by resolution of the Board of
Directors, be allowed a stated salary or a fixed sum and expenses of attendance,
if any, for attending any committee meetings.
4.10 Responsibility. The designation of any committee and the delegation
of authority to it will not operate to relieve the Board of Directors or any
director of any responsibility imposed upon it or any director by law.
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ARTICLE FIVE: GENERAL PROVISIONS RELATING TO MEETINGS
5.1 Notice. Whenever by law, the Certificate of Incorporation or these
By-Laws, notice is required to be given to any committee member, director or
Stockholder and no provision is made as to how such notice must be given, any
such notice may be given (a) in person, (b) in writing, by mail, postage
prepaid, addressed to such committee member, director or Stockholder at his
address as it appears on the books or, in the case of a Stockholder, the stock
transfer records of the Company or (c) by any other method permitted by law. Any
notice required or permitted to be given by mail will be deemed to be given at
the time it is deposited in the United States mail. Any notice required or
permitted to be given by overnight courier service will be deemed to be given at
the time delivered to such service with all charges prepaid and properly
addressed. Any notice required or permitted to be given by telegram, telex or
telefax will be deemed to be given at the time transmitted with all charges
prepaid and properly addressed.
5.2 Waiver of Notice. Whenever by law, the Certificate of Incorporation
or these By-Laws, any notice is required to be given to any Stockholder,
director or committee member, a waiver thereof in writing signed by the
person(s) entitled to such notice, whether before or after the time notice
should have been given, will be equivalent to the giving of such notice.
Attendance of a Stockholder, director or committee member at a meeting will
constitute a waiver of notice of such meeting, except where such person attends
for the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
5.3 Telephone and Similar Meetings. Stockholders, directors or committee
members may participate in meetings and hold meetings by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meetings can hear each other. Participation in such a
meeting will constitute presence in person at the meeting, except where a person
participates for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Election; Term of Office. The officers of the
Company will be a President, a Secretary and any other officers as the Board of
Directors may from time to time elect or appoint, including, but not limited to,
a Chairman of the Board, one or more vice presidents (the "Vice Presidents(s)")
and a treasurer (the "Treasurer"). Unless otherwise specified by these By-Laws
or by resolution of the Board of Directors, at the first meeting of the Board of
Directors after each annual meeting of Stockholders at which a quorum is
present, the Board of Directors shall elect the officers. Each officer will hold
office until his successor has been duly elected and qualified, until his death
or until he resigns or has been removed in the manner provided here. Any two or
more offices may be held by the same person. None of the officers need be a
Stockholder or Company director.
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6.2 Removal and Resignation. Any officer or agent elected or appointed
by the Board of Directors may be removed by the Board of Directors whenever in
its judgment the best interests of the Company will be served thereby, but such
removal will be without prejudice to the contract rights, if any, of the person
removed. Election or appointment of an officer or agent will not of itself
create contract rights. An officer may resign at any time upon written notice to
the Company. The acceptance of a resignation will not be necessary to make it
effective unless so provided in the resignation.
6.3 Vacancies. Any vacancy occurring in any office of the Company may be
filled by the Board of Directors.
6.4 Authority. Officers will have the authority and perform such duties
in the management of the Company as provided in these By-Laws or as may be
determined by resolution of the Board of Directors not inconsistent with these
By-Laws.
6.5 Compensation. The compensation, if any, of officers and agents will
be fixed from time to time by the Board of Directors; provided, however, that
the Board of Directors may by resolution delegate to any one or more officers
the authority to fix such compensation.
6.6 Chairman of the Board. The Chairman of the Board, if one is elected
by the Board of Directors, will have those powers and duties as prescribed by
the Board of Directors.
6.7 President. Unless and to the extent that such powers and duties are
expressly delegated to a Chairman of the Board by the Board of Directors, the
President will be the chief executive officer of the Company and, subject to the
supervision of the Board of Directors, will have general management and control
of the business and property of the Company in the ordinary course of its
business with all powers with respect to general management and control
reasonably incident to such responsibilities, including, but not limited to, the
power to employ, discharge or suspend employees and agents, to fix the
compensation of employees and agents and to suspend, with or without cause, any
officer pending final action by the Board of Directors with respect to continued
suspension, removal or reinstatement of such officer.
6.8 Vice Presidents. Each Vice President, if any, will have those powers
and duties assigned to him by the Board of Directors, or delegated by the
Chairman of the Board or the President. The Vice Presidents, in the order
designated by the Board of Directors or, in the absence of such a designation,
as determined by the length of time each has held the office of Vice President,
will exercise the powers of the President during the President's absence or
inability to act.
6.9 Treasurer. The Treasurer will have the care and custody of all the
Company funds and must deposit them in such banks or other depositories as the
Board of Directors or any officer(s), or any officer and agent jointly, duly
authorized by the Board of Directors, direct or approve. He must keep a full and
accurate account of all monies received and paid on account of
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the Company and must render a statement of his accounts whenever the Board of
Directors so requires. Except as otherwise provided by the Board of Directors,
he must perform all other necessary acts and duties in connection with the
administration of the Company's financial affairs and generally perform all the
duties usually appertaining to the office of the Treasurer. Whenever required by
the Board of Directors, he must give bonds for the faithful discharge of his
duties in such sums and with such securities as the Board of Directors may
approve. In the absence of the Treasurer, the person designated by the Chairman
of the Board, if any, or the President will perform his duties.
6.10 Assistant Treasurers. Each assistant treasurer, if any, of the
Company ("Assistant Treasurer") will have those powers and duties assigned to
him by the Board of Directors, or delegated by the Chairman of the Board or the
President. The Assistant Treasurers, in the order as designated by the Board of
Directors or, in the absence of such a designation, as designated by the length
of time they have held the office of Assistant Treasurer, will exercise the
powers of the Treasurer during the Treasurer's absence or inability to act.
6.11 Secretary. Except as otherwise provided in these By-Laws, the
Secretary must keep the minutes of all meetings of the Board of Directors, of
any committee and of the Stockholders, or consents in lieu of such meetings in
the Company's minute books and must cause notice of the meetings to be given
when requested by any person authorized to call a meeting. The Secretary may
sign with the Chairman of the Board or the President, in the name of the
Company, all contracts of the Company and affix the Company seal (if any)
thereto. The Secretary may sign with the Chairman of the Board or the President
all Company Stock certificates, and he is in charge of the certificate books,
share transfer records, stock ledgers and any other stock books and papers as
the Board of Directors may direct, all of which must, at all reasonable times,
be open to inspection by any director at the Company office during business
hours. The Secretary, will in general, perform such other duties incident to the
office of the Secretary, or as assigned by the Board of Directors or delegated
by the Chairman of the Board or the President.
6.12 Assistant Secretaries. Each assistant secretary, if any, of the
Company ("Assistant Secretary") will have those powers and duties assigned to
him by the Board of Directors or delegated by the Chairman of the Board or the
President. The Assistant Secretaries, in the order as designated by the Board of
Directors or, in the absence of such a designation, as determined by the length
of time they have held the office of Assistant Secretary, will exercise the
powers of the Secretary during the Secretary's absence or inability to act.
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.1 Certificates for Shares. Certificates for shares of stock of the
Company will be in the form approved by the Board of Directors. The certificates
must be signed by the Chairman of the Board or the President or a Vice President
and also by the Secretary or an Assistant Secretary or by the Treasurer or an
Assistant Treasurer. Any and all signatures on the certificates may be a
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facsimile and may be sealed with the Company seal or a facsimile thereof. If any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon, a certificate has ceased to be an officer,
transfer agent or registrar before the certificate is issued, the certificate
may be issued by the Company with the same effect as if he were an officer,
transfer agent or registrar at the date of issue. The certificates must be
consecutively numbered and entered in the Company books as they are issued and
must exhibit the holder's name and the number of shares. The Board of Directors
may provide by resolution(s) that some or all of any or all classes or series of
its stock will be uncertificated shares. However, any such resolution will not
apply to shares represented by a certificate until that certificate is
surrendered to the Company. Notwithstanding the adoption of such a resolution,
every holder of uncertificated shares is entitled, upon request, to have a
certificate signed as prescribed above.
7.2 Consideration for Shares. The consideration for subscriptions to, or
the purchase of shares of capital stock to be issued by the Company, must be
paid in the form and in the manner that the Board of Directors determines. In
the absence of actual fraud in the transaction, the judgment of the Directors as
to the value of such consideration will be conclusive. Capital stock so issued
will be considered fully paid and nonassessable so long as the par value or
stated value allocated to capital is paid in full by consideration in the form
of cash, services rendered, personal or real property, leases of real property
or a combination thereof. The balance or surplus in the subscription or purchase
price of the stock, if the directors so determine, may be supplied by a binding
obligation of the subscriber or purchaser to pay the balance of the price.
7.3 Replacement of Lost or Destroyed Certificates. The Board of
Directors may issue a new certificate of stock or uncertificated shares in place
of any certificate issued by it, alleged to have been lost, stolen or destroyed,
and the Board of Directors may require the owner of the lost, stolen or
destroyed certificate, or his legal representative to give the Company a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of the certificate or the
issuance of a new certificate of stock or uncertificated shares.
7.4 Transfer of Shares. Upon surrender to the Company or its transfer
agent of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it will be the
duty of the Company to issue a new certificate to the person entitled to the new
certificate, cancel the old certificate and record the transaction upon its
books. Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares, such uncertificated shares will be cancelled and issuance
of new equivalent uncertificated shares or certificated shares will be made to
the person entitled thereto and the transaction will be recorded upon the books
of the Company.
7.5 Registered Stockholders. The Company will be entitled to treat the
holder of record of any share(s) of stock as the holder in fact thereof and,
accordingly, will not be bound to recognize any equitable or other claim to such
share(s) on the part of any other person, whether or not it has express or other
notice thereof, except as otherwise provided by law.
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7.6 Regulations. The Board of Directors will have the power and
authority to make all such rules and regulations as they deem expedient
concerning the issue, transfer, registration or the replacement of certificates
for shares of Company stock.
7.7 Legends. The Board of Directors will have the power and authority to
provide that certificates representing shares of stock bear those legends that
the Board of Directors deems appropriate to assure that the Company complies
with applicable federal or state securities laws or other laws.
ARTICLE EIGHT: INDEMNIFICATION OF DIRECTORS AND OFFICERS
8.1 Right to Indemnification.
(a) The Company may indemnify, to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may be amended in the
future (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than the
law permitted the Company to provide prior to such amendment), 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, arbitrative or investigative (hereafter, in this Article Eight,
collectively referred to as a "Proceeding") (other than an action by or in the
right of the Company), by reason of the fact that he is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
Proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful.
The termination of any Proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, will not, of
itself create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal Proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Company may indemnify, to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may be amended in the
future (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than the
said law permitted the Company to provide prior to such amendment), any person
who was or is a party or is threatened to be made a party to any Proceeding
brought by or in the right of the Company to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Company, or is or was
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serving at the request of the Company, as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including reasonable attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such Proceeding
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful;
provided, however, that no indemnification may be made with respect to any
claim, issue or matter as to which such person has been adjudged to be liable to
the Company, unless and only to the extent that the Court of Chancery or the
court in which such Proceeding was brought determines, upon application, that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for those
expenses which the Court of Chancery or other court may deem proper.
(c) The Company must indemnify any director, officer, employee or agent
of the Company to the extent he has been successful on the merits or otherwise
in defense of any Proceeding against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(d) The determination that indemnification of the director, officer,
employee or agent is proper under the circumstances because he has met the
applicable standard of conduct set forth in subparagraphs (a) and (b) above
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such Proceeding, or (2) 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 or (3)
by the Stockholders.
8.2 Advancement of Expenses. The Company may advance the expenses
(including reasonable attorneys' fees) incurred by an officer or director in
defending any Proceeding prior to the final disposition of the Proceeding upon
receipt of an undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined that he is not entitled to be
indemnified by the Company under Delaware General Corporation Law, as the same
exists or may be amended in the future.
Expenses (including reasonable attorneys' fees) incurred by other
employees and agents may be paid upon those terms and conditions that the Board
of Directors deems appropriate.
8.3 Nonexclusivity of Right to Indemnification. The indemnification and
advancement of expenses provided by, or granted pursuant to, the provisions of
this Article Eight are not to be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
the By-Laws, any agreement or 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 that office.
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8.4 Insurance. The Company will have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Company would have the power to indemnify him against such
liability under this Article Eight or Delaware General Corporation Law or both.
8.5 Continued Rights. The indemnification and advance of expenses
provided by this Article Eight will, unless otherwise provided when authorized,
continue as to a person who has ceased to be a director, officer, employee or
agent and will inure to the benefit of the heirs, executors and administrators
of that person.
ARTICLE NINE: MISCELLANEOUS PROVISIONS
9.1 Dividends. Dividends upon the capital stock of the Company, subject
to the provisions of the Certificate of Incorporation and applicable statutes,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, property or shares of
the capital stock.
9.2 Reserves. Before payment of any dividend, there may be set aside out
of any funds of the Company available for dividends the sum(s) that the
directors, in their absolute discretion, think proper as a reserve(s) to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Company or for such other purpose as the directors may find
conducive to the interests of the Company, and the directors may modify or
abolish any reserve in the manner in which it was created.
9.3 Books and Records. The Company must keep correct and complete books
and records of account and must keep minutes of the proceedings of its
Stockholders and Board of Directors. The Company must keep at its registered
office or principal place of business or at the office of its transfer agent or
registrar, a record of the original issuance of shares by the Company and a
record of each transfer of those shares that have been presented to the Company
for registration of transfer, giving the names and addresses of all past and
current Stockholders and the number and class of the shares held by each.
9.4 Fiscal Year. The fiscal year of the Company will be fixed by the
Board of Directors; provided, however, that if the fiscal year is not fixed by
the Board of Directors and the selection of the fiscal year is not expressly
deferred by the Board of Directors, the fiscal year will be the calendar year.
9.5 Seal. The seal of the Company will be in the form approved from time
to time by the Board of Directors.
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9.6 Securities of Other Corporations. The chief executive officer (or
any other officers designated by the Board of Directors) will have the power and
authority to transfer, endorse for transfer, vote, consent or take any other
action with respect to any securities of another issuer which may be held or
owned by the Company and to make, execute and deliver any waiver, proxy or
consent with respect to any such securities.
9.7 Invalid Provisions. If any part of these By-Laws is held invalid or
inoperative for any reason, the remaining parts, so far as possible and
reasonable, will remain valid and operative.
9.8 Attestation by the Secretary. With respect to any deed, deed of
trust, mortgage or other instrument executed by the Company through its duly
authorized officer(s), the attestation to such execution by the Secretary will
not be necessary to constitute such deed, deed of trust, mortgage or other
instrument a valid and binding obligation against the Company unless the
resolutions, if any, of the Board of Directors authorizing such execution
expressly state that such attestation is necessary.
9.9 Headings; Table of Contents. The headings and table of contents used
in these By-Laws have been inserted for administrative convenience only and do
not constitute matter to be construed in the interpretation of these By-Laws.
9.10 References. In these By-Laws, whenever the singular number is used,
the same includes the plural where appropriate and words of any gender include
each other gender where appropriate.
9.11 Amendments. These By-Laws may be altered, amended or repealed or
new by-laws may be adopted by the Stockholders or by the Board of Directors,
when such power is conferred upon the Board of Directors by the Certificate of
Incorporation, at any regular or special meeting of the Stockholders or of the
Board of Directors if notice of such alteration, amendment, repeal or adoption
of new by-laws is contained in the notice of any such meeting. If the power to
adopt, amend or repeal by-laws is conferred upon the Board of Directors by the
Certificate of Incorporation, it shall not divest or limit the power of
Stockholders to adopt new by-laws or amend or repeal these By-Laws.
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EXHIBIT 3.4
AMENDED AND RESTATED BYLAWS
OF
GLOBESPAN SEMICONDUCTOR INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Dover,
County of Kent, State of Delaware.
Section 2. The corporation 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
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City of Red Bank, New Jersey, at such place as
may be fixed from time to time by the Board of Directors, or at such other place
either within or without the State of Delaware as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with
fiscal year 2000, shall be held at such date and time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which they shall elect by a plurality vote a board of directors, and
transact such other business as may properly be brought before the
1.
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meeting.
Section 3. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten 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 so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least
twenty-five percent (25%) in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer
2.
<PAGE> 3
than ten (10) nor more than sixty (60) days before the date of the meeting, to
each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of fifty percent (50%) of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation, each
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stockholder shall at every meeting of the stockholders be entitled to one vote
in person or by proxy for each share of the capital stock having voting power
held by such stockholder, but no proxy shall be voted on after three years from
its date, unless the proxy provides for a longer period.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the
whole board shall be determined by resolution of the Board of Directors or by
the stockholders at the annual meeting of the stockholders, except as provided
in Section 2 of this Article, and each director elected shall hold office until
his successor is elected and qualified.
Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. 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 Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten percent
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
4.
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directors chosen by the directors then in office.
Section 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these bylaws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting, and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
president on two (2) days' notice to each director by mail or twenty-four (24)
hours' notice to each director either personally, by telegram, or by facsimile;
special meetings shall be called by the president or
5.
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secretary in like manner and on like notice on the written request of two
directors unless the board consists of only one director, in which case special
meetings shall be called by the president or secretary in like manner and on
like notice on the written request of the sole director.
Section 8. At all meetings of the board a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation of these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
6.
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COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided 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 amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
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Section 12. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of
the certificate of incorporation or of these bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be
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given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
Board of Directors and shall be a president, treasurer and a secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or more
vice-presidents, assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president, a treasurer, and a
secretary and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office
until their successors
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are chosen and qualify. Any officer elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the corporation
shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at
all meetings of the Board of Directors and of the stockholders at which he shall
be present. He shall have and may exercise such powers as are, from time to
time, assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief executive officer of
the corporation; and in the absence of the Chairman and Vice Chairman of the
Board he shall preside at all meetings of the stockholders and the Board of
Directors; he shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 9. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
10.
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Section 10. In the absence of the president or in the event of
his inability or refusal to act, the vice-president, if any, (or in the event
there be more than one vice-president, the vice-presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform 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 perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board
of Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 12. The assistant secretary, or if there be more than
one, the assistant secretaries in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the
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event of his inability or refusal to act, perform the duties and exercise the
powers of the secretary and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. He shall disburse the funds of the corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, he shall give
the corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his office and for the restoration
to the corporation, in case of his death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
Section 16. The assistant treasurer, or if there shall be more
than one, the assistant treasurers in the order determined by the Board of
Directors (or if there be no such determination,
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<PAGE> 13
then in the order of their election) shall, in the absence of the treasurer or
in the event of his inability or refusal to act, perform the duties and exercise
the powers of the treasurer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. 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 or vice-chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such
13.
<PAGE> 14
class or series of stock, 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.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to 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. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum 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.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer
agent of the
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corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. 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.
REGISTERED STOCKHOLDERS
Section 6. 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 to hold liable for calls and
assessments a person registered on its books as the owner of shares 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.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. 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 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
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal
having inscribed
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<PAGE> 17
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent
authorized under the laws of the State of Delaware, as those laws may be amended
and supplemented from time to time, indemnify any director made, or threatened
to be made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the corporation. The indemnification provided for in this Section 6
shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (ii)
continue as to a person who has ceased to be a director, and (iii) inure to the
benefit of the heirs, executors and administrators of such a person. The
corporation's obligation to provide indemnification under this Section 6 shall
be offset to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the corporation or
any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or
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was serving at the corporation's request as a director or officer of another
corporation) shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized by relevant sections of the General Corporation Law of Delaware.
Notwithstanding the foregoing, the corporation shall not be required to advance
such expenses to an agent who is a party to an action, suit or proceeding
brought by the corporation and approved by a majority of the Board of Directors
of the corporation which alleges willful misappropriation of corporate assets by
such agent, disclosure of confidential information in violation of such agent's
fiduciary or contractual obligations to the corporation or any other willful and
deliberate breach in bad faith of such agent's duty to the corporation or its
stockholders.
The foregoing provisions of this Section 6 shall be deemed to be
a contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on
behalf of the corporation to indemnify any person, other than a director, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and
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employees who are determined by the corporation or otherwise to be or to have
been "fiduciaries" of any employee benefit plan of the corporation which may
exist from time to time, Section 145 of the General Corporation Law of Delaware
shall, for the purposes of this Section 6, be interpreted as follows: an "other
enterprise" shall be deemed to include such an employee benefit plan, including
without limitation, any plan of the corporation which is governed by the Act of
Congress entitled "Employee Retirement Income Security Act of 1974," as amended
from time to time; the corporation shall be deemed to have requested a person to
serve an employee benefit plan where the performance by such person of his
duties to the corporation also imposes duties on, or otherwise involves services
by, such person to the plan or participants or beneficiaries of the plan; excise
taxes assessed on a person with respect to an employee benefit plan pursuant to
such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or
new bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
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CERTIFICATE OF SECRETARY OF
GLOBESPAN SEMICONDUCTOR INC.
The undersigned, Robert McMullan, hereby certifies that he is the
duly elected and acting Secretary of Globespan Semiconductor Inc., a Delaware
corporation (the "Corporation"), and that the Bylaws attached hereto constitute
the Bylaws of said Corporation as duly adopted by Action by Unanimous Written
Consent of the Directors on March ____, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
name this ____ day of _________ 1999.
-----------------------------
Robert McMullan, Secretary
20.
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EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of
___________, 1999 between Globespan Semiconductor Inc., a Delaware corporation
("the Company"), and _____________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company;
and
WHEREAS, the Board of Directors of the Company has adopted Bylaws
(the "Bylaws") providing for the indemnification of the officers and directors
of the Company to the maximum extent authorized by Section 145 of the Delaware
General Corporation Law, as amended ("Law"); and
WHEREAS, the Bylaws and the Law, by their nonexclusive nature,
permit contracts between the Company and the officers or directors of the
Company with respect to indemnification of such officers or directors; and
WHEREAS, in accordance with the authorization as provided by the
Law, the Company may purchase and maintain a policy or policies of directors'
and officers' liability insurance ("D & O Insurance"), covering certain
liabilities which may be incurred by its officers or directors in the
performance of their obligations to the Company; and
WHEREAS, in order to induce Indemnitee to continue to serve as an
officer or director of the Company, the Company has determined and agreed to
enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's service as an
officer or director after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee. The Company hereby agrees to hold
harmless and indemnify Indemnitee to the full extent authorized or permitted by
the provisions of the Law, as such may be amended from time to time, and Article
VI of the Bylaws, as such may be amended. In furtherance of the foregoing
indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the
Right of the Company. Indemnitee shall be entitled to the rights of
indemnification provided in this Section l(a) if, by reason of his Corporate
Status (as hereinafter defined), he is, or is threatened to be made, a party to
or participant in any Proceeding (as hereinafter defined) other than a
Proceeding by or in the right of the Company. Pursuant to this Section 1(a),
Indemnitee shall be indemnified against all Expenses (as hereinafter defined),
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
or any claim, issue or matter therein, if he acted in good faith
<PAGE> 2
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal Proceeding, had no
reasonable cause to believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 1(b)
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any Proceeding brought by or in the right of the
Company. Pursuant to this Section 1(b), Indemnitee shall be indemnified against
all Expenses actually and reasonably incurred by him or on his behalf in
connection with such Proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; provided, however, that, if applicable law so provides, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company unless and to the extent that the Court of
Chancery of the State of Delaware shall determine that such indemnification may
be made.
(c) Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. Additional Indemnity. In addition to, and without regard to any
limitations on, the indemnification provided for in Section 1, the Company shall
and hereby does indemnify and hold harmless Indemnitee against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf if, by reason of his Corporate
Status, he is, or is threatened to be made, a party to or participant in any
Proceeding (including a Proceeding by or in the right of the Company),
including, without limitation, all liability arising out of the negligence or
active or passive wrongdoing of Indemnitee. The only limitation that shall exist
upon the Company's obligations pursuant to this Agreement shall be that the
Company shall not be obligated to make any payment to Indemnitee that is finally
determined (under the procedures, and subject to the presumptions, set forth in
Sections 6 and 7 hereof) to be unlawful under Delaware law.
3. Contribution in the Event of Joint Liability.
(a) Whether or not the indemnification provided in Sections 1 and
2 hereof is available, in respect of any threatened, pending or completed
action, suit or proceeding
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<PAGE> 3
in which Company is jointly liable with Indemnitee (or would be if joined in
such action, suit or proceeding), Company shall pay, in the first instance, the
entire amount of any judgment or settlement of such action, suit or proceeding
without requiring Indemnitee to contribute to such payment and Company hereby
waives and relinquishes any right of contribution it may have against
Indemnitee. Company shall not enter into any settlement of any action, suit or
proceeding in which Company is jointly liable with Indemnitee (or would be if
joined in such action, suit or proceeding) unless such settlement provides for a
full and final release of all claims asserted against Indemnitee.
(b) Without diminishing or impairing the obligations of the
Company set forth in the preceding subparagraph, if, for any reason, Indemnitee
shall elect or be required to pay all or any portion of any judgment or
settlement in any threatened, pending or completed action, suit or proceeding in
which Company is jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), Company shall contribute to the amount of expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred and paid or payable by Indemnitee in proportion
to the relative benefits received by the Company and all officers, directors or
employees of the Company other than Indemnitee who are jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding), on the
one hand, and Indemnitee, on the other hand, from the transaction from which
such action, suit or proceeding arose; provided, however, that the proportion
determined on the basis of relative benefit may, to the extent necessary to
conform to law, be further adjusted by reference to the relative fault of
Company and all officers, directors or employees of the Company other than
Indemnitee who are jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), on the one hand, and Indemnitee, on the other hand,
in connection with the events that resulted in such expenses, judgments, fines
or settlement amounts, as well as any other equitable considerations which the
law may require to be considered. The relative fault of Company and all
officers, directors or employees of the Company other than Indemnitee who are
jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), on the one hand, and Indemnitee, on the other hand, shall be
determined by reference to, among other things, the degree to which their
actions were motivated by intent to gain personal profit or advantage, the
degree to which their liability is primary or secondary, and the degree to which
their conduct is active or passive.
(c) Company hereby agrees to fully indemnify and hold Indemnitee
harmless from any claims of contribution which may be brought by officers,
directors or employees of the Company other than Indemnitee who may be jointly
liable with Indemnitee.
4. Indemnification for Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of his
Corporate Status, a witness in any Proceeding to which Indemnitee is not a
party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses. Notwithstanding any other provision of this
Agreement, the Company shall advance all Expenses incurred by or on behalf of
Indemnitee in connection with any Proceeding by reason of Indemnitee's Corporate
Status within ten (10) days
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<PAGE> 4
after the receipt by the Company of a statement or statements from Indemnitee
requesting such advance or advances from time to time, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by Indemnitee and shall include or be
preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay
any Expenses advanced if it shall ultimately be determined that Indemnitee is
not entitled to be indemnified against such Expenses. Any advances and
undertakings to repay pursuant to this Section 5 shall be unsecured and interest
free. Notwithstanding the foregoing, the obligation of the Company to advance
Expenses pursuant to this Section 5 shall be subject to the condition that, if,
when and to the extent that the Company determines that Indemnitee would not be
permitted to be indemnified under applicable law, the Company shall be entitled
to be reimbursed, within thirty (30) days of such determination, by Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore
paid; provided, however, that if Indemnitee has commenced or thereafter
commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Company that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and Indemnitee shall not
be required to reimburse the Company for any advance of Expenses until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed).
6. Procedures and Presumptions for Determination of Entitlement to
Indemnification. It is the intent of this Agreement to secure for Indemnitee
rights of indemnity that are as favorable as may be permitted under the law and
public policy of the State of Delaware. Accordingly, the parties agree that the
following procedures and presumptions shall apply in the event of any question
as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification (including, but not limited to, the
advancement of Expenses and contribution by the Company) under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board of
Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case by one of the following three methods, which
shall be at the election of Indemnitee: (1) by a majority vote of the
disinterested directors, even though less than a quorum, or (2) by independent
legal counsel in a written opinion, or (3) by the stockholders.
(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). The Independent
Counsel shall be selected by
4
<PAGE> 5
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors). Indemnitee or the Company, as the case may be, may, within
10 days after such written notice of selection shall have been given, deliver to
the Company or to Indemnitee, as the case may be, a written objection to such
selection; provided, however, that such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the requirements
of "Independent Counsel" as defined in Section 13 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. Absent a proper and timely objection, the person so selected shall
act as Independent Counsel. If a written objection is made and substantiated,
the Independent Counsel selected may not serve as Independent Counsel unless and
until such objection is withdrawn or a court has determined that such objection
is without merit. If, within 20 days after submission by Indemnitee of a written
request for indemnification pursuant to Section 6(a) hereof, no Independent
Counsel shall have been selected and not objected to, either the Company or
Indemnitee may petition the Court of Chancery of the State of Delaware or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 6(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 6(c), regardless of the
manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(e) Indemnitee shall be deemed to have acted in good faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement. Whether or not the foregoing provisions of this Section 6(e) are
satisfied, it shall in any event be presumed that Indemnitee has at all times
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
5
<PAGE> 6
(f) If the person, persons or entity empowered or selected under
Section 6 to determine whether Indemnitee is entitled to indemnification shall
not have made a determination within thirty (30) days after receipt by the
Company of the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law; provided, however, that such 30 day period may be extended for a reasonable
time, not to exceed an additional fifteen (15) days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 6(g) shall not apply if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 6(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat.
(g) Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Independent Counsel, member of the Board of Directors, or stockholder of the
Company shall act reasonably and in good faith in making a determination under
the Agreement of the Indemnitee's entitlement to indemnification. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee in
so cooperating with the person, persons or entity making such determination
shall be borne by the Company (irrespective of the determination as to
Indemnitee's entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other
disposition short of final judgment may be successful if it permits a party to
avoid expense, delay, distraction, disruption and uncertainty. In the event that
any action, claim or proceeding to which Indemnitee is a party is resolved in
any manner other than by adverse judgment against Indemnitee (including, without
limitation, settlement of such action, claim or proceeding with or without
payment of money or other consideration) it shall be presumed that Indemnitee
has been successful on the merits or otherwise in such action, suit or
proceeding. Anyone seeking to overcome this presumption shall have the burden of
proof and the burden of persuasion, by clear and convincing evidence.
6
<PAGE> 7
7. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to this Agreement within
ten (10) days after receipt by the Company of a written request therefor, or (v)
payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Section 6 of this
Agreement, Indemnitee shall be entitled to an adjudication in an appropriate
court of the State of Delaware, or in any other court of competent jurisdiction,
of his entitlement to such indemnification. Indemnitee shall commence such
proceeding seeking an adjudication within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 7(a). The Company shall not oppose Indemnitee's right to seek any such
adjudication.
(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to this Section 7
shall be conducted in all respects as a de novo trial, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination under
Section 6(b).
(c) If a determination shall have been made pursuant to Section
6(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding
commenced pursuant to this Section 7, absent a prohibition of such
indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7,
seeks a judicial adjudication of his rights under, or to recover damages for
breach of, this Agreement, or to recover under any directors' and officers'
liability insurance policies maintained by the Company the Company shall pay on
his behalf, in advance, any and all expenses (of the types described in the
definition of Expenses in Section 13 of this Agreement) actually and reasonably
incurred by him in such judicial adjudication, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advancement of
expenses or insurance recovery.
(e) The Company shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 7 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Company is bound by all the provisions of
this Agreement.
7
<PAGE> 8
8. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification as provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the certificate of incorporation of the
Company, the Bylaws, any agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement or
of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the
extent that a change in the Law, whether by statute or judicial decision,
permits greater indemnification than would be afforded currently under the
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
9. Exception to Right of Indemnification. Notwithstanding any other
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors of the Company or (b)
such Proceeding is being brought by the Indemnitee to assert, interpret or
enforce his rights under this Agreement.
10. Duration of Agreement. All agreements and obligations of the Company
contained herein shall continue during the period Indemnitee is an officer or
director of the
8
<PAGE> 9
Company (or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise) and shall continue thereafter so long as Indemnitee
shall be subject to any Proceeding (or any proceeding commenced under Section 7
hereof) by reason of his Corporate Status, whether or not he is acting or
serving in any such capacity at the time any liability or expense is incurred
for which indemnification can be provided under this Agreement. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors (including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), assigns, spouses,
heirs, executors and personal and legal representatives. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as an
officer or director of the Company or any other Enterprise at the Company's
request.
11. Security. To the extent requested by the Indemnitee and approved by
the Board of Directors of the Company, the Company may at any time and from time
to time provide security to the Indemnitee for the Company's obligations
hereunder through an irrevocable bank line of credit, funded trust or other
collateral. Any such security, once provided to the Indemnitee, may not be
revoked or released without the prior written consent of the Indemnitee.
12. Enforcement.
(a) The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereby in order to
induce Indemnitee to serve as an officer or director of the Company, and the
Company acknowledges that Indemnitee is relying upon this Agreement in serving
as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
13. Definitions. For purposes of this Agreement:
(a) "Corporate Status" describes the status of a person who is or
was a director, officer, employee or agent or fiduciary of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the express written
request of the Company.
(b) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(c) "Enterprise" shall mean the Company and any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is
9
<PAGE> 10
or was serving at the express written request of the Company as a director,
officer, employee, agent or fiduciary.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party (other than with
respect to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(f) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director of the Company, by reason of any
action taken by him or of any inaction on his part while acting as an officer or
director of the Company, or by reason of the fact that he is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other Enterprise; in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement; including one pending on or before the date of this Agreement;
and excluding one initiated by an Indemnitee pursuant to Section 7 of this
Agreement to enforce his rights under this Agreement.
14. Severability. If any provision or provisions of this Agreement shall
be held by a court of competent jurisdiction to be invalid, void, illegal or
otherwise unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this Agreement (including
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby and shall remain enforceable to the fullest extent permitted by law; and
(b) to the fullest extent
10
<PAGE> 11
possible, the provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
thereby.
15. Modification and Waiver. No supplement, modification, termination or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Notice By Indemnitee. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The failure
to so notify the Company shall not relieve the Company of any obligation which
it may have to the Indemnitee under this Agreement or otherwise unless and only
to the extent that such failure or delay materially prejudices the Company.
17. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to the address set forth below Indemnitee
signature hereto.
(b) If to the Company, to:
Globespan Semiconductor Inc.
100 Schulz Drive
Red Bank, NJ 07701
Attention: President
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
18. 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 one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
11
<PAGE> 12
19. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
20. Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
21. Gender. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
22. Termination of Prior Indemnification Agreements. Upon the
effectiveness of this Agreement, any prior Indemnification Agreements between
the parties hereto shall terminate and be of no further force and effect, and
shall be superseded and replaced in its entirety by this Agreement.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
GLOBESPAN SEMICONDUCTOR INC.
By:
------------------------------------
Name:
---------------------------
Title:
--------------------------
Address: 100 Schulz Drive
Red Bank, NJ 07701
--------------------------------------
Name:
---------------------------------
Address:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
<PAGE> 1
Exhibit 10.2
GLOBESPAN SEMICONDUCTOR INC.
1999 EQUITY INCENTIVE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1. INTRODUCTION.....................................................................1
ARTICLE 2. ADMINISTRATION...................................................................1
2.1 Committee Composition...........................................................1
2.2 Committee Responsibilities......................................................1
2.3 Committee for Non-Officer Grants................................................1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS......................................................2
3.1 Basic Limitation................................................................2
3.2 Annual Increase in Shares.......................................................2
3.3 Additional Shares...............................................................2
3.4 Dividend Equivalents............................................................2
ARTICLE 4. ELIGIBILITY......................................................................2
4.1 Incentive Stock Options.........................................................2
4.2 Other Grants....................................................................3
ARTICLE 5. OPTIONS..........................................................................3
5.1 Stock Option Agreement..........................................................3
5.2 Number of Shares................................................................3
5.3 Exercise Price..................................................................3
5.4 Exercisability and Term.........................................................3
5.6 Modification or Assumption of Options...........................................3
5.7 Buyout Provisions...............................................................4
ARTICLE 6. PAYMENT FOR OPTION SHARES........................................................4
6.1 General Rule....................................................................4
6.2 Surrender of Common Stock.......................................................4
6.3 Exercise/Sale...................................................................4
6.4 Exercise/Pledge................................................................4
6.5 Promissory Note.................................................................4
6.6 Other Forms of Payment..........................................................5
ARTICLE 7. STOCK APPRECIATION RIGHTS........................................................5
7.1 SAR Agreement...................................................................5
7.2 Number of Shares................................................................5
7.3 Exercise Price..................................................................5
7.4 Exercisability and Term.........................................................5
7.5 Exercise of SARs................................................................5
7.6 Modification or Assumption of SARs..............................................6
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 8. RESTRICTED SHARES................................................................6
8.1 Restricted Stock Agreement......................................................6
8.2 Payment for Awards..............................................................6
8.3 Vesting Conditions..............................................................6
8.4 Voting and Dividend Rights......................................................6
ARTICLE 9. STOCK UNITS......................................................................6
9.1 Stock Unit Agreement............................................................6
9.2 Payment for Awards..............................................................6
9.3 Vesting Conditions..............................................................7
9.4 Voting and Dividend Rights......................................................7
9.5 Form and Time of Settlement of Stock Units......................................7
9.6 Death of Recipient..............................................................7
9.7 Creditors' Rights...............................................................7
10.1 Effect of Change in Control....................................................7
10.2 Involuntary Termination........................................................8
ARTICLE 11. PROTECTION AGAINST DILUTION.....................................................8
11.1 Adjustments....................................................................8
11.2 Dissolution or Liquidation.....................................................8
11.3 Reorganizations................................................................9
ARTICLE 12. DEFERRAL OF AWARDS..............................................................9
ARTICLE 13. AWARDS UNDER OTHER PLANS........................................................9
ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.......................................10
14.1 Effective Date................................................................10
14.2 Elections to Receive NSOs, Restricted Shares or Stock Units...................10
14.3 Number and Terms of NSOs, Restricted Shares or Stock Units....................10
ARTICLE 15. LIMITATION ON RIGHTS...........................................................10
15.1 Retention Rights..............................................................10
15.2 Stockholders' Rights..........................................................10
15.3 Regulatory Requirements.......................................................10
ARTICLE 16. WITHHOLDING TAXES..............................................................11
16.1 General.......................................................................11
16.2 Share Withholding.............................................................11
ARTICLE 17. FUTURE OF THE PLAN.............................................................11
17.1 Term of the Plan..............................................................11
17.2 Amendment or Termination......................................................11
ARTICLE 18. DEFINITIONS....................................................................11
</TABLE>
ii
<PAGE> 4
GLOBESPAN SEMICONDUCTOR INC.
1999 EQUITY INCENTIVE PLAN
ARTICLE 1. INTRODUCTION
The Plan was adopted by the Board to be effective as of the date
of the IPO. The purpose of the Plan is to promote the long-term success of the
Corporation and the creation of stockholder value by (a) encouraging Employees,
Outside Directors and Consultants to focus on critical long-range objectives,
(b) encouraging the attraction and retention of Employees, Outside Directors and
Consultants with exceptional qualifications and (c) linking Employees, Outside
.Directors and Consultants directly to stockholder interests through increased
stock ownership. The Plan seeks to achieve this purpose by providing for Awards
in the form of Restricted Shares, Stock Units, Options (which may constitute
incentive stock options or nonstatutory stock options) or stock appreciation
rights.
The Plan shall be governed by, and construed in accordance with,
the laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Corporation, who shall be appointed by the Board. In addition, the
composition of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange Commission
may establish for administrators acting under plans intended to qualify
for exemption under Rule 16b-3 (or its successor) under the Exchange
Act; and
(b) Such requirements as the Internal Revenue Service may
establish for outside directors acting under plans intended to qualify
for exemption under Section 162(m)(4)(C) of the Code.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.
2.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also appoint a
secondary committee of the Board, which shall be composed of one or more
directors of the Corporation who need not satisfy the requirements of Section
2.1. Such secondary committee may administer the Plan with respect to Employees
and Consultants who are not considered officers or directors of the Corporation
under Section 16 of the Exchange Act, may grant Awards under the Plan to
<PAGE> 5
such Employees and Consultants and may determine all features and conditions of
such Awards. Within the limitations of this Section 2.3, any reference in the
Plan to the Committee shall include such secondary committee.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Shares of Common Stock issued pursuant to the
Plan may be authorized but unissued shares or treasury shares. The aggregate
number of Options, SARs, Stock Units and Restricted Shares awarded under the
Plan shall not exceed (a) 1,000,000, plus shares remaining available for
issuance under the Predecessor Plan, plus (b) the additional shares of Common
Stock described in Sections 3.2 and 3.3. The limitation of this Section 3.1
shall be subject to adjustment pursuant to Article 11.
3.2 ANNUAL INCREASE IN SHARES. Commencing on the date of the IPO and
continuing each May 1 beginning with the year 2000 through 2002, the aggregate
number of Options, SARs, Stock Units and Restricted Shares that may be awarded
under the Plan shall automatically increase by a number equal to the lesser of
(a) 5% of the total number of shares of Common Stock then outstanding or (b)
1,000,000 shares.
3.3 ADDITIONAL SHARES. If Restricted Shares or shares of Common Stock
issued upon the exercise of Options are forfeited (including any options
incorporated from the Predecessor Plan), then such shares of Common Stock shall
again become available for Awards under the Plan. If Stock Units, Options or
SARs are forfeited or terminate for any other reason before being exercised,
then the corresponding shares of Common Stock shall again become available for
Awards under the Plan. If Stock Units are settled, then only the number of
shares of Common Stock (if any) actually issued in settlement of such Stock
Units shall reduce the number available under Section 3.1 and the balance shall
again become available for Awards under the Plan. If SARs are exercised, then
only the number of shares of Common Stock (if any) actually issued in settlement
of such SARs shall reduce the number available under Section 3.1 and the balance
shall again become available for Awards under the Plan. The foregoing
notwithstanding, the aggregate number of shares of Common Stock that may be
issued under the Plan upon the exercise of ISOs shall not be increased when
Restricted Shares or other shares of Common Stock are forfeited.
3.4 DIVIDEND EQUIVALENTS. Any dividend equivalents paid or credited
under the Plan shall not be applied against the number of Restricted Shares,
Stock Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 INCENTIVE STOCK OPTIONS. Only Employees who are common-law
employees of the Corporation, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, an Employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Corporation or
any of its Parents or Subsidiaries shall not be eligible for the grant of an ISO
unless the requirements set forth in Section 422(c)(6) of the Code are
satisfied.
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4.2 OTHER GRANTS. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of Restricted Shares, Stock Units, NSOs or SARs.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Corporation. Such Option shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the Plan.
The Stock Option Agreement shall specify whether the Option is an ISO or an NSO.
The provisions of the various Stock Option Agreements entered into under the
Plan need not be identical. Options may be granted in consideration of a
reduction in the Optionee's other compensation. A Stock Option Agreement may
provide that a new Option will be granted automatically to the Optionee when he
or she exercises a prior Option and pays the Exercise Price in the form
described in Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of shares of Common Stock subject to the Option and shall provide for the
adjustment of such number in accordance with Article 11. Options granted to any
Optionee in a single fiscal year of the Corporation shall not cover more than
750,000 shares of Common Stock, except that Options granted to a new Employee in
the fiscal year of the Corporation in which his or her service as an Employee
first commences shall not cover more than 1,000,000 shares of Common Stock. The
limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 11.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a share of Common Stock on the
date of grant and the Exercise Price under an NSO shall in no event be less than
85% of the Fair Market Value of a share of Common Stock on the date of grant. In
the case of an NSO, a Stock Option Agreement may specify an Exercise Price that
varies in accordance with a predetermined formula while the NSO is outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall
specify the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will not
be exercisable unless the related SARs are forfeited.
5.5 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations of
the Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the
Corporation or by another issuer) in return for the grant of new options for the
same or a different number of shares and at the same or a different exercise
price. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option.
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5.6 BUYOUT PROVISIONS. The Committee may at any time (a) offer to buy
out for a payment in cash or cash equivalents an Option previously granted or
(b) authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of shares of Common Stock
issued upon exercise of Options shall be payable in cash or cash equivalents at
the time when such shares of Common Stock are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall
be made only pursuant to the express provisions of the applicable Stock
Option Agreement. The Stock Option Agreement may specify that payment
may be made in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.
6.2 SURRENDER OF COMMON STOCK. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, shares of Common Stock that are already owned
by the Optionee. Such shares of Common Stock shall be valued at their Fair
Market Value on the date when the new shares of Common Stock are purchased under
the Plan. The Optionee shall not surrender, or attest to the ownership of,
shares of Common Stock in payment of the Exercise Price if such action would
cause the Corporation to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting
purposes.
6.3 EXERCISE/SALE. To the extent that this Section 6.3 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Corporation) an irrevocable direction to
a securities broker approved by the Corporation to sell all or part of the
shares of Common Stock being purchased under the Plan and to deliver all or part
of the sales proceeds to the Corporation.
6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Corporation) an irrevocable
direction to pledge all or part of the shares of Common Stock being purchased
under the Plan to a securities broker or lender approved by the Corporation, as
security for a loan, and to deliver all or part of the loan proceeds to the
Corporation.
6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid by delivering (on a form prescribed by the Corporation) a full-recourse
promissory note. However, the par value of the shares of Common Stock being
purchased under the Plan, if newly issued, shall be paid in cash or cash
equivalents.
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6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
7.1 SAR AGREEMENT. Each grant of a SAR under the Plan shall be
evidenced by an SAR Agreement between the Optionee and the Corporation. Such SAR
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical. SARs
may be granted in consideration of a reduction in the Optionee's other
compensation.
7.2 NUMBER OF SHARES. Each SAR Agreement shall specify the number of
shares of Common Stock to which the SAR pertains and shall provide for the
adjustment of such number in accordance with Article 11. SARs granted to any
Optionee in a single calendar year shall in no event pertain to more than
750,000 shares of Common Stock, except that SARs granted to a new Employee in
the fiscal year of the Corporation in which his or her service as an Employee
first commences shall not pertain to more than 1,000,000 shares of Common Stock.
The limitations set forth in the preceding sentence shall be subject to
adjustment in accordance with Article 11.
7.3 EXERCISE PRICE. Each SAR Agreement shall specify the Exercise
Price. A SAR Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the SAR is outstanding.
7.4 EXERCISABILITY AND TERM. Each SAR Agreement shall specify the
date when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. A SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
7.5 EXERCISE OF SARS. Upon exercise of a SAR, the Optionee (or any
person having the right to exercise the SAR after his or her death) shall
receive from the Corporation (a) shares of Common Stock, (b) cash or (c) a
combination of shares of Common Stock and cash, as the Committee shall
determine. The amount of cash and/or the Fair Market Value of shares of Common
Stock received upon exercise of SARs shall, in the aggregate, be equal to the
amount by which the Fair Market Value (on the date of surrender) of the shares
of Common Stock subject to the SARs exceeds the Exercise Price. If, on the date
when an SAR expires, the Exercise Price under such SAR is less than the Fair
Market Value on such date but any portion of such SAR has not been exercised or
surrendered, then such SAR shall automatically be deemed to be exercised as of
such date with respect to such portion.
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7.6 MODIFICATION OR ASSUMPTION OF SARS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Corporation or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of an SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.
ARTICLE 8. RESTRICTED SHARES.
8.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Shares under
the Plan shall be evidenced by a Restricted Stock Agreement between the
recipient and the Corporation. Such Restricted Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.
8.2 PAYMENT FOR AWARDS. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the extent
that an Award consists of newly issued Restricted Shares, the Award recipient
shall furnish consideration with a value not less than the par value of such
Restricted Shares in the form of cash, cash equivalents or past services
rendered to the Corporation (or a Parent or Subsidiary), as the Committee may
determine.
8.3 VESTING CONDITIONS. Each award of Restricted Shares may or may
not be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. A
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events.
8.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares
awarded under the Plan shall have the same voting, dividend and other rights as
the Corporation's other stockholders. A Restricted Stock Agreement, however, may
require that the holders of Restricted Shares invest any cash dividends received
in additional Restricted Shares. Such additional Restricted Shares shall be
subject to the same conditions and restrictions as the Award with respect to
which the dividends were paid.
ARTICLE 9. STOCK UNITS.
9.1 STOCK UNIT AGREEMENT. Each grant of Stock Units under the Plan
shall be evidenced by a Stock Unit Agreement between the recipient and the
Corporation. Such Stock Units shall be subject to all applicable terms of the
Plan and may be subject to any other terms that are not inconsistent with the
Plan. The provisions of the various Stock Unit Agreements entered into under the
Plan need not be identical. Stock Units may be granted in consideration of a
reduction in the recipient's other compensation.
9.2 PAYMENT FOR AWARDS. To the extent that an Award is granted in the
form of Stock Units, no cash consideration shall be required of the Award
recipients.
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9.3 VESTING CONDITIONS. Each Award of Stock Units may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events.
9.4 VOTING AND DIVIDEND RIGHTS. The holders of Stock Units shall have
no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded
under the Plan may, at the Committee's discretion, carry with it a right to
dividend equivalents. Such right entitles the holder to be credited with an
amount equal to all cash dividends paid on one share of Common Stock while the
Stock Unit is outstanding. Dividend equivalents may be converted into additional
Stock Units. Settlement of dividend equivalents may be made in the form of cash,
in the form of shares of Common Stock, or in a combination of both. Prior to
distribution, any dividend equivalents which are not paid shall be subject to
the same conditions and restrictions as the Stock Units to which they attach.
9.5 FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) shares of Common Stock or
(c) any combination of both, as determined by the Committee. The actual number
of Stock Units eligible for settlement may be larger or smaller than the number
included in the original Award, based on predetermined performance factors.
Methods of converting Stock Units into cash may include (without limitation) a
method based on the average Fair Market Value of shares of Common Stock over a
series of trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting conditions
applicable to the Stock Units have been satisfied or have lapsed, or it may be
deferred to any later date. The amount of a deferred distribution may be
increased by an interest factor or by dividend equivalents. Until an Award of
Stock Units is settled, the number of such Stock Units shall be subject to
adjustment pursuant to Article 11.
9.6 DEATH OF RECIPIENT. Any Stock Unit Award that becomes payable
after the recipient's death shall be distributed to the recipient's beneficiary
or beneficiaries. Each recipient of a Stock Unit Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Corporation. A beneficiary designation may be changed by filing
the prescribed form with the Corporation at any time before the Award
recipient's death. If no beneficiary was designated or if no designated
beneficiary survives the Award recipient, then any Stock Unit Award that becomes
payable after the recipient's death shall be distributed to the recipient's
estate.
9.7 CREDITORS' RIGHTS. A holder of Stock Units shall have no rights
other than those of a general creditor of the Corporation. Stock Units represent
an unfunded and unsecured obligation of the Corporation, subject to the terms
and conditions of the applicable Stock Unit Agreement.
ARTICLE 10. CHANGE IN CONTROL
10.1 EFFECT OF CHANGE IN CONTROL. In the event of any Change in
Control, each outstanding Award shall automatically accelerate so that each such
Award shall, immediately prior to the effective date of the Change in Control,
become fully exercisable for all of the shares
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of Common Stock at the time subject to such Award and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. However, an
outstanding Award shall NOT so accelerate if and to the extent such Award is, in
connection with the Change in Control, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable Award for
shares of the capital stock of the successor corporation (or parent thereof).
The determination of Award comparability shall be made by the Plan
Administrator, and its determination shall be final, binding and conclusive.
10.2 INVOLUNTARY TERMINATION. In addition, in the event that the Award
is assumed by the successor corporation (or parent thereof) and the Participant
experiences an Involuntary Termination within twelve months following a Change
in Control, each outstanding Award shall automatically accelerate so that each
such Award shall, immediately prior to the effective date of the Involuntary
Termination, become fully exercisable for all of the shares of Common Stock at
the time subject to such Award and may be exercised for any or all of those
shares as fully-vested shares of Common Stock.
ARTICLE 11. PROTECTION AGAINST DILUTION.
11.1 ADJUSTMENTS. In the event of a subdivision of the outstanding
shares of Common Stock, a declaration of a dividend payable in shares of Common
Stock, a declaration of a dividend payable in a form other than shares of Common
Stock in an amount that has a material effect on the price of shares of Common
Stock, a combination or consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise) into a lesser number of shares of Common
Stock, a recapitalization, a spin-off or a similar occurrence, the Committee
shall make such adjustments as it, in its sole discretion, deems appropriate in
one or more of:
(a) The number of Options, SARs, Restricted Shares and Stock
Units available for future Awards under Article 3;
(b) The limitations set forth in Sections 5.2 and 8.2;
(c) The number of shares of Common Stock covered by each
outstanding Option and SAR;
(d) The Exercise Price under each outstanding Option and SAR; or
(e) The number of Stock Units included in any prior Award which
has not yet been settled.
Except as provided in this Article 11, a Participant shall have no rights by
reason of any issue by the Corporation of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
11.2 DISSOLUTION OR LIQUIDATION. To the extent not previously
exercised or settled, Options, SARs and Stock Units shall terminate immediately
prior to the dissolution or liquidation of the Corporation.
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11.3 REORGANIZATIONS. In the event that the Corporation is a party to
a merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for (a) the
continuation of the outstanding Awards by the Corporation, if the Corporation is
a surviving corporation, (b) the assumption of the outstanding Awards by the
surviving corporation or its parent or subsidiary, (c) the substitution by the
surviving corporation or its parent or subsidiary of its own awards for the
outstanding Awards, (d) full exercisability or vesting and accelerated
expiration of the outstanding Awards or (e) settlement of the full value of the
outstanding Awards in cash or cash equivalents followed by cancellation of such
Awards.
ARTICLE 12. DEFERRAL OF AWARDS.
The Committee (in its sole discretion) may permit or require a
Participant to:
(a) Have cash that otherwise would be paid to such Participant as
a result of the exercise of an SAR or the settlement of Stock Units
credited to a deferred compensation account established for such
Participant by the Committee as an entry on the Corporation's books;
(b) Have shares of Common Stock that otherwise would be delivered
to such Participant as a result of the exercise of an Option or SAR
converted into an equal number of Stock Units; or
(c) Have shares of Common Stock that otherwise would be delivered
to such Participant as a result of the exercise of an Option or SAR or
the settlement of Stock Units converted into amounts credited to a
deferred compensation account established for such Participant by the
Committee as an entry on the Corporation's books. Such amounts shall be
determined by reference to the Fair Market Value of such shares of
Common Stock as of the date when they otherwise would have been
delivered to such Participant.
A deferred compensation account established under this Article 12 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Corporation. Such an
account shall represent an unfunded and unsecured obligation of the Corporation
and shall be subject to the terms and conditions of the applicable agreement
between such Participant and the Corporation. If the deferral or conversion of
Awards is permitted or required, the Committee (in its sole discretion) may
establish rules, procedures and forms pertaining to such Awards, including
(without limitation) the settlement of deferred compensation accounts
established under this Article 12.
ARTICLE 13. AWARDS UNDER OTHER PLANS.
The Corporation may grant awards under other plans or programs.
Such awards may be settled in the form of shares of Common Stock issued under
this Plan. Such shares of Common Stock shall be treated for all purposes under
the Plan like shares of Common Stock
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issued in settlement of Stock Units and shall, when issued, reduce the number of
shares of Common Stock available under Article 3.
ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
14.1 EFFECTIVE DATE. No provision of this Article 14 shall be
effective unless and until the Board has determined to implement such provision.
14.2 ELECTIONS TO RECEIVE NSOS, RESTRICTED SHARES OR STOCK UNITS. An
Outside Director may elect to receive his or her annual retainer payments and/or
meeting fees from the Corporation in the form of cash, NSOs, Restricted Shares
or Stock Units, or a combination thereof, as determined by the Board. Such NSOs,
Restricted Shares and Stock Units shall be issued under the Plan. An election
under this Article 14 shall be filed with the Corporation on the prescribed
form.
14.3 NUMBER AND TERMS OF NSOS, RESTRICTED SHARES OR STOCK UNITS. The
number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The terms
of such NSOs, Restricted Shares or Stock Units shall also be determined by the
Board.
ARTICLE 15. LIMITATION ON RIGHTS.
15.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under
the Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Corporation and its Parents, Subsidiaries
and Affiliates reserve the right to terminate the service of any Employee,
Outside Director or Consultant at any time, with or without cause, subject to
applicable laws, the Corporation's certificate of incorporation and by-laws and
a written employment agreement (if any).
15.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend
rights, voting rights or other rights as a stockholder with respect to any
shares of Common Stock covered by his or her Award prior to the time when a
stock certificate for such shares of Common Stock is issued or, if applicable,
the time when he or she becomes entitled to receive such shares of Common Stock
by filing any required notice of exercise and paying any required Exercise
Price. No adjustment shall be made for cash dividends or other rights for which
the record date is prior to such time, except as expressly provided in the Plan.
15.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Corporation to issue shares of Common
Stock under the Plan shall be subject to all applicable laws, rules and
regulations and such approval by any regulatory body as may be required. The
Corporation reserves the right to restrict, in whole or in part, the delivery of
shares of Common Stock pursuant to any Award prior to the satisfaction of all
legal requirements relating to the issuance of such shares of Common Stock, to
their registration, qualification or listing or to an exemption from
registration, qualification or listing.
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ARTICLE 16. WITHHOLDING TAXES.
16.1 GENERAL. To the extent required by applicable federal, state,
local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Corporation for the satisfaction of any
withholding tax obligations that arise in connection with the Plan. The
Corporation shall not be required to issue any shares of Common Stock or make
any cash payment under the Plan until such obligations are satisfied.
16.2 SHARE WITHHOLDING. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Corporation withhold all or a portion of any shares of Common Stock
that otherwise would be issued to him or her or by surrendering all or a portion
of any shares of Common Stock that he or she previously acquired. Such shares of
Common Stock shall be valued at their Fair Market Value on the date when taxes
otherwise would be withheld in cash.
ARTICLE 17. FUTURE OF THE PLAN.
17.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective as of the date of the IPO. The Plan shall remain in effect until it is
terminated under Section 17.2, except that no ISOs shall be granted on or after
the 10th anniversary of the later of (a) the date when the Board adopted the
Plan or (b) the date when the Board adopted the most recent increase in the
number of shares of Common Stock available under Article 3 which was approved by
the Corporation's stockholders.
17.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend sor terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Corporation's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the Plan
after the termination thereof. The termination of the Plan, or any amendment
thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 18. DEFINITIONS.
18.1 "AFFILIATE" means any entity other than a Subsidiary, if the
Corporation and/or one or more Subsidiaries own not less than 50% of such
entity.
18.2 "AWARD" means any award of an Option, an SAR, a Restricted Share
or a Stock Unit under the Plan.
18.3 "BOARD" means the Corporation's Board of Directors, as
constituted from time to time.
18.4 "CHANGE IN CONTROL" shall mean:
(a) The consummation of a merger or consolidation of the
Corporation with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the
continuing or surviving entity's securities outstanding immediately
after such merger, consolidation or other
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reorganization is owned by persons who were not stockholders of the
Corporation immediately prior to such merger, consolidation or other
reorganization;
(b) The sale, transfer or other disposition of all or
substantially all of the Corporation's assets;
(c) A change in the composition of the Board, as a result of
which fewer than two-thirds of the incumbent directors are directors who
either (i) had been directors of the Corporation on the date 24 months
prior to the date of the event that may constitute a Change in Control
(the "original directors") or (ii) were elected, or nominated for
election, to the Board with the affirmative votes of at least a majority
of the aggregate of the original directors who were still in office at
the time of the election or nomination and the directors whose election
or nomination was previously so approved; or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing at
least 50% of the total voting power represented by the Corporation's
then outstanding voting securities. For purposes of this Paragraph (d),
the term "person" shall have the same meaning as when used in Sections
13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee or
other fiduciary holding securities under an employee benefit plan of the
Corporation or of a Parent or Subsidiary and (ii) a corporation owned
directly or indirectly by the stockholders of the Corporation in
substantially the same proportions as their ownership of the common
stock of the Corporation.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Corporation's incorporation or to create a holding
company that will be owned in substantially the same proportions by the persons
who held the Corporation's securities immediately before such transaction.
18.5 "CODE" means the Internal Revenue Code of 1986, as amended.
18.6 "COMMITTEE" means a committee of the Board, as described in
Article 2.
18.7 "COMMON STOCK" means the common stock of the Corporation.
18.8 "CONSULTANT" means a consultant or adviser who provides bona fide
services to the Corporation, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
18.9 "CORPORATION" means GlobeSpan Semiconductor Inc., a Delaware
corporation.
18.10 "EMPLOYEE" means a common-law employee of the Corporation, a
Parent, a Subsidiary or an Affiliate.
18.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
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18.12 "EXERCISE PRICE," in the case of an Option, means the amount for
which one share of Common Stock may be purchased upon exercise of such Option,
as specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
18.13 "FAIR MARKET VALUE" means the market price of shares of Common
Stock, determined by the Committee in good faith on such basis as it deems
appropriate. Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in The Wall Street Journal. Such
determination shall be conclusive and binding on all persons.
18.14 "INVOLUNTARY TERMINATION" means the termination of the Service of
any individual which occurs by reason of:
(a) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(b) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary and target bonus in
bonus or incentive programs) or (C) a relocation of such individual's
place of employment by more than fifty (50) miles, provided and only if
such change, reduction or relocation is effected by the Corporation
without the individual's consent.
18.15 "IPO" means the initial offering of Common Stock to the public
pursuant to a registration statement filed by the Corporation with the
Securities and Exchange Commission.
18.16 "ISO" means an incentive stock option described in Section 422(b)
of the Code.
18.17 "MISCONDUCT" means the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee or Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
18.18 "NSO" means a stock option not described in Sections 422 or 423
of the Code.
18.19 "OPTION" means an ISO or NSO granted under the Plan and entitling
the holder to purchase shares of Common Stock.
18.20 "OPTIONEE" means an individual or estate who holds an Option or
SAR.
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18.21 "OUTSIDE DIRECTOR" shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.1.
18.22 "PARENT" means any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, if each of the
corporations other than the Corporation owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
18.23 "PARTICIPANT" means an individual or estate who holds an Award.
18.24 "PLAN" means this GlobeSpan Semiconductor Inc. 1999 Equity
Incentive Plan, as amended from time to time.
18.25 "PREDECESSOR PLAN" means the Corporation's existing 1996 Equity
Incentive Plan.
18.26 "RESTRICTED SHARE" means a Common Share awarded under the Plan.
18.27 "RESTRICTED STOCK AGREEMENT" means the agreement between the
Corporation and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Share.
18.28 "SAR" means a stock appreciation right granted under the Plan.
18.29 "SAR AGREEMENT" means the agreement between the Corporation and
an Optionee which contains the terms, conditions and restrictions pertaining to
his or her SAR.
18.30 "STOCK OPTION AGREEMENT" means the agreement between the
Corporation and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.
18.31 "STOCK UNIT" means a bookkeeping entry representing the
equivalent of one Common Share, as awarded under the Plan.
18.32 "STOCK UNIT AGREEMENT" means the agreement between the
Corporation and the recipient of a Stock Unit which contains the terms,
conditions and restrictions pertaining to such Stock Unit.
18.33 "SUBSIDIARY" means any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, if each of
the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
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EXHIBIT 10.3
GLOBESPAN SEMICONDUCTOR INC.
EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. PURPOSE OF THE PLAN..........................................................1
SECTION 2. ADMINISTRATION OF THE PLAN...................................................1
(a) Committee Composition........................................................1
(b) Committee Responsibilities...................................................1
SECTION 3. ENROLLMENT AND PARTICIPATION.................................................1
(a) Offering Periods.............................................................1
(b) Accumulation Periods.........................................................1
(c) Enrollment...................................................................1
(d) Duration of Participation....................................................1
(e) Applicable Offering Period...................................................2
SECTION 4. EMPLOYEE CONTRIBUTIONS.......................................................2
(a) Frequency of Payroll Deductions..............................................2
(b) Amount of Payroll Deductions.................................................2
(c) Changing Withholding Rate....................................................3
(d) Discontinuing Payroll Deductions.............................................3
(e) Limit on Number of Elections.................................................3
SECTION 5. WITHDRAWAL FROM THE PLAN.....................................................3
(a) Withdrawal...................................................................3
(b) Re-Enrollment After Withdrawal...............................................3
SECTION 6. CHANGE IN EMPLOYMENT STATUS..................................................3
(a) Termination of Employment....................................................3
(b) Leave of Absence.............................................................3
(c) Death........................................................................4
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.........................................4
(a) Plan Accounts................................................................4
(b) Purchase Price...............................................................4
(c) Number of Shares Purchased...................................................4
(d) Available Shares Insufficient................................................4
(e) Issuance of Stock............................................................4
(f) Unused Cash Balances.........................................................5
(g) Stockholder Approval.........................................................5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP...............................................5
(a) Five Percent Limit...........................................................5
(b) Dollar Limit.................................................................5
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 9. RIGHTS NOT TRANSFERABLE......................................................6
SECTION 10. NO RIGHTS AS AN EMPLOYEE.....................................................6
SECTION 11. NO RIGHTS AS A STOCKHOLDER...................................................6
SECTION 12. SECURITIES LAW REQUIREMENTS..................................................7
SECTION 13. STOCK OFFERED UNDER THE PLAN.................................................7
(a) Authorized Shares............................................................7
(b) Anti-Dilution Adjustments....................................................7
(c) Reorganizations..............................................................7
SECTION 14. AMENDMENT OR DISCONTINUANCE..................................................7
SECTION 15. DEFINITIONS..................................................................7
(a) Accumulation Period..........................................................7
(b) Board........................................................................8
(c) Code.........................................................................8
(d) Committee....................................................................8
(e) Corporation..................................................................8
(f) Compensation.................................................................8
(g) Corporate Reorganization.....................................................8
(h) Eligible Employee............................................................8
(i) Exchange Act.................................................................8
(j) Fair Market Value............................................................8
(k) IPO..........................................................................9
(l) Offering Period..............................................................9
(m) Participant..................................................................9
(n) Participating Corporation....................................................9
(o) Plan.........................................................................9
(p) Plan Account.................................................................9
(q) Purchase Price...............................................................9
(r) Stock........................................................................9
(s) Subsidiary...................................................................9
</TABLE>
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<PAGE> 4
GLOBESPAN SEMICONDUCTOR INC.
EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board effective as of the date of the IPO.
The purpose of the Plan is to provide Eligible Employees with an opportunity to
increase their proprietary interest in the success of the Corporation by
purchasing Stock from the Corporation on favorable terms and to pay for such
purchases through payroll deductions.
The Plan is intended to qualify under section 423 of the Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Corporation, who shall be appointed by the Board.
(b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) OFFERING PERIODS. While the Plan is in effect, one or more
Offering Periods shall commence in each calendar year. Unless otherwise
specified by the Committee, the Offering Periods shall consist of the 24-month
periods commencing on each May 1 and November 1, except that the first Offering
Period shall commence on the date of the IPO and end on April 30, 2001.
(b) ACCUMULATION PERIODS. While the Plan is in effect, up to two
Accumulation Periods shall commence in each calendar year. Unless otherwise
specified by the Committee, the Accumulation Periods shall consist of the
six-month periods commencing on each May 1 and November 1, except that the first
Accumulation Period shall commence on the date of the IPO and end on October 29,
1999.
(c) ENROLLMENT. Any individual who, on the day preceding the first
day of an Offering Period, qualifies as an Eligible Employee may elect to become
a Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Corporation at the prescribed location not later than one
business day prior to the commencement of such Offering Period.
(d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a
Participant shall continue to participate in the Plan until he or she ceases to
be an Eligible Employee, withdraws
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<PAGE> 5
from the Plan under Section 5(a) or reaches the end of the Accumulation Period
in which his or her employee contributions were discontinued under Section 4(d)
or 8(b). A Participant who discontinued employee contributions under Section
4(d) or withdrew from the Plan under Section 5(a) may again become a
Participant, if he or she then is an Eligible Employee, by following the
procedure described in Subsection (c) above. A Participant whose employee
contributions were discontinued automatically under Section 8(b) shall
automatically resume participation at the beginning of the earliest Accumulation
Period ending in the next calendar year, if he or she then is an Eligible
Employee.
(e) APPLICABLE OFFERING PERIOD. For purposes of calculating the Purchase
Price under Section 7(b), the applicable Offering Period shall be determined as
follows:
(i) Once a Participant is enrolled in the Plan for an Offering
Period, such Offering Period shall continue to apply to him or her until
the earliest of (A) the end of such Offering Period, (B) the end of his
or her participation under Subsection (d) above or (C) re-enrollment for
a subsequent Offering Period under Paragraph (ii) or (iii) below.
(ii) In the event that the Fair Market Value of Stock on the last
trading day before the commencement of the Offering Period for which the
Participant is enrolled is higher than on the last trading day before
the commencement of any subsequent Offering Period, the Participant
shall automatically be re-enrolled for such subsequent Offering Period.
(iii) Any other provision of the Plan notwithstanding, the
Corporation (at its sole discretion) may determine prior to the
commencement of any new Offering Period that all Participants shall be
re-enrolled for such new Offering Period.
(iv) When a Participant reaches the end of an Offering Period but
his or her participation is to continue, then such Participant shall
automatically be re-enrolled for the Offering Period that commences
immediately after the end of the prior Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase
shares of Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.
(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall
designate on the enrollment form the portion of his or her Compensation that he
or she elects to have withheld for the purchase of Stock. Such portion shall be
a whole percentage of the Eligible Employee's Compensation, but not less than 1%
nor more than 15%.
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<PAGE> 6
(c) CHANGING WITHHOLDING RATE. If a Participant wishes to change the
rate of payroll withholding, he or she may do so by filing a new enrollment form
with the Corporation at the prescribed location at any time. The new withholding
rate shall be effective as soon as reasonably practicable after such form has
been received by the Corporation. The new withholding rate shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.
(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Corporation at the prescribed location at any time.
Payroll withholding shall cease as soon as reasonably practicable after such
form has been received by the Corporation. (In addition, employee contributions
may be discontinued automatically pursuant to Section 8(b).) A Participant who
has discontinued employee contributions may resume such contributions by filing
a new enrollment form with the Corporation at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Corporation.
(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more than
two elections under Subsection (c) or (d) above during any Accumulation Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Corporation at the prescribed location at
any time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) TERMINATION OF EMPLOYMENT. Termination of employment as an
Eligible Employee for any reason, including death, shall be treated as an
automatic withdrawal from the Plan under Section 5(a). (A transfer from one
Participating Corporation to another shall not be treated as a termination of
employment.)
(b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall not
be deemed to terminate when the Participant goes on a military leave, a sick
leave or another bona fide leave of absence, if the leave was approved by the
Corporation in writing. Employment, however, shall be deemed to terminate 90
days after the Participant goes on a leave, unless a contract or statute
guarantees his or her right to return to work. Employment shall be deemed to
terminate in any event when the approved leave ends, unless the Participant
immediately returns to work.
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<PAGE> 7
(c) DEATH. In the event of the Participant's death, the amount
credited to his or her Plan Account shall be paid to a beneficiary designated by
him or her for this purpose on the prescribed form or, if none, to the
Participant's estate. Such form shall be valid only if it was filed with the
Corporation at the prescribed location before the Participant's death.
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) PLAN ACCOUNTS. The Corporation shall maintain a Plan Account on
its books in the name of each Participant. Whenever an amount is deducted from
the Participant's Compensation under the Plan, such amount shall be credited to
the Participant's Plan Account. Amounts credited to Plan Accounts shall not be
trust funds and may be commingled with the Corporation's general assets and
applied to general corporate purposes. No interest shall be credited to Plan
Accounts.
(b) PURCHASE PRICE. The Purchase Price for each share of Stock purchased
at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last
trading day in such Accumulation Period; or
(ii) 85% of the Fair Market Value of such share on the last
trading day before the commencement of the applicable Offering Period
(as determined under Section 3(e)) or, in the case of the first Offering
Period under the Plan, 85% of the price at which one share of Stock is
offered to the public in the IPO.
(c) NUMBER OF SHARES PURCHASED. As of the last day of each
Accumulation Period, each Participant shall be deemed to have elected to
purchase the number of shares of Stock calculated in accordance with this
Subsection (c), unless the Participant has previously elected to withdraw from
the Plan in accordance with Section 5(a). The amount then in the Participant's
Plan Account shall be divided by the Purchase Price, and the number of shares
that results shall be purchased from the Corporation with the funds in the
Participant's Plan Account. The foregoing notwithstanding, no Participant shall
purchase more than [1,000] shares of Stock with respect to any Accumulation
Period nor more than the amounts of Stock set forth in Sections 8(b) and 13(a).
The Committee may determine with respect to all Participants that any fractional
share, as calculated under this Subsection (c), shall be (i) rounded down to the
next lower whole share or (ii) credited as a fractional share.
(d) AVAILABLE SHARES INSUFFICIENT. In the event that the aggregate
number of shares that all Participants elect to purchase during an Accumulation
Period exceeds the maximum number of shares remaining available for issuance
under Section 13(a), then the number of shares to which each Participant is
entitled shall be determined by multiplying the number of shares available for
issuance by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(e) ISSUANCE OF STOCK. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the
4
<PAGE> 8
close of the applicable Accumulation Period, except that the Committee may
determine that such shares shall be held for each Participant's benefit by a
broker designated by the Committee (unless the Participant has elected that
certificates be issued to him or her). Shares may be registered in the name of
the Participant or jointly in the name of the Participant and his or her spouse
as joint tenants with right of survivorship or as community property.
(f) UNUSED CASH BALANCES. An amount remaining in the Participant's
Plan Account that represents the Purchase Price for any fractional share shall
be carried over in the Participant's Plan Account to the next Accumulation
Period. Any amount remaining in the Participant's Plan Account that represents
the Purchase Price for whole shares that could not be purchased by reason of
Subsection (c) above, Section 8(b) or Section 13(a) shall be refunded to the
Participant in cash, without interest.
(g) STOCKHOLDER APPROVAL. Any other provision of the Plan
notwithstanding, no shares of Stock shall be purchased under the Plan unless and
until the Corporation's stockholders have approved the adoption of the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) FIVE PERCENT LIMIT. Any other provision of the Plan
notwithstanding, no Participant shall be granted a right to purchase Stock under
the Plan if such Participant, immediately after his or her election to purchase
such Stock, would own stock possessing more than 5% of the total combined voting
power or value of all classes of stock of the Corporation or any parent or
Subsidiary of the Corporation. For purposes of this Subsection (a), the
following rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he or
she has a right or option to purchase under this or any other plan; and
(iii) Each Participant shall be deemed to have the right to
purchase [1,000] shares of Stock under this Plan with respect to each
Accumulation Period.
(b) DOLLAR LIMIT. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:
(i) In the case of Stock purchased during an Offering Period that
commenced in the current calendar year, the limit shall be equal to (A)
$25,000 minus (B) the Fair Market Value of the Stock that the
Participant previously purchased in the current calendar year (under
this Plan and all other employee stock purchase plans of the Corporation
or any parent or Subsidiary of the Corporation).
(ii) In the case of Stock purchased during an Offering Period
that commenced in the immediately preceding calendar year, the limit
shall be equal
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<PAGE> 9
to (A) $50,000 minus (B) the Fair Market Value of the Stock that the
Participant previously purchased (under this Plan and all other employee
stock purchase plans of the Corporation or any parent or Subsidiary of
the Corporation) in the current calendar year and in the immediately
preceding calendar year.
(iii) In the case of Stock purchased during an Offering Period
that commenced in the second preceding calendar year, the limit shall be
equal to (A) $75,000 minus (B) the Fair Market Value of the Stock that
the Participant previously purchased (under this Plan and all other
employee stock purchase plans of the Corporation or any parent or
Subsidiary of the Corporation) in the current calendar year and in the
two preceding calendar years.
For purposes of this Subsection (b), the Fair Market Value of Stock shall be
determined in each case as of the beginning of the Offering Period in which such
Stock is purchased. Employee stock purchase plans not described in section 423
of the Code shall be disregarded. If a Participant is precluded by this
Subsection (b) from purchasing additional Stock under the Plan, then his or her
employee contributions shall automatically be discontinued and shall resume at
the beginning of the earliest Accumulation Period ending in the next calendar
year (if he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's
interest in any Stock or moneys to which he or she may be entitled under the
Plan, shall not be transferable by voluntary or involuntary assignment or by
operation of law, or in any other manner other than by beneficiary designation
or the laws of descent and distribution. If a Participant in any manner attempts
to transfer, assign or otherwise encumber his or her rights or interest under
the Plan, other than by beneficiary designation or the laws of descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Corporation for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Accumulation
Period.
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SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Stock shall not be issued under the Plan unless the issuance
and delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Corporation's securities may then be traded.
SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) AUTHORIZED SHARES. The number of shares of Stock available for
purchase under the Plan shall be [300,000] (subject to adjustment pursuant to
this Section 13). In addition, the number of shares of Common Stock available
for purchase under the Plan shall automatically increase by the lesser of (i) 2%
of the total number of shares of Common Stock then outstanding or (ii) [300,000]
shares on May 1, 2000, May 1, 2001, May 1, 2002 and May 1, 2003.
(b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of
Stock offered under the Plan, the [1,000]-share limitation described in Section
7(c) and the price of shares that any Participant has elected to purchase shall
be adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Corporation, the distribution of the shares of a Subsidiary to the
Corporation's stockholders or a similar event.
(c) REORGANIZATIONS. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period and Accumulation Period then in progress shall terminate and
shares shall be purchased pursuant to Section 7, unless the Plan is continued or
assumed by the surviving corporation or its parent corporation. The Plan shall
in no event be construed to restrict in any way the Corporation's right to
undertake a dissolution, liquidation, merger, consolidation or other
reorganization.
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan
at any time and without notice. Except as provided in Section 13, any increase
in the aggregate number of shares of Stock to be issued under the Plan shall be
subject to approval by a vote of the stockholders of the Corporation. In
addition, any other amendment of the Plan shall be subject to approval by a vote
of the stockholders of the Corporation to the extent required by an applicable
law or regulation.
SECTION 15. DEFINITIONS.
(a) "ACCUMULATION PERIOD" means a six-month period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 3(b).
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(b) "BOARD" means the Board of Directors of the Corporation, as
constituted from time to time.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of the Board, as described in Section
2.
(e) "COMPENSATION" means (i) the total compensation paid in cash to a
Participant by a Participating Corporation, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(f) "CORPORATE REORGANIZATION" means:
(i) The consummation of a merger or consolidation of the
Corporation with or into another entity or any other corporate
reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Corporation's assets or the complete
liquidation or dissolution of the Corporation.
(g) "CORPORATION" means GlobeSpan Semiconductor Inc., a Delaware
corporation.
(h) "ELIGIBLE EMPLOYEE" means any employee of a Participating
Corporation if his or her customary employment is for more than five months per
calendar year and for more than 20 hours per week. The foregoing
notwithstanding, an individual shall not be considered an Eligible Employee if
his or her participation in the Plan is prohibited by the law of any country
which has jurisdiction over him or her or if he or she is subject to a
collective bargaining agreement that does not provide for participation in the
Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(j) "FAIR MARKET VALUE" means the market price of Stock, determined by
the Committee as follows:
(i) If the Stock was traded on The Nasdaq National Market on the
date in question, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by The Nasdaq National
Market;
(ii) If the Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date;
or
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<PAGE> 12
(iii) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal or as reported
directly to the Corporation by Nasdaq or a stock exchange. Such determination
shall be conclusive and binding on all persons.
(k) "IPO" means the initial offering of Stock to the public pursuant
to a registration statement filed by the Corporation with the Securities and
Exchange Commission.
(l) "OFFERING PERIOD" means a 24-month period with respect to which
the right to purchase Stock may be granted under the Plan, as determined
pursuant to Section 3(a).
(m) "PARTICIPANT" means an Eligible Employee who elects to participate
in the Plan, as provided in Section 3(c).
(n) "PARTICIPATING CORPORATION" means (i) the Corporation and (ii)
each present or future Subsidiary designated by the Committee as a Participating
Corporation.
(o) "PLAN" means this GlobeSpan Semiconductor Inc. Employee Stock
Purchase Plan, as it may be amended from time to time.
(p) "PLAN ACCOUNT" means the account established for each Participant
pursuant to Section 7(a).
(q) "PURCHASE PRICE" means the price at which Participants may
purchase Stock under the Plan, as determined pursuant to Section 7(b).
(r) "STOCK" means the Common Stock of the Corporation.
(s) "SUBSIDIARY" means any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, if each of
the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
9
<PAGE> 1
EXHIBIT 10.4
GLOBESPAN SEMICONDUCTOR INC.
1999 DIRECTOR STOCK PLAN
<PAGE> 2
GLOBESPAN SEMICONDUCTOR, INC.
1999 DIRECTOR STOCK PLAN
ARTICLE 1. PURPOSE OF THE PLAN
The Plan is intended to promote the interests of the Corporation
by providing the non-employee members of the Board with the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to remain in the service
of the Corporation.
ARTICLE 2. ADMINISTRATION
The terms and conditions of each automatic option grant
(including the timing and pricing of the option grant) shall be determined by
the express terms and conditions of the Plan, and neither the Board nor any
committee of the Board shall exercise any discretionary functions with respect
to option grants made pursuant to the Plan.
ARTICLE 3. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under
the Plan and shall be drawn from either the Corporation's authorized but
unissued shares of Common Stock or from reacquired shares of Common Stock,
including shares repurchased by the Corporation on the open market. The number
of shares of Common Stock reserved for issuance over the term of the Plan shall
be fixed at 250,000 shares.
B. Should one or more outstanding options under this Plan expire
or terminate for any reason prior to exercise in full, then the shares subject
to the portion of each option not so exercised shall be available for subsequent
option grant under the Plan. In addition, should the exercise price of an
outstanding option under the Plan be paid with shares of Common Stock, then the
number of shares of Common Stock available for issuance under the Plan shall be
reduced by the net number of shares of Common Stock actually issued to the
holder of such option.
C. Should any change be made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the number
and/or class of securities for which automatic option grants are to be
subsequently made to each newly-elected or continuing non-employee Board member
under the Plan, and (iii) the number and/or class of securities and price per
share in effect under each option outstanding under the Plan. The adjustments to
the outstanding options shall be made by the Board in a manner which shall
preclude the enlargement or dilution of rights and benefits under such options
and shall be final, binding and conclusive.
<PAGE> 3
ARTICLE 4. ELIGIBILITY
The individuals eligible to receive automatic option grants
pursuant to the provisions of this Plan shall be limited to (i) Current
Directors and (ii) New Directors.
ARTICLE 5. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Date. Option grants shall be made on the dates
specified below:
- Each Current Director shall automatically be granted, at
the Effective Date, a non-statutory option to purchase 5,000 shares of
Common Stock.
- Each individual who first becomes a New Director on or
after the Effective Date, whether through election by the Corporation's
stockholders or appointment by the Board, shall automatically be
granted, at the time of such initial election or appointment, a
non-statutory option to purchase 5,000 shares of Common Stock. However,
a New Director shall not be eligible to receive the initial automatic
option grant if such individual has previously been in the employ of the
Corporation (or any parent or subsidiary).
- On the date of each Annual Meeting in the calendar year
following the year in which a New or Current Director received an
initial grant under the Plan, each such Board member who serves on the
Board at the time of that Annual Meeting, whether or not standing for
re-election, shall automatically be granted a non-statutory option to
purchase 5,000 shares of Common Stock. A New or Current Director who
resigns effective at an Annual Meeting shall not be eligible to be
granted a non-statutory option at that time. A New or Current Director
shall be eligible to receive a second 5,000-share grant, whether or not
he or she has previously been in the employ of the Corporation (or any
parent or subsidiary).
- On the date of each Annual Meeting, beginning with the
2001 Annual Meeting, each non-employee Board member who serves on the Board at
the time of that Annual Meeting, whether or not standing for re-election, shall
automatically be granted a non-statutory option to purchase 2,500 shares of
Common Stock. A non-employee Board member who resigns effective at an Annual
Meeting shall not be eligible to be granted a non-statutory option at that time.
There shall be no limit on the number of such annual 2,500-share
option grants any one non-employee Board member may receive over his or her
period of continued Board service. In no event may a Board member receive both
the 5,000-share and 2,500-share grant at the same Annual Meeting.
B. Exercise Price. The exercise price per share of Common
Stock subject to each automatic option grant shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the
automatic grant date.
2
<PAGE> 4
C. Payment.
The exercise price shall become immediately due upon exercise of
the option. The entire exercise price shall be payable in cash or cash
equivalents at the time when such shares of Common Stock are purchased. The
exercise price may also be paid in one of the alternative forms specified below:
(i) all or any part of the exercise price may be paid
by surrendering, or attesting to the ownership of, shares of Common Stock that
are already owned by the optionee. Such shares of Common Stock shall be valued
at their Fair Market Value on the date when the option is exercised. The
optionee shall not surrender, or attest to the ownership of, shares of Common
Stock in payment of the exercise price if such action would cause the
Corporation to recognize compensation expense (or additional compensation
expense) with respect to the option for financial reporting purposes; or
(ii) all or any part of the exercise price and any
withholding taxes may be paid by delivering (on a form prescribed by the
Corporation) an irrevocable direction to a securities broker approved by the
Corporation to sell all or part of the shares of Common Stock being acquired
upon exercise of the option and to deliver all or part of the sales proceeds to
the Corporation; or
(iii) all or any part of the exercise price and any
withholding taxes may be paid by delivering (on a form prescribed by the
Corporation) an irrevocable direction to pledge all or part of the shares of
Common Stock being acquired upon exercise of the option to a securities broker
or lender approved by the Corporation, as security for a loan, and to deliver
all or part of the loan proceeds to the Corporation.
For purposes of this Section 5.C, the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the broker sale or broker pledge procedure
specified above is used, payment of the exercise price for the purchased shares
must accompany the exercise notice.
D. Exercisability/Vesting. Each automatic grant shall become
exercisable upon the optionee's completion of twelve months of Board service.
Optionee will be deemed to have completed 12 months of Board service following
the first continuous 12 month period in which Optionee has attended at least 75%
of all scheduled Board meetings.
Exercisability of the option shall be subject to acceleration as
provided in Section 5.G and Article 6. In no event, however, shall the option
become exercisable for any additional option shares after the Optionee's
cessation of Board service.
E. Option Term. Each automatic grant under the Plan shall have
a maximum term of ten (10) years measured from the automatic grant date.
F. Non-Transferability. During the lifetime of the Optionee,
each automatic option grant shall be exercisable only by the Optionee and shall
not be assignable or transferable
3
<PAGE> 5
by the Optionee other than a transfer of the option effected by will or by the
laws of descent and distribution following Optionee's death.
G. Effect of Termination of Board Service.
1. Should the Optionee cease to serve as a Board member
for any reason (other than death) while holding one or more automatic option
grants under the Plan, then such individual shall have a twelve (12)-month
period following the date of such cessation of Board service in which to
exercise each such option for any or all of the option shares for which the
option is exercisable at the time of his or her cessation of Board service. Each
such option shall immediately terminate and cease to be outstanding, at the time
of such cessation of Board service, with respect to any option shares for which
the option is not otherwise at that time exercisable.
2. Should the Optionee die while serving as a Board
member or within twelve (12) months after cessation of Board service, then any
automatic option grant held by the Optionee at the time of death may
subsequently be exercised, for the option shares for which the option is
exercisable at the time of his or her cessation of Board service (less any
option shares purchased by the Optionee prior to death), by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution. The right to exercise each such option shall
lapse upon the expiration of the twelve (12)-month period measured from the date
of the Optionee's cessation of service.
3. In no event shall any automatic grant under this Plan
remain exercisable after the expiration date of the maximum ten (10)-year option
term. Upon the expiration of the applicable post-service exercise period under
subparagraphs 1 through 3 above or (if earlier) upon the expiration of the
maximum ten (10)-year option term, the automatic grant shall terminate and cease
to be outstanding for any option shares for which the option was not exercisable
at the time of the Optionee's cessation of Board service.
H. Modification of Options. Within the limitations of the Plan,
the Committee may modify, extend or assume outstanding options or may accept the
cancellation of outstanding options (whether granted by the Corporation or by
another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such option.
I. Stockholder Rights. The holder of an automatic option grant
shall have none of the rights of a stockholder with respect to any shares
subject to such option until such individual shall have exercised the option and
paid the exercise price for the purchased shares.
J. Remaining Terms. The remaining terms and conditions of each
automatic option grant shall be as set forth in the form Stock Option Agreement
approved for use under the Plan.
4
<PAGE> 6
ARTICLE 6. SPECIAL ACCELERATION EVENTS
A. In the event of any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise fully
exercisable shall automatically accelerate in full so that each such option
shall, immediately prior to the specified effective date for the Change in
Control, become fully exercisable for all of the shares of Common Stock at the
time subject to that option. Immediately following the consummation of the
Change in Control, each automatic option grant under the Plan shall terminate
and cease to be outstanding, except to the extent assumed by the successor
corporation or its parent company.
B. The automatic option grants outstanding under the Plan shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
ARTICLE 7. AMENDMENT OF THE PLAN AND AWARDS
The Board has complete and exclusive power and authority to amend
or modify the Plan (or any component thereof) in any or all respects whatsoever.
However, no such amendment or modification shall adversely affect rights and
obligations with respect to options at the time outstanding under the Plan,
unless the affected Optionees consent to such amendment. Stockholder approval
shall be obtained to the extent required by applicable law.
ARTICLE 8. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective on the Effective Date. One
or more automatic option grants may be made under the Plan at any time on or
after the Effective Date.
B. The Plan shall terminate on March 4, 2009 unless the Board
decides to terminate the Plan earlier. All option grants outstanding on the date
of termination shall thereafter continue to have force and effect in accordance
with the provisions of the agreements evidencing those option grants.
ARTICLE 9. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to option grants under the Plan shall be used for general
corporate purposes.
ARTICLE 10. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option
under the Plan and the issuance of Common Stock upon the exercise of the option
grants made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
5
<PAGE> 7
B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of the Nasdaq National Market or any Stock Exchange on which the Common Stock is
then listed for trading.
ARTICLE 11. NO IMPAIRMENT OF RIGHTS
Neither the action of the Corporation in establishing the Plan
nor any provision of the Plan shall be construed or interpreted so as to affect
adversely or otherwise impair the right of the Corporation or the stockholders
to remove any individual from the Board at any time in accordance with the
provisions of applicable law.
ARTICLE 12. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the
Plan may not be assigned, encumbered or otherwise transferred by any Optionee.
B. The provisions of the Plan relating to the exercise of
options shall be governed by the laws of the State of Delaware, as such laws are
applied to contracts entered into and performed in such State.
C. The provisions of the Plan shall inure to the benefit of,
and be binding upon, the Corporation and its successors or assigns, whether by
Change in Control or otherwise, and the Optionees, the legal representatives of
their respective estates, their respective heirs or legatees and their permitted
assignees.
ARTICLE 13. DEFINITIONS
ANNUAL MEETING: the annual meeting of the Corporation's
stockholders.
BOARD: the Corporation's Board of Directors.
CHANGE IN CONTROL: a change in ownership or control of the
Corporation effected through either of the following transactions:
a. the consummation of a merger or consolidation of the
Corporation with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the
continuing or surviving entity's securities outstanding immediately
after such merger, consolidation or other reorganization is owned by
persons who were not stockholders of the Corporation immediately prior
to such merger, consolidation or other reorganization;
b. the sale, transfer or other disposition of all or
substantially all of the Corporation's assets;
6
<PAGE> 8
c. a change in the composition of the Board, as a result
of which fewer than two-thirds of the incumbent directors are directors
who either (i) had been directors of the Corporation on the date 24
months prior to the date of the event that may constitute a Change in
Control (the "original directors") or (ii) were elected, or nominated
for election, to the Board with the affirmative votes of at least a
majority of the aggregate of the original directors who were still in
office at the time of the election or nomination and the directors whose
election or nomination was previously so approved; or
d. any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of securities of the Corporation representing at
least 50% of the total voting power represented by the Corporation's
then outstanding voting securities. For purposes of this Paragraph (d),
the term "person" shall have the same meaning as when used in sections
13(d) and 14(d) of the 1934 Act but shall exclude (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Corporation or of a Parent or Subsidiary and (ii) a corporation owned
directly or indirectly by the stockholders of the Corporation in
substantially the same proportions as their ownership of the Common
Stock of the Corporation.
A transaction shall not constitute a Change in
Control if its sole purpose is to change the state of the Corporation's
incorporation or to create a holding company that will be owned in
substantially the same proportions by the persons who held the
Corporation's securities immediately before such transaction.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK: shares of the Corporation's common stock.
CORPORATION: GlobeSpan Semiconductor, Inc., a Delaware
corporation.
CURRENT DIRECTOR: an individual serving as a non-employee Board
member on the Effective Date.
EFFECTIVE DATE: the date on which the Underwriting Agreement is
executed and the initial public offering price of the Common Stock is
established.
FAIR MARKET VALUE: the Fair Market Value per share of Common
Stock determined in accordance with the following provisions:
a. If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market or any successor system. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
7
<PAGE> 9
b. If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
c. For purposes of any option grants made on the date of
execution of the Underwriting Agreement, the Fair Market Value shall be
deemed to be equal to the price per share at which the Common Stock is
sold in the initial public offering pursuant to the Underwriting
Agreement.
NEW DIRECTOR: an individual who is first elected or appointed as
a non-employee Board member after the Effective Date, whether through
appointment by the Board or election by the Corporation's stockholders.
1934 ACT: the Securities Exchange Act of 1934, as amended.
OPTIONEE: any person to whom an option is granted under the
Plan.
PLAN: this GlobeSpan Semiconductor Inc. 1999 Director Stock
Plan.
STOCK EXCHANGE: either the American Stock Exchange or the New
York Stock Exchange.
UNDERWRITING AGREEMENT: the agreement between the Corporation
and the underwriter or underwriters managing the initial public offering of the
Common Stock.
8
<PAGE> 1
EXHIBIT 10.5
LOAN AND SECURITY AGREEMENT
Dated as of May 14, 1998
Among
BANKAMERICA BUSINESS CREDIT, INC.
as the Lender
and
GLOBESPAN SEMICONDUCTOR INC.
as the Borrower
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEFINITIONS..............................................................................1
1.1 Defined Terms...................................................................1
1.2 Accounting Terms...............................................................15
1.3 Other Terms....................................................................15
2. LOANS AND LETTERS OF CREDIT.............................................................15
2.1 Total Facility.................................................................15
2.2 Revolving Loans................................................................15
2.3 Letters of Credit..............................................................16
2.4 ACH Transactions and Swap Transactions.........................................19
3. INTEREST AND OTHER CHARGES..............................................................19
3.1 Interest.......................................................................19
3.2 Unused Line Fee................................................................19
3.3 Maximum Interest Rate..........................................................20
3.4 Letter of Credit Fee...........................................................20
3.5 Capital Adequacy...............................................................20
4. PAYMENTS AND PREPAYMENTS................................................................21
4.1 Revolving Loans................................................................21
4.2 Place and Form of Payments; Extension of Time..................................21
4.3 Application and Reversal of Payments...........................................21
4.4 Indemnity for Returned Payments................................................21
5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS..........................................22
6. COLLATERAL..............................................................................22
6.1 Grant of Security Interest.....................................................22
6.2 Perfection and Protection of Security Interest.................................23
6.3 Location of Collateral.........................................................23
6.4 Title to, Liens on, and Sale and Use of Collateral.............................24
6.5 Appraisals.....................................................................24
6.6 Access and Examination.........................................................24
6.7 Insurance......................................................................24
6.8 Collateral Reporting...........................................................25
6.9 Accounts.......................................................................25
6.10 Collection of Accounts; Payments..............................................27
6.11 Inventory.....................................................................27
6.12 Equipment.....................................................................28
6.13 Assigned Contracts............................................................28
6.14 Documents, Instruments, and Chattel Paper.....................................29
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C>
6.15 Right to Cure.................................................................29
6.16 Power of Attorney.............................................................29
6.17 Lender's Rights, Duties, and Liabilities......................................30
6.18 Site Visits, Observations and Testing.........................................30
7. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.......................................31
7.1 Books and Records..............................................................31
7.2 Financial Information..........................................................31
7.3 Notices to Lender..............................................................33
8. GENERAL WARRANTIES AND REPRESENTATIONS..................................................34
8.1 Authorization, Validity, and Enforceability of this Agreement and the Loan
Documents......................................................................34
8.2 Validity and Priority of Security Interest.....................................34
8.3 Organization and Qualification.................................................34
8.4 Corporate Name; Prior Transactions.............................................35
8.5 Subsidiaries and Affiliates....................................................35
8.6 Financial Statements and Projections...........................................35
8.7 Capitalization.................................................................35
8.8 Solvency.......................................................................36
8.9 Debt...........................................................................36
8.10 Distributions.................................................................36
8.11 Title to Property.............................................................36
8.12 Adequate Assets...............................................................36
8.13 Real Property; Leases.........................................................36
8.14 Proprietary Rights............................................................36
8.15 Trade Names and Terms of Sale.................................................36
8.16 Litigation....................................................................36
8.17 Restrictive Agreements........................................................37
8.18 Labor Disputes................................................................37
8.19 Environmental Laws............................................................37
8.20 No Violation of Law...........................................................38
8.21 No Default....................................................................38
8.22 ERISA Compliance..............................................................38
8.23 Taxes.........................................................................39
8.24 Use of Proceeds...............................................................39
8.25 Private Offerings.............................................................39
8.26 Broker's Fees.................................................................40
8.27 No Material Adverse Change....................................................40
8.28 Disclosure....................................................................40
9. AFFIRMATIVE AND NEGATIVE COVENANTS......................................................40
9.1 Taxes and Other Obligations....................................................40
9.2 Corporate Existence and Good Standing..........................................40
9.3 Compliance with Law and Agreements.............................................40
9.4 Maintenance of Property and Insurance..........................................41
9.5 Environmental Laws.............................................................41
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C>
9.6 ERISA..........................................................................41
9.7 Mergers, Consolidations, Acquisitions, or Sales................................41
9.8 Distributions; Capital Changes.................................................41
9.9 Transactions Affecting Collateral or Obligations...............................41
9.10 Guaranties....................................................................42
9.11 Debt..........................................................................42
9.12 Prepayment....................................................................42
9.13 Transactions with Affiliates..................................................42
9.14 Business Conducted............................................................42
9.15 Liens.........................................................................42
9.16 Sale and Leaseback Transactions...............................................42
9.17 New Subsidiaries..............................................................43
9.18 Restricted Investments........................................................43
9.19 Further Assurances............................................................43
10. CONDITIONS TO CLOSING..................................................................43
10.1 Conditions Precedent to Making of Loans and Issuance of Letters of Credit on
the Closing Date...............................................................43
10.2 Conditions Precedent to Each Loan.............................................45
11. DEFAULT................................................................................45
11.1 Events of Default.............................................................45
12. REMEDIES...............................................................................47
13. TERM AND TERMINATION...................................................................48
14. MISCELLANEOUS..........................................................................49
14.1 Cumulative Remedies; No Prior Recourse to Collateral..........................49
14.2 No Implied Waivers............................................................49
14.3 Severability..................................................................49
14.4 Governing Law.................................................................50
14.5 Consent to Jurisdiction and Venue, Service of Process.........................50
14.6 Waiver of Jury Trial..........................................................50
14.7 Arbitration; Reference Proceeding.............................................50
14.8 Survival of Representations and Warranties....................................51
14.9 Other Security and Guaranties.................................................52
14.10 Fees and Expenses............................................................52
14.11 Notices......................................................................52
14.12 Indemnification..............................................................53
14.13 Waiver of Notices............................................................54
14.14 Binding Effect; Assignment...................................................55
14.15 Modification.................................................................55
14.16 Counterparts.................................................................55
14.17 Captions.....................................................................55
14.18 Right of Set-Off.............................................................55
</TABLE>
iii
<PAGE> 5
LOAN AND SECURITY AGREEMENT, dated as of May 14, 1998, by and between
BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation, with offices at 55
South Lake Avenue, Suite 900, Pasadena, California 91101, (the "Lender") and
GLOBESPAN SEMICONDUCTOR INC., a Delaware corporation, with offices at 100 Schulz
Drive, Red Bank, New Jersey 07701 (the "Borrower")
WITNESSETH
WHEREAS, the Borrower has requested the Lender to make available to the
Borrower a revolving line of credit for loans and letters of credit in an amount
not to exceed $5,000,000 which extensions of credit the Borrower will use for
its working capital needs and general business purposes;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth in this Agreement, and for good and valuable consideration, the
receipt of which is hereby acknowledged, the Borrower and the Lender hereby
agree as follows:
1. DEFINITIONS.
1.1 Defined Terms. As used herein:
"Account" means the Borrower's right to payment for a sale or
lease and delivery of goods or rendition of services.
"Account Debtor" means each Person obligated in any way on or in
connection with an Account.
"ACH Settlement Risk Reserve" means any and all reserves which the
Lender from time to time establishes, in its sole discretion, with respect to
ACH Transactions.
"ACH Transactions" means any cash management or related services
including the automatic clearing house transfer of funds for the account of the
Borrower pursuant to agreement or overdrafts.
"Affiliate" means: (a) a Person which, directly or indirectly,
controls, is controlled by or is under common control with, the Borrower; (b) a
Person which beneficially owns or holds, directly or indirectly, five percent or
more of any class of voting stock of the Borrower; or (c) a Person in which five
percent of any class of the voting stock is beneficially owned or held, directly
or indirectly, by the Borrower. The term control (including the terms
"controlled by" and "under common control with"), means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of the Person in question.
"Aggregate Revolver Outstandings" means, at any time: the sum of (a)
the unpaid balance of Revolving Loans at that time; (b) the aggregate undrawn
face amount of all outstanding Letters of Credit which the Lender has caused to
be issued or obtained for the Borrower's account; and (c) the aggregate amount
of any unpaid reimbursement obligations in respect of Letters of Credit.
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<PAGE> 6
"Anniversary Date" means each anniversary of the Closing Date.
"Assigned Contracts" means, collectively, all of the Borrower's
rights and remedies under, and all moneys and claims for money due or to become
due to the Borrower under any material contracts and any and all amendments,
supplements, extensions, and renewals thereof including, without limitation, all
rights and claims of the Borrower now or hereafter existing: (a) under any
insurance, indemnities, warranties, and guarantees provided for or arising out
of or in connection with the foregoing agreements; (b) for any damages arising
out of or for breach default under or in connection with the foregoing
agreements; (c) to all other amounts from time to time paid or payable under or
in connection with the foregoing agreements; or (d) to exercise or enforce any
and all covenants, remedies, powers and privileges thereunder.
"Availability" means at any time the lesser of:
(a) The amount of five million/100 Dollars ($5,000,000) or
(b) up to eighty-five percent (85%) of the Net Amount of
Eligible Accounts;
provided, however, that at all times Availability shall be reduced by the sum
of:
(a) the Aggregate Revolver Outstandings;
(b) reserves for accrued interest on the Revolving Loans;
(c) the Base Reserve Amount;
(d) the ACH Settlement Risk Reserve and the Swap Reserve; and
(e) all other reserves which the Lender in its reasonable
discretion deems necessary or desirable to maintain with respect to the
Borrower's account, including, without limitation, any amounts which the Lender
may be obligated to pay in the future for the account of the Borrower.
"Bank" means Bank of America National Trust and Savings Association
in San Francisco, California.
"Base Reserve Amount" means $350,000.
"Borrowing Base Certificate" means a certificate by a Responsible
Officer of the Borrower, substantially in the form of Exhibit A (or another form
acceptable to the Lender) setting forth the calculation of the Availability,
including a calculation of each component thereof, as of the close of business
no more than two (2) Business Days prior to the date of such certificate, all in
such detail as shall be satisfactory to the Lender. All calculations of
Availability in connection with the preparation of any Borrowing Base
Certificate shall originally be made by the Borrower and certified to the
Lender; provided, that the Lender shall have the right to review and adjust, in
the exercise of its reasonable credit judgment, any such calculation (1) to
reflect its reasonable estimate of declines in value of any of the Collateral
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<PAGE> 7
described therein, and (2) to the extent that such calculation is not in
accordance with this Agreement.
"Business Day" means any day that is not a Saturday, Sunday, or day
on which banks in San Francisco, California are required or permitted to close.
"Capital Expenditures" means all payments due (whether or not paid)
during a fiscal period in respect of the cost of any fixed asset or improvement,
or replacement, substitution, or addition thereto, which has a useful life of
more than one year, including, without limitation, those arising in connection
with the direct or indirect acquisition of such assets by way of increased
product or service charges or offset items or in connection with Capital Leases.
"Capital Lease" means any lease of Property by the Borrower that, in
accordance with GAAP, should be reflected as a capital lease on the balance
sheet of the Borrower.
"Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning given to such term in Section 6.1.
"Contaminant" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated biphenyls
("PCBs"), or other substance or material the handling, release, or possession of
which is regulated to protect health, safety or the environment, or any
constituent of any such substance or waste.
"Copyright, Patent and Trademark Assignment" means the Collateral
Assignment of Copyrights (Security Agreement), the Collateral Assignment of
Patents (Security Agreement) and the Collateral Assignment of Trademarks
(Security Agreement), each dated as of the date hereof, executed and delivered
by the Borrower to the Lender to evidence and perfect the Lender's Security
Interest in the Borrower's present and future copyrights, patents, trademarks,
and related licenses and rights.
"Debt" means all liabilities, obligations and indebtedness of the
Borrower to any Person, of any kind or nature, now or hereafter owing, arising,
due or payable, howsoever evidenced, created, incurred, acquired or owing,
whether primary, secondary, direct, contingent, fixed or otherwise, and
including, without in any way limiting the generality of the foregoing: (a) the
Borrower's liabilities and obligations to trade creditors; (b) all Obligations;
(c) all obligations and liabilities of any Person secured by any Lien on the
Borrower's Property, even though the Borrower shall not have assumed or become
liable for the payment thereof; provided, however, that all such obligations and
liabilities which are limited in recourse to such Property shall be included in
Debt only to the extent of the book value of such Property as would be shown on
a balance sheet of the Borrower prepared in accordance with GAAP; (d) all
obligations or liabilities created or arising under any Capital Lease or
conditional sale or other title retention agreement with respect to Property
used or acquired by the Borrower, even if the rights and remedies of the lessor,
seller or lender thereunder are limited to repossession of such Property;
provided, however, that all such obligations and liabilities which are limited
in recourse to such
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<PAGE> 8
Property shall be included in Debt only to the extent of the book value of such
Property as would be shown on a balance sheet of the Borrower prepared in
accordance with GAAP; (e) all accrued pension fund and other employee benefit
plan obligations and liabilities; (f) all obligations and liabilities under
Guaranties; and (g) deferred taxes.
"Distribution" means, in respect of any corporation: (a) the payment
or making of any dividend or other distribution of Property in respect of
capital stock (or any options or warrants for such stock) of such corporation,
other than distributions in capital stock (or any options or warrants for such
stock) of the same class; or (b) the redemption or other acquisition by such
corporation of any capital stock of such corporation.
"DOL" means the United States Department of Labor or any successor
department or agency.
"Eligible Accounts" means those Accounts which are not ineligible as
the basis for Revolving Loans, based on the following criteria and on such other
criteria as the Lender may from time to time establish in its reasonable
commercial discretion taking into account customary lending and commercial
finance practices. Without intending to limit the Lender's discretion to
establish other criteria of eligibility, Eligible Accounts shall not include any
Account:
(a) except for Non-Standard Foreign Accounts, with respect to
which more than 90 days have elapsed since the date of the original invoice
therefor;
(b) that is a Non-Standard Foreign Account and with respect to
which more than 60 days have elapsed since the date of the original invoice
therefor;
(c) with respect to which any of the representations,
warranties, covenants, and agreements contained in this Agreement are not or
have ceased to be complete and correct or have been breached;
(d) with respect to which, in whole or in part, a check,
promissory note, draft, trade acceptance or other instrument for the payment of
money has been received, presented for payment and returned uncollected for any
reason;
(e) which represents a progress billing (as hereinafter defined)
or as to which the Borrower has extended the time for payment beyond the
applicable time periods in (a) and (b) above without the consent of the Lender;
for the purposes hereof, "progress billing" means any invoice for goods sold or
leased or services rendered under a contract or agreement pursuant to which the
Account Debtor's obligation to pay such invoice is conditioned upon the
Borrower's completion of any further performance under the contract or
agreement;
(f) as to which any one or more of the following events has
occurred with respect to the Account Debtor on such Account: death or judicial
declaration of incompetency of an Account Debtor who is an individual; the
filing by or against the Account Debtor of a request or petition for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as a
bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or
similar laws of the United States, any state or territory thereof, or any
foreign jurisdiction, now
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<PAGE> 9
or hereafter in effect; the making of any general assignment by the Account
Debtor for the benefit of creditors; the appointment of a receiver or trustee
for the Account Debtor or for any of the assets of the Account Debtor,
including, without limitation, the appointment of or taking possession by a
"custodian," as defined in the Federal Bankruptcy Code; the institution by or
against the Account Debtor of any other type of insolvency proceeding (under the
bankruptcy laws of the United States or otherwise) or of any formal or informal
proceeding for the dissolution or liquidation of, settlement of claims against,
or winding up of affairs of, the Account Debtor; the sale, assignment, or
transfer of all or any material part of the assets of the Account Debtor; the
nonpayment generally by the Account Debtor of its debts as they become due; or
the cessation of the business of the Account Debtor as a going concern;
(g) which is a Non-Standard Foreign Account which causes the
aggregate amount of all Non-Standard Foreign Accounts to be greater than fifty
percent (50%) of the Net Amount of Eligible Accounts (calculated without regard
to Non-Standard Foreign Accounts) as of any date;
(h) owned by an Account Debtor which is the government of any
foreign country or sovereign state, or of any state, province, municipality, or
other political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof; except to the extent that such
Account is secured or payable by a letter of credit acceptable to Lender;
(i) owed by an Account Debtor which is an Affiliate or employee
of the Borrower;
(j) except as provided in (1) below, as to which either the
perfection, enforceability, or validity of the Security Interest in such
Account, or the Lender's right or ability to obtain direct payment to the Lender
of the Proceeds of such Account, is governed by any federal, state, or local
statutory requirements other than those of the UCC;
(k) which is owed by an Account Debtor to which the Borrower is
indebted in any way, or which is subject to any right of setoff or recoupment by
the Account Debtor, unless the Account Debtor has entered into an agreement
acceptable to the Lender to waive setoff and recoupment rights; or if the
Account Debtor thereon has disputed liability or made any claim with respect to
any other Account due from such Account Debtor to the Borrower; but in each such
case only to the extent of such indebtedness, setoff, recoupment, dispute, or
claim;
(l) which is owed by the government of the United States of
America, or any department, agency, public corporation, or other instrumentality
thereof, unless the Federal Assignment of Claims Act of 1940, as amended, and
any other steps necessary to perfect the Security Interest and protect the
Lender's rights therein, have been complied with to the Lender's satisfaction
with respect to such Account;
(m) which is owed by any state, municipality, or other political
subdivision of the United States of America, or any department, agency, public
corporation, or
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<PAGE> 10
other instrumentality thereof and as to which the Lender determines that its
Security Interest therein is not or cannot be perfected;
(n) which arises out of a sale to an Account Debtor on a
bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment,
or other repurchase or return basis;
(o) which is evidenced by a promissory note or other instrument
or by chattel paper;
(p) if fifty percent (50%) or more of the aggregate dollar
amount of outstanding Accounts owed at such time by the Account Debtor to the
Borrower is classified as ineligible under the other criteria set forth herein;
(q) which arises from cancellation fees assessed by the
Borrower, or which includes such fees but only to the extent so included;
(r) with respect to which the Account Debtor is located in any
state requiring the filing of a Notice of Business Activities Report or similar
report in order to permit the Borrower to seek judicial enforcement in such
state of payment of such Account, unless such Borrower has qualified to do
business in such state or has filed a Notice of Business Activities Report or
equivalent report for the then current year; or
(s) which arises out of a sale not made in the ordinary course
of the Borrower's business;
(t) with respect to which the goods giving rise to such Account
have not been shipped and delivered to and accepted by the Account Debtor or the
services giving rise to such Account have not been performed by the Borrower,
and, if applicable, accepted by the Account Debtor, or the Account debtor
revokes its acceptance of such goods or services (under the Borrower's present
practices invoices are rendered upon shipment and Accounts relating thereto will
be included as Eligible Accounts on Borrowing Base Certificates, but any such
Accounts as to which delivery or acceptance fails to occur, or as to which
acceptance is revoked, shall promptly be excluded from the calculation of
Eligible Accounts);
(u) which is not subject to a first priority and perfected
security interest in favor of the Lender;
(v) if Lender believes in its reasonable credit judgment that
the prospect of collection of such Account is impaired or that the Account may
not be paid by reason of the Account Debtor's financial inability to pay; or
(w) which is owed by an Account Debtor which the Lender, in its
reasonable credit judgment, otherwise deems to be uncreditworthy.
If any Account at any time ceases to be an Eligible Account by
reason of any of the foregoing exclusions or any failure to meet any other
eligibility criteria established by the
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<PAGE> 11
Lender in the exercise of its reasonable discretion then such Account shall
promptly be excluded from the calculation of Eligible Accounts.
"Environmental Laws" means all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidance, orders and consent decrees
relating to health, safety, hazardous substances, and environmental matters
applicable to the Borrower's business and facilities (whether or not owned by
it). Such laws and regulations include but are not limited to the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., as amended; the
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq., as amended; the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq., as amended; the Clean Water Act, 33 U.S.C. Section 466 et
seq., as amended; the Clean Air Act, 42 U.S.C. Section 7401 et seq., as amended;
state and federal lien and environmental cleanup programs; and U.S. Department
of Transportation regulations.
"Environmental Lien" means a Lien in favor of any Public Authority
for (a) any liability under any Environmental Laws, or (b) damages arising from,
or costs incurred by such Public Authority in response to, a Release or
threatened Release of a Contaminant into the environment.
"Equipment" means all of the Borrower's now owned and hereafter
acquired machinery, equipment, furniture, furnishings, fixtures, and other
tangible personal property (except Inventory), including, without limitation,
data processing hardware and software, motor vehicles, aircraft, dies, tools,
jigs, and office equipment, as well as all of such types of property leased by
the Borrower and all of the Borrower's rights and interests with respect thereto
under such leases (including, without limitation, options to purchase); together
with all present and future additions and accessions thereto, replacements
therefor, component and auxiliary parts and supplies used or to be used in
connection therewith, and all substitutes for any of the foregoing, and all
manuals, drawings, instructions, warranties and rights with respect thereto;
wherever any of the foregoing is located.
"ERISA" means the Employee Retirement Income Security Act of 1974.,
as amended.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which is a member of a controlled group or under common control
with the Borrower within the meaning of Section 414(b) or (c) of the Code (and
Sections 414(m) and (o) of the Code for purposes of provisions relating to
Section 412 of the Code).
"ERISA Event" means with respect to the Borrower, any ERISA
Affiliate or any Pension Plan, the occurrence of any of the following: (a) a
Reportable Event; (b) a withdrawal by a substantial employer (as defined in
Section 4001 (a)(12) of ERISA) subject to Section 4063 of ERISA; (c) a cessation
of operations which is treated as a withdrawal under Section 4062(e) of ERISA;
(d) a complete or partial withdrawal under Section 4203 or 4205 of ERISA from a
Multiemployer Plan; (e) a notification that a Multiemployer Plan is in
reorganization under Section 4242 of ERISA; (f) the filing of a notice of intent
to terminate a Pension Plan under 4041 of ERISA; (g) the treatment of an
amendment of a Pension Plan as a termination under 4041 of ERISA; (h) the
termination of a Multiemployer Plan under Section 4041A of ERISA; (i) the
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<PAGE> 12
commencement of proceedings by the PBGC to terminate a Pension Plan under 4042
of ERISA; (j) an event or condition which could reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, a Pension Plan; or (k) the imposition of
any liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA.
"Event" means any event or condition which, with notice, the passage
of time, the happening of any other condition or event, or any combination
thereof, would constitute an Event of Default.
"Event of Default" has the meaning specified in Section 11.1.
"Financial Statements" means, according to the context in which it
is used, the financial statements attached hereto as Exhibit B-1, or any
financial statements required to be given to the Lender pursuant to Section
7.2(a) and (b), or any combination thereof.
"Fiscal Year" means the Borrower's fiscal year for financial
accounting purposes. The current Fiscal Year of the Borrower will end on
December 31, 1998.
"Foreign Account" means an Account with an Account Debtor which (a)
does not maintain its chief executive office in the United States; or (b) is not
organized under the laws of the United States or any state thereof.
"GAAP" means at any particular time generally accepted accounting
principles as in effect at such time.
"Guaranty" by any Person means all obligations of such Person which
in any manner directly or indirectly guarantee or assure, or in effect guarantee
or assure, the payment or performance of any indebtedness, dividend or other
obligation of any other Person (the "guaranteed obligations"), or to assure or
in effect assure the holder of the guaranteed obligations against loss in
respect thereof, including, without limitation, any such obligations incurred
through an agreement, contingent or otherwise: (a) to purchase the guaranteed
obligations or any Property constituting security therefor; (b) to advance or
supply funds for the purchase or payment of the guaranteed obligations or to
maintain a working capital or other balance sheet condition; or (c) to lease
Property or to purchase any debt or equity securities or other Property or
services.
"Intercompany Accounts" means all assets and liabilities, however
arising, which are due to the Borrower from, which are due from the Borrower to,
or which otherwise arise from any transaction by the Borrower with, any
Affiliate.
"Inventory" means all of the Borrower's now owned and hereafter
acquired inventory, goods and merchandise, wherever located, to be furnished
under any contract of service or held for sale or lease, all raw materials,
work-in-process, finished goods, returned goods, and materials and supplies of
any kind, nature or description which are or might be used or consumed in the
Borrower's business or used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise and such
other personal property, and all documents of title or other documents
representing them.
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<PAGE> 13
"IRS" means the Internal Revenue Service or any successor agency.
"Latest Projections" means: (a) on the Closing Date and thereafter
until the Lender receives new projections pursuant to Section 7.2(e), the
projections of the Borrower's monthly financial condition, results of
operations, and cash flow for the one-year period ending December 31, 1998,
attached hereto as Exhibit B-2; and (b) thereafter, the projections most
recently received by the Lender pursuant to Section 7.2(e).
"Letter of Credit" has the meaning specified in Section 2.3.
"Letter of Credit Fee" has the meaning specified in Section 3.4.
"Lien" means: (a) any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on the common law, statute, or contract, and including
without limitation, a security interest, charge, claim, or lien arising from a
mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit
arrangement, agreement, security agreement, conditional sale or trust receipt or
a lease, consignment or bailment for security purposes; and (b) to the extent
not included under clause (a), any reservation, exception, encroachment,
easement, right-of-way, covenant, condition, restriction, lease or other title
exception or encumbrance affecting Property.
"Loans" means, collectively, all loans and advances (including
Letters of Credit) provided for in Section 2.
"Loan Documents" means this Agreement, the Copyright, Patent and
Trademark Assignments, the Post-Closing Letter, the Subordination Agreement, and
all other agreements, instruments and documents heretofore, now or hereafter
evidencing, securing, guaranteeing or otherwise relating to the Obligations, the
Collateral, the Security Interest, or any other aspect of the transactions
contemplated by this Agreement.
"Merchandise Letters of Credit" means such Letters of Credit used in
financing the shipment of goods where the conforming documents may be bills of
lading, inspection certificates, and other documents attesting to the timely
shipment of goods.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate makes,
is making, made or was at any time during the current year or the immediately
preceding six (6) years obligated to make contributions.
"Net Amount of Eligible Accounts" means, at any time, the gross
amount of Eligible Accounts less sales, excise or similar taxes, and less
returns, discounts, claims, credits and allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed in respect of such
Eligible Accounts.
"Non-Standard Foreign Accounts" means all Foreign Accounts which are
(a) Eligible Accounts; and (b) not backed by letters of credit that are
acceptable to the Lender in its sole discretion.
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<PAGE> 14
"Obligations" means all present and future loans, advances,
liabilities, obligations, covenants, duties, and Debt owing by the Borrower to
the Lender, whether or not arising under this Agreement, whether or not
evidenced by any note, or other instrument or document, whether arising from an
extension of credit, opening of a letter of credit, acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment from others, and any participation by
the Lender in the Borrower's debts owing to others) absolute or contingent, due
or to become due, primary or secondary, as principal or guarantor, and
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees, filing fees and any other sums chargeable to the Borrower hereunder, under
another Loan Document, or under any other agreement or instrument with the
Lender. "Obligations" includes, without limitation, (a) all debts, liabilities,
and obligations now or hereafter owing from Borrower to Lender under or in
connection with the Letters of Credit and (b) all debts, liabilities and
obligations now or hereafter owing from the Borrower to the Lender arising from
or related to ACH Transactions and Swap Transactions pursuant to the indemnity
provided in Section 2.4 hereof.
"Parent" means Paradyne Partners L.P., a Delaware limited
partnership.
"Parent Loan" means that $5,000,000 line of credit provided by the
Parent to the Borrower pursuant to the Subordinated Revolving Promissory Note.
"Payment Account" means each blocked bank account or bank account
associated with a lock box, established pursuant to Section 6.10, to which the
funds of the Borrower (including, without limitation, Proceeds of Accounts and
other Collateral) are deposited or credited, and which is maintained in the name
of the Lender or the Borrower, as the Lender may determine, on terms acceptable
to the Lender.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to the functions thereof.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Borrower or an ERISA Affiliate
sponsors, maintains, or to which it makes, is making, or is obligated to make
contributions or, in the case of a Multiemployer Plan, has made contributions at
any time during the current year or the immediately preceding six (6) plan
years.
"Permitted Liens" means:
(a) Liens for taxes not yet delinquent or Liens for taxes in an
amount not to exceed $250,000 being contested in good faith by appropriate
proceedings diligently pursued, provided that a reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made therefor on
the applicable Financial Statements and that a stay of enforcement of any such
Lien is in effect;
(b) Liens in favor of the Lender;
(c) Liens arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers, employees or suppliers,
incurred in the
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<PAGE> 15
ordinary course of business of the Borrower and not in connection with the
borrowing of money, for sums not yet delinquent or which are being contested in
good faith and by proper proceedings diligently pursued, provided that a reserve
or other appropriate provision, if any, required by GAAP shall have been made
therefor on the applicable Financial Statements and a stay of enforcement of any
such Lien is in effect;
(d) Liens in connection with workers' compensation or other
unemployment insurance incurred in the ordinary course of the Borrower's
business;
(e) Liens created by deposits of cash to secure performance of
bids, tenders, leases (to the extent permitted under this Agreement), or trade
contracts, incurred in the ordinary course of business of the Borrower and not
in connection with the borrowing of money;
(f) Liens of or resulting from any judgment or award, the time
for the appeal or petition for rehearing of which has not yet expired, or in
respect of which the Borrower is in good faith prosecuting an appeal or
proceeding for a review, and in respect of which a stay of execution pending
such appeal or proceeding for review has been secured;
(g) Liens with respect to the Premises which are exceptions to
the commitments for title insurance issued in connection with the mortgages, as
accepted by the Lender;
(h) Easements, rights of way, zoning and similar covenants and
restrictions and similar encumbrances which customarily exist on real property
and do not materially interfere with or impair the use or operation of the
Collateral by the Borrower or the value of the Lender's Security Interest
therein, or materially interfere with the ordinary conduct of the business of
the Borrower;
(i) purchase money security interests in equipment and liens of
lessors under Capital Leases to the extent that the acquisition or lease of the
underlying asset was permitted under Section 9.11, the security interest or lien
only encumbers the asset purchased or leased, and so long as the security
interest or lien only secures the purchase price of the asset; and
(j) Liens arising by reason of cash deposits for surety or
appeal bonds in the ordinary course of business of the Borrower.
"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, limited
liability company, corporation, Public Authority, or any other entity.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Borrower or an ERISA Affiliate sponsors or maintains or to
which the Borrower or an ERISA Affiliate makes, is making, or is obligated to
make contributions and includes any Pension Plan.
"Premises" means the land identified by addresses on Schedule 8.13
together with all buildings, improvements, and fixtures thereon and all
tenements, hereditaments, and
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<PAGE> 16
appurtenances belonging or in any way appertaining thereto, and which
constitutes all of the real property in which the Borrower has any interests on
the Closing Date.
"Proceeds" means all products and proceeds of any Collateral, and
all proceeds of such proceeds and products, including, without limitation, all
cash and credit balances, all payments under any indemnity, warranty, or
guaranty payable with respect to any Collateral, all awards for taking by
eminent domain, all proceeds of fire or other insurance, and all money and other
Property obtained as a result of any claims against third parties or any legal
action or proceeding with respect to Collateral.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Proprietary Rights" means all of the Borrower's now owned and
hereafter arising or acquired: licenses, franchises, permits, patents, patent
rights, copyrights, works which are the subject matter of copyrights,
trademarks, trade names, trade styles, patent and trademark applications and
licenses and rights thereunder, including without limitation those patents,
trademarks and copyrights set forth on Schedule 8.14 and all other rights under
any of the foregoing, all extensions, renewals, reissues, divisions,
continuations, and continuations-in-part of any of the foregoing, and all rights
to sue for past, present, and future infringement of any of the foregoing;
inventions, trade secrets, formulae, processes, compounds, drawings, designs,
blueprints, surveys, reports, manuals, and operating standards; goodwill;
customer and other lists in whatever form maintained; and trade secret rights,
copyright rights, rights in works of authorship, and contract rights relating to
computer software programs, in whatever form created or maintained.
"Public Authority" means the government of any country or sovereign
state, or of any state, province, municipality, or other political subdivision
thereof, or any department, agency, public corporation or other instrumentality
of any of the foregoing.
"Receivables" means all of the Borrower's now owned and hereafter
arising or acquired: Accounts (whether or not earned by performance), including
Accounts owed to the Borrower by any of its Subsidiaries or Affiliates, together
with all interest, late charges, penalties, collection fees, and other sums
which shall be due and payable in connection with any Account; proceeds of any
letters of credit naming the Borrower as beneficiary; contract rights, chattel
paper, instruments, documents, investment property, general intangibles
(including without limitation choses in action, causes of action, tax refunds,
tax refund claims, and Reversions and other amounts payable to the Borrower from
or with respect to any Plan) and all forms of obligations owing to the Borrower
(including, without limitation, in respect of loans, advances, and extensions of
credit by the Borrower to its Subsidiaries and Affiliates); guarantees and other
security for any of the foregoing; goods represented by or the sale, lease or
delivery of which gave rise to any of the foregoing; merchandise returned to or
repossessed by the Borrower and rights of stoppage in transit, replevin, and
reclamation; and other rights or remedies of an unpaid vendor, lienor, or
secured party.
"Reference Rate" means the rate of interest publicly announced from
time to time by the Bank as its reference rate. It is a rate set by the Bank
based upon various factors including
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<PAGE> 17
the Bank's costs and desired return, general economic conditions, and other
factors, and is used as a reference point for pricing some loans. However, the
Bank may price loans at, above, or below such announced rate. Any changes in the
Reference Rate shall take effect on the day specified in the public announcement
of such change.
"Release" means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any real
estate or other property, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or real estate or other property.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than any such event for
which the 30-day notice requirement under ERISA has been waived in regulations
issued by the PBGC.
"Responsible Officer" means the chief executive officer, the
president or the chief financial officer of the Borrower, or any other officer
or employee of the Borrower authorized to request and take action with respect
to Loans; or, with respect to compliance with financial covenants and the
preparation of the Borrowing Base Certificate, the chief financial officer, or
the treasurer of the Borrower or any other officer or employee of the Borrower
authorized to prepare and sign the Borrowing Base Certificate.
"Restricted Investment" means any acquisition of Property by the
Borrower or any of its Subsidiaries in exchange for cash or other Property,
whether in the form of an acquisition of stock, debt security, or other
indebtedness or obligation, or the purchase or acquisition of any other
Property, or a loan, advance, capital contribution, or subscription, except
acquisitions of the following: (a) fixed assets to be used in the business of
the Borrower, so long as the acquisition costs thereof constitute Capital
Expenditures permitted hereunder; (b) goods held for sale or lease or to be used
in the rendition of services by the Borrower in the ordinary course of business;
(c) direct obligations of the United States of America, or any agency thereof,
or obligations guaranteed by the United States of America, provided that such
obligations mature within one year from the date of acquisition thereof; (d)
certificates of deposit maturing within one year from the date of acquisition,
bankers acceptances, Eurodollar bank deposits, or overnight bank deposits, in
each case issued by, created by, or with a bank or trust company organized under
the laws of the United States or any state thereof having capital and surplus
aggregating at least $100,000,000; (e) commercial paper given the highest rating
by a national credit rating agency and maturing not more than 270 days from the
date of creation thereof; and (f) transactions with Affiliates by Section 9.13.
"Reversions" means any funds which may become due to the Borrower in
connection with the termination of any Plan or other employee benefit plan.
"Revolving Loans" has the meaning specified in Section 2.2.
"Security Interest" means collectively the Liens granted to the
Lender in the Collateral pursuant to this Agreement, the other Loan Documents,
or any other agreement or instrument.
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"Solvent" means when used with respect to any Person that at the
time of determination:
(i) the assets of such Person, at a fair valuation, are in
excess of the total amount of its debts (including without limitation,
contingent liabilities); and
(ii) the present fair saleable value of its assets is greater
than its probable liability on its existing debts as such debts become absolute
and matured; and
(iii) it is then able and expects to be able to pay its debts
(including, without limitation, contingent debts and other commitments) as they
mature; and
(iv) it has capital sufficient to carry on its business as
conducted and as proposed to be conducted.
For purposes of determining whether a Person is Solvent, the amount of any
contingent liability shall be computed as the amount that, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Standby Letters of Credit" means such Letters of Credit (that are
not Merchandise Letters of Credit) which are payable by the Lender upon the
execution of a certificate by the beneficiary, attesting to the fact that the
obligation secured by such Letter of Credit is due and remains unpaid.
"Stated Termination Date" has the meaning specified in Section 13.
"Subordination Agreement" means that certain Subordination Agreement
dated of even date herewith between the Lender, the Borrower, and the Parent.
"Subordinated Revolving Promissory Note" means a Subordinated
Revolving Promissory Note dated as of even date herewith between the Borrower
and the Parent.
"Subsidiary" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than 50% of
the voting stock or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the Person, or
one or more of the Subsidiaries of the Person, or a combination thereof. Unless
the context otherwise clearly requires, references herein to a "Subsidiary"
refer to a Subsidiary of the Borrower.
"Swap Reserve" means any and all reserves which the Lender from time
to time establishes, in its sole discretion, with respect to Swap Transactions.
"Swap Transactions" means any interest rate swap transaction,
forward rate transaction, treasury lock transaction, interest rate cap, floor or
collar transaction, any similar transaction, any option to enter into any of the
foregoing, or any combination of any of the foregoing.
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"Total Facility" has the meaning specified in Section 2.1.
"TPG" means TPG Partners, L.P., a Delaware limited partnership.
"UCC" means the Uniform Commercial Code (or any successor statute)
of the State of California or of any other state the laws of which are required
by Section 9-103 thereof to be applied in connection with the issue of
perfection of security interests.
"Unused Line Fee" has the meaning specified in Section 3.2.
"Year 2000 Problem" means the risk that computer applications used
by any person may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31, 1999.
1.2 Accounting Terms. Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP as consistently applied and using the same method for
inventory valuation as used in the preparation of the Financial Statements.
1.3 Other Terms. All other undefined terms contained in this
Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein.
Wherever appropriate in the context, terms used herein in the singular also
include the plural, and vice versa, and each masculine, feminine, or neuter
pronoun shall also include the other genders.
2. LOANS AND LETTERS OF CREDIT.
2.1 Total Facility. Subject to all of the terms and conditions of
this Agreement, the Lender shall make available a total credit facility of up to
$5,000,000 (the "Total Facility") for the Borrower's use from time to time
during the term of this Agreement. The Total Facility shall be comprised of: a
revolving line of credit up to the limits of the Availability, consisting of
Revolving Loans and Letters of Credit as described in Sections 2.2 and 2.3.
2.2 Revolving Loans. The Lender shall, upon the Borrower's request
from time to time, make revolving loans (the "Revolving Loans") to the Borrower
up to the limits of the Availability. The Lender, in its discretion, may elect
to exceed the limits of the Availability on one or more occasions, but if it
does so, the Lender shall not be deemed thereby to have changed the limits of
the Availability or to be obligated to exceed the limits of the Availability on
any other occasion. If the unpaid balance of the Revolving Loans exceeds the
Availability (with Availability determined for this purpose as if the amount of
the Revolving Loans were zero), then the Lender may refuse to make or otherwise
restrict Revolving Loans on such terms as the Lender determines until such
excess has been eliminated. The Borrower may request Revolving Loans either
telephonically or in writing. Each request for a Revolving Loan shall be
conclusively presumed to be made by a person authorized by the Borrower to do so
and the crediting of a Revolving Loan to the Borrower's deposit account, or
transmittal to such Person as the Borrower shall direct, shall conclusively
establish the obligation of the Borrower to repay
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such Revolving Loan as provided herein. The Lender will charge all Revolving
Loans and other Obligations to a loan account of the Borrower maintained with
the Lender. All fees, commissions, costs, expenses, and other charges under or
pursuant to the Loan Documents, and all payments made and out-of-pocket expenses
incurred by the Lender pursuant to the Loan Documents, will be charged as
Revolving Loans to the Borrower's loan account as of the date due from the
Borrower or the date paid or incurred by the Lender, as the case may be.
2.3 Letters of Credit.
(a) General Conditions. Subject to the terms and conditions of
this Agreement, the Lender shall, upon the Borrower's request from time to time,
cause merchandise or standby letters of credit to be issued for the Borrower's
account (the "Letters of Credit") by providing credit support or other
enhancement to banks, acceptable to the Lender, which issue Letters of Credit
for the account of the Borrower (any such credit support or enhancement being
herein referred to as a "Credit Support"). The Lender shall not have any
obligation to take steps to cause to be issued any Letter of Credit if: (i) the
maximum face amount of the requested Letter of Credit, plus the aggregate
undrawn face amount of all outstanding Letters of Credit, would exceed
$1,000,000; (ii) the maximum face amount of the requested Letter of Credit, and
all commissions, fees, and charges due from Borrower to Lender in connection
with the issuance thereof, would cause the Availability to be exceeded at such
time; or (iii) the expiration date of the Letter of Credit would exceed the
Stated Termination Date or any renewal term or be greater than twelve (12)
months from the date of issuance. All payments made and expenses incurred by the
Lender pursuant to or in connection with the Letters of Credit will be charged
to the Borrower's loan account as Revolving Loans.
(b) Other Conditions. In addition to being subject to the
satisfaction of the applicable conditions precedent contained in Section 10, the
obligation of the Lender to cause to be issued any Letter of Credit or to
provide Credit Support for any Letter of Credit is subject to the following
conditions precedent having been satisfied in a manner satisfactory to the
Lender:
(1) The Borrower shall have delivered to the proposed issuer
of such Letter of Credit, at such times and in such manner as such proposed
issuer may prescribe, an application in form and substance satisfactory to such
proposed issuer and the Lender for the issuance of the Letter of Credit and such
other documents as may be required pursuant to the terms thereof, and the form
and terms of the proposed Letter of Credit shall be satisfactory to the Lender
and such proposed issuer; and
(2) As of the date of issuance, no order of any court,
arbitrator or Public Authority shall purport by its terms to enjoin or restrain
money center banks generally from issuing letters of credit of the type and in
the amount of the proposed Letter of Credit, and no law, rule or regulation
applicable to money center banks generally and no request or directive (whether
or not having the force of law) from any Public Authority with jurisdiction over
money center banks generally shall prohibit, or request that the proposed issuer
of such Letter of Credit refrain from, the issuance of letters of credit
generally or the issuance of such Letters of Credit.
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(c) Issuance of Letters of Credit.
(1) Request for Issuance. The Borrower shall give the Lender
three (3) Business Days' prior written notice of the Borrower's request for the
issuance of a Letter of Credit. Such notice shall be irrevocable and shall
specify the original face amount of the Letter of Credit requested, the
effective date (which date shall be a Business Day) of issuance of such
requested Letter of Credit, whether such Letter of Credit may be drawn in a
single or in partial draws, the date on which such requested Letter of Credit is
to expire (which date shall be a Business Day), the purpose for which such
Letter of Credit is to be issued, and the beneficiary of the requested Letter of
Credit. The Borrower shall attach to such notice the proposed form of the Letter
of Credit.
(2) No Extensions or Amendment. The Lender shall not be
obligated to cause any Letter of Credit to be extended or amended unless the
requirements of this Section 2.3 are met as though a new Letter of Credit were
being requested and issued.
(d) Payments Pursuant to Letters of Credit.
(1) Payment of Letter of Credit Obligations. The Borrower
agrees to reimburse the issuer for any draw under any Letter of Credit and the
Lender upon any payment pursuant to the Credit Support immediately upon demand,
and to pay the issuer of the Letter of Credit amount of all other obligations
and other amounts payable to such issuer under or in connection with any Letter
of Credit immediately when due, irrespective of any claim, setoff, defense or
other right which the Borrower may have at any time against such issuer or any
other Person.
(2) Revolving Loans to Satisfy Reimbursement Obligations. In
the event that the issuer of any Letter of Credit honors a draw under such
Letter of Credit and the Borrower shall not have repaid such amount to the
issuer of such Letter of Credit pursuant to Section 2.3(d)(1), the Lender shall
pay the issuer and such amount when paid shall constitute a Revolving Loan which
shall be deemed to have been requested by the Borrower.
(e) Compensation for Letters of Credit.
(1) Letter of Credit Fee. The Borrower agrees to pay to the
Lender with respect to each Letter of Credit, the Letter of Credit Fee specified
in, and in accordance with the terms of, Section 3.4.
(2) Issuer Fees and Charges. The Borrower shall pay to the
issuer of any Letter of Credit, or to the Lender, for the account of the issuer
of any such Letter of Credit, solely for such issuer's account, such fees and
other charges as are charged by such issuer for letters of credit issued by it,
including, without limitation, its standard fees for issuing, administering,
amending, renewing, paying and canceling letters of credit and all other fees
associated with issuing or servicing letters of credit, as and when assessed.
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(f) Indemnification; Exoneration; Power of Attorney.
(1) Indemnification. In addition payable as elsewhere
provided in this Section 2.3, the Borrower hereby agrees to protect, indemnify,
pay and save the Lender harmless from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
attorneys' fees) which the Lender may incur or be subject to as a consequence,
direct or indirect, of the issuance of any Letter of Credit or the provision of
any credit support or enhancement in connection therewith. The agreement in this
Section 2.3(f)(1) shall survive payment of all Obligations and the termination
of this Agreement.
(2) Assumption of Risk by the Borrower. As among the
Borrower and the Lender, the Borrower assumes all risks of the acts and
omissions of, or misuse of any of the Letters of Credit by, the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation of
the foregoing, the Lender shall not be responsible for: (A) the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted by
any Person in connection with the application for and issuance of and
presentation of drafts with respect to any of the Letters of Credit, even if it
should prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (B) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (C) the
failure of the beneficiary of any Letter of Credit to comply duly with
conditions required in order to draw upon such Letter of Credit; (D) 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;
(E) errors in interpretation of technical terms; (F) any loss or delay in the
transmission or otherwise of any document required in order make a drawing under
any Letter of Credit or of the proceeds thereof; (G) the misapplication by the
beneficiary of any Letter of Credit of the proceeds of any drawing under such
Letter of Credit; or (H) any consequences arising from causes beyond the control
of the Lender, including, without limitation, any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto Public
Authority. None of the foregoing shall affect, impair or prevent the vesting of
any rights or powers of the Lender under this Section 2.3.
(3) Exoneration. In furtherance and extension, and not in
limitation, of the specific provisions set forth above, any action taken or
omitted by the Lender under or in connection with any of the Letters of Credit
or any related certificates, if taken or omitted in the absence of gross
negligence or willful misconduct, shall not put the Lender under any resulting
liability to the Borrower or relieve the Borrower of any of its obligations
hereunder to any such Person.
(g) Supporting Letter of Credit; Cash Collateral. If,
notwithstanding the provisions of this Section 2.3 and Section 13 any Letter of
Credit is outstanding upon the termination of this Agreement, then upon such
termination the Borrower shall deposit with the Lender, at its discretion, with
respect to each Letter of Credit then outstanding, either (A) a standby letter
of credit (a "Supporting Letter of Credit") in form and substance satisfactory
to the Lender, issued by an issuer satisfactory to the Lender in an amount equal
to the greatest amount for which such Letter of Credit may be drawn, under which
Supporting Letter of Credit the Lender is entitled to draw amounts necessary to
reimburse the Lender for payments made by the
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Lender under such Letter of Credit or under any credit support or enhancement
provided through the Lender with respect thereto, or (B) cash in amounts
necessary to reimburse the Lender for payments made by the Lender under such
Letter of Credit or under any credit support or enhancement provided through the
Lender. Such Supporting Letter of Credit or deposit of cash shall be held by the
Lender, as security for, and to provide for the payment of, the aggregate
undrawn amount of such Letters of Credit remaining outstanding.
2.4 ACH Transactions and Swap Transactions. The Borrower may request
and the Lender may, in its sole discretion, arrange for the Borrower to obtain
from the Bank or an affiliate of the Bank ACH Transactions and Swap
Transactions. The Borrower agrees to indemnify and hold the Lender harmless from
any and all obligations now or hereafter owing by the Lender to the Bank or an
affiliate of the Bank arising from or related to such ACH Transactions and Swap
Transactions pursuant to the indemnity referred to in clause (c) below. The
Borrower agrees to pay the Bank or an affiliate of the Bank all amounts owing to
the Bank or an affiliate of the Bank pursuant to ACH Transactions and Swap
Transactions. In the event the Borrower shall not have paid to the Bank or an
affiliate of the Bank such amounts, the Lender shall pay the Bank or an
affiliate of the Bank and such amounts when paid by the Lender shall constitute
a Revolving Loan which shall be deemed to have been requested by the Borrower.
The Borrower acknowledges and agrees that the obtaining of ACH Transactions and
Swap Transactions from the Bank or an affiliate of the Bank (a) is in the sole
and absolute discretion of the Bank or an affiliate of the Bank, (b) is subject
to all rules and regulations of the Bank or an affiliate of the Bank, and (c) is
due to the Bank or an affiliate of the Bank relying on the indemnity of the
Lender to the Bank or an affiliate of the Bank with respect to obligations of
the Borrower to the Bank or an affiliate of the Bank in connection with the ACH
Transactions and Swap Transactions.
3. INTEREST AND OTHER CHARGES.
3.1 Interest.
(a) The Borrower shall pay the Lender interest on the unpaid
principal balance of the Revolving Low (including, to the extent permitted by
law, on interest thereon not paid when due) at a fluctuating per annum rate
equal to one percent (1%) plus the Reference Rate. Each change in the Reference
Rate shall be reflected in the foregoing interest rate as of the effective date
of such change. Interest charges shall be computed on the basis of a year of 360
days and actual days elapsed and will be payable to the Lender on the first day
of each month hereafter.
(b) If any Event of Default occurs, then, from the date such
Event of Default occurs until it is cured, or if not cured until all Obligations
are paid and performed in full, the Borrower will pay interest on the unpaid
principal balances of the Revolving Loans at a per annum rate two percent (2%)
greater than the rate of interest otherwise specified herein, and the Letter of
Credit Fee shall be increased by two percent (2%) per annum.
3.2 Unused Line Fee. For every month during the term of this
Agreement, the Borrower shall pay the Lender a fee (the "Unused Line Fee") in an
amount equal to one-half percent (.50%) per annum, multiplied by the average
daily outstanding amount by which
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$5,000,000 exceeds the sum of (i) the average daily outstanding amount of
Revolving Loans during such month and (ii) the average daily undrawn face amount
of all outstanding Letters of Credit during such month, with the outstanding
amount of Revolving Loans calculated for this purpose by applying payments
immediately upon receipt. Such a fee, if any, shall be calculated on the basis
of a year of three hundred sixty (360) days and actual days elapsed, and shall
be payable to the Lender on the first day of each month and on the termination
of this Agreement, in each case, with respect to the prior month or portion
thereof.
3.3 Maximum Interest Rate. In no event shall any interest rate
provided for hereunder exceed the maximum rate permissible for corporate
borrowers under applicable law for loans of the type provided for hereunder (the
"Maximum Rate"). If, in any month, any interest rate, absent such limitation,
would have exceeded the Maximum Rate, then the interest rate for that month
shall be the Maximum Rate, and, if in future months, that interest rate would
otherwise be less than the Maximum Rate, then that interest rate shall remain at
the Maximum Rate until such time as the amount of interest paid hereunder equals
the amount of interest which would have been paid if the same had not been
limited by the Maximum Rate. In the event that, upon payment in full of the
Obligations, the total amount of interest paid or accrued under the terms of
this Agreement is less than the total amount of interest which would, but for
this Section 3.3, have been paid or accrued if the interest rates otherwise set
forth in this Agreement had at all times been in effect, then the Borrower
shall, to the extent permitted by applicable law, pay the Lender, an amount
equal to the excess of (a) the lesser of (i) the amount of interest which would
have beet charged if the Maximum Rate had, at all times, been in effect or (ii)
the amount of interest which would have accrued had the interest rates otherwise
set forth in this Agreement, at all times, been in effect over (b) the amount of
interest actually paid or accrued under this Agreement. In the event that a
court determines that the Lender has received interest and other charges
hereunder in excess of the Maximum Rate, such excess shall be deemed received on
account of, and shall automatically be applied to reduce, the Obligations other
than interest, in the inverse order of maturity, and if there are no Obligations
outstanding, the Lender shall refund to the Borrower such excess.
3.4 Letter of Credit Fee. The Borrower agrees to pay to the Lender a
fee (the "Letter of Credit Fee") equal to: (a) one and one-half percent (1.50%)
per annum of the undrawn face amount of each Standby Letter of Credit issued for
the Borrower's account at the Borrower's request; and (b) three-quarters percent
(.75%) per annum of the undrawn face amount of each Merchandise Letter of Credit
issued for the Borrower's account at the Borrower's request, plus all
out-of-pocket costs, fees and expenses incurred by the Lender in connection with
the application for, issuance of, or amendment to any Letter of Credit, which
costs, fees and expenses could include a "fronting fee" required to be paid by
the Lender to such issuer for the assumption of the settlement risk in
connection with the issuance of such Letter of Credit; The Letter of Credit Fee
shall be payable monthly in arrears on the first day of each month following any
month in which a Letter of Credit was issued and/or in which a Letter of Credit
remains outstanding. The Letter of Credit Fee shall be computed on the basis of
a 360-day year for the actual number of days elapsed.
3.5 Capital Adequacy. If as a result of any regulatory change
directly or indirectly affecting Lender or any of Lender's affiliated companies
there shall hereafter be imposed, modified or deemed applicable any tax,
reserve, special deposit, minimum capital,
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capital ratio, or similar requirement against or with respect to or measured by
reference to loans made or to be made hereunder or participation therein, or to
Letters of Credit issued hereunder, and the result shall be to increase the cost
to Lender or to any of Lender's affiliated companies of making or maintaining
any loan or Letter of Credit hereunder as a result of Lender's or Lender's
affiliated company's reasonable allocation of such increased cost resulting from
such event, then, within ten (10) days after receipt by Borrower of a
certificate from Lender containing the information described in this Section 3.5
which shall be delivered to Borrower, Borrower agrees from time to time to pay
Lender such additional amounts as shall be sufficient to compensate Lender or
any of Lender's affiliated companies for such increased costs or reductions in
amounts which Lender determines in Lender's sole discretion are material.
Notwithstanding the foregoing, all such amounts shall be subject to the
provisions of Section 3.3. The certificate requesting compensation under this
Section 3.5 shall identify the regulatory change which has occurred, the
requirements which have been imposed, modified or deemed applicable, the amounts
of such additional cost or reduction in the amount receivable and the way in
which such amount has been calculated.
4. PAYMENTS AND PREPAYMENTS.
4.1 Revolving Loans. The Borrower shall repay the outstanding
principal balance of the Revolving Loans, plus all accrued but unpaid interest
thereon, upon the termination of this Agreement for any reason. In addition, and
without limiting the generality of the foregoing, the Borrower shall pay to the
Lender, on demand, the amount by which the unpaid principal balance of the
Revolving Loans at any time exceeds the Availability at such time (determined
for this purpose as if the amount of the Revolving Loans were zero).
4.2 Place and Form of Payments; Extension of Time. All payments of
principal, interest, premium, and other sums due to the Lender shall be made at
the Lender's address set forth in Section 14.11. Except for Proceeds received
directly by the Lender, all such payments shall be made in immediately available
funds. If any payment of principal, interest, premium, or other sum to be made
hereunder becomes due and payable on a day other than a Business Day, the due
date of such payment shall be extended to the next succeeding Business Day and
interest thereon shall be payable at the applicable interest rate during such
extension.
4.3 Application and Reversal of Payments. The Lender shall determine
in its sole discretion the order and manner in which Proceeds of Collateral and
other payments that the Lender receives are applied to the Revolving Loans,
interest thereon, and the other Obligations, and the Borrower hereby irrevocably
waives the right to direct the application of any payment or Proceeds. The
Lender shall have the continuing and exclusive right to apply and reverse and
reapply any and all such Proceeds and payments to any portion of the
Obligations.
4.4 Indemnity for Returned Payments. IF AFTER RECEIPT OF ANY PAYMENT
WHICH IS APPLIED TO THE PAYMENT OF ALL OR ANY PART OF THE OBLIGATIONS, THE
LENDER IS FOR ANY REASON COMPELLED TO SURRENDER SUCH PAYMENT TO ANY PERSON
BECAUSE SUCH PAYMENT IS INVALIDATED, DECLARED FRAUDULENT, SET ASIDE, DETERMINED
TO BE VOID OR VOIDABLE AS A PREFERENCE, IMPERMISSIBLE SETOFF, OR A DIVERSION OF
TRUST FUNDS, OR FOR ANY OTHER REASON, THEN: THE
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OBLIGATIONS OR PART THEREOF INTENDED TO BE SATISFIED SHALL BE REVIVED AND
CONTINUE AND THIS AGREEMENT SHALL CONTINUE IN FULL FORCE AS IF SUCH PAYMENT HAD
NOT BEEN RECEIVED BY THE LENDER AND THE BORROWER SHALL BE LIABLE TO PAY TO THE
LENDER AND HEREBY DOES INDEMNIFY THE LENDER AND HOLD THE LENDER HARMLESS FOR THE
AMOUNT OF SUCH PAYMENT SURRENDERED. The provisions of this Section 4.4 shall be
and remain effective notwithstanding any contrary action which may have been
taken by the Lender in reliance upon such payment, and any such contrary action
so taken shall be without prejudice to the Lender's rights under this Agreement
and shall be deemed to have been conditioned upon such payment having become
final and irrevocable. The provisions of this Section 4.4 shall survive the
termination of this Agreement.
5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS. the Borrower agrees
that the Lender's books and records showing the Obligations and the transactions
pursuant to this Agreement and the other Loan Documents shall be admissible in
any action or proceeding arising therefrom, and shall constitute prima facie
proof thereof, irrespective of whether any Obligation is also evidenced by a
promissory note or other instrument. The Lender will provide to the Borrower a
monthly statement of Loans, payments, and other transactions pursuant to this
Agreement. Such statement shall be deemed correct, accurate, and binding on the
Borrower and as an account stated (except for reversals and reapplications of
payments made as provided in Section 4.3 and corrections of errors discovered by
the lender), unless the Borrower notifies the Lender in writing to the contrary
within thirty (30) days after such statement is rendered. In the event a timely
written notice of objections is given by the Borrower, only the items to which
exception is expressly made will be considered to be disputed by the Borrower.
6. COLLATERAL.
6.1 Grant of Security Interest.
(a) As security for the Obligations, the Borrower hereby grants
to the Lender a continuing security interest in, lien on, and assignment of: (i)
all Receivables, Inventory, Equipment, Assigned Contracts, Proprietary Rights
and Proceeds, wherever located and whether now existing or hereafter arising or
acquired; (ii) all moneys, securities and other property and the Proceeds
thereof, now or hereafter held or received by, or in transit to, the Lender from
or for the Borrower, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, including, without limitation, all of the Borrower's
deposit accounts, credits, and balances with the Lender and all claims of the
Borrower against the Lender at any time existing; (iii) all of Borrower's
deposit accounts with any financial institutions with which Borrower maintains
deposits; and (iv) all books, records and other Property relating to or
referring to any of the foregoing, including, without limitation, all books,
records, ledger cards, data processing records, computer software and other
property and general intangibles at any time evidencing or relating to the
Receivables, Inventory, Equipment, Assigned Contracts, Proprietary Rights,
Proceeds, and other property referred to above (all of the foregoing, and all
other property in which the Lender may at any time be granted a Lien, being
herein collectively referred to as the "Collateral"). The Lender shall have all
of the rights of a secured party with respect to the Collateral under the UCC
and other applicable laws.
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(b) All Obligations shall constitute a single loan secured by
the Collateral. The Lender may, in its sole discretion, subject to the Loan
Documents (i) exchange, waive, or release any of the Collateral, (ii) apply
Collateral and direct the order or manner of sale thereof as the Lender may
determine, and (iii) settle, compromise, collect, or otherwise liquidate any
Collateral in any manner, all without affecting the Obligations or the Lender's
right to take any other action with respect to any other Collateral.
6.2 Perfection and Protection of Security Interest. The Borrower
shall, at its expense, perform all steps requested by the Lender at any time to
perfect, maintain, protect, and enforce the Security Interest including, without
limitation: (a) executing and recording of the Copyright, Patent and Trademark
Assignments and executing and filing financing or continuation statements, and
amendments thereof, in form and substance satisfactory to the Lender; (b)
delivering to the Lender the originals of all instruments, documents, and
chattel paper, and all other Collateral of which the Lender determines it should
have physical possession in order to perfect and protect the Security Interest
therein, duly endorsed or assigned to the Lender without restriction; (c)
delivering to the Lender warehouse receipts covering any portion of the
Collateral located in warehouses and for which warehouse receipts are issued;
(d) following the occurrence of an Event of Default, transferring Inventory to
warehouses designated by the Lender; (e) placing notations on the Borrower's
books of account to disclose the Security Interest; (f) executing and delivering
to the Lender a security agreement relating to the Reversions in form and
substance satisfactory to the Lender; (g) delivering to the Lender all letters
of credit on which the Borrower is named beneficiary; and (h) taking such other
steps as are deemed necessary by the Lender to maintain the Security Interest.
To the extent permitted by applicable law, the Lender may file, without the
Borrower's signature, one or more financing statements disclosing the Security
Interest. The Borrower agrees that a carbon, photographic, photostatic, or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement. If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of the Borrower's agents or
processor, then the Borrower shall notify the Lender thereof and shall notify
such Person of the Security Interest in such Collateral and, upon the Lender's
request if an Event of Default has occurred and is continuing, instruct such
Person to hold all such Collateral for the Lender's account subject to the
Lender's instructions. If at any time any Collateral having a value in excess of
$100,000 in the aggregate is located on any Premises that are not owned by the
Borrower, then the Borrower shall obtain written waivers, in form and substance
satisfactory to the Lender, of all present and future Liens to which the owner
or lessor or any mortgagee of such Premises may be entitled to assert against
the Collateral. From time to time, the Borrower shall, upon Lender's request,
execute and deliver confirmatory written instruments pledging to the Lender the
Collateral, but the Borrower's failure to do so shall not affect or limit the
Security Interest or the Lender's other rights in and to the Collateral. So long
as this Agreement is in effect and until all Obligations have been fully
satisfied, the Security Interest shall continue in full force and effect in all
Collateral (whether or not deemed eligible for the purpose of calculating the
Availability or as the basis for any advance, loan, extension of credit, or
other financial accommodation).
6.3 Location of Collateral. The Borrower represents and warrants to
the Lender that as of the closing date: (a) Schedule 6.3 hereto is a correct and
complete list of the Borrower's chief executive office, the location of its
books and records, the locations of the Collateral, and the locations of all of
its other places of business and (b) Schedule 6.3 correctly
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identifies any of such facilities and locations that are not owned by the
Borrower and sets forth the names of the owners and lessors or sub-lessors of,
and, to the best of the Borrower's knowledge, the holders of any mortgages on,
such facilities and locations. The Borrower covenants and agrees that it will
not maintain any Collateral at any location other than those listed on Schedule
6.3, and it will not otherwise change or add to any of such locations, unless it
gives the Lender at least 30 days prior written notice thereof and executes any
and all financing statements and other documents that the Lender requests in
connection therewith.
6.4 Title to, Liens on, and Sale and Use of Collateral. The Borrower
represents and warrants to the Lender that: (a) all Collateral is and will
continue to be owned by the Borrower free and clear of all Liens whatsoever,
except for the Security Interest and other Permitted Liens; (b) the Security
Interest will not be subject to any prior Lien except for the Liens described in
(b), (c), (e), (h), (i) and (j) of the definition of Permitted Liens; (c) the
Borrower will use, store, and maintain the Collateral with all reasonable care
and will use the Collateral for lawful purposes only; and (d) the Borrower will
not, without the Lender's prior written approval, sell, lease, or dispose of or
permit the sale or disposition of the Collateral or any portion thereof, except
for sales of Inventory in the ordinary course of business and except for the
granting of licenses with respect to patents, trademarks and copyrights (or
amendments thereto) in the ordinary course of business on customary industry
terms. The inclusion of Proceeds in the Collateral shall not be deemed the
Lender's consent to any sale or other disposition of the Collateral except as
expressly permitted herein.
6.5 Appraisals. Whenever an Event or Event of Default exists, and at
such other times not more frequently than once a year as the Lender requests,
the Borrower shall, at its expense and upon the Lender's request, provide the
Lender with appraisals or updates thereof of any or all of the Collateral from
an appraiser.
6.6 Access and Examination. The Lender may at all reasonable times
and upon reasonable notice have access to, examine, audit, make extracts from
and inspect the Borrower's records, files, and books of account and the
Collateral and may discuss the Borrower's affairs with the Borrower's officers
and management. The Borrower will deliver to the Lender any instrument necessary
for the Lender to obtain records from any service bureau maintaining records for
the Borrower. The Lender may, at any time when an Event of Default exists and at
the Borrower's expense, make copies of all of the Borrower's books and records,
or require the Borrower to deliver such copies to the Lender. The Lender may,
without expense to the Lender, use such of the Borrower's personnel, supplies,
and Premises as may be reasonably necessary for maintaining or enforcing the
Security Interest. The Lender shall have the right, at any time, in Lender's
name or in the name of a nominee of the Lender, to verify the validity, amount
or any other matter relating to the Accounts, by mail, telephone, or otherwise.
6.7 Insurance. The Borrower shall insure the Collateral against loss
or damage by fire with extended coverage, theft, burglary, pilferage, loss in
transit, and such other hazards as the Lender shall specify, in amounts, under
policies and by insurers acceptable to the Lender. Borrower shall also maintain
flood insurance for real estate and for any Equipment and Inventory located on
such real estate, in the event of a designation of the area in which real estate
is located as a "flood prone" or a "flood risk area," (hereinafter "SFHA") as
defined by the Flood Disaster Protection Act of 1973, in an amount to be
reasonably determined by the Lender, and
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<PAGE> 29
shall comply with the additional requirements of the National Flood Insurance
Program as set forth therein. Upon the Lender's request, the Borrower shall also
maintain flood insurance for its Inventory and Equipment which is located at any
time in an SFHA. The Borrower shall cause the Lender to be named in each such
policy as secured party or mortgagee and loss payee or additional insured, in a
manner acceptable to the Lender. Each policy of insurance shall contain a clause
or endorsement requiring the insurer to give not less than thirty (30) days
prior written notice to the Lender in the event of cancellation of the policy
for any reason whatsoever and a clause or endorsement stating that the interest
of the Lender shall not be impaired or invalidated by any act or neglect of the
Borrower or the owner of any premises where Collateral is located nor by the
occupation of such premises for purposes more hazardous than are permitted by
such policy. The Borrower shall pay, upon Lender's request, all fees incurred by
the Lender to determine whether any of the real estate and other Collateral is
located in a SFHA. The Borrower shall also pay all premiums for such insurance
when due, and shall deliver to the Lender certificates of insurance and, if
requested, photocopies of the policies. If the Borrower fails to pay such fees
or to procure such insurance or the premiums therefor when due, the Lender may
(but shall not be required to) do so and charge the costs thereof to the
Borrower's loan account as a Revolving Loan. The Borrower shall promptly notify
the Lender of any loss, damage, or destruction to the Collateral or arising from
its use, whether or not covered by insurance. The Lender is hereby authorized to
collect all insurance proceeds directly. After deducting from such proceeds the
expenses, if any, incurred by Lender in the collection or handling thereof, the
Lender may apply such proceeds to the reduction of the Obligations in such order
as Lender determines, or at the Lender's option may permit or require the
Borrower to use such money, or any part thereof, to replace, repair, restore or
rebuild the Collateral in a diligent and expeditious manner with materials and
workmanship of substantially the same quality as existed before the loss, damage
or destruction.
6.8 Collateral Reporting. The Borrower will provide the Lender with
the following documents at the following times in form satisfactory to the
Lender: (a) at least three (3) times per week, a schedule of credit memos and
reports, a schedule of collections of accounts receivable, a schedule of
Accounts created since the last such schedule and a Borrowing Base Certificate;
(b) request, copies of invoices, credit memos, shipping and delivery documents;
(c) monthly agings of accounts receivable to be delivered no later than the l5th
day of each month respecting the immediately preceding month; (d) upon request,
monthly perpetual inventory reports; (e) upon request, copies of purchase
orders, invoices, and delivery documents for Inventory and Equipment acquired by
the Borrower, (f) such other reports as to the Collateral as the Lender shall
request from time to time; and (g) certificates of an officer of the Borrower
certifying as to the foregoing. If any of the Borrower's records or reports of
the Collateral are prepared by an accounting service or other agent, the
Borrower hereby authorizes such service or agent to deliver such records,
reports, and related documents to the Lender.
6.9 Accounts.
(a) The Borrower hereby represents and warrants to the Lender
and agrees with the Lender, with respect to the Borrower's Accounts reflected on
any Borrowing Base Certificate, that: (i) each existing Account represents, and
each future Account will represent, a bona fide sale or lease and delivery of
goods by the Borrower, or rendition of services by the Borrower, in the ordinary
course of the Borrower's business; (ii) each existing
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Account is, and each future Account will be, for a liquidated amount payable by
the Account Debtor thereon on the terms set forth in the invoice therefor or in
the schedule thereof delivered to the Lender, without offset, deduction,
defense, or counterclaim; (iii) no payment will be received with respect to any
Account, and no credit, discount, or extension, or agreement therefor will be
granted on any Account, except as reported to the Lender in accordance with this
Agreement; (iv) each copy of an invoice delivered to the Lender by the Borrower
will be a genuine copy of the original invoice sent to the Account Debtor named
therein; and (v) all goods described in any invoice representing a sale of goods
will have been delivered to the Account Debtor and all services of the Borrower
described in any invoice will have been performed.
(b) The Borrower shall not re-date any invoice or sale or make
sales on extended dating beyond that customary in the Borrower's business or
extend or modify any Account. If the Borrower becomes aware of any matter
materially adversely affecting any Account in excess of $100,000, including
information regarding the Account Debtor's creditworthiness, the Borrower will
promptly so advise the Lender.
(c) The Borrower shall not accept any note or other instrument
(except a check or other instrument for the immediate payment of money) with
respect to any Account without the Lender's written consent. If the Lender
consents to the acceptance of any such note or other instrument, it shall be
considered as evidence of the Account and not payment thereof, and the Borrower
will promptly deliver such note or instrument to the Lender appropriately
endorsed. Regardless of the form of presentment, demand, notice of dishonor,
protest, and notice of protest with respect thereto, the Borrower will remain
liable thereon until such note or instrument is paid in full.
(d) The Borrower shall notify the Lender promptly of all
disputes and claims in excess of $100,000 with Account Debtors and settle or
adjust them at no expense to the Lender, but no discount, credit or allowance
shall be granted to any Account Debtor without the Lender's consent, except for
discounts, credits and allowances made or given in the ordinary course of the
Borrower's business when no Event of Default exists hereunder. The Borrower
shall send the Lender a copy of each credit memorandum in excess of $100,000 as
soon as issued and copies of all credit memorandum on a weekly basis. The Lender
may at all times when an Event of Default exists hereunder settle or adjust
disputes and claims directly with customers or Account Debtors for amounts and
upon terms which the Lender considers advisable and, in all cases, the Lender
will credit the Borrower's loan account with only the net amounts received by
the Lender in payment of any Accounts.
(e) If an Account Debtor returns any Inventory to the Borrower
when no Event of Default exists, then the Borrower shall promptly determine the
reason for such return and shall issue a credit memorandum to the Account Debtor
in the appropriate amount. The Borrower shall immediately report to the Lender
any return involving an amount in excess of $100,000 and shall report all
returns to the Lender on a weekly basis. Each such report shall indicate the
reasons for the returns and the locations and condition of the returned
Inventory. In the event any Account Debtor returns Inventory to the Borrower
when an Event of Default exists, the Borrower shall: (i) hold the returned
Inventory in trust for the Lender; (ii) segregate all returned Inventory from
all of its other Property; (iii) dispose of the returned Inventory solely
according to the Lender's written instructions; and (iv) not issue any credits
or allowances with
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<PAGE> 31
respect thereto without the Lender's prior written consent. All returned
Inventory shall remain subject to the Security Interest. Whenever any Inventory
is returned, the related Account shall be deemed ineligible and will be so
reflected on subsequent Borrowing Base Certificates.
6.10 Collection of Accounts; Payments.
(a) Until the Lender notifies the Borrower to the contrary, the
Borrower shall make collection of all Accounts and other Collateral for the
Lender, shall receive all payments as the Lender's trustee, and shall
immediately deliver all payments to the Lender in their original form duly
endorsed in blank or deposit them into a Payment Account established at the
Lender's request, as the Lender may direct. If the Lender requests, the Borrower
shall establish a lock-box service for collections of Accounts at a bank
mutually acceptable to the Lender and the Borrower and pursuant to documentation
satisfactory to the Lender. If such lock-box service is established, the
Borrower shall instruct all Account Debtors to make all payments directly to the
address established for such service. If, notwithstanding such instructions, the
Borrower receives any Proceeds of Accounts, it shall receive such payments as
the Lender's trustee, and shall immediately deliver such payments to the Lender
in their original form duly endorsed in blank or deposit them into a Payment
Account, as the Lender may direct. All collections received in any such lock box
or Payment Account or directly by the Borrower or the Lender, and all funds in
any Payment Account or other account to which such collections are deposited,
shall be the sole property of the Lender and subject to the Lender's sole
control. The Lender or the Lender's designee may, at any time after the
occurrence of an Event of Default, notify obligers that the Accounts have been
assigned to the Lender and of the Security Interest therein, and may collect
them directly and charge the collection costs and expenses to the Borrower's
loan account as a Revolving Loan. At the Lender's request, the Borrower shall
execute and deliver to the Lender such documents as the Lender shall require to
grant the Lender access to any post office box in which collections of Accounts
are received.
(b) If sales of Inventory are made or services are rendered for
cash, the Borrower shall immediately deliver to the Lender the identical checks,
cash, or other forms of payment which the Borrower receives.
(c) All payments received by the Lender on account of Accounts
or as Proceeds of other Collateral will be the Lender's sole property and will
be credited to the Borrower's loan account (conditional upon final collection)
after allowing two (2) Business Days for collection.
(d) In the event the Borrower repays all of the Obligations upon
the termination of this Agreement, other than through the Lender's receipt of
payments on account of Accounts or Proceeds of other Collateral, such payment
will be credited (conditional upon final collection) to the Borrower's loan
account two (2) Business Days after the Lender's receipt thereof.
6.11 Inventory. The Borrower represents and warrants to the Lender
that all of the Inventory is and will be held for sale or lease, or to be
furnished in connection with the rendition of services in the ordinary course of
the Borrower's business and is and will be fit for such purposes. The Borrower
will keep the Inventory in good and marketable condition, at its
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<PAGE> 32
own expense. The Borrower will not, without prior written notice to the Lender,
acquire or accept any Inventory on consignment or approval. The Borrower agrees
that all Inventory will be produced in accordance with the Federal Fair Labor
Standards Act of 1938, as amended, and all rules, regulations, and orders
thereunder. The Borrower will conduct a physical count of the Inventory at least
once per Fiscal Year, and shall promptly, upon completion, supply the Lender
with a copy of such count accompanied by a report of the value of such Inventory
(valued at the lower of cost, on a first-in, first-out basis, or market value).
The Borrower will not without the Lender's prior written consent, sell any
Inventory on a bill-and-hold, guaranteed sale, sale and return, sale on
approval, consignment, or other repurchase or return basis.
6.12 Equipment. The Borrower represents and warrants to the Lender
that all of the Equipment is and will be used or held for use in the Borrower's
business and is and will be fit for such purposes. The Borrower shall keep and
maintain the Equipment in good operating condition and repair (ordinary wear and
tear excepted) and shall make all necessary replacements thereof. The Borrower
shall promptly inform the Lender of any material additions to or deletions from
the Equipment.
6.13 Assigned Contracts. The Borrower shall fully perform all of its
obligations under each of the Assigned Contracts, and shall enforce all of its
rights and remedies thereunder, in each case, as it deems appropriate in its
business judgment, provided, however, the Borrower shall not take any action or
fail to take any action with respect to the Assigned Contracts that would result
in a waiver or other loss of any material right or remedy of the Borrower
thereunder. Without limiting the generality of the foregoing, the Borrower shall
take all action necessary or appropriate to permit, and shall not take any
action which would have any adverse effect upon, the full enforcement of all
indemnification rights under the Assigned Contracts. The Borrower shall not,
without the Lender's prior written consent, modify, amend, supplement,
compromise, satisfy, release, or discharge any of the Assigned Contracts, any
collateral securing the same, any Person liable directly or indirectly with
respect thereto, or any agreement relating to any of the Assigned Contracts or
the collateral therefor if any such modification or other action would
materially adversely affect the business, operations or financial condition of
the Borrower. The Borrower shall notify the Lender in writing, promptly after it
becomes aware thereof, of any event or fact which could give rise to a claim by
it for indemnification under any of the Assigned Contracts and shall diligently
pursue such right and report to the Lender on all further developments with
respect thereto. The Borrower shall remit directly to the Lender, for
application to the Obligations in such order as the Lender determines, all
amounts received by the Borrower as indemnification or otherwise pursuant to the
Assigned Contracts. If the Borrower shall fail after the Lender's demand to
diligently pursue any right under the Assigned Contracts, or if an Event of
Default exists, then the Lender may directly enforce such right in its own or
the Borrower's name and may enter into such settlements or other agreements with
respect thereto as the Lender determines. All amounts thereby recovered by the
Lender, after deducting Lender's costs and expenses in connection therewith,
shall be applied to the Obligations in such order as the Lender determines. In
any suit, proceeding or action brought by the Lender under any Assigned Contract
for any sum owing thereunder or to enforce any provision thereof, the Borrower
shall indemnify and hold the Lender harmless from and against all expense, loss
or damage suffered by reason of any defense, setoff, counterclaim, recoupment,
or reduction of liability whatsoever of the obligor thereunder arising out of a
breach by the Borrower of any obligation thereunder or arising out of any other
agreement, indebtedness
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or liability at any time owing from the Borrower to or in favor of such obligor
or its successors: All such obligations of the Borrower shall be and remain
enforceable only against the Borrower and shall not be enforceable against the
Lender. Notwithstanding any provision hereof to the contrary, the Borrower shall
at all times remain liable to observe and perform all of its duties and
obligations under the Assigned Contracts and the Lender's exercise of any of its
rights with respect to the Collateral shall not release the Borrower from any of
such duties and obligations. The Lender shall not be obligated to perform or
fulfill any of the Borrower's duties or obligations under the Assigned Contracts
or to make any payment thereunder or to make any inquiry as to the nature or
sufficiency of any payment or Property received by it thereunder or the
sufficiency of performance by any party thereunder, or to present or file any
claim, or to take any action to collect or enforce any performance or payment of
any amounts due.
6.14 Documents, Instruments, and Chattel Paper. The Borrower
represents and warrants to the Lender that: (a) all documents, instruments, and
chattel paper describing, evidencing, or constituting Collateral, and all
signatures and endorsements thereon, are and will be complete, valid, and
genuine; and (b) all goods evidenced by such documents, instruments, and chattel
paper are and will be owned by the Borrower free and clear of all Liens other
than Permitted Liens.
6.15 Right to Cure. The Lender may, in its sole discretion and at
any time, pay any amount or do any act required of the Borrower hereunder to
preserve, protect, maintain or enforce the Obligations, the Collateral or the
Security Interest, which the Borrower fails to pay or do, including, without
limitation, payment of any judgment against the Borrower, any insurance premium,
any warehouse charge, any finishing or processing charge, any landlord's claim,
and any other Lien upon or with respect to the Collateral. All payments that the
Lender makes under this Section 6.15 and all out-of-pocket costs and expenses
that the Lender pays or incurs in connection with any action taken by it
hereunder shall be charged to the Borrower's loan account as a Revolving Loan.
Any payment made or other action taken by the Lender under this Section 6.15
shall be without prejudice to any right to assert an Event of Default hereunder.
6.16 Power of Attorney. The Borrower hereby appoints the Lender and
the Lender's designees as the Borrower's attorney, with power: (a) to endorse
the Borrower's name on any checks, notes, acceptances, money orders, or other
forms of payment or security that come into the Lender's possession; (b) to sign
the Borrower's name on any invoice, bill of lading, or other document of title
relating to any Collateral, on drafts against customers, on assignments of
Accounts, on notices of assignment, financing statements and other public
records, on verifications of Accounts and on notices to Account Debtors and to
file any such financing statements by electronic means with or without a
signature as authorized or required by applicable law or filing procedure; (c)
to notify the post office authorities, when an Event of Default exists, to
change the address for delivery of the Borrower's mail to an address designated
by the Lender and to receive, open and dispose of all mail addressed to the
Borrower; (d) to send requests for verification of Accounts to Account Debtors;
and (e) to do all things necessary to carry out this Agreement. The Borrower
ratifies and approves all acts of such attorney. Neither the Lender nor the
attorney will be liable for any acts or omissions or for any error of judgment
or mistake of fact or law. This power, being coupled with an interest, is
irrevocable until this Agreement has been terminated and the Obligations have
been fully satisfied.
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6.17 Lender's Rights, Duties, and Liabilities. The Borrower assumes
all responsibility and liability arising from or relating to the use, sale, or
other disposition of the Collateral. The Obligations shall not be affected by
any failure of the Lender to take any steps to perfect the Security Interest or
to collect or realize upon the Collateral, nor shall loss of or damage to the
Collateral release the Borrower from any of the Obligations. Following the
occurrence of and continuation of an Event of Default, the Lender may (but shall
not be required to), without notice to or consent from the Borrower, sue upon or
otherwise collect, extend the time for payment of, modify or amend the terms of,
compromise or settle for cash, credit, or otherwise upon any terms, grant other
indulgences, extensions, renewals, compositions, or releases, and take or omit
to take any other action with respect to the Collateral, any security therefor,
any agreement relating thereto, any insurance applicable thereto, or any Person
liable directly or indirectly in connection with any of the foregoing, without
discharging or otherwise affecting the liability of the Borrower for the
Obligations or under this Agreement or any other agreement now or hereafter
existing between the Lender and the Borrower.
6.18 Site Visits, Observations and Testing. The Lender and its
agents and representatives will have the right at any reasonable time and upon
reasonable notice to enter and visit the Premises and any other place where any
property of the Borrower is located for the purposes of observing the Premises,
taking and removing soil or groundwater samples, and conducting tests on any
part of the Premises. The Lender is under no duty, however, to visit or observe
the Premises or to conduct tests, and any such acts by the Lender will be solely
for the purposes of protecting the Lender's security and preserving the Lender's
rights under this Agreement. No site visit, observation or testing by the Lender
will result in a waiver of any default of the Borrower or impose any liability
on the Lender. In no event will any site visit, observation or testing by the
Lender be a representation that hazardous substances are or are not present in,
on or under the Premises, or that there has been or will be compliance with any
law, regulation or ordinance pertaining to hazardous substances or any other
applicable governmental law. Neither the Borrower nor any other party is
entitled to rely on any site visit, observation or testing by the Lender. The
Lender owes no duty of care to protect the Borrower or any other party against,
or to inform the Borrower or any other party of, any hazardous substances or any
other adverse condition affecting the Premises. The Lender may in its discretion
disclose to the Borrower or any other party any report or findings made as a
result of, or in connection with, any site visit, observation or testing by the
Lender. The Borrower understands and agrees that the Lender makes no warranty or
representation to the Borrower or any other party regarding the truth, accuracy
or completeness of any such report or findings that may be disclosed. The
Borrower also understands that depending on the results of any site visit,
observation or testing by the Lender and disclosed to the Borrower, the Borrower
may have a legal obligation to notify one or more environmental agencies of the
results, that such reporting requirements are site specific, and are to be
evaluated by the Borrower without advice or assistance from the Lender. In each
instance, the Lender will give the Borrower reasonable notice before entering
the Premises or any other place the Lender is permitted to enter under this
Section 6.18. The Lender will make reasonable efforts to avoid interfering with
the Borrower's use of the Premises or any other property in exercising any
rights provided hereunder.
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7. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.
7.1 Books and Records. The Borrower shall maintain, at all times,
correct and complete books, records and accounts in which complete, correct and
timely entries are made of its transactions in accordance with GAAP consistent
with those applied in the preparation of the Financial Statements. The Borrower
shall, by means of appropriate entries, reflect in such accounts and in all
Financial Statements proper liabilities and reserves for all taxes and proper
provision for depreciation and amortization of Property and bad debts, all in
accordance with GAAP. The Borrower shall maintain at all times books and records
pertaining to the Collateral in such detail, form, and scope as the Lender shall
reasonably require, including without limitation records of: (a) all payments
received and all credits and extensions granted with respect to the Accounts;
(b) the return, rejection repossession, stoppage in transit, loss, damage, or
destruction of any Inventory; and (c) all other dealings affecting the
Collateral.
7.2 Financial Information. The Borrower shall promptly furnish to
the Lender or its agents all such financial information as the Lender shall
reasonably request, and notify its auditors and accountants that the Lender is
authorized to obtain such information directly from them. Without limiting the
foregoing, the Borrower and its Subsidiaries will furnish to the Lender, in such
detail as the Lender shall request, the following:
(a) As soon as available, but in any event not later than 90
days after the close of each Fiscal Year, consolidated and consolidating audited
balance sheets, and statements of income and expense, retained earnings, cash
flow and stockholders equity for the Borrower and its consolidated Subsidiaries
for such Fiscal Year, and the accompanying notes thereto, setting forth in each
case in comparative form figures for the previous Fiscal Year, all in reasonable
detail, fairly presenting the financial position and the results of operations
of the Borrower and its consolidated Subsidiaries as at the date thereof and for
the Fiscal Year then ended, and prepared in accordance with GAAP. Such
statements shall be examined in accordance with generally accepted auditing
standards by and accompanied by a report thereon unqualified as to scope by
independent certified public accountants selected by the Borrower and reasonably
satisfactory to the Lender.
(b) As soon as available, but in any event not later than 30
days after the end of each month, consolidated and consolidating unaudited
balance sheets of the Borrower and its consolidated Subsidiaries as at the end
of such month, and consolidated and consolidating unaudited statements of income
and expenses and of cash flow for the Borrower and its consolidated Subsidiaries
for such month and for the period from the beginning of the Fiscal Year to the
end of such month, all in reasonable detail, fairly presenting the financial
position and results of operation of the Borrower and its consolidated
Subsidiaries as at the date thereof and for such periods, and prepared in
accordance with GAAP consistent with the audited Financial Statements required
pursuant to Section 7.2(a). Such statements shall be certified to be correct by
the chief financial or accounting officer of the Borrower, subject to normal
year-end adjustments.
(c) With each of the audited Financial Statements delivered
pursuant to Section 7.2(a), a certificate of the independent certified public
accountants that examined such statements to the effect that they have reviewed
and are familiar with the Loan Documents and
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that, in examining such Financial Statements, they did not become aware of any
fact or condition which then constituted an Event or Event of Default, except
for those, if any, described in reasonable detail in such certificate.
(d) With each of the annual audited Financial Statements
delivered pursuant to Section 7.2(a) and each of the unaudited Financial
Statements delivered pursuant to Section 7.2(b), at the end of the month
succeeding the close of each fiscal quarter, a certificate of a Responsible
Officer (i) stating that, except as explained in reasonable detail in such
certificate, (A) all of the representations and warranties of the Borrower
contained in this Agreement and the other Loan Documents are correct and
complete as at the date of such certificate as if made at such time, (B) no
Event or Event of Default then exists or existed during the period covered by
such Financial Statements and (ii) describing and analyzing in reasonable detail
all material trends, changes and developments in such Financial Statements. If
such certificate discloses that a representation or warranty is not correct or
complete, or that a covenant has not been complied with, or that an Event or
Event of Default existed or exists, such certificate shall set forth what action
the Borrower has taken or proposes to take with respect thereto.
(e) No sooner than 90 days and no later than 30 days prior to
the beginning of each Fiscal Year, consolidated and consolidating projected
balance sheets, statements of income and expense, statements of cash flow, and
projected Availability for the Borrower and its Subsidiaries as at the end of
and for each month of such Fiscal Year.
(f) Within 30 days after the end of each Fiscal Year, a report
of the Capital Expenditures of the Borrower and its Subsidiaries for such
quarter and a statement of cash flow for the Borrower and its Subsidiaries for
the period from the beginning of the then current Fiscal Year to the end of such
quarter, prepared in accordance with GAAP consistent with the audited Financial
Statements required pursuant to Section 7.2(a).
(g) Promptly after their preparation, copies of any and all
proxy statements, financial statements, and reports which the Borrower makes
available to its stockholders.
(h) Promptly after filing with the PBGC, DOL, or IRS, a copy of
each annual report or other filing or notice filed with respect to each Plan of
the Borrower or any ERISA Affiliate.
(i) Such additional information as the Lender may from time to
time reasonably request regarding the financial and business affairs of the
Borrower or any Subsidiary, including, without limitation, projections of future
operations on both a consolidated and consolidating basis.
7.3 Notices to Lender. The Borrower shall notify the Lender in
writing of the following matters at the following times:
(a) Immediately after becoming aware of the existence of any
Event or Event of Default.
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(b) Immediately after becoming aware that the holder of any
capital stock of the Borrower or of any Debt has given notice or taken any
action with respect to a claimed default.
(c) Immediately after becoming aware of any material adverse
change in the Borrower's Property, business, operations, or condition (financial
or otherwise).
(d) Immediately after becoming aware of any pending or
threatened action, suit, proceeding, or counterclaim by any Person, or any
pending or threatened investigation by a Public Authority, which may materially
and adversely affect the Collateral, the repayment of the Obligations, the
Lender's rights under the Loan Documents, or the Borrower's Property, business,
operations, or condition (financial or otherwise).
(e) Immediately after becoming aware of any pending or
threatened strike, work stoppage, material unfair labor practice claim, or other
material labor dispute affecting the Borrower or any of its Subsidiaries.
(f) Immediately after becoming aware of any violation of any law
statute, regulation, or ordinance of a Public Authority applicable to Borrower,
any Subsidiary, or their respective Properties which may materially and
adversely affect the Collateral, the repayment of the Obligations, the Lender's
rights under the Loan Documents, or the Borrower's Property, business,
operations, or condition (financial or otherwise).
(g) Immediately after becoming aware of any violation by the
Borrower of Environmental Laws or immediately upon receipt of any notice that a
Public Authority has asserted that the Borrower is not in compliance with
Environmental Laws or that its compliance is being investigated.
(h) Thirty (30) days prior to the Borrower changing its name or
the address of its chief executive office.
(i) Immediately after becoming aware of any ERISA Event,
accompanied by any materials required to be filed with the PBGC with respect
thereto; immediately after the Borrower's receipt of any notice concerning the
imposition of any withdrawal liability under Section 4042 of ERISA with respect
to a Plan; immediately upon the establishment of any Pension Plan not existing
at the Closing Date or the commencement of contributions by the Borrower to any
Pension Plan to which the Borrower was not contributing at the Closing Date; and
immediately upon becoming aware of any other event or condition regarding a Plan
or the Borrower's or an ERISA Affiliate's compliance with ERISA, which may
materially and adversely affect the Borrower's business, operation, or condition
(financial or otherwise).
Each notice given under this Section 7.3 shall describe the subject matter
thereof in reasonable detail and shall set forth the action that the Borrower
has taken or proposes to take with respect thereto.
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8. GENERAL WARRANTIES AND REPRESENTATIONS.
The Borrower continuously warrants and represents to the Lender,
at all times during the term of this Agreement and until all Obligations have
been satisfied, that, except as hereafter disclosed to and accepted by the
Lender in writing:
8.1 Authorization, Validity, and Enforceability of this Agreement
and the Loan Documents. The Borrower has the corporate power and authority to
execute, deliver and perform this Agreement and the other Loan Documents, to
incur the Obligations, and to grant the Security Interest. The Borrower has
taken all necessary corporate action (including, without limitation, obtaining
approval of its stockholders) to authorize its execution, delivery, and
performance of this Agreement and the other Loan Documents. No consent,
approval, or authorization of, or declaration or filing with, any Public
Authority, and no consent of any other Person, is required in connection with
the Borrower's execution, delivery, and performance of this Agreement and the
other Loan Documents, except for those already duly obtained. This Agreement and
the other Loan Documents have been duly executed and delivered by the Borrower
and constitute the legal, valid and binding obligations of the Borrower,
enforceable against it in accordance with their respective terms without
defense, setoff, or counterclaim. The Borrower's execution, delivery, and
performance of this Agreement and the other Loan Documents do not and will not
conflict with, or constitute a violation or breach of, or constitute a default
under, or result in the creation or imposition of any Lien upon the Property of
the Borrower or any of its Subsidiaries (except as contemplated by this
Agreement and the other Loan Documents) by reason of the terms of (a) any
mortgage, lease, agreement, or instrument to which the Borrower or any of its
Subsidiaries is a party or which is binding upon it, (b) any judgment, law,
statute, rule or governmental regulation applicable to the Borrower or any of
its Subsidiaries, or (c) the certificate or articles of incorporation or bylaws
of the Borrower or any of its Subsidiaries.
8.2 Validity and Priority of Security Interest. The provisions of
this Agreement and the other Loan Documents create legal and valid Liens on all
the Collateral in the Lender's favor, and when all proper filings, recordings,
and other actions necessary to perfect such Liens have been made or taken, such
Liens will constitute perfected and continuing Liens on all the Collateral,
having priority over all other Liens on the Collateral except for the Permitted
Liens identified in Section 6.4 and enforceable against the Borrower and all
third parties.
8.3 Organization and Qualification. The Borrower: (a) is duly
incorporated and organized and validly existing in good standing under the laws
of the State of Delaware; (b) is qualified to do business as a foreign
corporation and is in good standing in the States of Florida and New Jersey,
which are the only states in which qualification is necessary in order for it to
own or lease its Property and conduct its business; and (c) has all requisite
power and authority to conduct its business and to own its Property.
8.4 Corporate Name; Prior Transactions. The Borrower has not, during
the past five years, been known by or used any other corporate or fictitious
name, or been a party to any merger or consolidation, or acquired all or
substantially all of the assets of any Person, or
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acquired any of its Property out of the ordinary course of business, except as
set forth on Schedule 8.4.
8.5 Subsidiaries and Affiliates. Schedule 8.5 is a correct and
complete list of the name and relationship to the Borrower of each and all of
the Borrower's Subsidiaries and other Affiliates (other than Affiliates under
common control with the Borrower). Each Subsidiary is (a) duly incorporated and
organized and validly existing in good standing under the laws of its state of
incorporation set forth on Schedule 8.5, and (b) qualified to do business as a
foreign corporation and in good standing in the states set forth opposite its
name on Schedule 8.5, which are the only states in which such qualification is
necessary in order for it to own or lease its Property and conduct its business.
8.6 Financial Statements and Projections.
(a) The Borrower has delivered to the Lender the audited balance
sheet and related statements of income, retained earnings, cash flows, and
changes in stockholders equity for the Borrower as of December 31, 1996 and for
the five months then ended, accompanied by the report thereon of the Borrower's
independent certified public accountants, Price Waterhouse LLP. The Borrower has
also delivered to the Lender the unaudited balance sheet and related statements
of income and cash flows for the Borrower, as of March 31, 1998 and for the
three months then ended. Such financial statements are attached hereto as
Exhibit B-1. All such financial statements have been prepared in accordance with
GAAP and present accurately and fairly the Borrower's financial position as at
the dates thereof and its results of operations for the periods then ended.
(b) The Latest Projections represent the Borrower's best
estimate of the Borrower's future financial performance for the periods set
forth therein. The Latest Projections have been prepared on the basis of the
assumptions set forth therein, which the Borrower believes are fair and
reasonable in light of current and reasonably foreseeable business conditions.
8.7 Capitalization. The Borrower's authorized capital stock consists
of 46,665,900 shares of common stock, par value $.001 per share, of which
36,860,022 shares are validly issued and outstanding, fully paid and
non-assessable.
8.8 Solvency. The Borrower is Solvent prior to and after giving
effect to each Revolving Loan.
8.9 Debt. The Borrower has no Debt, except (a) the Obligations, (b)
the obligations under the Parent Loan, (c) Debt set forth in the most recent
Financial Statements delivered to the Lender, or the notes thereto, (d) trade
payables and other contractual obligations arising in the ordinary course of
business since the date of such Financial Statements, and (e) Debt incurred
since the date of such Financial Statements to finance Capital Expenditures
permitted hereby.
8.10 Distributions. Since inception, no Distribution has been
declared, paid, or made upon or in respect of any capital stock or other
securities of the Borrower.
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8.11 Title to Property. Except for Property which the Borrower
leases, the Borrower has good and marketable title in fee simple to the Premises
and good, indefeasible, and merchantable title to all of its other Property
including, without limitation, the assets reflected on the most recent Financial
Statements delivered to the Lender, except as disposed of since the date thereof
in the ordinary course of business.
8.12 Adequate Assets. The Borrower possesses adequate assets for the
conduct of its business.
8.13 Real Property; Leases. Schedule 8.13 contains a correct and
complete list of all real property owned by the Borrower, all leases and
subleases of real or personal property by the Borrower as lessee or sublessee,
and all leases and subleases of real or personal property by the Borrower as
lessor or sublessor. Each of such leases and subleases is valid and enforceable
in accordance with its tempos and is in full force and effect and no default by
any party to any such lease or sublease exists.
8.14 Proprietary Rights. Schedule 8.14 contains a correct and
complete list of all the Proprietary Rights. None of the Proprietary Rights are
subject to any licensing agreement or similar arrangement except as set forth on
Schedule 8.14. None of the Proprietary Rights infringe on or conflict with any
other Person's Property and no other Person's Property infringes on or conflicts
with, in any material respects, the Proprietary Rights. The Proprietary Rights
described on Schedule 8.14 constitute all of the Property of such type necessary
to the current and anticipated future conduct of the Borrower's business.
8.15 Trade Names and Terms of Sale. All trade names or styles under
which the Borrower will sell Inventory or create Accounts, or to which
instruments in payment of Accounts may be made payable, are listed on Schedule
8.15.
8.16 Litigation. There is no pending or, to the best of the
Borrower's knowledge, threatened action, suit, proceeding, or counterclaim by
any Person, or investigation by any Public Authority, or any basis for any of
the foregoing, which may materially and adversely affect the Collateral, the
repayment of the Obligations, the Lender's rights under the Loan Documents, or
the Borrower's Property, business, operations, or condition (financial or
otherwise).
8.17 Restrictive Agreements. The Borrower is not a party to any
contract or agreement, and is not subject to any charter or other corporate
restriction, which affects its ability to execute, deliver, and perform the Loan
Documents and repay the Obligations or which materially and adversely affects
the Borrower's Property, business, operations, or condition (financial or
otherwise).
8.18 Labor Disputes. (a) There is no collective bargaining agreement
or other labor contract covering employees of the Borrower or any of its
Subsidiaries; (b) such collective bargaining agreement or other labor contract
is scheduled to expire during the term of this Agreement; (c) no union of other
labor organization is seeking to organize, or to be recognized as, a collective
bargaining unit of employees of the Borrower or any of its Subsidiaries or for
any similar purpose; and (d) there is no pending or, to the best of the
Borrower's knowledge,
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threatened strike, work stoppage, material unfair labor practice claim, or other
material labor dispute against or affecting the Borrower, or any of its
Subsidiaries or their respective employees.
8.19 Environmental Laws.
(a) The Borrower and its Subsidiaries have complied in all
material respects with all Environmental Laws applicable to its Premises and
business, and neither the Borrower nor any Subsidiary nor any of its present
Premises or operations, nor its past property or operations, is subject to any
enforcement order from or liability agreement with any Public Authority or
private Person respecting (i) compliance with any Environmental Law or (ii) any
potential liabilities and costs or remedial action arising from the Release or
threatened Release of a Contaminant.
(b) The Borrower and its Subsidiaries have obtained all permits
necessary for their current operations under Environmental Laws, and all such
permits are in good standing and the Borrower and its Subsidiaries are in
compliance with all terms and conditions of such permits.
(c) Neither the Borrower nor any of its Subsidiaries, nor, to
the best of the Borrower's knowledge, any of its predecessors in interest, has,
in violation of applicable law, stored, treated or disposed of any Contaminant
on any Premises, as defined pursuant to 40 CFR Part 261 or any equivalent
Environmental Law.
(d) Neither the Borrower nor any of its Subsidiaries has
received any summons, complaint, order or similar written notice that it is not
currently in compliance with or that any Public Authority is investigating its
compliance with, any Environmental Laws or that it is or may be liable to any
other Person as a result of a Release or threatened Release of a Contaminant.
(e) None of the present or past operations of the Borrower and
its Subsidiaries is the subject of any investigation by any Public Authority
evaluating whether any remedial action is needed to respond to a Release or
threatened Release of a Contaminant.
(f) To the best of the Borrower's knowledge there is not now,
nor has there ever been on or in the Premises:
(i) any underground storage tanks or surface impoundments,
(ii) any asbestos-containing material, or
(iii) any polychlorinated biphenyls (PCB's) used in
hydraulic oils, electrical transformers or other equipment.
(g) Neither the Borrower nor any of its Subsidiaries has filed
any notice under any requirement of Environmental Law reporting a spill or
accidental and unpermitted release or discharge of a Contaminant into the
environment.
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(h) Neither the Borrower nor any of its Subsidiaries has entered
into any negotiations or settlement agreements with any Person (including,
without limitation, the prior owner of its property) imposing material
obligations or liabilities on the Borrower or any of its Subsidiaries with
respect to any remedial action in response to the Release of a Contaminant or
environmentally related claim.
(i) None of the products manufactured, distributed or sold by
the Borrower or any of its Subsidiaries contains asbestos material.
(j) No Environmental Lien has attached to any Premises of the
Borrower or any of its Subsidiaries.
8.20 No Violation of Law. The Borrower is not in violation of any
law, statute, regulation, ordinance, judgment, order, or decree applicable to it
which violation would in any respect materially and adversely affect the
Collateral, the repayment of the Obligations, the Lender's rights under the Loan
Documents, or the Borrower's Property, business, operations, or condition
(financial or otherwise).
8.21 No Default. The Borrower is not in default with respect to any
note, indenture, loan agreement, mortgage, lease, deed, or other agreement to
which the Borrower is a party or bound, which default could reasonably be
expected to materially and adversely affect the Collateral, the repayment of the
Obligations, the Lender's rights under the Loan Documents, or the Borrower's
Property, business, operations, or condition (financial or otherwise).
8.22 ERISA Compliance.
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law. Each
Plan which is intended to qualify under Section 401(a) of the Code has received
a favorable determination letter from the IRS and to the best knowledge of the
Borrower, nothing has occurred which would cause the loss of such qualification.
The Borrower and each ERISA Affiliate has made all required contributions to any
Plan subject to Section 412 of the Code, and no application for a funding waiver
or an extension of any amortization period pursuant to Section 412 of the Code
has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Borrower,
threatened claims, actions or lawsuits, or action by any Public Authority, with
respect to any Plan which has resulted or could reasonably be expected to result
in a material adverse effect on the Borrower's business or operations. There has
been no prohibited transaction or violation of the fiduciary responsibility
rules with respect to any Plan which has resulted or could reasonably be
expected to result in a material adverse effect on the Borrower's business or
operations.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any unfunded liability; (iii) neither the
Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability under Title IV of ERISA with respect to any Pension Plan (other
than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither
the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability (and no event has occurred which, with the giving of notice
under
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Section 4219 of ERISA, would result in such liability) under Section 4201
or 4243 of ERISA with respect to a Multi-employer Plan; and (v) neither the
Borrower nor any ERISA Affiliate has engaged in a transaction that could subject
any person to Section 4069 or 4212(c) of ERISA.
8.23 Taxes. The Borrower and its Subsidiaries have filed all tax
returns and other reports required to be filed and have paid all taxes,
assessments, fees and other governmental charges levied or imposed upon them or
their properties, income or assets that are otherwise due and payable, except to
the extent that any failure to file or pay such taxes, assessments, fees and
charges does not result in any liens attaching to Property of the Borrower or
does not have a material adverse effect on the business, operations or financial
condition of the Borrower.
8.24 Use of Proceeds. None of the transactions contemplated in this
Agreement (including, without limitation, the use of proceeds from the Loans)
will violate or result in the violation of Section 7 of the Securities Exchange
Act of 1934, as amended, or any regulations issued pursuant thereto, including
without limitation, Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System ("Federal Reserve Board"), 12 CFR, Chapter II. Borrower
does not own or intend to carry or purchase any "margin stock" within the
meaning of said Regulation U or G. None of the proceed of the loans will be
used, directly or indirectly, to purchase or carry (or refinance any borrowing,
the proceeds of which were used to purchase or carry) any "security" within the
meaning of the Securities Exchange Act of 1934, as amended.
8.25 Private Offerings. Borrower has not, directly or indirectly,
offered the Loans for sale to, or solicited offers to buy part thereof from, or
otherwise approached or negotiated with respect thereto with any prospective
purchaser other than Lender. Borrower hereby agrees that neither it nor anyone
acting on its behalf has offered or will offer the Loans or any part thereof or
any similar securities for issue or sale to or solicit any offer to acquire any
of the same from anyone so as to bring the issuance thereof within the
provisions of Section 5 of the Securities Act of 1933, as amended.
8.26 Broker's Fees. No Person is entitled to any brokerage or
finder's fee with respect to the transactions described in this Agreement.
8.27 No Material Adverse Change. No material adverse change has
occurred in the Borrower's Property, business, operations, or conditions
(financial or otherwise) since the date of the Financial Statements delivered to
the Lender. On the basis of a comprehensive review and assessment undertaken by
Borrower of Borrower's computer applications Borrower reasonably believes that
the Year 2000 Problem will not result in a material adverse change in the
operations, business, properties, or condition (financial or otherwise) of the
Borrower.
8.28 Disclosure. Neither this Agreement nor any document or
statement furnished to the Lender by or on behalf of the Borrower hereunder
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements contained herein or therein not
misleading.
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9. AFFIRMATIVE AND NEGATIVE COVENANTS. The Borrower covenants that, so
long as any of the Obligations remain outstanding or this Agreement is in
effect:
9.1 Taxes and Other Obligations. The Borrower and each of its
Subsidiaries shall: (a) file when due all tax returns and other reports which it
is required to file, pay, or provide for the payment, when due, of all taxes,
fees, assessments and other governmental charges against it or upon its
Property, income, and franchises, make all required withholding and other tax
deposits, and establish adequate reserves for the payment of all such items, and
shall provide to the Lender, upon request, satisfactory evidence of its timely
compliance with the foregoing; and (b) pay when due all material Debt owed by it
and perform and discharge in a timely manner all other material obligations
undertaken by it; provided, however that the Borrower and its Subsidiaries need
not pay any tax, fee, assessment, governmental charge, or Debt, or perform or
discharge any other obligation, that it is contesting in good faith by
appropriate proceedings diligently pursued. For purposes of this Section 9.1(b),
"material Debt" shall mean Debt in an aggregate amount in excess of $500,000 and
"material obligations" shall mean obligations the breach of which could
reasonably be expected to result in damages in an aggregate amount in excess of
$500,000.
9.2 Corporate Existence and Good Standing. The Borrower and each of
its Subsidiaries shall maintain its corporate existence and its qualification
and good standing in all states necessary to conduct its business and own its
Property, and shall obtain and maintain all licenses, permits, franchises and
governmental authorizations necessary to conduct its business and own its
Property.
9.3 Compliance with Law and Agreements. The Borrower and each of its
Subsidiaries shall comply with the terms and provisions of each judgment, law,
statute, rule, and governmental regulation applicable to it and each contract,
mortgage, lien, lease, indenture, order, instrument, agreement, or document to
which it is a party or by which it is bound.
9.4 Maintenance of Property and Insurance. The Borrower and each of
its Subsidiaries shall: (a) maintain all of its Property necessary and useful in
its business in good operating condition and repair, ordinary wear and tear
excepted; and (b) in addition to the insurance required by Section 6.7, maintain
with financially sound and reputable insurers such other insurance with respect
to its Property and business against casualties and contingencies of such types
(including, without limitation, business interruption, environmental liability,
public liability, product liability, and larceny, embezzlement or other criminal
misappropriation) and in such amounts as is customary for Persons of established
reputation engaged in the same or a similar business and similarly situated,
naming the Lender, at its request, as additional insured under each such policy.
9.5 Environmental Laws. The Borrower shall conduct its business in
full compliance with all Environmental Laws applicable to it, including, without
limitation, those relating to the Borrower's generation, handling, use, storage,
and disposal of Contaminants. The Borrower shall take prompt and appropriate
action to respond and remediate to any noncompliance with Environmental Laws and
shall regularly report to the Lender on such response and remediation. Without
limiting the generality of the foregoing, whenever the Borrower gives notice to
the Lender pursuant to Section 7.3(g) the Borrower shall, at the
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Lender's request and the Borrower's expense: (a) cause an independent
environmental engineer acceptable to the Lender to conduct such tests of the
site where the Borrower's noncompliance or alleged noncompliance with
Environmental Laws has occurred and prepare and deliver to the Lender a report
setting forth the results of such tests, a proposed plan for responding to any
environmental problems described therein, and an estimate of the costs thereof;
and (b) provide to the Lender a supplemental report of such engineer whenever
the scope of the environmental problems, or the Borrower's response thereto or
the estimated costs thereof, shall change.
9.6 ERISA. The Borrower shall cause each Plan, which has been
designated to be so, to be qualified within the meaning of Section 401(a) of the
Code and to be administered in all respects in compliance with Section 401(a) of
the Code. The Borrower shall cause each Plan to be administrated in compliance
with ERISA.
9.7 Mergers, Consolidations, Acquisitions, or Sales. Neither the
Borrower nor any of its Subsidiaries shall enter into any transaction of merger,
reorganization, or consolidation, or transfer, sell, assign, lease, or otherwise
dispose of all or any part of its Property, or wind up, liquidate or dissolve,
or agree to do any of the foregoing, except dispositions of Property permitted
under Section 6.4.
9.8 Distributions; Capital Changes. Neither the Borrower nor any of
its Subsidiaries shall: (a) directly or indirectly declare or make, or incur any
liability to make, any Distribution, except Distributions to the Borrower by a
Subsidiary wholly owned by the Borrower; or (b) make any change in its capital
structure which could adversely affect the repayment of the Obligations.
9.9 Transactions Affecting Collateral or Obligations. Neither the
Borrower nor any of its Subsidiaries shall enter into any transaction which
materially and adversely affects the Collateral or the Borrower's ability to
repay the Obligations.
9.10 Guaranties. Neither the Borrower nor any of its Subsidiaries
shall make, issue, or become liable on any Guaranty, except Guaranties in favor
of the Lender and endorsements of instruments for deposit.
9.11 Debt. Neither the Borrower nor any of its Subsidiaries shall
incur or maintain any Debt, other than: (a) the Obligations; (b) the obligations
under the Parent Loan; (c) trade payables and contractual obligations to
suppliers and customers incurred in the ordinary course of business; (d) Capital
Leases or other purchase money Debt incurred in connection with Capital
Expenditures; (e) other Debt existing on the Closing Date and reflected in the
Financial Statements attached as Exhibit B-1; and (f) other Debt not exceeding
in the aggregate $500,000 at any one time outstanding.
9.12 Prepayment. Neither the Borrower nor any of its Subsidiaries
shall voluntarily prepay any Debt, except the Obligations and the Parent Loan in
accordance with their terms, provided that no payment of principal or interest
may be made on the Parent Loan if an Event of Default has occurred and is
continuing.
9.13 Transactions with Affiliates. Except as set forth below,
neither the Borrower nor any of its Subsidiaries shall: (a) sell, transfer,
distribute, or pay any money or
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Property to any Affiliate, (b) lend or advance money or Property to any
Affiliate, (c) invest in (by capital contribution or otherwise) or purchase or
repurchase any stock or indebtedness or any Property of any Affiliate, or (d)
become liable on any Guaranty of the indebtedness, dividends, or other
obligations of any Affiliate. Notwithstanding the foregoing, if no Event of
Default has occurred and is continuing, the Borrower and its Subsidiaries may
engage in transactions with Affiliates in the ordinary course of business in
amounts and upon terms fully disclosed to the Lender or upon terms no less
favorable to the Borrower and its Subsidiaries than would obtain in a comparable
arm's length transaction with a third party who is not an Affiliate.
9.14 Business Conducted. The Borrower and its Subsidiaries shall not
engage, directly or indirectly, in any line of business other than the
businesses in which the Borrower and its Subsidiaries are engaged on the Closing
Date.
9.15 Liens. Neither the Borrower nor any of its Subsidiaries shall
create, incur, assume, or permit to exist any Lien on any Property now owned or
hereafter acquired by any of them, except Permitted Liens.
9.16 Sale and Leaseback Transactions. Neither the Borrower nor any
of its Subsidiaries shall, directly or indirectly, enter into any arrangement
with any Person providing for the Borrower or a Subsidiary to lease or rent
Property that the Borrower or a Subsidiary has or will sell or otherwise
transfer to such Person.
9.17 New Subsidiaries. The Borrower shall not, directly or
indirectly, organize or acquire any Subsidiary other than those listed on
Schedule 8.5 and a Subsidiary to engage in the XDSL modem and associated product
business (the "Broadband Subsidiary"); provided, however, that upon the
formation of the Broadband Subsidiary this Agreement may be amended at the sole
discretion of the Lender to include the Broadband Subsidiary either as a
co-borrower hereunder or as a guarantor of the Obligations as the Lender may
elect, all on terms and conditions (including, without limitation, Liens on its
assets in favor of the Lender) and pursuant documentation in form and substance
satisfactory to the Lender.
9.18 Restricted Investments. Neither the Borrower nor any of its
Subsidiaries shall make any Restricted Investment.
9.19 Further Assurances. The Borrower shall execute and deliver, or
cause to be executed and delivered, to the Lender such documents and agreements,
and shall take or cause to be taken such actions, as the Lender may, from time
to time, request to carry out the terms and conditions of this Agreement and the
other Loan Documents.
10. CONDITIONS TO CLOSING. The Lender will not be obligated to make the
initial Loans or to issue or obtain any Letters of Credit on the Closing Date,
unless the following conditions precedent have been satisfied in a manner
satisfactory to Lender:
10.1 Conditions Precedent to Making of Loans and Issuance of Letters
of Credit on the Closing Date.
(a) Representations and Warranties; Covenants; Events. The
Borrower's representations and warranties contained in this Agreement and the
other Loan
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Documents shall be correct and complete; the Borrower shall have performed and
complied with all covenants, agreements, and conditions contained herein and in
the other Loan Documents which are required to have been performed or complied
with.
(b) Delivery of Documents. The Borrower shall have delivered, or
caused to be delivered, to the Lender such documents, instruments and agreements
as the Lender shall request in connection herewith, duly executed by all parties
thereto other than the Lender, and in form and substance satisfactory to the
Lender and its counsel, including, without limitation the following:
(i) This Agreement;
(ii) The Copyright, Patent and Trademark Assignments;
(iii) The Commitment Agreement;
(iv) The Subordination Agreement;
(v) The Payment Account agreements required to be delivered
by the Lender pursuant to Section 6.10.
(vi) Duly executed copies of all financing statements and
other documents, instruments and agreements, properly executed, deemed necessary
or appropriate by the Lender to create in favor of the Lender a first priority
perfected security interest in and lien upon the Collateral;
(vii) Certified copies of resolutions of the Board of
Directors of the Borrower approving the execution and delivery of the Loan
Documents, the performance of the Obligations and the consummation of the
transactions contemplated thereby;
(viii) A certificate of the Secretary or an Assistant
Secretary of the Borrower certifying the names and true signatures of the
officers of the Borrower, as applicable, authorized to sign the Loan Documents;
(ix) An opinion of counsel for the Borrower, which counsel
shall be satisfactory to the Lender and its counsel, in form and substance
acceptable to the Lender and its counsel;
(x) A copy of the Certificate of Incorporation of the
Borrower certified by the Secretary of State of the State of Delaware as of a
recent date;
(xi) A copy of the Bylaws of the Borrower, certified by the
Secretary or an Assistant Secretary of the Borrower, as applicable, as of the
date of this Agreement as being accurate and complete; and
(xii) A Certificate of the Secretary of State of the States
of Delaware, Florida and New Jersey certifying that the Borrower is in good
standing as of a recent date.
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(c) Termination of Liens. The Lender shall have received duly
executed UCC-3 Termination Statements and other instruments, in form and
substance satisfactory to the Lender, as shall be necessary to terminate and
satisfy all Liens on the Property of the Borrower and its Subsidiaries except
Permitted Liens.
(d) Environmental Compliance. The Lender shall have received
evidence satisfactory to it that there does not exist on the Premises or in
connection with the operation thereof or of the Borrower's business, any
violation of any Environmental Laws.
(e) Payment of Fees and Expenses. The Borrower shall have paid
all fees and expenses of the Lender's outside counsel, Morrison & Foerster LLP
and all other fees and expenses of the Lender incurred in connection with any of
the Loan Documents and the transactions contemplated thereby.
(f) Required Approvals. The Lender shall have received certified
copies of all consents or approvals of any Public Authority or other Person
which the Lender determines is required in connection with the transactions
contemplated by this Agreement.
(g) No Material Adverse Change. There shall have occurred no
material adverse change in the Borrower's business or financial condition or in
the Collateral since February 28, 1998, and the Lender shall have received a
certificate of the Borrower's chief executive officer to such effect.
(h) Proceedings. All proceedings to be taken in connection with
the transactions contemplated by this Agreement, and all documents, contemplated
in connection herewith, shall be satisfactory in form and substance to the
Lender and its counsel.
10.2 Conditions Precedent to Each Loan. The obligation of the Lender
to make each Loan or to provide for the issuance of any Letter of Credit, shall
be subject to the conditions precedent that on the date of any such extension of
credit the following statements shall be true, and the acceptance by the
Borrower of any extension of credit shall be deemed to be a statement to the
effect set forth in clauses (a) and (b), the same effect as the delivery to the
Lender of a certificate signed by the chief executive officer and chief
financial officer of the Borrower, dated the date of such extension of credit,
stating that:
(a) The representations and warranties contained in this
Agreement and the other Loan Documents are correct in all material respects on
and as of the date of such extension of credit as though made on and as of such
date, except to the extent the Lender has been notified by the Borrower that any
representation or warranty is not correct and the Lender has explicitly waived
in writing compliance with such representation or warranty; and
(b) No Event or Event of Default has occurred and is continuing,
or would result from such extension of credit.
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11. DEFAULT.
11.1 Events of Default. It shall constitute an event of default
("Event of Default") if any one or more of the following shall occur for any
reason:
(a) failure to make payment of principal, interest, fees or
premium on any of the Obligations when due;
(b) any representation or warranty made or deemed made by the
Borrower in this Agreement, any of the other Loan Documents, any Financial
Statement, or any certificate furnished by the Borrower or any Subsidiary at any
time to the Lender shall prove to be untrue in any material respect as of the
date when made, deemed made, or furnished;
(c) default shall occur in the observance or performance by the
Borrower of any of the covenants and agreements contained in this Agreement (or
in the case of any default under Sections 9.1(a) and 9.4, such default shall
continue for a period of 30 days; or in the case of a default under Section 6.8,
such default shall continue for a period of 10 days; or in the case of any
default under Section 7.2, such default shall continue for a period of 15 days;
provided, however, that with respect to defaults under Section 7.2 there shall
be no more than (i) three cure periods exercised in any twelve-month period and
(ii) two cure periods exercised in any ninety-day period; and, provided,
further, that with respect to defaults under Section 6.8 and without limiting
the other provisions of this Agreement that may become applicable on account of
any of such defaults, the Lender has the right not to make advances during any
such 10-day cure period and until such default is cured, but all Account and
Collateral collections shall at all times continue to be made on a daily basis
as required by Section 6.10), other Loan Documents, or any other agreement
entered into at any time to which the Borrower and the Lender are party, or if
any Loan Document or any such other agreement shall terminate (other than in
accordance with its terms or with the written consent of the Lender) or become
void or unenforceable without the written consent of the Lender;
(d) default shall occur by the Borrower in the payment of any
principal interest on any indebtedness for borrowed money (other than the
Obligations) beyond any period of grace provided with respect thereto;
(e) the Borrower or any Subsidiary shall: (i) file a voluntary
petition in bankruptcy or file a voluntary petition or an answer or otherwise
commence any action or proceeding seeking reorganization, arrangement or
readjustment of its debts or for any other relief under the Federal Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency act or law, state
or federal, now or hereafter existing, or consent to, approve of, or acquiesce
in, any such petition, action or proceeding; (ii) apply for or acquiesce in the
appointment of a receiver, assignee, liquidator, sequestrator, custodian,
trustee or similar officer for it or for all or any part of its Property; (iii)
make an assignment for the benefit of creditors; or (iv) be unable generally to
pay its debts as they become due;
(f) an involuntary petition shall be filed or an action or
proceeding otherwise commenced seeking reorganization, arrangement or
readjustment of the Borrower's or any Subsidiary's debts or for any other relief
under the Federal Bankruptcy Code, as amended, or
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under any other bankruptcy or insolvency act or law, state or federal, now or
hereafter existing and such petition or action or proceeding shall remain
undismissed or undischarged for a period of 45 days;
(g) a receiver, assignee, liquidator, sequestrator, custodian,
trustee or similar officer for the Borrower or any Subsidiary or for all or any
part of their Property shall be appointed involuntarily and shall remain in
place for a period of 45 days; or a warrant of attachment, execution or similar
process shall be issued against any part of the Property of the Borrower or any
Subsidiary and shall not have been vacated, discharged, stayed, satisfied or
bonded pending appeal within 45 days from entry thereof;
(h) the Borrower or any Subsidiary shall file a certificate of
dissolution under applicable state law or shall be liquidated, dissolved or
wound-up or shall commence or have commenced against it any action or proceeding
for dissolution, winding-up or liquidation, or shall take any corporate action
in furtherance thereof;
(i) all or any material part of the Property of the Borrower
shall be nationalized, expropriated or condemned, seized or otherwise
appropriated, or custody or control of such Property or of the Borrower shall be
assumed by any Public Authority or any court of competent jurisdiction at the
instance of any Public Authority, except where contested in good faith by proper
proceedings diligently pursued where a stay of enforcement is in effect;
(j) any guaranty of the Obligations shall be terminated, revoked
or declared void or invalid, or the Subordinated Revolving Promissory Note shall
be amended, terminated or declared void or invalid without the consent of the
Lender;
(k) one or more final judgments for the payment of money
aggregating in excess of $500,000 (whether or not covered by insurance) shall be
rendered against the Borrower or any Subsidiary and the Borrower or such
Subsidiary shall fail to discharge the same within thirty (30) days from the
date of notice of entry thereof or to appeal therefrom;
(l) any loss, theft, damage or destruction of any item or items
of Collateral occurs which: (i) materially and adversely affects the operation
of the Borrower's business or (ii) is material in amount and is not adequately
covered by insurance;
(m) (i) TPG ceases to own a majority of the limited partnership
interest in the Parent, (ii) TPG ceases to own and control a majority of the
outstanding capital stock of the general partner of the Parent (the "General
Partner"), (iii) the General Partner ceases to be the sole General Partner of
the Parent; (iv) TPG shall cease to have the ability to elect a majority of the
Board of Directors (or other equivalent governing body) of the General Partner
and, if applicable, the Parent or (v) the Parent shall cease to own and control
seventy percent (70%) of the outstanding stock of the Borrower,
(n) any event or condition shall occur or exist with respect to
a Plan that could, in the Lender's reasonable judgment, subject the Borrower or
any Subsidiary to any tax, penalty or liabilities under ERISA, the Code, or
otherwise which in the aggregate is material in relation to the business,
operations, Property or financial or other condition of the Borrower; or
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(o) there occurs any material adverse change in the Borrower's
Property, business, operations, or financial condition.
12. REMEDIES.
(a) If an Event of Default has occurred and is continuing, the
Lender may, without notice to or demand on the Borrower, do one or more of the
following at any time or times and in any order: (i) reduce the Availability or
one or more of the elements thereof; (ii) restrict the amount of or refuse to
make Revolving Loans and restrict or refuse to arrange for Letters of Credit;
(iii) terminate this Agreement; (iv) declare any or all Obligations to be
immediately due and payable (provided however that upon the occurrence of any
Event of Default described in Sections 11.1(e), 11.1(f), 11.1(g), or 11.1(h),
all Obligations shall automatically become immediately due and payable); and (v)
pursue its other rights and remedies under the Loan Documents and applicable
law.
(b) If an Event of Default has occurred and is continuing: (i) the
Lender shall have, in addition to all other rights, the rights and remedies of a
secured party under the UCC; (ii) the Lender may, at any time, take possession
of the Collateral and keep it on the Borrower's Premises, at no cost to the
Lender, or remove any part of it to such other place or places as the Lender may
desire, or the Borrower shall, upon the Lender's demand, at the Borrower's cost,
assemble the Collateral and make it available to the Lender at a place
reasonably convenient to the Lender; and (iii) the Lender may sell and deliver
any Collateral at public or private sales, for cash, upon credit or otherwise,
at such prices and upon such terms as the Lender deems advisable, in its sole
discretion, and may, if the Lender deems it reasonable, postpone or adjourn any
sale of the Collateral by an announcement at the time and place of sale or of
such postponed or adjourned sale without giving a new notice of sale. Without in
any way requiring notice to be given in the following manner, the Borrower
agrees that any notice by the Lender of sale, disposition or other intended
action hereunder or in connection herewith whether required by the UCC or
otherwise, shall constitute reasonable notice to the Borrower if such notice is
mailed by registered or certified mail, return receipt requested, postage
prepaid or is delivered personally against receipt, at least five (5) days prior
to such action to the Borrower's address specified in or pursuant to Section
14.11. If any Collateral is sold on terms other than payment in full at the time
of sale, no credit shall be given against the Obligations until the Lender
receives payment, and if the buyer defaults in payment, the Lender may resell
the Collateral without further notice to the Borrower. In the event the Lender
seeks to take possession of all or any portion of the Collateral by judicial
process, the Borrower irrevocably waives: (a) the posting of any bond, surety or
security with respect thereto which might otherwise be required; (b) any demand
for possession prior to the commencement of any suit or action to recover the
Collateral; and (c) any requirement that the Lender retain possession and not
dispose of any Collateral until after trial or final judgment. The Borrower
agrees that the Lender has no obligation to preserve rights to the Collateral or
marshal any Collateral for the benefit of any Person. The Lender is hereby
granted a license or other right to use, without charge, the Borrower's labels,
patents, copyrights, name, trade secrets, trade names, trademarks, and
advertising matter, or any similar property, in completing production of,
advertising or selling any Collateral, and the Borrower's rights under all
licenses and all franchise agreements shall inure to the Lender's benefit. The
proceeds of sale shall be applied first to all expenses of sale, including
attorneys fees, and second, in whatever order the Lender elects, to all
Obligations.
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The Lender will return any excess to the Borrower or such other Person as shall
be legally entitled thereto and the Borrower shall remain liable for any
deficiency.
(c) If an Event of Default occurs, the Borrower hereby waives (i)
all rights to notice and hearing prior to the exercise by the Lender of the
Lender's rights to repossess the Collateral without judicial process or to
replevy, attach or levy upon the Collateral without notice or hearing, and (ii)
all rights of set-off and counterclaim against Lender.
(d) If the Lender terminates this Agreement upon an Event of
Default, the Borrower shall pay the Lender, immediately upon termination, an
early termination penalty equal to the early termination fee that would have
been payable under Section 13 if this Agreement had been terminated on that date
pursuant to the Borrower's election.
13. TERM AND TERMINATION. This Agreement shall expire on January 31,
2000 (the "Stated Termination Date") unless earlier terminated or automatically
extended as provided in this Section. This Agreement shall automatically be
renewed on the Stated Termination Date and at the end of any renewal term for
successive one-year terms, unless this Agreement is terminated as provided
below. The Lender and the Borrower shall have the right to terminate this
Agreement, without premium or penalty, on the Stated Termination Date at the end
of any renewal term by giving the other written notice not less than sixty (60)
days prior to the end of such term by registered or certified mail. The Borrower
may also terminate this Agreement at any time prior to the Stated Termination
Date or during any renewal term if: (a) it gives the Lender sixty (60) days
prior written notice of termination by registered or certified mail; (b) it pays
and performs all Obligations on or prior to the effective date of termination;
and (c) it pays the Lender, on or prior to the effective of termination, and in
addition to any other prepayment premium required hereunder, (i) one percent
(1.0%) of the average amount of the Revolving Loans and Letters of Credit
outstanding during the prior 180 day period (or lesser period if within 180 days
of the Closing Date) if such termination is made on or prior to the first
Anniversary Date; (ii) one-half percent (.50%) of the average amount of the
Revolving Loans and Letters of Credit outstanding during the prior 180-day
period if such termination is after the first Anniversary Date but prior to the
Stated Termination Date; provided, however, if such termination occurs after the
First Anniversary Date due to the Borrower refinancing the credit facility with
the Bank, then the prepayment premium would be waived. The Lender may also
terminate this Agreement without notice while an Event of Default exists. Upon
the effective date of termination of this Agreement for any reason whatsoever,
all Obligations shall become immediately due and payable and Borrower shall
immediately arrange for the cancellation of Letters of Credit then outstanding.
Notwithstanding the termination of this Agreement, until all Obligations are
paid and performed in full, the Lender shall retain all its rights and remedies
hereunder (including, without limitation, in all then existing and after-arising
Collateral).
14. MISCELLANEOUS.
14.1 Cumulative Remedies; No Prior Recourse to Collateral. The
enumeration herein of the Lender's rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that the Lender may have under the
UCC or other applicable law. The Lender shall have the right, in its sole
discretion, to determine which rights and remedies are to be exercised and in
which order.
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The exercise of one right or remedy shall not preclude the exercise of any
others, all of which shall be cumulative. The Lender may, without limitation,
proceed directly against the Borrower to collect the Obligations without any
prior recourse to the Collateral.
14.2 No Implied Waivers. No act, failure or delay by the Lender
shall constitute a waiver of any of its rights and remedies. No single or
partial waiver by the Lender of any provision of this Agreement or any other
Loan Document, or of breach or default hereunder or thereunder, or of any right
or remedy which the Lender may have, shall operate as a waiver of any other
provision, breach, default, right or remedy or of the same provision, breach,
default, right or remedy on a future occasion. No waiver by the Lender shall
affect its rights to require strict performance of this Agreement.
14.3 Severability. If any provision of this Agreement shall be
prohibited or invalid, under applicable law, it shall be is effective only to
such extent, without invalidating the remainder of this Agreement.
14.4 Governing Law. This Agreement shall be deemed to have been made
in the State of California and shall be governed by and interpreted in
accordance with the laws of such state, except that no doctrine of choice of law
shall be used to apply the laws of any other state or jurisdiction.
14.5 Consent to Jurisdiction and Venue, Service of Process. THE
BORROWER AGREES THAT, IN ADDITION TO ANY OTHER COURTS THAT MAY HAVE JURISDICTION
UNDER APPLICABLE LAWS, ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE COMMENCED IN THE
SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR LOS ANGELES COUNTY, OR IN THE
UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA, AND THE
BORROWER CONSENTS AND SUBMITS IN ADVANCE TO SUCH JURISDICTION AND AGREES THAT
VENUE WILL BE PROPER IN SUCH COURTS ON ANY SUCH MATTER. THE BORROWER HEREBY
WAIVES PERSONAL SERVICE OF PROCESS AND AGREES THAT A SUMMONS AND COMPLAINT
COMMENCING AN ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE PROPERLY SERVED
AND SHALL CONFER PERSONAL JURISDICTION IF SERVED BY REGISTERED OR CERTIFIED MAIL
TO THE BORROWER SHOULD THE BORROWER FAIL TO APPEAR OR ANSWER ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THIRTY (30) DAYS AFTER THE MAILING
OR OTHER SERVICE THEREOF, IT SHALL BE DEEMED IN DEFAULT AND AN ORDER OR JUDGMENT
MAY BE ENTERED AGAINST IT AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT,
PROCESS OR PAPERS. THE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE
DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM, OR
THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME, IN ANY
APPROPRIATE JURISDICTION.
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14.6 Waiver of Jury Trial. THE BORROWER HEREBY WAIVES TRIAL BY JURY,
RIGHTS OF SETOFF, AND THE RIGHT TO IMPOSE COUNTERCLAIMS IN ANY LITIGATION IN ANY
COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL, OR ANY INSTRUMENT OR
DOCUMENT DELIVERED PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM OR DISPUTE
HOWSOEVER ARISING, BETWEEN THE BORROWER AND THE LENDER. THE BORROWER CONFIRMS
THAT THE FOREGOING WAIVERS ARE INFORMED AND FREELY MADE.
14.7 Arbitration; Reference Proceeding.
(a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES,
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY AGREEMENTS OR INSTRUMENTS RELATING HERETO OR DELIVERED IN CONNECTION
HEREWITH AND ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL AT THE
REQUEST OF ANY PARTY BE DETERMINED BY ARBITRATION. THE ARBITRATION SHALL BE
CONDUCTED IN ACCORDANCE WITH THE UNITED STATES ARBITRATION ACT (TITLE 9, U.S.
CODE), NOTWITHSTANDING ANY CHOICE OF LAW PROVISION IN THIS AGREEMENT, AND UNDER
THE COMMERCIAL RULES OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). THE
ARBITRATION SHALL BE CONDUCTED WITHIN LOS ANGELES COUNTY, CALIFORNIA. THE
ARBITRATOR(S) SHALL GIVE EFFECT TO STATUTES OF LIMITATION IN DETERMINING ANY
CLAIM. ANY CONTROVERSY CONCERNING WHETHER AN ISSUE IS ARBITRABLE SHALL BE
DETERMINED BY THE ARBITRATOR(S). JUDGMENT UPON THE ARBITRATION AWARD MAY BE
ENTERED IN ANY COURT HAVING JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN
ACTION FOR JUDICIAL RELIEF OR PURSUIT OF A PROVISIONAL OR ANCILLARY REMEDY SHALL
NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO
SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION IF ANY OTHER PARTY CONTESTS SUCH
ACTION FOR JUDICIAL RELIEF.
(b) Notwithstanding the provisions of subparagraph (a), no
controversy or claim shall be submitted to arbitration without the consent of
all parties if, at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation to the Lender which is secured by
real property collateral located in California. If all parties do not consent to
submission of such a controversy or claim to arbitration, the controversy or
claim shall be determined as provided in subparagraph (c).
(c) A controversy or claim which is not submitted to arbitration
as provided and limited in subparagraphs (a) and (b) shall, at the request of
any party, be determined by a reference in accordance with California Code of
Civil Procedure Section 638 et al. If such an election is made, the parties
shall designate to the court a referee or referees selected under the auspices
of the AAA in the same manner as arbitrators are selected in AAA-sponsored
proceedings. The presiding referee of the panel, or the referee if there is a
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single referee, shall be an active attorney or retired judge. Judgment upon the
award rendered by such referee or referees shall be entered in the court in
which such proceeding was commenced in accordance with California Code of Civil
Procedure Sections 644 and 645.
(d) No provision of this paragraph shall limit the right of any
party to this Agreement to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or security,
or to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party to
resort to arbitration or reference. At the Lender's option, foreclosure under a
deed of trust or mortgage may be accomplished either by exercise of power of
sale under the deed of trust or mortgage or by judicial foreclosure.
14.8 Survival of Representations and Warranties. All of the
Borrower's representations and warranties contained in this Agreement shall
survive the execution, delivery, and acceptance thereof by the parties,
notwithstanding any investigation by the Lender or its agents.
14.9 Other Security and Guaranties. The Lender may, without notice
or demand and without affecting the Borrower's obligations hereunder, from time
to time: (a) take from any Person and hold collateral (other than the
Collateral) for the payment of all or any part of the Obligations and exchange,
enforce or release such collateral or any part thereof; and (b) accept and hold
any endorsement or guaranty of payment of all or any part of the Obligations and
release or substitute any such endorser or guarantor, or any Person who has
given any Lien in any other collateral as security for the payment of all or any
part of the Obligations or any other Person in any way obligated to pay all or
any part of the Obligations.
14.10 Fees and Expenses. The Borrower shall pay to the Lender on
demand all costs and expenses that the Lender pays or incurs in connection with
the negotiation, preparation, consummation, administration, enforcement, and
termination of this Agreement and the other Loan Documents, including, without
limitation: (a) attorneys' and paralegal's fees and disbursements of counsel to
the Lender (including, without limitation, a reasonable estimate of the
allocable cost of in-house counsel and staff); (b) costs and expenses including
attorneys' and paralegals' fees and disbursements (including, without
limitation, a reasonable estimate of the allocable cost of in-house counsel and
staff) for any amendment, supplement, waiver, consent, or subsequent closing in
connection with the Loan Documents and the transactions contemplated thereby;
(c) costs and expenses of lien and title searches and title insurance; (d)
taxes, fees and other charges for recording the mortgages, filing financing
statements and continuations, and other actions to perfect, protect, and
continue the Security Interest; (e) sums paid or incurred to pay any amount or
take any action required of the Borrower under the Loan Documents that the
Borrower fails to pay or take; (f) costs of appraisals, inspections, and
verifications of the Collateral, including, without limitation, travel, lodging,
meals, and other expenses together with an allocated charge of $500 per day for
each auditor employed by the Lender for inspections of the Collateral and the
Borrower's operations; (g) costs and expenses of forwarding loan proceeds,
collecting checks and other items of payment, and establishing and maintaining
Payment Accounts and lock boxes; (h) all amounts that the Borrower is required
to pay in connection with the Letters of Credit; (i) costs and expenses of
preserving and protecting the
51
<PAGE> 56
Collateral; and (j) costs and expenses including attorneys' and paralegals' fees
and disbursements (including, without limitation, a reasonable estimate of the
allocable cost of in-house counsel and staff) paid or incurred to obtain payment
of the Obligations, enforce the Security Interest, sell or otherwise realize
upon the Collateral, and otherwise enforce the provisions of the Loan Documents,
or to defend any claims made or threatened against the Lender arising out of the
transactions contemplated hereby (including without limitation, preparations for
and consultations concerning any such matters). The foregoing shall not be
construed to limit any other provisions of the Loan Documents regarding costs
and expenses to be paid by the Borrower. All of the foregoing costs and expenses
shall be charged to the Borrower's loan account as Revolving Loans.
14.11 Notices. Except as otherwise provided herein, all notices,
demands, and requests that either party is required or elects to give to the
other shall be in writing, shall be delivered personally against receipt, or
sent by recognized overnight courier services, or mailed by registered or
certified mail, return receipt requested, postage prepaid, and shall be
addressed to the party to be notified as follows:
If to the Lender: BankAmerica Business Credit, Inc.
55 South Lake Avenue, Suite 900
Pasadena, California 91101
Attention: Division Manager
with a copy to: Bank of America N.T. & S.A., Legal Department
10124 Old Grove Road
San Diego, California 92131
Attention: Assistant General Counsel
If to the Borrower: Globespan Semiconductor Inc.
100 Schulz Drive
Red Bank, NJ 07701
Attention: Mr. Pat Murphy
with a copy to: Richard Ekleberry
201 Main Street, Suite 2420
Fort Worth, Texas 76102
or to such other address as each party may designate for itself by like notice.
Any such notice, demand, or request shall be deemed given when received if
personally delivered or sent by overnight courier, or when deposited in the
United States mails, postage paid, if sent by registered or certified mail.
14.12 Indemnification.
(a) THE BORROWER HEREBY INDEMNIFIES, DEFENDS AND HOLDS THE
LENDER, AND ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL, HARMLESS
FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES, DEFICIENCIES,
JUDGMENTS,
52
<PAGE> 57
PENALTIES OR EXPENSES IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY
OF THEM, WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL ARISING OUT OF OR BY REASON
OF ANY LITIGATION, INVESTIGATIONS, CLAIMS, OR PROCEEDINGS WHETHER BASED ON ANY
FEDERAL, STATE OR LOCAL LAWS OR OTHER STATUTES OR REGULATIONS, INCLUDING,
WITHOUT LIMITATION, SECURITIES, ENVIRONMENTAL, OR COMMERCIAL LAWS AND
REGULATIONS, UNDER COMMON LAW OR AT EQUITY, OR ON CONTRACT OR OTHERWISE)
COMMENCED OR THREATENED, WHICH ARISE OUT OF OR ARE IN ANY WAY BASED UPON THE
NEGOTIATION, PREPARATION, EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE OR
ADMINISTRATION OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY UNDERTAKING OR
PROCEEDING RELATED TO ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACT,
OMISSION TO ACT, EVENT OR TRANSACTION RELATED OR ATTENDANT THERETO, INCLUDING,
WITHOUT LIMITATION, AMOUNTS PAID IN SETTLEMENT, COURT COSTS, AND THE FEES AND
EXPENSES OF COUNSEL REASONABLY INCURRED IN CONNECTION WITH ANY SUCH LITIGATION,
INVESTIGATION, CLAIM OR PROCEEDING AND FURTHER INCLUDING, WITHOUT LIMITATION,
ALL LOSSES, DAMAGES (INCLUDING CONSEQUENTIAL DAMAGES), EXPENSES OR LIABILITIES
SUSTAINED BY THE LENDER IN CONNECTION WITH ANY ENVIRONMENTAL INSPECTION,
MONITORING, SAMPLING, OR CLEANUP OF THE ENCUMBERED REAL ESTATE REQUIRED OR
MANDATED BY ANY ENVIRONMENTAL LAW; PROVIDED, HOWEVER, THAT THE BORROWER SHALL
NOT INDEMNIFY THE LENDER, ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL
FROM SUCH DAMAGES RESULTING FROM THEIR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(b) The Borrower hereby indemnifies, defends and holds harmless
the Lender from any loss or liability directly or indirectly arising out of the
use, generation, manufacture, production, storage, release, threatened release,
discharge, disposal or presence of a hazardous substance. This indemnity will
apply whether the hazardous substance is on, under or about the Borrower's
property or operations or property leased to the Borrower. The indemnity
includes but is not limited to attorneys' fees (including the reasonable
estimate of the allocated cost of in-house counsel and staff). The indemnity
extends to the Lender, its parent, subsidiaries and all of their directors,
officers, employees, agents, successors, attorneys and assigns. "Hazardous
substances" means any substance, material or waste that is or becomes designated
or regulated as "toxic," "hazardous," "pollutant," or "contaminant" or a similar
designation or regulation under any federal, state or local law (whether under
common law, statute, regulation or otherwise) or judicial or administrative
interpretation of such, including without limitation petroleum or natural gas.
(c) Without limiting the foregoing, if, by reason of any suit or
proceeding of any kind, nature, or description against the Borrower, or by the
Borrower or any other party against the Lender, which in the Lender's sole
discretion makes it advisable for the Lender to seek counsel for protection and
preservation of its liens and security assets, or to defend its own interest,
such expenses and counsel fees shall be allowed to the Lender. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in this
Section 14.12
53
<PAGE> 58
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
matters incurred by the Lender. The indemnity contained in Section 14.12 shall
survive the payment of the Obligations and the termination of this Agreement.
All of the foregoing costs and expenses shall be part of the Obligations and
secured by the Collateral.
14.13 Waiver of Notices. Unless otherwise expressly provided herein,
the Borrower waives presentment, protest and notice of demand or dishonor and
protest as to any instrument, as well as any and all other notices to which it
might otherwise be entitled. No notice to or demand on the Borrower which the
Lender may elect to give shall entitle the Borrower to any or further notice or
demand in the same, similar or other circumstances.
14.14 Binding Effect; Assignment. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective
representatives, successors and assigns of the parties hereto; provided,
however, that no interest herein may be assigned by the Borrower without the
prior written consent of the Lender. The rights and benefits of the Lender
hereunder shall, if the Lender so agrees, inure to any assignee of the
Obligations or any part thereof.
14.15 Modification. This Agreement is intended by the Borrower and
the Lender to be the final, complete, and exclusive expression of the agreement
between them. This Agreement supersedes any and all prior oral or written
agreements relating to the subject matter hereof and may not be contradicted by
evidence of prior, contemporaneous or subsequent oral agreements of the parties.
There are no oral agreements between the parties. No modification, rescission,
waiver, release, or amendment of any provision of this Agreement shall be made,
except by a written agreement signed by the Borrower and a duly authorized
officer of the Lender.
14.16 Counterparts. This Agreement may be executed in any number of
counterparts, and by the Lender and the Borrower in separate counterparts, each
of which shall be an original, but all of which shall together constitute one
and the same agreement.
14.17 Captions. The captions contained in this Agreement are for
convenience only are without substantive meaning and should not be construed to
modify, enlarge, or restrict any provision.
14.18 Right of Set-Off. Whenever an Event of Default exists, the
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Lender or any affiliate of the Lender to
or for the credit or the account of the Borrower against any and all of the
Obligations, whether or not then due and payable. The Lender agrees promptly to
notify the Borrower after any such set-off and application made by the Lender,
provided that the failure to give such notice shall not affect the validity of
such set-off end application.
54
<PAGE> 59
IN WITNESS WHEREOF, the parties have entered into this Agreement
on the date first above written.
GLOBESPAN SEMICONDUCTOR INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
BANKAMERICA BUSINESS CREDIT, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
55
<PAGE> 60
LIST OF EXHIBITS/SCHEDULES
Exhibit A Borrowing Base Certificate
Exhibit B Financial Statements and Projections
-- Exhibit B-1 Financial Statement
-- Exhibit B-2 Projections
Schedule 6.3 Locations of Borrower
Schedule 8.4 Names of Borrower and Trade Styles
Schedule 8.5 Subsidiaries and Affiliates and states of
incorporation and qualification
Schedule 8.13 Real Estate - Owned and Leased
Schedule 8.14 Proprietary Rights Collateral (patents, trademarks,
and copyrights)
Schedule 8.15 Trade Names
Schedule 8.16 Litigation
Schedule 8.18 Labor Disputes
Schedule 8.19 Environmental Laws
Schedule 8.22 ERISA Compliance
56
<PAGE> 61
EXHIBIT A
Borrowing Base Certificate
<TABLE>
<CAPTION>
BA BUSINESS CREDIT, INC.
CONSOLIDATED CERTIFICATE DATE 04/20/98 BABC USE ONLY
ACTIVITY
----------------------------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
-------------------------------------------
<S> <C> <C> <C> <C>
1. BEGINNING BALANCE LINE 5 LAST REPORT
---------
2. PLUS SALES AS OF ___________
--------- ----------------
3. LESS CREDITS AS OF ___________
--------- ----------------
4. LESS GROSS COLLECTIONS AS OF ___________
--------- ----------------
5. ADJUSTMENTS
--------- ----------------
6. ENDING BALANCE
--------- ----------------
7. INELIGIBLE
--------- ----------------
8. ELIGIBLE NOT TO EXCEED ___________
--------- --------- --------
----------------
----------------------------------------------------------------------------------------------------------
PERPETUAL INVENTORY
-------------------------------------------
9. RAW MATERIAL
----------------
---------
10. LESS: INELIGIBLE
----------------
---------
11. ELIGIBLE
--------- --------- -------- ----------------
12. WIP
--------- ----------------
13. LESS: INELIGIBLE
--------- ----------------
14. ELIGIBLE
--------- --------- -------- ----------------
15. FINISHED GOODS
--------- ----------------
16. LESS: INELIGIBLE ___________
--------- ----------------
17. ELIGIBLE
--------- --------- --------
----------------
18. TOTAL INV. AVAILABILITY NOT TO EXCEED
----------------------------------------------------------------------------------------------------------
19. MERCHANDISE L/C NOT TO EXCEED:
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
20. TOTAL AVAILABILITY
----------------------------------------------------------------------------------------------------------
LOAN ACTIVITY
------------------------------------------- ----------------
21. BALANCE AS SHOWN ON LAST REPORT (LINE 29)
-------- ----------------
22. LESS: REMITTANCES
-------- ----------------
23. PLUS: ADVANCE REQUEST AS OF ___________
-------- ----------------
24. PLUS: WIRE CHARGE
-------- ----------------
25. PLUS: FEES
-------- ----------------
26. PLUS: INTEREST
-------- ----------------
27. PLUS: TERM LOAN PRINCIPAL PAYMENT
-------- ----------------
28. ADJUSTMENTS
--------
----------------
29. OUTSTANDING LOAN BALANCE
----------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE> 62
<TABLE>
<CAPTION>
BA BUSINESS CREDIT, INC.
CONSOLIDATED CERTIFICATE DATE 04/20/98 BABC USE ONLY
ACTIVITY
----------------------------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
-------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
REVOLVING LOAN AVAILABILITY
------------------------------------------- ----------------
30. CALCULATED AVAILABILITY (LINE 20)
-------- ----------------
31. LESS: OUTSTANDING LOAN BALANCE (LINE 29)
-------- ----------------
32. LESS: MERCHANDISE L/C
-------- ----------------
33. LESS: STANDBY L/C
-------- ----------------
34. LESS: BANKERS ACCEPTANCES
-------- ----------------
35. LESS: OTHER RESERVES
--------
----------------
36. NET AVAILABLE
----------------------------------------------------------------------------------------------------------
</TABLE>
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THE INFORMATION SET FORTH ABOVE IS
TRUE AND COMPLETE THE UNDERSIGNED GRANTS A SECURITY INTEREST IN THE COLLATERAL
REFLECTED ABOVE TO BA BUSINESS CREDIT, INC. AND REPRESENTS AND WARRANTS THAT
SAID COLLATERAL COMPLIES WITH THE REPRESENTATIONS, WARRANTIES AND COVENANTS
CONTAINED IN THE LOAN AND SECURITY AGREEMENT BETWEEN BA BUSINESS CREDIT, INC.
AND THE UNDERSIGNED.
BORROWER: BA BUSINESS CREDIT, INC.
------------------------------
AUTHORIZED RECEIVED BY:
----------------------
SIGNATURE:
-----------------------------
TITLE:
---------------------------------
58
<PAGE> 63
EXHIBIT B-l
FINANCIAL STATEMENT
(already received by Lender and to be attached)
<PAGE> 64
EXHIBIT B-2
PROJECTIONS
(already received by Lender and to be attached)
<PAGE> 1
EXHIBIT 10.6
NEITHER THE WARRANT REPRESENTED BY THIS CERTIFICATE NOR ANY OF THE SECURITIES
ISSUABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE
WARRANT REPRESENTED BY THIS CERTIFICATE OR OF THE STOCK ISSUABLE UPON EXERCISE
THEREOF SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) THE HOLDER OF THE
SECURITIES PROPOSED TO BE TRANSFERRED SHALL HAVE DELIVERED TO THE COMPANY
EITHER, A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION OR AN
OPINION OF COUNSEL EXPERIENCED IN SECURITIES MATTERS TO THE EFFECT THAT SUCH
PROPOSED TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT OR (C)
SUCH TRANSFER IS PURSUANT TO RULE 144 OR RULE 144A UNDER THE ACT AND SUCH HOLDER
SHALL HAVE DELIVERED TO THE COMPANY A CERTIFICATE SETTING FORTH THE BASIS FOR
APPLYING SUCH RULE TO THE PROPOSED TRANSFER.
THIS WARRANT IS NOT TRANSFERABLE BY THE HOLDER EXCEPT IN ACCORDANCE WITH SECTION
8.1.
Warrant No. 1
WARRANT
CAP ACQUISITION CORP.
THIS IS TO CERTIFY THAT LUCENT TECHNOLOGIES INC., or registered
assigns, is entitled, at any time prior to the Expiration Date (such term, and
certain other capitalized terms used herein being hereinafter defined), to
purchase from CAP ACQUISITION CORP., a Delaware corporation (the "Company"), ONE
HUNDRED FIFTY THOUSAND (150,000) shares of the Common Stock of the Company
(subject to adjustment as provided herein), at a purchase price of FIFTY EIGHT
AND 83/100 ($58.83) per share (the initial "Exercise Price", subject to
adjustment as provided herein), all on the terms and conditions and pursuant to
the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Affiliate" of any Person means a Person (a) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with such Person, (b) which beneficially owns or holds
more than five percent (5.0%) of the outstanding shares of any class of voting
stock of such Person or (c) more than five percent (5.0%) of the outstanding
shares of any class of voting stock (or, in the case of a Person which is not a
corporation, more than five percent (5.0%) of the equity interest) of which is
beneficially owned
<PAGE> 2
or held by such Person. The term "control" as used with respect to any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agreed Rate" shall mean 8.50%.
"Appraised Value" of Common Stock or other securities, evidences
of indebtedness or property to be determined hereunder shall mean the value
thereof as determined by an investment bank of nationally recognized standing or
a "Big 6" accounting firm selected by the Holder and reasonably acceptable to
the Company. If the investment bank or accounting firm selected by the Holder is
not reasonably acceptable to the Company, and the Company and the Holder cannot
agree on a mutually acceptable investment bank or accounting firm, then the
Company and the Holder shall each choose one such investment bank or accounting
firm and the respective chosen firms shall jointly select a third investment
bank or accounting firm, which shall make the determination. The Company and the
Holder shall each pay one-half of the costs and fees of each such investment
bank or accounting firm, and the decision of the investment bank or accounting
firm making such determination of Appraised Value shall be final and binding on
the Company and the Holder. In the case of a valuation of the Common Stock, such
Appraised Value shall be determined as a pro rata portion of the value of the
Company taken as a whole, based on the higher of (A) the value derived from a
hypothetical sale of the entire Company as a going concern by a willing seller
to a willing buyer (neither acting under any compulsion) and (B) the liquidation
value of the entire Company. No discount shall be applied on account of (i) any
Common Stock representing a minority interest, (ii) any lack of liquidity of the
Common Stock or (iii) any other grounds.
"Book Value" per share of Common Stock as of a date specified
herein shall mean the consolidated book value of the Company and its
Subsidiaries as of such date determined in accordance with generally accepted
accounting principles divided by the number of shares of Common Stock
Outstanding on such date.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock of the Company, par value $.001 per share, as
constituted on the Original Issue Date, and any capital stock into which such
Common Stock may thereafter be changed, and shall also include (i) capital stock
of the Company of any other class (regardless of how denominated) issued to the
holders of shares of any Common Stock upon any reclassification thereof which is
also not preferred as to dividends or liquidation over any other class of stock
of the Company and which is not subject to redemption and (ii) shares of common
stock of any successor or acquiring corporation (as defined in Section 4.5
hereof) received by or distributed to the holders of Common Stock of the Company
in the circumstances contemplated by Section 4.5 hereof.
2
<PAGE> 3
"Company" means CAP Acquisition Corp., a Delaware corporation,
and any successor corporation.
"Company Default" means (a) the breach of any warranty or the
inaccuracy at the time when made of any representation made by the Company
herein or (b) the failure by the Company to comply with any covenant of the
Company contained herein.
"Consideration Securities" shall have the meaning set forth in
Section 2.2(e) hereof.
"Continuously Effective", with respect to a specified
registration statement, shall mean that it shall not cease to be effective and
available for Transfers of Warrant Stock thereunder for longer than either (i)
any ten (10) consecutive business days, or (ii) an aggregate of fifteen (15)
business days during the period specified in the relevant provision of Section 9
hereof.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities that are convertible into or exchangeable
for, with or without payment of additional consideration in cash or property,
shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Core Business Notes" shall mean the collective reference to (i)
the Core Business Note due June 30, 2000 in the outstanding original principal
amount of $76,250,000 issued by AT&T Paradyne Corporation ("Paradyne"), a
Delaware corporation, to Lucent Technologies Inc. ("Lucent"), a Delaware
corporation and (ii) the Interim Core Business Note due December 31, 1997 in the
outstanding original principal amount of $7,500,000 issued by Paradyne to
Lucent.
"Current Market Price" shall mean as of any specified date the
average of the daily market prices of the security being valued for the ten (10)
consecutive Business Days immediately preceding the date which is four Business
Days prior to such date (or, the ten (10) consecutive Business Days prior to
such date in the case of Section 2.2 (b)) and ending on the date which is four
Business Days prior to such date (or, the ten (10) consecutive Business Days
prior to such date in the case of Section 2.2 (b)). The "daily market price" for
each such Business Day shall be: (i) if the security being valued is then listed
on a national securities exchange or is listed on NASDAQ and is designated as a
National Market security, the last sale price, regular way, on such day on the
principal stock exchange or market system on which such security being valued is
then listed or admitted to trading, or, if no such sale takes place on such day,
the average of the closing bid and asked prices for the security being valued on
such day as reported on such stock exchange or market system or (ii) if the
security being valued is not then listed or admitted to trading on any national
securities exchange or designated as a National Market security on NASDAQ but is
traded over-the-counter, the average of the closing bid and asked prices for the
security being valued as reported on NASDAQ or the Electronic Bulletin Board or
in the National Daily Quotation Sheets, as applicable.
"Demand Registration" shall have the meaning set forth in
Section 9.2(a) hereof.
"Demanding Holder" shall have the meaning set forth in Section
9.2(a) hereof.
3
<PAGE> 4
"Designated Office" shall have the meaning set forth in Section
11 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Notice" shall have the meaning set forth in Section
2.1 hereof.
"Exercise Period" shall mean the period during which this Warrant
is exercisable pursuant to Section 2.1 hereof.
"Exercise Price" shall mean, in respect of a share of Common
Stock at any date herein specified, the initial Exercise Price set forth in the
preamble of this Warrant as adjusted from time to time pursuant to Section 4
hereof.
"Expiration Date" shall mean the earlier of (i) the tenth (10th)
day after the date on which the Core Business Notes shall have been paid in cash
in full (which payment shall have been preceded by 20 days by a written notice
to the Holder specifying such Expiration Date and stating that this Warrant will
expire unless exercised on or prior to such date) or the Core Business Notes
shall have been exchanged by the Holder on a voluntary basis in which the Holder
receives debt securities of the issuer of the Core Business Notes having a
principal amount not less than the current unpaid principal amount and accrued
interest due on the Core Business Notes and maturity dates not less favorable to
the Holder than the Core Business Notes, (ii) ten days after the date on which
the Holder shall have transferred the Core Business Notes other than to an
Affiliate in a transaction in which the Holder receives cash equal to at least
80% of the current unpaid principal amount and accrued interest due on the Core
Business Notes (in the event the Core Business Notes shall be so transferred by
the Holder, the Holder shall within 15 calendar days inform the Company in
writing of such transfer and the consideration received therefor) and (iii) the
date on which the Warrant shall be cancelled pursuant to subsection 2.2(d).
"Fair Value" per share of Common Stock as of any specified date
shall mean (A) if the Common Stock is publicly traded on such date, the Current
Market Price per share or (B) if the Common Stock is not publicly traded on such
date, (1) the fair market value per share of Common Stock as determined in good
faith by the Board of Directors of the Company and set forth in a written notice
to the Holder or (2) if any such Holder objects in writing to such price as
determined by the Board of Directors within thirty (30) days after receiving
notice of same, the Appraised Value per share as of such date. "Fair Value" as
used herein with respect to any other securities, evidences of indebtedness or
property shall mean (x) if such security is publicly traded on such date, the
Current Market Price of much security or (y) the fair market value of any other
securities, evidences of indebtedness or property as determined in good faith by
the Board of Directors of the Company and set forth in a written notice to the
Holder, provided, that, if the securities, evidences of indebtedness or property
are being issued or delivered by a Related Party in connection with the
transaction, if any such Holder objects in writing to such valuation as
determined by the Board of Directors within thirty (30) days after receiving
notice of same, the Appraised Value of such securities, evidences of
indebtedness or property.
4
<PAGE> 5
"Holder" shall mean (a) with respect to this Warrant, Lucent
Technologies, Inc. and any Subsidiary to which this Warrant has been Transferred
pursuant to Section 8.1 and (b) with respect to any shares of Warrant Stock, the
Person in whose name such Warrant Stock is registered on the books of the
Company maintained for such purpose.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any lease or title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
perfecting a security interest under the Uniform Commercial Code or comparable
law of any jurisdiction).
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"NASDAQ" shall mean the NASDAQ quotation system, or any
successor reporting system.
"Opinion of Counsel" means a written opinion of counsel
experienced in Securities Act, chosen by the Holder of this Warrant or Warrant
Stock issued upon the exercise hereof and reasonably acceptable to the Company.
"Original Issue Date" shall mean the date on which the Original
Warrant was issued, as set forth on the cover page of this Warrant.
"Original Warrant" shall mean the Warrant originally issued by
the Company on the Original Issue Date to Lucent Technologies Inc.
"Other Property" shall have the meaning set forth in Section 4.5
hereof.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company or any Subsidiary thereof, and shall include all
shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock. "Outstanding", when used with
respect to Warrant Stock for the purposes of Section 9 hereof shall have the
meaning set forth in Section 9.l(c) hereof.
"Person" shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, incorporated
organization, association, corporation, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
"Piggyback Registration" shall have the meaning set forth in
Section 9.3(a) hereof.
5
<PAGE> 6
"Public Securities" shall have the meaning set forth in Section
2.2(e) hereof.
"Qualifying Business Combination" shall mean (a) a sale of all or
substantially all of the assets of the Company in connection with which the
holders of Common Stock receive cash, securities or other property, (b) a sale
of all the outstanding Common Stock of the Company for cash, securities or other
property, (c) a merger or consolidation pursuant to which all of the outstanding
Common Stock of the Company prior to such transaction is converted into cash,
securities or other property; provided that (i) the purchaser of the assets or
Common Stock of the Company in clause (a) or (b) was not a Related Party of the
Company prior to such sale, (ii) no corporation or other entity which is a party
to or whose securities are being delivered in connection with any merger or
consolidation referred to in clause (c) (other than the Company and any
Subsidiary of the Company) was a Related Party of the Company prior to such
transaction, (iii) the terms of such sale, merger or consolidation were
negotiated on an arm's length basis, and (iv) the Company shall have provided
the Holder with written notice in accordance with Section 7.1 of the Qualifying
Business Combination at least 30 days prior to the anticipated closing date
thereof, which notice shall specify the anticipated result under Section 2.2
hereof.
"Qualifying IPO" shall mean a firmly underwritten public offering
of Common Stock of the Company; provided that the Company shall have provided
the Holder with written notice in accordance with Section 7.1 of the Qualifying
IPO at least 30 days prior to the anticipated closing date thereof, which notice
shall specify the anticipated result under Section 2.2 hereof.
"Register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering by the Commission of effectiveness of such registration statement or
document.
"Registration Expenses" shall have the meaning set forth in
Section 9.6(a) hereof.
"Related Party" means, with respect to the Company: (i) any
Affiliate of the Company that is not a Subsidiary of the Company, (ii) any
officer, director or employee of the Company or any Affiliate of the Company,
(iii) any relative of any person listed in clause (i) or (ii) above or (iv) any
Person directly or indirectly controlled by one or more persons listed in clause
(i), (ii) or (iii) above or with respect to which one or more Persons listed in
clause (i), (ii) or (iii) above directly or indirectly owns any outstanding
capital stock or other equity interests or has any right (whether by way of
bonus or royalty arrangements or otherwise) to receive any share of the revenues
or profits (excluding the ownership or not more than five percent (5%) of any
class of equity securities listed on a national securities exchange or NASDAQ).
"Restricted Common Stock" shall mean shares of Common Stock which
are, or which upon their issuance on the exercise of this Warrant would be,
evidenced by a certificate bearing the restrictive legend set forth in Section
8.2(a) hereof.
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"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Holder" shall mean, with respect to a specified
registration under Section 9 hereof, the Holder whose Registrable Securities are
included in such registration.
"Share Withholding Option" has the meaning set forth in Section
2.1 hereof.
"Stock Purchase Rights" shall mean any options, warrants or other
securities or rights to subscribe to or exercisable for the purchase of shares
of Common Stock or Convertible Securities, whether or not immediately
exercisable.
"Subsequent Issuance" shall mean any sale or issuance by the
Company of Common Stock, Convertible Securities or Stock Purchase Rights after
the Original Issue Date other than:
(i) Any issuance of Warrant Stock upon exercise of the
Warrants.
(ii) Incentive stock arrangements pursuant to which (x)
officers, directors or employees of the Company or (y)
consultants or advisors of the Company who are not Related
Parties of the Company acquire Common Stock, Convertible
Securities or Stock Purchase Rights.
(iii)Any issuance of Common Stock, Convertible Securities
or Stock Purchase Rights in an underwritten public offering.
(iv) Any issuance of Common Stock, Convertible Securities
or Stock Purchase Rights as consideration for the acquisition of
property of any kind in a good faith transaction from a party
which is not directly or indirectly a Related Party.
(v) Any issuance subject to adjustment pursuant to Section
4.1 hereof.
(vi) Any other issuance of Common Stock, Convertible
Securities or Stock Purchase Rights with respect to which the
Holder shall have waived application of the provisions of Section
4 below.
"Subsidiary" means any corporation, partnership, limited
liability company, association or entity (a) more than 50% (by number of votes)
of the voting power of which is at the time owned by the Company or by one or
more Subsidiaries or by the Company and one or more Subsidiaries, or any other
business entity in which the Company or one or more Subsidiaries or the Company
and one or more Subsidiaries own more than a 50% interest either in the profits
or capital of such business entity or (b) whose net earnings, or portions
thereof, are consolidated with the net earnings of the Company and are recorded
on the books of the Company for financial reporting purposes in accordance with
generally accepted accounting principles.
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"Transfer" shall mean any disposition of any Warrant or Warrant
Stock or of any interest in either thereof that would constitute a "sale"
thereof within the meaning of the Securities Act.
"Violation" has the meaning set forth in Section 9.7(a) hereof.
"Warrant Price" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1 hereof, multiplied by (ii) the Exercise Price in effect as of the
date of such exercise.
"Warrants" shall mean the Original Warrant and all warrants
issued upon transfer, division or combination of, or in substitution for, such
Original Warrant or any other such Warrant. All Warrants shall at all times be
identical as to terms and conditions and date, except as to the number of shares
of Common Stock for which they may be exercised.
"Warrant Stock" generally shall mean the shares of Common Stock
issued, issuable or both (as the context may require) upon the exercise of
Warrants until such time as such shares of Common Stock have either been (i)
Transferred in a public offering pursuant to a registration statement filed
under the Securities Act or (ii) Transferred in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act with all
transfer restrictions and restrictive legends with respect to such Common Stock
being removed in connection with such transaction. "Warrant Stock" for the
purposes of Section 9 hereof shall have the meaning set forth in Section 9.1(a)
hereof.
2. EXERCISE OF WARRANT
2.1 Manner of Optional Exercise. (a) From and after the Original
Issue Date and until 5:00 P.M., New York time, on the Expiration Date, the
Holder of this Warrant may from time to time exercise this Warrant, on any
Business Day, for all but not less than all the shares of Common Stock
purchasable hereunder (as determined pursuant to Section 2.3 below). In order to
exercise this Warrant, the Holder shall (i) deliver to the Company at the
Designated Office a written notice of the Holder's election to exercise this
Warrant (an "Exercise Notice"), which Exercise Notice shall be irrevocable
together with this Warrant and (ii) pay to the Company the Warrant Price (the
date on which both such delivery and payment shall have first taken place being
hereinafter sometimes referred to as the "Exercise Date"). Such Exercise Notice
shall be in the form of the subscription form appearing at the end of this
Warrant as Annex A, duly executed by the Holder or its duly authorized agent or
attorney.
(b) Upon receipt of such Exercise Notice, Warrant and payment,
the Company shall, as promptly as practicable, and in any event within five (5)
Business Days thereafter, execute (or cause to be executed) and deliver (or
cause to be delivered) to the Holder a certificate or certificates representing
the aggregate number of full shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereafter provided.
The stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as the exercising Holder shall
reasonably request in the Exercise Notice and, subject to compliance with the
provisions of Section 7 of the Co-Sale Agreement among Paradyne Partners, L.P.,
Lucent Technologies Inc. and the Company dated as of the date hereof,
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shall be registered in the name of the Holder or such other name as shall be
designated in the Exercise Notice. This Warrant shall be deemed to have been
exercised and such certificate or certificates shall be deemed to have been
issued, and the Holder or any other Person so designated to be named therein
shall be deemed to have become a holder of record of such shares for all
purposes, as of the Exercise Date.
(c) Payment of the Warrant Price shall be made at the option of
the Holder by one or more of the following methods: (i) by delivery of a
certified or official bank check in the amount of such Warrant Price, or (ii) if
the Common Stock is publicly traded, by instructing the Company to withhold a
number of shares of Warrant Stock then issuable upon exercise of this Warrant
with an aggregate Fair Value equal to such Warrant Price (the "Share Withholding
Option"). In the event of any withholding of Warrant Stock or surrender of
Common Stock where the number of shares whose Fair Value is equal to the Warrant
Price is not a whole number, the number of shares withheld by or surrendered to
the Company shall be rounded up to the nearest whole share and the Company shall
make a cash payment to the Holder based on the incremental fraction of a share
being so withheld by or surrendered to the Company in an amount determined in
accordance with Section 2.4 hereof.
2.2 Consummation of a Qualifying IPO or a Qualifying Business
Combination.
(a) In the event of a Qualifying IPO at an offering price per
share to the public (the "IPO Price") equal to 120% or more of the
Exercise Price, this Warrant shall be automatically deemed to have been
exercised by the Holder immediately prior to the closing of such
Qualifying IPO for the purchase of all shares of Common Stock then
issuable under this Warrant pursuant to the Share Withholding Option
with each share of Warrant Stock so withheld deemed to have a Fair Value
equal to the IPO Price.
(b) In the event of a Qualifying IPO at an IPO Price equal to
less than 120% of the Exercise Price, this Warrant shall remain
outstanding in accordance with its terms; provided, that if at any time
thereafter, the Current Market Price is greater than 120% of the
Exercise Price, then this Warrant may, at the option of the Company, be
deemed to have been exercised by the Holder as of the first business day
on which such test shall have been met for the purchase of all shares of
Common Stock then issuable under this Warrant pursuant to the Share
Withholding Option with each share of Common Stock so withheld deemed to
have a Fair Value equal to the Current Market Price as of such first
business day.
(c) In the event of a Qualifying Business Combination in which
the sole consideration is cash, at a price per share of Common Stock
which is equal to at least the Exercise Price, this Warrant shall be
automatically deemed to have been exercised by the Holder immediately
prior to closing of such Qualifying Business Combination, and the Holder
shall receive cash in an amount equal to (A) the difference between (i)
the cash price per share paid in the Qualifying Business Combination and
(ii) the Exercise Price multiplied by (B) the number of shares then
issuable under the Warrant. The cash price per share for purposes of
subsections 2.2(c), 2.2(d), 2.2(g) and 2.2(h) shall be the highest
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<PAGE> 10
amount of cash received or receivable per share of Common Stock by any
holder of the Common Stock as a result of the Qualifying Business
Combination.
(d) In the event of a Qualifying Business Combination in which
the sole consideration is cash, at a price per share of Common Stock
which is less than Exercise Price, the Holder shall receive neither cash
nor shares of Common Stock in consideration of the Warrant, and the
Warrant shall be cancelled upon the closing of such Qualifying Business
Combination.
(e) In the event of a Qualifying Business Combination at a price
per share of Common Stock which is equal to at least 120% of the
Exercise Price in which the sole consideration is securities which are
listed on a national securities exchange or quoted on the NASDAQ
National Market or any successor market ("Public Securities"), this
Warrant shall be immediately exchanged as of the closing of such
Qualifying Business Combination for the securities which are the
consideration for the Qualifying Business Combination ("Consideration
Securities") with a value equal to (A) the difference between (i) value
of the Consideration Securities per share of Common Stock and (ii) the
Exercise Price, multiplied by (B) the number of shares then issuable
under the Warrant. The price per share of Common Stock for purposes of
subsections 2.2(e), 2.2(f)(i), 2.2(g) and 2.2(h)(i) shall be deemed to
be the Current Market Price of the Consideration Securities (plus any
cash, if applicable) deliverable with respect to each share of Common
Stock as of the closing date of the Qualifying Business Combination and
such Current Market Price shall be deemed to be the value of the
Consideration Securities.
(f) In the event of a Qualifying Business Combination (i) at a
price per share of Common Stock which is less than 120% of the Exercise
Price in which the sole consideration is Public Securities or (ii) in
which the sole consideration is either securities which are not Public
Securities and/or other property, then the Warrant shall be exchanged
for a Warrant to purchase any such Consideration Securities and/or any
such other property (the "New Warrant"). The New Warrant shall have
provisions which are substantially identical to those of the Warrant,
except that the New Warrant shall authorize the Holder to purchase the
amount of any Consideration Securities and/or any such other property
which is calculated by multiplying the amount of any such Consideration
Securities and/or any amount of other property exchanged per share of
Common Stock ("Exchange Ratio") in the Qualifying Business Combination
by the number of shares then issuable under the Warrant. The exercise
price of the New Warrant shall be calculated by dividing the Exercise
Price by the Exchange Ratio of the Qualifying Business Combination.
(g) In the event of a Qualifying Business Combination at a price
per share of Common Stock equal to 120% or more of the Exercise Price in
which consideration is both cash and Public Securities, this Warrant
shall be immediately exchanged for cash and Consideration Securities
with a combined value equal to (A) the difference between (i) the
aggregate price per share (in cash and Public Securities) paid in the
Qualifying Business Combination, appropriately adjusted on a per share
basis and (ii) the Exercise Price multiplied by (B) the number of shares
issuable under the Warrant. The Holder will receive cash and Public
Securities under this subsection 2.2(g) in a ratio determined by
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dividing the amount of each type of consideration which the holders of
the Common Stock receive in the Qualified Business Combination by the
total amount of consideration which the holders of the Common Stock
receive in the Qualified Business Combination.
(h) In the event of a Qualifying Business Combination (i) at a
price per share of Common Stock which is less than 120% of the Exercise
Price in which the consideration is a combination of Public Securities
and cash or (ii) in which the consideration is a combination of
securities other than Public Securities, cash and/or other property,
then the Warrant shall be exchanged for a New Warrant. The New Warrant
shall have provisions which are substantially identical to those of the
Warrant, except that the New Warrant shall authorize the Holder to
purchase the amount of any Consideration Securities and/or amount of
other any other property which is calculated by multiplying the Exchange
Ratio of the Qualifying Business Combination by the number of shares
issuable under the Warrant. The exercise price per amount of any
Consideration Securities and/or amount of any other property of the New
Warrant shall be calculated by reducing the Exercise Price by the amount
of cash per share of Common Stock received by holders of the Common
Stock in the Qualifying Business Combination and then dividing the
resultant number by the Exchange Ratio of the Qualifying Business
Combination; provided that if the cash per share of Common Stock
received as part of the consideration equals or exceeds the Exercise
Price, then the Holder shall receive the Consideration Securities and/or
the amount of any other property which the New Warrant would entitle it
to purchase, and shall receive cash in an amount equal to (A) the excess
of the cash consideration per share of Common Stock over the Exercise
Price (if any) multiplied by (B) the number of shares then issuable
under the Warrant and this Warrant shall be deemed fully exercised.
(i) Whenever the property to be received upon exercise of this
Warrant or the Exercise Price shall be adjusted pursuant to this Section
2.2 (f) or (h), the Company shall, forthwith prepare a certificate to be
executed by the chief financial officer of the Company setting forth, in
reasonable detail, the event requiring the adjustment and the method by
which such adjustment was calculated, specifying the number of shares of
Common Stock for which this Warrant is exercisable and, if applicable,
describing the amount and kind of any property for which this Warrant is
exercisable, and any related change in the Exercise Price, after giving
effect to such adjustment or change. The Company shall promptly cause a
signed copy of such certificate to be delivered to the Holder in
accordance with Section 15.2. The Company shall keep at its principal
office or at the Designated Office, if different, copies of all such
certificates and cause the same to be available for inspection at said
office during normal business hours by the Holder or any prospective
transferee of a Warrant designated by the Holder thereof.
2.3 Payment of Taxes. All shares of Common Stock issuable upon
the exercise of this Warrant pursuant to the terms hereof shall be validly
issued, fully paid and nonassessable, issued without violation of any preemptive
rights and free and clear of all Liens (other than any created by actions of the
Holder). The Company shall pay all expenses in connection with, and all taxes
and other governmental charges that may be imposed with respect to, the issue or
delivery thereof, unless such tax or charge is imposed by law upon the Holder.
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2.4 Fractional Shares. The Company shall not be required to issue
a fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share that the Holder of one or more Warrants, the rights under
which are exercised in the same transaction, would otherwise be entitled to
purchase upon such exercise, the Company shall pay a cash adjustment in respect
of such final fraction in an amount equal to the same fraction of (i) the
Current Market Price of one share of Common Stock on the Exercise Date, if the
Common Stock is then publicly traded or (ii) the Book Value per share of Common
Stock based on the most recent available consolidated balance sheet of the
Company, if the Common Stock is not then publicly traded.
2.5 Continued Validity and Application. (a) If shares of Warrant
Stock are issued upon the exercise of this Warrant, the Holder shall continue,
with respect to such shares, to be entitled to all rights and to be subject to
all obligations that are applicable to such Holder by the terms of this Warrant
after the exercise thereof. The Company shall, at the time of any exercise of
this Warrant, upon the request of the Holder, acknowledge in writing, in a form
reasonably satisfactory to such Holder, its continuing obligation to afford to
such Holder such rights referred to in this Section 2.5; provided, however, that
if such Holder shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to such Holder all
such rights.
3. [INTENTIONALLY OMITTED]
4. ANTIDILUTION PROVISIONS
The number of shares of Common Stock for which this Warrant is
exercisable and the Exercise Price shall be subject to adjustment from time to
time as set forth in this Section 4.
4.1 Stock Dividends, Subdivisions and Combinations. If at any
time the Company shall:
(i) take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend payable in,
or other distribution of, additional shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into
a larger number of shares of such Common Stock, or
(iii)combine its outstanding shares of Common Stock into
a smaller number of shares of such Common Stock,
then the Exercise Price shall be adjusted to equal the product of the
Exercise Price in effect immediately prior to such event multiplied by a
fraction the numerator of which is equal to the number of shares of
Common Stock Outstanding immediately prior to the adjustment and the
denominator of which is equal to the number of shares of Common Stock
Outstanding immediately after such adjustment.
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4.2 Issuance of Additional Shares of Common Stock. If at any time
the Company shall issue or sell any shares of Common Stock in a Subsequent
Issuance for a consideration per share that is less than the Fair Value per
share in effect immediately prior to such issuance or sale and such Fair Value
is less than the Exercise Price, then, forthwith upon such issuance or sale, the
Exercise Price shall be reduced to the price calculated by multiplying the then
existing Exercise Price by a fraction, the numerator of which shall be the
quotient obtained by dividing (A) the sum of (x) the number of shares of Common
Stock Outstanding plus the number of shares of Common Stock issuable pursuant to
the exercise of any Stock Purchase Rights or the conversion of Convertible
Securities (in each case, immediately prior to such Subsequent Issuance) which
fully diluted number shall be multiplied by the Fair Value per share of Common
Stock immediately prior to such Subsequent Issuance plus (y) the aggregate
consideration (determined in accordance with the provisions of Section 4.6
hereof), if any, received by the Company in connection with such Subsequent
Issuance by (B) the total number of shares of Common Stock Outstanding plus the
number of shares of Common Stock issuable pursuant to the exercise of any Stock
Purchase Rights or the conversion of Convertible Securities (in each case,
immediately after such Subsequent Issuance) and the denominator of which shall
be the Fair Value per share of Common Stock immediately prior to such Subsequent
Issuance.
The provisions of this Section 4.2 shall not apply to (i) any
issuance of Common Stock for which an adjustment is provided for under Section
4.1 or (ii) any issuance or sale of Common Stock pursuant to the exercise of any
Stock Purchase Rights or Convertible Securities.
4.3 Issuances of Stock Purchase Rights and Convertible
Securities. (a) In the event that the Company shall at any time issue, sell or
grant any Stock Purchase Rights to any Person in a Subsequent Issuance, then,
for the purpose of Section 4.2 above, the Company shall be deemed to have issued
at that time a number of shares of Common Stock equal to the maximum number of
shares of Common Stock that are or may become issuable upon exercise of such
Stock Purchase Rights (or upon exercise of any Convertible Securities issuable
upon exercise of such Stock Purchase Rights) for a consideration per share equal
to (i) the aggregate consideration per share (determined in accordance with the
provisions of Section 4.6 hereof) received by the Company in connection with the
issuance, sale or grant of such Stock Purchase Rights plus (ii) the minimum
amount of such consideration per share receivable by the Company in connection
with the exercise of such Stock Purchase Rights (and the exercise of any
Convertible Securities issuable upon exercise of such Stock Purchase Rights).
(b) In the event that the Company shall at any time issue or sell
any Convertible Securities to any Person in a Subsequent Issuance, then, for the
purposes of Section 4.2 above, the Company shall be deemed to have issued at
that time a number of shares of Common Stock equal to the maximum number of
shares of Common Stock that are or may become issuable upon the exercise of the
conversion or exchange rights associated with such Convertible Securities for a
consideration per share equal to (i) the aggregate consideration per share
(determined in accordance with the provisions of Section 4.6 hereof) received by
the Company in connection with the issuance or sale of such Convertible
Securities plus (ii) the minimum amount of such consideration per share
receivable by the Company in connection with the exercise of such conversion or
exchange rights.
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(c) If, at any time after any adjustment of the Exercise Price
shall have been made hereunder as the result of any issuance, sale or grant of
any Stock Purchase Rights or Convertible Securities, the maximum number of
shares issuable upon exercise of such Stock Purchase Rights or of the rights of
conversion or exchange associated with such Convertible Securities shall
increase, or the minimum amount of consideration per share receivable in
connection with such exercise shall decrease, whether by operation of any
antidilution rights pertaining to such Stock Purchase Rights or Convertible
Securities, by agreement of the parties or otherwise, the Exercise Price then in
effect shall first be readjusted to eliminate the effects of the original
issuance, sale or grant of such Stock Purchase Rights or Convertible Securities
on such Exercise Price and then readjusted as if such Stock Purchase Rights or
Convertible Securities had been issued on the effective date of such increase
in number of shares or decrease in consideration, but only if the effect of such
two-step readjustment is to reduce the Exercise Price below the Exercise Price
in effect immediately prior to such increase or decrease.
(d) If, at any time after any adjustment of the Exercise Price
shall have been made hereunder as the result of any issuance, sale or grant of
any Stock Purchase Rights or Convertible Securities, any of such Stock Purchase
Rights or the rights of conversion or exchange associated with such Convertible
Securities shall expire by their terms or any of such Stock Purchase Rights or
Convertible Securities shall be repurchased by the Company or a Subsidiary
thereof for a consideration per underlying share of Common Stock not exceeding
the amount of such consideration received by the Company in connection with the
issuance, sale or grant of such Stock Purchase Rights or Convertible Securities,
the Exercise Price then in effect shall forthwith be increased to the Exercise
Price that would have been in effect if such expiring Stock Purchase Rights or
rights of conversion or exchange or such repurchased Stock Purchase Rights or
Convertible Securities had never been issued. Similarly, if at any time after
any such adjustment of the Exercise Price shall have been made pursuant to
Section 4.2 (i) any additional consideration is received or becomes receivable
by the Company in connection with the issuance or exercise of such Stock
Purchase Rights or Convertible Securities or (ii) there is a reduction in the
conversion ratio applicable to such Convertible Securities so that fewer shares
of Common Stock will be issuable upon the conversion or exchange thereof or
there is a decrease in the number of shares of Common Stock issuable upon
exercise of such Stock Purchase Rights, the Exercise Price then in effect shall
be forthwith readjusted to the Exercise Price that would have been in effect had
such changes taken place at the time that such Stock Purchase Rights or
Convertible Securities were initially issued, granted or sold. In no event shall
any readjustment under this Section 4.3(d) affect the validity of any shares of
Warrant Stock issued upon any exercise of this Warrant prior to such
readjustment, nor shall any such readjustment have the effect of increasing the
Exercise Price above the Exercise Price that would have been in effect if the
related Stock Purchase Rights or Convertible Securities had never been issued.
4.4 Adjustment of Number of Shares Purchasable. Upon any
adjustment of the Exercise Price as provided in Section 4.1, 4.2 or 4.3 hereof,
the Holder hereof shall thereafter be entitled to purchase upon the exercise of
this Warrant, at the Exercise Price resulting from such adjustment, the number
of shares of Common Stock (calculated to the nearest 1/100th of a share)
obtained by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable on the exercise
hereof immediately prior to such adjustment and dividing the product thereof by
the Exercise Price resulting from such adjustment.
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4.5 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is any change whatsoever in, or distribution with respect to, the Outstanding
Common Stock of the Company other than a change in the par value of the Common
Stock or a change in the Common Stock to no par value), or sell, transfer or
otherwise dispose of all or substantially all of its property, assets or
business to another corporation, other than in any such case pursuant to a
Qualifying Business Combination for which Section 2.2 provides a different
result and, pursuant to the terms of such reorganization, reclassification,
merger, consolidation or disposition of assets, (i) shares of capital stock of
the successor or acquiring corporation or of the Company (if it is the surviving
corporation) or (ii) any cash, shares of stock or other securities or property
of any nature whatsoever (including warrants or other subscription or purchase
rights) in addition to or in lieu of capital stock of the successor or acquiring
corporation ("Other Property") are to be received by or distributed to the
holders of Common Stock of the Company who are holders immediately prior to such
transaction, then the Holder of this Warrant shall have the right thereafter to
receive, upon exercise of this Warrant, the number of shares of capital stock of
the successor or acquiring corporation or of the Company, if it is the surviving
corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event. In such event, the aggregate
Exercise Price otherwise payable for the shares of Common Stock issuable upon
exercise of this Warrant shall be allocated among the shares of capital stock
and Other Property receivable as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets in proportion
to the respective Fair Values of such shares of capital stock and Other
Property. In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be reasonably deemed
appropriate (as determined by resolution of the Board of Directors of the
Company) in order to provide for adjustments of any shares of the common stock
of such successor or acquiring corporation for which this Warrant thus becomes
exercisable, which modifications shall be as equivalent as practicable to the
adjustments provided for in this Section 4. For purposes of this Section 4.5,
"capital stock of the successor or acquiring corporation" shall include stock of
such corporation of any class that is not preferred as to dividends or assets
over any other class of stock of such corporation and that is not subject to
redemption and shall also include any securities that are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any Warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 4.5 shall similarly apply to successive reorganizations,
reclassification, mergers, consolidations or disposition of assets.
4.6 Determination of Consideration. For purposes of Sections 4.2,
4.3 and 4.4 hereof, the consideration received and/or receivable by the Company
in connection with the issuance, sale, grant or exercise of additional shares of
Common Stock, Stock Purchase Rights or Convertible Securities, irrespective of
the accounting treatment of such consideration, shall be valued as follows:
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(1) Cash Payment. In the case of cash, the net amount
received by the Company after deduction of any accrued interest or
dividends, but including any underwriting commissions or concessions
paid or allowed by the Company.
(2) Securities or Other Property. In the case of
securities or other property, the Fair Value thereof as of the date
immediately preceding such issuance, sale, grant or exercise.
(3) Allocation Related to Common Stock. In the event
shares of Common Stock are issued or sold together with other securities
or other assets of the Company for a consideration which covers both,
the consideration received (computed as provided in (1) and (2) above)
shall be allocable to such shares of Common Stock and other securities
or other assets in proportion to their respective Fair Values.
(4) Allocation Related to Stock Purchase Rights and
Convertible Securities. In case any Stock Purchase Rights or Convertible
Securities shall be issued or sold together with other securities or
other assets of the Company, together comprising one integral
transaction in which no specific consideration is allocated to the Stock
Purchase Rights or Convertible Securities, the consideration received
shall be allocable to such Stock Purchase Rights or Convertible
Securities and other securities or assets in proportion to their
respective Fair Values.
(5) Dividends in Securities. In case the Company shall
declare a dividend or make any other distribution upon any stock of the
Company payable in either case in Convertible Securities, such
Convertible Securities issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.
(6) Merger Consolidation or Sale of Assets. In case any
shares of Common Stock, Stock Purchase Rights or Convertible Securities
shall be issued in connection with any merger or consolidation in which
the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the Fair Value of such portion of the
assets and business of the non-surviving corporation attributable to
such Common Stock, Stock Purchase Rights or Convertible Securities.
4.7 Other Dilutive Events. In case any event shall occur as to
which the other provisions of this Section 4 are not strictly applicable but as
to which the failure to make any adjustment would not fairly protect the
purchase rights represented by this Warrant in accordance with the essential
intent and principles hereof (including, without limitation, the issuance of
securities other than Common Stock which have the right to participate in
distributions to the holders of Common Stock, the granting of "phantom stock"
rights or "stock appreciation rights" (other than as contemplated in clause (ii)
of the definition of Subsequent Issuance) or the repurchase of outstanding
shares of Common Stock, Convertible Securities or Stock Purchase Rights for a
purchase price exceeding the Fair Value thereof), then, in each such case, the
Holder may select an investment banking firm of nationally recognized standing
or a "Big 6" accounting firm reasonably acceptable to the Company to make a
determination as to the adjustment, if any, required to be made on a basis
consistent with the essential intent and
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principles established herein as a result of such event in order to preserve the
purchase rights represented by the Warrants. If the investment bank or
accounting firm selected by the Holder is not reasonably acceptable to the
Company, and the Company and the Holder cannot agree on a mutually acceptable
investment bank or accounting firm, then the Company and the Holder shall each
choose one such investment bank or accounting firm and the respective chosen
firms shall jointly select a third investment bank or accounting firm, which
shall make the determination. The Company and the Holder shall each pay one-half
of the costs and fees of each such investment bank or accounting firm, and the
decision of the investment bank or accounting firm making such determination
shall be final and binding on the Company and the Holder and all affected
holders of Warrant Stock. Promptly after receipt of the opinion of such
investment bank or accounting firm as to any such required adjustments, the
Company shall take any actions necessary to implement same.
4.8 Other Provisions Applicable to Adjustments Under This
Section. The following provisions shall be applicable to the adjustments
provided for pursuant to this Section 4:
(a) When Adjustments To Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event
requiring such an adjustment shall occur. For the purpose of any such
adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(b) Record Date. In case the Company shall take a record of the
holders of the Common Stock for the purpose of entitling them to receive
a dividend or other distribution payable in Common Stock, Convertible
Securities or Stock Purchase Rights, then all references in this Section
4 to the date of the issuance or sale of such shares of Common Stock,
Convertible Securities or Stock Purchase Rights shall be deemed to be
references to such record date.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/100th of a share.
(d) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution to which the provisions of
Section 4.1 would apply, but shall, thereafter and before the
distribution to stockholders thereof, legally abandon its plan to pay or
deliver such dividend or distribution, then thereafter no adjustment
shall be required by reason of the taking of such record and any such
adjustment previously made in respect thereof shall be rescinded and
annulled.
(e) Maximum Exercise Price. Except as provided in Section 4.1, at
no time shall the Exercise Price per share of Common Stock exceed the
amount set forth in the first paragraph of the preamble of this Warrant.
(f) Certain Limitations. Notwithstanding anything, herein to the
contrary, the Company agrees not to enter into any transaction that, by
reason of any adjustment under
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Section 4.1, 4.2 or 4.3 above, would cause the Exercise Price to be less
than the par value of the Common Stock, if any, unless the Company first
reduces the par value of the Common Stock to be less than the Exercise
Price that would result from such transaction.
(g) Notice of Adjustments. Whenever the number of shares of
Common Stock for which this Warrant is exercisable or the Exercise Price
shall be adjusted pursuant to this Section 4, the Company shall
forthwith prepare a certificate to be executed by the chief financial
officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was
calculated, specifying the number of shares of Common Stock for which
this Warrant is exercisable and (if such adjustment was made pursuant to
Section 4.5) describing the number and kind of any other shares of stock
or Other Property for which this Warrant is exercisable, and any related
change in the Exercise Price, after giving effect to such adjustment or
change. The Company shall promptly cause a signed copy of such
certificate to be delivered to the Holder in accordance with Section
15.2. The Company shall keep at its principal office or at the
Designated Office, if different, copies of all such certificates and
cause the same to be available for inspection at said office during
normal business hours by any Holder or any prospective transferee of a
Warrant designated by a Holder thereof.
(h) Independent Application. Except as otherwise provided herein,
all subsections of this Section 4 are intended to operate independently
of one another (but without duplication). If an event occurs that
requires the application of more than one subsection, all applicable
subsections shall be given independent effect without duplication.
5. NO IMPAIRMENT
The Company shall not by any action, including, without
limitation, amending its charter documents or through any reorganization,
reclassification, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other similar voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate to protect
the rights of the Holder against impairment. Without limiting the generality of
the foregoing, the Company shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, free
and clear of all Liens, and shall use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant. The effectiveness of this Section 5 shall
terminate upon the exercise of the Warrant.
6. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
From and after the Original Issue Date, the Company shall at all
times reserve and keep available for issuance upon the exercise of the Warrant
such number of its authorized but
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unissued shares of Common Stock as will be sufficient to permit the exercise in
full of the Warrant. All shares of Common Stock issuable pursuant to the terms
hereof, when issued upon exercise of this Warrant with payment therefor in
accordance with the terms hereof, shall be duly and validly issued and fully
paid and nonassessable, not subject to preemptive rights and shall be free and
clear of all Liens. Before taking any action that would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction over such action.
7. NOTICE OF CORPORATE ACTIONS, TAKING OF RECORD, TRANSFER BOOKS
7.1 Notices of Corporate Actions. In the event of: (a) any taking
by the Company of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of capital stock of any class or any other securities, (b)
any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other Person in which the Company is not
the surviving corporation or in which there is any change in, or distribution
with respect to the Outstanding Common Stock of the Company, or any transfer or
other disposition of all or substantially all the assets of the Company to
another Person or (c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, (d) any amendment of the Certificate of Incorporation
of the Company, (e) any registration or public offering of Common Stock, or (f)
any Qualifying Business Combination or Qualifying IPO, the Company shall provide
the Holder in accordance with the provisions of Section 15.2 hereof a notice
specifying (i) the date or expected date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount or
expected amount and character or expected character of such dividend,
distribution or right and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, disposition, dissolution, liquidation or winding-up is to take place,
the time or expected time, if any such time is to be fixed, as of which the
holders of record of Common Stock shall be entitled to exchange their shares of
Common Stock for the securities or Other Property deliverable upon such
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, disposition, dissolution, liquidation or winding-up and a description
in reasonable detail of the transaction as known to such date. Such notice shall
be provided to the extent practicable at least thirty (30), but not more than
ninety (90) days prior to the date therein specified. After any initial public
offering, in the event that the Company at any time sends any other Notice to
the holders of its Common Stock, it shall concurrently send a copy of such
notice to the Holder.
7.2 Taking of Record. In the case of all dividends or other
distributions by the Company to the holders of its Common Stock with respect to
which any provision of any Section hereof refers to the taking of a record of
such holders, unless it abandons the dividend or distribution, the Company will
in each such case take such a record and will take such record as of the close
of business on a Business Day.
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7.3 Closing of Transfer Books. The Company shall not at any time,
except upon dissolution, liquidation or winding up of the Company, close its
stock transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
7.4 Application. The provisions of this Section 7 shall terminate
upon exercise of the Warrant.
8. TRANSFER RESTRICTIONS
The Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 8.
8.1 Restrictions on Transfers. This Warrant shall not be
Transferred by the Holder to any Person other than a Subsidiary which shall be
entitled to the benefits hereof and shall execute an instrument in form
reasonably satisfactory to the Company accepting the obligations of the Holder
hereunder. If at any time, the Subsidiary shall cease to be a Subsidiary of the
Holder, the Subsidiary shall re-transfer the Warrant to the Holder. No shares of
Restricted Common Stock issued upon the exercise hereof shall be Transferred
other than pursuant to an effective registration statement under the Securities
Act or an exemption from the registration provisions thereof. No Transfer of any
such shares of Restricted Common Stock other than pursuant to such an effective
registration statement shall be valid or effective unless (a) the holder of the
securities proposed to be transferred shall have delivered to the Company either
a no-action letter from the Commission or an Opinion of Counsel to the effect
that such proposed Transfer is exempt from the registration requirements of the
Securities Act or (b) such Transfer is being made pursuant to Rule 144 or Rule
144A under the Securities Act and such holder shall have delivered to the
Company a certificate setting forth the basis for applying such Rule to the
proposed Transfer. Each certificate, if any, evidencing such shares of
Restricted Common Stock issued upon any such Transfer, other than in a public
offering pursuant to an effective registration statement, shall bear the
restrictive legend set forth in Section 8.2(a), unless the Holder delivers to
the Company an Opinion of Counsel to the effect that such legend is not required
for the purposes of compliance with the Securities Act. Holders of the
Restricted Common Stock shall not be entitled to Transfer such Restricted Common
Stock except in accordance with this Section 8.1.
8.2 Restrictive Legends. Except as otherwise provided in this
Section 8, each certificate for Warrant Stock initially issued upon the exercise
of this Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAW. NO TRANSFER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) THE
HOLDER OF THE SECURITIES PROPOSED TO BE TRANSFERRED SHALL HAVE DELIVERED
TO THE COMPANY AN
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OPINION OF COUNSEL EXPERIENCED IN SECURITIES MATTERS TO THE EFFECT THAT
SUCH PROPOSED TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
THE ACT OR (C) SUCH TRANSFER IS PURSUANT TO RULE 144 OR RULE 144A UNDER
THE ACT AND SUCH HOLDER(S) SHALL HAVE DELIVERED TO THE COMPANY A
CERTIFICATE SETTING FORTH THE BASIS FOR APPLYING SUCH RULE TO THE
PROPOSED TRANSFER.
8.3 Termination of Securities Law Restrictions. Notwithstanding
the foregoing provisions of this Section 8, the restrictions imposed by Section
8.1 upon the transferability of the Restricted Common Stock and the legend
requirements of Section 8.2 shall terminate as to any particular shares of
Restricted Common Stock when the Company shall have received from the Holder
thereof an Opinion of Counsel to the effect that such legend is not required in
order to ensure compliance with the Securities Act.
Wherever the restrictions imposed by this Section shall terminate as to any
share of Restricted Common Stock, as hereinabove provided, the Holder thereof
shall be entitled to receive from the Company, at the Company's expense, a new
certificate representing such Common Stock not bearing the restrictive legend
set forth in Section 8.2(a).
9. REGISTRATION RIGHTS
9.1 Certain Definitions. For the purposes of this Section 9:
(a) "Warrant Stock" shall be deemed to include not only shares of
Common Stock already included in the general definition of such term,
but also (i) any other securities issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in
exchange by the Company generally for, or in replacement by the Company
generally of, any shares of Warrant Stock and (ii) any securities issued
in exchange for any such Warrant Stock in any merger or reorganization
of the Company or other Qualifying Business Combination, but (A) in
either such case only so long as such securities have not been
registered and Transferred pursuant to the Securities Act or Transferred
in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act so that all transfer restrictions and
restrictive legends with respect to such securities are removed in
connection with such Transfer and (B) in case of clause (ii), shall be
limited for purposes of Section 9 to no greater registration rights than
are held, directly or indirectly, immediately after a merger,
consolidation or Qualifying Business Combination by Paradyne Partners,
L.P., a Delaware limited partnership, and/or its Affiliates (it being
understood that if Paradyne Partners, L.P. and/or its Affiliates shall
have no such rights, this Section 9 shall terminate upon consummation of
such merger or reorganization or other Qualifying Business Combination).
(b) The Holder shall be deemed to "hold", as of any specified
date, the aggregate of (i) the number of shares of Warrant Stock held by
the Holder as of such date plus (ii) the number of shares of Warrant
Stock issuable upon exercise of the Warrant as of such date.
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(c) The total number of shares of Warrant shock deemed
"outstanding" as of a specified date will be equal to (i) the total
number of shares of Warrant Stock Outstanding as of such date plus (ii)
the number of shares of Warrant Stock issuable upon exercise of the
Warrant as of such date.
(d) "Registrable Securities" shall mean any shares of Warrant
Stock issued or issuable upon exercise of Warrants.
9.2 Demand Registration. (a) In the event that at any time
commencing one year after the consummation of an initial public offering of
Common Stock by the Company, the Company receives a written request from the
Holder (the "Demanding Holder") that the Company file a registration statement
under the Securities Act for the sale or other disposition of Registrable
Securities (a "Demand Registration"), the Company shall take the actions set
forth in this Section 9.2.
(b) Following receipt of such a request for a Demand
Registration, the Company shall:
(1) File the requested registration statement with the
Commission as promptly as practicable, and shall use the Company's best
efforts to have the registration declared effective under the Securities
Act as soon as reasonably practicable, in each instance giving due
regard to the need to prepare current financial statements, conduct due
diligence and complete other actions that are reasonably necessary to
effect a registered public offering; and
(2) Use the Company's best efforts to keep the such
registration statement Continuously Effective for up to 270 days or
until such earlier date as of which all Registrable Securities covered
by such registration statement shall have been disposed of in the manner
described in the registration statement. Notwithstanding the foregoing,
if for any reason the effectiveness of a Demand Registration is
suspended or postponed as permitted by Subsection (d) below, the
foregoing period shall be extended by the aggregate number of days of
such suspension or postponement.
(c) The Company shall not be required to effect a registration of
Registrable Securities pursuant to a Demand Registration: (i) on more than one
occasion or (ii) at any time within six months after the effective date of any
registration statement filed by the Company under the Securities Act for any
offering of Common Stock (other than a registration statement on Form S-4 or
Form S-8 or any successor forms). For purposes of this Subsection (c),
registration shall not be deemed to have been effected (i) unless a registration
statement with respect thereto has become effective, (ii) if after such
registration statement has become effective, such registration or the related
offer, sale or distribution of Registrable Securities thereunder is interfered
with by any stop order, injunction or other order or requirement of the
Commission or other governmental agency or court for any reason not attributable
to the Selling Holder and such interference is not thereafter eliminated or
(iii) if any condition to closing specified in the underwriting agreement with
regard to the absence of a material adverse change in the business, condition,
operations or prospects (or items of similar import) of the Company entered into
in connection with such registration is not satisfied or waived. If the Company
shall
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have complied with its obligations under this Section 9, a right to demand
a registration pursuant to this Section 9.2 shall be deemed to have been
satisfied upon the earlier of (x) the date as of which all of the Registrable
Securities included therein shall have been disposed of pursuant to the
registration statement and (y) the date as of which such Demand Registration
shall have been Continuously Effective for a period of 270 days, provided no
stop order or similar order, or proceedings for such an order, is thereafter
entered or initiated.
(d) The Company shall be entitled to postpone for up to 90 days
the filing of any Demand Registration statement otherwise required to be
prepared and filed pursuant to this Section 9.2, if the Board of Directors of
the Company determines, in its good faith reasonable judgment (with the
concurrence of the managing underwriter, if any), that such registration and the
Transfer of Warrant Stock contemplated thereby would materially interfere with,
or require premature disclosure of, any financing, acquisition or reorganization
involving the Company or any of its wholly owned subsidiaries and the Company
promptly gives the Demanding Holder notice of such determination; provided,
however, that the Company shall not have postponed pursuant to this Subsection
(d) the filing of any other Demand Registration statement otherwise required to
be prepared and filed pursuant to this Section 9.2 during the 12 month period
ended on the date of the relevant request pursuant to Subsection (a) above.
(e) A registration pursuant to this Section 9.2 shall be on such
appropriate registration form of the Commission as shall (i) be selected by the
Company and be reasonably acceptable to the Selling Holder and (ii) permit the
disposition of the Warrant Stock in accordance with the intended method or
methods of disposition specified in the request made pursuant to Subsection (a)
above. If any registration pursuant to this Section 9.2 involves an underwritten
offering (whether on a "firm", "best efforts or "all reasonable efforts" basis
or otherwise), or an agented offering, the Selling Holder shall have the right
to select the underwriter or underwriters and manager or managers to administer
such underwritten offering or the placement agent or agents for such agented
offering; provided, however, that each Person so selected shall be reasonably
acceptable to the Company.
9.3 Piggyback Registration. (a) If at any time the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholders of the Company other than the Holder) securities under
the Securities Act in connection with the public offering solely for cash on
Form S-1, S-2 or S-3 (or any replacement or successor forms), the Company shall
promptly give the Holder written notice of such registration (a "Piggyback
Registration"). Upon the written request of the Holder given within 20 days
following the date of such notice, the Company shall cause to be included in
such registration statement and use its best efforts to be registered under the
Securities Act all the Registrable Securities that the Holder shall have
requested to be registered; provided, however, that such right of inclusion
shall not apply to any registration statement covering an underwritten offering
of convertible debt securities, unless the managing underwriter expressly
consents thereto. The Company shall have the absolute right to withdraw or cease
to prepare or file any registration statement for any offering referred to in
this Section 9.3 without any obligation or liability to the Holder.
(b) If the managing underwriter shall advise the Company in
writing (with a copy to the Selling Holder) that, in its opinion, the amount or
type of Registrable Securities requested to be included in such registration
would materially adversely affect such offering, or
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the timing thereof, then the Company will include in such registration, to the
extent of the amount and type which the Company is so advised can be sold
without such material adverse effect in such offering: First, all securities
proposed to be sold by the Company for its own account; second, the Warrant
Stock requested to be included in such registration by the Holder pursuant to
this Section 9.3, and all other securities being registered pursuant to the
exercise of contractual rights comparable to the rights granted in this Section
9.3, pro rata based on the estimated gross proceeds from the sale thereof; and
third, all other securities requested to be included in such registration.
(c) The Holder shall be entitled to have its Registrable
Securities included in an unlimited number of Piggyback Registrations pursuant
to this Section 9.3.
9.4 Registration Procedures. Whenever required under Section 9.2
or Section 9.3 hereof to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as practicable:
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use the Company's best efforts
to cause such registration statement to become effective; provided, however,
that before filing a registration statement or prospectus or any amendments or
supplements thereto, including documents incorporated by reference after the
initial filing of the registration statement and prior to effectiveness thereof,
the Company shall furnish to counsel for the Holder copies of all such documents
in the form substantially as proposed to be filed with the Commission prior to
filing for review and comment by such counsel.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act and rules thereunder with respect to the
disposition of all securities covered by such registration statement. If the
registration is for an underwritten offering, the Company shall amend the
registration statement or supplement the prospectus whenever required by the
terms of the underwriting agreement entered into pursuant to Section 9.4(f). In
the event that any Registrable Securities included in a registration statement
subject to, or required by, this Agreement remain unsold at the end of the
period during which the Company is obligated to use its best efforts to maintain
the effectiveness of such registration statement, the Company may file a
post-effective amendment to the registration statement for the purpose of
removing such Registrable Securities from registered status.
(c) Furnish to the Selling Holder of Registrable Securities,
without charge, such numbers of copies of the registration statement, any
pre-effective or post-effective amendment thereto, the prospectus, including
each preliminary prospectus and any amendments or supplements thereto, in each
case in conformity with the requirements of the Securities Act and the rules
thereunder, and such other related documents as such Selling Holder may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by such Selling Holder.
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(d) Use the Company's best efforts (i) to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such states or jurisdictions as shall be
reasonably requested by the managing underwriter (as applicable, or if
inapplicable, the Selling Holder), and (ii) to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the lifting
of any suspension of the qualification (or exemption from qualification) of the
offer and transfer of any of the Registrable Securities in any jurisdiction, at
the earliest possible moment; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(e) In the event of any underwritten or agented offering, enter
into and perform the Company's obligations under an underwriting or agency
agreement (including indemnification and contribution obligations of
underwriters or agents), in usual and customary form, with the managing
underwriter or underwriters of or agents for such offering. The Company shall
also cooperate with the Selling Holder and the managing underwriter for such
offering in the marketing of the Warrant Stock, including making available the
Company's officers, accountants, counsel, premises, books and records for such
purpose, but the Company shall not be required to incur any material
out-of-pocket expense pursuant to this sentence.
(f) Promptly notify the Selling Holder of any stop order issued
or threatened to be issued by the Commission in connection therewith (and take
all reasonable actions required to prevent the entry of such stop order or to
remove it if entered).
(g) Make generally available to the Company's security holders
copies of all periodic reports, proxy statements, and other information referred
to in Section 9.9(a) and an earnings statement satisfying the provisions of
Section 11(a) of the Securities Act no later than 90 days following the end of
the 12-month period beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of each registration statement filed
pursuant to this Section 9.
(h) Make available for inspection by the Selling Holder, any
underwriter participating in such offering and the representatives of such
Selling Holder and underwriter, all financial and other information as shall be
reasonably requested by them, and provide the Selling Holder, any underwriter
participating in such offering and the representatives of the Selling Holder and
underwriter the opportunity to discuss the business affairs of the Company with
its principal executives and independent public accountants who have certified
the audited financial statements included in such registration statement, in
each case all as necessary to enable them to exercise their due diligence
responsibility under the Securities Act; provided, however, that information
that the Company determines, in good faith, to be confidential and which the
Company advises such Person in writing, is confidential shall not be disclosed
unless such Person signs a confidentiality agreement reasonably satisfactory to
the Company or the Selling Holder of Registrable Securities agrees to be
responsible for such Person's breach of confidentiality on terms reasonably
satisfactory to the Company.
(i) Use the Company's best efforts to obtain a so-called "comfort
letter" from its independent public accountants, and legal opinions of counsel
to the Company addressed to the Selling Holder, in customary form and covering
such matters of the type customarily covered
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by such letters, and in a form that shall be reasonably satisfactory to the
Selling Holder. The Company shall furnish to the Selling Holder a signed
counterpart of any such comfort letter or legal opinion. Delivery of any such
opinion or comfort letter shall be subject to the recipient furnishing such
written representations or acknowledgements as are customarily provided by
selling shareholders who receive such comfort letters or opinions.
(j) Provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration statement
from and after a date not later than the effective date of such registration
statement.
(k) Use all reasonable efforts to cause the Registrable
Securities covered by such registration statement (i) if the Common Stock is
then listed on a securities exchange or included for quotation in a recognized
trading market, to continue to be so listed or included for a reasonable period
of time after the offering, and (ii) to be registered with or approved by such
other United States or state governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to enable the
Selling Holder of Registrable Securities to consummate the disposition of such
Registrable Securities.
(l) Use the Company's reasonable efforts to provide a CUSIP
number for the Common Stock prior to the effective date of the first
registration statement including Registrable Securities.
(m) Take such other actions as are reasonably required in order
to expedite or facilitate the disposition of Registrable Securities included in
each such registration.
9.5 Selling Holder's Obligations. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 9 with respect to the Registrable Securities of the Selling Holder that
such Selling Holder shall:
(a) Furnish to the Company such information regarding such
Selling Holder, the number of Registrable Securities owned by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of such Selling Holders Registrable Securities, and to
cooperate with the Company in preparing such registration;
(b) Agree to sell their Registrable Securities to the
underwriters at the same price and on substantially the same terms and
conditions as the Company or the other Persons on whose behalf the registration
statement was being filed have agreed to sell their securities, and to execute
the underwriting agreement agreed to by such Selling Holder (in the case of a
registration under Section 9.2) or the Company (in the case of a registration
under Section 9.3).
9.6 Expenses of Registration. Expenses incurred in connection
with registrations under this Section 9 shall be allocated and paid as follows:
(a) With respect to a Demand Registration, the Company shall bear
and pay all expenses incurred in connection with any registration, filing, or
qualification of Registrable Securities with respect to such Demand Registration
for the Selling Holder, including all registration, filing and NASD fees, all
fees and expenses of complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, messenger and delivery
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<PAGE> 27
expenses, the reasonable fees and disbursements of counsel for the Company, and
of the Company's independent public accountants, including the expenses of "cold
comfort" letters required by or incident to such performance and compliance, and
the reasonable fees and disbursements of one firm of counsel for the Selling
Holder of Registrable Securities in an amount not to exceed $25,000 (the
"Registration Expenses"), but excluding underwriting discounts and commissions
relating to Registrable Securities provided, however, that the Company shall not
be required to pay for any expenses of any registration proceeding begun
pursuant to Section 9.2 if the registration is subsequently withdrawn at the
request of the Selling Holder (in which case the Selling Holder shall bear such
expense), unless the Holder agrees that such withdrawn registration shall
constitute the exercise of its one demand registration under Section 9.2 hereof.
(b) The Company shall bear and pay all Registration Expenses
incurred in connection with any Piggyback Registrations pursuant to Section 9.3
for the Selling Holder, but excluding underwriting discounts and commissions
relating to Registrable Securities (which shall be paid on a pro rata basis by
the Selling Holder of Registrable Securities).
(c) Any failure of the Company to pay any Registration Expenses
as required by this Section 9.6 shall not relieve the Company of its obligations
under this Section 9.
9.7 Indemnification; Contribution. If any Registrable Securities
are included in a registration statement under this Section 9:
(a) To the extent permitted by applicable law, the Company shall
indemnify and hold harmless the Selling Holder, each Person, if any, who
controls such Selling Holder within the meaning of the Securities Act, and each
officer, director, partner, and employee of such Selling Holder and such
controlling Person, against any and all losses, claims, damages, liabilities and
expenses (joint or several), including attorneys' fees and disbursements and
expenses of investigation, incurred by such party pursuant to any actual or
threatened action, suit, proceeding or investigation, or to which any of the
foregoing Persons may become subject under the Securities Act, the Exchange Act
or other federal or state laws, insofar as such losses, claims, damages,
liabilities and expenses arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"):
(i) Any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein,
or any amendments or supplements thereto;
(ii) The omission or alleged omission to state in such
registration statement, including any preliminary prospectus or
final prospectus contained therein, or any amendments or
supplements thereto, a material fact required to be stated
therein, or necessary to make the statements therein not
misleading; or
(iii) Any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any applicable state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any applicable state
securities law in connection with such registration statement,
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<PAGE> 28
including any preliminary prospectus or final prospectus
contained therein, or any amendments or supplements thereto;
provided, however, that the indemnification required by this Section 9.7(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or expense if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or expense to the extent that it has solely arisen out of or is based upon a
Violation which occurred in reliance upon and in conformity with written
information furnished to the Company by the indemnified party expressly for use
in connection with such registration; provided, further, that the indemnity
agreement contained in this Section 9.7(a) shall not apply to any underwriter to
the extent that any such loss is based on or arises out of an untrue statement
or alleged untrue statement of a material fact, or an omission or alleged
omission to state a material fact, contained in or omitted from any preliminary
prospectus if the final prospectus shall correct such untrue statement or
alleged untrue statement, or such omission or alleged omission, and a copy of
the final prospectus has not been sent or given to such person at or prior to
the confirmation of sale to such person if such underwriter was under an
obligation to deliver such final prospectus and failed to do so. The Company
shall also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers, directors, agents and employees and each person who controls such
persons (within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act) to the same extent as provided above with respect to the
indemnification of the Selling Holder.
(b) To the extent permitted by applicable law, the Selling Holder
shall indemnify and hold harmless the Company, each of its directors, each of
its officers who shall have signed the registration statement, and each Person,
if any, who controls the Company within the meaning of the Securities Act,
against any and all losses, claims, damages, liabilities and expenses (joint and
several), including attorneys' fees and disbursements and expenses of
investigation, incurred by such party pursuant to any actual or threatened
action, suit, proceeding or investigation, or to which any of the foregoing
Persons may otherwise become subject under the Securities Act, the Exchange Act
or other federal or state laws, to the extent that such losses, claims, damages,
liabilities and expenses have solely arisen out of or are based upon a Violation
that occurred in reliance upon and in conformity with written information
furnished by such Selling Holder expressly for use in connection with such
registration, provided, however, that (x) the indemnification required by this
Section 9.7(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or expense if settlement is effected without the
consent of the Selling Holder of Registrable Securities, which consent shall not
be unreasonably withheld, and (y) in no event shall the amount of any indemnity
under this Section 9.7(b) exceed the net proceeds from the applicable offering
received by such Selling Holder.
(c) Promptly after receipt by an indemnified party under this
Section 9.7 of notice of the commencement of any action, suit, proceeding,
investigation or threat thereof made in writing for which such indemnified party
may make a claim under this Section 9.7, such indemnified party shall deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the
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<PAGE> 29
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties. The failure to deliver written notice to the
indemnifying party within a reasonable time following the commencement of any
such action, if prejudicial to its ability to defend such action, shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 9.7 but shall not relieve the indemnifying party of any liability that
it may have to any indemnified party otherwise than pursuant to this Section
9.7. Any fees and expenses incurred by the indemnified party (including any fees
and expenses incurred in connection with investigating or preparing to defend
such action or proceeding) shall be paid to the indemnified party, as incurred,
within thirty (30) days of written notice thereof to the indemnifying party
(regardless of whether it is ultimately determined that an indemnified party is
not entitled to indemnification hereunder). Any such indemnified party shall
have the right to employ separate counsel in any such action, claim or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be the expenses of such indemnified party unless (i) the
indemnifying party has agreed to pay such fees and expenses or (ii) the
indemnifying party shall have failed to promptly assume the defense of such
action, claim or proceeding or (iii) the named parties to any such action, claim
or proceeding (including any impleaded parties) include both such indemnified
party and the indemnifying party, and such indemnified party shall have been
advised by counsel that there may be one or more legal defenses available to it
which are different from or in addition to those available to the indemnifying
party and that the assertion of such defenses would create a conflict of
interest such that counsel employed by the indemnifying party could not
faithfully represent the indemnified party (in which case, if such indemnified
party notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action, claim or
proceeding on behalf of such indemnified party, it being understood, however,
that the indemnifying party shall not, in connection with any one such action,
claim or proceeding or separate but substantially similar or related actions,
claims or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all such indemnified parties, unless in the reasonable
judgment of such indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
action, claim or proceeding, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or counsels).
No indemnifying party shall be liable to an indemnified party for any settlement
of any action, proceeding or claim without the written consent of the
indemnifying party, which consent shall not be unreasonably withheld.
(d) If the indemnification required by this Section 9.7 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to in this
Section 9.7:
(i) The indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable
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<PAGE> 30
considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to,
among other things, whether any Violation has been committed by,
or relates to information supplied by, such indemnifying party
or indemnified parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such Violation. The amount paid or payable by a party as
a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include, subject
to the limitations set forth in Section 9.7(a) and Section
9.7(b), any legal or other fees or expenses reasonably incurred
by such party in connection with any investigation or
proceeding.
(ii) The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 9.7(d)
were determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable
considerations referred to in Section 9.7(d)(i) above. No Person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(e) If indemnification is available under this Section 9.7, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in this Section 9.7 without regard to the relative fault of such
indemnifying party or indemnified party or any other equitable consideration
referred to in Section 9.7(d) above.
(f) The indemnification required by this Section 9.7 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
(g) The obligations of the Company and the Selling Holder of
Registrable Securities under this Section 9.7 shall survive the completion of
any offering of Registrable Securities pursuant to a registration statement
under this Section 9, and otherwise.
9.8 Holdback. The Holder entitled pursuant to this Section 9 to
have Registrable Securities included in a registration statement prepared
pursuant to this Section 9, if so requested by the managing underwriter in
connection with an offering of any Registrable Securities, shall not effect any
public sale or distribution of shares of Common Stock, Convertible Securities or
Stock Purchase Rights (excluding any sale pursuant to Rule 144 or Rule 144A
under the Securities Act and any sale as part of such underwritten or agented
registration), during the 5-day period prior to, and during the 90-day (or in
the case of an initial public offering of the Company's Common Stock, 180-day)
period beginning on, the date such registration statement is declared effective
under the Securities Act by the Commission, provided that such Holder is timely
notified of such effective date in writing by the Company or such managing
underwriter.
9.9 Additional Covenants of the Company. The Company hereby
agrees and covenants as follows:
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<PAGE> 31
(a) The Company shall file as and when applicable, on a timely
basis, all reports required to be filed by it under the Exchange Act. In
addition, promptly upon the request of the Holder, the Company shall provide the
Holder with such financial statements, reports and other information as may be
required to permit the Holder to Transfer shares of Registrable Securities to
Qualified Institutional Investors pursuant to Rule 144A of the Securities Act.
(b) The Company shall not, directly or indirectly, (x) enter into
any merger, consolidation or reorganization in which the Company shall not be
the surviving corporation or (y) Transfer or agree to Transfer all or
substantially all the Company's assets, unless prior to such merger,
consolidation, reorganization or asset Transfer, the surviving corporation or
the Transferee, respectively, shall have agreed in writing to assume the
obligations of the Company under this Agreement, limited as provided in Section
9.1(a) and for that purpose references hereunder to "Registrable Securities"
shall be deemed to include the securities which the Holder would be entitled to
receive in exchange for Registrable Securities pursuant to any such merger,
consolidation or reorganization.
10. LOSS OR MUTILATION
Upon receipt by the Company from the Holder of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and an indemnity reasonably
satisfactory to it (it being understood that the written indemnification
agreement of or affidavit of loss of Lucent Technologies Inc. shall be a
sufficient indemnity) and, in case of mutilation, upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a new
Warrant of like tenor to such Holder; provided, however, in the case of
mutilation, no indemnity shall be required if this Warrant in identifiable form
is surrendered to the Company for cancellation.
11. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency, which may be the principal executive offices
of the Company (the "Designated Office"), where the Warrants may be presented
for exercise, registration of transfer, division or combination as provided in
this Warrant. Such Designated Office shall initially be the office of the
Company at 8545 126 Avenue North, Largo, Florida 33773, Attention: President.
The Company may from time to time change the Designated Office to another office
of the Company or its agent within the United States by notice given to the
registered holder of Warrants at least ten (10) Business Days prior to the
effective date of such change.
12. FINANCIAL AND BUSINESS INFORMATION
(a) Until the Expiration Date or the Closing of an initial public
offering of the Common Stock, whichever first occurs, the Company shall deliver
to the Holder one copy of each of the following items:
(i) as soon as available, and in any event within
forty-five (45) days after the end of each of the first three
quarters of each fiscal year, unaudited interim consolidated
balance sheets of the Company and its Subsidiaries as at the end
of such quarter and the related consolidated statements of
income, of the
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<PAGE> 32
Company and its Subsidiaries as at the end of and for such
quarter, setting forth in each case in comparative form the
corresponding figures for and as at the end of the corresponding
quarter of the preceding fiscal year, all in reasonable detail
and certified by a principal financial officer of the Company,
as prepared in accordance with generally accepted accounting
principles consistently applied (subject to year end adjustments
and the absence of footnotes), and fairly presenting the
consolidated financial position and results of operations of the
Company and its Subsidiaries for such periods;
(ii) within ninety (90) days after the end of each fiscal
year of the Company, consolidated balance sheets of the Company
and its Subsidiaries as at the end of such year and the related
consolidated statements of income, stockholders' equity and
changes in financial position of the Company and its Subsidiaries
for such fiscal year, setting forth in each case in comparative
form the consolidated figures for the previous fiscal year, all
in reasonable detail and accompanied by a report thereon of
independent public accountants of recognized national standing
selected by the Company, which report shall state that such
consolidated financial statements present fairly the financial
position of the Company and its Subsidiaries as at the dates
indicated and the results of their operations and changes in
their financial position for the periods indicated in conformity
with generally accepted accounting principles applied on a basis
consistent with prior years (except as otherwise specified in
such report) and that the audit by such accountants in connection
with such consolidated financial statements has been made in
accordance with generally accepted auditing standards or such
other similar language as in then in general usage by independent
public accountants;
(iii) promptly upon their becoming available, copies of
all financial statements, reports, notices and proxy statements
sent or made available by the Company to the holders of any class
of its securities generally or by any Subsidiary of the Company
to the holders of any class of its securities generally; and
(iv) with reasonable promptness, such other information
relating to the Company and its Subsidiaries as the Holder may,
from time to time, reasonably request.
(b) Until the closing of an initial public offering of the Common
Stock, the Holder will keep confidential and not use for any purpose except to
evaluate the status of its investment any such information which has not
previously been made publicly available.
13. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Holder as
follows:
13.1 Organization. As of the Original Issue Date and as of the
date of issuance of this Warrant (if different from the Original Issue Date),
the Company was a corporation duly
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<PAGE> 33
organized, validly existing and in good standing under the laws of the State of
Delaware, with all requisite power to own its properties and assets and to
conduct its business as then conducted, and was duly qualified as a foreign
corporation and was in good standing in all other jurisdictions in which such
qualification was then required.
13.2 Capitalization. (a) As of the Original Issue Date, the
Company authorized capital stock consisted of: (i) 4,000,000 shares of Common
Stock, of which 850,000 shares were issued and outstanding and 150,000 shares
were reserved for issuance upon exercise of the Original Warrant, and (ii)
1,000,000 shares of preferred stock, none of which have been issued or reserved.
All of the outstanding shares of capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable, free of
preemptive rights and have been offered and issued without violation of the
Securities Act or any applicable state securities or blue sky law or any
preemptive rights of any person. As of the Original Issue Date, all of the
issued and outstanding shares of Common Stock of the Company were owned
beneficially and of record by Paradyne Partners, L.P.
(b) As of the Original Issue Date: (i) there were no issued or
outstanding Convertible Securities; (ii) there were no issued or outstanding
Stock Purchase Rights other than the Warrant and options and other stock based
employee incentive awards of a type described in clause (ii) of the definition
of Subsequent Issuance set forth herein; (iii) the Company was not a party to
any agreement or understanding pursuant to which it is obligated to purchase or
redeem any shares of its capital stock or any Convertible Securities or Stock
Purchase Rights and was not otherwise under any obligation to repurchase, redeem
or otherwise acquire any shares of its capital stock or any Convertible
Securities or Stock Purchase Rights; (iv) the Company was not a party to any
agreement or understanding pursuant to which it is obligated to register any
shares of its capital stock or other securities under the Securities Act or any
state securities laws; and (v) to the best knowledge of the Company, no
securities holder of the Company was a party to any agreement providing for any
call or put option, right of first refusal or offer or other right to acquire or
dispose of any shares of the Company's capital stock or any Convertible
Securities or Stock Purchase Rights.
13.3 Valid Issuance of Warrant and Warrant Stock. (a) This
Warrant has been duly executed and delivered by the Company, has been duly
authorized and validly issued free and clear of all Liens (other than those
caused or created by the Holder), is fully paid and non-assessable, and
constitutes the legal, valid and binding obligation of the Company, enforceable
in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
and subject to general principles of equity.
(b) The shares of Warrant Stock issuable upon exercise of this
Warrant have been duly authorized and reserved for issuance and, when issued in
accordance with the terms of this Warrant, will be validly issued, fully paid
and non-assessable, free and clear of all liens, encumbrances, equities and
claims and without violation of any preemptive rights.
13.4 Authority. As of the date of issuance of this Warrant, the
Company had full legal right, power and authority to issue this Warrant and to
perform all its obligations hereunder. The execution, delivery and performance
of this Warrant by the Company have all
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<PAGE> 34
been duly authorized by the Board of Directors of the Company and, where
required, the shareholders of the company. As of the date of issuance of this
Warrant, no consent, waiver or authorization of, or filing with any other Person
(including without limitation, any Governmental Authority) is required in
connection with any of the foregoing or the validity or enforceability against
the Company of this Warrant;
13.5 No Conflict. The execution, delivery and performance of this
Warrant do not and will not, with or without the passage of time or the giving
of notice or both, (i) conflict with or violate any provision of the Company's
Certificate of Incorporation, By-laws or Contractual Obligation, (ii) conflict
with or violate any Requirement of Law in effect on the date hereof, (iii)
result in, or require, the creation or imposition of any Lien on any of its
properties or revenues pursuant to any Requirement of Law in effect on the date
hereof or (iv) require any action by or in respect of, or filing with, any
governmental body, agency or official as of the date hereof.
13A. REPRESENTATION OF THE HOLDER
By its acceptance of this Warrant, the Holder represents and
warrants that it understands that the Warrant has not been and any Warrant Stock
will not be registered under the Securities Act and each is or will be
characterized as "restricted securities" under the federal securities laws,
inasmuch as it is being acquired from the Company in a transaction not involving
a public offering and that under such laws and applicable regulations the
Warrant and the Warrant Stock may be resold without registration under the
Securities Act only in certain circumstances. In this connection, the Holder
represents and warrants that it is aware of and understands Rule 144 under the
Securities Act, as presently in effect. The Holder further represents and
warrants that it is acquiring the Warrant and the Warrant Stock solely for
investment for its own account and not with the view to, or for resale in
connection with, any distribution thereof and that it understands that the
Warrant and the Warrant Stock has not been registered under the Securities Act
by reason of exemptions therefrom which depend upon, among other things, the
bona fide nature of its investment intent as expressed herein and as explicitly
acknowledged hereby.
14. RELATED PARTY TRANSACTIONS
So long as this Warrant remains outstanding, until the initial
public offering of the Company's Common Stock, the Company shall not, nor shall
it permit any of its subsidiaries to, enter into any transaction directly or
indirectly with or for the benefit of any Related Party other than transactions
entered into on a basis no less favorable to the Company as would be obtainable
in a comparable arm's length transaction with a Person that is not a Related
Party. This Article 14 shall not apply to any issuance by the Company of Common
Stock, Convertible Securities or Stock Purchase Rights that is subject to
Article 4, that is for Fair Value or more or that is excluded from the
definition of Subsequent Issuance.
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<PAGE> 35
15. MISCELLANEOUS
15.1 Nonwaiver. No course of dealing or any delay or failure to
exercise any right hereunder on the part of the Company or the Holder shall
operate as a waiver of such right or otherwise prejudice the rights, powers or
remedies of such Person.
15.2 Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or communication hereunder to be made pursuant
to the provisions of this Warrant shall be sufficiently given or made if in
writing and either delivered in person or sent by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
(a) if to the Holder of this Warrant or of Warrant Stock issued
upon the exercise hereof, at its last known address appearing on the
books of the Company maintained for such purpose;
(b) if to the Company, at its Designated Office, with a copy to
TPG Partners, L.P., 201 Main Street, Suite 2420, Fort Worth, Texas
76102, Attention: Richard A. Ekleberry.
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered or three (3) Business Days after the same shall have been deposited in
the United States mail, or one (1) Business Day after the same shall have been
delivered to Federal Express or another overnight courier service.
15.3 Indemnification. If the Company fails to make, when due, any
payments or deliveries provided for in this Warrant, the Company shall pay to
the Holder hereof (a) interest at the Agreed Rate on any amounts due and owing
to such Holder and (b) such further amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys, fees and
expenses incurred by such Holder in collecting any amounts due hereunder. The
Company shall indemnify, save and hold harmless the Holder hereof and the
Holders of any Warrant Stock issued upon the exercise hereof from and against
any and all reasonable attorneys' and accountants' fees and expenses, court
costs and all other out-of-pocket litigation expenses incurred in connection
with or arising from a Company Default. This indemnification provision shall be
in addition to the rights of such Holder to bring an action against the Company
for breach of contract based on such Company Default.
15.4 Limitation of Liability. No provision hereof, in the absence
of affirmative action by the Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder to pay the Exercise Price for any Warrant
Stock other than pursuant to an exercise of this Warrant or any liability as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
15.5 Remedies. Each Holder of Warrants and/or Warrant Stock, in
addition to being entitled to exercise its rights granted by law, including
recovery of damages, shall be
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<PAGE> 36
entitled to specific performance of its rights provided under this Warrant. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees, in an action for specific performance, to waive the defense that
a remedy at law would be adequate.
15.6 Successors and Assigns. Subject to the provisions of
Sections 8.1 and 8.2, this Warrant and the rights evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and the
permitted successors and assigns of the Holder hereof. The provisions of this
Warrant are intended to be for the benefit of the Holder, and shall be
enforceable by such Holder.
15.7 Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the Holder.
15.8 Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
15.9 Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
15.10 GOVERNING LAW; JURISDICTION. IN ALL RESPECTS, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
CAP ACQUISITION CORP.
By:
------------------------------
Name:
Title:
[SEAL]
Attest:
By:
------------------------------------
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<PAGE> 37
Name:
Title:
ACKNOWLEDGED AND AGREED TO BY
LUCENT TECHNOLOGIES INC.,
AS HOLDER OF THE FOREGOING WARRANT
By:
-------------------------------------
Name:
Title:
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<PAGE> 38
ANNEX A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ______________________ shares Common
Stock of CAP ACQUISITION CORP. and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to ______________________ whose address is
____________________________________________ and, if such shares of Common Stock
shall not include all of the shares of Common Stock issuable as provided in this
Warrant, that a new Warrant of like tenor and date for the balance of the shares
of Common Stock issuable hereunder be delivered to the undersigned. The Holder,
by its exercise of the Warrant, makes the representation set forth in Section
13A. of the Warrant in respect of the Warrant Stock as of the date hereof.
-----------------------------------
(Name of Registered Owner)
-----------------------------------
(Signature of Registered Owner)
-----------------------------------
(Street Address)
-----------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
Dated: ___________, 19__
<PAGE> 1
EXHIBIT 10.8
LEASE AGREEMENT
BETWEEN
SHAV ASSOCIATES
AS LANDLORD
AND
PARADYNE CORPORATION,
AS TENANT
PREMISES:
100 SCHULZ DRIVE
RED BANK, NEW JERSEY
1ST FLOOR
2ND FLOOR
DATED: OCTOBER 8, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
1 Demised Premises, Term, Rent......................................................1
2 Use...............................................................................2
3 Preparation Of The Demised Premises...............................................3
4 Occupancy Upon Completion Of Tenant's Work........................................4
5 Additional Rent...................................................................5
6 Subordination, Notice To Mortgagees..............................................10
7 Quiet Enjoyment..................................................................11
8 Assignment, Mortgaging, Subletting...............................................11
9 Compliance With Laws And Requirements Of Public Authorities......................13
10 Insurance........................................................................14
11 Rules And Regulation.............................................................16
12 Tenant's Changes.................................................................17
13 Tenant's Property................................................................19
14 Repairs And Maintenance..........................................................21
15 Electricity......................................................................22
16 Heating, Ventilation And Air-Conditioning........................................24
17 Landlord's Other Services........................................................24
18 Access, Changes In Building Facilities, Name.....................................27
19 Notice Of Accidents..............................................................28
20 Non-Liability And Indemnification................................................28
21 Destruction Or Damage............................................................29
22 Eminent Domain...................................................................30
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
23 Surrender........................................................................32
24 Conditions Of Ligation...........................................................33
25 Re-Entry By Landlord.............................................................34
26 Damages..........................................................................35
27 Waivers..........................................................................37
28 No Other Waivers Or Modifications................................................38
29 Curing Tenant's Defaults.........................................................38
30 Broker...........................................................................39
31 Notices..........................................................................39
32 Estoppel Certificate.............................................................40
33 Arbitration......................................................................40
34 No Other Representations, Construction, Governing Law............................40
35 Security.........................................................................41
36 Parties Bound....................................................................42
37 Consents.........................................................................42
38 Mortgage Financing Tenant Cooperation............................................43
39 Environmental Compliance.........................................................43
40 Holding Over.....................................................................44
41 Certain Definitions And Constructions............................................45
42 Relocation Of Tenant.............................................................45
43 Option To Renew..................................................................45
44 Right Of First Refusal...........................................................46
45 Satellite Dish...................................................................47
46 Waiver Of Distraint..............................................................49
</TABLE>
ii
<PAGE> 4
EXHIBIT A - Description of Land
EXHIBIT B - Floor Plan
EXHIBIT C - HVAC Specifications
EXHIBIT D - Cleaning and Maintenance Specifications
EXHIBIT E - Rules and Regulations
EXHIBIT F - Definitions
EXHIBIT G - Non-Disturbance Agreement
EXHIBIT H - Reserved Parking
iii
<PAGE> 5
LEASE, dated October 8, 1996, between SHAV ASSOCIATES, a New
Jersey General Partnership, c/o Alfieri Property Management, having its
principal office located at 399 Thornall Street, P.O. Box 2911, Edison, New
Jersey 08818-2911, ("Landlord"), and PARADYNE CORPORATION, a Delaware
corporation, having its principal office located at 8545 126th Avenue North,
P.O. Box 2826, Largo, Florida 33779, ("Tenant").
WITNESSETH:
ARTICLE 1
DEMISED PREMISES, TERM, RENT
1.1 Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the premises hereinafter described, in the building located at 100
Schulz Drive, Red Bank, New Jersey, ("Building") on the parcel of land more
particularly described in Exhibit A ("Land"), for the term hereinafter stated,
for the rents hereinafter reserved and upon and subject to the conditions
(including limitations, restrictions and reservations) and covenants hereinafter
provided. Each party hereby expressly covenants and agrees to observe and
perform all of the conditions and covenants herein contained on its part to be
observed and performed.
1.2 The premises hereby leased to Tenant is the 1st and 2nd floors of
the Building, as shown on the floor plans annexed hereto as Exhibit B, having a
rentable area of 50,000 square feet measured outside wall to outside wall,
together with Tenant's share of the common area. Said premises, together with
all fixtures and equipment which at the commencement, or during the term of this
Lease are thereto attached (except items not deemed to be included therein and
removable by Tenant as provided in Article 13) constitute the "Demised
Premises." The Demised Premises shall be limited to the space that is located
from the ceiling tiles to the top of the floor slab except that any Tenant
supplied equipment placed above the ceiling tiles shall be considered part of
the Demised Premises.
1.3 The term of this Lease, for which the Demised Premises are hereby
leased, shall be sixty six (66) months and shall commence on November 1, 1996
("Commencement Date") and shall end at noon on April 30, 2002.
1.4 The rents reserved under this Lease, for the term thereof, shall be
and consist of:
<TABLE>
<CAPTION>
PERIOD FIXED RENT ANNUAL RENT MONTHLY RENT
------ ---------- ----------- -------------
<S> <C> <C> <C>
Months 1 through 60 $ 16.25 $812,500.00 $ 67,708.33
Months 61 through 66 $ 19.00 $475,000.00 (6 mos.) $ 79,166.67
</TABLE>
Fixed rent is calculated on 50,000 sq. ft. of rentable area and shall be payable
in equal monthly installments in advance on the first day of each and every
calendar month during the term of this Lease, (except Tenant shall pay, upon
execution and delivery of this Lease by Tenant, the sum of
<PAGE> 6
$67,708.33 to be applied against the first monthly installment or installments
of fixed rent becoming due under this Lease) and
(b) Additional rent consisting of all such other sums of money as
shall become due from and payable by Tenant to Landlord hereunder (for default
in payment of which Landlord shall have the same remedies as for a default in
payment of fixed rent),
all to be paid to Landlord at its office, or such other place, or to such agent
at such place, as Landlord may designate by written notice to Tenant, in lawful
money of the United States of America.
1.5 Tenant shall pay the fixed rent and additional rent herein reserved
promptly as and when the same shall become due and payable, without demand
therefor and without any abatement, deduction or setoff whatsoever except as
expressly provided in this Lease.
1.6 If the Commencement Date occurs on a day other than the first day
of a calendar month, the fixed rent for such calendar month shall be prorated
and the balance of the first month's fixed rent theretofore paid shall be
credited against the next monthly installment of fixed rent.
1.7 Late payments of any payment of rent, including monthly rent, which
is not received within five (5) days after it is due, will be subject to a late
charge equal to three percent (3%) of the unpaid payment. This amount is in
compensation of Landlord's additional cost of processing late payments. In
addition, any rent which is not paid when due, including monthly rent, will
accrue interest at a late rate charge of First Union Prime Rate plus two percent
(2%) per annum, as said rate is reasonably determined by Landlord from published
reports, (but in no event in an amount in excess of the maximum rate allowed by
applicable law) from the date on which it was due until the date on which it is
paid in full with accrued interest. If Tenant is deemed to be in default beyond
the lapse of any applicable cure or grace periods of the Lease for failure to
pay rent and Landlord has commenced any legal action, in addition to the late
charges and interest set forth above, Tenant shall be charged with all attorney
fees in connection with the collection of all sums due Landlord. Notwithstanding
the foregoing, provided Tenant is not in default of this Lease, Tenant shall
have one (1) grace period for each year of the Lease term where Tenant will not
be subject to late charge or interest for any late payment of rent as set forth
above.
ARTICLE 2
USE
2.1 Tenant shall use and occupy the Demised Premises for executive and
general offices for the transaction of Tenant's business and for no other
purpose. Notwithstanding the foregoing, Tenant may use the Demised Premises as
lab space provided Tenant's use as lab space does not put undue stress on the
Building's service systems. Any additional portion of the Demised Premises used
for lab space beyond that lab space provided for
2
<PAGE> 7
in the initial build-out shall be considered a Tenant Changes and must be
approved by Landlord in writing pursuant to Article 12.
2.2 The use of the Demised Premises for the purposes specified in
Section 2.1 shall not include, and Tenant shall not use or permit the use of the
Demised Premises or any part thereof, for:
(a) A school of any kind other than for the training of Tenant's
employees or customers, incidental to Tenant's normal business operations;
(b) An employment agency, or
(c) An office for any governmental or quasi governmental bureau,
department, agency, foreign or domestic, including any autonomous governmental
corporation or diplomatic or trade mission.
(d) Any telemarketing activities or other direct selling
activities; or
(e) Any use, including executive and general office use, which
results in a density of a population of more than one person for every 250
square feet.
2.3 If any governmental license or permit, other than a Certificate of
Occupancy, shall be required for the proper and lawful conduct of Tenant's
business in the Demised Premises, or any part thereof, and if failure to secure
such license or permit would in any way affect Landlord, Tenant, at its expense,
shall submit the same to inspection by Landlord. Tenant shall at all times
comply with the terms and conditions of each such license or permit.
2.4 Tenant shall not at any time use or occupy, or do or permit
anything to be done in the Demised Premises, in violation of the Certificate of
Occupancy (or other similar municipal ordinance) governing the use and
occupation of the Demised Premises or for the Building.
ARTICLE 3
PREPARATION OF THE DEMISED PREMISES
3.1 Tenant accepts the Demised Premises "AS IS" subject, however, to
latent defects. Landlord represents that as of the Commencement Date of this
Lease, the Building shall be in compliance with governmental requirements with
the exception of any Tenant's Work as defined below. The Demised Premises shall
be completed and prepared for Tenant's occupancy pursuant to a turn-key
installation in accordance with and under the terms and conditions of plans and
specifications prepared by Tenant as reasonably approved by Landlord ("Tenant's
Work"). The cost of all Tenant's Work subject to Section 3.2 hereof, shall be
borne by Tenant. Tenant represents that all plans and specifications in
connection with Tenant's Work shall be prepared by Tenant's architect which
shall comply with all applicable laws, rules and regulations. Landlord and its
affiliate, Alfieri Co., Inc. ("Alfieri") shall serve as general contractor and
shall competitively bid the subcontractor portion of Tenant's Work using three
3
<PAGE> 8
bona fide bids whenever possible to arrive at a fixed price lump sum contact
(the "Contract") between Tenant and Alfieri. Landlord and Tenant acknowledge
that as of the date hereof, Alfieri and Tenant have not entered into the
Contract. Until Alfieri and Tenant enter into the Contract, Alfieri shall
proceed with the construction of Tenant's Work on a time and material basis with
ten percent (10%) overhead and ten percent (10%) profit. Landlord represents
that Alfieri is in the bidding process and shall present Tenant with the
proposed Contract on September 17, 1996. Landlord represents that Alfieri and
Tenant represents that Tenant shall diligently proceed to agree upon the terms
and conditions and shall execute the Contract as soon as practicable. In the
event Alfieri and Tenant are unable to agree upon all or some of the terms and
conditions and execute the Contract by September 21, 1996, Alfieri shall proceed
with the completion of Tenant's Work on a time and material basis with ten
percent (10%) overhead and ten percent (10%) profit for all or any portion of
the Tenant's Work not agreed upon in the Contract.
3.2 Notwithstanding the terms and conditions of Section 3.1, Landlord
agrees at its sole cost to modify the first floor lobby and elevator cabs to a
first class condition using Landlord's building standards for Tri-Parkway
Corporate Park, such work to be completed immediately following AT&T Corp.'s
occupancy of the third and fourth floors of the Building. Landlord shall also
remove the existing improvements in the cafeteria area so as to return the space
to office shell condition. Landlord shall contribute up to $30,000.00 of the
cost thereof and Tenant shall pay the balance if any.
3.3 Alfieri shall not be deemed Tenant's contractor pursuant to any
provision of this Lease which makes reference to Tenant or any of its employees,
agents or contractors.
ARTICLE 4
OCCUPANCY UPON COMPLETION OF TENANT'S WORK
4.1 The Demised Premises shall be ready for Tenant's occupancy on the
earliest date on which all of the following conditions have been met:
(a) A Certificate of Occupancy (temporary or final) has been issued
by the applicable governmental authorities, permitting Tenant's use of the
Demised Premises for the purposes for which the same have been leased.
(b) The work contemplated in Section 3.1 shall have been
substantially completed, and same shall be so deemed notwithstanding the fact
that minor or insubstantial details of construction, mechanical adjustment, or
decoration or special finish work requested by Tenant, such as cabinetry remain
to be performed, the non-completion of which does not materially interfere with
Tenant's use of the Demised Premises.
(c) Reasonable means of access and facilities necessary to Tenant's
use and occupancy of the Demised Premises, including corridors, elevators and
stairways, and heating, ventilating, air conditioning, sanitary, water, and
electrical facilities, have been installed and are in reasonably good operating
order and available to Tenant.
4
<PAGE> 9
4.2 If and when Tenant shall take actual possession of the Demised
Premises, it shall be conclusively presumed that the same were in satisfactory
condition (accept for latent defects) as of the date of such taking of
possession, unless within ninety (90) days after such date Tenant shall give
Landlord notice specifying the respects in which the Demised Premises were not
in satisfactory condition.
4.3 Landlord agrees that Tenant shall be entitled to install furniture
and equipment up to one week prior to the day the Demised Premises are ready for
Tenant's Occupancy and Landlord shall so advise Tenant when it shall be entitled
to commence such installation. Tenant agrees that it shall not interfere with
the work of Landlord or Alfieri, Inc. in readying the Demised Premises for
occupancy.
4.4 Notwithstanding anything contained in the foregoing, and in
furtherance of Article 1, Landlord and Tenant agree that the Commencement Date
for the Demised Premises shall be November l, 1996 regardless of whether the
Demised Premises are ready for Tenant's occupancy.
ARTICLE 5
ADDITIONAL RENT
5.1 For the purpose of Sections 5.1 through 5.3.
(a) "Taxes" shall mean real estate taxes, special and extraordinary
assessments and governmental levies against the Land and Building of which the
Demised Premises (but excluding therefrom that portion of the real estate taxes
directly attributable to improvements made by other tenants in the Building
beyond Landlord's allowances) are a part provided, however, if at any time
during the term of this Lease the method of taxation prevailing at the date of
this Lease shall be altered so that in lieu of, or as an addition to, or as a
substitute for any or all of the above there shall be assessed, levied or
imposed (i) a tax, assessment, levy, imposition or charge based on the income or
rents received therefrom whether or not wholly or partially as a capital levy or
otherwise; or (ii) a tax, assessment, levy, imposition or charge measured by or
based in whole or in part upon all or any part of the Land and/or Building and
imposed upon Landlord; or (iii) a license fee measured by the rents; or (iv) any
other tax, assessment, levy, imposition, charge or license fee however described
or imposed, then all such taxes, assessments, levies, impositions, charges or
license fees or the part thereof so measured or based shall be included in the
definition of "Taxes." Tenant shall pay to Landlord directly that portion of any
real estate taxes directly attributable to improvements made by Tenant beyond
Landlord's allowances (hereinafter referred to as "Tenant's Direct Tax
Payments").
(b) "Base Taxes" shall mean the assessed valuation of the Land and
Building as finally determined following completion of construction and issuance
of an initial Certificate of Occupancy for any portion of the Building (or such
equivalent certification if Certificates of Occupancy are not to be used),
multiplied by the tax rate for the Tax Year 1997. Base Taxes shall be calculated
as if the Building were 100% assessed and 95% occupied.
5
<PAGE> 10
(c) "Tax Year" shall mean each calendar year for which Taxes are
levied by any governmental authority.
(d) "Operational Year" shall mean each calendar year commencing
with calendar year 1998.
(e) "Tenant's Proportionate Share of Increase" shall mean 50%
multiplied by the increase in Taxes in any Operational Year in excess of the
Base Taxes. Tenant's Proportionate Share of Increase for the first Operational
Year shall be prorated to reflect the actual occupancy by Tenant for said
Operational Year.
(f) "Tenant's Projected Share of Increase" shall mean Tenant's
Proportionate Share of Increase in Taxes for the projected Operational Year
divided by twelve (12) and payable monthly by Tenant to Landlord as additional
rent.
5.2 Commencing with the first Operational Year and thereafter, Tenant
shall pay to Landlord as additional rent for the then Operational Year, Tenant's
Projected Share of Increase in Taxes in equal monthly instruments.
5.3 After the expiration of each Operational Year, Landlord shall
furnish to Tenant a written statement of the Taxes incurred for such Operational
Year as well as Tenant's Proportionate Share of Increase, if any. If the
statement furnished by Landlord to Tenant pursuant to this Section at the end of
the then Operational Year shall indicate that Tenant's Projected Share of
Increase exceeded Tenant's Proportionate Share of Increase, Landlord shall
either forthwith pay the amount of excess directly to Tenant concurrently with
the statement or credit same against Tenant's next monthly installment of rent.
If such statement furnished by Landlord to Tenant shall indicate that the
Tenant's Proportionate Share of Increase exceeded Tenant's Projected Share of
Increase for the then Operational Year, Tenant shall forthwith pay the amount of
such excess to Landlord.
Commencing with the first Operational Year, Tenant shall pay to
Landlord in equal monthly installments together with its payment of fixed rent
one-twelfth (1/12) of Tenant's Direct Tax Payment.
5.4 As used in Sections 5.4 through 5.6:
(a) "Operating Expenses" shall mean any or all expenses incurred by
Landlord in connection with the operation of the Land and Building of which the
Demised Premises are a part, including all expenses incurred as a result of
Landlord's compliance with any of its obligations hereunder other than
Landlord's Work and such expenses shall include: (i) salaries, wages, medical,
surgical and general welfare benefits, (including group life insurance) and
pension payments of employees of Landlord engaged in the operation and
maintenance of the Building; (ii) social security, unemployment, and payroll
taxes, workers' compensation, disability coverage, uniforms, and dry cleaning
for the employees referred to in Subsection (i); (iii) the cost for the Building
and common areas of all charges for oil, gas, electricity (including, but not
limited to, fuel cost adjustments), steam, heat, ventilation, air-conditioning,
heating, and water including any taxes on any such utilities, but excluding from
Operating Expenses the Landlord's cost, including taxes thereon, of electric
energy other than
6
<PAGE> 11
for heating and air-conditioning furnished to the Demised Premises (which
electric energy so furnished shall be paid for by Tenant pursuant to the
provisions of Article 15 hereof); (iv) the cost of all premiums and charges for
the following insurances rent, casualty, liability, fidelity and war risk (if
obtainable from the United States Government); (v) the cost of all building and
cleaning supplies for the common areas of the Building and charges for telephone
for the Building; (vi) the cost of all charges for management, (which shall not
exceed in any year four percent (4%) of gross revenues) window cleaning,
securing services, if any, and janitorial services, and any independent
contractor performing work included within the definition of operating expenses;
(vii) legal and accounting services and other professional fees and
disbursements incurred in connection with the operation and management of the
Land and Building (other than as related to new leases, enforcing Landlord's
rights under existing leases, or sales of the Building); (viii) general
maintenance of the Building and the cost of maintaining and replacing the
landscaping, (ix) maintenance of the common area; and (x) the cost of capital
expenditures, including the purchase of any item of capital equipment or the
leasing of capital equipment which have the effect of reducing the expenses
which would otherwise be included in Operating Expenses, which costs shall be
included in Operating Expenses for the Operational Year in which the costs are
incurred and subsequent Operational Years on a straight-line basis, to the
extent that such items are amortized over such period of time as Landlord
reasonably estimates, with an interest factor equal to the interest rate at the
time of Landlord's having made said expenditure.
If during all or part of the Base Year or any Operational Year,
Landlord shall not furnish any particular item(s) of work or service (which
would otherwise constitute an Operating Expense hereunder) to portions of the
Building due to the fact that (i) such portions are not occupied or leased; (ii)
such items of work or service is not required or desired by the tenant of such
portion; (iii) such tenant is itself obtaining and providing such item of work
or service; or (iv) for other reasons, then, for the purposes of computing
Operating Expenses, the amount for such item and for such period shall be deemed
to be increased by an amount equal to the additional costs and expenses which
would reasonably have been incurred during such period by Landlord if it had at
its own expense furnished such item of work or services to such portion of the
Building or such tenant.
Notwithstanding the foregoing, the following costs and expenses
shall not be included in Operating Expenses:
(1) Salaries or benefits for Landlord's executives above the
grade of building manager, and of any employee to the extent the employee's time
is not devoted to the Building;
(2) Amounts received by Landlord through proceeds of insurance
except to the extent they are compensation for sums previously included in
Operating Expenses hereunder;
(3) Cost of repairs or replacements incurred by reason of fire
or other casualty or condemnation to the extent Landlord is compared therefor;
(4) Advertising and promotional expenditures;
7
<PAGE> 12
(5) Costs incurred in performing work or furnishing services
for any tenant (including Tenant), whether at such tenant's or Landlord's
expense, to the extent that such work or service is in excess of any work or
service that Landlord is obligated to furnish to tenant at Landlord's expense;
(6) Depreciation, except as provided above;
(7) Brokerage commissions;
(8) Taxes (as hereinbefore defined);
(9) The cost of electricity (for other than heating and
air-conditioning) furnished to the Demised Premises or any other space leased to
tenants as reasonably estimated by Landlord;
(10) Refinancing costs and mortgage interest and amortization
payments;
(11) Costs of improving, altering, constructing or
redecorating any space leased by tenants of the Building;
(12) Costs, expenses or expenditures relating to the duties,
liabilities or obligations of other tenants in the Building;
(13) Principle and interest payments on mortgage or deed of
trust;
(14) Legal and auditing expenses incurred in connection with
disputes or negotiations with tenants or potential tenants;
(15) Expenses or charges under warranties or guarantees to the
extent actually recovered by Landlord;
(16) Rent under a ground or prime lease;
(17) Costs, expenses or expenditures relating to the duties,
liabilities or obligations of other tenants in the Building;
(18) Costs incurred by Landlord arising out of its failure to
perform or breach of any of its covenants, agreements, representations,
warranties, guarantees or indemnities made under this Lease;
(19) Any amounts paid to a person, firm, corporation, or other
entity row to Landlord which is in excess of the amount charged by unaffiliated
parties for goods or services in comparable office space in the market;
(20) Any compensation paid to clerks, attendants or other
persons in commercial concessions or parking facility operated by Landlord; and
8
<PAGE> 13
(21) Landlord's general corporate overhead and general
administrative expenses.
(b) "Operational Year" shall mean each calendar year commencing
with calendar year 1998.
(c) "Base Year" shall mean calendar year 1997 and for purposes of
Base Year expenses it shall be assumed that the Building is 100% occupied.
(d) "Tenant's Proportionate Share of Increase" shall mean 50%
multiplied by the increase in Operating Expenses for the Operational Year over
Operating Expenses for the Base Year. For purposes hereof, the Tenant's
Proportionate Share of Increase has been computed based upon a total square
footage of the Building equal to 100,000 square feet, and a total square footage
of the Demised Premises equal to 50,000 square feet. Landlord agrees that it
shall not include as part of Operating Expenses in any Operational Year any line
item that was not included in the Base Year Operating Expenses.
(e) "Tenant's Projected Share of Increase" shall mean Tenant's
Proportionate Share of Increase for the projected Operational Year divided by
twelve (12) and payable monthly by Tenant to Landlord as additional rent.
5.5 Commencing with the first Operational Year after Landlord shall be
entitled to receive Tenant's Proportionate Share of Increase, Tenant shall pay
to Landlord as additional rent for the then Operational Year, Tenant's Projected
Share of Increase.
5.6 After the expiration of the first Operational Year and for each
Operational Year thereafter, Landlord shall furnish to Tenant a written detailed
statement of the Operating Expenses (certified to be true and correct by
Landlord) incurred for such Operational Year which statement shall set forth
Tenant's Proportionate Share of Increase, if any. If the statement furnished by
Landlord to Tenant, pursuant to this Section, at the end of the then Operational
Year shall indicate that Tenant's Projected Share of Increase exceeded Tenant's
Proportionate Share of Increase, Landlord shall either forthwith pay the amount
of excess directly to Tenant concurrently with the statement or credit same
against Tenant's next monthly installment of rent. If such statement furnished
by Landlord to Tenant hereunder shall indicate that the Tenant's Proportionate
Share of Increase exceeded Tenant's Projected Share of Increase for the then
Operational Year, Tenant shall forthwith pay the amount of such excess to
Landlord.
5.7 Every statement given by Landlord pursuant to Sections 5.3 and 5.6
shall be conclusive and binding upon Tenant unless (i) within ninety (90) days
after the receipt of such statement Tenant shall notify Landlord that it
disputes the correctness of the statement, specifying the particular respects in
which the statement is claimed to be incorrect; and (ii) if such dispute shall
not have been settled by agreement, shall submit the dispute to judicial
proceedings within one hundred and twenty (120) days after receipt of the
statement. Within such 90 day period Tenant shall have the right to review,
examine and audit Landlord's books and records for the applicable calendar year.
Tenant agrees that it and its representatives shall conduct a review with
complete confidentiality and shall enter into a reasonable confidentiality
agreement with landlord respecting the review, examination and audit. Pending
the
9
<PAGE> 14
determination of such dispute by agreement or judicial proceedings as aforesaid,
Tenant shall, within thirty (30) days after receipt of such statement, pay
additional rent in accordance with Landlord's statement and such payment shall
be without prejudice to Tenant's position. If the dispute shall be determined in
Tenant's favor, Landlord shall forthwith pay Tenant the amount of Tenant's
overpayment of rents resulting from compliance with Landlord's statement. If
after judicial proceeding, it is determined that Landlord's Operating Statements
vary by more than 5%, then Landlord shall reimburse Tenant for Tenant's
reasonable costs for payment of an auditor or accountant. If the variance proves
less than 3% greater than Landlord's records, Tenant shall reimburse Landlord
for Landlord's reasonable costs for payment of an auditor or accountant.
Otherwise each party shall pay their respective costs.
ARTICLE 6
SUBORDINATION, NOTICE TO MORTGAGEES
6.1 So long as a satisfactory Nondisturbance Agreement has been
obtained on Tenant's behalf, this Lease, and all rights of Tenant hereunder are
and shall be subject and subordinate in all respects to all mortgages which may
now or hereafter affect the Land and/or the Building and/or any of such leases,
whether or not such mortgages shall also cover other lands and/or buildings, to
each and every advance made or hereafter to be made under such mortgages, and to
all renewals, modifications, replacements, and extensions of such mortgages and
spreaders and consolidations of such mortgages. This Section shall be
self-operative and no further instrument of subordination shall be required. In
confirmation of such subordination, Tenant shall promptly execute and deliver an
instrument that Landlord, or the holder of any such mortgage or any of their
respective successors in interest may reasonably request to evidence such
subordination. The mortgages to which this Lease is, at the time referred to,
subject and subordinate are hereinafter sometimes called "superior mortgages,"
and the holder of a superior mortgage or its successor in interest at the time
referred to is sometimes hereinafter called a "superior mortgagee."
6.2 Landlord shall make a good faith effort to obtain from the existing
or future Mortgagee, a Subordination, Non-Disturbance and Attornment Agreement
(the "Non-Disturbance Agreement") in favor of Tenant utilizing Mortgagee's
standard form. A sample Non-Disturbance Agreement form is attached as Exhibit G.
Landlord agrees, upon execution of this Lease, to promptly obtain Mortgagee's
approval to execute a Non-Disturbance Agreement. If within thirty (30) days or
agreed upon extended period from the execution of this Lease, Landlord is unable
to obtain such approval, then Tenant may, upon written notice to Landlord: (i)
waive its right to a Non-Disturbance Agreement or (ii) cancel this Lease. If
Tenant takes no action, Tenant shall be deemed to have waived its right to such
Non-Disturbance Agreement. If Tenant fails to accept the Non-Disturbance
Agreement as descried in Exhibit G attached, it shall be considered that
Landlord has satisfied its requirement. As to any future mortgagee, Tenant's
agreement to subordinate under Section 6.1 is conditioned upon its receipt of a
non-disturbance agreement in accordance who Section 6.2. Such future
non-disturbance agreement shall contain such terms and conditions as are
generally required by an institutional lender and as reasonably requested by a
tenant occupying 50,000 rentable square feet in a 100,000 rentable square foot
office building.
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ARTICLE 7
QUIET ENJOYMENT
7.1 So long as Tenant pays all of the fixed rent and additional rent
due hereunder and performs all of Tenant's other obligations hereunder, Tenant
shall peaceably and quietly have, hold, and enjoy the Demised Premises subject,
nevertheless, to the obligations of this Lease and, as provided in Article 6, to
the superior mortgages.
ARTICLE 8
ASSIGNMENT, MORTGAGING, SUBLETTING
8.1 Neither this Lease, nor the term and estate hereby granted, nor any
part hereof or thereof, nor the interest of Tenant in any sublease, or the
rentals thereunder, shall be assigned, mortgaged, pledged, encumbered or
otherwise transferred by Tenant, and neither the Demised Premises, nor any part
thereof shall be encumbered in any manner by reason of any act or omission on
the part of Tenant or anyone claiming under or through Tenant or shall be
sublet, or offered or advertised for subletting, or be used or occupied or
permitted to be used or occupied or utilized for desk space or for mailing
privileges, by anyone other than Tenant or for any purpose other than as
permitted by this Lease, without the prior written consent of Landlord in every
case, except as expressly otherwise provided in this Article. Landlord agrees
that its consent shall not be unreasonably withheld or delayed.
8.2 If this Lease be assigned, whether or not in violation of the
provisions of this Lease, Landlord may collect rent from the assignee. If the
Demised Premises or any part thereof be sublet or be used or occupied by anybody
other than Tenant, whether or not in violation of this Lease, Landlord may,
after default by Tenant and expiration of Tenant's time to cure such default,
collect rent from the undertenant or occupant. In either event, Landlord may
apply the net amount collected to the rents herein reserved, but no such
assignment, underletting, occupancy or collection shall be deemed a waiver of
any of the provisions of Section 8.1, or the acceptance of the assignee,
undertenant or occupants as Tenant, or a release of Tenant from the further
performance by Tenant of Tenant's obligations under this Lease. The consent by
Landlord to assignment, mortgaging, underletting or use or occupancy by others
shall not in any wise be considered to relieve Tenant from obtaining the express
written consent of Landlord to any other or further assignment, mortgaging or
underletting or use or occupancy by others not expressly permitted by this
Article.
8.3 The following provisions shall govern in connection with the
subletting of all or a portion of the Demised Premises:
(a) Tenant shall submit in writing to Landlord (i) the name of the
proposed subtenant; (ii) the nature and character of the proposed subtenant's
business, and the intended use to be made of the Demised Premises by the
proposed subtenant; (iii) the terms and conditions of the proposed sublease; and
(iv) such reasonable financial information as Landlord may request regarding the
proposed subtenant.
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(b) Within ten (10) business days of Landlord's receipt of the
information described in (a) above, Landlord shall inform Tenant whether it
gives or withholds its consent to such subletting. If Landlord takes no action
within such ten business day period, Tenet shall give Landlord written notice
and if Landlord takes no action within two (2) business days of such notice from
Tenant, Landlord shall be deemed to have approved the sublease.
(c) In connection with any subletting, Tenant shall not openly
offer or advertise the Demised Premises, or any part thereof, to any other
tenant in the Building at a rental rate less than the current rental rate for
office buildings in the surrounding area.
8.4 Tenant shall remain fully liable for the performance of all
Tenant's obligations hereunder notwithstanding any subletting provided for
herein (except to Landlord), and without limiting the generality of the
foregoing, shall remain fully responsible and liable to Landlord for all acts
and omissions of any subtenant or anyone claiming under or through any subtenant
which shall be in violation of any of the obligations of this Lease and any such
violation shall be deemed to be a violation by Tenant.
8.5 Tenant shall not, without the prior written consent of Landlord,
assign this Lease, and the provisions of Section 8.3 with respect to subletting
shall equally apply to any assignment of this Lease. Tenant herein named, or any
immediate or remote successor in interest of Tenant herein named, shall remain
liable jointly and severally (as a primary obligor) with its assignee and all
subsequent assignees for the performance of Tenant's obligations hereunder.
8.6 Notwithstanding anything to the contrary contained in this Article
with respect to assignment or subletting, Landlord's consent to any assignment
and/or subletting (i) to any parent, affiliate or wholly-owned subsidiary of
Tenant (as defined in Rule 240.12b-2 under the Securities Exchange Act of 1934)
shall not be required or (ii) to any corporation or other entity which succeeds
to all or substantially all of the assets and business of Tenant shall not be
required, but Tenant shall give located Landlord written notice thereof.
8.7 Tenant further agrees that it shall not place any signs on the
windows bed in the Demised Premises indicating that all or any portion of the
Demised Premises are available for subleasing or assignment.
8.8 If the consideration payable by any assignee or the rents payable
under any sublease are greater than the Fixed Rent, Additional Rent and other
charges payable by Tenant hereunder, after Tenant has recovered its reasonable
costs associated with such subletting or assignment including brokerage fees,
the cost of any leasehold improvements paid by Tenant (other than the initial
fit-out) and any other actual reasonable and necessary costs incurred by Tenant
in connection with such subletting or assignment, Tenant shall pay fifty percent
(50%) of such excess to Landlord.
8.9 Landlord acknowledges that the Demised Premises may be occupied by
a parent, subsidiary or affiliate of Tenant ("Tenant Affiliate") and their
employees and that such occupancy of the Demised Premises shall not be
considered an assignment or sublease. Any of Landlord's representations,
warranties, covenants, agreements, guarantees and indemnities made
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for the benefit of Tenant or any rights or privileges granted by Landlord to
Tenant shall also inure to the benefit of such Tenant Affiliate.
ARTICLE 9
COMPLIANCE WITH LAWS AND REQUIREMENTS
OF PUBLIC AUTHORITIES
9.1 Tenant shall give prompt notice to Landlord of any notice it
receives of the violation of any law or requirement of public authority, and at
its expense shall comply with all laws and requirements of public authorities
which shall with respect to the Demised Premises or the use and occupation
thereof, or the abatement of any nuisance, impose any violation, order or duty
on Landlord or Tenant, arising from (i) Tenant's use of the Demised Premises;
(ii) the manner of conduct of Tenant's business or operation of its
installation, equipment or other property therein; (ii) any cause or condition
created by or at the instance of Tenant, other than by Landlord's performance of
any work for or on behalf of Tenant; or (iv) the breach of any of Tenant's
obligations hereunder. Furthermore, Tenant need not comply with any such law or
requirement of public authority so long as Tenant shall be contesting the
validity thereof, or the applicability thereof to the Demised Premises, in
accordance with Section 9.2.
Nothing contained herein shall be construed to require Tenant to make
structural alterations to the Building except to the extent that same are
required by reason of Tenant's specific use (other than general office).
9.2 Tenant may, at its expense (and if necessary, in the name of but
without expense to Landlord) contest, by appropriate proceedings prosecuted
diligently and in good faith, the validity, or applicability to the Demised
Premises, of any law or requirement of public authority, and Landlord shall
cooperate with Tenant in such proceedings provided that:
(a) Tenant shall defend, indemnify, and hold harmless Landlord
against all liability, loss or damage which Landlord shall suffer by reason of
such non-compliance or contest, including reasonable attorney's fees and other
expenses reasonably incurred by Landlord;
(b) Such non-compliance or contest shall not constitute or result
in any violation of any superior mortgage, or, if such superior mortgage shall
permit such non-compliance or contest on condition of the taking of action or
furnishing of security by Landlord, such action shall be taken and such security
shall be furnished at the expense of Tenant; and
(c) Tenant shall keep Landlord advised as to the status of such
proceedings.
9.3 After Tenant takes occupancy of the Demised Premises, Landlord
agrees that in the event there is an occurrence of governmental non-compliance
regarding the Building (excluding the Demised Premises) or the common areas
throughout the term of the Lease, Landlord shall be responsible, at its sole
expense, to remedy any such defect or non-compliance
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unless such non-compliance is a result of actions of Tenant as described in
Section 9.1. After Tenant takes occupancy of the Demised Premises, Tenant shall
be responsible for governmental compliance in the Demised Premises.
9.4 As of the day Tenant takes occupancy of the Demised Premises,
Landlord states that the Land, the Building and the Demised Premises shall
comply with all laws, rules and regulations and requirements of public
authorities including Title III of the Americans with Disabilities Act
(collectively "Laws"), as the Laws apply to existing structures constituting
commercial facilities. If Landlord's affiliate, M. Alfieri Co., Inc. is
performing Tenant's Work or any other work in the Building, Landlord shall
ensure Tenant's Work and any other work performed by Landlord complies with any
applicable Laws as it relates to Tenant's Work in making the Demised Premises
ready for occupancy. The foregoing is expressly conditioned upon Tenant's
representation that all Tenant's Plans shall comply with the all applicable Laws
as set forth in Article 3.1. If M. Alfieri Co., Inc. is not performing any
portion of Tenant's Work or any other work performed in the Building by or on
behalf of Tenant, Tenant shall ensure Tenant's Work or any other work performed
by or on behalf of Tenant complies with any applicable Laws. If, after Tenant
takes occupancy of the Demised Premises, further changes to the Building or the
Demised Premises are required under the Laws by virtue of the Lease and/or
Tenant's specific use and occupancy, such changes shall be Tenant's
responsibility. If, after the Demised Premises are ready for occupancy in
accordance with Article 4, the Laws require further changes to the Building or
the Demised Premises when occasioned by Landlord or any other tenant, then such
changes shall not be Tenant's responsibility. Landlord and Tenant shall
indemnify each other for actual damages suffered out of any non-compliance with
the Laws by the other party as aforesaid.
ARTICLE 10
INSURANCE
10.1 Tenant shall not violate, or permit the violation of, any
condition imposed by the all-risk casualty policy issued for the Building and
shall not do anything, or permit anything to be kept, in the Demised Premises
which would increase the fire or other casualty insurance rate on the Building
or the property therein over the rate which would otherwise then be in effect,
(unless Tenant pays the resulting increased amount of premium as provided in
Section 10.2) or which would result in insurance companies of good standing
refusing to insure the Building or any of such property in amounts and at normal
rates reasonably satisfactory to Landlord. However, Tenant shall not be subject
to any liability or obligation under this Article by reason of the proper use of
the Demised Premises for the purposes permitted by Article 2.
10.2 If, by reason of any act or omission on the part of Tenant, the
rate of fire insurance with extended all-risk coverage on the Building or
equipment or other property of Landlord or other tenants shall be higher than it
otherwise would be, Tenant shall reimburse Landlord, on demand, for that part of
the premiums for fire insurance and extended all-risk coverage paid by Landlord
because of such act or omission on the part of Tenant, which sum shall be deemed
to be additional rent and collectible as such.
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10.3 In the event that any dispute should arise between Landlord and
Tenant concerning insurance rates, a schedule or "make up" of rates for the
Building or the Demised Premises, as the case may be, issued by the Fire
Insurance Rating Organization of New Jersey or other similar body making rates
for fire insurance and extended coverage for the premises concerned, shall be
presumptive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates with extended coverage then applicable to
such premises.
10.4 Tenant shall obtain and keep in full force and effect during the
term of this Lease, at its own cost and expense, Comprehensive General Liability
Insurance, such insurance to afford protection in an amount of not less than
$1,000,000 for injury or death to any one person, $3,000,000 for injury or death
arising out of any one occurrence, and $1,000,000 for damage to property,
protecting and naming the Landlord and the Tenant as insured against any and all
claims for personal injury, death or property damage occurring in, upon,
adjacent, or connected with the Demised Premises and any part thereof. Tenant
shall pay all premiums and charges therefor and upon failure to do so Landlord
may, but shall not be obligated to, make payments, and in such latter event the
Tenant agrees to pay the amount thereof to Landlord on demand and such sum shall
be deemed to be additional rent, and in each instance collectible on the first
day of any month following the date of notice to Tenant in the same manner as
though it were rent originally reserved hereunder, together with interest
thereon at the rate of three points in excess of Prime Rate of the First Union.
Tenant will use its best efforts to include in such Comprehensive General
Liability policy a provision to the effect that same will be non-cancelable,
except upon reasonable advance written notice to Landlord. The original
insurance policies or appropriate certificates shall be deposited with Landlord
together with any renewals, replacements or endorsements to the end that said
insurance shall be in full force and effect for the benefit of the Landlord
during the term of this Lease. In the event Tenant shall fail to procure and
place such insurance, the Landlord may, but shall not be obligated to, procure
and place same, in which event the amount of the premium paid shall be refunded
by Tenant to Landlord upon demand and shall in each instance be collectible on
the first day of the month or any subsequent month following the date of payment
by Landlord, in the same manner as though said sums were additional rent
reserved hereunder together with interest thereon at the rate of three points in
excess of the Prime Rate of the First Union.
10.5 Landlord and Tenant agree to use their best efforts to include in
each of its insurance policies a waiver of the insurer's right of subrogation
against the other party or if such waiver shall be unobtainable or unenforceable
(a) an express agreement that such policy shall not be invalidated if the
insured waives or has waived before the casualty, the right of recovery against
any party responsible for a casualty covered by the policy or (b) any other form
of permission for the release of the other party. If such waiver, agreement, or
permission shall not be or shall cease to be obtainable without additional
charge, or at all, the insured party shall so notify the other party after
learning thereof. In such a case, if the other party shall agree in writing to
pay the insurer's additional charge therefor, such waiver agreement or
permission shall, if obtainable, be included in the policy.
10.6 Each party hereby releases the other party with respect to any
claim (including a claim for negligence) which it might otherwise have against
the other party for loss, damage, or destruction with respect to its property
(including rental value or business interruption) occurring during the term of
this Lease to the extent to which it is insured under a
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policy or policies containing a waiver of subrogation or permission to release
liability or naming the other party as an additional insured, as provided in
Sections 10.4 and 10.5. If notwithstanding the recovery of insurance proceeds by
either party for loss, damage or destruction of its property (or rental value or
business interruption) the other party is liable to the first party with respect
thereto or is obligated under this Lease to make replacement, repair, or
restoration or payment, then provided that the first party's right of full
recovery under its insurance policies is not thereby prejudiced or otherwise
adversely affected, the amount of the net proceeds of the first party's
insurance against such loss, damage or destruction shall be offset against the
second party's liability to the first party thereof, or shall be made available
to the second party to pay for replacement, repair, or restoration, as the case
may be.
10.7 The waiver of subrogation or permission for release referred to in
Section 10.5 shall extend to the agents of each party and their employees and,
in the case of Tenant, shall also extend to all other persons and entities
occupying, using or visiting the Demised Premises in accordance with the terms
of this Lease, but only if and to the extent that such waiver or permission can
be obtained without additional charge (unless such party shall pay such charge).
The releases provided for in Section 10.6 shall likewise extend to such agents,
employees and other persons and entities, if and to the extent that such waiver
or permission is effective as to them. Nothing contained in Section 10.6 shall
be deemed to relieve either party of any duty imposed elsewhere in this Lease to
repair, restore or rebuild or to nullify any abatement of rents provided for
elsewhere in this Lease. Except as otherwise provided in Section 10.4, nothing
contained in Sections 10.5 and 10.6 shall be deemed to impose upon either party
any duty to procure or maintain any of the kinds of insurance referred to
therein or any particular amounts or limits of any such kinds of insurance.
However, each party shall advise the other, upon request, from time to time (but
not more often than once a year) of all of the policies of insurance it is
carrying of any of the kinds referred to in Sections 10.1 and 10.4, and if it
shall discontinue any such policy or allow it to lapse, shall notify the other
party thereof with reasonable promptness. The insurance policies referred to in
Sections 10.5 and 10.6 shall be deemed to include policies procured and
maintained by a party for the benefit of its mortgagee or pledgee.
ARTICLE 11
RULES AND REGULATIONS
11.1 Tenant and its employees and agent shall faithfully observe and
comply with the Rules and Regulations annexed hereto as Exhibit E, and such
reasonable changes therein (whether by modification, elimination, or addition)
as Landlord at any time or times hereafter may make and communicate in writing
to Tenant, which do not unreasonably affect the conduct of Tenant's business in
the Demised Premises or substantially affect Tenant's cost of occupancy;
provided, however, that in case of any conflict or inconsistency between the
provisions of this Lease and any of the Rules and Regulations as originally
promulgated or as changed, the provisions of this Lease shall control.
11.2 Nothing contained in this Lease shall be construed to impose upon
Landlord any duty or obligation to Tenant to enforce the Rules and Regulations
or the terms, covenants, or conditions in any other lease, as against any other
tenant and Landlord shall not be
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liable to Tenant for violation of the same by any other tenant or its employees,
agents or visitors. However, Landlord shall not enforce any of the Rules and
Regulations in such manner as to discriminate against Tenant or anyone claiming
under or through Tenant.
ARTICLE 12
TENANT'S CHANGES
12.1 After Tenant takes occupancy of the Demised Premises, Tenant shall
make no changes, alterations, additions, installations, substitutions, or
improvements (hereinafter collectively called "changes," and, as applied to
changes provided for in this Article, "Tenant's Changes") in and to the Demised
Premises without the express prior written consent of Landlord, which shall not
be unreasonably withheld conditioned or delayed. Any additional portion of the
Demised Premises used for lab space beyond that lab space provided for in the
initial build-out shall be considered a Tenant Change and must be approved by
Landlord in writing pursuant to this Article. Landlord's consent shall not be
required for painting of the Demised Premises provided Tenant gives Landlord
written notice of its intent to paint the premises, the manufacturer of the
paint and the color of the paint. Landlord's consent shall not be required for
carpeting the Demised Premises provided Tenant gives Landlord written notice of
specifically how the carpet is going to be installed.
All proposed Tenant's Changes shall be submitted to Landlord for
written consent at least thirty (30) days prior to the date Tenant intends to
commence such changes, such submission to include plans and specifications for
the work to be done, proposed scheduling, and the estimated cost of completion
of Tenant's Changes. Landlord agrees, within ten (10) business days from
Landlord's receipt of Tenant's request for consent to a Tenant Change, to
acknowledge receipt of such request. At the time Landlord gives its consent to
the Tenant Changes, Landlord shall provide Tenant with the estimated cost of the
supervision fee as set forth below. If Landlord consents to Tenant's Changes,
Tenant may commence and diligently prosecute to completion Tenant's Changes,
under the direct supervision of Landlord. If Landlord fails to take any action
within the thirty (30) day period set forth above, Landlord shall be deemed to
approved the Tenant's Changes. However, any Tenant Change deemed approved in
such a manner shall be subject to the Supervision Fee as set forth below and
Tenant shall be required to give Landlord written notice of Landlord's failure
to respond to Tenant's request for consent to a Tenant Change in which notice
Tenant must demand Landlord to advise Tenant of any restoration required as a
result of such Tenant Change. Thereafter, if Landlord fails to advise Tenant of
any restoration requirements pursuant to such Tenant Change within three (3)
days of Landlord's receipt of Tenant's demand, then restoration shall not
otherwise be required with respect to such Tenant's Changes.
Tenant shall pay to Landlord a Supervision Fee (which shall include the
cost of review of the proposed Tenant's Changes) the lesser of the actual cost
of the supervision or equal to ten percent (10%) of the certified cost of
completion of Tenant's Changes. Prior to the commencement of Tenant's Changes,
Tenant shall pay to Landlord ten percent (10%) of the estimated cost of
completion (the "Estimated Payment") as additional rent. Within fifteen (15)
days after completion of Tenant's Changes, Tenant shall furnish Landlord with a
statement, certified by an officer or a principal of Tenant to be accurate and
true, of the total cost of
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completion of Tenant's Changes (the "Total Cost"). If such certified statement
furnished by Tenant shall indicate that the Estimated Payment exceeded the
lesser of the actual cost of the supervision or ten percent (10%) of the Total
Cost, Landlord shall forthwith either (i) pay the amount of excess directly to
Tenant concurrently with the delivery of the certified statement or (ii) permit
Tenant to credit the amount of such excess against the subsequent payment of
rent due hereunder. If such certified statement furnished by Tenant shall
indicate that the lesser of the actual cost of the supervision or ten percent
(10%) of the Total Cost exceeded Tenant's Estimated Payment, Tenant shall
simultaneously with the delivery to Landlord of the certified statement, pay the
amount of such excess to Landlord as additional rent. Any Tenant Changes
performed by the Landlord shall not be subject to a separate Supervision Fee as
described in this Paragraph (the cost of any type of supervision shall be
included in the price of the work).
12.2 Notwithstanding the provisions of Section 12.1, all proposed
Tenant's Changes which shall affect or alter:
(a) The outside appearance or the strength of the Building or of
any of its structural parts; or
(b) Any part of the Building outside of the Demised Premises; or
(c) The mechanical, electrical, sanitary and other service systems
of the Building, or increase the usage of such systems;
shall be performed only by the Landlord, at a cost to be mutually agreed upon
between Landlord and Tenant, which cost shall be commercially reasonable.
12.3 Tenant, at its expense, shall obtain all necessary governmental
permits and certificates for the commencement and prosecution of Tenant's
Changes and for final approval thereof upon completion, and shall cause Tenant's
Changes to be performed in compliance therewith and with all applicable laws and
requirements of public authorities, and with all applicable requirements of
insurance bodies, and in good and workmanlike manner, using new materials and
equipment at least equal in quality and class to the original installations in
the Building. Tenant's Changes shall be performed in such manner as not to
unreasonably interfere with or delay and (unless Tenant shall indemnify Landlord
therefor to the latter's reasonable satisfaction) as not to impose any
additional expense upon Landlord in the construction, maintenance or operation
of the Building. Throughout the performance of Tenant's Changes, Tenant, at its
expense, shall carry, or cause to be carried, workmen's compensation insurance
in statutory limits and general liability insurance for any occurrence in or
about the Building, in which Landlord and its agents shall be named as parties
insured in such limits as Landlord may reasonably prescribe, with insurers
reasonably satisfactory to Landlord. Tenant shall furnish Landlord with
reasonably satisfactory evidence that such insurance is in effect at or before
the commencement of Tenant's Changes and, on request, at reasonable intervals
thereafter during the continuance of Tenant's Changes. If any of Tenant's
Changes shall invoke the removal of any fixtures, equipment or other property in
the Demised Premises which are not Tenant's Property (as defined in Article 13),
such fixtures, equipment or other property shall be promptly replaced, at
Tenant's expense, with new fixtures, equipment or other property (as the case
may
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be) of like utility and at least equal value. In addition, unless Landlord shall
otherwise expressly consent in writing, the Tenant shall deliver such removed
fixtures to Landlord.
12.4 Tenant, at its expense, and with diligence and dispatch, shall
procure the cancellation or discharge of all notices of violation arising from
or otherwise connected with Tenant's Changes which shall be issued by any public
authority having or asserting jurisdiction. Tenant shall defend, indemnify and
save harmless Landlord against any and all mechanic's and other liens filed in
connection with Tenant's Changes, including the liens of any security interest
in, conditional sales of, or chattel mortgages upon, any material, fixtures or
articles so installed in and constituting part of the Demised Premises and,
against all costs, expenses and liabilities incurred in connection with any such
lien, security interest, conditional sale or chattel mortgage or any action or
proceeding brought thereon. Tenant, at its expense, shall procure the
satisfaction or discharge of all such liens within fifteen (15) days after
Landlord makes written demand therefor. However, nothing herein contained shall
prevent Tenant from contesting, in good faith and at its own expense, any such
notice of violation, provided that Tenant shall comply with the provisions of
Section 9.2.
12.5 Tenant agrees that the exercise of its rights pursuant to the
provisions of this Article 12 shall not be done in a manner which would create
any work stoppage, picketing, labor disruption or dispute or violate Landlord's
union contracts affecting the Land and Building, nor interference with the
business of Landlord or any tenant or occupant of the Building.
12.6 If Landlord requires restoration of all or any part of Tenant's
Changes, Landlord shall advise Tenant of such restoration requirement at the
time Landlord gives its consent to any Tenant Changes. If Landlord fails to
require restoration at the time it gives such consent, then restoration shall
not otherwise be required with respect to such Tenant's Changes.
ARTICLE 13
TENANT'S PROPERTY
13.1 All fixtures, equipment, improvements, and appurtenances attached
to or built into the Demised Premises at the commencement of or during the term
of this Lease, whether or not by or at the expense of Tenant, shall be and
remain a part of the Demised Premises, shall be deemed the property of Landlord
and shall not be removed by Tenant, except as hereinafter in this Article
expressly provided.
13.2 All business and trade fixtures, machinery and equipment,
communications equipment and office equipment, whether or not attached to or
built into the Demised Premises, which are installed in the Demised Premises by
or for the account of Tenant, without expense to Landlord, and can be removed
without permanent structural damage to the Building, and all furniture,
furnishings and other articles of movable personal property owned by Tenant and
located in the Demised Premises (all of which are sometimes called "Tenant's
Property"), shall be and shall remain the property of Tenant and may be removed
by it at any time during the term of this Lease; provided that if any of
Tenant's Property is removed, Tenant shall repair or pay the cost of repairing
any damage to the Demised Premises or to the Building resulting from such
removal. Any equipment or other property for which Landlord shall have
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granted any allowance or credit to Tenant shall not be deemed to have been
installed by or for the account of Tenant, without expense to Landlord, and
shall not be considered Tenant's Property.
13.3 At or before the Expiration Date, or the date of an earlier
termination of this Lease, or as promptly as practicable after such an earlier
termination date, Tenant at its expense, shall remove from the Demised Premises
all of Tenant's Property except such items thereof as Tenant shall have
expressly agreed in writing with Landlord were to remain and to become the
property of Landlord, and, if requested by Landlord, all items of work done by
or on behalf of Tenant, in accordance with Article 12, after the Tenant takes
occupancy of the Demised Premises shall be removed by Tenant and Tenant shall
repair any damage to the Demised Premises or the Building resulting from such
removal. Landlord and Tenant agree that a minimum of ninety (90) days prior to
the Expiration Date of this Lease, Landlord shall walk through the Demised
Premises with Tenant and create a punchlist of all restoration which shall be
required to be completed by Tenant by the Expiration Date. Failure by Landlord
and Tenant to walk through the Demised Premises ninety (90) days prior to the
Expiration Date of this Lease shall not relieve Tenant of any restoration
obligations otherwise required pursuant to this Lease. However, if Tenant gives
Landlord notice that it desires to walk through the Demised Premises and
identify the restoration required as set forth above and Landlord does not
fulfill its obligation to walk through the Demised Premises, Tenant will not be
relieved of any of its restoration obligations but will not be deemed in
holdover as set forth below while it performs such restoration. Thereafter,
Tenant may request a written estimate from Landlord for the cost of all
restoration required pursuant to this Lease. Landlord and Tenant acknowledge
that Landlord, prior to the Expiration Date, will have already notified Tenant
of its restoration obligations pursuant to a restoration al letter dated
September 12, 1966 and Article 12 of the Lease, and, as a result,
notwithstanding the ninety (90) day time period set forth above, it shall be
Tenant's obligation to ensure that Tenant has enough time after the Landlord and
Tenant walk through the Demised Premises, if Tenant will be performing such
restoration prior to the Expiration Date of the Lease. The cost contained in
such estimate shall be commercially reasonable and where possible, Landlord will
competitively bid the work. In lieu of restoring the Demised Premises as
required pursuant to this Lease, Tenant may, at its option, pay Landlord, prior
to the Expiration Date of the Lease, the cost of such restoration as set forth
in Landlord's estimate. If Tenant fails to remove its Property (except for minor
or insubstantial pieces of Tenant's Property which can be easily removed by
Landlord at little or no expense), fails to perform any restoration required of
it under this Lease and/or fails to pay Landlord for the cost of any restoration
required, on or before the last day of the term of this Lease or upon any
earlier termination, then Tenant shall be deemed a holdover Tenant as
contemplated in Article 40. For the first fifteen (15) days of holdover as set
forth above, Tenant shall only be required to pay holdover charges on a per diem
basis. After the expiration of fifteen (15) days the Tenant shall be in subject
to holdover changes on a monthly basis. If, unknowingly, Tenant incorrectly
performs any of the restoration required, Landlord shall notify Tenant and
Tenant shall have fifteen (15) days to correct such error. If Tenant fails to
correct such error within the thirty (30) day period, Tenant shall be subject to
holdover from the day on which Tenant received Landlord's notice of the
incorrect restoration.
13.4 Any other items of Tenant's Property (except money, securities,
and other like valuables) which shall remain in the Demised Premises after the
Expiration Date or after a
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period of fifteen (15) days following an earlier termination date, may, at the
option of the Landlord, be deemed to have been abandoned, and in such case
either may be retained by Landlord as its property or may be disposed of,
without accountability, in such manner as Landlord may see fit, at Tenant's
expense.
ARTICLE 14
REPAIRS AND MAINTENANCE
14.1 Tenant shall take good care of the Demised Premises. Tenant, at
its expense, shall promptly make all repairs, ordinary or extraordinary,
interior or exterior, structural or otherwise in and about the Demised Premises
and the Building, as shall be required by reason of (i) the performance of
Tenant's Changes, if Landlord or its affiliate does not perform the Tenant's
Changes; (ii) the installation, use or operation of Tenant's Property in the
Demised Premises by Tenant, its agents or employees; (iii) the moving of
Tenant's Property in or out of the Building; or (iv) the misuse or neglect of
Tenant or any of its employees, agents, contractors or invitees; but Tenant
shall not be responsible, and Landlord shall be responsible, for any of such
repairs as are required by reason of Landlord's neglect or other fault in the
manner of performing any of Tenant's Finish Work or Tenant's Changes which may
be undertaken by Landlord for Tenant's account or are otherwise required by
reason of neglect or other fault of Landlord or its employees, agents, or
contractors. Except if required by the neglect or other fault of Landlord or its
employees, agents, or contractors, Tenant, at its expense, shall replace all
scratched, damaged or broken doors or other glass in or about the Demised
Premises and shall be responsible for all repairs, maintenance, and replacement
of wall and floor coverings in the Demised Premises except for ordinary wear and
tear. Landlord shall be responsible for the repair and maintenance of all
non-conforming ballasts existing prior to the commencement of Tenant's Work
which ballasts remain as fixtures in the Demised Premises. Tenant shall be
responsible for the repair and maintenance of all other ballasts.
14.2 Landlord, subject to the provisions of Section 5.4, shall keep and
maintain the Building and its fixtures, appurtenances, systems and facilities
serving the Demised Premises, in good working order, condition, and repair and
shall make with all due diligence all repairs, structural and otherwise,
interior and exterior, as and when needed in or about the Demised Premises,
except for those repairs for which Tenant is responsible pursuant to any other
provisions of this Lease.
14.3 Landlord shall have no liability to Tenant by reason of any
inconvenience, annoyance, interruption, or injury to Tenant's business arising
from Landlord's making any repairs or changes which Landlord is required or
permitted by this Lease or required by law, to make in or to any portion of the
Building or the Demised Premises, or in or to the fixtures, equipment of
appurtenances of the Building or the Demised Premises, provided that Landlord
shall use due diligence with respect thereto and shall perform such work, except
in case of emergency, at a time reasonably convenient to Tenant and otherwise in
such a manner as will not materially interfere with Tenant's use of the Demised
Premises. Landlord, at its sole expense and not subject to Section 5.4, shall be
responsible for roof replacement and structural repair and replacement during
the initial term of the Lease.
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ARTICLE 15
ELECTRICITY
15.1 Landlord shall furnish the electric energy that Tenant shall
require in the Demised Premises. Tenant shall pay to Landlord, as additional
rent, the costs and charges for all electric energy furnished to Tenant at the
Demised Premises. Additional rent for such electric energy shall be calculated
and payable in the manner hereinafter set forth.
15.2 Within a reasonable time after the commencement of the term of
this Lease, subsequent to Tenant's having taken occupancy of the Demised
Premises and having installed and commenced the use of Tenant's electrical
equipment, Landlord, at Tenant's sole expense, shall cause a survey to be made
by a reputable independent electrical engineer or similar agency of the
estimated use of electric energy (other than for heat and air conditioning) to
the Demised Premises, and shall compute the cost thereof for the quantity so
determined at prevailing retail rates. Tenant shall pay Landlord the cost of
such electric energy, as so calculated, on a monthly basis, as additional rent,
together with its payment of fixed rent.
Until such time as Landlord shall complete the aforedescribed survey,
Tenant shall pay to Landlord, each and every month, as additional rent, for and
on account of Tenant's electrical consumption, the sum of $3,906.25 for the
Initial Space for first two months of the Lease term and $5,208.33 thereafter to
be applied against Tenant's obligations hereunder. Upon completion of the
survey, there shall be an adjustment for the period from the day the Tenant
takes occupancy of the Demised Premises through the date that the results of the
survey shall be effectuated as shall be required. Landlord shall have the right,
at any time, during the term of this Lease, to cause the Demised Premises to be
resurveyed. In the event that such resurvey indicates an increase of 10% or
greater of Tenant's previous consumption for the Demised Premises, then Tenant
shall pay the cost of such resurvey. In the event that such resurvey indicates
either of (i) no increase; or (ii) an increase less than 10% of Tenant's
previous consumption, or (iii) a decrease, then Landlord shall bear the cost of
such resurvey. Tenant shall have the right, at any time during the term of the
Lease, to cause the Demised Premises to be resurveyed. In the event that such
resurvey shall indicate increased or decreased electrical consumption by Tenant
at the Demised Premises, there shall be an adjustment in the amount paid by
Tenant to Landlord for Tenant's electrical consumption in accordance with the
resurvey as well as an adjustment retroactive to the date Landlord establishes
Tenant's increase or decrease in electrical consumption in excess of the
consumption established by the prior survey. All surveys pursuant to this
Article shall be conducted by a reputable independent electrical engineer or
similar agency recognized by the electric company servicing the Building.
Landlord shall submit to Tenant the results of any electrical survey
and the same shall be deemed binding upon Tenant unless Tenant shall object to
same within ninety (90) days of the date that Landlord shall furnish Tenant with
the results of the survey.
15.3 Landlord shall not be liable in any way to Tenant for any failure
or defect in the supply or character of electric energy furnished to the Demised
Premises by reason of any requirement, act, or omission of the public utility
serving the Building with electricity or for any
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other reason. Landlord shall furnish and install all replacement lighting tubes,
lamps and bulbs required in the Demised Premises at Tenant's expense.
15.4 Tenants use of electric energy in the Demised Premises shall not
at any time exceed the capacity of any of the electrical conductors and
equipment in or otherwise serving the Demised Premises. Landlord shall provide
electricity service to the Demised Premises (exclusive of HVAC service) for
Tenant's exclusive use for business machines and lighting equal to +3 watts per
rentable square feet. In order to insure that such capacity is not exceeded and
to avert possible adverse effect upon the Building electric service, Tenant
shall not, without Landlord's prior written consent in each instance (which
shall not be unreasonably withheld), connect any additional fixtures,
appliances, or equipment to the Building electrical distribution system or make
any alteration or addition to the electric system of the Demised Premises
existing on the day the Tenant takes occupancy of the Demised Premises. Should
Landlord grant such consent, all additional risers or other equipment required
therefor shall be provided by Landlord and the cost thereof shall be paid by
Tenant upon Landlord's demand. As a condition to granting such consent,
Landlord, at Tenant's sole expense, may cause a new survey to be made of the use
of electric energy (other than for heating and air-conditioning) in order to
calculate the potential additional electric energy to be made available to
Tenant based upon the estimated additional capacity of such additional risers or
other equipment. When the amount of such increase is so determined, and the
estimated cost thereof is calculated, the amount of monthly additional rent
payable pursuant to Section 15.2 hereof shall be adjusted to reflect the
additional cost, and shall be payable as therein provided.
15.5 If the public utility rate schedule for the supply of electric
current to the Building shall be increased during the term of this Lease, the
additional rent payable pursuant to Section 15.2 hereof shall be equitably
adjusted to reflect the resulting increase in Landlord's cost of furnishing
electric service to the Demised Premises effective as of the date of any
increase. Landlord and Tenant agree that the rate charged to Tenant for
electricity shall not be greater than the rate Tenant would have paid had the
Demised Premises been separately metered.
15.6 Tenant agrees within three (3) months from the day the Tenant
takes occupancy of the Demised Premises to submit to Landlord a list of fixtures
and equipment utilizing electric current including, but not limited to, copying
machines, computers and word processing equipment and equipment of a similar
nature. On the first day of each calendar quarter thereafter, Tenant shall
submit to Landlord a statement indicating any substantial changes in the list
previously supplied as same may be updated by the required quarterly statements.
15.7 Tenant, at its sole cost and expense, may have a submeter
installed by Landlord at any time during the term of this Lease.
ARTICLE 16
HEATING, VENTILATION AND AIR-CONDITIONING
16.1 Landlord, subject to the provisions of Section 5.4, shall maintain
and operate the heating, ventilating, and air-conditioning systems (hereinafter
called "the systems") and shall furnish heat, ventilating, and air conditioning
(hereinafter collectively called "air
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conditioning service") in the Demised Premises through the systems, in
compliance with the performance specifications set forth in Exhibit C, as may be
required for comfortable occupancy of the Demised Premises from 7:00 AM to 6:00
PM Monday through Friday and 8:00 AM to 1:00 PM on Saturday as requested by
Tenant, except days observed by the federal or the state government as legal
holidays ("Regular Hours") throughout the year. If Tenant shall require
air-conditioning service at any other time (hereinafter called "after hours"),
Landlord shall furnish such after hours air-conditioning service upon four (4)
hours advance notice or the preceding day in the event of holidays or weekends
from Tenant, and Tenant shall pay Landlord's then established charges therefor
on Landlord's demand. Landlord's current charge for after hours air-conditioning
service is S45.00 per hour for the entire Demised Premises.
16.2 Use of the Demised Premises, or any part thereof, in a manner
exceeding the design conditions (including occupancy and connected electrical
load) specified in Exhibit C for air-conditioning service in the Demised
Premises, or rearrangement of partitioning which interferes with normal
operation of the air-conditioning in the Demised Premises, may require changes
in the air-conditioning system servicing the Demised Premises. Such changes, so
occasioned, shall be made by Landlord, at Tenant's expense, as Tenant's Changes
pursuant to Article 12.
ARTICLE 17
LANDLORD'S OTHER SERVICES
17.1 Landlord, subject to the provisions of Section 5.4, shall provide
public elevator service, passenger and service, by elevators serving the floor
on which the Demised Premises are situated during Regular Hours, and shall have
at least one passenger elevator subject to call at all other times.
17.2 Landlord, subject to the provisions of Section 5.4, shall cause
the Demised Premises, including the exterior and the interior of the windows
thereof, to be cleaned. Tenant shall pay to Landlord on demand the costs
incurred by Landlord for (a) extra cleaning work in the Demised Premises
required because of (i) misuse or neglect on the part of Tenant or its employees
or visitors; (ii) use of portions of the Demised Premises for preparation,
serving or consumption of food or beverages, data processing, or reproducing
operations, private lavatories or toilets or other special purpose areas
requiring greater or more difficult cleaning work than office areas; (iii)
unusual quantity of interior glass sauces; (iv) non-building standard materials
or finishes installed by Tenant or at its request; and (b) removal from the
Demised Premises and the Building of so much of any refuse and rubbish of Tenant
as shall exceed that ordinarily accumulated daily in the routine of business
office occupancy. Landlord, its cleaning contractor, and their employees shall
have after-hours access to the Demised Premises and the free use of light,
power, and water in the Demised Premises as reasonably required for the purpose
of cleaning the Demised Premises in accordance with Landlord's obligations
hereunder.
17.3 Landlord, subject to the provisions of Section 5.4, shall furnish
adequate hot and cold water to each floor of the Building for drinking,
lavatory, and cleaning purposes, together with soap, towels, and toilet tissue
for each lavatory. If Tenant uses water for any other purpose, Landlord, at
Tenant's expense, shall install meters to measure Tenant's consumption of
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cold water and/or hot water for such other purposes and/or steam, as the case
may be. Tenant shall pay for the quantities of cold water and hot water shown on
such meters, at Landlord's cost thereof, on the rendition of Landlord's bills
therefor.
17.4 Landlord, at its expense, and at Tenant's request, shall insert
initial listings on the Building directory of the names of Tenant or any Tenant
Affiliate as defined in Section 8.9, and the names of any of their officers and
employees, provided that the names so listed shall not take up more than
Tenant's proportionate share of the space on the Building directory. All
Building directory changes made at Tenant's request after the Tenant's initial
listings have been placed on the Building directory shall be made by Landlord at
the expense of Tenant, and Tenant agrees to promptly pay to Landlord as
additional rent the cost of such changes within ten (10) days after Landlord has
submitted an invoice therefor.
17.5 Tenant at its sole cost and expense shall have the right to
install its name and logo on the existing exterior monument sign which shall be
subject to Landlord's reasonable approval and shall utilize Building standard
graphics, the size and location of which shall be determined by Landlord. Such
sign shall be the existing exterior monument sign located on the lawn adjacent
to the Building. Tenant agrees to remove such sign and restore the existing
exterior monument sign to its original condition, wear and tear excepted, upon
the expiration or earlier termination of this Lease. Tenant shall obtain all
required governmental permits and approvals and all costs and expenses
associated therewith shall be borne solely by Tenant. The erection of the sign
shall not cause any structural damage to the Building.
17.6 Landlord reserves the right, without any liability to Tenant, to
stop service of any of the heating, ventilating, air conditioning, electric,
sanitary, elevator, or other Building systems serving the Demised Premises, or
the rendition of any of the other services required of Landlord under this
Lease, whenever and for so long as may be necessary, by reason of accidents,
emergencies, strikes, or the making of repairs or changes which Landlord is
required by this Lease or by law to make or in good faith deems necessary, by
reason of difficulty in securing proper supplies of fuel, steam, water,
electricity, labor or supplies, or by reason of any other cause beyond
Landlord's reasonable control.
17.7 Throughout the term and extensions of this Lease, Landlord shall
make available for Tenant's use in common with other tenants of the Building 4
spaces per 1,000 rentable square feet and 10 reserved parking spaces in the
parking area adjacent to the Building as designated on Exhibit H. Landlord
agrees that except for payment of common expense charges covered by Article 5,
there shall be no separate fee or cost to Tenant for use of the parking area.
17.8 The Building and the Demised Premises shall be cleaned in
accordance with the Cleaning and Maintenance Schedule set forth on Exhibit D
annexed hereto and made a part hereof
17.9 Tenant acknowledges that as part of the consideration for this
Lease, and in order not to interfere with the rights of other tenants or other
tenants' quiet enjoyment of the common areas of the Building and otherwise
prevent Landlord from performing its services without causing increases to the
cost of such services, Tenant agrees that it shall not permit its
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employees to congregate in hallways or elevators, shall not permit its employees
to create an unsightly condition in or about any passageway from the Building or
the common areas or to the parking lot/deck, with regard to smoking, including
the disposal of cigarettes, in the courtyard and/or outer areas adjacent to the
Building and will otherwise require its employees to act and conduct themselves
in the common areas in such a manner as will not disturb other tenants or the
use and enjoyment by other tenants of the Building.
17.10 Landlord, at its expense, shall maintain an in-door air quality
monitoring program to monitor the air quality of the Building and shall
effectuate such remedies as are required to insure that the air quality of the
Building satisfies current applicable governmental standards.
17.11 If due to the Landlord's failure to provide any service required
to be furnished hereby by Landlord with respect to the maintenance, repair and
operation of the Demised Premises or any portion thereof are not habitable and
therefore not usable for its permitted purpose and Tenant can not conduct
business in the Demised Premises, which condition continues for (i) ten (10)
continuous business days if such failure is not within Landlord's sole control
or (ii) five (s) continuous business days if such failure is within Landlord's
sole control, after Landlord's receipt of written notification from Tenant
stating with specificity the nature of the problem (which time shall be extended
by reason of force majeure which includes but is not limited to strikes,
lock-outs, labor controversy, inability to obtain supplies, acts of God or other
causes beyond Landlord's control other than purely reasonable economic
considerations under the circumstances), and which condition is not caused by
the negligent or intentional acts or failure to act of Tenant, then Tenant shall
be entitled to abate its fixed rent and Operating Expenses and Tax escalations
after the condition herein described continues as follows:
For each calendar day commencing after the passage of such ten (10)
business days after Landlord's receipt of written notice of such failure, Tenet
shall be entitled to one (1) additional day of rent abatement prorated on the
basis of thirty (30) day calendar month, which abatement shall run from the date
of the next monthly payment of fixed rent which was otherwise due under Article
1.4. Such prorated one (1) day abatement shall continue for each additional
calendar day during which the such failure continues. An event is not within
Landlord's control if, for reasons beyond Landlord's control, Landlord can not
reasonably purchase or obtain the necessary equipment to correct any such
failure. Landlord shall diligently proceed to repair any failure as set forth in
this Section within five (5) days of written notice from Tenant. Landlord and
Tenant agree that none of the abatement aforesaid shall apply to Tenant's
obligation to pay additional rent. For the purposes of the right of abatement,
such right shall only exist when the Demised Premises are untenable because of
failures in all the elevators, HVAC, electric and/or plumbing systems. Further,
the Demised Premises must not only be untenable but, in fact, the Tenant must
not have used the Demised Premises during any period in which the abatement is
claimed. The foregoing shall not preclude any other remedy available to Tenant.
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ARTICLE 18
ACCESS, CHANGES IN BUILDING FACILITIES, NAME
18.1 All walls, windows, and doors bounding the Demised Premises
(including exterior Building walls, core corridor walls and doors, and any core
corridor entrance), except the inside surfaces thereof, any terraces or roofs
adjacent to the Demised Premises, and any space in or adjacent to the Demised
Premises used for shafts, stacks, piped conduits, fan room, ducts, electric or
other utilities, sinks or other Building facilities, and the use thereof, as
well as access thereto through the Demised Premises for the purposes of
operation, maintenance, decoration, and repair are reserved to Landlord. Upon
Landlord's reasonable and prompt approval, Tenant may have access to areas
adjacent to the Demised Premises for the installation of voice, data and
security wiring provided such wiring is removed by Tenant at the expiration of
this Lease, unless otherwise agreed upon by Landlord and Tenant in writing.
18.2 Tenant shall permit Landlord to have access to the Demised
Premises to install use, and maintain pipes, ducts, and conduits within the
demising walls, bearing columns, and ceilings above the Demised Premises.
18.3 Landlord or Landlord's agent shall have the right upon advance
reasonable request (except in emergency under clause (ii) hereof) to enter
and/or pass through the Demised Premises or any part thereof, at reasonable
times during Tenant's business hours, (i) to examine the Demised Premises and to
show them to the fee owners, holders of superior mortgages, or prospective
purchases or mortgagees of the Building as an entirety, and (ii) for the purpose
of making such repairs or changes or doing such repainting in or to the Demised
Premises or its facilities, as may be provided for by this Lease or as may be
mutually agreed upon by the parties or as Landlord may be required to make by
law or in order to repair and maintain said structure or its fixtures or
facilities. Landlord shall be allowed to take all materials into and upon the
Demised Premises that may be required for such repairs, changes, repainting, or
maintenance, without liability to Tenant but Landlord shall not unreasonably
interfere with Tenant's use of the Demised Premises. Landlord shall also have
the right to enter on and/or pass through the Demised Premises, or any part
thereof, at such times as such entry shall be required by circumstances of
emergency affecting the Demised Premises or the Building.
18.4 During the period of six (6) months prior to the Expiration Date,
Landlord may exhibit the Demised Premises to prospective tenants.
18.5 Landlord reserves the right, at any time after completion of the
Building, without incurring any liability to Tenant therefor, to make such
changes in or to the Building and the fixtures and equipment thereof, as well as
in or to the street entrances, halls, passages, elevators, escalators, and
stairways thereof, as it may deem necessary or desirable, provided, however,
that such changes shall not reduce the size of the Demised Premises.
18.6 Landlord may adopt any name for the Building. Landlord reserves
the right to change the name or address of the Building at any time.
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18.7 Subject to applicable law and the limitations on Landlord's
Services and HVAC as set forth in Article 16 and 17, the Building shall be
accessible twenty-four (24) hours a day, seven (7) days a week.
ARTICLE 19
NOTICE OF ACCIDENTS
19.1 Tenant shall give notice to Landlord, promptly after Tenant learns
thereof, of (i) any accident in or about the Demised Premises for which Landlord
might be liable; (ii) all fires in the Demised Premises; (iii) all damage to or
defects in the Demised Premises, including the fixtures, equipment, and
appurtenances thereof, for the repair of which Landlord might be responsible;
and (iv) all damage to or defects in any parts or appurtenances of the
Building's sanitary, electrical, heating, ventilating, air-conditioning,
elevator, and other systems located in or passing through the Demised Premises
or any part thereof.
ARTICLE 20
NON-LIABILITY AND INDEMNIFICATION
20.1 Neither Landlord nor any agent or employee of Landlord shall be
liable to Tenant for any injury or damage to Tenant or to any other person or
for any damage to, or loss (by then or otherwise) of, any property of Tenant or
of any other person, irrespective of the cause of such injury, damage, or loss,
unless caused by or due to the negligence or willful act or omission of
Landlord, its agents, contractors or employees.
20.2 Tenant shall indemnify and save harmless Landlord and its agents
against and from (a) any and all claims (i) arising from (x) the conduct or
management of the Demised Praxes or of any business therein, or (y) any work or
thing whatsoever done, or any condition created (other than by Landlord for
Landlord's or Tenant's account) in or about the Demised Premises during the term
of this Lease or during the period of time, if any, prior to the day the Tenant
takes occupancy of the Demised Premises that Tenant may have been given access
to the Demised Premises, or (ii) arising from any negligent or otherwise
wrongful act or omission of Tenant or any of its subtenants, invitees or
licensees or its or their employees, agents, or contractors, and (b) all costs,
expenses, and liabilities incurred in or in connection with each such claim or
action or proceeding brought thereon. In case any action or proceeding be
brought against Landlord by reason of any such claim, Tenant upon notice from
Landlord, shall resist and defend such action or proceeding.
20.3 Landlord shall indemnify and save harmless Tenant and its agents
against and from (a) any and all claims (i) arising from (x) the conduct or
management of the Building by Landlord and/or its agents or (y) any work or
thing whatsoever done, or any condition created (other than by Tenant for
Landlord's or Tenant's account) in or about the Building caused by Landlord or
its agents during the term of this Lease, or (iii) arising from any negligent or
otherwise wrongful act or omission of Landlord or any of its employees, agents,
or contractors, and (b) all costs, expenses, and liabilities incurred in or in
connection with each such claim or
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action described in (a) above or proceeding brought thereon. In case any action
or proceeding be brought against Tenant by reason of any such claim, Landlord,
upon notice from Tenant shall resist and defend such action or proceeding.
20.4 Except as otherwise expressly provided in this Lease, this Lease
and the obligations of Tenant hereunder shall be in no wise affected, impaired
or excused because Landlord is unable to fulfill or is delayed in fulfilling,
any of its obligations under this Lease by reason of strike, other labor
trouble, governmental preemption or priorities or other controls in connection
with a national or other public emergency or shortages of fuel supplies or labor
resulting therefrom, or other like cause beyond Landlord's reasonable control.
ARTICLE 21
DESTRUCTION OR DAMAGE
21.1 If the Building or the Demised Premises shall be partially or
totally damaged or destroyed by fire or other cause, then whether or not the
damage or destruction shall have resulted from the fault or neglect of Tenant,
or its employees, agents or visitors (and if this Lease shall not have been
terminated as in this Article hereinafter provided), Landlord shall repair the
damage and restore and rebuild the Building and/or the Demised Premises, at its
expense, with reasonable dispatch after notice to it of the damage or
destruction; provided, however, that Landlord shall not be required to repair or
replace any of the Tenant's Property.
21.2 If the Building or the Demised Premises shall be partially damaged
or partially destroyed by fire or other cause not attributable to the fault or
negligence of Tenant, its agents, or employees, the rents payable hereunder
shall be abated to the extent that the Demised Premises shall have been rendered
untenantable and for the period from the date of such damage or destruction to
the date the damage shall be repaired or restored. If the Demised Premises or a
major part thereof shall be totally (which shall be deemed to include
substantially totally) damaged or destroyed or rendered completely (which shall
be deemed to include substantially completely) untenantable on account of fire
or other cause, the rents shall abate as of the date of the damage or
destruction and usual Landlord shall repair, restore, and rebuild the Building
and the Demised Premises, provided, however, that should Tenant reoccupy a
portion of the Demised Premises during the period of restoration work is taking
place and prior to the date that the same are made completely tenantable, rents
allocable to such portion shall be payable by Tenant from the date of such
occupancy.
21.3 If the Building or the Demised Premises shall be totally damaged
or destroyed by fire or other cause, or if the Building shall be so damaged or
destroyed by fire or other cause (whether or not the Demised Premises are
damaged or destroyed) as to require a reasonably estimated expenditure of more
than twenty-five percent (25%) of the full insurable value of the Building
immediately prior to the casualty then in either such case Landlord may
terminate this Lease by giving Tenant notice to such effect within one hundred
eighty (180) days after the date of the casualty. In case of any damage or
destruction mentioned in this Article, Tenant may terminate the Lease by notice
to Landlord, if Landlord has not completed the making of the required repairs
and restored and rebuilt the Building and the Demised Premises within eight (8)
months from the date of such damage or destruction, or within such period after
such
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date (not exceeding six (6) months) as shall equal the aggregate period Landlord
may have been delayed in doing so by adjustment of insurance, labor trouble,
governmental controls, act of God, or any other cause beyond Landlord's
reasonable control.
21.4 No damages, compensation, or claim shall be payable by Landlord
for inconvenience, loss of business, or annoyance arising from any repair or
restoration of any portion of the Demised Premises or of the Building pursuant
to this Article. Landlord shall use its best efforts to effect such repair or
restoration promptly and in such manner as not unreasonably to interfere with
Tenant's use and occupancy during such time that Tenant is able to use the
Demised Premises during Landlord's restoration.
21.5 Landlord will not carry insurance of any kind on Tenant's
Property, and, except as provided by law or by reason of its fault or its breach
of any of its obligations hereunder, shall not be obligated to repair any damage
thereto or replace the same; to the extent that Tenant shall maintain insurance
on Tenant's Property, Landlord shall not be obligated to repair any damage
thereto or replace the same.
21.6 The provisions of this Article shall be considered an express
agreement governing any case of damage or destruction of the Demised Premises by
fire or other casualty, and any law of the State of New Jersey providing for
such a contingency in the absence of an express agreement, and any other law of
like import, now of hereafter in force, shall have no application in such case.
21.7 If the Demised Premises and/or access thereto become partially or
totally damaged or destroyed by any casualty not insured against, then Landlord
shall have the right to terminate this Lease upon giving the Tenant thirty (30)
days notice and upon the expiration of said thirty (30) day notice period this
Lease shall terminate as if such termination date were the Expiration Date.
ARTICLE 22
EMINENT DOMAIN
22.1 If the whole of the Building shall be lawfully taken by
condemnation or in any other manner for any public or quasi-public use of
purpose, this Lease and the term and estate hereby granted shall forthwith
terminate as of the date of vesting of title on such taking (which date is
herein also referred to as the "date of the taking"), and the rents shall be
prorated and adjusted as of such date.
22.2 If any part of the Building shall be so taken, this Lease shall be
unaffected by such taking, except that Tenant may elect to terminate this Lease
in the event of a partial taking, if the area of the Demised Premises, or
parking areas or common areas, shall not be reasonably sufficient for Tenant to
continue feasible operation of its business. Tenant shall give notice of such
election to Landlord not later than thirty (30) days after the date of such
taking. Upon the giving of such notice to Landlord, this Lease shall terminate
on the date of service of notice and the rents apportioned to the part of the
Demised Premises so taken shall be prorated and adjusted as of the date of the
taking and the rents apportioned to the remainder of the
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Demised Premises shall be prorated and adjusted as of such termination date.
Upon such partial taking and this Lease continuing in force as to any part of
the Demised Premises, the rents apportioned to the part taken shall be prorated
and adjusted as of the date of taking and from such date the fixed rent shall be
reduced to the amount apportioned to the remainder of the Demised Premises and
additional rent shall be payable pursuant to Article 5 according to the rentable
area remaining.
22.3 Except as specifically set forth in Section 22.4. hereof, Landlord
shall be entitled to receive the entire award in any proceeding with respect to
any taking provided for in this Article without deduction therefrom for any
estate vested in Tenant by this Lease, and Tenant shall receive no part of such
award. Tenant hereby expressly assigns to Landlord all of its right, title, and
interest in or to every such award. Tenant may claim a condemnation award for
the unamortized portion of the cost incurred by Tenant in connection with any of
Tenant's Property installed pursuant to this Lease. In addition, Tenant may sue
for relocation expenses and loss of profit and good will.
22.4 If the temporary use or occupancy of all or any part of the
Demised Premises shall be lawfully taken by condemnation or in any other manner
for any public or quasi-public use or purpose during the term of this Lease,
Tenant shall be entitled, except as hereinafter set forth, to receive any award
which does not serve to diminish Landlord's award in any respect and, if so
awarded, for the taking of Tenant's Property and for moving expenses, and
Landlord shall be entitled to receive that portion which represents
reimbursement for the cost of restoration of the Demised Premises. This Lease
shall be and remain unaffected by such taking and Tenant shall remain
responsible for all of its obligations hereunder insofar as such obligations are
not affected by such taking and shall continue to pay in full the fixed rent and
additional rent when due. If the period of temporary use or occupancy of the
Demised Premises (or a part thereof) shall be divided between Landlord and
Tenant so that Tenant shall receive so much thereof as represents the period
prior to the Expiration Date and Landlord shall receive so much thereof as
represents the period subsequent to the Expiration Date. All moneys received by
Tenant as, or as part of, an award for temporary use and occupancy for a period
beyond the date to which the rents hereunder have been paid by Tenant shall be
received, held, and applied by Tenant as a trust fund for payment of the rents
falling due hereunder.
22.5 In the event of any taking of less than the whole of the Building
which does not result in a termination of this Lease, or in the event of a
taking for a temporary use or occupancy of all or any part of the Demised
Premises which does not extend beyond the Expiration Date, Landlord, at its
expense, shall proceed with reasonable diligence to repair, alter, and restore
the remaining parts of the Building and the Demised Premises to substantially
their former condition to the extent that the same may be feasible and so as to
constitute a complete and tenantable Building and Demised Premises provided that
Landlord's liability under this Section 22.5 shall be limited to the net amount
(after deducting all costs and expenses, including, but not limited to, legal
expenses incurred in connection with the eminent domain proceeding) received by
Landlord as an award arising out of such taking. If such taking occurs within
the last three (3) years of the term of this Lease, Landlord shall have the
right to terminate this Lease by giving the Tenant written notice to such effect
within ninety (90) days after such taking, and this Lease shall then expire on
that effective date stated in the notice as if that were the Expiration
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Date, but the fixed rent and the additional rent shall be prorated and adjusted
as of the date of such taking.
22.6 Should any part of the Demised Premises be taken to effect
compliance with any law or requirement of public authority other than in the
manner hereinabove provided in this Article then, (i) if such compliance is the
obligation of Tenant under this Lease, Tenant shall not be entitled to any
diminution or abatement of rent or other compensation from Landlord therefor,
but (ii) if such compliance is the obligation of Landlord under this Lease, the
fixed rent hereunder shall be reduced and additional rents under Article 5 shall
be adjusted in the same manner as is provided in Section 22.2 according to the
reduction in rentable area of the Demised Premises resulting from such taking.
ARTICLE 23
SURRENDER
23.1 On the last day of the term of this Lease, or upon any earlier
termination of this Lease, or upon any reentry by Landlord upon the Demised
Premises, Tenant shall quit and surrender the Demised Premises to Landlord in
good order, condition, and repair, except for ordinary wear and tear and such
damage or destructions as Landlord is required to repair or restore under this
Lease, and Tenant shall remove all of Tenant's Property therefrom except as
otherwise expressly provided in this Lease. At the time of surrender, or earlier
termination of this Lease, the Demised Premises shall be in the same state as
existed as of the completion of Landlord's Work ordinary wear and tear excepted.
Any Tenant Changes, alterations or improvements, all of which must be done in
accordance with Article 12 shall be removed, except as may otherwise have been
provided by Landlord at the time it exercised its consent in connection with
such Tenant Changes pursuant to Article 12. Landlord and Tenant agree that a
minimum of ninety (90) days prior to the Expiration Date of this Lease, Landlord
shall walk through the Demised Premises with Tenant and create a punchlist of
all restoration which shall be required to be completed by Tenant by the
Expiration Date. Failure by Landlord and Tenant to walk through the Demised
Premises ninety (90) days prior to the Expiration Date of this Lease shall not
relieve Tenant of any restoration obligations otherwise required pursuant to
this Lease. However, if Tenant gives Landlord notice that it desires to walk
through the Demised Premises and identify the restoration required as set forth
above and Landlord does not fulfill its obligation to walk through the Demised
Premises, Tenant will not be relieved of any of its restoration obligations but
will not be deemed in holdover as set forth below while it performs such
restoration. Thereafter, Tenant may request a written estimate from Landlord for
the cost of all restoration required pursuant to this Lease. Landlord and Tenant
acknowledge that Landlord, prior to the Expiration Date, will have already
notified Tenant of its restoration obligations pursuant to a restoration
agreement letter dated September 12, 1966 and Article 12 of the Lease, and, as a
result, notwithstanding the ninety (90) day time period set forth above, it
shall be Tenant's obligation to ensure that Tenant has enough time after the
Landlord and Tenant walk through the Demised Premises, if Tenant will be
performing such restoration prior to the Expiration Date of the Lease. The cost
contained in such estimate shall be commercially reasonable and where possible,
Landlord will competitively bid the work. In lieu of restoring the Demised
Premises as required pursuant to this Lease, Tenant may, at its option, pay
Landlord,
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prior to the Expiration Date of the Lease, the cost of such restoration as set
forth in Landlord's estimate. If Tenant fails to perform any restoration
required of it under this Lease or fails to pay Landlord for the cost of any
restoration required on or before the last day of the term of this Lease or upon
any earlier termination, Tenant shall be deemed a holdover Tenant under Article
40 of this Lease until such time as Tenant has completed such restoration. For
the first fifteen (15) days of holdover as set forth above, Tenant shall only be
required to pay holdover charges on a per diem basis. After the expiration of
fifteen (15) days the Tenant shall be in subject to holdover charges on a
monthly basis. If, unknowingly, Tenant incorrectly performs any of the
restoration required, Landlord shall notify Tenant and Tenant shall have fifteen
(15) days to correct such error. If Tenant fails to correct such error within
the thirty (30) day period, Tenant shall be subject to holdover from the day on
which Tenant received Landlord's notice of the incorrect restoration.
ARTICLE 24
CONDITIONS OF LIGATION
24.1 This Lease and the term and estate hereby granted are subject to
the limitation that whenever Tenant shall make an assignment of the property of
Tenant for the benefit of creditors, or shall file a voluntary petition under
any bankrupt or insolvency law, or an involuntary petition alleging an act of
bankruptcy or insolvency shall be filed against Tenant under any bankruptcy or
insolvency law, or whenever a petition shall be filed by or against Tenant under
the reorganization provisions of the United States Bankruptcy Act or under the
provisions of any law of like imports or whenever a petition shall be filed by
Tenant under the arrangement provisions of any law of like import, whenever a
permanent receiver of Tenant or of or for the property of Tenant shall be
appointed, then Landlord, (a) at any time of receipt of notice of the occurrence
of any such event, or (b) if such event occurs without the acquiescence of
Tenant, at any time after the event continues for thirty (30) days, Landlord may
give Tenant a notice of intention to end the term of this Lease at the
expiration of five (5) days from the date of service of such notice of
intention, and upon the expiration of said five (5) day period this Lease and
the term and estate hereby granted, whether or not the term shall theretofore
have commenced, shall terminate with the same effect as if that day were the
Expiration Date, but Tenant shall remain liable for damages as provided in
Article 26.
24.2 This Lease and the term and estate hereby granted are subject to
the further limitation that:
(a) Whenever Tenant shall default in the payment of installment of
fixed rent, or in the payment of any additional rent or any other charge payable
by Tenant to Landlord, or any day upon which the same ought to be paid, and such
default shall continue for five (5) business days after written notice thereof;
or
(b) Whenever Tenant shall do or permit anything to be done,
whether by action or inaction, contrary to any of Tenant's obligations
hereunder, and if such situation shall continue and shall not be remedied by
Tenant within thirty (30) days after Landlord shall have given to Tenant a
written notice specifying the same, or, in the case of a happening or default
which cannot with due diligence be cured within a period of thirty (30) days and
the
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continuance of which for the period required for cure will not subject Landlord
to risk of criminal liability or termination of any foreclosure of any superior
mortgage if Tenant shall not, (i) within said thirty (30) day period advise
Landlord of Tenants intention to duly institute all steps necessary to remedy
such situation; (ii) duly institute within said thirty (30) day period, and
thereafter diligently prosecute to completion all steps necessary to remedy the
same; (iii) complete such remedy within such time after the date of giving of
said notice to Landlord as shall reasonably be necessary; or
(c) Whenever any event shall occur or any contingency shall arise
whereby this Lease or the estate hereby granted or the unexpired balance of the
term hereof would, by operation of law or otherwise, devolve upon or pass to any
person, film, or corporation other than Tenant, except as expressly permitted by
Article 8; or
(d) Whenever Tenant shall abandon the Demised Premises (unless as
a result of a casualty), or
(e) If Tenant shall default in the timely payment of rent or
additional rent and any such default shall continue to be repeated for two (2)
consecutive months or for a total of four (4) months in any period of twelve
(12) months, or more than three (3) times in any six (6) month period, then,
notwithstanding that such defaults shall have each been cured within the
applicable period, any similar default shall be deemed to be deliberate and
Landlord may thwarter serve a notice of termination upon Tenant without
affording to Tenant opportunity to cure such default;
then, and in any of the foregoing cases, this Lease and the term and estate
hereby granted, whether or not the term shall theretofore have commenced, shall,
if the Landlord so elects, terminate upon ten (10) days written notice by
Landlord to Tenant of Landlord's election to terminate the Lease and the term
hereof shall expire and come end on the date fixed in such notice, with the same
effect as if that day were the Expiration Date, but Tenant shall remain liable
for the rent and additional rent which subsequently accrues and for damages as
provided in Article 26.
ARTICLE 25
RE-ENTRY BY LANDLORD
25.1 If Tenant shall default in the payment of any installment of fixed
rent, or of any installment of additional rent, on any date upon which the same
ought to be paid and if such default shall continue for five (5) days after
written notice thereof, or if this Lease shall expire as provided in Article 24,
Landlord or Landlord's agents and employees may immediately or at any time
thereafter re-enter the Demised Premises, or any part thereof, in the name of
the whole, either by summary dispossess proceedings or by any suitable action or
proceeding at law, or by force or otherwise, without being liable to indictment,
prosecution or damages therefor, and may repossess the same, and may remove any
persons therefrom, to the end that Landlord may have, hold, and enjoy the
Demised Premises again as and of its first estate and interest therein. The word
"re-enter," as herein used, is not restricted to its technical legal meaning. In
the event of any termination of this Lease under the provisions of Article 24 or
if Landlord shall
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re-enter the Demised Premises under the provisions of this Article or in the
event of the termination of this Lease, or of re-entry, by or under any summary
dispossess or other proceeding or action or any provision of law by reason of
default hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord
the fixed rent and additional rent payable by Tenant to Landlord up to the time
of such termination of this Lease, or of such recovery of possession or the
Demised Premises by Landlord, as the case may be, and shall also pay to Landlord
damages as provided in Article 26.
25.2 In the event of a breach or threatened breach by Landlord or
Tenant of any of their respective obligations under this Lease, either Landlord
or Tenant, as the case may be, shall also have the right of injunction. The
special remedies hereunder are cumulative and are not intended to be exclusive
of any other remedies or means of redress to which the parties may lawfully be
entitled at any time.
25.3 If this Lease shall terminate under the provisions of Article 24,
or if Landlord shall re-enter the Demised Premises under the provisions of this
Article, or in the event of any termination of this Lease, or of re-entry, by or
under any summary dispossess or other proceeding or action or any provision of
law by reason of default hereunder on the part of Tenant, Landlord shall be
entitled to retain all moneys, if any, paid by Tenant to Landlord, whether as
advance rent, security, or otherwise, but such moneys shall be credited by
Landlord against any fixed rent or additional rent due from Tenant at the time
of such termination or re-entry or, at Landlord's option, against any damages
payable by Tenant under Article 26 or pursuant to law.
ARTICLE 26
DAMAGES
26.1 If this Lease is terminated under the provisions of Article 24, or
if Landlord shall re-enter the Demised Premises under the provisions of Article
25, or in the event of the termination of this Lease, or of re-entry, by or
under any summary dispossess or other proceeding or action of any provision of
law by reason of default hereunder on the part of Tenant, Tenant shall pay to
Landlord as damages, at the election of Landlord, either
(a) A sum which at the time of such termination of this Lease or
at the time of any such re-entry by Landlord, as the case may be, represents the
then value of the excess, if any, of (i) the aggregate of the fixed rent and the
additional rent payable hereunder which would have been payable by Tenant
(conclusively presuming the additional rent to be the same as was payable for
the year immediately preceding such termination) for the period commencing with
such earlier termination of this Lease or the date of any such re-entry, as the
case may be, and ending with the Expiration Date, had this Lease not so
terminated or had Landlord not so re-entered the Demised Premises, over (ii) the
aggregate rental value of the Demised Premises for the same period, or
(b) Sums equal to the fixed rent and the additional rent (as above
presumed) payable hereunder which would have been payable by Tenant had this
Lease not so terminated, or had Landlord not so re-entered the Demised Premises,
payable upon the due dates
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therefor specified herein following such termination or such re-entry and until
the Expiration Date, provided, however, that if Landlord shall relet the Demised
Premises during said period, Landlord shall credit Tenant with the net rents
received by Landlord from such reletting, such net rents to be determined by
first deducting from the gross rents as and when received by Landlord from such
reletting, the expenses incurred or paid by Landlord in terminating this Lease
or in reentering the Demised Premises and in securing possession thereof, as
well as the expenses of reletting, including altering and preparing the Demised
Premises for new tenants, brokers' commissions, and all other expenses properly
chargeable against the Demised Premises and the rental therefrom; it being
understood that any such reletting may be for a period shorter or longer than
the remaining term of this Lease; but in no event shall Tenant be entitled to
receive any excess of such net rents over the sums payable by Tenant to Landlord
hereunder, nor shall Tenant be entitled in any suit for the collection of
damages pursuant to this Subsection to a credit in respect of any net rents from
a reletting, except to the extent that such net rents are actually received by
Landlord. If the Demised Premises or any part thereof should be relet in
combination with other space, then proper apportionment on a square foot basis
shall be made of the rent received from such reletting and of the expenses of
reletting.
If the Demised Premises or any part thereof to be relet by Landlord for
the unexpired portion of the term of this Lease, or any part thereof, before
presentation of proof of such damages to any court commission or tribunal the
amount of rent reserved upon such reletting shall, prima facie, be the fair and
reasonable rental value for the Demised Premises, or part thereof, so relet
during the term of the reletting.
26.2 Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the term of this Lease would have expired if
it had not been so terminated under the provisions of Article 24, or under any
provision of law, or had Landlord not re-entered the Demised Premises. Nothing
herein contained shall be construed to limit or preclude recovery by Landlord
against Tenant of any sums or damages to which, in addition to the damages
particularly provided above, Landlord may lawfully be entitled by reason of any
default hereunder on the part of Tenant. Nothing herein contained shall be
construed to limit or prejudice the right of Landlord to seek and obtain as
liquidated damages by reason of the termination of this Lease or re-entry on the
Demised Premises for the default of Tenant under this Lease, an amount equal to
the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved whether or
not such amount be greater, equal to, or less than any of the sums referred to
in Section 26.1.
26.3 In addition to the foregoing and without regard to whether this
Lease is terminated Tenant shall pay to Landlord upon demand, all costs and
expenses incurred by Landlord, including reasonable attorney's fees, with
respect to any lawsuit instituted or defended or any action taken by Landlord to
enforce all or any of the provisions of this Lease to the extent Landlord is
successful. Landlord agrees that, if, after implementing proceedings or
litigation, Tenant is successful therein, then Landlord shall pay Tenant's
reasonable costs and expenses, including reasonable attorney fees.
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26.4 Landlord agrees that if it fails to perform any service required
of it, Tenant shall notify Landlord in writing of such failure. Landlord shall
then have thirty (30) days within which to cure such default. Landlord shall
diligently and continually proceed to cure any such default within five (5) days
of written notice from Tenant. Landlord agrees to advise Tenant within five (5)
business days of Landlord's efforts to cure such default. If Landlord fails to
cure such default within the thirty (30) day period, Tenant shall be entitled,
but not obligated, to perform such service and invoice Landlord for the cost
thereof. If Landlord fails to reimburse Tenant, Tenant shall be entitled to
institute litigation against Landlord. If Tenant is successful in such
litigation, Tenant shall also be entitled to reasonable costs and expenses
including attorney's fees in connection with such litigation. Tenant agrees that
it shall not exercise the right of any offset against rent for any sums due it
pursuant to this Section until such time as Tenant has obtained a judgment
against Landlord.
ARTICLE 27
WAIVERS
27.1 Tenant, for Tenant, and on behalf of any and all persons claiming
through or under Tenant, including creditors of all kinds, does hereby waive and
surrender all right and privilege which they or any of them might have under or
by reason of any present or future law, to redeem the Demised Premises or to
have a continuance of this Lease for the term hereby demised after being
dispossessed or ejected therefrom by process of law or under the terms of this
Lease or after the termination of this Lease as herein provided.
27.2 In the event that Tenant is in arrears in payment of fixed rent or
additional rent hereunder, Tenant waives Tenant's right, if any, to designate
the items against which any payments made by Tenant are to be credited, and
Tenant agrees that Landlord may apply any payments made by Tenant to any items
it sees fit, irrespective of and notwithstanding any designation or request by
Tenant as to the items against which any such payments shall be credited.
27.3 Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Demised
Premises, including any claim of injury or damage, or any emergency or other
statutory remedy with respect thereto.
27.4 The provisions in Articles 16 and 17 shall be considered express
agreements governing the services to be furnished by Landlord, and Tenant agrees
that any laws and/or requirements of public authorities, now or hereafter in
force, shall have no application in connection with any enlargement of
Landlord's obligations with respect to such services.
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ARTICLE 28
NO OTHER WAIVERS OR MODIFICATIONS
28.1 The failure of either party to insist in any one or more instances
upon the strict performance of any one or more of the obligations of this Lease,
or to exercise any election herein contained, shall not be construed as a waiver
or relinquishment for the future of the performance of such one or more
obligations of this Lease or of the right to exercise such election, but the
same shall continue and remain in full force and effect with respect to any
subsequent breach, act, or omission. No executory agreement hereafter made
between Landlord and Tenant shall be effective to change, modify, release,
discharge, terminate or effect an abandonment of this Lease, in whole or in
part, unless such executory agreement is in writing, refers expressly to this
Lease and is signed by the party against whom enforcement of the change,
modification, waiver, release, discharge, or termination of effectuation of the
abandonment is sought.
28.2 Without limiting Section 28.1, the following provisions shall also
apply:
(a) No agreement to accept a surrender of all or any part of the
Demised Premises shall be valid unless in writing and signed by Landlord. The
delivery of keys to an employee of Landlord or of its agent shall not operate as
a termination of this Lease or a surrender of the Demised Premises. If Tenant
shall at any time request Landlord to sublet the Demised Premises for Tenant's
account, Landlord or its agent is authorized to receive said keys for such
purposes without releasing Tenant from any of its obligations under this Lease,
and Tenant hereby releases Tenant from any liability for loss or damage to any
of Tenant's property in connection with such subletting.
(b) The receipt by Landlord of rent with knowledge of breach of
any obligation of this Lease shall not be deemed a waiver of such breach.
(c) No payment by Tenant or receipt by Landlord of a lesser amount
than the correct fixed rent or additional rent due hereunder shall be deemed to
be other than a payment on account nor shall any endorsement or statement on any
check or any letter 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 or pursue any other remedy in this Lease
or at law provided.
ARTICLE 29
CURING TENANT'S DEFAULTS
29.1 If Tenant shall default in the performance of any of Tenant's
obligations under this Lease, Landlord, without thereby waiving such default,
may (but shall not be obligated to) perform the same for the account and at the
expense of Tenant, without notice, in a case of emergency, and in any other
case, only if such default continues after the expiration of (i) ten (10) days
from the date Landlord gives Tenant notice of intention so to do, or (ii) the
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applicable grace period provided in Section 24.2 or elsewhere in this Lease for
cure of such default, whichever occurs later.
29.2 Bills, invoices and purchase orders for any and all costs,
charges, and expenses incurred by Landlord in connection with any such
performance by it for the account of Tenant, including reasonable counsel fees,
involved in collecting or endeavoring to collect the fixed rent or additional
rent or any part thereof, or enforcing or endeavoring to enforce any rights
against Tenant, under or in connection with this Lease, or pursuant to law,
including any such cost, expense, and disbursement involved in instituting and
prosecuting summary proceedings, may be sent by Landlord to Tenant or
immediately, at Landlord's option, and, shall be due and payable in accordance
with the terms of such bills.
ARTICLE 30
BROKER
30.1 Tenant covenants, warrants, and represents that than was no broker
except JACOBSON, GOLDFARB & TANZMAN ASSOCIATES and PALADIN GROUP (collectively
"Brokers") instrumental in consummating this Lease and that no conversations or
negotiations were had with any broker except Broker concerning the renting of
the Demised Praises. Tenant agrees to hold Landlord harmless against any claims
for a brokerage commission arising out of any conversations or negotiations had
by Tenant with any broker except Broker. Landlord agrees to pay Broker pursuant
to a separate agreement but such payment shall not exceed a 5% commission as
described in such agreement.
ARTICLE 31
NOTICES
31.1 Any notice, statement, demand, or other communications required or
permitted to be given, rendered, or made by either party to the other, pursuant
to this Lease or pursuit to say applicable law or requirement of public
authority, shall be in writing (whether or not so stated elsewhere in this
Lease) and shall be deemed to have been properly given, rendered or made, if
sent by overnight mail courier, addressed to the other party at the address set
forth below and shall be deemed to have been given, rendered, or made on the
date following the date of mailing. Either party may, by notice as aforesaid,
designate a different address or addresses for notices, statements, demands, or
other communications intended for it. In the event of the cessation of any mail
delivery for any reason, personal delivery shall be substituted for the
aforedescribed method of serving notices.
Landlord's Notice:
Alfieri Property Management
399 Thornall Street
Edison, New Jersey 08837
Attn: Charles Applebaum, Esq.
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Tenant's Notice:
AT&T Paradyne
8545 126th Avenue North
P.O. Box 2826
Largo, Florida 34649-22628
Attn: Red Estate Manager
ARTICLE 32
ESTOPPEL CERTIFICATE
32.1 Tenant agrees, when requested by Landlord, to execute and deliver
to Landlord a statement certifying that this Lease is unmodified and in full
force and effect (or if there have been modifications, that the same is in full
force and effect as modified and stating the modifications), certifying the
dates to which the fixed rent and additional rent have been paid, whether any
dispute exists with respect thereto and stating whether or not, to Tenant's best
knowledge, Landlord is in default in performance of any of its obligations under
this Lease, and, if so, specifying each such default of which Tenant may have
knowledge, it being intended that any such statement delivered pursuant hereto
may be relied upon by others. Such statement shall be served upon Landlord by
Tenant within ten (10) days of Landlord's request.
ARTICLE 33
ARBITRATION
INTENTIONALLY OMITTED
ARTICLE 34
NO OTHER REPRESENTATIONS, CONSTRUCTION, GOVERNING LAW
34.1 Tenant expressly acknowledges and agrees that Landlord has not
made and is not making, and Tenant, in executing and delivering this Lease, is
not relying upon, any warranties, representations, promises or statements,
except to the extent that the same are expressly set forth in this Lease. It is
understood and agreed that all understandings and agreements heretofore had
between the parties are merged in the Lease, which alone fully and completely
express their agreements and that the same are entered into after full
investigation, neither party relying upon any statement or representation not
embodied in the Lease made by the other.
34.2 If any of the provisions of this Lease, or the application thereof
to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such provision
or provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby, and every
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
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34.3 This Lease shall be governed in all respects by the laws of the
State of New Jersey.
ARTICLE 35
SECURITY
35.1 Tenant shall deposit with Landlord the sum of $135,416.66 upon the
execution of this Lease. Said deposit (sometimes referred to as the "Security
Deposit") shall be held by Landlord as security for the faithful performance by
Tenant of all the terms of the Lease by said Tenant to be observed and
performed. The Security Deposit shall not and may not be mortgaged, assigned,
transferred, or encumbered by Tenant, without the written consent of Landlord,
and any such act on the part of Tenant shall be without force and effect and
shall not be binding upon Landlord. If any of the fixed or additional rent
herein reserved or any other sum payable by Tenant to Landlord shall be overdue
and unpaid, or if Landlord makes payment on behalf of Tenant, or if Tenant shall
fail to perform any of the terms, covenants, and conditions of the Lease, then
Landlord may, at its option and without prejudice to any other remedy which
Landlord may have on account thereof, appropriate and apply the entire Security
Deposit or so much thereof as may be necessary to compensate Landlord toward the
payment of fixed or additional rent and any loss or damage sustained by Landlord
due to such breach on the part of Tenant, plus expenses; and Tenant shall
forthwith upon demand restore the Security Deposit to the original sum
deposited. The issuance of a warrant and/or the re-entering of the Demised
Premises by Landlord for any default on the part of Tenant or for any other
reason prior to the expiration of the term shall not be deemed such a
termination of the Lease as to entitle Tenant to the recovery of the Security
Deposit. If Tenant complies with all of the terms, covenants, and conditions of
the Lease and pays all of the fixed and additional rent and all other sums
payable by Tenant to Landlord as they fall due, the Security Deposit shall be
promptly returned in full to Tenant after the expiration of the term of the
Lease and Tenant's satisfaction of all its obligations accruing prior to the
Lease expiration date. In the event of bankruptcy or other creditor-debtor
proceedings against Tenant, the Security Deposit and all other securities shall
be deemed to be applied first to the payment of fixed and additional rent and
other charges due Landlord for all periods prior to the filing of such
proceedings. In the event of sale by Landlord of the Building, Landlord may
deliver the then balance of the Security Deposit to the transferee of Landlord's
interest in the Demised Premises and Landlord shall thereupon be discharged from
any further liability with respect to the Security Deposit and this provision
shall also apply to any subsequent transferees. No holder of a superior mortgage
to which the Lease is subordinate shall be responsible in connection with the
Security Deposit, by way of credit or payment of any fixed or additional rent,
or otherwise, unless such mortgagee actually shall have received the entire
Security Deposit.
ARTICLE 36
PARTIES BOUND
36.1 The obligation of this Lease shall bind and benefit the successors
and assigns of the parties with the same effect as if mentioned in each instance
where a party is
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named or referred to, except that no violation of the provisions of Article 8
shall operate to vest any rights in any successor or assignee of Tenant and that
the provisions of this Article shall not be construed as modifying the
conditions of limitation contained in Article 24. However, the obligations of
Landlord under this Lease shall not be binding upon Landlord herein named with
respect to any period subsequent to the transfer of its interest in the Building
as owner or lessee thereof and in event of such transfer said obligations shall
thereafter be binding upon each transferee of the interest of Landlord herein
named as such owner or lessee of the Building, but only with respect to the
period ending with a subsequent transfer within the meaning of this Article.
Such transferee shall assumed all of Landlord's obligation to Tenant pursuant to
this Lease.
36.2 If Landlord shall be an individual, joint venture, tenancy in
common, partnership, unincorporated association, or other unincorporated
aggregate of individuals and/or entities or a corporation, Tenant shall look
only to such Landlord's estate and property in the Building (or the proceeds
thereof) and where expressly so provided in this Lease, to offset against the
rents payable under this Lease for the collection of a judgment (or other
judicial process) which requires the payment of money by Landlord in the event
of any default by Landlord hereunder. No other property or assets of such
Landlord shall be subject to levy, execution or other enforcement procedure for
the satisfaction of Tenant's remedies under or with respect to this Lease, the
relationship of Landlord and Tenant hereunder or Tenant's use or occupancy of
the Demised Premises. Further, Tenant agrees that Landlord shall not be liable
to Tenant for any special, indirect, or consequential damages arising out of
Landlord's breach of this Lease.
ARTICLE 37
CONSENTS
37.1 Wherever it is specifically provided in this Lease that a party's
consent is not to be unreasonably withheld, a response to a request for such
consent shall also not be unreasonably delayed. If either Landlord or Tenant
considers that the other had unreasonably withheld a consent, it shall so notify
the other party within ten (10) days after receipt of notice of denial of the
requested consent or, in case notice of denial is not received, within twenty
(20) days after mailing its request for the consent.
ARTICLE 38
MORTGAGE FINANCING TENANT COOPERATION
38.1 In the event that Landlord desires to seek mortgage financing
secured by the Demised Premises, Tenant agrees to cooperate with Landlord in the
making of any application(s) by Landlord for such financing including the
delivery to Landlord's mortgage broker or mortgagee, of such information as they
shall reasonably require with respect to Tenant's occupancy of the Demised
Premises, including, but not limited to the current financial statement of
Tenant, but Tenant shall not be required to deliver such information directly to
Landlord, all of the above to be at no cost and expense of Tenant. In the event
that Landlord's
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mortgagee shall request changes to the within Lease in order to make same
acceptable to Landlord's mortgagee, Tenant agrees to consent to such changes,
provided such changes shall not affect the term of this case nor the financial
obligations of Tenant hereunder nor otherwise adversely affect Tenants rights
hereunder. Such changes must be agreed upon by both parties and shall be for
clarification purposes which are consistent with changes requested by financial
institutions which provide mortgages Class A office buildings similar to the
Building. The parties will agree to a request by such mortgagee for concurrent
notice of Landlord's defaults and reasonable opportunity to cure within
Landlord's grace period.
ARTICLE 39
ENVIRONMENTAL COMPLIANCE
39.1 Tenant shall at Tenant's sole cost and expense, comply with the
New Jersey Industrial Site Recovery Act and the regulations promulgated
thereunder (referred to as "ISRA") as same relate to Tenant's occupancy of the
Demised Premises, as well as all other state, federal or local environmental
law, ordinance, rule, or regulation either in existence as of the date hereof or
enacted or promulgated after the date of this Lease, that concern the
management, control, discharge, treatment and/or removal of hazardous discharges
or otherwise affecting or affected by Tenant's use and occupancy of the Demised
Premises. Tenant represents that Tenant's SIC number is 0355, and does not
subject it to ISRA. Tenant shall at Tenant's own expense, make all submissions
to, provide all information to, and comply with all requirements of the Bureau
of Industrial Site Evaluation (the "Bureau") of the New Jersey Department of
Environmental Protection ("NJDEP"). Should the Bureau or any other division of
NJDEP, pursuant to any other environmental law, rule, or regulation, determine
that a cleanup plan be prepared and that a cleanup be undertaken because of any
spills or discharge of hazardous substances or wastes at the Demised Premises
which occur during the term of this Lease and were caused by Tenant or its
agents or contractors, then Tenant shall, at Tenant's own expense prepare and
submit the required plans and financial assurances, and carry out the approved
plans. In the event that Landlord shall have to comply with ISRA by reason of
Landlord's actions, Tenant shall promptly provide all information requested by
Landlord for preparation of non-applicability affidavits or a Negative
Declaration and shall promptly sign such affidavits when requested by Landlord.
Tenant shall indemnify, defend, and save harmless Landlord from all fines,
suits, procedures, claims, and actions of any kind arising out of or in any way
connected with any spills or discharges of hazardous substances or wastes at the
Demised Premises which occur during the term of this lease and were caused by
Tenant or its agents or contractors, and from all fines, suits, procedures,
claims, and actions of any kind arising out of Tenant's failure to provide all
information, make all submission and take all actions required by the Bureau or
any other division of NJDEP. Tenant's obligations and liabilities under this
Paragraph shall continue so long as Landlord remains responsible for any spills
or discharges of hazardous substances or wastes at the Demised Premises which
occur during the term of this Lease and were caused by Tenant or its agents or
contractors. Tenant's failure to abide by the terms of this paragraph shall be
restrainable by injunction. Tenant shall have no responsibility to obtain a
"Negative Declaration" or "Letter of Non-Applicability" from the NJDEP if the
sole reason for obtaining same is in connection with a sale or other disposition
of the real estate by Landlord but Tenant agrees to cooperate with Landlord in
Landlord's effort to obtain same and shall perform at
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Tenant's expense any clean up required by reason of Tenant's use and occupancy
of the Demised Premises. Landlord shall indemnify, defend, and save harmless
Tenant from all fines, suits, procedures, claims, and actions of any kind
arising out of or in any way connected with any spills or discharges of
hazardous substance or wastes at the Demised Premises, the Building or the
Landlord which occurred prior to the day the Tenant takes occupancy of the
Demised Premises and were not caused by Tenant and from all times, suits,
procedures, claims and actions of any kind arising out of or in any way
connected with any spills or discharges of hazardous substances or wastes at the
Demised Premises, the Building or the Landlord which occur during the term of
this Lease and were caused by Landlord or its agents or contractors, and from
all fines, suits, procedures, claims, and actions of any kind arising out of
Landlord's figure to provide all information, make all submission and take all
actions required by the Bureau or any other division of NJDEPE.
39.2 Landlord agrees that it shall use its best efforts to determine
whether any hazardous substances are present in or about the Demised Premises.
Landlord further agrees that if any such hazardous substances are discovered, it
shall remove such substance prior to Lease commencement at its sole cost and
expense. Tenant agrees that it shall maintain the Demised Premises and the
Building free from any hazardous substances or materials.
ARTICLE 40
HOLDING OVER
40.1 Tenant will have no right to remain in possession of all or part
of the Demised Praises after the expiration of the term. If Tenant remains in
possession of all or any part of the Demised Premises after the expiration of
the Lease, without the express consent of Landlord: (a) such tenancy will be
deemed to be a periodic tenancy from month-to-month only; (b) such tenancy will
not constitute a renewal or extension of this Lease for any further term; and
(c) such tenancy may be terminated by Landlord upon the earlier of (i) thirty
(30) days prior written notice, or (ii) the earliest date permitted by how. In
such event, monthly rent will be increased to an amount equal to 125% during
months 1 and 2; 150% during months 3 through 5; 175% during month 6 and 200%
thereafter, of the monthly rent payable during the last month of the term, and
any other sums due under this Lease will be payable in the amount and at the
times specified in this Lease. Such month-to-month tenancy will be subject to
every other term, condition, and covenant contained in this Lease. The
provisions of this Section shall not be construed to relieve Tenant from
liability to Landlord for damages resulting from any such holding over, or
preclude Landlord from implementing summary dispossess proceedings. Tenant
further acknowledges that its failure to perform any restoration required of it
under this Lease shall be deemed the same as its remaining in possession of the
Demised Premises after the explosion of the term, subjecting it to holdover rent
in accordance with this Article 40. Notwithstanding the foregoing, Landlord
agrees that Tenant may holdover for thirty (30) days after the Expiration Date
of this Lease without being liable to Landlord for damages resulting from
holdover or subject to summary dispossess proceeding provided Tenant pays
Landlord the holdover rent of 125% as set forth above.
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ARTICLE 41
CERTAIN DEFINITIONS AND CONSTRUCTIONS
41.1 For the purpose of this Lease and all agreements supplemental to
this Lease, unless the context otherwise requires, the definitions set forth in
Exhibit F annexed hereto shall be utilized.
41.2 The various terms which are italicized and defined in other
Articles of this Lease or are defined in Exhibits annexed hereto, shall have the
meanings specified in such other Articles and such Exhibits for all purposes of
this Lease and all agreements supplemental thereto, unless the context shall
otherwise require.
41.3 The submission of this Lease for examination does not constitute a
reservation of, or option for, the Demised Premises, and this Lease becomes
effective as a Lease only upon execution and delivery thereof by Landlord and
Tenant.
41.4 The Article headings in this Lease and the Index prefixed to this
Lease are inserted only as a matter of convenience in reference and are not to
be given any effect whatsoever in construing this Lease.
ARTICLE 42
RELOCATION OF TENANT
INTENTIONALLY DELETED
ARTICLE 43
OPTION TO RENEW
43.1 Provided that Tenant is not then in default of the terms,
covenants, and provisions of this Lease beyond the lapse of any applicable cure
or grace periods, Landlord hereby grants to Tenant the right to renew the term
of this Lease for one (1) additional period of five (5) years (the "Renewal
Period") commencing on the day after the initial Expiration Date upon the same
terms and conditions as set forth in this Lease other than the fixed annual
rental which shall be the Fair Market Rental of the Demised Premises at the time
of the commencement of the Renewal Period, adjusting as necessary for the lapse
of time between the date of Tenant's notification of intent to exercise its
option to renew and the date on which the Renewal Period is scheduled to
commence. Said fixed annual rental shall be payable in equal monthly
installments in advance on the first day of each and every month of the Renewal
Period. Tenant shall exercise the within Option by giving written notice to
Landlord not later than nine (9) months prior to the initial Expiration Date,
TIME BEING OF THE ESSENCE. If Tenant fails to give such notice, Tenant will be
deemed to have waived such Renewal Option and the provisions of
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this Section shall be null and void. Fair Market Value shall mean the rents
obtainable for comparable space in the Red Bank, New Jersey market area.
ARTICLE 44
RIGHT OF FIRST REFUSAL
44.1 Provided that Tenant is not then in default under the terms,
covenants and provisions of this Lease, Landlord hereby grants to Tenant the
right at any time during the term of this Lease to lease additional space on
floors 3 and 4 in the Building (hereinafter "Expansion Space") which right is
subject to the prior rights of existing tenants. For purposes of this Section,
"prior rights" of existing tenants shall include an existing tenant's right of
first refusal, an option to expand, an option to renew or a renewal of an
existing lease whether or not pursuant to an option. The right of First Refusal
is further subject to the following terms and conditions:
(a) Tenant shall deliver to Landlord written notice of its Section
("Tenant's Election") to lease the Expansion Space on or before thirty (30)
calendar days after receipt of Landlord's Notice of Negotiation/Intent to Lease
(as defined in Section (b) below).
(b) Landlord, within ten (10) days after receiving Tenant's
written request and at Landlord's election, may either give Tenant written
notice of (1) its intention to negotiate with a third party for the lease of
such Expansion Space, which notice shall contain the terms and conditions upon
which Landlord initially intends to offer the space to one or more third
parties, or (2) of an offer received from a third party to lease, which notice
shall contain the terms and conditions contained in said offer (collectively,
"Landlord's Notice of Negotiation/Intent to Lease"). For purposes hereof the
terms shall include rentable square footage and rate. If Tenant thereafter fails
to deliver to Landlord written notice of its Section to lease such space within
the applicable time periods set forth in Subsection (1) above and on the same
terms and conditions as contained in the Landlord's Notice, Landlord may proceed
to lease such Expansion Space free and clear of this Right of First Refusal. If
Tenant fails or refuses to so exercise its Rights of First Refusal within thirty
(30) days after Landlord's written notice to Tenant, Tenant shall be deemed to
have waived its option to lease such space, and this Article shall be null and
void and have no further force and effect with respect to such portion of the
Expansion Space.
(c) In the event Landlord does not demise the Expansion Space to a
third party upon substantially the same terms and conditions contained in
Landlord's Notice of Intent to Lease, Landlord shall provide notice to Tenant as
set forth above with respect to any subsequent negotiations or offer for said
space.
(d) If Tenant exercises its Right of First Refusal then except for
the rate, then all terms and conditions of this Lease shall apply, except as to
the fixed rent and the term of to expansion space. As to such term, no such term
shall be less than the term of this Lease. If any such terms is in excess of
this Lease, then the term of this Lease shall be deemed to have been extended
commensurate with the term of the Additional Space Lease pursuant to this
Section.
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44.2 Tenant acknowledges that its Right of First Refusal shall not
apply in connection with the Lease currently being negotiated between Landlord
and AT&T for the balance of the 50,000 square feet of the Building.
ARTICLE 45
SATELLITE DISH
45.1 Permission is granted, free of rental charge, for the Tenant to
install one (1) satellite dish not to exceed two one-half (2 1/2) feet in
diameter nor protrude above the lowest part of the roof line by more than 4
feet, including all cable, wiring, conduits and related equipment necessary for
the reception (but not the transmission) of radio and satellite-generated
television transmissions (collectively the "Antenna") at the Demised Premises on
the roof of the Building, at Tenant's sole cost and expense, subject to the
following restrictions:
(a) The location and means of securing the Antenna must be
approved by Landlord or its designated agent, and such location shall be
selected with the goal of minimizing its visual impact. Roof penetration will
not be accepted except if performed by Landlord or its designated agent, all at
Tenant's sole cost and expense. Tenant shall be responsible for any damage to
the Building roof or any surrounding property resulting from the installation or
operation of the Antenna, including, but not limited to, damage resulting from
wind, ice or any other causes. The Antenna shall not damage the Building or the
system of communication devised by any other user authorized by Landlord or
users at neighboring properties. If such damage or interference shall occur,
Tenant shall correct same promptly.
(b) Prior to installation, Tenant must provide Landlord with a
copy of all zoning or use approvals which may be required, including, without
limitation, any Federal Communications Commission ("FCC") licenses or approvals.
Landlord agrees to reasonably cooperate with Tenant in such regard, all without
cost to Landlord.
(c) Tenant agrees to maintain the Antenna in a proper and safe
operating condition and shall procure separate liability insurance naming
Landlord as an additional insured.
(d) Tenant shall comply with all applicable codes, rules,
regulations and conditions of the FCC, Federal Aviation Agency, and local
governmental agencies, and shall pay for all legal engineering and other
expenses incident thereto including all matters relating to hearings pursuant to
the Municipal Land and Use Law.
(e) Installation of the Antenna shall be performed in a
responsible and workmanlike manner by a recognized professional spite dish
installer at Tenant's sole cost and expense, through or under the supervision of
Landlord. Prior thereto, Tenant shall provide complete structural details signed
and sealed by an appropriately licensed engineer of the State of New Jersey, as
well as a sketch of the roof showing the proposed location of the antenna and
all relevant distances and heights. Landlord's supervision fee and, if the
presence or advice of Landlord's building engineer is required, Landlord's
building engineer fee shall be reimbursed to Landlord by Tenant for actual time
spent by Landlord's architect and building engineer at
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prevailing rates. Prior to installation, Tenant shall provide Landlord with a
copy of its FCC construction permit, license, or evidence of authority to
operate from this location. Landlord shall have final approval with respect to,
as well as the right to perform at Tenant's cost and expense, all roof
penetrations and repairs.
(f) Installations or substitutes shall meet all codes and shall be
made using Teflon wire (or by running wires through approved conduits),
rust-proof clamps, non-rustable hardware U-bolts, or other similar devices of
the highest quality commonly found in the industry, capable of the bearing of
the stress and strain of the installation without impairing use and occupancy of
the Building and without adverse aesthetic impact upon any portion of the
Demised Premises.
(g) Tenant shall be responsible for any costs associated with
furnishing electricity for the Antenna.
(h) Tenant shall not sublet, license or otherwise permit any third
party use of the Antenna.
(i) Access to the Antenna for inspection, servicing or any other
reason well only be allowed with prior permission and supervision by Landlord or
its agents and Tenant shall reimburse Landlord and/or its agents at prevailing
rates (during normal business hours) for time spent by Landlord and/or its
agents.
(j) Landlord reserves the right to require the removal of the
Antenna at such time as the Landlord may have made provisions for acceptable
alternative arrangements, subject to Tenant's consent as to what constitutes an
acceptable alternative arrangement, which consent shall not be unreasonably
withheld. Landlord shall provide Tenant with prior notice of the amount of time,
if any, satellite services would be interrupted and coordinate work with Tenant
to avoid interruption of Tenant's business.
(k) Tenant shall remove the Antenna and restore the roof to its
original condition at the earlier of Tenant's cessation of use of the Antenna or
the expiration of the term of this Lease or any renewal term thereof, at
Tenant's sole cost and expense, notwithstanding any other provision of the
Lease. The Antenna shall, at all times, remain the property of Tenant and Tenant
shall have the right to remove it at any time, subject to the terms and
conditions herein.
(l) Tenant acknowledges that it has been advised by Landlord that
a new roof was installed at the Building which is still the subject of a
manufacturers/installers warranty/guarantee. Tenant must install, maintain and
remove the Antenna in such a manner as to be consistent with said
warranty/guarantee and not perform or fail to perform any act which would void,
or cause to be voidable, Landlord's warranty/guarantee.
(m) Tenant shall be responsible for implementing appropriate
screening as required by Landlord.
(n) Tenant agrees to indemnify, defend and hold Landlord harmless
from any claim resulting from property damage or personal injury arising in
connection with the
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installation, maintenance, existence or removal of the Antenna and shall carry
insurance to cover such liability and property damages.
ARTICLE 46
WAIVER OF DISTRAINT
46.1 Landlord hereby expressly waives any and all rights granted by or
under any present or future laws to levy or distrain for rent, in arrears, in
advance or both, on any goods, merchandise, equipment, fixtures (which Landlord
and Tenant agree are Tenant's Property), furniture or other personal property of
the Tenant (collectively defined for this Article only as "Tenant's Property"),
or any subtenant or licensee of Tenant except after Landlord has instituted a
legal action which permits the Landlord to levy or distrain on Tenant's
Property.
46.2 Tenant shall have the right to encumber and grant a security
interest in Tenant's Property in the Premises to a commercial bank trust
company, mutual savings bank savings and loan association or life insurance
company ("Lender"). Any Lender to which the Tenant shall encumber its interest
shall have the right, but only after thirty (30) days from written notice to the
Landlord, to sell and remove from the Premises the Tenant's Property to satisfy
the amount of the outstanding lien; provided, however, that the Lender shall
restore the Premises to a condition satisfactory to the Landlord and repair any
damage to the Premises caused by such removal. Landlord hereby agrees to execute
such agreements of subordination and/or collateral assignment, in a form and
consent reasonably acceptable to Landlord, as Tenant's lenders may require from
time to time, within ten (10) business days of Landlord's receipt of said
agreement.
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IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of the date and year first above written.
WITNESS: LANDLORD:
SHAV ASSOCIATES,
a New Jersey General Partnership
- ------------------------------ --------------------------------
By: Dominick Alfieri
Title: General Partner
WITNESS: TENANT:
PARADYNE CORPORATION
a Delaware Corporation
- ------------------------------ --------------------------------
By: JAMES L. SLATERRY
Title: Senior Vice President
<PAGE> 55
EXHIBIT A
DESCRIPTION OF LAND
100 SCHULZ DRIVE
ALL that certain tract or parcel of land and premises, situate, lying and being
in the Township of Middletown, in the County of Monmouth, State of New Jersey,
more particularly described herein.
BEING known and designated as Lot 2 in Block 296, on a map entitled "Final Map
for the SHAV Corporation consisting of Lots 16, 16-D, 17, 18 and 19 in Block
296, Middletown Two, Momnouth Co." dated June 2, 1980 and filed December 1, 1980
in the Monmouth County Clerk's Office as Case 170-6.
BEING more particularly described in accord with said filed map as follows:
BEGINNING at the point of intersection of the northerly line of the Garden State
Parkway and the westerly line of Schulz Drive as marked by a monument and
running thence:
1. North 52 degrees 20' 10" West for a distance of 185.59 feet to Garden
State Parkway Monument #A-165; thence
2. North 47 degrees 42' 50" West for a distance of 374.45 to Garden State
Parkway Monument #A-167; thence
3. North 34 degrees 29' 19" West for a distance of 90.96 feet to a
monument; thence
4. Norm 2 degrees 51' 30" West for a distance of 258.85 feet; thence
5. South 87 degrees 26' 27" East for a distance of 313.90 feet; thence
6. South 7 degrees 42' 18" West for a divorce of 34.64 feet; thence
7. South 82 degrees 17' 42" East for a distance of 265.00 feet to the said
westerly line of Schulz Drive; thence
8. South 7 degrees 42' 18" West for a distance of 620.57 feet along the
said westerly line of Schulz Drive to the place find point of
Beginning.
Being Lot 16.06, Block 296, Tax Map of Township of Middletown.
Subject to easements, restrictions and covenants of record and such state of
facts as an accurate survey may reveal.
E-1
<PAGE> 56
EXHIBIT B
FLOOR PLAN
SEE ATTACHED
E-2
<PAGE> 57
EXHIBIT C
HVAC SPECIFICATIONS
Perimeter baseboard electric heat, central high velocity fan system with Barber
Coleman muting boxes, featuring return heat of light recaptured. System utilizes
a minimum of 10% to a maximum of 100% fresh air to maintain no less than 68
degrees interior at zero degrees exterior, with a 15-mile per hour wind. Air
cooling shall maintain no more than 76 degrees F dry bulb with approximately 50%
relapse humidity when the outdoor conditions are 91 degrees F dry bulb. Duel
system - building standard. The above standard is for normal office use only
which shall be deemed to be one person for every, 200 sq. ft. in any given or
confined area which shall not include areas with special HVAC requirements such
as computer rooms, conference rooms, cafeterias, high density or excessive heat
producing equipment. Perimeter baseboard electric heat is used during the winter
operations and an air cooling system is utilized during summer operations. One
(1) diffuser per 250 sq. ft. of usable area. The foregoing in Landlord's
Building Standard HVAC and shall not apply to any special HVAC requirements
above Landlord's Building Standard such as computer rooms, conference rooms,
cafeterias, high density or excessive heat used during winter operations and air
cooling system. Any supplemental HVAC placed in the Demised Premises shall be
repaired and maintained by Landlord or Landlord's contractor at Tenant's sole
expense.
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EXHIBIT D
CLEANING AND MAINTENANCE SPECIFICATIONS
Landlord will provide building standard cleaning services to the tenant area and
the ground floor lobby area in accordance with the following specifications:
1. GENERAL CLEANING
NIGHTLY
a. Empty all waste receptacles, removing waste to designated
central location for disposal.
b. Empty and wipe clean all ashtrays. Screen and clean all sand
urns.
c. Wash and disinfect all water coolers and drinking fountains.
d. Wipe clean fingermarks, smudges, etc. from all doors and wall
surfaces.
e. Clean all tenants interior stairways.
f. Replace plastic liners in all waste-disposal cans.
WEEKLY
a Hand-dust all office equipment, furniture, fixtures, including
panelling, shelving, window sills, telephones, door louvers,
and all flat surfaces with a treated cloth or yard duster.
2. GROUP A - Ceramic tile, marble, tempo.
GROUP B - Linotile, asphalt, koroseal, plastic vinyl, rubber, wood, cork, or
other types of floors and base.
NIGHTLY
a. All floors in Group A to be swept and wet-mopped.
b. All floors in Group B to be dry mopped, using a "dustdown"
preparation, and spots to be removed by wet process.
PERIODIC
a. A wet mopping, waxing, buffing, stripping, or machine
scrubbing of the floors in Group B will be accomplished
whenever required to maintain a hard lustrous finish and will
be governed by the amount of wear due to weather and other
conditions.
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3. VACUUMING
NIGHTLY
a. Vacuum once per week. Carpet-sweep four times per week all
rugs and carpeted areas, moving light furniture and office
equipment other than desks and file cabinets. Spot clean to
remove soluble spots which safely respond to standard spotting
procedures without risk of injury to color or fabric.
4. HIGH DUSTING
PERIODIC
a. Dust all closet shelving and wash all closet floors when
accessible, monthly.
b. Damp dust all pictures, charts, graphs, etc., not reached in
nightly cleaning, quarterly.
c. Dust clean all vertical surfaces such as walls, partitions,
doors, door bucks, and other surfaces not reached in nightly
cleaning, quarterly.
d. Damp dust ceiling air conditioning diffusers, wall grills,
door louvers, registers, and venetian blinds, quarterly.
e. Dust exterior of light fixtures, annually.
5. WASHROOMS AND TOILETS
NIGHTLY
a. Sweep, mop, rinse, and dry floors. Polish mirrors and
bright-work. Clean enameled surfaces.
b. Wash and disinfect basins, urinals, and bowls using scouring
powder to remove stains, making certain to clean undersides of
rims of urinals and bowls.
c. Wash and disinfect both sides of all toilet seats.
d. Supply and service all toilet tissue, soap, towns, and
sanitary napkins. Sanitary napkins will be supplied in coin
operated dispensers.
e. All wash cans and all receptacles are to be emptied and new
plastic liners installed.
f. Hand dust and wash clean all partitions, tile walls,
dispenses, and receptacles in lavatories and vanity area.
g. Empty and clean sanitary disposal receptacles.
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WEEKLY
a Wash down walls in washrooms and stalls, from trim to floor.
6. ELEVATORS
NIGHTLY
a. Clean the floor in accordance with specifications outlined
above based upon the type of flooring installed. The doors,
surfaces, and fixtures shall be dusted daily and damp wiped
weekly.
7. GLASS
PERIODIC
a. Clean both sides of all lobby glass including the building
entrance doors, nightly
b. Clean all perimeter windows quarterly.
c. Clean glass partitions, doors, and furniture once every six
months (limited to reasonable quantities).
8. MISCELLANEOUS
a. Check all stairwells and landings nightly throughout entire
demised area, and keep in clean condition. All stairways and
landings will be dry mopped nightly. Railings, ledges, and
equipment will be dusted nightly. These areas will be wet
mopped weekly, scrubbed when necessary, and shall be waxed and
buffed weekly where required.
b. Wipe down mail chute and mail depository nightly.
c. On completion of work, all slop sinks are to be thoroughly
cleaned, and cleaning equipment to be stored needy in
designated locations.
d. All cleaning services except those performed by day porters,
window cleaners, and matrons are to be performed nightly, five
nights per week No Saturday, Sunday or bank holiday service to
be provided. In no event shall performance of any cleaning
service interfere with Tenant's normal business operation.
e. The Contractor or Landlord is to furnish all necessary
approved cleaning materials, implements, and machinery for the
satisfactory completion of the work. This includes
scaffolding, vacuum machines, scrubbing machines, etc.
f. Contractor shall furnish proof of liability and property
damage insurance suitable to the bank and Workman's
Compensation Insurance in amounts required under the laws of
New Jersey.
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g. Tenant will be charged for cleaning services in excess of the
specifications outlined above.
h. Tenant will be charged for the incremental cost to clean any
areas of the Demised Premises used for special purposes
requiring more difficult cleaning work than office areas
including, but not limited to, private toilets and showers,
dining areas, cafeteria, kitchen, etc.
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EXHIBIT E
RULES AND REGULATIONS
1. The rights of tenants in the entrances, corridors, elevators, and
escalators of the Building are limited to ingress to and egress from the
tenants' demised premises for the tenants and their employees, licensees, and
invitees, and no tenant shall use or permit the use of the entrances, corridors,
escalators, or elevators for any other purpose. No tenant shall invite to the
tenant's demised premises, or permit the visit of, persons in such numbers or
under such conditions as to interfere with the use and enjoyment of any of the
plazas, entrances, corridors, escalators, elevators, and other facilities of the
Building by other tenants. Fire exits and stairways are for emergency use only,
and they shall not be used for any other purpose by the tenants, their
employees, licensees, or invitees. No tenant shall encumber or obstruct, or
permit the encumbrance or obstruction of any of the sidewalks, plazas,
entrances, corridors, escalators, elevators, fire exits, or stairways of the
Building. The Landlord reserves the right to control and operate the public
portions of the Building and the public facilities, as well as facilities
furnished for the common use of the tenants, in such manner as it deems best for
the benefit of the tenants generally.
2. The Landlord may refuse admission to the Building outside of
ordinary business hours to any person not having a pass issued by the Landlord
or the tenant whose demised premises are to be entered or not otherwise properly
identified, and may require all persons admitted to or leaving the Building
outside of ordinary business hours to register. Any person whose presence in the
Building at any time shall, in the judgment of the Landlord, be prejudicial to
the safety, character, reputation, and interests of the Building or of its
tenants may be denied access to the Building or may be ejected therefrom. In
case of invasion, riot, public excitement, or other commotion, the Landlord may
prevent all access to the Building during the continuance of the same, by
closing the doors or otherwise, for the safety of the tenants and protection of
property of the Building. The Landlord may require any person leaving the
Building with any package or other object to exhibit a pass from the tenant from
whose premises the packaging or object is being removed, but the establishment
and enforcement of such requirement shall not impose any responsibilities on the
Landlord for the protection of any tenant against the removal of property from
the premises of the tenant. The Landlord shall in no way be liable to any tenant
for damages or loss arising from the admission, exclusion, or ejection of any
person to or from the tenant's premises or the Building under the provisions of
this rule. Canvassing, soliciting, or peddling in the Building is prohibited,
and every tenant shall cooperate to prevent the same.
3. No tenant shall obtain or accept for use in its demised premises
ice, food for on premises preparation other than warming, beverage towel,
barbering, boot blackening, floor polishing, lighting maintenance, cleaning, or
other similar services from any persons not authorized by the Landlord in
writing to furnish such services, provided that the charges for such services by
persons authorized by the Landlord are not excessive and where appropriate and
consonant with the security and proper operation of the Building sufficient
persons are so authorized for the same service to provide tenants with a
reasonably competitive selection. Such services shall be furnished only at such
hours, in such places within the Tenant's Demised
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Premises and under such reasonable regulations as may be fixed by the Landlord.
Tenant may have a coffee service, subject to Landlord's approval, and a kitchen
for the use of its employees commensurate with normal office use.
4. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities in common with other
tenants, caused by a tenant or the employees, licensees, or invitees of the
tenant shall be paid by such tenant.
5. No lettering, sign, advertisement, notice or object shall be
displayed in or on the windows or doors, or on the outside of any tenant's
demised premises, or at any point inside any tenant's premises where the same
might be visible outside of such demised premises, except that the name of the
tenant may be displayed on the entrance door of the tenant's demised premises,
and in the elevator lobbies of the floors which are occupied entirely by any
tenant, subject to the approval of the Landlord as to the size, color, and style
of such display. The inscription of the name of the tenant on the door of the
tenant's demised premises shall be done by the Landlord at the expense of the
tenant.
6. No awnings or other projections over or around the windows shall be
installed by any tenant, and only such window blinds as are supplied or
permitted by the Landlord shall be used in a tenant's demised premises.
Linoleum, tile, or other floor covering shall be laid in a tenant's demised
premises only in a manner approved by the Landlord.
7. The Landlord shall have the right to prescribe the weight and
position of safes and other objects of excessive weight, and no safe or other
object whose weight exceeds the lawful load for the area upon which it would
stand shall be brought into or kept upon a tenant's demised premises. If, in the
judgment of the Landlord, it is necessary to distribute the concentrated weight
of any heavy object, the work involved in such distribution shall be done at the
expense of the tenant and in such manner as the Landlord shall determine. The
moving of safes and other heavy objects shall take place only outside of
ordinary business hours upon the same upon previous notice to the Landlord, and
the persons employed to move the same in and out of the Building shall be
reasonably acceptable to the Landlord and if so required by law, shall hold a
Master Rigger's license. Freight, furniture, business equipment, merchandise,
and bulky matter of any description shall be delivered to and removed from the
demised premises only in the freight elevators and through the service entrances
and corridors, and only during hours and in a manner approved by the Landlord.
Arrangements will be made by the Landlord with any tenant for moving large
quantities of furniture and equipment into or out of the Building.
8. No machines or mechanical equipment of any kind other than
typewriters and other ordinary business machines, may be installed or operated
in any tenant's demised premises without Landlord's prior written consent, and
in no case (even where the same are of a type so accepted or as so consented to
by Landlord) shall any machines or mechanical equipment be so placed or operated
as to disturb other tenants; but machines and mechanical equipment which may be
permitted to be installed and used in a tenant's demised premises shall be so
equipped, installed and maintained by such tenant as to prevent any disturbing
noise, vibration, or electrical or other interference from being transmitted
from such premises to any other area of the Building.
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9. No noise, including the playing of any musical instruments, radio or
television, which, in the judgment of the Landlord might disturb other tenants
in the building, shall be made or permitted by any tenant, and no cooking, other
than microwaving, shall be done in the tenant's demised premises, except as
expressly approved by the Landlord. Nothing shall be done or permitted in any
tenants' demised premises, and nothing shall he brought into or kept in any
tenants' demised premises, which would impair or interfere with any of the
Building services or the proper and economic heating, cleaning, or other
servicing of the Building or the demised premises, or the use of enjoyment by
any other tenant of any other demised premises, nor shall there be installed by
any tenant any ventilating, air conditioning, electrical or other equipment of
any kind which, in the judgment of the Landlord, might cause any such impairment
or interference. No dangerous, inflammable, combustible, or explosive object or
material shall be brought into the building by any tenant or with the permission
of any tenant. Any cuspidors or similar containers or receptacles used in any
tenants' demised premises shall be cared for and cleaned by and at the expense
of the tenant.
10. No acids, vapors, or other materials shall be discharged or
permitted to be discharged into the waste lines, vents or flues of the Building
which may damage them. The water and wash closets and other plumbing fixtures in
or serving any tenant's premises shall not be used for any purpose other than
the purposes for which they were designed or constructed, and no sweepings,
rubbish, rags, acids or other foreign substances shall be deposited therein.
11. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows in any tenants' demised premises and no lock on any door
therein shall be changed or altered in any respect. Additional keys for a
tenant's demised premises and toilet rooms shall be procured only from the
Landlord, which may make a reasonable charge therefor. Upon the termination of a
tenant's lease, all keys of the tenant's demised premises and toilet rooms shall
be delivered to the Landlord.
12. All entrance doors in each tenants' demised premises shall be left
locked, and all windows shall be left closed by the tenant when the tenant's
demised premises are not in use. Entrance doors shall not be left open at any
time.
13. Hand trucks not equipped with rubber tires and side guards shall
not be used within the Building.
14. All windows in each tenant's demised premises shall be kept closed
and all blinds therein above the ground floor shall be lowered when and as
reasonably required because of the position of the sun, during the operation of
the Building air conditioning system to cool or ventilate the tenant's demised
premises.
15. The Landlord reserves the right to rescind, alter, or waive any
rule or regulation at any time prescribed for the Building when, in its
judgment, it deems it necessary, desirable, or proper for its best interest and
for the best interests of the tenants, and no alteration or waiver of any rule
or regulation in favor of one tenant shall operate as an alteration or waiver in
favor of any other tenant. The Landlord shall not be responsible to any tenant
for the non-observance or violation by any other tenant of any of the rules and
regulations at any time prescribed by the Building.
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EXHIBIT F
DEFINITIONS
(a) The term "mortgage" shall mean an indenture of mortgage and deed of
trust to a trustee to secure an issue of bonds, and the term "mortgagee" shall
mean such a trustee.
(b) The terms "include," "including," and "such as" shall each be
construed as if followed by the phrase "without being limited to."
(c) References to Landlord as having no liability to Tenant or being
without liability to Tenant, shall mean the Tenant is not entitled to terminate
this Lease, or to claim actual or constructive eviction, partial or total, or to
receive any abatement or diminution of rent, or to be relieved in any manner of
any of its other obligations hereunder, or to be compensated.
(d) The term laws and/or requirements of public authorities and words
of like import shall mean laws and ordinances of any or all of the Federal,
state, city, county, and borough governments and rules, regulations, orders
and/or directives of any or all departments, subdivisions, bureaus, agencies, or
office thereof, or of any other governmental, public, or quasipublic
authorities, having jurisdiction in the premises, and/or the direction of any
public officer pursuant to law.
(e) The term requirements of insurance bodies and words of like import
shall mean rules, regulations, orders, and other requirements of the New Jersey
Board of Fire Underwriters and/or similar body performing the same or similar
functions and having jurisdiction or cognizance of the Building and/or the
Demised Premises.
(f) The term repair shall be deemed to include restoration and
replacement as may be necessary to achieve and/or maintain good working order
and condition.
(g) Reference to termination of this Lease includes expiration or
earlier termination of the term of this Lease or cancellation of this Lease
pursuant to any of the provisions of this Lease or to law. Upon a termination of
this Lease, the term and estate granted by this Lease shall end at noon of the
date of termination as if such date were the date of expiration of the term of
this Lease and neither party shall have any further obligation or liability to
the other after such termination (i) except as shall be expressly provided for
in this Lease, or (ii) except for such obligation as by its nature or under the
circumstances can only be, or by the provisions of this Lease, may be performed
after such termination and, in any event, unless expressly otherwise provided in
this Lease, any liability for a payment which shall have accrued to or with
respect to any period ending at the time of termination shall survive the
termination of this Lease.
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EXHIBIT G
NON-DISTURBANCE AGREEMENT
SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT
This Agreement dated __________________________, between NEW YORK LIFE
INSURANCE COMPANY, a corporation duly organized and existing under the laws of
the State of New York, having its principal place of business at 51 Madison
Avenue, New York, New York 10010 ("New York Life"), and ________________________
the address of which is ______________________________ ("Tenant").
RECITALS
Tenant has entered into a lease dated ____________________ ("Lease"),
leasing part of a certain premises located in
____________________________________ ("Premises"). The Premises are more
particularly described in said Lease;
New York Life is the holder of a certain Note secured by a Mortgage or
a Deed of Trust, Security Agreement, Assignment of Rents and Leases and
Financing Statement ("Mortgage") upon the Premises, and as provided hereafter,
the Mortgage is prior to the Tenant's Lease. Tenant desires to be assured of the
continued use and occupancy of the Premises under the terms of the Lease;
New York Life agrees to such continued use and occupancy by Tenant
provided that Tenant agrees to recognize and attorn to New York Life or a
purchaser in the event of transfer of title to the Premises by foreclosure or
otherwise.
NOW, THEREFORE, for good and valuable consideration being the mutual
premises herein contained, it is agreed:
1. In the event it should become necessary to foreclose the Mortgage or
New York Life should otherwise come into possession or title to the Premises,
New York Life will not join Tenant in summary or foreclosure proceedings unless
required by law in order to obtain jurisdiction, but in such event no judgment
foreclosing the Lease will be sought, and New York Life will not disturb the use
and occupancy of Tenant under the Lease so long as Tenant is not in default
under any of the terms, covenants or conditions of the Lease and has not prepaid
the rent except monthly in advance as provided by the terms of the Lease.
2. Tenant agrees that in the event any proceedings are brought for
foreclosure of the Mortgage, it will attorn to the purchaser as the landlord
under the Lease. The purchaser by virtue of such foreclosure shall be deemed to
have assumed and agreed to be bound, as substitute landlord, by the terms and
conditions of the Lease until the resale or other disposition of its interest by
such purchaser, except that such assumption shall not be deemed of itself an
acknowledgment of such purchaser of the validity of any then existing claims of
Tenant against any prior landlord. All rights and obligations under the Lease
shall continue as though such foreclosure proceeding had not been brought,
except as aforesaid. Tenant waives the
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provisions of any statute or rule of law now or hereafter in effect which may
give or purport to give it any right or election to terminate or otherwise
adversely affect the Lease and the obligations of Tenant thereunder by reason of
any foreclosure proceeding.
3. Notwithstanding the foregoing, neither New York Life nor purchaser
shall in any event (a) be liable for any previous act or omission of any prior
landlord, (b) nor be subject to any offsets or defenses which Tenant may be
entitled to assert against any (including Landlord) prior landlord, (c) nor be
bound by any amendment to or modification of the Lease made without the prior
written consent of New York Life (d) or be bound by any payment by Tenant of any
rent in advance beyond one month's rent made subsequent to the date on which
Tenant shall have received notice that New York Life, or purchaser has succeeded
to the rights of the landlord under the Lease, it being expressly understood and
agreed that the liability of New York Life or such purchaser under the lease
covenants will be limited to such covenants as shall be applicable after such
attornment, (e) be obligated to cure any defaults of any prior landlord
(including Landlord) which occurred prior to the time that New York Life or such
other purchaser succeeded to the interest of such prior landlord under the
Lease, or (f) be liable or responsible for or with respect to the retention,
application and/or return to Tenant of any security deposit paid to any prior
landlord (including Landlord),whether or not still held by such prior landlord,
unless and until New York Life or such other purchaser has actually received for
its own account as landlord the full amount of such security deposit.
4. Tenant acknowledges that it has notice that the Lease and the rent
and all other sums due thereunder have been assigned or are to be assigned to
New York Life as security for the Loan secured by the Mortgage. In the event
that New York Life notifies Tenant of a default under the Mortgage and demands
that Tenant pay its rent and all other sums due under the Lease to New York
Life, Tenant agrees that it will honor such demand and pay its rent and all
other sums due under the Lease directly to New York Life or as otherwise
required pursuant to such notice.
5. In all events, the liability of New York Life or any purchaser to
Tenant shall be limited and restricted to their interest in the Premises and
shall in no event exceed such interest.
6. Tenant acknowledges and agrees that notwithstanding the date of the
Lease or New York Life's knowledge thereof, the Lease shall be and remain
subordinate in all respects to the Mortgage and any modification, reinstatement,
extension, supplement, consolidation or replacement thereof as well as any
advances or readvances with interest thereof and to any other mortgage on the
Premises which may hereafter be held by New York Life.
7. Tenant will give written notice to New York Life of any default by
landlord under the lease by mailing a copy of the same by certified mail,
postage prepaid, addressed as follows (or to such other address as may be
specified from time to time by New York Life to Tenant):
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To New York Life: New York Life Insurance Company
51 Madison Avenue
New York, New York 10010
Attn: Real Estate
Upon such notice, New York Life shall be permitted and shall have the option, in
its sole and absolute discretion, to cure any such default during the period of
time during which the landlord would be permitted to cure such default, but in
any event New York Life shall have a reasonable period of time after the receipt
of such notification to cure such default.
8. The provisions of this Agreement are binding upon and shall inure to
the benefit of
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EXHIBIT 10.9
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT ("Sublease") is made and entered into this _____
day of August, 1997, by and between PARADYNE CORPORATION, a Delaware
corporation, who address is 8548 126th Avenue North, P.O. Box 2826, Largo,
Florida 34649-2268, Attn: Real Estate Manager ("Sublandlord"), and GLOBESPAN
TECHNOLOGY, INC., a Delaware corporation whose address is 100 Schultz Drive, Red
Bank, New Jersey 07701 ("Subtenant").
WITNESSETH:
Sublandlord did, on the 8th day of October, 1996, enter into this
certain Lease Agreement, with SHAV ASSOCIATES ("Landlord"), a copy of which
Lease Agreement is attached hereto and marked "Exhibit A" (the "Overlease").
The Subtenant herein does hereby sublease the premises consisting of
approximately twenty-one thousand six hundred (21,600) rentable square feet (the
"Subleased Premises"), consisting of the First Floor in the building located at
100 Schultz Drive, Red Bank, New Jersey. The Subleased Premises shall be leased
on an exclusive basis except for the lunch room and video conference room
located on the First Floor which shall be used on a non-exclusive basis with
Sublandlord. The Subleased Premises shall be leased on exactly the same terms
and conditions stated in the Overlease, with the following exceptions, to wit:
1. Overlease. The rights of Subtenant under this Sublease are subject
and subordinate in all respects to the Overlease. The provisions of the
Overlease (including any provisions in the Overlease that are incorporated by
reference from other documents) are incorporated by reference in this Sublease
with the same effect as if they were set forth in this Sublease, except as
follows:
(a) The term of this Sublease is as provided in Section 2 of
this Sublease;
(b) Subtenant shall pay to Sublandlord the Rent and Additional
Rent pursuant to Section 3 of this Sublease.
(c) Subtenant will be responsible for all expenses related to the
retrofit and buildout of the Subleased Premises except for the costs to divide
the lunch room constituting a part of the Subleased Premises. Sublandlord and
Subtenant shall each pay one-half (1/2) of the cost to divide the lunchroom. In
addition Sublandlord and Subtenant shall pay the cost of the contract facilities
engineer engaged by Sublandlord to manage and oversee the retrofit and buildout
of the Subleased Premises with Sublandlord paying fifty-five percent (55%) of
such cost and Subtenant paying forty-five percent (45%) of such cost.
Subtenant shall use the Subleased Premises in accordance with the
provisions of the Overlease. Except as otherwise provided in this
Sublease, Subtenant shall perform and satisfy all the covenants and
conditions of "Tenant" under the Overlease, and shall not do or
<PAGE> 2
suffer anything that constitutes a "Default" under the Overlease.
Sublandlord grants to Subtenant all rights and privileges granted to
"Tenant" under the Overlease. Sublandlord does not purport to grant to
Subtenant any better rights or remedies under the Overlease than are
possessed by Sublandlord, and Sublandlord is not obligated to compel
Landlord to perform any of its obligations under the Overlease.
2. Commencement. The Sublease shall commence on September 1, 1997. The
Sublease shall expire on April 30, 2002 at Noon, Edison, New Jersey time.
3. Rent. The Subtenant shall pay to the Sublandlord as rent for the
Subleased Premises the sum of $628,596.00 per year, which equates to $52,383.00
per month (the "Rent"), payable in advance on the first day of each month
without deduction, abatement, counterclaim or offset whatsoever, throughout the
term of the Sublease plus forty-five percent (45%) of (i) any additional
payments due Landlord under the Overlease and (ii) any cost of security
including, but not limited to security systems and guards (collectively the
"Additional Rent") which Additional Rent shall include but shall not be limited
to Tenant's Proportionate Share of Increase in Taxes, and Tenant's Proportionate
Share of Increase in Operating Expenses. Subtenant shall also be responsible for
the cost of its own utilities including but not limited to electricity,
telephone, HVAC system and I/S expenses together with all applicable sales tax.
SUBLANDLORD DOES NOT WARRANT THAT IT WILL BE PROVIDING ANY SECURITY SERVICES AND
SHALL NOT BE LIABLE FOR THE FAILURE TO PROVIDE SUCH SERVICES. IN ADDITION,
SUBLANDLORD SHALL NOT BE LIABLE IF THE SECURITY SERVICES ARE PROVIDED IN A
NEGLIGENT MANNER.
4. Notices. The Subtenant shall pay the Rent and Additional Rent and shall
forward all notices to Sublandlord at the following address (or such other place
as Sublandlord may hereafter designate in writing):
Paradyne Corporation
8545 126th Avenue North
P.O. Box 2826
Largo, Florida 3449-2268
Attn: Real Estate Manager
The Sublandlord shall forward all notices to Subtenant at the following
address (or at such other place as Subtenant may hereafter designate in
writing):
2
<PAGE> 3
(a) Any notice by either party to the other shall be valid only
if in writing and shall be deemed to be duly given only if delivered
personally or sent by registered or certified, postage prepaid, mail
addressed (i) if to Subtenant, at:
Globespan Technology, Inc.
100 Schultz Drive
Red Bank, New Jersey 07701
and (ii) if to Sublandlord, at Sublandlord's address as set forth above,
or at such other address for either party as that party may designate by
notice to the other; notice shall be deemed given, if delivered
personally, upon delivery thereof, or if mailed upon the posting
thereof.
(b) Subtenant hereby appoints as its agent to receive service of
all dispossessory or distraint proceedings, the person in charge of the
Subleased Premises at the time of occupying the Subleased Premises; and
if there is no person occupying same, then such service may be made by
attachment thereof on the main entrance of the Subleased Premises.
Notwithstanding the changes in the name and place of notice, all of the
other provisions and conditions contained in the Overlease described above shall
remain in full force and effect.
5. Access. Sublandlord and Sublandlord's agents shall have the right to
enter the Subleased Premises at all times subsequent to giving Subtenant
reasonable notice except in the case of an emergency, for which such notice is
not required, to examine the Subleased Premises, to survey the Subleased
Premises, to show the Subleased Premises to prospective mortgagees or lessees,
and to make such decoration, repairs, or alterations, improvements or additions
as Sublandlord may deem necessary and desirable to the Subleased Premises.
Sublandlord shall be allowed to take all material into and upon the Subleased
Premises that may be required in connection with such activity without the same
constituting an eviction or constructive eviction of Subtenant in whole or in
part and the Rent and Additional Rent shall in no way abate while said
activities are being conducted, by reason of loss or interruption of business of
Subtenant or otherwise. If Subtenant shall not be personally present to open and
permit an entry into the Subleased Premises, at any time, when for any reason an
entry therein shall be necessary and permissible, Sublandlord and Sublandlord's
agents may enter the same by a master key or may forcibly enter the same without
rendering Sublandlord or such agents liable therefore (if during such entry
Sublandlord or Sublandlord's agents shall accord reasonable care to Subtenant's
property), and without in any manner affecting the obligations and covenants of
the Sublease. Nothing herein contained, however, shall be deemed or construed to
impose upon Sublandlord any obligation, responsibility, or liability whatsoever,
for the care, supervision, repair of the building or any part thereof.
6. Assignment. Subtenant shall not assign, sublease, transfer, pledge or
encumber this Sublease or any interest therein without the prior written consent
of Sublandlord which consent may be withheld in Sublandlord's sole discretion
and any attempted assignment, sublease or other
3
<PAGE> 4
transfer or encumbrance of this Sublease shall be in violation of the terms and
conditions of this Sublease.
7. Warranties and Representations. Subtenant shall lease the Subleased
Premises in "AS IS, WHERE IS" condition and without any warranties or
representations whatsoever either expressed or implied. Subtenant shall not make
any alterations to the Subleased Premises without the prior written consent of
Sublandlord which consent may be withheld in Sublandlord's sole discretion. Upon
expiration of the term, Subtenant shall leave the Subleased Premises in good
condition, normal wear and tear excepted.
8. Services. Referencing Article 16, Heating, Ventilation, and
Air-Conditioning of the Overlease, Subtenant shall be responsible for all costs
associated with "after hours" air conditioning services requested by Subtenant.
9. Indemnity. Subtenant shall indemnify and hold harmless Sublandlord
and Landlord from all cost, loss, expense or liability incurred by Sublandlord
in connection with its sublease to Subtenant of the Subleased Premises or
otherwise arising from Subtenant's use of Sublandlord and Landlord's property or
any portion of the Subleased Premises. Without limitation, indemnified losses
shall include Sublandlord's loss of all or part of its security deposit under
the Sublease and any other expense or liability incurred by Sublandlord as a
result of a default under the Sublease that is caused by any act or omission of
the Subtenant. Subtenant shall fully reimburse Sublandlord and Landlord for any
indemnified loss within thirty (30) days following the date Sublandlord or
Landlord gives Subtenant notice of the loss. Subtenant shall make all indemnity
payments to Sublandlord at its addresses set forth in Section 4 of this Sublease
or such other address or addresses as Subtenant may designate in its notice to
Sublandlord. The Subtenant's indemnity obligation under this Sublease is
absolute and not subject to any setoff, defense, deduction, or counterclaim
based on a claim that Subtenant may have against Sublandlord. The obligation of
Subtenant under this section will survive the expiration or termination of this
Sublease.
10. Default. Any breach of any covenant, obligation, or representation
by a party under this Sublease, or any "Default" described in the Overlease
constitutes a default under this Sublease. Upon the occurrence of a "Default" as
defined under the Lease, Sublandlord shall have all the rights and remedies of
Landlord under the Lease. Additionally, any breach by Subtenant of any covenant,
condition or obligation set forth in this Sublease that is not cured in the
event of a monetary default within three (3) days and in the event of a
non-monetary default within ten (10) days after Subtenant receives from
Sublandlord written notice of the breach will constitute a default hereunder.
Upon the occurrence of a default by Subtenant, Sublandlord may elect to exercise
any one of the following remedies, without prior notice or demand:
(a) Sublandlord may re-let the Subleased Premises for and on
behalf of Subtenant and apply all payments received from said third
party against the Rent payable by Subtenant under this Sublease for the
balance of its stated term, without any obligation to account to
Subtenant for any excess payments received, and Sublandlord may sue to
recover any damage, deficiency, or loss of Rent and Additional Rent
suffered by
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<PAGE> 5
Sublandlord because of its re-entry and re-letting of the Subleased
Premises; or
(b) Sublandlord may terminate this Sublease and sue Subtenant to
recover all unpaid Rent and Additional Rent through the effective date
of the termination, but the parties otherwise will not have any further
rights or obligations under this Sublease; or
(c) Sublandlord, monthly or at such longer intervals as it
elects, may sue Subtenant to recover any accrued, unpaid Rent and
Additional Rent without any obligation to wait until the end of the
stated term of this Sublease for a final determination of Subtenant's
account; or
(d) Sublandlord may accelerate the Rent and Additional Rent for
the remaining term of this Sublease and sue Subtenant to recover the
total amount of unpaid Rent and Additional Rent.
The rights given to Sublandlord herein are in addition to any rights that may be
given to Sublandlord by a statute or under law. Pursuit of any of the foregoing
remedies shall not preclude pursuit of any of the other remedies herein provided
or other remedies provided by law. If any provision of this Sublease, or its
application to any situation shall be invalid or unenforceable to any extent,
the remainder of this Sublease, or the application thereof to situations other
than that as to which it is invalid or unenforceable, shall be affected thereby,
and every provision of this Sublease shall be valid and enforceable to the
fullest extent permitted by law.
11. Insurance. During the term of the Sublease, Subtenant shall maintain
at its expense and for the mutual benefit of Sublandlord and Subtenant such
casualty insurance and liability insurance on the Subleased Premises as is
required pursuant to Article 10 of the Overlease.
12. Consent to Sublease. This Sublease is subject to Landlord's
approval. If Landlord fails to give its prior written approval then this
Sublease shall be null and void with no further obligation between the parties.
13. Attorney's Fees. If any Rent or Additional Rent owing under this
Sublease is collected by or through an attorney at law, Subtenant shall pay all
attorney's fees incurred by Sublandlord as a result of any breach or default by
Subtenant under this Sublease.
14. Miscellaneous. All of the other provisions and conditions contained
in the Overlease described above shall remain in full force and effect.
15. Time of Essence. Time is of the essence of this Sublease.
IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this
Sublease Agreement dated as of the date set forth above.
Witness: SUBLANDLORD:
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<PAGE> 6
PARADYNE CORPORATION, a
Delaware corporation
____________________________ By:_____________________________
Name:_______________________ Name:___________________________
Title:__________________________
- ----------------------------
Name:_______________________ Date:___________________________
SUBTENANT:
GLOBESPAN TECHNOLOGY, INC., a
_______________ corporation
____________________________ By:_____________________________
Name:_______________________ Name:________________________
Title:_______________________
____________________________ Date:___________________________
Name:_______________________
<PAGE> 1
EXHIBIT 10.10
AMENDMENT TO SUBLEASE AGREEMENT
THIS AMENDMENT TO SUBLEASE AGREEMENT ("Amendment") is made this ___ day of
August, 1998, by and between PARADYNE CORPORATION, a Delaware corporation, whose
address is 8548 126th Avenue N., P.O. Box 2826, Lagro, Florida 34649-2268,
Touchton Real Estate Manager ("Sublandlord"), and GLOBESPAN SEMICONDUCTOR, INC.,
a Delaware corporation, whose address is 100 Schultz Drive, Red Bank, New Jersey
07701 ("Subtenant").
RECITALS
A. Sublandlord and Subtenant entered into that certain Sublease Agreement
dated December 10, 1997 ("Sublease").
B. Sublandlord and Subtenant desire to amend the Sublease.
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties do hereby agree as
follows:
1. Recitals. The above stated recitals are true and correct.
2. Rent. Paragraph 3 of the Sublease shall be amended to reflect the following
Rent which shall be paid to Sublandlord together with any Additional Rent
described in the Sublease Agreement and sales and use taxes which may be owed:
<TABLE>
<CAPTION>
MONTHS ANNUAL RENTAL MONTHLY RENTAL
------ ------------- --------------
<S> <C> <C>
1 - 60 $812,300.00 $67,708.33
61 -66 $950,000.04 $79,166.67
</TABLE>
3. Premises. The Sublease shall be amended to reflect that the Subleased
Premises is the entire first two floors of the building located at 100 Schultz
Drive, Red Bank, New Jersey, consisting of approximately 50,000 rentable square
feet.
4. Effective Date. The parties agree and acknowledge that all provisions of
this Amendment are effective retroactively to September 1, 1997. All rent due
under this Amendment which have not been paid, are due and payable within
fifteen (15) days after the day first written above. 5. Amendment. All
provisions and conditions contained in the Sublease that have not been expressly
amended herein are hereby ratified and affirmed and to remain in full force and
effect.
<PAGE> 2
IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Amendment
to Sublease Agreement dated as of the date first set forth above.
WITNESS: SUBLANDLORD:
PARADYNE CORPORATION, A
DELAWARE CORPORATION
____________________________________ By: ________________________________
Name: ______________________________ Name: ______________________________
Title: _____________________________
____________________________________ Date: ______________________________
Name: ______________________________
SUBTENANT:
GLOBESPAN SEMICONDUCTOR, INC.,
A DELAWARE CORPORATION
____________________________________ By: ________________________________
Name: ______________________________ Name: ______________________________
Title: _____________________________
____________________________________ Date: ______________________________
Name: ______________________________
<PAGE> 1
EXHIBIT 10.12
SUBORDINATED REVOLVING PROMISSORY NOTE
$10,000,000 Dated: December 15, 1998
FOR VALUE RECEIVED, the undersigned, GLOBESPAN SEMICONDUCTOR INC., a
Delaware corporation (the "Company"), hereby promises to pay to the order of
PARADYNE PARTNERS, L.P., a Delaware limited partnership ("Partnership"), or to
any other holder of this Note (Partnership or such other holder being the
"Payee"), the principal amount of TEN MILLION UNITED STATES DOLLARS (U.S.
$10,000,000), or so much thereof as may then be outstanding, on May 1, 2003 (the
"Maturity Date"). Subject to the terms and conditions of this Note, amounts
borrowed pursuant to this Note may be repaid and reborrowed at any time during
the term of this Note; provided, however, that after March 31, 2000, the
aggregate amount of principal outstanding from time to time may not exceed FIVE
MILLION UNITED STATES DOLLARS ($5,000,000). Both principal and interest
hereunder are payable in lawful money of the United States of America to the
Payee at its principal place of business at 201 Main Street, Suite 2420, Fort
Worth, Texas 76102, or at such other place as the Payee may designate from time
to time in writing (such principal place of business or other place being the
"Payment Place"), in cash or other immediately available funds. Unless otherwise
defined in the text of this Note, capitalized terms used herein shall have the
meaning ascribed to such terms in Section 10.
SECTION 1. INTEREST. The Company hereby promises to pay interest on the
unpaid principal amount of this Note from the date hereof until this Note shall
be paid in full in cash or other immediately available funds at the Applicable
Rate, payable on the last calendar day of each month during the term hereof (the
"Payment Date"), and computed on the basis of a year of 365/6 days for the
actual number of days elapsed. Interest accruing pursuant to this Section 1 on
the unpaid principal amount of this Note from and after the date hereof shall be
payable in lawful money of the United States of America, in cash or other
immediately available funds, to the Payee at the Payment Place. If the Payment
Date or other date fixed for payment hereunder is not a Business Day, such
payment date shall be extended to the next succeeding Business Day, and during
any such extension, interest on the unpaid principal amount of this Note shall
accrue and be payable at the Applicable Rate as set forth in this Section 1.
SECTION 2. PAYMENT OF PRINCIPAL.
(a) Scheduled Payment. Provided that no "Event of Default" (as defined
in that certain Loan and Security Agreement by and among BankAmerica Business
Credit, Inc. ["BABC"] and the Company dated as of May 15, 1998 [as amended, the
"Loan Agreement"]) has occurred and is continuing or will result from such
action, the Company shall, to the extent the unpaid principal amount of this
Note on March 31, 2000, exceeds Five Million Dollars ($5,000,000), pay such
excess on March 31, 2000. On the Maturity Date, the Company shall pay to the
Payee, in cash or other immediately available funds, the entire unpaid principal
amount of this Note plus all accrued and unpaid interest thereon.
<PAGE> 2
(b) Optional Prepayment. Provided that no "Event of Default" (as defined
in the Loan Agreement) has occurred and is continuing or will result from such
action, the Company may, at any time and from time to time, without premium or
penalty, prepay all or a portion of the unpaid principal amount of this Note,
together with unpaid accrued interest on the amount so prepaid to the date
chosen for prepayment, payable in cash or other immediately available funds.
SECTION 3. EVENTS OF DEFAULT.
(a) For purposes of this Note, an "Event of Default" shall be deemed to
have occurred upon:
(i) any failure by the Company to pay all or any portion of
principal or interest under this Note when the same shall be due and payable in
accordance with the terms hereof, whether on the Maturity Date, by acceleration
or otherwise, which failure continues unremedied for a period of 30 Business
Days; or
(ii) (A) the filing by the Company or any of its Significant
Subsidiaries of a voluntary petition seeking liquidation, reorganization,
arrangement or readjustment, in any form, of its debts under Title 11 of the
United States Code (or corresponding provisions of future laws) or any other
applicable bankruptcy, insolvency or similar law, or the filing by the Company
or any of its Significant Subsidiaries of an answer consenting to or acquiescing
in any such petition, (B) the making by the Company or any of its Significant
Subsidiaries of any assignment for the benefit of its creditors, or the
admission by the Company or any of its Significant Subsidiaries in writing of
its inability to pay its debts as they become due, (C) the filing of (x) an
involuntary petition against the Company or any of its Significant Subsidiaries
under Title 11 of the United States Code, or any other applicable bankruptcy,
insolvency or similar law (or corresponding provisions of future laws), (y) an
application for the appointment of a custodian, receiver, trustee or other
similar official for the Company or any of its Significant Subsidiaries for all
or a substantial part of the assets of the Company or any of its Significant
Subsidiaries or (z) an involuntary petition against the Company or any of its
Significant Subsidiaries seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of the Company or any
of its Significant Subsidiaries or any of the Company's or any such Significant
Subsidiary's debts under any other federal or state insolvency law, provided
that any such filing shall not have been vacated, set aside or stayed within a
45 day period from the date thereof, or (D) the entry against the Company or any
of its Significant Subsidiaries of a final and nonappealable order for relief
under any bankruptcy, insolvency or similar law now or hereafter in effect.
(b) Upon the occurrence and during the continuance of any Event of
Default described in Section 3(a)(i) or (ii), the Payee may, by written notice
to the Company, declare all or any portion of the unpaid principal amount of
this Note and all interest accrued thereon to be immediately due and payable.
Demand, presentment, protest and notice of non-payment are hereby waived by the
Company.
2
<PAGE> 3
SECTION 4. REMEDIES CUMULATIVE. No failure to exercise or delay in
exercising any right, remedy, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges provided herein are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
SECTION 5. NOTICES. Any notices or other communications required or
permitted hereunder shall be given in writing and personally delivered with
receipt acknowledged or mailed, postage prepaid, via registered mail, return
receipt requested, if to the Payee, at its address first set forth above or any
other address notified in writing by the Payee to the Company, and if to the
Company, at its address at 8545 126th Avenue North, Largo, Florida 33773,
Attention: Chief Financial Officer, with a copy to Texas Pacific Group, 201 Main
Street, Suite 2420, Fort Worth, Texas 76102, Attention: Richard A. Ekleberry, or
any other address notified in writing by the Company to the Payee. Any notice
given in conformity with the foregoing shall be deemed given when personally
delivered or upon the date of delivery specified in the registered mail receipt.
SECTION 6. GOVERNING LAW. This Note shall be governed by, and construed
and enforced in accordance with the law of the State of Florida as in effect
from time to time, without giving effect to any choice of laws or conflict of
laws principles thereof.
SECTION 7. SEVERABILITY. If any provision of this Note is invalid or
unenforceable in any jurisdiction, the other provisions hereof shall remain in
full force and effect in such jurisdiction and the remaining provisions hereof
shall be liberally construed in favor of the holder hereof in order to
effectuate the provisions hereof and the invalidity of any provision hereof in
any jurisdiction shall not affect the validity or enforceability of any other
provision in any other jurisdiction, including the State of Florida.
SECTION 8. SUCCESSORS AND ASSIGNS; TRANSFERABILITY. This Note shall be
binding upon and inure to the benefit of the Payee and the Company and their
respective transferees, successors and assigns.
SECTION 9. REPLACEMENT OF NOTE. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note, and the Company's receipt of an indemnity agreement of the Payee
reasonably satisfactory to the Company, the Company will, at the expense of the
Payee, execute and deliver, in lieu thereof, a new Note of like terms.
SECTION 10. DEFINITIONS
(a) For purposes of this Note, the following terms have the following
meanings:
3
<PAGE> 4
"Applicable Rate" means 8% per annum.
"Business Day" shall mean a day other than a Saturday, Sunday or
other day on which commercial banks in Florida are authorized or required by law
to close.
"Company" shall have the meaning ascribed to such term in the
first paragraph of this Note.
"Holders" shall mean the Payee and each other holder of all or
any portion of this Note.
"Indebtedness" shall mean any indebtedness, whether or not
contingent, for or in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or representing the balance deferred and unpaid
of the purchase price of any property, including pursuant to capital leases
(except any such balance that constitutes an accrued expense or a trade
payable), if and to the extent any of the foregoing indebtedness would appear as
a liability upon a balance sheet of such person or entity prepared on a
consolidated basis in accordance with generally accepted accounting principles,
and including, to the extent not otherwise included, the guaranty (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner (including, without limitation,
letters of credit and reimbursement agreements in respect thereof), of all or
any part of the foregoing indebtedness.
"Maturity Date" shall have the meaning ascribed to such term in
the first paragraph of this Note.
"Partnership" shall mean Paradyne Partners, L.P., a Delaware
limited partnership.
"Payee" shall have the meaning ascribed to such term in the first
paragraph of this Note.
"Payment Place" shall have the meaning ascribed to such term in
the first paragraph of this Note.
"Person" means an individual, a partnership, a corporation, 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.
"Significant Subsidiary" shall mean a "significant subsidiary" of
the Company as defined in Rule 1-02(v) of Regulation S-X under the Securities
Exchange Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, as said Regulation may be amended from time to time, or any other
Subsidiary of the Company that has guaranteed or assumed any obligations of the
Company under this Note.
4
<PAGE> 5
"Subsidiary" shall mean any person or entity of which at least a
majority of the capital stock or other equity interest (including partnership
interest) having ordinary voting power for the election of directors or other
governing body of such person or entity is owned or controlled by the Company,
directly or indirectly through one or more subsidiaries.
(b) Unless otherwise provided herein, (i) the word "from" shall mean
from and including and (ii) the words "to" or "until" shall mean to and until
but excluding.
(c) All referenced to "Sections" of this Note shall be to Sections of
this Note unless otherwise specifically provided.
SECTION 11. SUBORDINATION TO CREDIT AGREEMENT. This Note is issued as
subordinate to the "Obligations" of the Company under the Loan Agreement in the
manner and to the extent set forth in the Subordination Agreement dated May 15,
1998, among the Partnership, the Company, and BABC.
SECTION 12. DESCRIPTIVE HEADINGS. The descriptive headings of this Note
are inserted for convenience only and do not constitute a part of this Note.
SECTION 13. PRIOR NOTE REPLACED. This Note is given (a) in renewal and
extension of the unpaid balance of the Company's Subordinated Revolving
Promissory Note dated May 15, 1998, in the original principal amount of
$5,000,000, and payable to the order of the Partnership (the "Prior Note"), (b)
to increase the amount of credit available to the Company from the date hereof
to March 31, 2000, from $5,000,000 to $10,000,000, and (c) in substitution and
replacement of the Prior Note. This Note also supersedes and replaces any other
promissory note previously given in substitution and replacement of the Prior
Note.
IN WITNESS WHEREOF, each of the Company and the Payee has caused this
Note to be executed by its duly authorized officer as of the day and year first
written above.
GLOBESPAN SEMICONDUCTOR INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
------------------------------------
PARADYNE PARTNERS, L.P.
By: Paradyne GenPar, Inc.,
its sole general partner
5
<PAGE> 6
By:
----------------------------------------
Name:
--------------------------------------
Title:
------------------------------------
6
<PAGE> 1
EXHIBIT 10.14
GLOBESPAN TECHNOLOGIES INC.
KEY EMPLOYEE AGREEMENT
for
ARMANDO GEDAY
This Employment Agreement ("Agreement") is entered into as of the
1st day of April, 1997, by and between ARMANDO GEDAY ("Executive") and GLOBESPAN
TECHNOLOGIES INC., a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide
personal services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and
WHEREAS, Executive wishes to be employed by the Company and
provide personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, it is hereby agreed by and between the parties
hereto as follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 The Company agrees to employ Executive in the position
of Chief Executive Officer, and Executive hereby accepts such employment
effective as of the date of this Agreement. During the term of his employment
with the Company, Executive will devote substantially all of his business time
and attention (except for vacation periods and reasonable periods of illness or
other incapacities permitted by the Company's general employment policies) to
the business of the Company.
1.2 Executive shall serve in an executive capacity and
shall perform such duties as are customarily associated with the position of
Chief Executive Officer consistent with the provisions of the Bylaws of the
Company and as reasonably required by the Company's Board of Directors (the
"Board"). The Executive will also serve as a member of the Company's Board.
1.3 The employment relationship between the parties shall
also be governed by the general employment policies and practices of the Company
relating to protection of confidential information and assignment of inventions.
1.4 Unless terminated pursuant to its terms, the term of
this Agreement shall be for two years provided however commencing on April 1,
1998, and each day thereafter the term of this Agreement shall automatically be
extended for one additional day so that thereafter the remaining term of this
Agreement shall always be for one year.
<PAGE> 2
2. COMPENSATION.
2.1 SALARY. Executive shall receive, for services to be
rendered under this Agreement, an annualized base salary of $200,000, payable in
installments consistent with the Company's payroll policies. The base salary
shall be subject to annual review by the Board of Directors, but in no event
shall the base salary be reduced to an amount that is lower than the base salary
for the prior year. In addition to the above salary the Company will pay to
Executive upon commencement of employment a fully taxable signing bonus of
$50,000 which shall be subject to reimbursement should Executive voluntarily
terminate his employment with the Company without Good Reason on or before
December 31, 1997.
2.2 EQUITY PLAN. Executive will be eligible to participate
in the Company's 1996 Equity Incentive Plan (the "Plan") to the full extent
allowed under the terms of the Plan. The Executive is hereby granted an option
for 465,300 shares at an exercise price of one dollar ($1) under the Plan.
Twenty-five percent (25%) of the shares subject to such option grant will vest
on the first anniversary date of this Agreement and six and one quarter percent
(6.25%) of such shares will vest at the end of each three month period
thereafter (for full vesting after four (4) years). Notwithstanding the
foregoing, (a) fifty percent of the remaining unvested options shall vest upon
the transfer to one or more transferees of more than fifty percent of all of the
voting shares of the Company, occurring in a single transaction or series of
related transactions, where the principal shareholders or affiliates thereof of
the Company prior to the first of such transactions own less than fifty-one
percent of the voting power of the Company after such transaction(s) (a transfer
to an affiliated entity or a public offering of the common stock of the Company
shall not cause accelerated vesting or be considered a change of control) and
(b) one hundred percent of the remaining unvested options shall vest upon a
transfer described in (a) if the aggregate value of the Company (based on the
consideration paid for the Company common stock in the transaction and including
the value of the remaining common stock not so purchased) shall be more than
$100,000,000. In addition thereto if, prior to July 1, 1998, (i) such a change
of control occurs and the aggregate value of the transaction including the value
of the remaining common stock not so purchased shall be less than $100,000,000,
and (ii) Executive disagrees with such valuation, and (iii) Executive secures a
written opinion of an independent investment banker that the then current fair
market value of the Company is significantly above such value, then all the
remaining unvested options shall immediately vest upon such change of control.
The provisions of the relevant option plans are incorporated herein by
reference; provided, however that where such terms are inconsistent with the
terms hereof the terms of this Agreement shall prevail. Subject to the prior
sentence and the provisions of Section 5.2, the options shall be evidenced by
the Company's standard Nonstatuatory Stock Option Grant Notice and Agreement.
2.3 INCENTIVE BONUSES. Executive will be eligible for (i)
a quarterly calendar bonus of $50,000 each calendar quarter for achieving
certain goals to be determined in writing by Executive and the Board within
sixty days of the date of this Agreement, and (ii) $100,000 if the Company
achieves $21,000,000 in total revenue for the 1997 fiscal year and an additional
$100,000 if the Company achieves $25,000,000 for such fiscal year. For
subsequent fiscal years the Executive shall be eligible to earn equal or greater
quarterly and two level revenue bonuses based upon goals and revenue targets as
determined by the Board and the Executive. Notwithstanding the above, unless the
Executive shall be terminated for Cause or
2
<PAGE> 3
shall terminate his employment without Good Reason prior to October 1, 1997, the
Executive and the Company agree that for fiscal year 1997 the aggregate of the
incentive bonuses specified in this Section 2.3 and the base salary received or
due the Executive for performance in fiscal year 1997 shall not be less than
$500,000. Incentive bonuses and the criteria for payment thereafter shall be
determined by the Board. If Executive shall terminate his employment or shall be
terminated for any reason other than Cause, as hereinafter defined, before the
end of the applicable bonus year or the bonus period if shorter a prorated bonus
shall be paid for the results to the date of termination and for any firm
purchase orders received and accepted by the Company which provide for shipment
during the applicable bonus period.
2.4 STANDARD COMPANY BENEFITS. Except for the Company's
Severance Benefit Plan (if any), Executive shall be entitled to all rights and
benefits for which he is eligible under the terms and conditions of the standard
Company benefits and compensation practices which may be in effect from time to
time and provided by the Company to its employees generally and to its
management and executive employees in specific. In addition to the standard
Company benefits the Company will, subject to any local, state, or federal tax
withholding requirements (i) reimburse Executive for a reasonable number of
trips for Executive and Executive's spouse to look for suitable housing for
Executive and Executive's family in the New York/New Jersey area and for
reasonable temporary housing in that area for a reasonable time until Executive
secures a new residence, (ii) pay for and provide for the packing, moving and
unpacking of Executive's household goods related to Executive and Executive's
family's move from California to the New York/New Jersey area and (iii)
reimburse Executive for all normal and reasonable closing expenses as supported
in the closing statement or other appropriate documentation associated with the
sale of Executive's primary residence in California. Such closing reimbursement
will not include items such a prorata real estate taxes or other costs or
expenses that are or would have been incurred by Executive related to
Executive's occupancy or ownership prior to its sale.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Executive will execute and will abide by
the attached Company's Employee Agreement Regarding Intellectual Property.
3.2 REMEDIES. Executive's duties and obligations under
said Employee Agreement Regarding Intellectual Property shall survive
termination of his employment with the Company. Executive acknowledges that a
remedy at law for any breach or threatened breach by him of the Employee
Agreement Regarding Intellectual Property would be inadequate, and he therefore
agrees that the Company shall be entitled to injunctive relief in case of any
such breach or threatened breach.
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior written consent of the Company's
Board of Directors, Executive will not during the term of his employment by the
Company undertake or engage in any other employment. Executive may engage in
civic and not-for-profit activities so long as such activities do not materially
interfere with the performance of his duties hereunder.
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4.2 Except as permitted by Section 4.3 or with the prior
written consent of the Board, Executive agrees during the term of his employment
by the Company not to acquire, assume, or participate in (directly or
indirectly) any position, investment or interest known by him to be adverse, in
conflict with, or antagonistic to the Company, its business, or its prospects,
financial or otherwise.
4.3 During the term of his employment by the Company,
except on behalf of the Company, Executive will not have any direct or indirect
business connection or interest, in any capacity whatsoever, with any other
person or entity known by him to compete directly with the Company, throughout
the world, in any line of business engaged in (or planned to be engaged in) by
the Company if such relationship does cause a conflict of interest. Nothing in
this paragraph or paragraph 4.2 shall bar Executive from owning securities of
any competitor corporation as a passive investor, so long as his aggregate
direct holdings in any one such corporation shall not constitute more than 1% of
the voting stock of that corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 EMPLOYMENT AT-WILL. Executive and Company each
acknowledge that either party has the right to terminate Executive's employment
with the Company 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.
5.2 COMPANY-INITIATED TERMINATION WITHOUT CAUSE OR
EXECUTIVE TERMINATION FOR GOOD REASON.
(a) The Company shall have the right to terminate
Executive's employment with the Company at any time without cause. The Executive
shall have the right to terminate his employment for Good Reason and be entitled
to the provisions of this paragraph 5.2.
(b) If Executive's employment is terminated without
cause by the Company or should the Executive terminate his employment for Good
Reason, upon Executive's providing the Company with a signed general release of
all claims, a form of which is set forth in Exhibit A (the "Release"), then on
the Effective Date of such Release, the Company shall pay to Executive any
amount due under Section 2.3 and an amount not to exceed the equivalent of
twelve months of his then annualized base salary, subject to standard payroll
deductions and withholding and payable in installments consistent with the
Company's payroll policies until the earlier of twelve months from termination
or the date upon which the Executive commences comparable employment. The
aggregate pretax Section 2.3 and base salary payments under the prior sentence
shall be not less than $500,000 prorated for the number of months not to exceed
twelve that Executive is entitled to receive his annualized base salary
hereunder. If a corrective payment is due it shall be paid at the end of such
period. In addition thereto Executive's options that would have vested within
eighteen months of Executive's termination by the Company without cause or by
Executive for Good Reason shall vest upon such termination and, with respect to
all vested options, the Executive shall be entitled to exercise such options
until the tenth anniversary of the date of this Agreement. The provisions of
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<PAGE> 5
Section 4(iv) of Executive's Notice and Agreement of option grant shall provide
for such continued exercisability and the provisions of Section 7 thereof shall
permit the Repurchase Period to commence only upon exercise of the options by
Executive. Executive's compensation and benefits otherwise cease as of his
termination date.
(c) For purposes of this Agreement, "Good Reason"
shall mean the occurrence of the following, without Executive's express written
consent:
(i) the assignment to Executive of any duties
inconsistent with Executive's status as Chief Executive Officer of the Company;
(ii) a material reduction by the Company in
Executive's annual base salary or incentive opportunity in effect on the date
hereof or as the same may be increased from time to time; or
(iii) the Company requiring Executive to be
based anywhere other than its principal executive offices except for required
travel on the Company's business to an extent substantially consistent with
Executive's customary business travel obligations.
(iv) any reduction or change in Executive's
title, or a material change in Executive's duties, job responsibilities or
working conditions without Executive's written consent.
(v) a breach of a material obligation of the
Company hereunder which has not been cured within ten days after written notice
by the Executive.
5.3 COMPANY-INITIATED TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate
Executive's employment with the Company at any time for cause.
(b) "Cause" for termination shall mean: (a)
indictment or conviction of any felony or of any crime involving dishonesty; (b)
participation in any fraud against the Company; (c) willful misconduct or gross
negligence in the performance of Executive's duties; or (d) intentional damage
to any property of the Company.
(c) If Executive's employment is terminated at
any time for Cause, he will not be eligible for severance pay, pay in lieu of
notice, or any other such compensation.
5.4 EXECUTIVE-INITIATED VOLUNTARY TERMINATION.
(a) Executive may voluntarily terminate his
employment with the Company at any time, after which no further compensation
will be paid to Executive.
(b) If Executive voluntarily terminates his
employment, he will not be eligible for severance pay, pay in lieu of notice,
or, unless otherwise specified in this
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<PAGE> 6
Agreement, any other such compensation. The Company may however elect to make
the payments specified under 5.2 (b) and if so paid the provisions of Section 6
shall apply.
6. NONINTERFERENCE. While employed by the Company, and for twelve
(12) months immediately following the termination of Executive's employment,
Executive agrees not to interfere with the business of the Company by:
(a) intentionally and knowingly soliciting or
inducing any employee of the Company to terminate his or her employment in order
to become an employee, consultant, or independent contractor to or for any
competitor of the Company or any other entity, but only if Executive has become
employed by or affiliated with such competitor or other entity within six months
of his termination; or
(b) using confidential information of the
Company to directly or indirectly solicit the business of any customer, client,
vendor, or distributor of the Company which was a customer, client, vendor, or
distributor of the Company at the time of termination or at any time in the year
immediately preceding that date. Confidential Information shall not include
information which (a) was already known to the receiving party prior to the time
that it is disclosed by Executive; (b) is in or has entered the public domain
through no breach of this Agreement by Executive; (c) has been received from a
third party; or (d) is required to be disclosed pursuant to final binding order
of a governmental agency or court of competent jurisdiction, provided that the
Company has been given reasonable notice of the pendency of such an order and
the opportunity to contest it.
Executive agrees that this restriction is reasonably necessary to
protect the Company's legitimate business interest in its substantial
relationship with specific customers, and its valuable confidential business
information.
7. GENERAL PROVISIONS.
7.1 NOTICES. Any notices provided hereunder must be in
writing and shall be deemed effective upon the earlier of personal delivery
(including personal delivery by fax) or the third day after mailing by
first-class mail to the Company addressed to Corporate Secretary, Globespan
Technologies Inc., 8545 126th Avenue North, Largo, Florida 33773 and to
Executive at his address as listed on the Company payroll.
7.2 SEVERABILITY. Whenever possible, each provision of
this Agreement will 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
invalid, illegal, or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality, or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal, or unenforceable provisions had never been contained herein.
7.3 WAIVER. If either party should waive any breach of any
provisions of this Agreement, that party shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.
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<PAGE> 7
7.4 COMPLETE AGREEMENT. This Agreement and its Exhibits,
together with any agreements governing any equity interests which may become
available to Executive in conjunction with his employment by the Company,
constitute the entire agreement between Executive and the Company and it is the
complete, final, and exclusive embodiment of their agreement with regard to this
subject matter. It is entered into without reliance on any promise or
representation other than those expressly contained herein, and it cannot be
modified or amended except in a writing signed by an officer of the Company.
7.5 COUNTERPARTS. This agreement may be executed in
separate counterparts, any one of which need not contain signatures of more than
one party, but all of which taken together will constitute one and the same
Agreement.
7.6 HEADINGS. The heading of the sections hereof are
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof.
7.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to
bind and inure to the benefit of and be enforceable by Executive and the
Company, and their respective successors, assigns, heirs, executors and
administrators, except that Executive may not assign any of his duties hereunder
and he may not assign any of his rights hereunder without the written consent of
the Company, which shall not be withheld unreasonably.
7.8 CHOICE OF LAW. All questions concerning the
construction, validity and interpretation of this Agreement will be governed by
the law of the State of New Jersey.
7.9 ARBITRATION. At the option of either the Company or
the Executive, any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Red Bank, New
Jersey before a neutral arbitrator in accordance with the rules of the American
Arbitration Association then in effect. The Company and the Executive shall make
every good faith effort to submit any dispute or controversy promptly and to
complete the arbitration within 60 days of the election by either party to seek
arbitration. Judgment may be entered on the arbitrator's award in any court
having jurisdiction. Except as provided in Section 7.10, the expense of such
arbitration shall be borne equally by both parties.
7.10 ATTORNEY'S FEES. The Company will reimburse the
Executive or at his election pay directly the reasonable attorney fees and
expenses related to the negotiation and execution of this Agreement; provided
however that such payment will be "grossed up" for any federal or state taxes.
In the event of a dispute relating to this Agreement which results in judgment
or award in Executive's favor, the Company will reimburse Executive for all
reasonable fees, including legal fees, incurred by Executive in connection with
such dispute.
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first above written.
GLOBESPAN TECHNOLOGIES INC.
By:
-----------------------------------------
James L. Slattery
Vice President & Secretary
Date: 2 October 1997
Accepted and agreed as of the
1st day of April, 1997.
- -------------------------
Armando Geday
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<PAGE> 9
GLOBESPAN(TM)
EMPLOYEE AGREEMENT REGARDING INTELLECTUAL PROPERTY
IN CONSIDERATION of my employment by GlobeSpan Technologies Inc.
or any of its affiliates (hereinafter "GlobeSpan"), and my continued employment
during such time as may be mutually agreeable, and of the opportunity to receive
GlobeSpan private or proprietary information, and other good and valuable
consideration:
A. I hereby assign and agree to assign to my employer all my right, title
and interest in and to all inventions, discoveries, improvements, ideas,
computer, or other apparatus programs and related documentation, and
other works of authorship (hereinafter each designated "Intellectual
Property"), whether or not patentable, copyrightable or subject to other
forms of protection, made created, developed, written or conceived by me
during the period of such employment, whether during or outside of
regular working hours, either solely or jointly with another, in whole
or in part either.
(1) In the course of such employment, or
(2) Relating to the actual or anticipated business or research
or development of GlobeSpan, or
(3) With the use of GlobeSpan's time, material, private or
proprietary information, or facilities;
B. I will, without charge to my employer but at its expense, execute a
specific assignment of title to GlobeSpan and do anything else
reasonably necessary to enable GlobeSpan to secure a patent, copyright
or other form of protection for said Intellectual Property anywhere in
the world.
C. I further agree that I will keep in confidence and will not, except as
required in the conduct of GlobeSpan's business or as authorized in
writing on behalf of GlobeSpan, publish, disclose or use, during and
after the period of my employment, any private or proprietary
information which I may in any way acquire, learn, develop or create by
reason of my employment;
D. I further agree that this Agreement does not constitute a contract of
employment; and
E. I acknowledge that the copyrights in Intellectual Property created
within the scope of my employment, belong to GlobeSpan by operation of
law.
- ------------------------------ --------------------------- -------------------
Employee's Signature Employee's Name (Print) Date
- ------------------------------
SSN
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<PAGE> 10
EXHIBIT A
RELEASE AnD WAIVER OF CLAIMS
In exchange for payment to me of amounts pursuant to Section
5.2(b) of my Employment Agreement to which this form is attached, I hereby
furnish Paradyne (the "Company") with the following release and waiver:
I hereby release, and forever discharge the Company, its
officers, directors, agents, employees, stockholders, successors, assigns and
affiliates, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorney's fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed, arising at any time prior
to and including the execution date of this Release with respect to any claims
relating to my employment and the termination of my employment, including but
not limited to, claims pursuant to any federal, state or local law relating to
employment including, but not limited to, discrimination claims, claims under
the Florida Civil Human Rights Act of 1977, as amended, and the federal Age
Discrimination in Employment Act of 1967, as amended ("ADEA"), or claims for
wrongful termination, breach of the covenant of good faith, contract claims,
tort claims, and wage or benefit claims, including but not limited to, claims
for salary, bonuses, commissions, stock, stock options, vacation pay, fringe
benefits, severance pay (including benefits available under the Paradyne Staff
Reduction Policy, if any) or any form of compensation.
I also acknowledge that I have read and understand the following
statement, which reads as follows: "A general release does not extend to claims
which the creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially affected his
settlement with the debtor." I hereby expressly waive and relinquish all rights
and under that statement and any law of Florida or any other jurisdiction of
similar effect with respect to any claims I may have against the Company.
I acknowledge that, among other rights, I am waiving and
releasing any rights I may have under ADEA, that this waiver and release is
knowing and voluntary, and that the consideration given for this waiver and
release is in addition to anything of value to which I was already entitled as
an employee of the Company. I further acknowledge that I have been advised, as
required by the Older Workers Benefit Protection Act, that: (a) the waiver and
release granted herein does not relate to claims which may arise after this
agreement is executed; (b) I have the right to consult with an attorney prior to
executing this agreement (although I may choose voluntarily not to do so); (c) I
have twenty-one (21) days from the date I receive this agreement, in which to
consider this agreement (although I may choose voluntarily to execute this
agreement earlier); (d) I have seven (7) days following the execution of this
agreement to revoke my consent to the agreement: and (3) following the execution
of this agreement to revoke my consent to the agreement; and (e) this agreement
shall not be effective until the seven (7) day revocation period has expired.
Date: By:
------------------------------- ----------------------------------
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EXHIBIT 10.15
GLOBESPAN TECHNOLOGIES INC.
KEY EMPLOYEE AGREEMENT
FOR
THOMAS E. EPLEY
This Key Employee Agreement ("Agreement") is entered into as of
the 1st day of August, 1997, by and between THOMAS E. EPLEY ("Executive") and
GLOBESPAN TECHNOLOGIES INC., a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide
personal services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and
WHEREAS, Executive wishes to be employed by the Company and
provide personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, it is hereby agreed by and between the parties
hereto as follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 The Company agrees to employ Executive in the position
of Chairman of the Board of Directors, and Executive hereby accepts such
employment effective as of the date of this Agreement. In addition the Company
shall cause the Executive to be elected to its Board of Directors during the
term of this Agreement. During the first year of the term of his employment with
the Company under this Agreement, Executive will devote his best efforts and the
appropriate amount of his business time and attention (except for such time as
Executive shall require to act as Chairman of Paradyne Corporation Technologies
Inc., vacation periods and reasonable periods of illness or other incapacities
permitted by the Company's general employment policies) to the business of the
Company. During the second year of the term of this Agreement Executive shall
continue to service as Chairman but in a more traditional role with part time
commitment, including presiding over and attendance at regularly scheduled Board
of Directors' meetings and presiding over all Board related activities and
responsibilities. If Executive shall be offered and shall accept additional
positions with an affiliate of the Company or another entity which is directly
or indirectly affiliated with a shareholder of the Company the Board and the
Executive shall mutually agree to any change in roles hereunder and compensation
as hereinafter provided. Such change shall be reflected in an amendment to this
Agreement.
1.2 The employment relationship between the parties shall
also be governed by the general employment policies and practices of the
Company, including those relating to protection of confidential information and
assignment of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment policies or
practices, this Agreement shall control.
<PAGE> 2
1.3 The term of this Agreement shall be for a period of
two years commencing on the date hereof and shall end on its second anniversary
date (the "Term").
2. COMPENSATION.
2.1 SALARY. Executive shall receive, for services to be
rendered under this Agreement, an annualized base salary of $150,000 for the
first twelve months of this Agreement and an annualized base salary of $100,000
for the second twelve months of this Agreement, payable in installments
consistent with the Company's payroll policies.
2.2 EQUITY PLAN. Executive will not be eligible to
participate in the Company's Equity Incentive Plan.
2.3 DISCRETIONARY INCENTIVE BONUS. Executive will not be
eligible for a discretionary or incentive bonus.
2.4 STANDARD COMPANY BENEFITS. Except for the Company's
Severance Benefit Plan (if any) and any incentive or bonus plans, Executive
shall be entitled to all rights and benefits for which he is eligible under the
terms and conditions of the standard Company benefits and compensation practices
which may be in effect from time to time including its Retirement Savings Plan
and provided by the Company to its employees generally and to its management and
executive employees in specific. Notwithstanding the above Executive shall not
be entitled to any duplication of benefits if such benefits are provided to him
in his capacity as Chairman of the Board of Paradyne Corporation. The benefits
of Paradyne shall be considered primary.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Executive agrees to execute and abide by
the Proprietary Information and Inventions Agreement attached hereto as Exhibit
A.
3.2 REMEDIES. Executive's duties under the Proprietary
Information and Inventions Agreement shall survive termination of his employment
with the Company. Executive acknowledges that a remedy at law for any breach or
threatened breach by him of the provisions of the Proprietary Information and
Inventions Agreement would be inadequate, and he therefore agrees that the
Company shall be entitled to injunctive relief in case of any such breach or
threatened breach.
4. OUTSIDE ACTIVITIES.
4.1 Except investments or activities associated with Texas
Pacific Group or with the prior written consent of the Company's Board of
Directors, Executive will not during the first year of the term of this
Agreement undertake or engage in any other employment or occupation, other than
ones in which Executive is a passive investor. Executive may engage in civic and
not-for-profit activities so long as such activities do not materially interfere
with the performance of his duties hereunder.
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<PAGE> 3
4.2 Except as permitted by Section 4.3, Executive agrees
not to acquire, assume, or participate in (directly or indirectly) any position,
investment or interest known by him to be adverse or antagonistic to the
Company, its business, or its prospects, financial or otherwise.
4.3 Except as specified above, during the term of his
employment by the Company, except on behalf of the Company, Executive will not
have any direct or indirect business connection or interest, in any capacity
whatsoever, with any other person or entity known by him to compete directly in
a material detrimental way with the Company, throughout the world, in any line
of business engaged in (or planned to be engaged in) by the Company. Nothing in
this paragraph shall bar Executive from owning securities of any competitor
corporation as a passive investor so long as his aggregate direct holdings in
any one such corporation shall not constitute more than 4% of the voting stock
of that corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 EMPLOYMENT AT-WILL. Executive and Company each
acknowledge that either party has the right to terminate Executive's employment
with the Company 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.
5.2 COMPANY-INITIATED TERMINATION WITHOUT CAUSE OR
EXECUTIVE TERMINATION FOR GOOD REASON.
(a) The Company shall have the right to terminate
Executive's employment with the Company at any time without cause and the
Executive shall have the right to terminate at any time for Good Reason.
(b) If Executive's employment is terminated
without cause by the Company or by the Executive for Good Reason, and upon
Executive's providing the Company with a signed general release of all claims, a
form of which is set forth in Exhibit B (the "Release"), then on the Effective
Date of such Release, the Company shall pay Executive an amount equivalent to
the remainder of the Executive's base salary due through July 31, 1999 and shall
provide Executive at its expense with comparable benefits for such period.
Executive's compensation and benefits otherwise cease as of his termination
date.
(c) For purposes of this Agreement, "Good Reason"
shall mean the occurrence of the following, without Executive's express written
consent:
(i) the assignment to Executive of any duties
inconsistent with Executive's status as Chairman of the Board of Directors or
failure to elect Executive Chairman and a member of the Board of Directors;
(ii) a reduction by the Company in Executive's
annual base salary; or
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<PAGE> 4
(iii) There shall be a Change in Control of
the Company and Executive shall not prior to such Change in Control agree in
writing to continue to serve in a mutually acceptable capacity for mutually
acceptable compensation. For purposes of this Agreement, a "Change in Control of
Globespan" shall mean a change in control of a nature that would be required to
be reported in response to Item 5(f) of & Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), whether or not Globespan is then subject to such reporting requirement;
provided however, without limitation, such a change in control shall without
limitation be deemed to have occurred if any "person" (as such term is used in
Sections 3(a)(9), 13(d) and 14(d) of the Exchange Act), other than a direct or
indirect affiliate of Texas Pacific Group, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of Globespan representing 51 percent or more of the combined voting
power of Globespan's then outstanding securities entitled to vote for directors
of Globespan.
5.3 COMPANY-INITIATED TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate
Executive's employment with the Company at any time for cause.
(b) "Cause" for termination shall mean: (a)
indictment or conviction of any felony or of any crime involving dishonesty; (h)
participation in any fraud against the Company; (c) breach of Executive's duties
to the Company or violations of Company policy which causes the Company to
sustain a material financial or other liability; (d) intentional damage to any
property of the Company; or (e) conduct by Executive which, in the good faith
and reasonable determination of the Board, demonstrates gross unfitness to
serve. "Cause" shall include any single instance of gross breach of Executive's
duties, gross violation of Company policy, or other serious misconduct.
(c) If Executive's employment is terminated at any
time for cause, unless the Company elects to offer the payment specified in
Section 7, he will not be entitled to severance pay, pay in lieu of notice, or
any other such compensation.
5.4 EXECUTIVE-INITIATED VOLUNTARY TERMINATION.
(a) Executive may voluntarily terminate his
employment with the Company at any time, after which no further compensation
will be paid to Executive.
(b) If Executive voluntarily terminates his
employment, he will not be entitled to severance pay, pay in lieu of notice, or
any other such compensation unless the Company elects to offer the payments
specified under Section 7.
6. RESTRICTIVE COVENANT. Provided Executive is receiving a
payment under 5.2 (b), or if the Company elects to make such payment for
termination under 5.3 or 5.4 if Executive's employment with the Company
terminates, then for six (6) months immediately following the termination date,
Executive shall not, without the prior written approval of the Company, directly
or indirectly engage or prepare to engage in any activities in direct or obvious
competition
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<PAGE> 5
with the Company, or accept employment or establish a business
relationship with a business engaged in or preparing to engage in direct or
obvious competition with the Company, in any geographical location in which the
Company as of the termination date either conducts or plans to conduct business.
Executive agrees that this restriction is reasonably necessary to protect the
Company's legitimate business interests in its trade secrets and valuable
confidential business information.
7. NONINTERFERENCE. While employed by the Company, and
thereafter, provided the Company has offered the Executive the payment specified
under 5.2 (b), for six (6) months immediately following the termination of
Executive's employment, Executive agrees not to interfere with the business of
the Company by:
(a) soliciting, attempting to solicit, inducing,
or otherwise causing any employee of the Company to terminate his or her
employment in order to become an employee, consultant, or independent contractor
to or for any competitor of the Company; or
(b) using confidential information of the Company
on behalf of a competitor of the Company to directly or indirectly solicit the
business of any customer, client, vendor, or distributor of the Company which
was a customer, client, vendor, or distributor of the Company at the time of
termination or at any time in the year immediately preceding that date.
Executive agrees that this restriction is reasonably necessary to
protect the Company's legitimate business interest in its substantial
relationship with specific customers, and its valuable confidential business
information.
8. GENERAL PROVISIONS.
8.1 NOTICES. Any notices provided hereunder must be in
writing and shall be deemed effective upon the earlier of personal delivery
(including personal delivery by fax) or the third day after mailing by
first-class mail to the Company at its primary office location and to Executive
at his address as listed on the Company payroll.
8.2 SEVERABILITY. Whenever possible, each provision of
this Agreement will 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
invalid, illegal, or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality, or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal, or unenforceable provisions had never been contained herein.
8.3 WAIVER. If either party should waive any breach of
any provisions of this Agreement, that party shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.
8.4 COMPLETE AGREEMENT. This Agreement and its
Exhibits, together with any agreements governing any equity interests which may
become available to Executive in conjunction with his employment by the Company,
constitute the entire agreement between Executive and the Company and it is the
complete, final, and exclusive embodiment of their agreement with regard to this
subject matter. It is entered into without reliance on any promise
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<PAGE> 6
or representation other than those expressly contained herein, and it cannot be
modified or amended except in a writing signed by an of officer of the Company.
8.5 COUNTERPARTS. This agreement may be executed in
separate counterparts, any one of which need not contain signatures of more than
one party, but all of which taken together will constitute one and the same
Agreement.
8.6 HEADINGS. The heading of the sections hereof are
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning.
8.7 SUCCESSORS AND ASSIGNS. This Agreement is intended
to bind and inure to the benefit of and be enforceable by Executive and the
Company, and their respective successors, assigns, heirs, executors and
administrators, except that Executive may not assign any of his duties hereunder
and he may not assign any of his rights hereunder without the written consent of
the Company, which shall not be withheld unreasonably.
8.8 CHOICE OF LAW. All questions concerning the
construction, validity and interpretation of this Agreement will be governed by
the law of the State of New Jersey.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first above written.
GLOBESPAN TECHNOLOGIES INC.
By:
-------------------------------------
James L. Slattery, Vice President &
Secretary
Date: 29 August 1997
Accepted and agreed as of the 29th
day of August, 1997.
- ------------------------------------
THOMAS E. EPLEY
6
<PAGE> 1
The reverse stock split and recapitalization described in Note 14 to the
financial statements has not been consummated at March 12, 1999. When it has
been consummated, we expect to be in a position to render the following consent.
PricewaterhouseCoopers LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS AND REPORT ON SCHEDULE
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 12, 1999, except
as to Note 14 which is as of March 12, 1999, relating to the financial
statements of GlobeSpan Semiconductor Inc., which appears in such Prospectus. We
also consent to the use in the Prospectus of our report dated August 29, 1998
relating to the financial statements of The Advanced Transmission Technology
Division of AT&T Paradyne Corporation, which appears in such Prospectus. We also
consent to the references to us under the headings "Experts" and "Selected
Financial Data" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Financial Data."
Florham Park, New Jersey
, 1999
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
BALANCE SHEET AS OF DECEMBER 31, 1998 AND THE RELATED STATEMENT OR OPERATIONS
FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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