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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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JNI CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 3674 33-074004
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
9775 TOWNE CENTRE DRIVE
SAN DIEGO, CALIFORNIA 92121
(858) 535-3121
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DR. TERRY M. FLANAGAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
JNI CORP.
9775 TOWNE CENTRE DRIVE
SAN DIEGO, CALIFORNIA 92121
(858) 535-3121
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
CAMERON J. RAINS, ESQ. DAVID A. KRINSKY, ESQ.
SCOTT M. STANTON, ESQ. KAREN K. DREYFUS, ESQ.
GRAY CARY WARE & FREIDENRICH LLP O'MELVENY & MYERS LLP
4365 EXECUTIVE DRIVE, SUITE 1600 610 NEWPORT CENTER DRIVE, 17TH FLOOR
SAN DIEGO, CALIFORNIA, 92121-2189 NEWPORT BEACH, CALIFORNIA 92660
(858) 677-1400 (949) 760-9600
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being 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 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 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,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $0.001 par value.............................. $80,000,000 $22,240.00
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</TABLE>
(1) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
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 our solicitation of your offer to buy these securities in any jurisdiction
where that would not be permitted or legal.
SUBJECT TO COMPLETION SEPTEMBER 3, 1999
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PROSPECTUS
, 1999
JNI CORP.
SHARES OF COMMON STOCK
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THE COMPANY:
- - We are a leading designer and supplier of fibre channel hardware and software
products that form critical elements of storage area networks.
- - JNI Corp.
9775 Towne Centre Drive
San Diego, California 92121
(858) 535-3121
PROPOSED SYMBOL & MARKET:
- - JNIC/NASDAQ NATIONAL MARKET
THE OFFERING:
- - We are offering shares of our common stock.
- - Jaymark, Inc., our principal stockholder, is offering shares of
our common stock.
- - The underwriters have an option to purchase an additional shares from the
selling stockholder to cover over-allotments.
- - This is our initial public offering, and no public market currently exists for
our shares.
- - We intend to use the net proceeds from this offering for repayment of
indebtedness and general corporate purposes, including product development,
sales and marketing and potential acquisitions of products, technologies or
companies.
- - Closing: , 1999.
<TABLE>
<CAPTION>
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Per Share Total
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<S> <C> <C>
Public offering price (Estimated): $ $
Underwriting fees:
Proceeds to JNI:
Proceeds to the selling stockholder:
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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 DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. NOR HAVE
THEY MADE, NOR WILL THEY MAKE, ANY DETERMINATION AS TO WHETHER ANYONE SHOULD BUY
THESE SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 5
Forward-Looking Statements.......... 18
Use of Proceeds..................... 19
Dividend Policy..................... 19
Capitalization...................... 20
Dilution............................ 21
Selected Financial Data............. 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 24
</TABLE>
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PAGE
<S> <C>
Business............................ 35
Management.......................... 53
Certain Transactions................ 60
Principal and Selling
Stockholders...................... 63
Description of Capital Stock........ 64
Shares Eligible for Future Sale..... 67
Underwriting........................ 69
Legal Matters....................... 71
Experts............................. 71
Additional Information.............. 72
Index to Financial Statements....... F-1
</TABLE>
i
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PROSPECTUS SUMMARY
This summary highlights information appearing in other sections of this
prospectus. This summary is not complete and does not contain all of the
information you should consider before buying shares in this offering. You
should read this entire prospectus carefully. Unless otherwise indicated, all
information contained in this prospectus gives effect to the conversion of all
outstanding shares of our convertible preferred stock into common stock upon the
closing of this offering and assumes the underwriters' over-allotment option is
not exercised.
JNI CORP.
We are a leading designer and supplier of fibre channel hardware and
software products that connect servers and data storage devices to form storage
area networks, or SANs. SANs were made possible by the emergence of fibre
channel technology, a new generation of server to storage communications
technology that improves data communication speeds, connectivity, distance
between connections, reliability and accessability. Our fibre channel
development efforts began in 1993, and we shipped some of the first commercially
available fibre channel products in 1995. Throughout our history, we have
designed fibre channel products for the most demanding enterprise-level systems
running mission-critical applications. We currently market high-performance
application specific integrated circuits, or ASICs, based on our proprietary
technology, a broad range of fibre channel host bus adapters, or HBAs, and
software that facilitates advanced SAN device integration and management. Our
products provide flexibility, scalability and availability, as well as
manageability and superior performance in network storage systems.
In recent years, the volume of electronic data generated, processed, stored
and manipulated has expanded significantly as a result of the growth of
data-intensive applications such as transaction processing, data mining, data
warehousing, multimedia and Internet applications. International Data
Corporation, or IDC, estimates that the amount of stored network data grew from
10,000 terabytes in 1994 to 116,000 terabytes in 1998, and that it will increase
to 1,400,000 terabytes in 2002. With the dramatic increase in information
storage and data retrieval requirements, system performance has become
increasingly constrained by traditional I/O technologies, such as the currently
prevailing server to storage communications protocol small computer systems
interface, or SCSI. The lack of reliability of data delivery, the support for a
limited number of connections and the short transport distance that characterize
SCSI have limited the capabilities of traditional network storage architectures
and placed constraints on the size of the network. Fibre channel overcomes the
limitations of traditional data communications technologies, because it offers
the connectivity, distance and access benefits of networking architectures
combined with the high performance and quick response needed for data storage
applications. IDC forecasts that the market for products based on fibre channel
technology will grow from approximately $2.0 billion in 1998 to approximately
$15.0 billion by 2002.
We offer a broad range of fibre channel HBAs for the SAN market. Our
products can be used both with the SBus and peripheral component interconnect,
or PCI, interfaces and are deployable across a wide variety of network
configurations and operating systems. We have designed our ASICs to work in the
most demanding, high-end enterprise applications and offer what we believe is
the lowest available latency in complex switched environments. We were the first
in the industry to demonstrate products capable of sustained 2 gigabit per
second fibre channel transmissions. Our proprietary configuration and driver
software incorporates advanced features that significantly enhance and simplify
SAN device integration and management. We work closely with our customers to
tailor
1
<PAGE> 5
our products to their specific requirements by making software driver
modifications to optimize performance with our customers' products. Although our
fibre channel ASICs and HBAs find their primary application in SANs, they have
also been deployed for use with digital graphics, video networks and non-linear
digital editing systems in the advertising, broadcast and entertainment
industries as well as for high speed data processing applications in a variety
of industries including Internet service providers.
Our objective is to become the market leader in high-speed fibre channel
connectivity products for SANs and other applications by providing a family of
integrated ASIC, HBA and software products that exceed competitive offerings in
features, flexibility and price/ performance. Key elements of our strategy
include the following:
- focus exclusively on fibre channel;
- expand penetration of existing original equipment manufacturer, or OEM,
customers and leverage multiple distribution channels;
- provide customer-driven product functionality and high-quality customer
service and support to meet end-user needs;
- leverage fibre channel technology and quality leadership;
- promote the JNI brand; and
- establish and maintain strategic alliances and acquisitions.
We sell our products domestically and internationally primarily through OEM
and distribution channel customers including distributors, system integrators
and value-added resellers who sell directly to end-users. We have long-term
relationships and strategic alliances with many of our customers, including
Amdahl, AVID, Chaparral, Data General, EDS, EMC, Hitachi, McData and StorageTek.
End-users of our products include Amazon.com, Boeing, British Airways, Charles
Schwab, DaimlerChrysler, Federal Express, GTE, Lexis Nexis, Mobil, Morgan
Stanley and US WEST Capital Funding.
------------------------
Our principal offices are located at 9775 Towne Centre Drive, San Diego,
California 92121. Our telephone number is (858) 535-3121. Our website address is
www.jni.com. The information found on our website is not a part of this
prospectus.
2
<PAGE> 6
THE OFFERING
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Common stock offered:
By JNI.......................... shares
By the selling stockholder...... shares
---------------
Total........................ shares
Common stock to be outstanding
after this offering............. shares (see "Capitalization")
Use of proceeds................... We intend to use the estimated net proceeds of
$ that we receive from this offering
for the following purposes:
- repayment of indebtedness to Jaycor, Inc.,
an affiliate; and
- working capital and general corporate
purposes, including product development, sales
and marketing and potential acquisitions of
products, technologies or companies. See
"Use of Proceeds."
Proposed Nasdaq National Market
symbol.......................... JNIC
</TABLE>
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The shares of common stock outstanding after this offering exclude
9,834,630 shares of common stock reserved for issuance under our stock option
and stock purchase plans, of which 6,804,130 shares are subject to outstanding
options as of June 30, 1999 at a weighted average exercise price per share of
$0.66.
3
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The tables below summarize financial data of JNI set forth in more detail
in the financial statements at the end of this prospectus. The As Adjusted
Balance Sheet data as of June 30, 1999, has been adjusted to reflect (a) the
conversion of convertible preferred stock into common stock at the closing of
this offering, (b) the sale of shares of common stock by JNI at an
assumed initial public offering price of $ per share and (c) the application
of the net proceeds from such sale. See "Use of Proceeds." For more information
regarding the calculation of the number of shares used in per share
computations, see Note 1 to the Financial Statements included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
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1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................. $ 374 $ 2,903 $12,189 $ 3,826 $15,071
Gross margin.................. 26 1,651 6,828 2,096 9,627
Operating income (loss)....... (1,487) (1,054) 603 (166) 640
Net income (loss)............. (1,487) (1,184) 311 (284) 1,756
Earnings (loss) per common
share:
Basic...................... $ (2.48) $ (1.97) $ 0.52 $ (0.47) $ 2.93
Diluted.................... (2.48) (1.97) 0.01 (0.47) 0.06
Number of shares used in per
share computations:
Basic...................... 600 600 600 600 600
Diluted.................... 600 600 25,681 600 29,449
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
AS OF DECEMBER 31, --------------------
----------------------- AS
1996 1997 1998 ACTUAL ADJUSTED
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................. $325 $ (923) $(1,830) $ (390) $
Total assets..................... 446 1,900 7,814 12,713
Due to affiliate................. -- 1,950 3,061 5,220
Stockholders' equity (deficit)... 362 (740) 1,173 3,330
</TABLE>
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<PAGE> 8
RISK FACTORS
You should carefully consider the following risk factors and all of the
other information included in this prospectus before purchasing our common
stock. Investing in our common stock involves a high degree of risk. Additional
risks and uncertainties that are not yet identified or that we currently think
are immaterial may also materially adversely affect our business and financial
condition in the future. Any of the following risks could materially adversely
affect our business, operating results or financial condition and could result
in a complete loss of your investment.
WE HAVE A LIMITED OPERATING HISTORY AND A LIMITED HISTORY OF PROFITABILITY THAT
MAKE AN EVALUATION OF OUR BUSINESS DIFFICULT.
We commenced operations in 1993 as a division of Jaycor, Inc., and, as part
of a corporate reorganization of Jaycor in February 1997, we were incorporated
as a subsidiary of a newly-formed company named Jaymark, Inc., which also became
the parent of Jaycor in that reorganization transaction. We have only recently
begun to operate as an independent entity. While operating as a division of
Jaycor, we shipped our first commercially available fibre channel products in
1995, but we did not achieve operating income until the quarter ended September
30, 1998. Because we have a limited operating history, you must consider the
risks and difficulties frequently encountered by early stage companies such as
ours in new and rapidly evolving markets. Although our net revenues have grown
in recent quarters, we may not be able to sustain this growth, and we may not
realize sufficient net revenues to maintain profitability. In addition, because
of the competition in the fibre channel and SAN markets and the evolving nature
of these markets, sustaining profitability may be extremely challenging.
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND MAY CAUSE OUR STOCK PRICE TO
FLUCTUATE.
Our future revenues and operating results are likely to vary significantly
from quarter to quarter due to a number of factors, many of which are outside of
our control. Accordingly, you should not rely on quarter-to-quarter comparisons
of our operating results as an indication of future performance. It is possible
that in some future periods our operating results will be below the expectations
of public market analysts and investors. In this event, the price of our common
stock will likely decline. Factors which may cause our revenues and operating
results to fluctuate include the following:
- the size, timing and terms of customer orders;
- the relatively long sales and deployment cycles for our products,
particularly those sold through our OEM sales channels;
- changes in our operating expenses;
- changes in costs or availability of materials;
- our ability to develop new products and the market acceptance of such
products;
- the ability of our contract manufacturers to produce and distribute our
products in a timely fashion;
- the timing of the introduction or enhancement of products by us, our OEM
customers and our competitors;
- the level of product and price competition;
- our ability to expand our relationships with OEMs and distributors;
- activities of and acquisitions by our competitors;
- changes in technology and industry standards;
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<PAGE> 9
- changes in the mix of sales channels;
- personnel changes;
- changes in customer budgeting cycles; and
- general economic conditions.
Because our revenues in a given quarter depend substantially on orders
booked in that quarter, a decrease in the number of orders we receive is likely
to adversely and disproportionately affect our quarterly operating results. This
is because our expense levels are partially based on our expectations of future
sales, and our expenses may be disproportionately large as compared to sales in
a quarter with reduced orders. Hence, we may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. Any shortfall
in sales in relation to our quarterly expectations or any delay of customer
orders would likely have an immediate and adverse impact on our business,
quarterly operating results and financial condition.
BECAUSE WE FOCUS EXCLUSIVELY ON FIBRE CHANNEL PRODUCTS, OUR REVENUES WILL BE
LIMITED IF FIBRE CHANNEL TECHNOLOGY DOES NOT ACHIEVE WIDESPREAD MARKET
ACCEPTANCE.
The growth of the market for our products is dependent upon the broad
acceptance of fibre channel technology as an alternative to other technologies
traditionally utilized for network and storage communications. The fibre channel
market, while rapidly evolving and attracting an increasing number of market
participants, is still at an early stage of development. If the fibre channel
market fails to develop, develops more slowly than anticipated or attracts more
competitors than we expect, our business, operating results and financial
condition would be materially adversely affected. We cannot be certain that
fibre channel products will gain broader market acceptance or that customers
will choose our technology and products.
To achieve widespread market acceptance, fibre channel must supplant
current widely accepted alternative technologies such as SCSI. Because many
technology companies with SCSI-based product portfolios already have (a)
well-established relationships with our current and potential customers, (b)
extensive knowledge of the markets we serve, (c) better name recognition and (d)
extensive development, sales and marketing resources, it may be difficult to
convince customers to adopt fibre channel technology. If fibre channel does not
replace existing technologies such as SCSI in emerging applications such as SANs
or otherwise achieve broad market acceptance, our growth will be limited.
Additionally, new technologies, such as system input/output, or SIO, are
currently in development that may compete for market share with fibre channel if
they are successfully developed and commercialized. Because these competing new
technologies are likely to have support from technology companies with more
significant resources than we and other fibre channel companies have, they may
limit the growth of the fibre channel market and therefore our growth.
THE SAN MARKET IN WHICH WE COMPETE IS NEW AND UNPREDICTABLE, AND IF THIS MARKET
DOES NOT DEVELOP AND EXPAND AS WE ANTICIPATE, OUR BUSINESS WILL SUFFER.
The market for SANs and the related equipment, including the HBAs, ASICs
and management software that we offer, has only recently begun to develop and is
rapidly evolving. If this market does not develop as rapidly as we anticipate,
our operating results may be below the expectations of public market analysts
and investors, which would likely cause our stock price to decline. Because this
market is new, it is difficult to predict its potential size or future growth
rate. Our products are principally purchased for use in SANs. Accordingly,
widespread adoption of SANs as an integral part of data-intensive
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<PAGE> 10
enterprise computing environments is critical to our future success. Potential
end-users who have invested substantial resources in their existing data storage
and management systems may be reluctant or slow to adopt a new approach like the
SAN.
BECAUSE WE DEPEND ON A SMALL NUMBER OF OEM AND DISTRIBUTION CHANNEL CUSTOMERS
FOR A SIGNIFICANT PORTION OF OUR REVENUES IN EACH PERIOD, THE LOSS OF ANY OF
THESE CUSTOMERS OR ANY CANCELLATION OR DELAY OF A LARGE PURCHASE BY ANY OF THESE
CUSTOMERS COULD SIGNIFICANTLY REDUCE OUR NET REVENUES.
Historically, a limited number of OEMs and distribution channel customers
has accounted for a significant majority of our total net revenues in each
fiscal period. The loss of any of our key customers, or a significant reduction
in sales to those customers, could significantly reduce our net revenues. In the
six months ended June 30, 1999, our top five customers accounted for 65% of our
total net revenues, and, in the year ended December 31, 1998, our top five
customers accounted for approximately 57% of our total net revenues. In
particular, in the six months ended June 30, 1999, Polaris Service accounted for
15% of our net revenues, Data General accounted for 15% of our net revenues,
Info X, Inc. accounted for 14% of our net revenues and ACAL Electronic accounted
for 14% of our net revenues. We anticipate that our operating results in any
given period will continue to depend to a significant extent upon revenues from
a small number of customers.
In addition, because none of our customers are contractually obligated to
purchase any fixed amount of products from us in the future, they may stop
placing orders with us at any time, regardless of any forecast they may have
previously provided. If any of our large customers stop or delay purchases, our
revenues and profitability would be adversely affected, which could cause our
stock price to decline. We cannot be certain that we will retain our current OEM
or distribution channel customers or that we will be able to recruit additional
or replacement customers. As is common in an emerging technology industry, our
agreements with OEMs and distribution channel customers are typically
non-exclusive and often may be terminated by either party without cause.
Moreover, many of our OEM and distribution channel customers utilize or carry
competing product lines. If we were to suddenly lose one or more important OEM
or distribution channel customers to a competitor, our business, operating
results or financial condition could be materially adversely affected. Moreover,
some of our OEM customers could develop products internally that would replace
our products. The resulting reduction in sales of our products to any such OEM
customers, in addition to the increased competition presented by these
customers, could have a material adverse effect on our business, operating
results or financial condition.
CONTINUED RAPID GROWTH WILL STRAIN OUR OPERATIONS AND REQUIRE THAT WE INCUR
COSTS TO UPGRADE OUR INFRASTRUCTURE.
We have recently experienced a period of rapid growth and expansion which
has placed, and continues to place, a significant strain on our resources.
Unless we manage such growth effectively, we may make mistakes in operating our
business such as inaccurate sales forecasting, incorrect material planning or
inaccurate financial reporting, which may result in unanticipated fluctuations
in our operating results. Our management team has had limited experience
managing such rapidly growing companies on a public or private basis. We may not
be able to install adequate control systems in an efficient and timely manner,
and our current or planned personnel, systems, procedures and controls may not
be adequate to support our future operations.
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OUR OPERATING RESULTS MAY SUFFER BECAUSE OF INCREASING COMPETITION IN THE FIBRE
CHANNEL MARKET, AS WELL AS ADDITIONAL COMPETITION FROM ALTERNATIVE DATA STORAGE
SOLUTIONS.
The market in which we compete is intensely competitive. As a result, we
will face a variety of significant challenges, including rapid technological
advances, price erosion, changing customer preferences and evolving industry
standards. Our competitors continue to introduce products with improved
price/performance characteristics, and we will have to do the same to remain
competitive. Increased competition could result in significant price
competition, reduced revenues, lower profit margins or loss of market share, any
of which would have a material adverse effect on our business, operating results
and financial condition. We cannot be certain that we will be able to compete
successfully against either current or potential competitors in the future.
Many of our current and potential competitors have substantially greater
financial, technical, marketing and distribution resources than we have. We face
the threat of potential competition from new entrants into the fibre channel
market, including large technology companies who may develop or acquire
differentiating technology and then apply their resources, including established
distribution channels and brand recognition, to obtain significant market share.
It is also possible that we will face increased competition due to mergers or
consolidations of existing or potential competitors. Emerging companies
attempting to obtain a share of the existing market act as potential competition
as well. We face competition for our ASICs from Hewlett-Packard and QLogic. Sun
Microsystems is our principal competitor in the SBus HBA market. Our principal
competitors in the PCI bus HBA market are Emulex, QLogic, Interphase and
Hewlett-Packard. Our products may also compete at the end-user level with other
technology alternatives, such as SCSI, which are available from companies such
as Adaptec, LSI Logic and QLogic, as well as a number of smaller companies.
Further, businesses that implement SANs may select fully-integrated SAN systems
that are offered by large technology companies such as IBM and Hewlett-Packard.
Because such systems do not interoperate with products from independent, open
system suppliers like us, customers who invest in these systems will be less
likely to purchase our products. Other technologies designed to address the
applications served by fibre channel today are under development, and because we
focus exclusively on fibre channel, our business would suffer as a result of
competition from such competing technologies.
BECAUSE WE HAVE OPERATED AS A SUBSIDIARY WITHIN A CONSOLIDATED GROUP, OUR
HISTORICAL RESULTS MAY NOT BE REPRESENTATIVE OF OUR RESULTS AS A SEPARATE
COMPANY, AND WE MUST IMPLEMENT SYSTEMS AND HIRE PERSONNEL TO OPERATE AS AN
INDEPENDENT COMPANY. IF WE DO NOT EFFECTIVELY MANAGE THIS TRANSITION, OUR
BUSINESS MAY SUFFER.
JNI was formed as a subsidiary of Jaymark, Inc. in February 1997. Prior to
that time, our operations were conducted as a division of Jaycor, which is also
currently a subsidiary of Jaymark. We have recently taken steps to separate our
operations from those of Jaymark and its affiliates, including plans to
implement financial and accounting systems and the hiring of new management
personnel. Because we have limited experience in operating as an independent
company, we may fail to manage this transition effectively. The financial
information included in this prospectus may not necessarily reflect our
operating results, financial position and cash flows in the future or what the
operating results, financial position and cash flows would have been had we been
a separate, stand-alone entity during the periods presented. Any such failure
could adversely affect our business, financial condition or operating results.
We have historically relied upon Jaycor for many operational functions,
including payroll, employee benefits and insurance, which we are now
transitioning to JNI personnel. Our financial and accounting systems will
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continue to be integrated with and managed by Jaycor through the fiscal quarter
ending December 31, 1999, and it is possible that we will not complete the
transition to our own financial and accounting systems according to schedule. We
also currently rely on our revolving credit agreement with Jaycor for our
working capital, and our insurance coverage is integrated with Jaycor's. We
intend to establish our own credit and insurance arrangements in the near
future, but such arrangements may not be available to us on commercially
reasonable terms, or at all.
IN OUR INDUSTRY, TECHNOLOGY AND OTHER STANDARDS CHANGE RAPIDLY, AND WE MUST KEEP
PACE WITH THE CHANGES TO COMPETE SUCCESSFULLY.
The market for our products is characterized by rapidly changing
technology, evolving industry standards and the frequent introduction of new
products and enhancements. If we do not keep pace with these changes, we may
lose market share to our competitors and fail to meet our financial and
operational objectives. Because our products are designed to work with software
produced by third parties, our operating results could be adversely affected if
such third parties delay introduction of new versions of their software for
which we have designed new products or if they make unanticipated modifications
to such software. Our future success depends in a large part on our ability to
enhance our existing products and to introduce new products on a timely basis to
meet changes in customer preferences and evolving industry standards. We cannot
be certain that we will be successful in designing, supplying and marketing new
products or product enhancements that respond to such changes in a timely manner
and achieve market acceptance. We also cannot be certain that we will be able to
develop the underlying core technologies necessary to create new products and
enhancements, or that we will be able to license the core technologies from
third parties. Additionally, changes in technology and customer preferences
could potentially render our current products uncompetitive or obsolete. If we
are unable, for technological or other reasons, to develop new products or
enhance existing products in a timely manner in response to technological and
market changes, our business, operating results and financial condition would be
materially adversely affected.
A key element of our business strategy is to continually develop new fibre
channel controller ASICs to increase our product offering, improve system
performance and reduce manufacturing costs. We believe that developing
proprietary ASICs enhances the price/performance of our products and enables us
to increase our customer base and the market acceptance of our products. We
cannot be certain that we will be successful at developing ASICs effectively and
in a timely manner.
THE SALES CYCLE FOR OUR PRODUCTS IS LONG, AND WE MAY INCUR SUBSTANTIAL,
NON-RECOVERABLE EXPENSES OR DEVOTE SIGNIFICANT RESOURCES TO SALES THAT DO NOT
OCCUR WHEN ANTICIPATED.
Our sales cycle, particularly to OEMs, typically involves a lengthy
qualification cycle during which we generally invest significant resources in
addressing customer specifications. Because of the length of the sales cycle, we
may experience a delay between increasing expenses for research and development
and sales and marketing efforts and the generation of higher revenues, if any,
from such expenditures. The purchase of our products or of solutions that
incorporate our products typically involves significant internal procedures
associated with the evaluation, testing, implementation and acceptance of new
technologies. This evaluation process frequently results in a lengthy sales
process, typically ranging from three months to longer than a year, and subjects
the sales cycle associated with the purchase of our products to a number of
significant risks, including budgetary constraints and internal acceptance
reviews. The length of our sales cycle also varies substantially from customer
to customer.
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<PAGE> 13
THE FAILURE OF OUR OEM CUSTOMERS TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE
AND TO SUCCESSFULLY DEVELOP AND INTRODUCE NEW PRODUCTS COULD ADVERSELY AFFECT
OUR NET REVENUES.
Our ability to generate increased revenues depends significantly upon the
ability and willingness of our OEM customers to develop and promote products on
a timely basis that incorporate our technology. If our OEM customers do not
successfully develop and market the solutions which incorporate our products,
then sales of our products to the OEM customers will be adversely affected. The
ability and willingness of OEM customers to develop and promote such products is
based upon a number of factors, such as:
- the timely development by us and our OEM customers of new products with
new functionality, increased speed and enhanced performance at acceptable
prices;
- the development costs facing our OEM customers;
- the compatibility of new products with both existing and emerging
industry standards;
- technological advances;
- intellectual property issues; and
- competition in general.
We cannot be certain of the ability or willingness of our OEM customers to
continue developing, marketing and selling products that incorporate our
technology. Our business depends on our relationships with our OEM and
distribution channel customers, so the inability or unwillingness of any of our
significant customers to develop or promote products that use our technology
would have a material adverse effect on our business, operating results and
financial condition. While we have secured numerous design wins for our fibre
channel products from OEM customers, nearly all of these customers are still at
the very early stages of initial commercial shipments or at the developmental
stage of incorporating fibre channel into their systems. Only a limited number
of OEM customers are in full commercial production of products that incorporate
our products. If our developmental and early stage customers are unable to or
otherwise do not ship systems that incorporate our products, or if their shipped
systems are not commercially successful, our business, operating results or
financial condition could be materially adversely affected.
WE EXPECT THE AVERAGE SELLING PRICES OF OUR PRODUCTS TO CONTINUE TO DECREASE
RAPIDLY, WHICH MAY REDUCE GROSS MARGINS OR REVENUES.
The market for fibre channel products has experienced rapid erosion of
average selling prices due to a number of factors, including competitive pricing
pressures and rapid technological change. We may experience substantial
period-to-period fluctuations in future operating results due to the erosion of
our average selling prices. We anticipate that the average selling prices of our
products will decrease in the future in response to competitive pricing
pressures, increased sales discounts, new product introductions by us or our
competitors or other factors. Therefore, to maintain our gross margins, we must
develop and introduce on a timely basis new products and product enhancements
and continually reduce our product costs. Our failure to do so would cause our
revenue and gross margins to decline, which could materially adversely affect
our operating results and cause the price of our common stock to decline.
DELAYS IN PRODUCT DEVELOPMENT COULD ADVERSELY AFFECT OUR MARKET POSITION OR
CUSTOMER RELATIONSHIPS.
We have experienced delays in product development in the past and may
experience similar delays in the future. Given the short product life cycles in
the markets for our
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<PAGE> 14
products, any delay or unanticipated difficulty associated with new product
introductions or product enhancements could cause us to lose customers and
damage our competitive position. Prior delays have resulted from numerous
factors, such as:
- changing OEM product specifications;
- difficulties in hiring and retaining necessary personnel;
- difficulties in reallocating engineering resources and other resource
limitations;
- difficulties with independent contractors;
- changing market or competitive product requirements;
- unanticipated engineering complexity;
- undetected errors or failures in software and hardware; and
- delays in the acceptance or shipment of products by OEM customers.
BECAUSE WE RELY ON THIRD PARTIES FOR SUBSTANTIALLY ALL OF OUR MANUFACTURING AND
ASSEMBLY, FAILURES BY THESE THIRD PARTIES TO PROVIDE PRODUCTS OF SUFFICIENT
QUALITY AND QUANTITY COULD CAUSE US TO DELAY PRODUCTS SHIPMENTS, WHICH COULD
RESULT IN DELAYED OR LOST REVENUES OR CUSTOMER DISSATISFACTION.
Taiwan Semiconductor Manufacturing Company, or TSMC, manufactures our
Emerald ASICs, and Adaptec packages and tests these ASICs so that we purchase
and receive only finished products. SCI Systems in Rapid City, South Dakota, and
SMS in Escondido, California perform substantially all assembly operations for
our HBAs. We have no direct contractual relationship with TSMC and no long term
contracts with SCI or SMS. Accordingly, our major suppliers, other than Adaptec,
are not obligated to supply products to us for any specific period, or in any
specific quantity, except as may be provided in a particular purchase order, and
Adaptec's ability to meet its obligations to us depends on the ability of third
parties, including TSMC, to supply sufficient quantity and quality of
components. If any of our third-party manufacturers experiences delays,
disruptions, capacity constraints or quality control problems in its
manufacturing operations, then products shipments to our customers could be
delayed, which would negatively impact our net revenues, competitive position
and reputation.
Further, our business would be harmed if we fail to effectively manage the
manufacture of our products. Because we place orders with our manufacturers
based on our forecasts of expected demand for our products, if we inaccurately
forecast demand, we may be unable to obtain adequate manufacturing capacity or
adequate quantities of components to meet our customers' delivery requirements,
or we may accumulate excess inventories.
We may in the future need to find new contract manufacturers in order to
increase our volumes or to reduce our costs. Our manufacturing agreement with
Adaptec expires in November 2000. We may not be able to find contract
manufacturers that meet our needs, and even if we do, qualifying a new contract
manufacturer and commencing volume production is expensive and time consuming.
If we are required or elect to change contract manufacturers, we may lose
revenues, and our customer relationships may suffer.
BECAUSE WE DEPEND ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR KEY
COMPONENTS, WE ARE SUSCEPTIBLE TO SUPPLY SHORTAGES THAT COULD ADVERSELY AFFECT
OUR OPERATING RESULTS.
We rely on third-party suppliers for components which are used in our
products, and we have experienced delays or difficulty in securing components in
the past. Key components that we use in our products may only be available from
single sources with
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<PAGE> 15
which we do not have long-term contracts. In particular, Hewlett-Packard is
currently the sole supplier of certain components in certain of our SBus HBAs.
The components we use for our products are based on an emerging technology and
may not be available with the performance characteristics or in the quantities
that we require. Any inability to supply products due to a lack of components or
to redesign products to incorporate alternative components in a timely manner
could materially adversely affect our business, operating results or financial
condition.
BECAUSE A SIGNIFICANT PORTION OF OUR PRODUCTS IS DESIGNED TO WORK WITH HIGH-END
SERVERS FROM SUN MICROSYSTEMS AND STORAGE ARRAYS FROM EMC, OUR BUSINESS COULD
SUFFER IF SUN OR EMC DISCONTINUES PRODUCTION OF SUCH EQUIPMENT OR IF WE FAIL TO
DEVELOP PRODUCTS THAT WORK EFFECTIVELY WITH SUCH EQUIPMENT.
Our HBAs have achieved their greatest market acceptance in computing
environments built with servers from Sun Microsystems due to our products'
interoperability with the Sun Solaris operating system and the SBus interface
developed and promoted by Sun. A significant portion of our products is
currently used to connect high-end Sun servers that incorporate SBus interfaces
to SANs. In addition, a significant portion of our HBAs are used to form
connections to storage arrays manufactured by EMC. Accordingly, we depend to a
certain extent upon the increased market penetration of Sun and EMC systems and
our ability to continue to develop products that interoperate effectively in Sun
and EMC environments. Sun has announced its intention to phase out production of
servers with the SBus interface. Accordingly, we anticipate that the percentage
of our revenues attributable to sales of our SBus HBAs will decline over time.
If Sun accelerates its phase out of such workstations, our business would suffer
due to decreased sales of SBus HBAs.
BECAUSE OUR INTELLECTUAL PROPERTY IS CRITICAL TO THE SUCCESS OF OUR BUSINESS,
OUR OPERATING RESULTS WOULD SUFFER IF WE WERE UNABLE TO ADEQUATELY PROTECT OUR
INTELLECTUAL PROPERTY.
We currently rely on a combination of copyrights, trademarks, trade secret
laws and contractual provisions to establish and protect our intellectual
property rights in our products. We cannot be certain that the steps we take to
protect our intellectual property will adequately protect our proprietary
rights, that others will not independently develop or otherwise acquire
equivalent or superior technology or that we can maintain such technology as
trade secrets. In addition, the laws of some of the countries in which our
products are or may be developed, manufactured or sold may not protect our
products and intellectual property rights to the same extent as the laws of the
United States, or at all. Our failure to protect our intellectual property
rights could have a material adverse effect on our business, operating results
or financial condition.
WE MAY BECOME INVOLVED IN COSTLY AND LENGTHY PATENT INFRINGEMENT OR INTELLECTUAL
PROPERTY LITIGATION WHICH COULD SERIOUSLY HARM OUR BUSINESS.
We occasionally receive communications from third parties alleging patent
infringement, and there is the chance that third parties may assert infringement
claims against us. Any such claims, with or without merit, could result in
costly and time-consuming litigation or cause product shipment delays which
would adversely affect our business, financial condition or operating results.
It is possible that patent holders will assert patent rights which apply broadly
to our industry, and that such patent rights, if valid, may apply to our
products or technology. These or other claims may require us to stop using the
challenged intellectual property or to enter into royalty or licensing
agreements. We cannot be certain that the necessary licenses will be available
or that they can be obtained on
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<PAGE> 16
commercially reasonable terms. If we were to fail to obtain such royalty or
licensing agreements in a timely manner or on reasonable terms, our business,
operating results or financial condition could be materially adversely affected.
THE LOSS OF OR FAILURE TO ATTRACT KEY TECHNICAL PERSONNEL COULD ADVERSELY AFFECT
OUR BUSINESS.
Our success depends to a significant degree upon the performance and
continued service of engineers involved in the development of our fibre channel
technology and technical support of products and customers. Our future success
depends upon our ability to attract, train and retain such personnel. We will
need to increase the number of technical staff members with experience in high
performance ASIC design as we further develop our product line. In addition, we
are currently seeking to hire additional skilled development engineers who are
currently in short supply. Competition for such highly skilled employees in our
industry is intense, and we cannot be certain that we will be successful in
recruiting or retaining such personnel. In addition, employees may leave our
company and subsequently compete against us. The loss of these key technical
employees could have a material adverse effect on our business, operating
results and financial condition.
IN ORDER TO MEET OUR OBJECTIVES, WE MUST ATTRACT AND RETAIN QUALIFIED PERSONNEL,
AND THE FAILURE TO DO SO COULD LIMIT OUR GROWTH.
In addition to our reliance on key technical personnel, our success depends
to a significant degree upon the continued contributions of our key management,
sales and marketing and manufacturing personnel, many of whom would be difficult
to replace. We do not maintain key person life insurance on any of these
personnel, and we do not have employment agreements with any of these personnel
obligating them to continue to provide services to JNI. If we lose key
personnel, we may have difficulties in identifying suitable replacements or in
reallocating their responsibilities, either of which would place an additional
strain on our resources and could adversely affect our business, operating
results or financial condition.
We also believe that our success depends to a significant extent on the
ability of our key personnel to operate effectively, both individually and as a
group. Many of our employees have only recently joined us, and we intend to
expand our employee base significantly. If we are unable to identify, hire and
integrate new employees in a timely and cost-effective manner, our operating
results may suffer.
OUR EXPORT SALES SUBJECT US TO RISKS THAT COULD ADVERSELY AFFECT OUR BUSINESS.
Export sales accounted for 20% of our net revenues in the six months ended
June 30, 1999, compared to 15% of net revenues in 1998 and 23% of net revenues
in 1997. Accordingly, we encounter risks inherent in international operations.
Because all of our sales are currently denominated in U.S. dollars, if the value
of the U.S. dollar increases relative to foreign currencies, our products could
become less competitive in international markets. Our export sales could also be
limited or disrupted by any of the following factors:
- restrictions on the export of technology;
- longer accounts receivable payment cycles;
- reduced and limited protections of intellectual property rights;
- trade restrictions; and
- changes in tariffs.
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<PAGE> 17
FAILURE TO COMPLY WITH GOVERNMENTAL REGULATIONS BY US OR OUR OEM CUSTOMERS COULD
REDUCE OUR SALES OR REQUIRE DESIGN MODIFICATIONS.
Our products are subject to U.S. Department of Commerce and Federal
Communications Commission regulations as well as various standards established
by authorities in other countries. Failure to comply with existing or evolving
U.S. or foreign governmental regulation or to obtain timely domestic foreign
regulatory approvals or certificates could materially harm our business by
reducing our sales or requiring design modifications to our products or the
products of our OEM customers. Neither we nor our customers may export such
products without obtaining an export license. U.S. export laws also prohibit the
export of our products to a number of countries deemed by the United States to
be hostile. These restrictions may make foreign competitors facing less
stringent controls on their products more competitive in the global market than
we or our customers are. The U.S. government may not approve any pending or
future export license requests. In addition, the list of products and countries
for which export approval is required, and the regulatory policies with respect
thereto, could be revised.
OUR PRODUCTS ARE COMPLEX AND MAY CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS
THAT COULD LEAD TO AN INCREASE IN OUR COSTS, REDUCE OUR NET REVENUES OR DAMAGE
OUR REPUTATION.
Products as complex as ours frequently contain undetected software or
hardware errors when first introduced or as new versions are released. We have
from time to time found errors in existing products, and we may from time to
time find errors in our existing, new or enhanced products. The occurrence of
hardware or software errors could adversely affect sales of our products, cause
us to incur significant warranty and repair costs, divert the attention of our
engineering personnel from our product development efforts and cause significant
customer relations problems.
OUR FAILURE, OR THE FAILURE OF OUR KEY SUPPLIERS, TO ADEQUATELY PREPARE FOR THE
YEAR 2000 ISSUE COULD INTERRUPT OUR BUSINESS OR CAUSE OUR REVENUES TO DECLINE.
Many existing computer systems and applications use two digits rather than
four to define the applicable year. These programs were designed without
considering the impact of the upcoming change in the century. If such programs
are not corrected, many computer systems could fail or create erroneous results
at or beyond the year 2000. We consider a product to be "Year 2000 compliant" if
the product's performance and functionality are unaffected by the processing of
dates prior to, during and after the year 2000. We believe that our current
products are all Year 2000 compliant.
Although we have initially assessed how we may be impacted by the Year 2000
and have commenced implementation of a detailed plan to address certain aspects
of the Year 2000 problem, we have not completed this plan and cannot be certain
to what extent we may be impacted by the Year 2000 problem. We believe our
greatest risks related to the Year 2000 issue involve our relationships with
critical third party suppliers and service providers. Potential impacts include
an interrupted product flow from critical suppliers due to their Year 2000
interruptions and potential infrastructure collapse such as interruptions in
public utilities, electricity or telecommunications. Any of the foregoing risks,
as well as the fruition of a combination of lesser risks, could adversely impact
our business, financial condition or operating results. We have formulated
contingency plans scheduled for completion by November 1, 1999 to mitigate or
reduce these risks. However, because many third party service providers such as
the public utilities are not controlled by JNI, it is possible that our
contingency plans will not be adequate. For a more complete description of our
plans with respect to Year 2000 compliance, please see "Management's
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<PAGE> 18
Discussion and Analysis of Financial Condition and Results of Operations--The
Year 2000 Issue."
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE, AND FINANCING MAY NOT BE
AVAILABLE.
We currently anticipate that our available capital resources, combined with
the net proceeds from this offering and cash flows from operations, will be
sufficient to meet our expected working capital and capital expenditure
requirements for at least the next 12 months. However, we cannot assure you that
such resources will be sufficient. We may need to raise additional funds through
public or private debt or equity financings in order to:
- take advantage of unanticipated opportunities or acquisitions of
complementary businesses or technologies;
- develop new products;
- purchase additional manufacturing capacity; or
- respond to unanticipated competitive pressures.
We may also raise additional funds through public or private debt or equity
financings if such financings become available on favorable terms, but such
financings would likely dilute our stockholders. We cannot assure you that any
additional financing we may need will be available on terms favorable to us, or
at all. If adequate funds are not available or are not available on acceptable
terms, we may not be able to take advantage of unanticipated opportunities,
develop new products or otherwise respond to competitive pressures. In any such
case, our business, operating results or financial condition could be materially
adversely affected.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS' EQUITY AND
CAUSE US TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES.
We may pursue acquisitions that could provide new technologies or products.
Future acquisitions may involve the use of significant amounts of cash,
potentially dilutive issuances of equity or equity-linked securities, the
incurrence of debt, or the amortization expenses related to goodwill and other
intangible assets.
In addition, acquisitions involve numerous risks, including:
- difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired company;
- the diversion of management's attention from other business concerns;
- risks of entering markets in which we have no or limited prior
experience; and
- the potential loss of key employees of the acquired company.
We currently have no commitments or agreements with respect to any such
acquisition. In the event that such an acquisition does occur and we are unable
to successfully integrate businesses, products, technologies or personnel that
we acquire, our business, operating results or financial condition could be
materially adversely affected.
YOU WILL SUFFER DILUTION IN THE VALUE OF YOUR SHARES.
Investors in this offering will incur immediate and substantial dilution in
the net tangible book value per share of our common stock. See "Dilution" for
more information regarding the amount of dilution you will suffer.
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<PAGE> 19
OUR STOCK PRICE MAY BE VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES
AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.
The stock market in general, and the stock prices of technology-based
companies in particular, have experienced extreme volatility that often has been
unrelated to the operating performance of any specific public company. Prior to
this offering, there has not been a public market for our common stock. We
cannot predict the extent to which investor interest in JNI will lead to the
development of a trading market or how liquid that market might become. The
initial public offering price for the shares will be determined by negotiations
between us and the representatives of the underwriters and may not be indicative
of prices that will prevail in the trading market. Any of the following factors
could have a significant impact on the market price of our common stock:
- quarterly variations in our operating results;
- announcements of new products by us or our competitors;
- the gain or loss of significant customers;
- changes in analysts' earnings estimates;
- pricing pressures;
- the loss of key personnel;
- short-selling of our common stock;
- general conditions in the computer, storage or communications markets; or
- events affecting other companies that investors deem to be comparable to
us.
Investors may be unable to resell their shares of our common stock at or
above the offering price. In the past, companies that have experienced
volatility in the market price of their stock have been the subject of
securities class action litigation. If we were the subject of securities class
action litigation, it could result in substantial costs and a diversion of
management's attention and resources.
JAYMARK, INC. WILL BE ABLE TO CONTROL ANY STOCKHOLDER VOTES.
Upon completion of this offering, Jaymark will continue to beneficially own
more than a majority of our outstanding common stock. As a result, Jaymark will
be able to determine the outcome of all corporate actions requiring stockholder
approval. Because Jaymark has the ability to control us, it has the power to act
without taking the best interests of our company into consideration. For
example, Jaymark will continue to exercise significant influence over decisions
with respect to the following:
- the direction and policies of our company, including the election and
removal of directors;
- mergers or other business combinations involving us;
- amendments to our certificate of incorporation or bylaws; and
- future issuances of our common stock or other securities.
Any of these powers could be used by Jaymark for its own advantage to the
detriment of our other stockholders and our company. This in turn may have an
adverse effect on the price of our common stock.
WE DO NOT PLAN TO PAY CASH DIVIDENDS ON OUR COMMON STOCK.
We have never paid cash dividends on our common stock and do not anticipate
paying any cash dividends in the foreseeable future. We intend to retain future
earnings, if any, to finance the growth and expansion of our business and for
general corporate purposes.
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SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET BY EXISTING INVESTORS MAY BEGIN
180 DAYS AFTER COMPLETION OF THE OFFERING AND COULD CAUSE OUR STOCK PRICE TO
DECLINE.
Our current stockholders, Jaymark, Inc. and Adaptec, Inc., hold a
substantial number of shares, which they will be able to sell in the public
market in the near future. Jaymark may also distribute the shares of our common
stock that it holds to its stockholders, who could then be eligible to sell such
shares in the public market. In addition, our employees hold options to purchase
a large number of shares, and they will also be able to sell the shares they may
acquire upon exercise of those options in the near future. Sales of a
substantial number of shares of our common stock after this offering could cause
our stock price to decline. In addition, the sale of these shares could impair
our ability to raise capital through the sale of additional stock. You should
read "Shares Eligible for Future Sale" for a full discussion of shares that may
be sold in the public market in the future.
MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF THE NET PROCEEDS OF THIS
OFFERING AND MAY FAIL TO USE SUCH FUNDS EFFECTIVELY.
We intend to use the net proceeds from the sale of the common stock offered
hereby for continued development and manufacture of existing products, research
and development of additional products and working capital and general corporate
purposes, including possible acquisitions of products, technologies or
companies. Accordingly, management will have significant flexibility in applying
the net proceeds of this offering. The failure of management to apply such funds
effectively could have a material adverse effect on our business, operating
results or financial condition.
DELAWARE LAW COULD ADVERSELY AFFECT THE PERFORMANCE OF OUR STOCK.
The Delaware General Corporation Law could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders. Certain provisions of Delaware law are intended to encourage
potential acquirers to negotiate with us and allow our board of directors the
opportunity to consider alternative proposals in the interest of maximizing
stockholder value. However, such provisions may also discourage acquisition
proposals or delay or prevent a change in control, which could harm our stock
price.
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FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements," which may include
the following:
- our business strategy;
- the timing of and plans for the introduction of new products and
enhancements;
- plans for hiring additional personnel;
- anticipated growth in the market for fibre channel products;
- entering into strategic alliances; and
- the adequacy of anticipated sources of funds, including the proceeds from
this offering, to fund our operations for at least the 12 months
following the date of this prospectus.
Other statements about our plans, objectives, expectations and intentions
contained in this prospectus that are not historical facts may also be
forward-looking statements. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, actual
results could differ materially from those expressed or implied by these
forward-looking statements for a number of reasons, including those discussed
under "Risk Factors" and elsewhere in this prospectus. We assume no obligation
to update any forward-looking statements.
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USE OF PROCEEDS
The net proceeds to JNI from the sale of the shares of common stock
we are offering will be approximately $ million, assuming an initial
public offering price of $ per share, after deducting estimated underwriting
discounts and commissions and estimated offering expenses. JNI will not receive
any proceeds from the sale of shares in this offering by the selling
stockholder.
We intend to use the net proceeds of this offering for:
- repayment of indebtedness to Jaycor; and
- working capital and other general corporate purposes, including product
development, sales and marketing and potential acquisitions of products,
technologies or companies.
While we from time to time engage in preliminary discussions with respect
to acquisitions, we are not currently a party to any agreements, understandings
or commitments with respect to such transactions. Pending the uses described
herein, we will invest the net proceeds in short-term, interest bearing,
investment grade securities.
Borrowings under our revolving loan agreement with Jaycor bear interest at
a floating rate equal to Jaycor's incremental cost of borrowing (13.5% as of
June 30, 1999). Advances under the agreement are due on demand, and if no demand
is made, within ten years of the date of each advance. At June 30, 1999, we owed
Jaycor $5.2 million for advances made under this agreement. The amounts advanced
under this agreement were used for working capital purposes and acquisition of
fixed assets.
Based on our current operating plan, we anticipate that the net proceeds of
this offering, together with expected interest income and funds from operations,
should be sufficient to finance our capital requirements for at least the next
12 months. This estimate is based on assumptions that could be negatively
impacted by the matters discussed in "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and
do not anticipate paying such cash dividends in the foreseeable future. We
currently anticipate that we will retain all of our future earnings for use in
the development and expansion of our business and for general corporate
purposes. Any determination to pay dividends in the future will be at the
discretion of our board of directors and will depend upon our operating results,
financial condition and other factors as the board of directors, in its
discretion, deems relevant.
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CAPITALIZATION
The following table sets forth the capitalization of JNI as of June 30,
1999. The As Adjusted column gives effect to (a) the conversion of each
outstanding share of convertible preferred stock into a share of common stock
upon the closing of this offering, (b) the receipt of the net proceeds from the
sale of shares of common stock at an assumed initial public
offering price of $ per share, and (c) the application of such net proceeds.
The table reflects none of the 6,804,130 shares of common stock issuable upon
exercise of outstanding options at June 30, 1999 at a weighted average exercise
price per share of $0.66. See "Management--Stock Option Plans."
This table should be read in conjunction with our Financial Statements and
the related notes included elsewhere in this prospectus. Also see "Use of
Proceeds" and "Certain Transactions."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Short-term debt -- due to affiliate.................... $ 5,220 $ 0
======= ===
Stockholders' equity:
Preferred stock, par value $0.001 per share:
35,000,000 shares authorized and 25,318,421 shares
issued and outstanding, actual; 5,000,000 shares
authorized and no shares issued and outstanding,
as adjusted....................................... $ 25 $
Common stock, par value $0.001 per share: 43,000,000
shares authorized and 600,000 shares issued and
outstanding, actual; 100,000,000 shares authorized
and shares issued and outstanding, as
adjusted.......................................... 1
Additional paid-in capital............................. 6,790
Unearned stock-based compensation...................... (1,940)
Accumulated deficit.................................... (1,546)
------- ---
Total stockholders' equity...................... 3,330
------- ---
Total capitalization............................ $ 3,330 $
======= ===
</TABLE>
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DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$2,807,000, or $0.11 per share. Pro forma net tangible book value per share
represents the amount of JNI's pro forma stockholders' equity, less intangible
assets, divided by the pro forma number of shares of common stock outstanding as
of June 30, 1999 after giving effect to the automatic conversion of all
convertible preferred stock into common stock upon closing of this offering. The
as adjusted pro forma net tangible book value of JNI as of June 30, 1999 would
have been $ , or $ per share, after giving effect to the sale
of shares of common stock offered by JNI at an assumed initial public
offering price of $ per share after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us. The
foregoing discussion assumes no exercise of outstanding options, and, to the
extent these options are exercised, investors in this offering will suffer
further dilution.
This represents an immediate increase in pro forma net tangible book value
of $ per share to existing stockholders and an immediate dilution in pro
forma net tangible book value of $ per share to investors purchasing common
stock in this offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before this
offering............................................... $0.11
Increase per share attributable to new investors..........
As adjusted pro forma net tangible book value per share
after this offering.......................................
Dilution per share to new investors.........................
</TABLE>
The table below summarizes, on a pro forma basis, the differences between
the existing stockholders and the new investors purchasing common stock in this
offering with respect to (a) the total number of shares purchased from JNI, (b)
the total consideration paid and (c) the average price per share paid (based
upon an assumed initial public offering price of $ per share).
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED ---------------------------------------
--------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PAID PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 25,918,421 % $4,440,000 % $0.17
New investors................
--- ---
Total........................ 100% 100%
</TABLE>
21
<PAGE> 25
SELECTED FINANCIAL DATA
The following selected financial data of JNI presented below as of and for
the years ended December 31, 1994, 1995, 1996, 1997 and 1998 and as of and for
the six-month periods ended June 30, 1998 and 1999 are derived from the
financial statements of JNI. The financial statements as of December 31, 1997
and 1998 and for each of the three years in the period ended December 31, 1998
have been audited and are included elsewhere in this prospectus. The selected
financial data as of December 31, 1994, 1995 and 1996 and as of June 30, 1999
and for the years ended December 31, 1994 and 1995 and for the six-month periods
ended June 30, 1998 and 1999 are unaudited, have been prepared on the same basis
as the audited financial statements and, in our opinion, reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial information in accordance with generally accepted
accounting principles. The selected financial data set forth below contains only
a portion of JNI's financial statements, and should be read in conjunction with
the Financial Statements and related Notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus. In particular, see Note 1 to Financial Statements for an
explanation of the calculations of earnings (loss) per share and per share
amounts.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.......................... $ 35 $ 74 $ 374 $ 2,903 $12,189 $3,826 $15,071
Cost of revenues...................... 32 53 348 1,252 5,361 1,730 5,444
------ ------ ------- ------- ------- ------ -------
Gross margin........................ 3 21 26 1,651 6,828 2,096 9,627
Operating expenses:
Research and development............ 150 381 510 1,202 2,919 1,069 4,965
Selling and marketing............... 57 161 532 681 1,526 668 2,036
General and administrative.......... 144 73 471 822 1,698 525 1,475
Amortization of intangible assets... -- -- -- -- 47 -- 110
Amortization of stock-based
compensation..................... -- -- -- -- 35 -- 401
------ ------ ------- ------- ------- ------ -------
Total operating expenses......... 351 615 1,513 2,705 6,225 2,262 8,987
------ ------ ------- ------- ------- ------ -------
Operating income (loss)............... (348) (594) (1,487) (1,054) 603 (166) 640
Interest expense...................... -- -- -- 130 265 118 289
------ ------ ------- ------- ------- ------ -------
Income (loss) before income taxes..... (348) (594) (1,487) (1,184) 338 (284) 351
Income tax provision (benefit)........ -- -- -- -- 27 -- (1,405)
------ ------ ------- ------- ------- ------ -------
Net income (loss)..................... $ (348) $ (594) $(1,487) $(1,184) $ 311 $ (284) $ 1,756
====== ====== ======= ======= ======= ====== =======
Earnings (loss) per common share:
Basic................................. $(0.58) $(0.99) $ (2.48) $ (1.97) $ 0.52 $(0.47) $ 2.93
====== ====== ======= ======= ======= ====== =======
Diluted............................... $(0.58) $(0.99) $ (2.48) $ (1.97) $ 0.01 $(0.47) $ 0.06
====== ====== ======= ======= ======= ====== =======
Pro forma basic(1)....................
Pro forma diluted(1)..................
Number of shares used in per share
computations:
Basic(2).............................. 600 600 600 600 600 600 600
Diluted(2)............................ 600 600 600 600 25,681 600 29,449
Pro forma basic(1)....................
Pro forma diluted(1)..................
</TABLE>
22
<PAGE> 26
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $ 3 $178 $325 $(923) $(1,830) $ (390)
Total assets............................... 22 259 446 1,900 7,814 12,713
Due to affiliate........................... -- -- -- 1,950 3,061 5,220
Stockholders' equity (deficit)............. (26) 196 362 (740) 1,173 3,330
</TABLE>
- ---------------
(1) Pro forma earnings (loss) per common share represents historical earnings
(loss) per common share as if the offering had been consummated at the
beginning of each period presented with the net proceeds of this offering
used to retire our due to affiliate balance.
(2) The number of shares used in the basic and diluted share computations
assumes the shares of common stock issued in February 1997 were outstanding
for all prior periods.
23
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the related notes contained elsewhere in this prospectus.
OVERVIEW
We are a leading developer and manufacturer of fibre channel hardware and
software products that form critical elements of SANs. We offer a broad line of
HBAs, ASICs and software that provides high bandwidth for data communication,
high speed data transmission without degradation over distances of up to ten
kilometers, guaranteed data delivery and scalability to large numbers of network
connections. We commenced operations in 1993 as a division of Jaycor, Inc. In
February 1997, Jaycor effected a corporate reorganization in which it formed two
new corporations: Jaymark, Inc. and JNI. Jaymark became the parent of Jaycor and
of JNI in that reorganization transaction. Jaycor then transferred technology
and assets relating to fibre channel to Jaymark, which in turn contributed these
assets to JNI. While operating as a division of Jaycor, we shipped our first
commercially available fibre channel products in 1995. We commenced volume
production of HBAs in 1996, and we are currently the leading independent
supplier of HBAs for the Sun Solaris operating system. In late 1998, we obtained
our initial certification from an OEM customer for our HBAs for the PCI
interface, and in 1999 we introduced a much lower cost HBA for the PCI interface
based on fibre channel products and technology acquired from Adaptec. We first
achieved operating income in the quarter ended September 30, 1998.
We derive substantially all of our revenue from sales of our FibreStar
lines of HBAs. Historically, we have derived the substantial majority of our
revenues from sales of our FibreStar HBAs designed for the SBus specification,
but we expect our Emerald-based HBAs designed for the PCI bus to account for an
increasing proportion of revenues in the future. We also derive revenues from
sales of our proprietary Emerald ASICs. All of our sales are denominated in U.S.
dollars. Historically, a limited number of OEMs and distributor customers has
accounted for a significant majority of our total net revenues in each fiscal
period. The loss of any of our key customers, or a significant reduction in
sales to those customers, could significantly reduce our net revenues. We
anticipate that our operating results in any given period will continue to
depend to a significant extent upon revenues from a small number of customers.
We generally recognize revenue from product sales upon shipment. We provide
allowances for estimated sales returns at the time of revenue recognition. We
sell to our distribution channel customers under volume purchase agreements.
Certain of our agreements with distribution channel customers provide for stock
rotation, where the customer may return product provided that it places a new
order for replacement products. We reserve for estimated stock rotation,
uncollectable accounts and warranty claims based on past history and expected
future returns related to product shipped. We ship to our OEM customers with no
right of return except for warranty, and warranty costs to date have not been
material.
As our Emerald-based HBAs designed for the PCI interface become a greater
percentage of our revenues, we expect that the average selling price of our
products will continue to decrease. Further, the average selling prices of our
new and existing products are likely to continue to decline in the future as we
and our competitors introduce new and more technologically advanced products and
as price-based competition intensifies. In
24
<PAGE> 28
addition, sales price reductions tied to volume shipments are typically part of
our volume purchase agreements with our distribution channel customers.
Cost of revenues is comprised principally of payments to our contract
manufacturers, final assembly costs, manufacturing and quality functions,
inventory management costs and support costs. We expect our gross margin to be
affected by many factors, including declines in average unit selling price,
fluctuations in demand for our products, the mix of products sold, the mix of
sales channels through which our products are sold, the timing and size of
customer orders, fluctuations in manufacturing volumes, changes in costs of
components, new product introductions both by us and our competitors.
Research and development expenses consist primarily of salaries and related
expenses for engineering personnel, fees paid to consultants and outside service
providers, depreciation of development and test equipment, prototyping expenses
related to the design, development, testing and enhancements of our products and
the cost of computer support services. We expense all research and development
costs as incurred. From inception, we have incurred significant expenses to
develop our products. We believe that continued investment in research and
development is critical to our strategic product and cost reduction objectives.
Accordingly, we expect to continue to devote substantial resources to research
and development such that these expenses will increase in absolute dollars.
Selling and marketing expenses consist primarily of salaries, commissions
and related expenses for personnel engaged in marketing, sales and customer
support functions, public relations, advertising, promotional and trade show
costs and travel expenses. We believe that continued investment in selling and
marketing is critical to the success of our strategy to expand our relationships
with leading OEMs, to establish and maintain relationships with partners and to
expand our sales though resellers and distributors and to end-users. We expect
these expenses to increase in absolute dollars as we add personnel to implement
this strategy.
General and administrative expenses include salaries and related expenses
for personnel engaged in finance, human resources, information technology,
administrative and legal activities and professional fees. We expect that these
expenses will increase in future periods in absolute dollars as we incur
additional costs to implement the infrastructure necessary to operate
independently from Jaycor, as well as costs related to the anticipated growth of
our business and our operation as a public company.
Amortization of intangible assets arises from the amortization of
intangible assets acquired in connection with the purchase of products and
technology from Adaptec in November 1998. In that transaction, we issued Adaptec
1,618,421 shares of our Series A preferred stock which will convert into an
equal amount of shares of common stock upon completion of this offering, and we
granted Adaptec warrants to purchase shares of our stock which only become
exercisable upon satisfaction of certain performance criteria or upon completion
of an initial public offering of our common stock. We recorded the fair value of
the intangible assets acquired in that transaction at $680,000, and we are
amortizing that amount over a three year period commencing November 1998. The
portion of this amount that remains unamortized as of June 30, 1999 is $523,000,
and it will be amortized as follows: $111,000 during the remainder of fiscal
1999; $221,000 during fiscal 2000; and $191,000 during fiscal 2001. The total
amount of intangible assets to be recorded in connection with this asset
purchase will increase by an amount determined by multiplying (a) the number of
shares that actually become issuable pursuant to the warrants by (b) the fair
market value of a share of our common stock on the date the contingencies are
satisfied. The number of shares that may become issuable on exercise of
25
<PAGE> 29
the warrants is calculated with reference to a new product introduction and the
revenues we recognize from sales of products based on the acquired technology
through the date the contingencies are satisfied, up to a maximum of 3,480,788
shares, and is not currently determinable. Any additional amount of intangible
assets recorded as a result of the exercisability of the warrants will be
amortized over the remaining useful life of the acquired technology, which runs
through 2001.
Amortization of stock-based compensation relates to deferred compensation
recorded in connection with the grant of stock options to employees in all
operating expense categories where the option exercise price is less than the
fair value of the underlying shares of common stock as determined for financial
reporting purposes. We have recorded deferred compensation within stockholders'
equity of approximately $2.4 million which is being amortized over the vesting
period of the related stock options, generally four years. The portion of this
liability that remains unamortized as of June 30, 1999 is $1.9 million, and it
will be amortized as follows: $467,000 during the remainder of 1999; $723,000
during 2000; $485,000 during 2001; $247,000 during 2002; and $18,000 during
2003. The amount of stock-based compensation amortization actually recognized in
future periods could decrease if options for which accrued but unvested
compensation has been recorded are forfeited. See Note 6 to the Financial
Statements.
The income tax benefit recognized during the quarter ended June 30, 1999
was due primarily to utilization of net operating loss carryforwards and the
release of a deferred tax valuation allowance in that period. Prior to June 30,
1999, due to our history of losses, we did not recognize any tax benefits for
net operating losses or research and development tax credits. In the quarter
ended June 30, 1999, we determined that it was more likely than not that we
would be able to use the tax benefits in future periods. As a result, we
realized a tax benefit of $1.4 million in the quarter ended June 30, 1999, which
created a corresponding increase in net income in that period.
26
<PAGE> 30
RESULTS OF OPERATIONS
The following table summarizes our operating results as a percentage of net
revenues for each of the periods shown.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------ --------------
1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
Net revenues....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................... 93.0 43.1 44.0 45.2 36.1
------ ----- ----- ----- -----
Gross margin.................... 7.0 56.9 56.0 54.8 63.9
Operating expenses:
Research and development........ 136.4 41.4 23.9 27.9 32.9
Selling and marketing........... 142.2 23.5 12.5 17.5 13.5
General and administrative...... 125.9 28.3 13.9 13.7 9.8
Amortization of intangible
assets........................ -- -- 0.4 -- 0.7
Amortization of stock-based
compensation.................. -- -- 0.3 -- 2.7
------ ----- ----- ----- -----
Total operating expenses... 404.5 93.2 51.0 59.1 59.6
------ ----- ----- ----- -----
Operating income (loss)............ (397.6) (36.3) 5.0 (4.3) 4.3
Interest expense................... -- 4.5 2.2 3.1 1.9
------ ----- ----- ----- -----
Income (loss) before income
taxes........................... (397.6) (40.8) 2.8 (7.4) 2.4
Income tax provision (benefit)..... -- -- 0.2 -- (9.3)
------ ----- ----- ----- -----
Net income (loss).................. (397.6)% (40.8)% 2.6% (7.4)% 11.7%
====== ===== ===== ===== =====
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 1999
Net revenues. Net revenues increased $11.3 million, or 294%, to $15.1
million in the first six months of 1999 from $3.8 million in the first six
months of 1998. The substantial majority of the increase was due to an increase
in sales of SBus HBAs. To a lesser extent, the increase in net revenues was due
to an increase in sales of PCI HBAs. The increase in revenues also reflects the
growth in the market for fibre channel products and the increased market
acceptance of our products. In the six months ended June 30, 1999, our top five
customers accounted for 65% of net revenues, compared to 66% of net revenues in
the six months ended June 30, 1998. Sales to customers outside of the United
States accounted for 20% of net revenues in the first six months of 1999
compared to 8% of net revenues in the first six months of 1998.
Gross margin. Gross margin increased $7.5 million, or 359%, to $9.6 million
in the first six months of 1999 from $2.1 million in the first six months of
1998. Gross margin as a percentage of net revenues increased to 63.9% in 1999
from 54.8% in 1998. The increase was due to lower component and manufacturing
costs and the allocation of fixed manufacturing costs over a greater revenue
base.
Research and development. Research and development expenses increased $3.9
million, or 364%, to $5.0 million in the first six months of 1999 from $1.1
million in the first six months of 1998. The increase was due primarily to
higher employment costs, contracted services, equipment purchases and
prototyping expenses to complete development of products based on the technology
we acquired from Adaptec in November 1998. We also incurred increased research
and development expenses related to improvements in our SBus HBAs. As a
percentage of net revenues, research and development expenses
27
<PAGE> 31
increased to 32.9% in the first six months of 1999 from 27.9% in the first six
months of 1998.
Selling and marketing. Selling and marketing expenses increased $1.4
million, or 205%, to $2.0 million in the first six months of 1999 from $668,000
in the first six months of 1998. The increase was primarily due to higher
employment costs and travel expenses. Selling and marketing expenses as a
percentage of net revenues decreased to 13.5% in the first six months of 1999
from 17.5% in the first six months of 1998 primarily due to the rapid increase
in our revenues without a corresponding increase in our selling and marketing
expenses.
General and administrative. General and administrative expenses increased
$1.0 million, or 200%, to $1.5 million in the first six months of 1999 from
$525,000 in the first six months of 1998. The increase was primarily due to
increased payroll expenses arising from bonus compensation paid in 1999 for
performance in 1998. General and administrative expenses as a percentage of net
revenues decreased to 9.8% in the first six months of 1999 from 13.7% due to the
increase in revenues.
Amortization of intangible assets. We amortized $110,000 of intangible
assets during the six months ended June 30, 1999. There was no amortization of
intangible assets during the six months ended June 30, 1998.
Amortization of stock-based compensation. In connection with the grant of
stock options to employees during the six months ended June 30, 1999, we
recorded stock-based compensation within stockholders' equity (deficit) of $1.4
million and amortized stock-based compensation of $401,000. There was no
amortization of stock-based compensation during the six months ended June 30,
1998.
Interest expense. Interest expense increased by $171,000 to $289,000 in the
first six months of 1999 from $118,000 in the first six months of 1998. The
increase resulted from higher intercompany revolver borrowings from Jaycor to
finance increased inventory and accounts receivable, reflecting the rapid growth
in revenues during that period.
Income tax provision (benefit). We recognized an income tax benefit of $1.4
million during the six months ended June 30, 1999 due primarily to the
utilization of net operating loss carryforwards and the release of a deferred
tax valuation allowance. No income tax provision was recognized in the six
months ended June 30, 1998 due to our loss position.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Net revenues. Net revenues increased $9.3 million, or 320%, to $12.2
million in 1998 from $2.9 million in 1997. Net revenues increased $2.5 million
in 1997 from $374,000 in 1996. These increases primarily reflect a higher level
of sales to our OEM customers resulting from increased market acceptance of
fibre channel technology and our products, and, in 1998, the initiation of sales
through our distribution channel customers. In the year ended December 31, 1998,
our top five customers accounted for approximately 57% of our net revenues,
compared to 54% in 1997 and 82% in 1996.
Gross margin. Gross margin increased $5.1 million, or 314%, to $6.8 million
in 1998 from $1.7 million in 1997 due to increased revenues. Gross margin as a
percentage of net revenues decreased slightly to 56.0% in 1998 from 56.9% in
1997. Gross margin increased in 1997 from 7.0% of net revenues in 1996 to 56.9%
of net revenues in 1997 due to allocating fixed costs over a higher revenue
base.
Research and development. Research and development expenses increased $1.7
million, or 143%, to $2.9 million in 1998, primarily due to expenses related to
developing new products and enhancements to existing products. As a percentage
of net
28
<PAGE> 32
revenues, research and development expenses decreased to 23.9% in 1998 from
41.4% in 1997. This decrease was primarily attributable to the rapid increase in
revenues without a corresponding increase in research and development expenses.
Research and development expenses increased $692,000, or 136%, to $1.2 million
in 1997 from $510,000 in 1996 due to an increase in engineering personnel.
Selling and marketing. Selling and marketing expenses increased $845,000,
or 129%, to $1.5 million in 1998 from $681,000 in 1997. The increase was
primarily due to additional salaries and expenses for marketing and sales
personnel. Selling and marketing expenses as a percentage of net revenues
decreased to 12.5% in 1998 from 23.5% in 1997 primarily due to the rapid
increase in revenues during the period without a corresponding increase in
selling and marketing expenses. Selling and marketing expenses increased
$149,000, or 28.0%, to $681,000 in 1997 from $532,000 in 1996 due to an increase
in personnel.
Amortization of intangible assets. We amortized $47,000 of intangible
assets during the year ended December 31, 1998. There was no amortization of
intangible assets during the years ended December 31, 1997 or 1996.
Amortization of stock-based compensation. In connection with the grant of
stock options to employees during the year ended December 31, 1998, we recorded
stock-based compensation within stockholders' equity (deficit) of $1.0 million.
We amortized $35,000 of that amount during 1998. There was no amortization of
stock-based compensation during the years ended December 31, 1997 or 1996.
Interest expense. Interest expense increased by $135,000, or 104%, to
$265,000 in 1998 from $130,000 in 1997. The increase resulted from higher
intercompany revolver borrowings from Jaycor to finance increased accounts
receivable and inventory to support the increased level of sales. Prior to
January 30, 1997, we were a division of Jaycor and, as such, recorded no
separate interest expense.
Income tax provision (benefit). In 1998, we recorded an income tax
provision of $27,000 which represented a current tax liability for alternative
minimum taxes. Due to our history of losses, our regular tax liability was
offset by net operating loss carryforwards for which no benefit had previously
been recognized. No income tax provision was recognized in 1996 or 1997 due to
our loss position.
29
<PAGE> 33
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly operating information
for each of the six quarters ending with the quarter ended June 30, 1999. This
data has been prepared on the same basis as the audited financial statements
contained elsewhere in this prospectus and, in the opinion of management,
includes all adjustments necessary for the fair presentation of the information
for the periods presented. This information should be read in conjunction with
the financial statements and notes thereto. The operating results in any quarter
are not necessarily indicative of the results that may be expected for any
future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1998 1999 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues........................................ $1,454 $2,372 $3,103 $5,260 $6,363 $8,708
Cost of revenues.................................... 673 1,057 1,379 2,252 2,254 3,190
------ ------ ------ ------ ------ ------
Gross margin..................................... 781 1,315 1,724 3,008 4,109 5,518
Operating expenses:
Research and development......................... 438 631 751 1,099 2,194 2,771
Selling and marketing............................ 252 416 385 473 943 1,093
General and administrative....................... 251 274 396 777 681 794
Amortization of intangible assets................ -- -- -- 47 55 55
Amortization of stock-based compensation......... -- -- -- 35 163 238
------ ------ ------ ------ ------ ------
Total operating expenses.................... 941 1,321 1,532 2,431 4,036 4,951
------ ------ ------ ------ ------ ------
Operating income (loss)............................. (160) (6) 192 577 73 567
Interest expense.................................... 44 74 77 70 133 156
------ ------ ------ ------ ------ ------
Income (loss) before income taxes................... (204) (80) 115 507 (60) 411
Income tax provision (benefit)...................... -- -- -- 27 8 (1,413)
------ ------ ------ ------ ------ ------
Net income (loss)................................... $ (204) $ (80) $ 115 $ 480 $ (68) $1,824
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1998 1999 1999
(AS A PERCENTAGE OF NET REVENUES)
<S> <C> <C> <C> <C> <C> <C>
Net revenues....................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................................... 46.3 44.6 44.4 42.8 35.4 36.6
----- ----- ----- ----- ----- -----
Gross margin.................................... 53.7 55.4 55.6 57.2 64.6 63.4
Operating expenses:
Research and development........................ 30.1 26.6 24.2 20.9 34.5 31.8
Selling and marketing........................... 17.3 17.5 12.4 9.0 14.8 12.6
General and administrative...................... 17.3 11.6 12.8 14.7 10.7 9.1
Amortization of intangible assets............... -- -- -- 0.9 0.9 0.6
Amortization of stock-based compensation........ -- -- -- 0.7 2.6 2.7
----- ----- ----- ----- ----- -----
Total operating expenses................... 64.7 55.7 49.4 46.2 63.5 56.8
----- ----- ----- ----- ----- -----
Operating income (loss)............................ (11.0) (0.3) 6.2 11.0 1.1 6.6
Interest expense................................... 3.0 3.1 2.5 1.3 2.1 1.8
----- ----- ----- ----- ----- -----
Income (loss) before income taxes.................. (14.0) (3.4) 3.7 9.7 (1.0) 4.8
Income tax provision (benefit)..................... -- -- -- 0.6 0.1 (16.2)
----- ----- ----- ----- ----- -----
Net income (loss).................................. (14.0)% (3.4)% 3.7% 9.1% (1.1)% 21.0%
===== ===== ===== ===== ===== =====
</TABLE>
30
<PAGE> 34
Quarterly revenues have steadily increased over the past six quarters due
to new product introductions, a growing number of OEM customers that launched
fibre channel systems incorporating our products and technology and increased
end-user demand for fibre channel solutions. The upward trend in revenues is
substantially the result of growing sales of our SBus HBA products and, to a
lesser extent, an increase in the sales of our PCI HBA products in late 1998 and
1999. Gross margins in absolute dollars have gradually increased due to lower
component and manufacturing costs as well as the allocation of fixed overhead
over a greater revenue base which was partially offset by slightly declining
average selling prices. Gross margin as a percentage of net revenues declined
slightly in the quarter ended June 30, 1999 due to increased sales of our PCI
HBA products which generally have lower gross margins than our SBus HBA
products. Research and development expenses have generally increased as a result
of our increased investment in product development. Research and development
expenses increased significantly in the first half of 1999 principally due to
our acquisition of Adaptec's fibre channel products and technology. Selling and
marketing and general and administrative expenses in absolute dollar terms have
generally increased to support our growth in revenues. As a percentage of
revenues, however, these expenses have generally declined as a result of
allocating these expenses over an increasing revenue base.
Our quarterly results are likely to vary due to a number of factors such as
demand for our products, the size and timing of significant orders, introduction
of new products by us and by our competitors, the relatively long sales and
deployment cycles for our products, changes in our operating expenses, changes
in costs or availability of materials and a variety of other factors discussed
in "Risk Factors" and elsewhere in this prospectus.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, borrowings from Jaycor, Inc., a wholly-owned subsidiary of
our parent corporation Jaymark, Inc., have been our principal source of working
capital.
During the six months ended June 30, 1999, cash used in operating
activities was $458,000, compared to $751,000 provided by operating activities
in 1998. The increase in cash utilized reflects the increased working capital
required to fund expanding operations and increases in inventories and accounts
receivable. In 1997, cash used in operating activities was $1.7 million, and in
1996 cash used in operating activities was $1.6 million. Cash used in operations
in these periods primarily reflects our net losses.
Net cash used in investing activities was $1.4 million in the six months
ended June 30, 1999, $1.6 million in 1998, $219,000 in 1997 and $50,000 in 1996
and consisted solely of capital expenditures. These expenditures reflect our
investments in computer equipment, software development tools and facilities
which were required to support our business expansion.
Net cash provided by financing activities was $1.9 million in the six
months ended June 30, 1999, $846,000 in 1998, $1.9 million in 1997 and $1.7
million in 1996, all of which was provided by advances from Jaycor. Prior to
February 1997, we were a division of Jaycor. During that period, it is assumed
that the cash used by us was funded by a Jaycor investment. Changes in
stockholders' equity represent Jaycor's contribution after giving effect to the
net operating cash used by JNI and amounts necessary to fund our operations
prior to incorporation.
We had no cash and cash equivalents at June 30, 1999. Working capital
increased to $(390,000) at June 30, 1999 from $(1.8) million at December 31,
1998.
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On February 1, 1997, we entered into a revolving loan agreement with Jaycor
whereby we agreed to consent to borrow and/or lend sums to each other as needed
from time to time in the ordinary course of business. Under the terms of the
agreement, the advances bear interest at Jaycor's incremental cost of borrowing
(13.5% as of June 30, 1999). Advances under the agreement are due on demand, and
if no demand is made, within ten years of the date of such advance. At June 30,
1999, we owed Jaycor $5.2 million for advances made under this agreement. JNI
intends to repay all advances under this agreement with proceeds from the
offering and to enter into credit arrangements with one or more third parties
following this offering.
We believe that the proceeds from this offering, together with the cash
flows from operations, will be sufficient to meet our working capital needs at
least through the next 12 months, although we could be required, or could elect,
to seek additional funding prior to that time. Our future capital requirements
will depend on many factors, including the rate of revenue growth, the timing
and extent of spending to support product development efforts and expansion of
sales and marketing, the timing of introductions of new products and
enhancements to existing products, and market acceptance of our products. There
can be no assurance that additional equity or debt financing, if required, will
be available on acceptable terms, or at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was
issued. This statement will be effective for us on January 1, 2001. SFAS 133
requires certain accounting and reporting standards for derivative financial
instruments and hedging activities. Under SFAS 133, all derivatives must be
recognized as assets and liabilities and measured at fair value. We have not
determined the impact of the adoption of this new accounting standard on our
financial statements.
THE YEAR 2000 ISSUE
An unknown number of existing computer systems, software applications and
other non-IT control devices use only two digits to identify the year of a date
variable. Considering the impact of the upcoming change in the century, such
systems, applications and devices could fail or create erroneous results unless
corrected so that they can process data related to the year 2000 and beyond. We
rely on our systems, applications and devices in operating and monitoring all
major aspects of its business, including financial systems, customer services,
infrastructure, embedded computer chips, networks and telecommunications
equipment and products. We have initially assessed how we may be impacted by
Year 2000 and have commenced implementation of a detailed plan to address
certain aspects of the Year 2000 problem. The potential impacts to us identified
by the plan include internal information technology, or IT, systems, internal
non-IT systems, our products and the readiness of significant third parties with
which we have material relationships.
INTERNAL IT SYSTEMS
We have formed a Year 2000 task force that oversees the Year 2000 readiness
activities with representatives from engineering, manufacturing, sales and IT
departments. The Year 2000 task force has executive sponsorship and will be
periodically reporting status to management. The Year 2000 task force is charged
with raising awareness throughout JNI, identifying critical IT business
components that use date variables,
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developing and monitoring plans to bring non-compliant applications and
infrastructure into compliance and identifying and resolving high-risk Year 2000
issues.
We are addressing Year 2000 issues in a phased approach comprised of the
following steps: (1) assessment; (2) replacement; (3) testing; and (4)
contingency planning. The assessment phase consists of taking an inventory of
internal IT and non-IT systems and assessing risk, identifying potential
solutions and estimating repair or replacement costs. The replacement phase
consists of replacing non-compliant components with manufacturer Year 2000
certified upgrades or replacement with competitive manufacturer Year 2000
certified components. The third phase, testing, includes identifying critical
components to test, designing comprehensive tests for each, performing the tests
and taking corrective actions. The last phase, contingency planning, involves
strategies for dealing with failures in any mission critical component.
We have completed assessment efforts for our critical information systems
and are on schedule for a November 1, 1999 completion of the replacement phase.
The testing phase is scheduled for completion on December 1, 1999. Contingency
planning is scheduled for completion November 1, 1999. Non-critical IT
components are in the testing phase.
INTERNAL NON-IT SYSTEMS
Our non-IT systems include, but are not limited to, those systems that are
not commonly thought of as IT systems, such as telephone and voice mail systems,
building security systems and environmental systems. We have completed the
replacement phase for our internal non-IT systems and are on schedule for
completion of our testing phase by December 1, 1999.
PRODUCTS
Our products include HBAs, ASICs and software. We have completed an
assessment of our products and has determined that they do not contain specific
date variables that would be impacted by the change in the century.
MATERIAL THIRD-PARTY RELATIONSHIPS
Our third-party relationships include key suppliers, contract manufacturers
and OEM and distribution channel customers. We have reviewed the Year 2000
readiness disclosure of our key ASIC supplier and contract manufacturers, which
indicates in each case that such party either is Year 2000 compliant or that
such party has made substantial progress in addressing Year 2000 issues. We are
in the process of contacting other parties with whom we have material
relationships to obtain compliance statements and perform assessments of their
state of readiness for Year 2000. The assessment and interview phase is on
schedule for completion by December 1, 1999, with contingency plans scheduled
for finalization by November 1, 1999.
COSTS
We currently estimate that the costs associated with the Year 2000 should
not have a material adverse effect on our operating results or financial
position in any given year. Historical amounts spent on assessment, planning,
preparation and implementation have not been material to the operating results
and are part of the normal IT budget for fiscal 1999 and 2000.
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RISKS
We believe our greatest risks related to the Year 2000 issue involve our
relationships with our critical third party suppliers and service providers.
Potential impacts include an interrupted product flow from critical suppliers
due to their Year 2000 interruptions and potential infrastructure collapse due
to interruptions in public utilities, electricity or telecommunications. Any of
the foregoing risks, as well as the fruition of a combination of lesser risks,
could adversely impact our financial condition and operations. We are
formulating contingency plans to mitigate or reduce these risks and to address
each area of our Year 2000 compliance plan, and we are on schedule for
completion by November 1, 1999. However, because the third party service
providers are not controlled by us, it is possible that the Year 2000 will have
a material adverse impact on our business, financial condition or operating
results.
ISSUES RELATED TO THE EUROPEAN MONETARY CONVERSION
On January 1, 1999, certain member states of the European Economic
Community, including the Netherlands, fixed their respective currencies to a new
currency, the Euro. On that day, the Euro became a functional legal currency
within these countries. During the three years beginning on January 1, 1999,
business in these EEC member states will be conducted in both the existing
national currency, such as the Netherlands guilder, French franc or Deutsche
mark, and the Euro. Companies operating in or conducting business in EEC member
states will need to ensure that their financial and other software systems are
capable of processing transactions and properly handling the existing
currencies, as well as the Euro. We are still assessing the impact that the Euro
will have on our internal systems and products. While we believe our
enterprise-wide financial and manufacturing information system will be Euro
compliant, we have not tested this system. We have not determined the costs
related to any problems that may arise in the future. Any such problems may
materially adversely affect our business, operating results or financial
condition.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
We have no material market risk exposure. Therefore, no quantitative
tabular disclosures are required.
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BUSINESS
INDUSTRY BACKGROUND
GROWTH AND MANAGEMENT OF DATA
In today's information-based economy, a company's information and databases
are central to the value of the enterprise. The volume of business-critical data
generated, processed, stored and manipulated has grown dramatically over the
last decade, and managing the increase in data is one of the most important
challenges for organizations. International Data Corporation, an independent
industry research company, estimates that the amount of stored networked data
grew from 10,000 terabytes in 1994 to 116,000 terabytes in 1998, and that it
will increase to 1,400,000 terabytes in 2002. The dramatic increase in stored
data is the result of a variety of factors, including:
- the development of Web-based business operations and e-commerce;
- high volume database access and transaction processing;
- data warehousing and data mining of large databases;
- data replication services;
- digital video storage, transmission and editing; and
- business and scientific computing.
As a result, enterprises face heightened requirements for data storage
solutions that offer:
- improved access to shared data;
- efficient management of shared data;
- disaster tolerance and recovery;
- reduced costs of ownership;
- increased connectivity capabilities;
- higher performance; and
- greater reliability.
Today's enterprises generally access, share and manage the rapidly
expanding volume of data utilizing two major data communication technologies:
local area network, or LAN, and input/output, or I/O. LAN technologies enable
communications among servers and client computers, while I/O technologies enable
communication between servers and their attached high-speed peripherals, such as
storage devices. The servers and storage devices in traditional architectures
communicate using an I/O interface protocol known as small computer systems
interface, or SCSI. The SCSI protocol is based on the concept of a single server
transferring data in a serial manner to a limited number of disk drives. While
SCSI has achieved wide acceptance, it has several limitations, such as short
transport distance, lack of reliability and support for a limited number of
connections, which have restricted the capabilities of traditional network
storage architectures.
The traditional network storage architectures are commonly referred to as
local backup and network attached storage. In the widely-deployed local backup
architecture, each network server is linked to a limited number of storage
systems in close proximity using SCSI technologies. In the network attached
storage architecture, stored data can be accessed over the LAN because the
storage device is connected directly to the LAN by a dedicated storage server.
Due to the significant volume of data being stored in today's business
environment, however, both of these architectures have become increasingly
costly
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to maintain and expand because their reliance on "tethered" storage devices
makes them hardware intensive. The following diagram illustrates the traditional
architectures used to manage data storage and access:
LOGO
The traditional architectures can provide acceptable performance in smaller
enterprises and even in larger organizations when a single server runs the
complete application. Over the past few years, however, the explosive growth of
networked computers has led to the distribution of applications over hundreds or
even thousands of servers. This trend, in combination with the growth in stored
data, has highlighted a number of significant problems for enterprises using the
traditional architectures:
- Scalability. To increase the amount of storage capacity without degrading
network performance, a business using a traditional architecture will
generally increase the number of servers on the network as well as the
number of storage devices. Further, these architectures necessitate the
replication of data in multiple locations to eliminate bottlenecks, thus
increasing the cost of storing data.
- Availability. Because access to each storage device is controlled by a
single server in traditional architectures, data can become inaccessible
if the server goes down. Further, because the server must process all
requests for data in the storage device, the traditional model drains
server processing power and increases latency for network users which
results in degraded overall network performance.
- Speed and Distance. To achieve higher transmission speeds in traditional
architectures, the distance between storage devices and servers must be
limited to less than 14 meters. This close proximity increases network
configuration complexity and exposure to data loss in disaster
situations. Furthermore, in traditional architectures, data transmission
to or from the storage device to the client requesting the data must pass
through the SCSI connection, the server and the network. Because the SCSI
connection is typically much slower than the LAN, the traditional
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architecture creates a bottleneck at the server which degrades network
performance and lengthens backup times.
- Manageability. Businesses that use traditional architectures must rely on
network servers to provide performance, configuration, accounting, fault
and security management of the SCSI connection and the stored data. This
decentralized management approach increases the costs of operating a
network and limits the ability to improve performance, ensure data
security and enable highly available data access.
As a result, the traditional architectures do not adequately support the
increasing requirements of today's data-intensive enterprises.
FIBRE CHANNEL TECHNOLOGY
In response to the demand for high-speed and high-reliability
storage-to-server and server-to-server connectivity, the fibre channel
interconnect protocol was developed in the early 1990s and received the American
National Standards Institute approval in 1994. Fibre channel is an open,
efficient transport system supporting multiple protocols using fibre channel
guaranteed delivery services. Fibre channel represents an integration of
channels and networks with active, intelligent communication among devices.
Fibre channel technology has the following capabilities:
- Performance capability of over four gigabits/second;
- Support for distances up to 10 km without loss of speed;
- Serial transmission with small physical hardware;
- Scalable network configurations;
- Reliable data transmission capable of guarantee through multiple classes
of service;
- Interoperability with standard components;
- Support for multiple cost/performance levels, from small systems to
supercomputers; and
- Ability to carry multiple existing interface data protocols, including
Internet Protocol, SCSI and audio/video.
As a result of its broad range of features, many industry analysts consider
fibre channel to be the most reliable, scalable, gigabit communications
technology available today. Since its introduction, fibre channel has earned
increasing acceptance from industry and independent testing laboratories. IDC
forecasts that the market for products based on fibre channel technology will
exceed $15.0 billion within three years. Fibre channel technology can be
implemented in a wide variety of applications, including computer clustering,
networking, digital video transmission and editing and storage access. To date,
the most widely accepted and deployed application for fibre channel technology
has been in storage area networks.
STORAGE AREA NETWORKS
A storage area network, or SAN, is a network of servers and data storage
devices which interconnects servers and storage devices at gigabit speeds. Fibre
channel is the critical enabling technology that has made implementation of a
SAN possible. Businesses are investing in SANs because they have found that
establishing a separate network for storage takes data movement off the LAN,
thereby freeing up network resources and reducing the impact on network users.
SANs provide an open, extensible platform for storage access in data intensive
environments like those used for data warehousing, storage
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management and server clustering applications. Equally important, SANs can be
significantly less expensive to maintain and expand than traditional storage
architectures because they enable shared, high-speed access to stored data which
can significantly reduce data replication. The following diagram shows the basic
structure of the SAN in relation to the LAN:
LOGO
SANs provide the following benefits that address the growing challenges
facing businesses using data-intensive, mission-critical applications:
- Scalability. By combining networking models with advanced server
performance and mass storage capacity, a SAN eliminates the bandwidth
bottlenecks and scalability limitations imposed by traditional storage
architectures. Because fibre channel supports multiple topologies, SANs
can support up to 126 devices in simple configurations and up to 16
million devices in the most complex configurations. The network
architecture reduces the need to replicate data because all servers can
share access to each storage device.
- Availability. SANs enable businesses to eliminate the bottlenecks
inherent in the traditional architectures and to reduce the dependence on
a single server to access each storage device. Because SANs use fibre
channel technology and a networked approach, SANs can be designed with
multiple fail-overs to provide more reliable connections and thereby
assure availability of data in spite of failures of individual links or
components of the system.
- Speed and Distance. By using fibre channel technology, SANs support large
data block transfers at gigabit speeds and are therefore very effective
for data transfers between storage systems and servers. Fibre channel has
demonstrated transmission speeds of up to two gigabits per second and is
designed to scale to significantly higher speeds. Additionally, fibre
channel supports a transmission distance of up to 10 kilometers without
loss of speed, which simplifies network configuration and significantly
reduces susceptibility to environmental disaster.
- Manageability. Fibre channel facilitates the use of network management
software for monitoring and control. Thus, network administrators are
able to more closely monitor storage systems, giving them the control to
group storage devices into logical unit numbers, or LUNs, distribute data
loading more evenly across peripherals and reroute traffic under error
conditions. Fibre channel hardware can
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be configured to offer several levels of reliability which increases the
security and accessibility of stored data.
- Flexibility. SANs provide high-speed connectivity for data-intensive
applications across multiple operating systems, including UNIX, Mac OS
and Windows NT. SANs apply the distributed computing model to computer
storage systems and servers and take advantage of the inherent benefits
of a networked approach. SANs can be configured in multiple topologies,
and the various topologies contribute to the flexibility of the SAN to
solve storage management issues by offering enterprises alternatives in
cost and scale. The most commonly used topology in currently deployed
SANs is the arbitrated loop, or FC-AL, because it offers most of the
benefits of a SAN at a lower cost than the most complex topology. The
switched topology, or FC-SW, is the most complex and provides the most
aggregate throughput as it allows for multiple data transmissions to
occur simultaneously.
The SAN environment complements the ongoing advancements in LAN technologies by
extending the benefits of improved performance and capabilities from the client
LAN through to servers and storage.
COMPONENTS OF A SAN
Virtually all SANs use several basic components to make up the network,
including the following:
- servers and management software;
- storage devices and fibre channel disc controllers;
- switches, hubs and fibre channel to SCSI bridges;
- host bus adapters, or HBAs; and
- copper or fiber optic cables.
Regardless of topology, each server connects to a SAN through HBAs, which
are electronic circuit cards that fit standard sockets on computer motherboards
and enable high-speed data transfer. An HBA connects the server to other devices
on a SAN via cables. The cables connect the HBA either directly to the fibre
channel disc controller which is installed in the storage device or to a hub or
a switch.
An HBA is one of the most critical and complex devices on the SAN. An HBA
provides the necessary bridge between a SAN and a computer bus, which is an
internal communication pathway between the central processing unit and internal
memory or peripheral devices. By leveraging the advantages of fibre channel, a
single HBA can handle a multitude of tasks that previously required distinct
HBAs for each protocol. HBAs are typically classified by (a) bus architecture,
(b) computer operating system and (c) topology. Each HBA product is designed to
support a particular bus architecture, typically either the Sun Microsystems
SBus architecture or the Peripheral Component Interconnect, or PCI, bus
architecture. Because fibre channel HBA functions are regulated by software,
each HBA must include software designed to work with the particular operating
system being used by the server/storage solution. These systems include all
types of UNIX as well as Windows NT, Mac OS and mainframe systems. HBAs are
therefore designed to work with one or more operating systems and one or more
fibre channel topologies. IDC projects that the annual market for fibre channel
HBAs will grow from $269 million in 1999 to over $1.6 billion by 2002.
The core technology of an HBA and other components of a SAN is embodied in
application specific integrated circuits, or ASICs, that perform the most
complex functions,
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and software that enables the integration and management of the SAN equipment.
ASIC development is a lengthy and costly process that requires significant
technical expertise and resources. Likewise, developing software to work with
and manage SAN components involves an extensive design effort. This effort is
compounded by the need to test and debug software code for each fibre channel
product and ensure compliance with several distinct operating platforms. These
technological barriers to entry create a significant market opportunity for
companies that have developed and deployed fibre channel-based products,
particularly HBAs, that utilize proprietary ASICs and software designed to work
in the emerging SAN environment.
THE JNI SOLUTION
We are a leading developer and manufacturer of fibre channel hardware and
software products that form critical elements of SANs. We developed some of the
first commercially available fibre channel-based products and focus our efforts
exclusively on the fibre channel market. Because of our early and continuous
focus on developing technology and products based on the fibre channel standard,
we have successfully developed a broad line of HBAs, ASICs and software that
provides increased bandwidth for data communication, increased distance for high
speed data transmission, guaranteed data delivery and scalability to large
numbers of network connections. Our proprietary ASICs have been designed to work
in the most demanding, high-end enterprise applications and are particularly
effective in switched environments. We believe that we offer the broadest range
of fibre channel HBAs in the SAN industry. Our proprietary configuration and
driver software incorporates advanced features that significantly enhance and
simplify SAN device integration and management. As a result of our advanced
technology and broad product offering, we are able to deliver the following
benefits to our customers and end-users:
- Manageability. Our software can help eliminate configuration errors,
which are the most common cause of SAN failure. Our EZFibre SAN
management software is a powerful and easy-to-use tool for configuring
and managing a SAN and its components. EZFibre's point and click
interface and helpful diagnostic tools give the user an intuitive and
effective way to manage JNI products in SANs of all sizes.
- Flexibility. Our products can be used with both PCI and SBus interfaces,
work with all SAN topologies and interoperate with a wide variety of
operating systems and computer platforms, including Windows NT, UNIX,
Linux, Mac OS and others. In addition to SANs, customers have deployed
our products for use with digital graphics, video networks and non-linear
digital editing systems for the advertising, broadcast and entertainment
industries as well as for high speed data processing applications in a
variety of industries, including Internet service providers.
- Performance. Our ASIC technology enables an extraordinarily high
performance connection to the SAN. We believe that our products deliver
exceptional price/performance, regardless of scale or configuration. We
are the first in the industry to demonstrate products capable of
sustained 2 gigabit per second fibre channel transmissions. We also
believe that our ASICs provide the lowest latency available in the most
complex, switched SANs.
- Scalability. Our ASIC and HBA architectures provide high performance in
simple, cost-sensitive SAN configurations, but they are capable of
scaling to switched, multi-terabyte enterprise solutions. Our products
include both workgroup class
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solutions and enterprise solutions that can support the full range of
connectivity enabled by the fibre channel standard. Using our products,
customers can seamlessly add storage to a SAN while it is operating, and
they can easily migrate from simple to complex topologies to support
larger networks.
- Availability. JNI products are installed in some of the most demanding
business environments, and our customers typically have extremely low
tolerance for system downtime. We conduct extensive testing with complex
simulations of user configurations to help ensure that our products will
not cause any data loss, data interruption, SAN crashes or lockups and
that our products can withstand most failures or interruptions in other
parts of the system.
- Quality. We design, manufacture and test our products to meet the high
standards for quality. During the product design process, each component
is qualified by testing to provide the necessary performance over ranges
of environmental conditions that more extreme than what our customers
will encounter in normal use. Our latest ASIC technology has reduced the
number of parts on our HBAs, which improves quality by simplifying
data/error checking.
- Customization. We work closely with our OEM customers to tailor our
products to meet the customer's specific requirements. For UNIX
applications in enterprise level SANs, many of our OEM customers require
customized driver software to optimize performance with their products.
We have modified drivers to provide the required level of optimization
without sacrificing performance or robustness. We believe that our
capability to easily customize our software to meet customer needs will
be an important factor in increasing acceptance of our products in the
marketplace.
THE JNI STRATEGY
Our objective is to become the market leader in high-speed fibre channel
connectivity products for SANs and other applications by providing a family of
integrated HBA, ASIC and software products that exceed competitive offerings in
features, flexibility and price/performance. The key elements of our strategy
are highlighted below:
Focus exclusively on fibre channel. We base all of our products on fibre
channel technology. We plan to enhance our presence in the SAN market by
focusing all of our resources on developing, marketing and supplying superior
fibre channel connectivity products. By focusing entirely on the design and
development of fibre channel products, we believe that we can enhance our
existing products and develop new products for SANs and other applications
rapidly and efficiently. We believe that our focus will provide us with a
competitive advantage in developing fibre channel products for complementary
applications as the markets for such applications develop.
Expand penetration of existing OEM customers and leverage multiple
distribution channels. We are focused on product sales to new customers and on
extending our product penetration within our existing OEM customer base. Once a
customer buys our product for one system in the SAN, our strategy is to then
offer complementary products. By integrating additional JNI products, a customer
can obtain the increased benefits of our product breadth by simplifying SAN
configuration using common device drivers, management utilities and vendor
support. We intend to increase our reseller programs to complement our
distribution channels. To complement and support our domestic and international
reseller and OEM channels, we intend to increase our worldwide field sales
force.
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Leverage fibre channel technology and quality leadership. Our technological
leadership is based on our proprietary ASIC, software and high-frequency circuit
designs. We intend to continue to invest our engineering resources in ASIC and
software development and provide leading technologies to increase the
performance and functionality of our products. We believe that early technology
and product leadership can translate into market leadership. We also recognize
that product quality is an indispensable condition of competitiveness, and we
are focused on continuously improving product quality, delivery, performance and
service. We have taken steps to obtain ISO9002 certification in early 2000 and
intend to obtain ISO9001 certification by the end of 2000.
Provide customer-driven product functionality and high quality customer
support. We seek to enhance customer satisfaction and build customer loyalty
through the quality of our service and support. In addition, we are committed to
providing customer-driven product functionality through feedback from key
prospects, consultants, distribution channel and OEM customers and customer
surveys. We intend to continue to enhance the ease of use of our products and
invest in additional support services by increasing staffing and adding new
programs for our OEM and distribution channel customers.
Promote the JNI brand. We plan to continue building awareness of the JNI
brand in order to position ourselves as a leading provider of high-performance
fibre channel connectivity products for high-end, enterprise-level business
applications. We believe an established brand will become increasingly important
as our distribution channels expand to include resellers. To promote our brand,
we plan to increase our investments in a range of marketing programs, including
trade show participation, advertising in print publications, direct marketing,
public relations and Web-based marketing.
Establish and maintain strategic alliances and acquisitions. We intend to
continue working closely with leaders in the storage, networking and computing
industries to develop new and enhanced fibre channel products. We believe that
establishing strategic relationships with technology partners is essential to
facilitate the efficient and reliable integration of our products into SANs. To
this end, we have formed strategic relationships and industry alliances with
leading technology companies, including Ancor Communications, Brocade
Communications, Crossroads Systems, Gadzoox Networks and McData. We also intend
to pursue joint ventures, licensing and acquisition strategies to meet these
goals. We believe that the emerging SAN industry will present numerous
opportunities to employ an acquisition or partnering strategy with key software
and hardware companies.
PRODUCTS
We believe we offer high quality fibre channel products with a superior
price/performance profile. Our products include a comprehensive suite of HBAs,
ASICs and software.
HOST BUS ADAPTERS
We design, manufacture and sell a suite of fibre channel HBAs and related
device driver software. An HBA is an electronic circuit card that fits standard
sockets on a computer motherboard and enables high-speed data transfer from one
computer to another computer, from a computer to a storage unit and from a
computer to a network device such as a switch or a hub. Communication between
the HBA and the operating system is regulated by device driver software which is
included with the HBA. In addition to communication, the device driver software
provides a high-reliability data path from a user's application in a SAN.
Working in conjunction with our device driver software, our HBAs can be used
with both the SBus and the PCI interface, work with all SAN
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topologies and interoperate with a wide variety of operating systems, making our
HBA offering the broadest currently available. Because of the high level of
reliability of our device driver software and the functionality of our HBAs, we
have been certified as a designated supplier by leading storage OEMs, including
Compaq, Data General, EMC, Fujitsu, Hitachi, McData and MTI. Our HBAs list
prices range from $745 to $4,075.
We commenced volume production of HBAs in 1996 with our FibreStar line of
HBAs designed for the SBus interface, and we are currently the leading
independent supplier of HBAs for the Sun Solaris operating system. In late 1998,
we obtained our initial certification from an OEM customer for our HBAs for the
PCI interface. In 1999, we introduced our lower cost Emerald-based HBA for the
PCI interface based on fibre channel products and technology acquired from
Adaptec. The new Emerald-based HBAs for the PCI interface also offer
significantly improved performance and flexibility and include device driver
software for Solaris and other UNIX variants, Windows NT, Mac OS and NetWare.
The following tables provide information about our current offering of HBAs:
WORKGROUP SOLUTIONS
<TABLE>
<C> <S> <C>
PRODUCT FEATURES TARGET MARKETS
FIBRESTAR HIGH-PERFORMANCE - Next generation PCI technology
PCI ADAPTERS - High-performance in all High-volume PC servers &
configurations applications, entry level SANs,
- Includes EZFibre management price/performance sensitive
utility customers
- Emerald-based architecture
- 32-bit and 64-bit PCI
connections
- ---------------------------------------------------------------
FIBRESTAR 32-BIT PCI - Single interface for network
ADAPTER and storage applications
- Compatibility with SBus
products
- ---------------------------------------------------------------
FIBRESTAR 2-GIGABIT PCI - Industry's first 2-Gigabit
ADAPTER fibre channel adapter
- Enabling 2-Gigabit OEM products
-------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 47
ENTERPRISE SOLUTIONS
<TABLE>
<C> <S> <C>
PRODUCT FEATURES TARGET MARKETS
FIBRESTAR SBUS ADAPTER - Designed for mission critical Mission critical database
applications applications, data warehousing,
- Highly efficient architecture data mining
- High-performance SBus
connectivity in all SAN
configurations
-------------------------------------------------------------------------------------------------
</TABLE>
ASICS
We incorporate our Emerald fibre channel controller ASICs into our latest
generation of HBAs and sell them to OEMs for products such as storage
controllers and other SAN devices. Commercially available versions of the
Emerald transmit data at 1 gigabit per second, and we have recently introduced
versions capable of sustained 2 gigabit per second transmission speeds, which is
the highest speed demonstrated in the industry. Adaptec developed the original
architecture of the Emerald in a three year research and development program. We
acquired all of the technology related to the Emerald architecture from Adaptec
in November 1998. With enhancements we have implemented since the acquisition,
the reliability and the performance of the Emerald have been substantially
improved, and we are developing enhanced ASICs based on the Emerald
architecture. In addition to the circuits required for fibre channel data
formatting and control, the Emerald ASIC incorporates a PCI interface circuit,
leading to cost effective HBA products.
<TABLE>
<CAPTION>
PRODUCT FEATURES TARGET MARKETS
<S> <C> <C>
EMERALD-III - High-performance PCI
interface
- 1- or 2-Gigabit interface
- ----------------------- Tape/disk storage system
EMERALD-IV* - Increased performance controller, board level
- 1- or 2-Gigabit interface products
- Small footprint for
motherboard applications
- -------------------------------------------------------------------------------
</TABLE>
* Scheduled for commercial availability in the fourth quarter of 1999.
SOFTWARE
We offer software solutions designed to simplify SAN configuration and to
provide diagnostic and monitoring information to SAN administrators. Introduced
in the third quarter of 1999, EZFibre is both sold separately for a list price
of $149 and included with our latest generation of Emerald-based HBAs. Our
EZFibre software is a management and configuration utility for Windows NT that
provides the user with an easy to use, graphical view of the HBAs and other SAN
components attached to the system. EZFibre enables the user to easily configure
complex systems that include multiple PCI busses and multiple HBAs. EZFibre
users can also view information about the fibre channel storage controllers and
storage devices attached to the system. The SAN administrator can then configure
the SAN for use in a multiple operating system environment using the advanced
capabilities
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<PAGE> 48
built into the HBA and the driver software. These capabilities allow
partitioning of storage SAN for use in a multiple operating system environment
using the advanced capabilities built into the HBA and the driver software.
These capabilities allow partitioning of storage resources between different
servers that may be running different operating systems. Storage resources can
also be reallocated and repartitioned dynamically without the need to reboot the
system. EZFibre also provides a diagnostic utility that can be used to verify
the operation of our HBAs when installed in a SAN. Interfaces are also provided
to allow the HBA management and diagnostic capabilities to be integrated into
larger network management packages such as those provided by HP, Legato,
Microsoft, Sun and Veritas.
<TABLE>
<CAPTION>
PRODUCT FEATURES TARGET MARKETS
<S> <C> <C>
EZFIBRE - Simplifies SAN
installation Windows NT-based SANs
- Improves manageability
and interoperability
- Easier scalability
- -------------------------------------------------------------------------------
</TABLE>
TECHNOLOGY
We possess a high level of multi-disciplinary technological expertise,
which we utilize in designing our products. This expertise includes fibre
channel technology, core ASIC design, system design, system integration and
software development. We believe that our expertise in these technologies
provides us with competitive advantages in time-to-market, price/performance,
interoperability and product capabilities.
ASIC design expertise. We employ state-of-the-art ASIC design methodologies
to develop high-performance, complex ASICs. Our proprietary Emerald ASIC
architecture utilizes an embedded processor with on-board memory to achieve
efficient command and data communication. This architecture significantly
reduces command processing time to enable complex communication, while
maintaining full performance when operating in any SAN topology. Our
architecture also allows us to implement significant portions of fibre channel
protocol in embedded software while keeping higher level functions in the device
driver software. As a result of this multi-layered software implementation and
reduced geometry CMOS technology, we are able to react quickly as technical
standards evolve or new standards are defined. Our expertise in ASIC design has
enabled us to offer products capable of sustained 2 gigabit per second
transmission speed, which is currently the fastest transmission speed in the
fibre channel market.
System Design. We employ computer aided design tools to engineer and design
our printed circuit boards. Our system design team has expertise in the
containment of high-frequency electromagnetic interference, which is inherent in
high-speed networking devices. We have expertise in chassis design, including
design for manufacturability, testability, usability, reliability and low cost.
System Integration. At our principal offices in San Diego, we have
established the JNI system integration lab, or SIL, to provide comprehensive
functional and system level integration/interoperability testing between our
HBAs and various computer platforms and fibre channel systems. To facilitate
expanded market penetration of our products and technology, our integration test
methodologies and software are continually evolving to mirror qualification
processes used by major SAN suppliers and OEMs. We conduct functionality testing
at our SIL in formal, repeatable processes using documented product
specifications and features to verify the operation of both our hardware and our
software. Our products are tested with departmental and enterprise class
servers, including platforms from Compaq, Dell, Sun and others, and from the
leading vendors of fibre channel hubs,
45
<PAGE> 49
switches and SAN systems, including Amdahl, Ancor, Brocade, Data General, EMC,
Gadzoox, LSI Logic, McData and Vixel. Integration testing at our SIL combines
our products with various fibre channel SAN components to simulate the most
commonly used functional configurations defined by system integrators and major
OEMs. The overall goal is to ensure enterprise class performance and
interoperability in real world SAN deployments.
Software. Our team of software developers has extensive experience in
developing software for fibre channel devices and applications. We have
considerable experience in programming to meet the requirements of enterprise
level systems running mission-critical applications. Our engineers have
experience in developing software for many major operating systems, including
Sun Solaris and other UNIX variants, Windows NT, Mac OS and NetWare. Our
software implementations support fibre channel protocol standards such as FC-AL,
SCSI over fibre channel, IP over fibre channel and FC-SW. Our team also
possesses expertise in SAN configuration and management as well as graphical
user interface software. Our graphical user interface development efforts focus
on platform-independent SAN management applications. As of June 30, 1999, our
engineering staff included 19 software engineers.
For a discussion of certain risks applicable to our focus on fibre channel
technology, please see "Risk Factors -- Because we focus exclusively on fibre
channel products, our revenues will be limited if fibre channel technology does
not achieve widespread market acceptance" and "Risk Factors -- In our industry,
technology and other standards change rapidly, and we must keep pace with
changes to compete successfully."
CUSTOMERS
We sell our products to OEMs and through distribution channels. The
following is a representative list of our key customers since the beginning of
1998:
<TABLE>
<CAPTION>
OEM DISTRIBUTION CHANNEL
<S> <C>
Amdahl Acal Electronics
AVID Core C EPM
Chaparral Daejin Computers
Compaq Electronic Data Systems
Data General INFO X
EMC McData
Hitachi Mitsui
LSI Logic Polaris Service
MTI Solectron
Silicon Graphics Work Group Solutions
StorageTek
Stornet
</TABLE>
In the six months ended June 30, 1999, our top five customers accounted for
65% of our total net revenues, and, in the year ended December 31, 1998, our top
five customers accounted for approximately 57% of our total net revenues. In
particular, in the six months ended June 30, 1999, Polaris Service accounted for
15% of our net revenues, Data General accounted for 15% of our net revenues,
Info X, Inc. accounted for 14% of our net revenues and ACAL Electronic accounted
for 14% of our net revenues.
46
<PAGE> 50
End-users of JNI products include the following:
<TABLE>
<S> <C>
Amazon.com GTE
Bear Stearns Lexis Nexis
Boeing Mobil
British Airways Morgan Stanley Dean Witter
Charles Schwab Safeway
Convergys (formerly Cincinnati US WEST Capital Funding
Bell Information Systems)
DaimlerChrysler
Federal Express
</TABLE>
For a discussion of the risks associated with our existing and potential
customer base, please see "Risk Factors -- Because we depend on a small number
of OEM and distribution channel customers for a significant portion of our
revenues in each period, the loss of any of these customers or any cancellation
or delay of a large purchase by any of these customers could significantly
reduce our net revenues."
CUSTOMER SERVICE AND SUPPORT
We offer a wide range of standard support programs that includes telephone
support 24 hours a day, seven days a week and advanced replacement of products.
In addition, we have designed our products to allow easy diagnostics and
administration. For example, users can access all of the configuration and
performance parameters of our HBAs from a single graphical user interface for
configuration, troubleshooting and maintenance. Our customer service and support
organization provides technical support to our OEM and systems integrator
customers, enabling them to provide technical support to their end-users. We
prepare our OEMs and systems integrator customers for product launch through a
comprehensive training program. In addition, we employ systems engineers for
pre- and post-sales support and technical support engineers for field support.
Our OEM and systems integrator customers provide primary technical support to
end-users of our products.
We have developed an extensive training course for our OEM and distribution
channel customers. The curriculum includes fibre channel configuration, SAN
implementation and JNI product training. Most of our OEM and channel customers
attend our training courses to learn fibre channel configuration and SAN
reliability design.
SALES AND MARKETING
We sell domestically and internationally to OEMs, distribution channel
customers, which include distributors, system integrators and value added
resellers, and directly to end users. We principally target OEMs and
distributors who resell our products as a part of complete SAN solutions to
end-users. Our sales and marketing strategy will continue to focus on the
development of the fibre channel market through these relationships. We intend
to continue expanding internationally by partnering with additional OEMs and
resellers who have a strong international presence and are capable of selling
and installing complex SAN solutions. In the future, as fibre channel becomes
targeted at end-users, we will evolve our strategy to include channel partners
who serve small- to medium-sized businesses.
Our marketing efforts are focused on increasing awareness of our fibre
channel products and our JNI brand, promoting SAN-based solutions, and
advocating industry-wide standards and interoperability. Key components of our
marketing efforts include:
- extending our strategic alliances to promote standardization and enhance
interoperability;
47
<PAGE> 51
- promoting our products under the JNI brand name to strengthen sales
through distribution channels;
- continuing our active participation in industry associations and
standards committees to promote and further enhance fibre channel
technology and increase our visibility as industry experts; and
- participating in major trade show events and SAN conferences to promote
our products and to continue our leading role in educating customers on
the value of SANs.
As of June 30, 1999, our sales and marketing organization consisted of 21
people, including field sales representatives, applications engineers, customer
service personnel, product marketing, product management, marketing
communications and inside sales personnel. Our field sales personnel are located
in San Diego, Irvine and Fremont, California, and Boston, Massachusetts. We
intend to establish a direct sales presence in both London and Japan.
OEMS
OEMs can exercise significant influence in the early development of our
market because they utilize our products to deliver to end users complete,
factory-configured solutions that are installed and field-serviced by OEMs'
technical support organizations. We intend to continue partnering with leading
OEM customers to introduce new products and develop new markets. OEMs will
continue to provide critical input as we develop the next generation of
products.
OEM customers have been integral to our growth in the emerging fibre
channel market and have represented a significant portion of our revenues. We
believe the evolutionary nature of the fibre channel market should enable us to
continue to present our OEM customers with the opportunity to integrate and
deploy new capabilities as they are developed. To help drive new technologies
and capabilities, we plan to continue to strengthen our OEM customer
relationships.
DISTRIBUTION CHANNEL CUSTOMERS
As the markets for fibre channel products and SAN solutions evolve and as
end-user awareness of the benefits of fibre channel increases, we believe an
increasing volume of sales will occur through distribution channels. We have
established a two-tier distribution channel that is comprised of distributors
and resellers. We sell through distributors to customers in the United States,
Europe and Japan. We believe that our distribution channel, which accounted for
a significant portion of total net revenues in the six months ended June 30,
1999, provides us with a diversified customer base. In addition, our
distribution channel relationships enable us to pursue a number of vertical
markets including e-commerce, Internet service providers, digital video, digital
publishing, oil and gas exploration and medical imaging. We believe that as the
market for fibre channel matures, we are well positioned to leverage sales
through distributors, and that such sales will represent an increasing percent
of our total net revenues. As this market continues to develop, we plan to
establish additional relationships with select domestic and international
resellers to reach additional markets and increase our geographic coverage.
For a discussion of the risks associated with our sales and marketing
strategy and programs, please see "Risk Factors -- The sales cycle for our
products is long, and we may incur substantial, non-recoverable expenses or
devote significant resources to sales that do not occur when anticipated," and
"Risk Factors -- The failure of our OEM customers to
48
<PAGE> 52
keep pace with technological change and to successfully develop and introduce
new products could adversely affect our net revenues."
MANUFACTURING, TEST AND ASSEMBLY
We outsource the majority of our manufacturing, and we conduct quality
assurance, manufacturing engineering, documentation control and certain finish
assembly operations at our headquarter facility in San Diego, California. This
approach enables us to reduce fixed costs and to provide flexibility in meeting
market demands. All of our contract manufacturers are ISO 9002 certified.
TSMC manufactures our Emerald ASICs, and Adaptec packages and tests the
ASICs so that we purchase and receive only finished product. We anticipate that
we will use parties other than Adaptec for packaging and testing of our future
ASICs, and we may transition a portion of these functions to other parties for
certain of our existing products in the near future. SCI Systems in Rapid City,
South Dakota, and SMS in Escondido, California perform substantially all
assembly operations for our HBAs. These contract manufacturers purchase the
components of our HBAs, including printed circuit boards, third party ASICs and
memory integrated circuits, and assemble them to our specifications. The
contract manufacturers deliver the assembled HBAs to us, and we perform certain
finish assembly procedures before testing and packaging the final products with
software and manuals in our San Diego facility.
We believe most component parts used in our HBAs are standard off-the-shelf
items, which are, or can be, purchased from two or more sources. We select
suppliers on the basis of technology, manufacturing capacity, quality and cost.
Whenever possible and practicable, we strive to have at least two manufacturing
locations for each product. Nevertheless, our reliance on third-party
manufacturers involves risks, including possible limitations on availability of
products due to market abnormalities, unavailability of, or delays in obtaining
access to, certain product technologies and the absence of complete control over
delivery schedules, manufacturing yields, and total production costs. The
inability of our suppliers to deliver products of acceptable quality and in a
timely manner or our inability to procure adequate supplies of our products
could have a material adverse effect on our business, financial condition or
operating results.
For a discussion of the risks associated with our reliance on third party
manufacturers, please see "Risk Factors -- Because we rely on third parties for
substantially all of our manufacturing and assembly, failures by these third
parties to provide products of sufficient quality and quantity could cause us to
delay product shipments, which could result in delayed or lost revenues or
customer dissatisfaction."
RESEARCH AND DEVELOPMENT
Our success will depend to a substantial degree upon our ability to develop
and introduce in a timely fashion new products and enhancements to our existing
products that meet changing customer requirements and emerging industry
standards. We have made and plan to continue to make substantial investments in
research and development and to participate in the development of industry
standards. In 1998, our research and development expenses were $2.9 million,
compared to $1.2 million in 1997 and $510,000 in 1996.
We focus our development efforts on fibre channel ASICs and related
software drivers and tools. Before a new product is developed, our research and
development engineers work with marketing managers and customers to develop a
comprehensive requirements specification. After the product is designed and
commercially released, our engineers
49
<PAGE> 53
continue to work with customers on early design-in efforts to understand
requirements for future generations and upgrades.
Research and development expenses primarily consist of salaries and related
costs of employees engaged in ongoing research, design and development
activities and subcontracting costs. As of June 30, 1999, we have 46 employees
engaged in research and development. We are seeking to hire additional skilled
development engineers. Our business, operating results and financial condition
could be adversely affected if we encounter delays in hiring additional
engineers.
For a discussion of the risks we face in achieving our goals in research
and development, please see "Risk Factors -- Delays in product development could
adversely affect our market position or customer relationships" and "Risk
Factors -- The loss of or failure to attract key technical personnel could
adversely affect our business."
COMPETITION
The market in which we compete is intensely competitive and is
characterized by frequent new product introductions, changing customer
preferences and evolving technology and industry standards. As a result of the
intense competition in our market, we will face a variety of significant
challenges, including rapid technological advances, price erosion, frequent new
product introductions by our competitors and evolving industry standards. Our
competitors continue to introduce products with improved price/performance
characteristics, and we will have to do the same to remain competitive.
Increased competition could result in significant price competition, reduced
revenues, lower profit margins or loss of market share, any of which would have
a material adverse effect on our business, operating results and financial
condition. We cannot be certain that we will be able to compete successfully
against either current or potential competitors in the future.
Many of our current and potential competitors have substantially greater
financial, technical, marketing and distribution resources than we have. We
expect that an increasing number of companies will enter the markets for our
products. We also face the threat of potential competition from new entrants
into the fibre channel market, including large technology companies who may
develop or acquire differentiating technology and then apply their resources
including established distribution channels and brand recognition to obtain
significant market share. Emerging companies attempting to obtain a share of the
existing markets act as potential competition as well. We face competition for
our ASICs from Hewlett-Packard and QLogic. Sun Microsystems is our principal
competitor in the SBus HBA market. Our principal competitors in the PCI bus HBA
market are Emulex, QLogic, Interphase and Hewlett-Packard. Our products may also
compete at the end-user level with other technology alternatives, such as SCSI,
which are available from companies such as Adaptec, LSI Logic and QLogic as well
as a number of smaller companies. Further, businesses that implement SANs may
select fully-integrated, proprietary SAN systems that are offered by large
technology companies such as IBM and Hewlett-Packard. Because such proprietary
systems do not interoperate with products from independent, open system
suppliers like JNI, customers who invest in these systems will be less likely to
purchase our products. In the future, other technologies may evolve to address
the applications served by fibre channel today, and because we focus exclusively
on fibre channel, our business would suffer as a result of competition from such
competing technologies.
Some of our OEM customers could develop products internally that would
replace our products. The resulting reduction in sales of our products to any
such OEM customers, in addition to the increased competition presented by these
customers, could have a material adverse effect on our business, operating
results and financial condition.
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<PAGE> 54
We believe that the principal bases of fibre channel product competition
presently include reliability, scalability, connectivity, performance and
customization. We believe that other competitive factors include pricing and
technical support. We believe that we compete favorably with respect to each of
these factors. We also believe that we have a competitive strength in the
alliances we have built with customers, particularly our close relationships
with OEM customers. We believe that our experience with distribution channels
will provide competitive benefits as the fibre channel market matures. Some of
our other competitive advantages include our early entry into fibre channel
technology, our workforce of highly experienced researchers and designers and
our intellectual property.
INTELLECTUAL PROPERTY AND LICENSES
The intellectual property rights we have in our technology, which generally
consists of ASIC designs, system designs, software and know-how associated with
our product portfolio, principally arise from exclusive licenses and our own
internal development efforts. We began our commercial fibre channel development
efforts in 1993 while operating as a division of Jaycor. In February 1997, the
intellectual property rights arising from this development effort were
transferred to JNI pursuant to an exclusive license agreement with Jaymark. In
November 1998, we acquired fibre channel products and technology developed by
Adaptec, including the design, software, masks and documentation of the Emerald
ASIC architecture. The technology we acquired from Jaymark and Adaptec, in
conjunction with our significant development efforts undertaken to enhance such
technology, forms the central element of our HBA and ASIC products and is
critical to our success. We attempt to protect our technology through a
combination of copyrights, trade secret laws, trademarks and contractual
obligations. There can be no assurance that our intellectual property protection
measures will be sufficient to prevent misappropriation of our technology or
that our competitors will not independently develop technologies that are
substantially equivalent or superior to our technology. In addition, the laws of
many foreign countries do not protect our intellectual property rights to the
same extent as the laws of the United States. Our failure to protect our
proprietary information could have a material adverse effect on our business,
financial condition or operating results. In order to avoid disclosure of key
elements of our technology, we have not sought patent protection which may be
available to us. The lack of patent protection may make it more difficult for us
to prevent other parties from developing or using technology substantially
similar to ours. Our software products are protected by copyright laws, and we
have several common law trademarks.
We may need to initiate litigation in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Litigation could result
in substantial costs and diversion of our resources and could materially harm
our business. We may receive in the future notice of infringement claims of
other parties' proprietary rights. Infringement or other claims could be
asserted or prosecuted against us in the future, and it is possible that such
assertions or prosecutions could harm our business. Any such claims, with or
without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel, cause delays in the development
and release of our products, or require us to develop non-infringing technology
or enter into royalty or licensing arrangements. Such royalty or licensing
arrangements, if required, may not be available on terms acceptable to us, or at
all. For these reasons, infringement claims could materially harm our business.
BACKLOG
At June 30, 1999, backlog for our products was approximately $2.7 million,
all of which is scheduled for delivery to customers during the quarter ending
September 30,
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<PAGE> 55
1999, compared to backlog of approximately $966,000 at June 30, 1998,
substantially all of which was scheduled for delivery to customers during the
quarter ended September 30, 1998. Typically, our OEM customers forecast expected
purchases on a three to six month rolling basis, as compared to distributor
customers which order as required with minimal order fulfillment time. All
orders are subject to cancellation or delay by the customers with limited or no
penalty. Therefore, our backlog is not necessarily indicative of actual sales
for any succeeding period.
FACILITIES
JNI leases approximately 22,000 square feet in San Diego, California from
Jaycor, an affiliate of JNI, for product development and test laboratories, for
manufacturing operations, and for administrative, engineering, marketing and
sales offices. The term of the lease expires in October 2004. JNI leases
approximately 7,000 square feet of office and laboratory space in Irvine,
California under a lease that expires in July 2000. JNI also leases
approximately 6,000 square feet in Fremont, California under a lease that
expires in August 2000. We believe that our current facilities will be adequate
to meet our needs until at least the end of 1999. After that time, we will be
required to obtain additional space. Although we believe that suitable
additional facilities will be available in the future as needed on commercially
reasonable terms, we cannot assure you that we will be able to obtain such
space.
EMPLOYEES
As of June 30, 1999, JNI had 91 employees, including nine in
administration, 21 in sales and marketing, 46 in engineering and 15 in
operations. None of our employees are represented by a labor union. We have not
experienced any work stoppages and consider our relations with our employees to
be good.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations. As of the date of this prospectus, we are not a
party to any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on our business, financial
condition or operating results.
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<PAGE> 56
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information concerning executive officers,
directors and key employees of JNI as of June 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Executive Officers and Directors
Terry M. Flanagan.................. 51 President, Chief Executive Officer
and Director
Gloria Purdy....................... 51 Chief Financial Officer
Charles McKnett.................... 44 Chief Technology Officer
Thomas K. Gregory.................. 58 Chief Operating Officer
Eric E. Wenaas(1)(2)............... 57 Chairman of the Board of Directors
P. Randy Johnson(1)(2)............. 49 Director and Secretary
Edward Frymoyer(2)................. 62 Director
Key Employees
Roland Thibodeau................... 53 Executive Vice President, Sales
Scott Ruple........................ 39 Vice President, Marketing
Edward Tyburski.................... 40 Vice President, Engineering
Sassan Teymouri.................... 42 Vice President, JNI Semiconductor
Division
</TABLE>
- -------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
Executive Officers and Directors
Terry M. Flanagan, Ph.D. became President and Chief Executive Officer of
JNI upon the organization of JNI in February 1997. From 1977 to 1995, he served
in various capacities at Jaycor, Inc., an affiliate of JNI, most recently as
Senior Vice President of the Systems Development Group. Dr. Flanagan received a
B.S. in physics from the University of Santa Clara and an M.S. and a Ph.D. from
Purdue University in physics.
Gloria Purdy joined JNI as Chief Financial Officer in August 1999. Prior to
joining JNI, from April 1998 through April 1999, she served as Chief Financial
Officer and Chief Operating Officer of Eloquent, Inc., a Web-based media
company. Prior to that time, from February 1992 through January 1998, she served
as Chief Financial Officer of Interlink Computer Sciences, Inc., an enterprise
software company. Ms. Purdy received a B.S. in accounting from Golden Gate
University and has completed Masters studies at the University of Santa Clara
and Stanford University.
Charles McKnett became the Chief Technology Officer of JNI upon the
organization of JNI in February 1997. From January 1989 to February 1997, Mr.
McKnett managed a variety of technology and development efforts, including the
development of fibre channel products, at Jaycor, Inc., an affiliate of JNI. Mr.
McKnett received his B.S. in Physics from the California Institute of Technology
and an M.S. in electrical engineering from the University of Southern
California.
Thomas K. Gregory, Ph.D. has served as Chief Operating Officer of JNI since
March, 1999. Beginning in February 1997 through March 1999, he served as Vice
President, Engineering and Operations of JNI. He has a B.S. with a dual major in
physics and
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<PAGE> 57
engineering from the University of Michigan and a Ph.D. in physics from the
University of Connecticut.
Eric E. Wenaas, Ph.D. has served as Chairman of the Board of Directors of
JNI since its organization in February 1997. Mr. Wenaas currently serves as
Chief Executive Officer of Jaycor, Inc., an affiliate of JNI, a position he has
held since March 1991. Mr. Wenaas is also Chief Executive Officer of Jaymark,
Inc., JNI's principal stockholder, a position he has held since Jaymark's
formation in January 1997.
P. Randy Johnson has served as a director of JNI since its organization in
February 1997. Mr. Johnson currently serves as Chief Financial Officer of
Jaycor, Inc., an affiliate of JNI, a position he has held since 1990.
Edward Frymoyer, Ph.D. has served as a director of JNI since its
organization in February 1997. Since May 1981, Dr. Frymoyer has owned and
operated emf Associates, a consulting firm.
Key Employees
Roland Thibodeau has served as Executive Vice President, Sales of JNI since
its organization in February 1997. Prior to that time, beginning in September
1995, Mr. Thibodeau served as Director of Marketing for Jaycor, an affiliate of
JNI. From May 1982 to February 1995, Mr. Thibodeau was with Datacomm Management
Sciences, Inc., a data communications company, in the capacity of Vice President
of Marketing and Sales.
Scott Ruple has served as Vice President, Marketing for JNI since November
1998. From January 1997 to November 1998, Mr. Ruple was with G2 Networks, Inc.,
a networking equipment company, where he served as Vice President of Engineering
as well as Vice President of Marketing. From June 1994 to December 1996, Mr.
Ruple was the Senior Director of Marketing for Emulex Corporation, a fibre
channel connectivity equipment manufacturer. Mr. Ruple has undergraduate degrees
in accounting and computer science from the University of Arizona and holds a
Master's degree in business administration from the University of Southern
California.
Edward S. Tyburski has served as Vice President, Engineering of JNI since
June 1999. Prior to that time, beginning in November 1988 he served in a variety
of positions, most recently as Senior Director, SONET Products development, for
Applied Digital Access, Inc., a telecommunications equipment vendor.
Sassan Teymouri has served as Vice President, JNI Semiconductor Division
since January 1999, and is responsible for JNI semiconductor operations in
Fremont, California. From September 1996 to October 1998, Mr. Teymouri was
President and CEO of Initio Corporation, a developer and marketer of commercial
I/O products based on proprietary ASICs. From May 1992 through September 1996,
he was the General Manager for the RAID group of Adaptec. Also, during his
employment at Adaptec, he served as an Engineering Director of Enterprise
Computing Networks. Mr. Teymouri received BSEE and MSEE degrees from the
University of Michigan.
Currently, all directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Officers are elected and serve at the discretion of the board of directors.
There are no family relationships among the directors and officers of JNI.
Pursuant to the Investor's Rights Agreement dated as of November 12, 1998
between Jaymark, JNI and Adaptec, we have granted Adaptec the right to have an
observer present during our board meetings. Adaptec has signed a confidentiality
agreement to keep confidential all information discussed at any board meetings,
and we have the right to
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<PAGE> 58
exclude the observer from any board meetings if we determine that the matters to
be discussed are particularly sensitive.
BOARD COMMITTEES
The board of directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, which consists of Mr. Wenaas and
Mr. Johnson, reviews the results and scope of the annual audit and meets with
our independent accountants to review our internal accounting policies and
procedures. The Compensation Committee, which consists of Mr. Wenaas, Mr.
Frymoyer and Mr. Johnson, makes recommendations to the board of directors with
respect to our general and specific compensation policies and practices and
administers our 1997 Stock Option Plan, our 1999 Stock Option Plan and our 1999
Employee Stock Purchase Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Other than Randy Johnson, none of the members of the compensation committee
is currently, or has ever been at any time since our formation, one of our
officers or employees. Mr. Johnson served as chief financial officer of JNI
during 1998 and through July 1999. In addition, we have entered into a
consulting agreement with Mr. Frymoyer under which he provides services to JNI.
Mr. Frymoyer received approximately $70,000 in fees under this agreement in
1998.
COMPENSATION OF DIRECTORS
Our non-employee directors are reimbursed for expenses incurred in
connection with attending board and committee meetings but are not compensated
for their services as board or committee members. We anticipate that we will
grant non-employee directors options to purchase our common stock pursuant to
the terms of our 1999 Stock Option Plan. See "-- Stock Plans."
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
We have adopted provisions in our certificate of incorporation, permitted
by Delaware General Corporation Law, which provide that directors of JNI shall
not be liable for monetary damages to JNI or its stockholders for any breach of
fiduciary duties to the fullest extent permitted by Delaware General Corporation
Law.
Such limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our by-laws authorize us to indemnify our officers, directors, employees
and agents to the fullest extent permitted by the Delaware Law. Section 145 of
the Delaware General Corporation Law empowers us to enter into indemnification
agreements with our officers, directors, employees and agents. We have entered
into separate indemnification agreements with our directors and executive
officers which may, in some cases be broader than the specific indemnification
provisions contained in the Delaware Law. The indemnification agreements may
require us, among other things, to indemnify such executive officers and
directors against liabilities that may arise by reason of status or service as
directors or executive officers and to advance expenses they spend as a result
of any proceeding against them as to which they could be indemnified. We also
intend to enter into agreements with our future directors and executive
officers.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of JNI where indemnification will be
required or permitted and we are not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
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<PAGE> 59
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by our
Chief Executive Officer and our other two most highly compensated executive
officers whose aggregate compensation during the year ended December 31, 1998
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL YEAR 1998
ANNUAL COMPENSATION
NAME AND -------------------
PRINCIPAL POSITION SALARY BONUS OTHER ANNUAL COMPENSATION
<S> <C> <C> <C>
Terry M. Flanagan................... $186,060 $139,428 $25,609(1)
President and Chief Executive
Officer
Charles McKnett..................... 131,919 94,483 3,696(2)
Chief Technology Officer
Thomas K. Gregory................... 137,061 99,185 5,655(3)
Chief Operating Officer
</TABLE>
- ---------------
(1) Includes $9,303 paid to Mr. Flanagan in lieu of a raise, $8,641 paid as an
auto allowance, $1,824 paid as a matching contribution to Mr. Flanagan's
401(k) account and $5,841 paid for group term life insurance.
(2) Includes $3,147 paid as a matching contribution to Mr. McKnett's 401(k)
account and $549 paid for group term life insurance.
(3) Includes $3,029 paid as a matching contribution to Mr. Gregory's 401(k)
account and $2,626 paid for group term life insurance.
1998 OPTION GRANTS
There were no options granted to any of the individuals named in the
Summary Compensation Table in 1998. Accordingly, the table relating to option
grants in 1998 has been omitted.
YEAR-END VALUES
The table below provides information about the number and value of options
held by the executive officers described above at December 31, 1998.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Terry M. Flanagan.............. -- 1,537,500(2) $-- $3,510,574
Charles McKnett................ -- 726,600(2) -- 1,659,046
Thomas K. Gregory.............. -- 807,300(2) -- 1,843,308
</TABLE>
- ---------------
(1) The fiscal year-end value of "in-the-money" stock options represents the
difference or a portion of the difference between the exercise price of such
options, and the fair market value of JNI's common stock as of December 31,
1998. The fair market value of JNI's common stock on December 31, 1998
determined for financial reporting purposes on such date was $2.40 per
share. The actual value of "in-the-money" stock options will depend upon the
trading price of JNI's common stock on the date of sale
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<PAGE> 60
of the underlying common stock and may be higher or lower than the amount
set forth in the table above.
(2) Options do not become exercisable until the effective date of this offering.
Options vest from the date of grant cumulatively 10% at the end of the first
year, 30% at the end of the second year, 60% at the end of the third year
and 100% after the fourth year. In the event that Jaymark no longer owns 50%
or greater of our outstanding shares of common stock, the vesting schedule
for the options will accelerate. Pursuant to the accelerated vesting
schedule, the options vest cumulatively 25% at the date of grant, 33% at the
end of the first year, 75% at the end of the second year and 100% at the end
of the third year.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
We have entered into Severance and Change of Control Agreements with Terry
M. Flanagan, Charles McKnett, Thomas Gregory and Gloria Purdy. In the event that
the employee is terminated without cause within one year after a change in
control of JNI, he or she will receive as a severance payment one full-year of
his or her then current total compensation, and all of his or her unvested,
outstanding options to purchase shares of stock in JNI will immediately vest.
Each of the employees who are parties to these agreements will also receive
these benefits if he or she resigns as a result of a reduction in his or her
total compensation within one year after a change in control of JNI.
STOCK OPTION PLANS
1997 Stock Option Plan
JNI's 1997 stock option plan (the "1997 Plan") originally provided for the
grant of options to purchase up to 6,450,000 shares. The 1997 Plan was
subsequently amended to provide for the issuance of options to purchase an
additional 1,249,630 shares of common stock. Upon the adoption of JNI's 1999
stock option plan, the 1997 Plan was amended to reduce the number of options
reserved for issuance by 1,419,000 shares of common stock. With that amendment,
the 1997 Plan allows for the issuance of options to purchase up to 6,280,630
shares of common stock, or approximately % of the outstanding shares of
common stock after giving effect to the public offering.
Under the 1997 Plan, all employees of JNI or any subsidiary, are eligible
to receive nonstatutory stock options or incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986. The 1997 Plan is
administered by the compensation committee of the board of directors of JNI,
which selects the persons who will receive options, determines the number of
shares in each option, vesting schedules and prescribes other terms and
conditions, including the type of consideration to be paid to JNI upon exercise,
in connection with each option grant.
Under the 1997 Plan, for a nine-year period following the date of an option
grant, options are only exercisable in the event that JNI undergoes a "change in
control," generally defined as a sale of assets, merger or similar transaction,
or consummates a public offering of equity securities. Following such nine-year
period, but prior to the termination of such option, which generally terminates
ten years after the date of grant, the option may be exercised. However, in such
event, JNI has a right to repurchase such shares at the greater of the exercise
price or the fair market value of such shares. Options granted under the 1997
Plan generally vest over a four-year period, although vesting is accelerated in
the event Jaymark's ownership percentage of JNI falls below 50% of the total
combined voting power of JNI.
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<PAGE> 61
The exercise price of incentive stock options and nonstatutory stock
options granted under the 1997 Plan cannot be lower than 100% of the fair market
value of the common stock on the date of grant and, in the case of options
granted to holders of more than 10% of the voting power of JNI, not less than
110% of such fair market value. The term of an option cannot exceed ten years,
and the term of an ISO given to a holder of more than 10% of the voting power of
JNI cannot exceed five years. Options generally expire not later than 90 days
following a termination of employment, 12 months following the optionee's
disability, or not later than 12 months following the optionee's death.
As of June 30, 1999, there were outstanding options to purchase an
aggregate of 6,280,630 shares of common stock. No options to acquire shares have
been exercised. As of June 30, 1999, no shares of common stock were available
for future option grants under the 1997 Plan. If any option granted under the
1997 Plan expires, terminates or is canceled for any reason, or if shares of
stock issued subject to a right of repurchase are repurchased by JNI, the shares
allocable to the unexercised option or the repurchased shares will become
available for additional option grants under the 1997 Plan.
Each share limit and option under the 1997 Plan is subject to adjustment
for certain changes in JNI's capital structure, reorganizations and other
extraordinary events. The 1997 and 1999 plans are not exclusive. The board of
directors (or its delegate), under Delaware Law, may grant stock and performance
incentives or other compensation, in stock or cash, under other plans or
authority.
1999 Stock Option Plan
JNI's 1999 stock option plan was approved by the board of directors and the
stockholders in April 1999 (the "1999 Plan"). The 1999 Plan authorizes JNI to
grant incentive stock options to employees, and non-statutory stock options to
employees, including officers, non-employee directors and consultants. Because
non-employee directors are eligible to receive grants under the 1999 Plan, JNI
has not adopted a separate plan which provides for the formula grant of stock
options to non-employee directors.
A committee of the board of directors administers the 1999 Plan. The
administering committee has the authority to select the persons to whom options
are granted and to determine the terms of each option, including:
(a) the number of shares of common stock covered by the option,
(b) when the option becomes exercisable,
(c) the per share option exercise price, which must be at least 100% of the
fair market value of a share of common stock for incentive stock
options, at least 85% of the fair market value for non-statutory stock
options, or 110% of the fair market value for incentive stock options
granted to 10% stockholders, and
(d) the duration of the option, which may not exceed 10 years, or, with
respect to incentive stock options granted to 10% stockholders, five
years.
Generally, options granted under the 1999 Plan become exercisable pursuant
to a schedule established by the administering committee. Options granted under
the 1999 Plan cannot be transferred except by will or the laws of descent and
distribution.
In the event of a change in control of JNI, any outstanding options which
are neither assumed or substituted for by the acquiring corporation, nor
exercised as of the date of the change in control, terminate and cease to be
outstanding.
The total number of shares reserved for issuance under the 1999 Plan, as
amended, is 3,304,000 shares (or approximately % of the outstanding shares
of common stock after
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<PAGE> 62
giving effect to the public offering), of which, as of June 30, 1999, no shares
have been issued upon the exercise of options. As of June 30, 1999 options to
purchase a total of 523,500 shares of common stock were outstanding and
2,780,500 shares were available for future option grants, giving effect to the
increase in the option reserve approved by the board of directors and
stockholders on September 1, 1999
Each share limit and option under the plan is subject to adjustment for
certain changes in JNI's capital structure, reorganizations and other
extraordinary events. The 1997 and 1999 plans are not exclusive. The board of
directors (or its delegate), under Delaware Law, may grant stock and performance
incentives or other compensation, in stock or cash, under other plans or
authority.
1999 EMPLOYEE STOCK PURCHASE PLAN
A total of 250,000 shares of JNI common stock (or approximately % of
the outstanding shares of common stock after giving effect to the public
offering) have been reserved for issuance under our 1999 Employee Stock Purchase
Plan, none of which has been issued. The number of shares reserved for issuance
under the purchase plan will be subject to an annual increase on January 1 of
each year beginning in 2001 equal to the lesser of (a) 125,000 shares, (b) 1.0%
of the outstanding shares on such date or (c) a lesser amount as determined by
our board of directors. The employee stock purchase plan permits eligible
employees to purchase common stock at a discount through payroll deductions,
during 24-month offering periods. Unless the board of directors establishes
different periods, each offering period will be divided into four consecutive
six-month purchase periods. Unless the board of directors establishes a higher
purchase price, the price at which stock is purchased under the employee stock
purchase plan shall be equal to 85% of the fair market value of the common stock
on the first day of the offering period or the last day of the purchase period,
whichever is lower. The initial offering period will commence on the effective
date of this offering.
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<PAGE> 63
CERTAIN TRANSACTIONS
AGREEMENTS WITH JAYMARK AND JAYCOR
On January 30, 1997, we were incorporated in Delaware as a wholly-owned
subsidiary of Jaymark, Inc. ("Jaymark"). On February 3, 1997, Jaymark paid
$1,500 for 15,000 shares of our common stock. On March 5, 1997 we entered into a
Technology Assignment and License Agreement with Jaymark and Jaycor, Inc.,
another wholly-owned subsidiary of Jaymark. Pursuant to the agreement, Jaycor
assigned fibre channel products and technology to Jaymark in exchange for a
limited license to the assigned products. Jaymark, in turn, assigned the fibre
channel products and technology to us in exchange for 585,000 shares of our
common stock and 23,700,000 shares of our Series A preferred stock.
On February 1, 1997, we entered into a revolving loan agreement with Jaycor
whereby we agreed to consent to borrow and/or lend sums to each other as needed
from time to time in the ordinary course of business. Under the terms of the
agreement, the advances bear interest at Jaycor's incremental cost of borrowing.
Advances under the agreement are due on demand, and if no demand is made, within
ten years of the date of such advance. In addition, we have guaranteed the
obligations of Jaycor with certain third party creditors. At June 30, 1999 and
December 31, 1998 and 1997, we owed Jaycor $5.2 million, $3.1 million and $2.0
million, respectively, for advances made under this agreement. During the six
months ended June 30, 1999 and the for the years ended December 31, 1998 and
1997, we incurred interest expense on advances from Jaycor of $289,000, $265,000
and $130,000, respectively. We have granted Jaycor a security interest in our
assets to secure our obligations under this agreement. In addition, we have
guaranteed the obligations of Jaycor with certain third party creditors.
We have entered into a Transitional Services Agreement, dated September 1,
1999, with Jaycor, whereby Jaycor has agreed to continue to provide certain
accounting and administrative services to us. This agreement will terminate on
December 31, 2000 or earlier if we notify Jaymark that we no longer require
these services. In return, we have agreed to compensate Jaymark in an amount
determined in accordance with Jaymark's historical practice of allocating
expenses to us. If Jaymark provides consulting services to us, we have agreed to
reimburse Jaymark on an hourly basis and at a billing rate consistent with
Jaymark's billing practices. Jaycor maintains, and pays the premiums on, certain
umbrella insurance policies which cover us. We reimburse Jaycor for the amount
of the insurance premium allocated to our coverage.
In October 1998, we entered into a sublease agreement with Jaycor, as
amended, whereby we subleased a certain portion of Jaycor's facilities on terms
consistent with Jaycor's primary lease. The sublease provides for a base monthly
rent and is subject to an annual increase based upon the consumer price index
percentage with a minimum increase of 2.5% and a maximum increase of 5%
annually. The term of the lease expires in October 2004. In addition, the
sublease requires the payment of a pro rata portion of the monthly operating
costs, taxes and utilities of the premises. As of December 31, 1998, our future
annual minimum payments due to Jaycor under this sublease were $225,000 for the
year ending December 31, 1999, $231,000 for the year ending December 31, 2000,
$237,000 for the year ending December 31, 2001, $242,000 for the year ending
December 31, 2002, $248,000 for the year ending December 31, 2003 and $211,000
for the year ending December 31, 2004.
Pursuant to a Registration Rights Agreement dated as of September 1, 1999,
we have granted registration rights to Jaymark for the shares of our stock held
by Jaymark. If we
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<PAGE> 64
propose to register any of our securities under the Securities Act, either for
our own account or for the account of other security holders, holders of shares
entitled to registration rights are entitled to notice of such registration and
are entitled to include their shares in such registration, at our expense.
Jaymark is also entitled to specified demand registration rights under which
Jaymark may require us to file a registration statement under the Securities Act
at our expense with respect to our shares of common stock, and we are required
to use our best efforts to effect this registration. Further, Jaymark may
require us to file additional registration statements on Form S-3. All of these
registration rights are subject to conditions and limitations, among them the
right of the underwriters of an offering to limit the number of shares included
in the registration and our right not to effect a requested registration within
twelve months following the initial offering of our securities, including this
offering. All of these registration rights terminate after we have effected two
registration statements, or at the latest, four years from the date of this
offering.
Our historical results of operations have been included in Jaymark's
consolidated federal income tax return. We have entered into a Tax Sharing
Agreement with Jaymark dated September 1, 1999, under which the amount of
federal income tax allocated to us is generally determined as though we were
filing a separate federal income tax return. For periods during which Jaymark
and JNI are included in the same affiliated group for federal and state income
tax purposes, JNI and Jaymark have agreed that JNI's federal and state tax
obligations, if any, will be paid to Jaymark. At such time when we are no longer
included as a member of the Jaymark affiliated tax group, Jaymark will reimburse
us for the tax benefits associated with any net operating loss or credit
carryforwards previously utilized by Jaymark less any carryforwards utilized by
us.
AGREEMENTS WITH ADAPTEC
On November 12, 1998, we purchased certain products and technology of
Adaptec, Inc. relating to Adaptec's fibre channel products pursuant to an Asset
Acquisition Agreement. As payment for the Adaptec assets, we issued to Adaptec
1,618,421 shares of our Series A preferred stock (the "Series A Stock") and
three warrants to purchase up to an additional 3,480,788 shares of our Series A
Stock (the "Series A Warrants"). Immediately prior to the consummation of this
offering, the first Series A Warrant becomes exercisable with respect to 326,954
shares of Series A Stock at an aggregate exercise price of $100. In addition,
immediately prior to the consummation of this offering, the remaining two Series
A Warrants become exercisable with respect to a number of shares of Series A
Stock based upon the revenue earned by us on sales of products based on the
Adaptec acquired technology during the period from February 1, 1999 to the date
of our initial public offering, at an aggregate exercise price of $100. All
shares of Series A Stock will convert into an equal number of shares of common
stock upon completion of this offering.
In connection with the asset acquisition, we have entered into the
following agreements with Adaptec: a Fibre Channel Cross-License Agreement; a
Chip Manufacturing Agreement; a Board Manufacturing and Transition Agreement; a
Consulting Agreement; a Volume Purchase Agreement; and two Occupancy License
Agreements. Pursuant to the Fibre Channel Cross-License Agreement, Adaptec
granted us non-exclusive licenses to certain fibre channel technology and we
granted Adaptec a non-exclusive license to use and distribute any enhancements
we make to such fibre channel technology. The licenses under these agreements
are generally royalty-free. Pursuant to the Chip Manufacturing Agreement,
Adaptec agreed to perform manufacturing services with respect to fibre channel
ASICs for a transition period of two years beginning in November
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1998. Pursuant to the Board Manufacturing and Transition Agreement, Adaptec
agreed to perform manufacturing services with respect to fibre channel board
level products transferred to us under the Asset Acquisition Agreement for a
transition period of six months beginning in November 1998. We purchased $19,000
and $651,000 of components from Adaptec during the year ended December 31, 1998
and the six months ended June 30, 1999, respectively, pursuant to these
manufacturing agreements. Pursuant to the Consulting Services Agreement, Adaptec
has agreed to perform consulting services to assist us in the development of the
technology assets we purchased under the Asset Acquisition Agreement in exchange
for an hourly fee. Pursuant to the Volume Purchase Agreement, we agreed to sell
to Adaptec fibre channel products developed under the Chip Manufacturing
Agreement and the Board Manufacturing and Transition Agreement. We have not paid
or received any material amounts under the Consulting Services Agreement or the
Volume Purchase Agreement. Pursuant to the two Occupancy License Agreements,
Adaptec has granted us the right to occupy and use a portion of two of Adaptec's
facilities located in Irvine and Milpitas, California. The monthly license fee
for the Irvine facility was $18,537 and the monthly license fee for the Milpitas
facility was $2,686.50. The Irvine agreement expired in February 1999 and we
terminated the Milpitas agreement in February 1999.
Under an Investor's Rights Agreement dated as of November 12, 1998, Adaptec
or its permitted transferees will have registration rights with respect to the
1,618,421 shares of our common stock acquired in November 1998 and with respect
to any shares Adaptec acquires upon exercise of the warrants described above. If
we propose to register any of our securities under the Securities Act at any
time beginning two years after this offering, either for our own account or for
the account of other security holders, holders of shares entitled to
registration rights are entitled to notice of such registration and are entitled
to include their shares in such registration, at our expense. However, the
underwriters of any such offering have the right to limit the number of shares
included in such registration. These registration rights terminate after we have
effected two registration statements or, at the latest, four years from the date
of this offering.
We believe that all transactions with affiliates described above were made
on terms no less favorable to us than could have been obtained from unaffiliated
third parties. Our policy is to require that a majority of the independent and
disinterested outside directors on our board of directors approves all future
transactions between us and our officers, directors, principal stockholders and
their affiliates.
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<PAGE> 66
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the shares of our common stock as of June 30, 1999, and
as adjusted to give effect to the sale of shares of common stock in
this offering assuming (a) conversion of all of JNI's outstanding shares of
convertible preferred stock into common stock and (b) no exercise of the
underwriters' over-allotment option, by:
- each person known to be the beneficial owner of 5% or more of the
outstanding shares of common stock, including the selling stockholder;
- each executive officer listed in the Summary Compensation Table;
- each director of JNI; and
- all executive officers and directors of JNI as a group.
Except in cases where community property laws apply or as indicated in the
footnotes to this table, JNI believes that each stockholder identified in the
table possesses sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by such stockholder. All of the shares
indicated as beneficially owned by executive officers in the following table are
issuable within 60 days of July 31, 1999 upon exercise of outstanding options
granted under the 1997 Plan. The address of the individuals listed below is the
address of JNI set forth in the "Prospectus Summary."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING THE OFFERING
-------------------- SHARES BEING --------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
5% OR GREATER STOCKHOLDERS:
Jaymark, Inc........................ 24,300,000 93.8% %
Eric E. Wenaas, President and
Chief Executive Officer
9775 Towne Centre Drive
San Diego, CA 92121
Adaptec, Inc........................ 1,618,421 6.2
691 South Milpitas Blvd.
Milpitas, CA 95035
EXECUTIVE OFFICERS:
Terry M. Flanagan................. 461,250 1.8
Charles McKnett................... 217,980 1.0
Thomas K. Gregory................. 242,190 1.0
DIRECTORS:
Edward Frymoyer................... 15,000 *
P. Randy Johnson.................. -- --
Eric E. Wenaas.................... -- --
EXECUTIVE OFFICERS AND DIRECTORS AS
A GROUP (SEVEN PERSONS):.......... 936,420 3.8
</TABLE>
- ---------------
* Represents less than one percent of the total.
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DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of JNI will
consist of 100,000,000 shares of common stock, par value $0.001 per share, and
5,000,000 shares of preferred stock, par value $0.001 per share. Prior to this
offering, the authorized capital stock of JNI also includes 30,000,000 shares of
Series A preferred stock. Upon the closing of this offering, each outstanding
share of Series A preferred stock will be automatically converted into one share
of common stock. Upon the conversion, the Series A preferred stock will be
canceled and retired and removed from the authorized capital stock of JNI. The
following summary of certain provisions of the common stock and the preferred
stock of JNI is not complete and a full understanding requires a review of the
certificate of incorporation and by-laws of JNI that are included as exhibits to
the registration statement of which this prospectus forms a part, and the
provisions of applicable law.
COMMON STOCK
Assuming conversion of the Series A preferred stock as described above, as
of June 30, 1999 there were 25,918,421 shares of common stock outstanding held
by 2 stockholders of record. The holders of common stock are entitled to one
vote for each share held of record on all matters submitted to a vote of the
stockholders. Subject to preferences that may be applicable to any then
outstanding holders of preferred stock, holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared by the board of
directors out of funds legally available therefor. See "Dividend Policy."
In the event of a liquidation, dissolution or winding up of JNI, subject to
preferences that may be applicable to any then outstanding holders of preferred
stock, holders of the common stock are entitled to share ratably in all assets.
The common stock has no preemptive or conversion rights or other subscription
rights, and there are no redemptive or sinking fund provisions applicable to the
common stock. JNI has received full payment for all outstanding shares of its
common stock and cannot require its stockholders to make further payments on the
stock. The common stock to be outstanding upon completion of this offering will
have the same status.
PREFERRED STOCK
The board of directors has the authority, without further action by the
stockholders, to issue from time to time the preferred stock in one or more
series and to fix the number of shares, designations, preferences, powers, and
relative, participating, optional or other special rights and the qualifications
or restrictions thereof. The preferences, powers, rights and restrictions of
different series of preferred stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions, and purchase funds and other matters. The
issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to holders of common stock or affect adversely the
rights and powers, including voting rights, of the holders of common stock, and
may have the effect of delaying, deferring or preventing a change in control of
JNI. See Note 5 to financial statements for a description of the currently
outstanding preferred stock.
WARRANTS
In connection with our acquisition of technology from Adaptec in November
1998, we granted Adaptec warrants to purchase shares of our stock which become
exercisable upon satisfaction of certain performance criteria or upon completion
of an initial public offering of our common stock. Immediately prior to the
consummation of this offering, the first
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warrant becomes immediately exercisable with respect to 326,954 shares of our
Series A preferred stock at an exercise price of $100. The number of shares that
may become issuable upon exercise of the remaining warrants is calculated with
reference to the revenues we recognize from sales of products based on the
acquired technology from February 1, 1999 through the date the contingencies are
satisfied, up to a maximum of 3,480,788 shares, and is not currently
determinable.
REGISTRATION RIGHTS
Under an Investor's Rights Agreement dated as of November 12, 1998 Adaptec
or its permitted transferees will have registration rights with respect to the
1,618,421 shares of our common stock acquired in November 1998 and with respect
to any shares Adaptec acquires upon exercise of the warrants described above.
Jaymark, and its permitted transferees, also has registration rights under a
Registration Rights Agreement dated as of September 1, 1999 with respect to the
shares of our common stock that Jaymark currently holds. If we propose to
register any of our securities under the Securities Act at any time beginning
two years after this offering, either for our own account or for the account of
other security holders, holders of shares entitled to registration rights are
entitled to notice of such registration and are entitled to include their shares
in such registration, at our expense. Jaymark is also entitled to specified
demand registration rights under which Jaymark may require us to file a
registration statement under the Securities Act at our expense with respect to
our shares of common stock, and we are required to use our best efforts to
effect this registration. Further, Jaymark may require us to file additional
registration statements on Form S-3. All of these registration rights are
subject to conditions and limitations, among them the right of the underwriters
of an offering to limit the number of shares included in the registration and
our right not to effect a requested registration within twelve months following
the initial offering of our securities, including this offering. All of these
registration rights terminate after we have effected two registration statements
or at the latest, four years from the date of this offering.
DELAWARE ANTI-TAKEOVER LAW
We are required to follow Section 203 of the Delaware Law, an anti-takeover
law. In general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. A "business combination" includes a merger, asset or stock
sale or other transaction resulting in financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years prior, did own, 15% or more of the
corporation's outstanding voting stock. This provision may have the effect of
delaying, deterring or preventing a change of control of JNI without further
actions by the stockholders.
APPLICATION OF THE CALIFORNIA GENERAL CORPORATION LAW TO JNI
If our equity securities are held by less than 800 stockholders and a
majority of our outstanding shares are held by persons with California addresses
and we have operational characteristics that indicate that we have significant
contacts to California, we may be subject to Section 2115 of the California
General Corporation Law. In such event, we would be subject to certain key
provisions of the California General Corporation Law, including, without
limitation, those provisions relating to the number of directors to be elected
each year (all directors would be required to be elected each year under
California
65
<PAGE> 69
law applicable to companies with less than 800 beneficial holders of their
equity securities), the stockholders' right to cumulate votes at elections of
directors (cumulative voting would be mandatory under California law applicable
to companies with less than 800 beneficial holders of their equity securities),
the stockholders' right to remove directors without cause (which under
California law is subject to the stockholders' right to cumulative voting), our
ability to indemnify our officers, directors and employees (which generally is
more limited in certain situations in California than in Delaware), our ability
to make distributions, dividends or repurchases (which generally is more
restrictive in California than in Delaware), inspection of corporate records
(which is generally more available in California than in Delaware), approval of
certain corporate transactions, and dissenters' rights. After consultation with
the underwriters of this offering, we anticipate that we will have more than 800
stockholders following the completion of this offering.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is .
66
<PAGE> 70
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering there has been no public market for the common stock
of JNI. Future sales of substantial amounts of common stock in the public market
could adversely affect market prices prevailing from time to time. As described
below, only a limited number of shares will be available for sale shortly after
this offering due to contractual and legal restrictions on resale. Nevertheless,
sales of substantial amounts of common stock of JNI in the public market after
the restrictions lapse could adversely affect the prevailing market price at
such time and the ability of JNI to raise equity capital in the future.
- Upon the closing of this offering, we will have outstanding an aggregate
of approximately shares of common stock.
- Of these shares, the shares of common stock to be sold in this
offering will be freely tradable without restriction or further
registration under the Securities Act, unless the shares are held by
"affiliates" of JNI as such term is defined in Rule 144 of the Securities
Act.
- All remaining shares held by our existing stockholders were issued and
sold by JNI in private transactions and are eligible for public sale if
registered under the Securities Act or sold in accordance with Rule 144
or Rule 701 thereunder, which rules are summarized below.
Jaymark and Adaptec will collectively hold an aggregate of approximately
shares of common stock after the offering after giving effect to
conversion of the convertible preferred stock and the exercise of warrants held
by Adaptec. These stockholders have signed lock-up agreements which prevent them
from selling any common stock owned by them for a period of 180 days from the
date of this prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation. In addition, holders of all outstanding options
to acquire JNI common stock have entered into similar lock-up agreements with
the underwriters. When determining whether or not to release shares from the
lock-up agreements, DLJ will consider, among other factors, the stockholder's
reasons for requesting the release, the number of shares for which the release
is being requested and market conditions at the time. As a result of lock-up
agreements with the underwriters and the provisions of Rule 144 and 701,
approximately additional outstanding shares of common stock will be
eligible for sale in the public market upon expiration of the lock-up period.
In general, under Rule 144 as currently in effect, a person or persons
whose shares are aggregated, including an "affiliate," who has beneficially
owned shares for at least one year is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of either 1% of the
then outstanding shares of common stock or the average weekly trading volume of
the common stock on the Nasdaq National Market during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to such sale. One
percent of the outstanding shares of common stock would be shares
immediately after the offering. Sales under Rule 144 are also subject to
prescribed requirements regarding the manner of sale, notice and availability of
current public information about JNI.
In general, under Rule 701 of the Securities Act as currently in effect,
any employee, consultant or advisor of JNI who purchased shares from us in
connection with a compensatory stock or option plan or written employment
agreement is eligible to resell such shares 90 days after the effective date of
the offering in reliance on Rule 144, by complying with the applicable
requirements of Rule 144 other than the holding period conditions. On the date
90 days after the effective date of this offering, options to purchase
67
<PAGE> 71
approximately shares of common stock will be vested and exercisable and
upon exercise and after expiration of the 180-day lock-up period, may be sold
pursuant to Rule 701.
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register approximately shares of common stock issued or
reserved for issuance under our stock option and employee stock purchase plans.
Such registration statement is expected to be filed soon after the date of this
prospectus and will automatically become effective upon filing. Accordingly,
shares registered under such registration statement will be available for sale
in the open market, unless such shares are subject to vesting restrictions with
JNI or the lock-up restrictions described above.
Beginning two years after the date of this offering, in the event that we
conduct subsequent registered public offerings of our common stock, Jaymark and
Adaptec will be entitled to certain rights to cause JNI to include in such
registration shares of our common stock that they hold. Registration of such
shares under the Securities Act would generally result in such shares becoming
freely tradable without restriction under the Securities Act immediately upon
the effectiveness of such registration. However, shares purchased by affiliates
of JNI would not be freely tradeable. See "Risk Factors- Sales of our common
stock in the public market by existing investors may begin shortly after
completion of the offering and could cause our stock price to decline."
68
<PAGE> 72
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, dated
, 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Hambrecht & Quist LLC and
Bear, Stearns & Co. Inc. have severally agreed to purchase from the selling
stockholder and us the respective number of shares of common stock set forth
opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS: SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.......
Bear, Stearns & Co. Inc...................................
Hambrecht & Quist 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
included in this offering are subject to approval of legal matters by their
counsel and to customary conditions, including the effectiveness of the
registration statement, the continuing correctness of our representations and
those of the selling stockholder, the receipt of a "comfort letter" from our
accountants, the listing of the common stock for quotation on the Nasdaq
National Market and no occurrence of an event that would have a material adverse
effect on JNI. The underwriters are obligated to purchase and accept delivery of
all the shares of common stock, other than those covered by the over-allotment
option described below, if they purchase any of the shares of common stock.
The underwriters propose to initially offer some of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page of this prospectus and some of the shares of common stock to
certain dealers, including the underwriters, at the initial public offering
price less a concession not in excess of $ per share. The underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per
share to other dealers. After the initial offering of the common stock to the
public, the representatives of the underwriters may change the public offering
price and such concessions. 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 its
brokerage account holders.
The following table shows the underwriting fees to be paid to the
underwriters by the selling stockholder and by us in connection with this
offering. These amounts are shown assuming both no exercise and full exercise of
the underwriters' option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
NO FULL
EXERCISE EXERCISE
-------- --------
<S> <C> <C>
JNI:
Per share.................................. $ $
Total...................................... $ $
Selling Stockholder:
Per share.................................. $ $
Total...................................... $ $
</TABLE>
69
<PAGE> 73
The selling stockholder has granted to the underwriters an option,
exercisable for 30 days after the date of the underwriting agreement, to
purchase up to an aggregate of additional shares of common stock at the
initial public offering price less the underwriting fees. The underwriters may
exercise this option solely to cover overallotments, if any, made in connection
with the offering. To the extent that the underwriters exercise this option,
each underwriter will become obligated, subject to conditions, to purchase a
number of additional shares approximately proportionate to the underwriter's
initial purchase commitment. We estimate expenses relating to this offering will
be $ .
The selling stockholder, the underwriter and JNI have agreed to indemnify
each other against liabilities, including liabilities under the Securities Act.
Each of JNI, our executive officers and directors and some of our
securityholders (including the selling stockholder) has agreed that, for a
period of 180 days from the date of the final prospectus and subject to
exceptions, they will not, without the prior written consent of DLJ, do either
of the following:
- 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.
Either of the foregoing transfer restrictions will apply regardless of
whether a covered transaction is to be settled by the delivery of common stock
or other securities, in cash or otherwise. In addition, during such period, we
have agreed not to file any registration statement with respect to, and each of
our executive officers and directors and the selling stockholder has agreed not
to make any demand for, or exercise any right with respect to, the registration
of any shares of common stock or any securities convertible into or exercisable
or exchangeable for common stock without DLJ's prior written consent.
Application will be made to list our common stock on the Nasdaq National
Market.
Other than in the United States, no action has been taken by the selling
stockholder, the underwriters or us that would permit a public offering of the
shares of common stock included in this offering in any jurisdiction where
action for that purpose is required. The shares of common stock included in this
offering may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering material or advertisement in connection with
the offer and sale of any such 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 who receive this prospectus are advised to inform themselves about and
to observe any restrictions relating to the offering of the common stock and the
distribution of this prospectus. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any shares of common stock included in
this offering in any jurisdiction in which that would not be permitted or legal.
STABILIZATION
In connection with the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may overallot this offering,
creating a syndicate short position. The underwriters may bid for and purchase
shares of common stock in the open market to
70
<PAGE> 74
cover such syndicate short position or to stabilize the price of the common
stock. In addition, the underwriting syndicate may reclaim selling concessions
from syndicate members and selected dealers if DLJ repurchases previously
distributed common stock in syndicate covering transactions, in stabilization
transactions or otherwise or if DLJ receives a report that indicates that the
clients of such syndicate members have "flipped" the common stock. 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.
PRICING OF THIS OFFERING
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price for the shares of common stock
offered by this prospectus will be determined by negotiation among JNI,
representatives of the selling stockholder and the representatives of the
underwriters. The factors to be considered in determining the initial public
offering price include:
- the history of and the prospects for the industry in which we compete;
- our past and present operations;
- our historical results of operations;
- our prospects for future earnings;
- the recent market prices of securities of generally comparable companies;
and
- the general condition of the securities markets at the time of the
offering.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for JNI by Gray Cary Ware & Freidenrich LLP, San Diego, California. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by O'Melveny & Myers LLP, Newport Beach, California.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for each of
the three 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.
71
<PAGE> 75
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered by this prospectus. When used in this prospectus, the term "registration
statement" includes amendments to the registration statement as well as the
exhibits, schedules, financial statements and notes filed as part of the
registration statement. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information in the
registration statement. This prospectus omits information contained in the
registration statement as permitted by the rules and regulations of the SEC. For
further information with respect to us and the common stock offered by this
prospectus, reference is made to the registration statement. Statements herein
concerning the contents of any contract or other document are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed with the SEC an exhibit to the registration statement, each
such statement being qualified by and subject to such reference in all respects.
With respect to each such document filed with the SEC as an exhibit to the
registration statement, reference is made to the exhibit for a more complete
description of the matter involved.
As a result of the offering hereunder, we will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance with such laws, will file reports and other information with
the SEC. Reports, registration statements, proxy statements, and other
information filed by us with the SEC can be inspected and copied at the public
reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the SEC's Regional Offices: 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. The SEC maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov.
We intend to furnish holders of the 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. We intend to furnish other reports as it may determine or as may be
required by law.
72
<PAGE> 76
JNI CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1997 and 1998 and June 30,
1999 (unaudited).......................................... F-3
Statements of Operations for the Years Ended December 31,
1996, 1997 and 1998 and for the Six Months Ended June 30,
1998 and 1999 (unaudited)................................. F-4
Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1996, 1997 and 1998 and for the Six
Months Ended June 30, 1999 (unaudited).................... F-5
Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998 and for the Six Months Ended June 30,
1998 and 1999 (unaudited)................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of JNI Corp.
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of JNI Corp. at December 31,
1997 and 1998, and the results of its operations and its cash flows for each of
the three years in the period 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, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
San Diego, California
September 1, 1999
F-2
<PAGE> 78
JNI CORP.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------- JUNE 30,
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, net.................................. $ 856 $ 3,300 $ 4,199
Inventories............................................... 736 1,175 3,049
Other current assets...................................... 59 236 138
Deferred income taxes..................................... -- -- 1,477
------- ------- -------
Total current assets.............................. 1,651 4,711 8,863
Property and equipment, net................................. 225 2,466 3,295
Intangible assets, net...................................... -- 633 523
Other assets................................................ 24 4 32
------- ------- -------
$ 1,900 $ 7,814 $12,713
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.......................................... $ 484 $ 2,541 $ 2,679
Accrued liabilities....................................... 140 939 1,354
Due to affiliate.......................................... 1,950 3,061 5,220
------- ------- -------
Total current liabilities......................... 2,574 6,541 9,253
Other liabilities........................................... 66 100 130
------- ------- -------
Total liabilities................................. $ 2,640 $ 6,641 $ 9,383
------- ------- -------
Commitments and contingencies (Note 8)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, undesignated series, 5,000,000 shares
authorized; none issued................................ $ -- $ -- $ --
Convertible Preferred Stock, Series A, par value $.001 per
share; aggregate liquidation value $8,355 at December
31, 1998; 30,000,000 shares authorized; 23,700,000,
25,318,421 and 25,318,421 shares issued and
outstanding............................................ 24 25 25
Common stock, par value $.001 per share; 100,000,000
shares authorized; 600,000 shares issued and
outstanding............................................ 1 1 1
Additional paid-in capital................................ 2,848 5,419 6,790
Unearned stock-based compensation......................... -- (970) (1,940)
Accumulated deficit....................................... (3,613) (3,302) (1,546)
------- ------- -------
Total stockholders' equity (deficit).............. (740) 1,173 3,330
------- ------- -------
$ 1,900 $ 7,814 $12,713
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 79
JNI CORP.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------- --------------------------
1996 1997 1998 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues....................... $ 374 $ 2,903 $ 12,189 $ 3,826 $ 15,071
Cost of revenues................... 348 1,252 5,361 1,730 5,444
-------- -------- ----------- -------- -----------
Gross margin..................... 26 1,651 6,828 2,096 9,627
-------- -------- ----------- -------- -----------
Operating expenses:
Research and development......... 510 1,202 2,919 1,069 4,965
Selling and marketing............ 532 681 1,526 668 2,036
General and administrative....... 471 822 1,698 525 1,475
Amortization of intangible
assets........................ -- -- 47 -- 110
Amortization of stock-based
compensation.................. -- -- 35 -- 401
-------- -------- ----------- -------- -----------
Total operating
expenses.............. 1,513 2,705 6,225 2,262 8,987
-------- -------- ----------- -------- -----------
Operating income (loss)............ (1,487) (1,054) 603 (166) 640
Interest expense -- affiliate...... -- 130 265 118 289
-------- -------- ----------- -------- -----------
Income (loss) before income
taxes............................ (1,487) (1,184) 338 (284) 351
Income tax provision (benefit)..... -- -- 27 -- (1,405)
-------- -------- ----------- -------- -----------
Net income (loss).................. $ (1,487) $ (1,184) $ 311 $ (284) $ 1,756
======== ======== =========== ======== ===========
Earnings (loss) per share:
Basic............................ $ (2.48) $ (1.97) $ 0.52 $ (0.47) $ 2.93
======== ======== =========== ======== ===========
Diluted.......................... $ (2.48) $ (1.97) $ 0.01 $ (0.47) $ 0.06
======== ======== =========== ======== ===========
Number of shares used in per share
computations:
Basic............................ 600,000 600,000 600,000 600,000 600,000
Diluted.......................... 600,000 600,000 25,681,000 600,000 29,449,000
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 80
JNI CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK,
SERIES A COMMON STOCK ADDITIONAL UNEARNED PARENT
------------------- ---------------- PAID-IN STOCK-BASED CAPITAL ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION CONTRIBUTION DEFICIT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995...... -- $-- -- $-- $ -- $ -- $1,138 $ (942)
Net parent advances........... 1,653
Net loss...................... (1,487)
---------- --- ------- -- ------ ------- ------ -------
BALANCE, DECEMBER 31, 1996...... -- -- -- -- -- -- 2,791 (2,429)
Net parent advances........... 82
Investment by parent.......... 23,700,000 24 600,000 1 2,848 (2,873)
Net loss...................... (1,184)
---------- --- ------- -- ------ ------- ------ -------
BALANCE, DECEMBER 31, 1997...... 23,700,000 24 600,000 1 2,848 -- -- (3,613)
Issuance of convertible
preferred stock............. 1,618,421 1 1,566
Stock-based compensation...... 1,005 (970)
Net income.................... 311
---------- --- ------- -- ------ ------- ------ -------
BALANCE, DECEMBER 31, 1998...... 25,318,421 25 600,000 1 5,419 (970) -- (3,302)
Stock-based compensation
(unaudited)................. 1,371 (970)
Net income (unaudited)........ 1,756
---------- --- ------- -- ------ ------- ------ -------
BALANCE, JUNE 30, 1999
(unaudited)................... 25,318,421 $25 600,000 $1 $6,790 $(1,940) $ -- $(1,546)
========== === ======= == ====== ======= ====== =======
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
<S> <C>
BALANCE, DECEMBER 31, 1995...... $ 196
Net parent advances........... 1,653
Net loss...................... (1,487)
-------
BALANCE, DECEMBER 31, 1996...... 362
Net parent advances........... 82
Investment by parent.......... --
Net loss...................... (1,184)
-------
BALANCE, DECEMBER 31, 1997...... (740)
Issuance of convertible
preferred stock............. 1,567
Stock-based compensation...... 35
Net income.................... 311
-------
BALANCE, DECEMBER 31, 1998...... 1,173
Stock-based compensation
(unaudited)................. 401
Net income (unaudited)........ 1,756
-------
BALANCE, JUNE 30, 1999
(unaudited)................... $ 3,330
=======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 81
JNI CORP.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- ----------------
1996 1997 1998 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $(1,487) $(1,184) $ 311 $(284) $1,756
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Deferred income taxes...................... -- -- -- -- (1,446)
Depreciation and amortization.............. 17 86 243 54 583
Amortization of intangible assets.......... -- -- 47 -- 110
Amortization of stock-based compensation... -- -- 35 -- 401
Accrued interest expense -- affiliate...... -- 130 265 118 289
Changes in assets and liabilities:
Accounts receivable, net................... (76) (769) (2,444) (682) (899)
Inventories................................ (101) (511) (439) 261 (1,874)
Other assets............................... 23 (41) (157) 29 70
Accounts payable........................... -- 484 2,057 294 138
Accrued liabilities........................ 7 111 799 150 415
Other liabilities.......................... 14 11 34 18 (1)
------- ------- ------- ----- ------
Net cash (used in) provided by operating
activities.................................... (1,603) (1,683) 751 (42) (458)
------- ------- ------- ----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (50) (219) (1,597) (112) (1,412)
------- ------- ------- ----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances from affiliate................... 1,653 1,902 846 154 1,870
------- ------- ------- ----- ------
Net change in cash.............................. -- -- -- -- --
Cash, beginning of period....................... -- -- -- -- --
------- ------- ------- ----- ------
Cash, end of period............................. $ -- $ -- $ -- $ -- $ --
======= ======= ======= ===== ======
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Purchase of property and equipment and
intangible assets in exchange for
convertible preferred stock.............. $ -- $ -- $ 1,567 $ -- $ --
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 82
JNI CORP.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
JNI Corp. ("JNI" or the "Company") commenced operations in 1993 as a
division of Jaycor, Inc. ("Jaycor"). In February 1997, Jaycor effected a
corporate reorganization in which it formed two new corporations: Jaymark, Inc.
("Jaymark") and the Company. Jaymark became the parent of Jaycor and of the
Company in that reorganization transaction. Jaycor then transferred technology
and assets relating to its fibre channel division to Jaymark, which in turn
contributed these to the Company in exchange for shares of the Company's common
and preferred stock.
The Company is a leading designer and supplier of fibre channel hardware
and software products that connect servers and data storage devices to form
storage area networks ("SANs"). SANs were made possible by the emergence of
fibre channel technology, a new generation of server to storage communications
technology that improves data communication speeds, connectivity, distance
between connections, reliability and access. The Company operates in one
business segment.
BASIS OF PRESENTATION
The accompanying financial statements reflect the financial position,
results of operations, changes in stockholders' equity and cash flows as if the
Company was a separate entity for all periods presented. The financial
statements have been prepared using the historical basis in the assets and
liabilities and historical results of operations related to the Company's
business. When the Company was a division of Jaycor, the cash used by the
Company was funded by Jaycor. Subsequent to incorporation, the Company's cash
receipts and disbursements continue to be processed by Jaycor. The net balances
of the Company's accounts with Jaycor are included in Due to Affiliate.
General corporate overhead related to Jaymark's corporate headquarters and
common support divisions have been allocated to the Company generally based on
the proportion of the Company's total labor costs to the total of all of
Jaymark's subsidiaries' total labor costs. Allocated charges included in
operating expenses totaled $365, $336 and $509 for the years ended December 31,
1996, 1997 and 1998 and $206 and $429 for the six-month periods ended June 30,
1998 and 1999 (unaudited), respectively. Management believes these allocations
fairly and reasonably approximate costs incurred by Jaymark on behalf of the
Company's operations. However, the costs allocated to the Company are not
necessarily indicative of the costs that would have been incurred if the Company
had performed these functions as a stand-alone entity. Since the Company is
operated as a combined unit, management is unable to differentiate between the
amounts allocated and the amounts that would have been incurred on a stand-alone
basis. Subsequent to the separation of the Company from Jaymark, the Company
will have its own staff perform necessary functions using its own resources or
purchased services and will be responsible for the costs and expenses associated
with the management of a separate independent company.
UNAUDITED INTERIM FINANCIAL DATA
The unaudited interim financial statements for the six months ended June
30, 1998 and 1999 have been prepared on the same basis as the audited financial
statements and, in
F-7
<PAGE> 83
JNI CORP.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial information set
forth therein, in accordance with generally accepted accounting principles. The
data disclosed in the notes to the financial statements for these interim
periods is unaudited. Operating results for interim periods are not necessarily
indicative of operating results for an entire year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Provisions, when necessary, are made to reduce excess and obsolete
inventories to their estimated net realizable values.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over their
estimated useful lives, primarily using the straight-line method. Useful lives
range from three to five years for equipment and furniture and the shorter of
the useful lives or the terms of the leases (one to five years) for leasehold
improvements. Additions to property and equipment together with major renewals
and betterments are capitalized. Maintenance, repairs and minor renewals and
betterments are charged to expense as incurred.
LONG-LIVED ASSETS
The Company evaluates the carrying value of its long-lived assets when
events or changes in circumstances indicate that an asset's carrying value may
not be recoverable. An impairment loss is recognized when the sum of the
expected future undiscounted net cash flows is less than the carrying value of
the asset. An impairment loss would be measured by comparing the amount by which
the carrying value exceeds the fair value of the asset being evaluated for
impairment. No such losses have been identified by the Company.
INTANGIBLE ASSETS
Intangible assets represent certain products and technology purchased in
November 1998 (Note 2) and are being amortized over their estimated useful lives
of three years using the straight-line method. Accumulated amortization totaled
$47 and $157 at December 31, 1998 and at June 30, 1999 (unaudited),
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's payable to affiliate approximates fair
value as the rate of interest for this instrument approximates market rates of
interest currently
F-8
<PAGE> 84
JNI CORP.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
available to the Company for a similar instrument. The carrying value of the
Company's accrued liabilities approximates fair value due to the nature of their
short-term maturities.
REVENUE RECOGNITION
Revenue from product sales to customers are recognized upon shipment.
Allowances for estimated sales returns are provided at the time revenue is
recognized.
The Company's current practice is generally to warrant its adapter products
against defects in materials and workmanship for a three-year period from the
date of shipment and its Application Specific Integrated Circuits ("ASICs")
products for a one-year period from the date of shipment. The estimated cost of
warranty obligations is accrued at the time revenue is recognized.
RESEARCH AND DEVELOPMENT COSTS
The Company is involved in a large and continuing research and development
effort that includes the continual development of new products and the
improvement of existing products. All research and development costs are
expensed as incurred.
The Company capitalizes eligible computer software development costs upon
the establishment of technological feasibility, which is defined as completion
of designing, coding and testing activities. The amount of costs eligible for
capitalization, after consideration of factors such as net realizable value,
have not historically been material and, accordingly, all software development
costs have been charged to research and development expense as incurred in the
accompanying statements of operations.
INCOME TAXES
The Company is a member of the Jaymark affiliated group of corporations
which files a consolidated federal income tax return and certain combined and
consolidated state income tax returns. Income taxes are calculated as if the
Company had filed separate tax returns for federal and state purposes.
For periods during which Jaymark and the Company are included in the same
affiliated group for federal and state income tax purposes, the Company and
Jaymark have agreed that the Company's federal and state tax obligations, if
any, will be paid to Jaymark. At such time when the Company is no longer
included as a member of the Jaymark affiliated tax group, Jaymark will reimburse
the Company for the tax benefits associated with any net operating loss or
credit carryforwards previously utilized by Jaymark less any carryforwards
utilized by the Company.
Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred tax asset and/or liability is computed
for both the expected future impact of differences between the financial
statement and tax bases of assets and liabilities and for the expected future
tax benefit to be derived from tax loss and tax credit carryforwards. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be "more likely than not" realized in future tax returns. Tax
rate changes are reflected in income in the period such changes are enacted.
F-9
<PAGE> 85
JNI CORP.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company measures compensation costs related to stock option plans using
the intrinsic value method and provides pro forma disclosures of net income
(loss) and earnings (loss) per common share as if the fair value based method
had been applied in measuring compensation costs. Accordingly, compensation cost
for stock options is measured as the excess, if any, of the deemed fair value of
the Company's common stock at the date of grant over the amount an employee must
pay to acquire the stock and is amortized over the vesting period, generally
four years.
COMPREHENSIVE INCOME
The Company has had no items of comprehensive income for each of the three
years in the period ended December 31, 1998 or the six-month period ended June
30, 1999.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed using the weighted average number of
shares of common stock outstanding and is presented for basic and diluted
earnings per share. Basic earnings (loss) per share is computed by dividing
income (loss) available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings (loss) per share is
computed by dividing income (loss) available to common stockholders by the
weighted average number of common shares outstanding during the period increased
to include, if dilutive, the number of additional common shares that would have
been outstanding if the potential common shares had been issued. The dilutive
effect of outstanding stock options is reflected in diluted earnings per share
by application of the treasury stock method. Basic and diluted loss per share
for the year ended December 31, 1996 is calculated as if the common shares had
been issued on January 1, 1996. The Company has excluded all convertible
preferred stock and outstanding stock options from the calculation of diluted
loss per share for the years ended December 31, 1996 and 1997 and for the
six-month period ended June 30, 1998 (unaudited) because all such securities are
antidilutive for these periods. The total number of potential common shares
excluded from the calculations of diluted loss per common share for the year
ended December 31, 1997 and for the six-month period ended June 30, 1998
(unaudited) were 21,622,000 and 23,700,000, respectively.
F-10
<PAGE> 86
JNI CORP.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the computation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- ----------------------
1996 1997 1998 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)............. $(1,487) $(1,184) $ 311 $ (284) $ 1,756
======= ======= =========== ======== ===========
Denominator:
Denominator for basic earnings
(loss) per share--weighted
average shares
outstanding................ 600,000 600,000 600,000 600,000 600,000
Effect of dilutive securities:
Contingently issuable
shares................... -- -- -- -- 772,000
Dilutive options
outstanding.............. -- -- 1,164,000 -- 2,759,000
Convertible preferred
stock.................... -- -- 23,917,000 -- 25,318,000
------- ------- ----------- -------- -----------
Denominator for diluted
earnings (loss) per share -
adjusted weighted average
shares..................... 600,000 600,000 25,681,000 600,000 29,449,000
======= ======= =========== ======== ===========
Basic earnings (loss) per
share......................... $ (2.48) $ (1.97) $ 0.52 $ (0.47) $ 2.93
Diluted earnings (loss) per
share......................... $ (2.48) $ (1.97) $ 0.01 $ (0.47) $ 0.06
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was
issued. This statement will be effective for the Company on January 1, 2001.
SFAS 133 requires certain accounting and reporting standards for derivative
financial instruments and hedging activities. Under SFAS 133, all derivatives
must be recognized as assets and liabilities and measured at fair value. The
Company has not determined the impact of the adoption of this new accounting
standard on its financial statements or results of operations.
NOTE 2. ACQUISITION
In November 1998, the Company purchased certain fibre channel technology,
products and property and equipment from Adaptec, Inc. ("Adaptec"). As
consideration for the purchase, the Company issued to Adaptec 1,618,421 shares
of the Company's Series A Convertible Preferred Stock with a fair value, as
determined for financial reporting purposes, of approximately $0.97 per share
for an aggregate purchase price of $1,567.
The total purchase price included additional consideration given in the
form of three warrants to purchase shares of Series A Convertible Preferred
Stock which become exercisable based on product introductions and revenues from
products based on the acquired technology. Upon introduction on or before
November 12, 2000 of the next generation of the ASICs technology acquired from
Adaptec, an additional 326,954 shares of Series A Convertible Preferred Stock
will be issuable under the first warrant. Upon a
F-11
<PAGE> 87
JNI CORP.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2. ACQUISITION (CONTINUED)
change in control of the Company, as defined, and which includes an initial
public offering of stock, before November 12, 2000, the aforementioned warrant
becomes exercisable.
Under the remaining warrants, if sales of products based on the acquired
technology achieve certain volume goals, on or before January 31, 2001, a
maximum of 3,153,834 shares of Series A Convertible Preferred Stock will be
issuable. Upon a change in control of the Company, as defined, and which
includes an initial public offering of stock, before January 31, 2001, the
aforementioned warrants become exercisable to purchase a pro rata number of
shares, as defined, dependent on sales of products based on the acquired
technology immediately prior to the change in control. The pro rata calculation
is based upon the actual revenues earned by the Company on sales of products
based on the acquired technology during the period from February 1, 1999 to the
date of the change in control (the "Measurement Period") divided by a percentage
of the revenue targets, as stated, for sales of products based on the acquired
technology during the Measurement Period and based on the number of elapsed
months in the Measurement Period.
The total amount of intangible assets to be recorded in connection with
this asset purchase will increase by an amount determined by multiplying (a) the
number of shares that actually become issuable from the exercise of the warrants
by (b) the fair market value of a share of the Company's Series A Convertible
Preferred Stock on the date the contingencies are satisfied. The number of
shares that may actually become issuable is not currently determinable as none
of the contingencies have been resolved. Any additional amount of intangible
assets recorded as a result of the issuance of the contingent shares will be
amortized over the remaining useful life of the acquired technology, which runs
through 2001.
NOTE 3. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------- JUNE 30,
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE:
Accounts receivable............................... $891 $3,433 $4,587
Less allowance for doubtful accounts and sales
returns........................................ (35) (133) (388)
---- ------ ------
Total..................................... $856 $3,300 $4,199
==== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
-------------- JUNE 30,
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
INVENTORIES:
Raw materials.................................... $ 306 $ 645 $1,445
Work in process.................................. 279 426 1,488
Finished goods................................... 151 104 116
----- ------ ------
Total.................................... $ 736 $1,175 $3,049
===== ====== ======
</TABLE>
F-12
<PAGE> 88
JNI CORP.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 3. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS (CONTINUED)
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------- JUNE 30,
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT, NET:
Computer and test equipment........................ $308 $2,763 $3,963
Leasehold improvements............................. 7 10 92
Office furniture and other equipment............... 41 64 118
---- ------ ------
356 2,837 4,173
Less accumulated depreciation and amortization..... (131) (371) (878)
---- ------ ------
Total...................................... $225 $2,466 $3,295
==== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------- JUNE 30,
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
ACCRUED LIABILITIES:
Accrued payroll and payroll related costs.......... $123 $836 $1,089
Other.............................................. 17 103 265
---- ---- ------
Total...................................... $140 $939 $1,354
==== ==== ======
</TABLE>
NOTE 4. TRANSACTIONS WITH AFFILIATES
DUE TO AFFILIATE
On February 1, 1997, the Company entered into a revolving loan agreement
with Jaycor whereby Jaycor and the Company agreed to consent to borrow and/or
lend sums to each other as may be needed from time to time in the ordinary
course of business. Under the terms of the agreement, the advances bear interest
at a floating rate equal to Jaycor's incremental cost of borrowing (9.2%, 12.1%
and 13.5% at December 31, 1997 and 1998 and June 30, 1999 (unaudited)). Advances
under the agreement are due on demand, and if no demand is made, within ten
years of the date of such advance. During the years ended December 31, 1997 and
1998 and for the six-month period ended June 30, 1999 (unaudited), the Company
incurred interest expense on advances from Jaycor of $130, $265 and $289,
respectively. Prior to February 1, 1997, amounts advanced from Jaycor were
recorded as capital contributions to the Company and, therefore, no interest
expense was incurred during 1996.
BUILDING SUBLEASE
In October 1998, the Company and Jaycor entered into a sublease agreement,
as amended, whereby the Company subleased a certain portion of Jaycor's
facilities for terms consistent with Jaycor's primary lease. The sublease
provides for a base monthly rent and is subject to an annual increase based upon
the Consumer Price Index (CPI) percentage with a minimum increase of 2.5% and a
maximum increase of 5% annually. The term of the lease expires in October 2004.
In addition, the sublease requires the payment of a pro rata portion of the
monthly operating costs, taxes and utilities of the premises. As of
F-13
<PAGE> 89
JNI CORP.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 4. TRANSACTIONS WITH AFFILIATES (CONTINUED)
December 31, 1998, the Company's future annual minimum payments due to Jaycor
under this sublease were $225, $231, $237, $242, $248 and $211 for the years
ending December 31, 1999, 2000, 2001, 2002, 2003 and 2004, respectively.
PURCHASES
The Company purchased certain inventory components from Adaptec (Note 2) of
$19 and $651 during the year ended December 31, 1998 and the six-month period
ended June 30, 1999 (unaudited), respectively. Accounts payable to Adaptec
totaled approximately $19 and $92 at December 31, 1998 and June 30, 1999
(unaudited), respectively. There were no purchases from Adaptec during the years
ended December 31, 1996 or 1997.
NOTE 5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Board of Directors of the Company (the "Board") is authorized to issue
preferred stock or other senior securities and determine the series and number
of preferred shares to be issued and any related designations, powers,
preferences, rights, qualifications, limitations or restrictions. The total
number of shares authorized is 35,000,000. The Board has authorized and allotted
30,000,000 shares as Series A Convertible Preferred Stock. The remaining
5,000,000 shares are undesignated.
SERIES A CONVERTIBLE PREFERRED STOCK
The holders of Series A Convertible Preferred Stock are entitled to receive
annual dividends of $0.026 per share, such dividends to be payable only when and
if declared by the Board out of funds legally available therefor. The right to
such dividends shall not be cumulative and no rights to such dividends shall
accrue to holders of the Series A Convertible Preferred Stock if dividends on
said shares are not declared in any year. No dividends have been declared on the
Series A Convertible Preferred Stock. At December 31, 1998, the issued and
outstanding Series A Convertible Preferred Stock were convertible into
25,318,421 shares of the Company's common stock. The Series A Convertible
Preferred Stock will automatically convert into shares of common stock upon the
closing of a public offering, as defined, or upon the vote or written consent of
the holders of at least 50% of the authorized shares of Series A Convertible
Preferred Stock outstanding. The Series A Convertible Preferred Stock Stock has
a liquidation preference of $0.33 per share, plus all declared and unpaid
dividends.
NOTE 6. BENEFIT PLANS
The Company's employees are covered by Jaymark's 401(k) salary deferral
plan (the "401(k) Plan"), which covers substantially all employees of the
Company. Jaymark modified the 401(k) Plan, effective July 1, 1998, to allow for
a Company matching contribution (the "Match") and, effective July 1, 1999, to
allow eligible new employees to enroll on the first day of the month following
their hire date. The Match is 100% of the employee's first five percentage
points of salary contributed; employees vest 20% per year on the second through
sixth anniversaries of their hire date. During the year ended
F-14
<PAGE> 90
JNI CORP.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 6. BENEFIT PLANS (CONTINUED)
December 31, 1998 and during the six months ended June 30, 1999, the charge to
operations for the Match was $39 and $96, respectively.
The Company offers deferred compensation arrangements to certain of its
employees. The agreements allow the employees to defer up to 100% of their
salaries, net of certain payroll withholdings, with interest accruing thereon at
specified rates, currently at 9%. Distributions commence upon retirement or
termination and continue for a period as prescribed in the respective
agreements.
During February 1997, the Company adopted an option plan (the "1997 Plan")
which provides for the issuance of 6,280,630 shares of the Company's common
stock. The 1997 Plan provides for the grant to employees and directors of the
Company of incentive stock options and non-qualified stock options to purchase
shares of the Company's common stock. For a nine-year period following the date
of grant, such options are only exercisable in the event that the Company enters
into certain transactions including a sale of assets, merger, or public offering
of equity securities. Following such nine-year period, but prior to the
termination of such option (ten years from the date of grant), the option may be
exercised. In such event, if the employee attempts to sell the stock or
terminates employment with the Company, the Company has the right to repurchase
such shares at the greater of the exercise price or the fair market value of
such shares. The exercise price of all options granted under the 1997 Plan are
not less than the fair market value of the Company's common stock as determined
by the Board on the date of grant. Options granted under the 1997 Plan generally
vest over a four-year period, although such vesting is accelerated to three
years in the event of certain transactions resulting in a transfer of control of
the Company. At June 30, 1999, there were no shares of the Company's common
stock available for future grant under the 1997 Plan.
In April 1999, the Company adopted a second option plan (the "1999 Plan"),
as amended, which provides for the issuance of up to 3,304,000 shares of the
Company's common stock. The 1999 Plan provides for the grant to employees,
consultants and directors of the Company of incentive stock options and
non-qualified stock options to purchase shares of the Company's common stock.
Options granted under the 1999 Plan shall be exercisable at such time or upon
such event and subject to the terms, conditions and restrictions as determined
by the Board provided, however, that no option shall be exercisable after ten
years from the date of grant. The exercise price of all incentive stock options
granted under the 1999 Plan are not less than the fair market value of the
Company's common stock as determined by the Board on the date of grant. Options
granted under the 1999 Plan generally vest over a four-year period. At June 30,
1999, there were 2,780,500 shares of the Company's common stock available for
future grant under the 1999 Plan, giving effect to the increase in the stock
option reserve approved by the Board on September 1, 1999.
F-15
<PAGE> 91
JNI CORP.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 6. BENEFIT PLANS (CONTINUED)
A summary of the Company's stock option plans as of December 31, 1997 and
1998 and as of June 30, 1999 (unaudited) and changes during the periods is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------- SIX MONTHS ENDED
1997 1998 JUNE 30, 1999
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period................... -- $ -- 5,371,200 $0.12 5,769,630 $0.12
Granted.................... 5,371,200 0.12 1,155,000 0.12 1,038,500 3.68
Exercised.................. -- -- -- -- -- --
Expired/surrendered........ -- -- (756,570) 0.12 (4,000) 0.12
--------- --------- ---------
Outstanding at end of
period................... 5,371,200 $0.12 5,769,630 $0.12 6,804,130 $0.66
========= ========= =========
Vested at end of period.... -- 537,120 1,464,750
Exercisable at end of
period................... -- -- --
Weighted-average fair value
per option of options
granted during the
period................... $0.05 $0.93 $2.92
</TABLE>
The Company did not have a stock option plan at any time during the year
ended December 31, 1996.
The following table summarizes information regarding employee stock options
outstanding at December 31, 1998 and June 30, 1999 (unaudited), none of which
were exercisable:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
REMAINING
NUMBER CONTRACTUAL LIFE
EXERCISE PRICES OUTSTANDING (YEARS)
<S> <C> <C>
December 31, 1998:
$0.12..................... 5,769,630 8.7
========= ====
June 30, 1999:
$0.12..................... 6,025,630 8.3
$0.50..................... 255,000 9.7
$7.00..................... 523,500 10.0
--------- ----
6,804,130 8.5
========= ====
</TABLE>
Stock-based compensation is recognized using the intrinsic value method. In
connection with the grant of stock options to employees, the Company recorded
unearned stock-based compensation within stockholders' equity (deficit) of
$1,005 during fiscal 1998 and $1,371 during the six-month period ended June 30,
1999 (unaudited), representing the difference between the estimated fair value
of the common stock determined for financial reporting purposes and the exercise
price of these options at the date of grant. Amortization of unearned
stock-based compensation was $35 for the year ended December 31, 1998 and $401
for the six-month period ended June 30, 1999 (unaudited), respectively.
F-16
<PAGE> 92
JNI CORP.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 6. BENEFIT PLANS (CONTINUED)
At June 30, 1999 (unaudited), the remaining unearned stock-based
compensation of approximately $1,940 will be amortized as follows: $467 during
the six months ended December 31, 1999, $723 in 2000, $485 in 2001, $247 in 2002
and $18 in 2003. The amount of stock-based compensation expense to be recorded
in future periods could decrease if options for which accrued but unvested
compensation has been recorded are forfeited.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans the Company's net income (loss) would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS
------------------- ENDED
1997 1998 JUNE 30, 1999
(UNAUDITED)
<S> <C> <C> <C>
Net income (loss):
As reported........................ $(1,184) $ 311 $1,756
Pro forma.......................... $(1,242) $ 231 $1,669
Diluted earnings (loss) per common
share:
As reported........................ $ (1.97) $ 0.01 $ 0.06
Pro forma.......................... $ (2.07) $ 0.01 $ 0.06
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS
------------------- ENDED
1997 1998 JUNE 30, 1999
(UNAUDITED)
<S> <C> <C> <C>
Weighted average grant-date fair
value of options granted:
Exercise price equal to market
price of stock on the grant
date:
Aggregate value................. $ 275 $ 12 $1,599
Per share value................. $ 0.05 $ 0.05 $ 3.05
Exercise price less than the market
price of stock on the grant
date:
Aggregate value................. -- $1,068 $1,433
Per share value................. -- $ 1.17 $ 2.78
</TABLE>
The fair value of each option grant was estimated as of the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the years ended December 31, 1997 and 1998
and the six-month period ended June 30, 1999 (unaudited): no dividend yield;
risk-free interest rate of 6.00%, 4.83% and 5.42%; and expected terms of 9.9
years for all periods, respectively. The volatility of the Company's Common
Stock underlying the options was not considered because the Company's equity was
not publicly-traded as of December 31, 1997, 1998 and June 30, 1999.
F-17
<PAGE> 93
JNI CORP.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 7. INCOME TAXES
The components of income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1998 1999
(UNAUDITED)
<S> <C> <C>
Current:
Federal............................ $22 $ 32
State.............................. 5 9
--- -------
27 41
--- -------
Deferred:
Federal............................ -- (1,026)
State.............................. -- (420)
--- -------
-- (1,446)
--- -------
$27 $(1,405)
=== =======
</TABLE>
Due to the Company's net loss position for the years ended December 31,
1996 and 1997, there was no provision for income taxes recorded. The provision
for 1998 relates to the federal and state alternative minimum tax.
The following is a reconciliation of the statutory federal income tax rate
to the Company's effective tax rate:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED
------------------ JUNE 30,
1996 1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax provision (benefit) at statutory
rate.................................... (34)% (34)% 34% 34%
State tax, net of federal tax benefit..... (5) (3) 7 13
Research and development credits.......... (1) (4) (21) (92)
Stock-based compensation.................. -- -- 4 39
Permanent differences..................... -- 1 3 4
Utilization of net operating loss
carryforwards........................... -- -- (115) (140)
Net change in valuation allowance......... 40 40 96 (258)
--- --- ---- ----
--% --% 8% (400)%
=== === ==== ====
</TABLE>
F-18
<PAGE> 94
JNI CORP.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 7. INCOME TAXES (CONTINUED)
The components of the Company's net deferred tax assets (liabilities) are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AS OF
----------------- JUNE 30,
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $ 1,394 $ 1,006 $ 516
Research and development credit
carryforwards............................... 91 172 550
Allowances and reserves........................ 43 120 268
Accrued payroll and payroll related costs...... 44 163 167
Depreciation................................... 4 6 --
Alternative minimum tax credit carryforwards... -- 27 68
------- ------- ------
Total deferred tax assets.............. $ 1,576 $ 1,494 $1,569
Deferred tax liabilities:
Other.......................................... $ (113) $ (97) $ (92)
Depreciation................................... -- -- (31)
------- ------- ------
Net deferred tax assets..................... 1,463 1,397 1,446
Less valuation allowance.................... (1,463) (1,397) --
------- ------- ------
$ -- $ -- $1,446
======= ======= ======
</TABLE>
At December 31, 1997 and 1998, the Company recorded a valuation allowance
for the entire amount of the net deferred tax asset due to the uncertainty
surrounding the ultimate realization of such asset at that time. At June 30,
1999 there was no valuation allowance recorded against the net deferred tax
asset as management determined at that time that it was more likely than not
that the net deferred tax asset will be realized based on historical and
anticipated future pre-tax results of operations of the Company.
As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $2,454 and $1,938 and research and
development tax credit carryforwards of approximately $93 and $79, respectively.
As of December 31, 1998, the Company also had federal and state alternative
minimum tax credit carryforwards of approximately $22 and $5, respectively. The
net cumulative operating loss and credit carryforwards will expire at various
dates beginning in the years 2001 through 2017, if not utilized to offset future
taxable income of the Company.
F-19
<PAGE> 95
JNI CORP.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company leases its operating facilities and certain office equipment
under noncancelable operating leases. The facility leases require the payment of
taxes, maintenance, utilities and insurance.
Future annual minimum lease payments due under noncancelable operating
leases consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
OPERATING
YEARS ENDING DECEMBER 31, LEASES
<S> <C>
1999........................................................ $ 335
2000........................................................ 231
2001........................................................ 237
2002........................................................ 242
2003........................................................ 248
Thereafter.................................................. 211
------
Total minimum lease payments........................... $1,504
======
</TABLE>
Rent expense under operating leases for the years ended December 31, 1996,
1997 and 1998 was $16, $118 and $353 and rent expense for the six-month periods
ended June 30, 1998 and June 30, 1999 (unaudited) was $125 and $471,
respectively. Rent expense incurred from Jaycor (Note 4) was $0, $90 and $254
for the years ended December 31, 1996, 1997 and 1998 and $88 and $331 for the
six-month periods ended June 30, 1998 and 1999 (unaudited), respectively.
NOTE 9. CONCENTRATIONS OF RISK
The Company's products are concentrated in the SAN industry which is highly
competitive and subject to rapid technological change. The Company's revenues
are concentrated with several major customers and certain vital components of
the Company's products are manufactured by a small number of key suppliers. The
loss of a major customer, the interruption of product supply from a contract
manufacturer, a change of suppliers or a significant technological change in the
industry could affect operating results adversely.
The Company sells its products to original equipment manufacturers,
distribution channel customers and directly to end users and extends credit
based on an evaluation of the customer's financial condition, generally without
requiring collateral. Exposure to losses on receivables is principally dependent
on each customer's financial condition. The Company monitors its exposure for
credit losses and maintains allowances for anticipated losses.
Sales to customers outside of the United States accounted for 61%, 23% and
15% of the Company's net revenues for the years ended December 31, 1996, 1997
and 1998 and 20% for the six-month period ended June 30, 1999 (unaudited),
respectively. The majority of the Company's export sales were to customers in
Europe and Japan.
F-20
<PAGE> 96
JNI CORP.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 9. CONCENTRATIONS OF RISK (CONTINUED)
The percentage of sales to significant customers was as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
-------------------- 1999
1996 1997 1998 (UNAUDITED)
<S> <C> <C> <C> <C>
Customer A.............................. -- 8% 19% 15%
Customer B.............................. 6% 11 16 15
Customer C.............................. -- -- 6 14
Customer D.............................. -- -- 9 14
Customer E.............................. -- 13 6 7
Customer F.............................. 60 14 -- --
</TABLE>
NOTE 10. SUBSEQUENT EVENTS
In September 1999, the Board approved the filing of the Company's
Registration Statement on Form S-1 with the Securities and Exchange Commission
to reflect the proposed sale by the Company and a principal stockholder of
shares of Common Stock.
The Board approved the establishment, upon the closing of the offering, of
the 1999 Employee Stock Purchase Plan (the "Purchase Plan"). A total of 250,000
shares on the Company's Common Stock have been reserved for issuance under the
Purchase Plan, none of which have been issued. The number of shares reserved for
issuance under the Purchase Plan will be subject to an annual increase on
January 1 of each year beginning in 2001 equal to the lesser of (a) 125,000
shares, (b) 1.0% of the outstanding shares on such date or (c) a lesser amount
as determined by the Board. The Purchase Plan permits eligible employees to
purchase shares of Common Stock at a fifteen percent (15%) discount through
payroll deductions during sequential 24-month offering periods. Each such
offering period is divided into four consecutive six-month purchase periods.
Unless the Board establishes a higher price, the price at which shares are
purchased under the Purchase Plan for such offering period is equal to 85% of
the lesser of the fair market value of the Common Stock on the first day of such
offering period or the last day of the applicable purchase period within such
offering period. The initial offering period will commence on the effective date
of the offering.
If the Offering is consummated under the terms presently anticipated, all
of the outstanding Series A Convertible Preferred Stock will automatically
convert into 25,318,421 shares of Common Stock.
F-21
<PAGE> 97
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
JNI CORP.
SHARES OF COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson 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 the company
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> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the registrant in connection with the sale
of the common stock being registered. JNI is paying all of the expenses incurred
on behalf of the selling stockholder, other than underwriting discounts and
commissions. All amounts shown are estimates except for the registration fee and
the NASD filing fee.
<TABLE>
<S> <C>
Registration fee............................................ $ 22,240
NASD filing fee............................................. 8,500
Nasdaq National Market fee.................................. 50,000
Blue sky qualification fees and expenses.................... 5,000
Printing and engraving expenses............................. 150,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 300,000
Transfer agent and registrar fees........................... 10,000
Fee for custodian for selling stockholder................... 5,000
Miscellaneous............................................... 24,260
--------
Total............................................. $875,000
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the DGCL permits indemnification of officers, directors, and
other corporate agents under certain circumstances and subject to certain
limitations. The registrant's certificate of incorporation and by-laws provide
that the registrant shall indemnify its directors, officers, employees and
agents to the full extent permitted by the DGCL, including circumstances in
which indemnification is otherwise discretionary under Delaware law. In
addition, the registrant has entered into separate indemnification agreements
with its directors and executive officers which require the registrant, among
other things, to indemnify them against certain liabilities which may arise by
reason of their status or service (other than liabilities arising from acts or
omissions not in good faith or willful misconduct).
These indemnification provisions and the indemnification agreements entered
into between the registrant and its executive officers and directors may be
sufficiently broad to permit indemnification of the registrant's executive
officers and directors for liabilities, including reimbursement of expenses
incurred, arising under the Securities Act.
The underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception, the registrant has sold and issued the following
unregistered securities:
(a) Issuances of Shares of Common Stock.
On February 3, 1997, the registrant issued to Jaymark, Inc., 15,000 shares
of common stock in exchange for $1,500.
II-1
<PAGE> 99
On March 5, 1997, the registrant issued 585,000 shares of common stock to
Jaymark, Inc. as partial payment for technology purchased pursuant to a
Technology Assignment and License Agreement.
(b) Issuances of Shares of Preferred Stock.
On March 5, 1997, the registrant issued 23,700,000 shares of Series A
preferred stock to Jaymark, Inc. as partial payment for technology purchased
pursuant to a Technology Assignment and License Agreement.
On November 12, 1998, the registrant issued to Adaptec, Inc. 1,618,421
shares of Series A preferred stock and three Series A preferred stock purchase
warrants to purchase up to an additional 3,480,788 shares of Series A preferred
stock in exchange for products and technology.
(c) Option Issuances to Employees and Directors.
From February 1997 through June 30, 1999, the registrant issued options to
approximately 60 employees to purchase a total of 6,804,130 shares of common
stock at a weighted average exercise price of $0.66 per share. No consideration
was paid to the registrant by any recipient of any of the foregoing options for
the grant of any such options. None of the granted options have been exercised.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
The issuances described in Items 15(a) and 15(b) were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering. In
addition, the issuances described in Item 15(c) were deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and contracts
relating to compensation. The recipients of securities in each such transaction
represented their intention 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 and other instruments
issued in such transactions. All recipients either received adequate information
about the registrant or had access, through employment or other relationships,
to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Third Amended and Restated Certificate of Incorporation of
the Company
3.2 By-laws of the Company
4.1* Specimen Common Stock Certificate
4.2 Investor's Rights Agreement, dated November 12, 1998 by
and among JNI Corp., Adaptec, Inc. and Jaymark, Inc.
4.3 Registration Rights Agreement, dated September 1, 1999
between JNI Corp. and Jaymark, Inc.
5.1* Opinion of Gray Cary Ware & Freidenrich LLP
10.1 Form of Indemnity Agreement for directors and executive
officers
</TABLE>
II-2
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
10.2 1997 Stock Option Plan, as amended, and forms of Incentive
Stock Option Agreement and Nonstatutory Stock Option
Agreement thereunder
10.3 1999 Stock Option Plan, as amended, terms of Stock Option
Agreement and form of Stock Option Grant Agreement
thereunder
10.4* 1999 Employee Stock Purchase Plan and form of subscription
agreement thereunder
10.5 Technology Assignment and License Agreement, dated March
5, 1997 by and among Jaycor, Inc., Jaymark, Inc. and JNI
Corp.
10.6*+ Asset Acquisition Agreement, dated November 12, 1998
between Adaptec, Inc. and JNI Corp.
10.7 Series A Preferred Stock Purchase Warrant, dated November
12, 1998 issued by the Company to Adaptec, Inc.
10.8 Series A Preferred Stock Purchase Warrant, dated November
12, 1998 issued by the Company to Adaptec, Inc.
10.9 Series A Preferred Stock Purchase Warrant, dated November
12, 1998 issued by the Company to Adaptec, Inc.
10.10*+ Fibre Channel Cross-License Agreement, dated November 12,
1998 between JNI Corp. and Adaptec, Inc.
10.11*+ Letter Agreement, dated March 31, 1999 between JNI Corp.
and Adaptec, Inc.
10.12 Occupancy License Agreement, dated November 12, 1998
between JNI Corp. and Adaptec, Inc.
10.13 Occupancy License Agreement, dated November 12, 1998
between JNI Corp. and Adaptec, Inc.
10.14 Consulting Services Agreement, dated November 12, 1998
between JNI Corp. and Adaptec, Inc.
10.15*+ Chip Manufacturing Agreement, dated November 12, 1998
between JNI Corp. and Adaptec, Inc.
10.16*+ Amendment Number One to Chip Manufacturing Agreement,
dated March 9, 1999 between JNI Corp. and Adaptec, Inc.
10.17*+ Board Manufacturing and Transition Agreement, dated
November 12, 1998 between JNI Corp. and Adaptec, Inc.
10.18 Volume Purchase Agreement, dated November 12, 1998 between
JNI Corp. and Adaptec, Inc.
10.19 Bill of Sale, dated November 12, 1998 between JNI Corp.
and Adaptec, Inc.
10.20 Board Observer Confidentiality Agreement, dated December
6, 1998 between JNI Corp. and Adaptec, Inc.
10.21 License Agreement, dated March 9, 1999 between JNI Corp.
and Adaptec, Inc.
10.22 Sublease, dated October 7, 1998, between Jaycor, Inc. and
JNI Corp.
10.23 First Amendment to Sublease, dated December 1, 1998
between Jaycor, Inc. and JNI Corp.
</TABLE>
II-3
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
10.24 Second Amendment to Sublease, dated April 1, 1998 between
Jaycor, Inc. and JNI Corp.
10.25 Third Amendment to Sublease, dated May 15, 1999 between
Jaycor, Inc. and JNI Corp.
10.26 Fourth Amendment to Sublease, dated August 1, 1999 between
Jaycor, Inc. and JNI Corp.
10.27 Industrial Lease, dated January 7, 1999 between The Irvine
Company and JNI Corp.
10.28 Sublease, dated January 14, 1999 between Obsidian, Inc.
and JNI Corp.
10.29 Form of Severance and Change of Control Agreement, dated
September 1, 1999, entered into by JNI Corp. and each of
Terry M. Flanagan, Thomas K. Gregory, Charles McKnett and
Gloria Purdy
10.30 Revolving Loan Agreement, dated February 1, 1997 between
JNI Corp. and Jaycor, Inc.
10.31 Security Agreement, dated August 31, 1998 between JNI
Corp. and Jaycor, Inc.
10.32 Intellectual Property Security Agreement, dated August 31,
1998 between JNI Corp. and Jaycor, Inc.
10.33 Transitional Services Agreement, dated September 1, 1999
between JNI Corp. and Jaymark, Inc.
10.34 Tax Sharing Agreement, dated September 1, 1999 between JNI
Corp. and Jaymark, Inc.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-6)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to portions of this
exhibit.
(B) FINANCIAL STATEMENT SCHEDULE.
Report of Independent Accountants on Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referenced in Item 14 of
this registration statement or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is therefore
unenforceable. In the event that a claim for indemnification against
II-4
<PAGE> 102
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, employee or agent of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, employee or agent in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, County of San
Diego, State of California, on the 3rd day of September, 1999.
JNI Corp.
By: /s/ TERRY M. FLANAGAN
------------------------------
Terry M. Flanagan
President, Chief Executive
Officer and Director
(Principal Executive
Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Terry Flanagan and Gloria Purdy or
either of them, as his attorney-in-fact, each with full power of substitution,
for him in any and all capacities, to sign any and all amendments to this
registration statement, including post-effective amendments and any and all new
registration statements filed pursuant to Rule 462 under the Securities Act in
connection with or related to the offering contemplated by this registration
statement as amended, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each said attorney-in-fact or his
substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ TERRY M. FLANAGAN President, Chief September 3, 1999
- ------------------------------------------ Executive Officer and
Terry M. Flanagan Director (Principal
Executive Officer)
/s/ GLORIA PURDY Chief Financial Officer September 3, 1999
- ------------------------------------------ (Principal Financial
Gloria Purdy and Accounting
Officer)
/s/ ERIC E. WENAAS Chairman of the Board of September 3, 1999
- ------------------------------------------ Directors
Eric E. Wenaas
/s/ P. RANDY JOHNSON Director September 3, 1999
- ------------------------------------------
P. Randy Johnson
/s/ EDWARD FRYMOYER Director September 3, 1999
- ------------------------------------------
Edward Frymoyer
</TABLE>
II-6
<PAGE> 104
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of JNI Corp.
Our audits of the financial statements referred to in our report dated September
1, 1999 appearing in the Registration Statement on Form S-1 of JNI Corp. also
included an audit of the financial statement schedule listed in Item 16(b) of
this Registration Statement on Form S-1. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements.
PRICEWATERHOUSECOOPERS LLP
San Diego, California
September 1, 1999
II-7
<PAGE> 105
JNI CORP.
SCHEDULE II -- VALUATION & QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND TAKEN AGAINST END
OF PERIOD EXPENSES ALLOWANCE OF PERIOD
---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
DESCRIPTION
Year ended December 31, 1996:
Allowance for sales returns and
doubtful accounts................ $ -- $ 6 $ -- $ 6
Year ended December 31, 1997:
Allowance for sales returns and
doubtful accounts................ 6 73 44 35
Year ended December 31, 1998:
Allowance for sales returns and
doubtful accounts................ 35 191 93 133
Year ended December 31, 1996:
Deferred income tax asset valuation
allowance........................ $ 388 $658 $ 57 $ 989
Year ended December 31, 1997:
Deferred income tax asset valuation
allowance........................ 989 509 35 1,463
Year ended December 31, 1998:
Deferred income tax asset valuation
allowance........................ 1,463 322 388 1,397
</TABLE>
II-8
<PAGE> 106
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Third Amended and Restated Certificate of Incorporation of
the Company
3.2 By-laws of the Company
4.1* Specimen Common Stock Certificate
4.2 Investor's Rights Agreement, dated November 12, 1998 by
and among JNI Corp., Adaptec, Inc. and Jaymark, Inc.
4.3 Registration Rights Agreement, dated September 1, 1999
between JNI Corp. and Jaymark, Inc.
5.1* Opinion of Gray Cary Ware & Freidenrich LLP
10.1 Form of Indemnity Agreement for directors and executive
officers
10.2 1997 Stock Option Plan, as amended, and forms of Incentive
Stock Option Agreement and Nonstatutory Stock Option
Agreement thereunder
10.3 1999 Stock Option Plan, as amended, terms of Stock Option
Agreement and form of Stock Option Grant Agreement
thereunder
10.4* 1999 Employee Stock Purchase Plan and form of subscription
agreement thereunder
10.5 Technology Assignment and License Agreement, dated March
5, 1997 by and among Jaycor, Inc., Jaymark, Inc. and JNI
Corp.
10.6*+ Asset Acquisition Agreement, dated November 12, 1998
between Adaptec, Inc. and JNI Corp.
10.7 Series A Preferred Stock Purchase Warrant, dated November
12, 1998 issued by the Company to Adaptec, Inc.
10.8 Series A Preferred Stock Purchase Warrant, dated November
12, 1998 issued by the Company to Adaptec, Inc.
10.9 Series A Preferred Stock Purchase Warrant, dated November
12, 1998 issued by the Company to Adaptec, Inc.
10.10*+ Fibre Channel Cross-License Agreement, dated November 12,
1998 between JNI Corp. and Adaptec, Inc.
10.11*+ Letter Agreement, dated March 31, 1999 between JNI Corp.
and Adaptec, Inc.
10.12 Occupancy License Agreement, dated November 12, 1998
between JNI Corp. and Adaptec, Inc.
10.13 Occupancy License Agreement, dated November 12, 1998
between JNI Corp. and Adaptec, Inc.
10.14 Consulting Services Agreement, dated November 12, 1998
between JNI Corp. and Adaptec, Inc.
10.15*+ Chip Manufacturing Agreement, dated November 12, 1998
between JNI Corp. and Adaptec, Inc.
10.16*+ Amendment Number One to Chip Manufacturing Agreement,
dated March 9, 1999 between JNI Corp. and Adaptec, Inc.
10.17*+ Board Manufacturing and Transition Agreement, dated
November 12, 1998 between JNI Corp. and Adaptec, Inc.
10.18 Volume Purchase Agreement, dated November 12, 1998 between
JNI Corp. and Adaptec, Inc.
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
10.19 Bill of Sale, dated November 12, 1998 between JNI Corp.
and Adaptec, Inc.
10.20 Board Observer Confidentiality Agreement, dated December
6, 1998 between JNI Corp. and Adaptec, Inc.
10.21 License Agreement, dated March 9, 1999 between JNI Corp.
and Adaptec, Inc.
10.22 Sublease, dated October 7, 1998 between Jaycor, Inc. and
JNI Corp.
10.23 First Amendment to Sublease, dated December 1, 1998
between Jaycor, Inc. and JNI Corp.
10.24 Second Amendment to Sublease, dated April 1, 1999 between
Jaycor, Inc. and JNI Corp.
10.25 Third Amendment to Sublease, dated May 15, 1999 between
Jaycor, Inc. and JNI Corp.
10.26 Fourth Amendment to Sublease, dated August 1, 1999 between
Jaycor, Inc. and JNI Corp.
10.27 Industrial Lease, dated January 7, 1999 between The Irvine
Company and JNI Corp.
10.28 Sublease, dated January 14, 1999 between Obsidian, Inc.
and JNI Corp.
10.29 Form of Severance and Change of Control Agreement, dated
September 1, 1999, entered into by JNI Corp. and each of
Terry M. Flanagan, Thomas K. Gregory, Charles McKnett and
Gloria Purdy
10.30 Revolving Loan Agreement, dated February 1, 1997 between
JNI Corp. and Jaycor, Inc.
10.31 Security Agreement, dated August 31, 1998 between JNI
Corp. and Jaycor, Inc.
10.32 Intellectual Property Security Agreement, dated August 31,
1998 between JNI Corp. and Jaycor, Inc.
10.33 Transitional Services Agreement, dated September 1, 1999
between JNI Corp. and Jaymark, Inc.
10.34 Tax Sharing Agreement, dated September 1, 1999 between JNI
Corp. and Jaymark, Inc.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-6)
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by Amendment.
+ Confidential treatment has been requested with respect to portions of this
exhibit.
<PAGE> 1
EXHIBIT 3.1
THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
JAYCOR NETWORKS, INC.
Jaycor Networks, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is Jaycor Networks, Inc., the
corporation was originally incorporated under the same name, and the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on January 30, 1997.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Second Amended and Restated Certificate of
Incorporation restates and integrates and further amends the provisions of the
Certificate of Incorporation of this Corporation.
3. The text of the Certificate of Incorporation as heretofore amended
or supplemented is hereby restated and further amended to read in its entirety
as follows:
"FIRST: The name of the Corporation is JNI Corp.
SECOND: The address of the registered office of the Corporation in the State of
Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington,
County of New Castle, Delaware 19801. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
FOURTH:
A. Classes of Stock. The Corporation is authorized to issue a total of one
hundred thirty-five million (135,000,000) shares of stock in two classes,
designated, respectively, "Preferred Stock" and "Common Stock." The total number
of shares of Preferred Stock that the Corporation shall have authority to issue
is thirty five million (35,000,000) par value one-tenth of one cent ($.001) per
share, and the total number of shares of Common Stock that the Corporation shall
have authority to issue is one hundred million (100,000,000), par value
one-tenth of one cent ($.001) per share.
B. Series of Preferred Stock. The Preferred Stock may be issued from time to
time in one or more series. The first series of Preferred Stock shall consist of
thirty million (30,000,000) shares and shall be designated and known as "Series
A Preferred Stock." The Board of Directors of this Corporation is authorized to
determine or alter the rights, preferences, privileges and restrictions
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<PAGE> 2
granted to or imposed upon any wholly unissued series of Preferred Stock, and
within the limitations or restrictions stated in any resolution or resolutions
of the Board of Directors originally fixing the number of shares constituting
any series, to increase or decrease (but not below the number of shares of any
such series then outstanding) the number of shares of any such series subsequent
to the issue of shares of that series, to determine the designation of any
series, and to fix the number of shares of any series.
C. Rights, Preferences, Privileges and Restrictions. The relative powers,
preferences, special rights, qualifications, limitations and restrictions
granted to or imposed on the respective classes of the shares of capital stock
or the holders thereof are as follows:
1. Dividends. The holders of record of the Series A Preferred Stock
shall be entitled to receive cash dividends at an annual rate of eight cents
($0.08) per share, such dividends to be payable only when, as and if declared by
the Board of Directors out of funds legally available therefor. No dividends or
other distributions shall be made with respect to Common Stock, until all
dividends on the Series A Preferred Stock have been paid or set apart. The right
to such dividends on Series A Preferred Stock shall not be cumulative; and no
rights to such dividends shall accrue to holders of the Series A Preferred Stock
by reason of the fact that dividends on said shares are not declared in any
year. The holders of Series A Preferred Stock shall have no priority or
preference with respect to distributions made by the Corporation in connection
with the repurchase of shares of Common Stock issued to or held by employees,
directors, independent contractors or consultants upon termination of their
employment or services pursuant to agreements providing for the right of said
repurchase between the Corporation and such persons. After the holders of the
Series A Preferred Stock have received their dividend preference as set forth
above, any additional dividends or distributions declared by the Board of
Directors out of funds legally available thereto shall be distributed among all
holders of shares of Common Stock, together with holders of Series A Preferred
Stock, pari passu, in proportion to the number of shares of Common Stock which
would have been held by each such holder if all shares of Series A Preferred
Stock were converted into shares of Common Stock at the then effective
Conversion Price (as defined below).
2. Preference on Liquidation.
a. Preference. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, distributions to the
holders of shares of Common Stock and shares of Preferred Stock shall be made as
follows:
i) The holders of the Series A Preferred Stock then outstanding
shall be entitled to be paid, pro rata, out of the assets of the Corporation
available for distribution to its stockholders, whether from capital, surplus,
or earnings, before any payment shall be made in respect of the Corporation's
shares of Common Stock, an amount equal to $0.33 (the "Series A Liquidation
Preference") for each share of Series A Preferred Stock then held, plus all
declared and unpaid dividends thereon to the date fixed for distribution, as
adjusted to reflect any stock splits, stock dividends, or other
recapitalizations. If upon liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders
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<PAGE> 3
shall be insufficient to pay the holders of the Series A Preferred Stock the
full amounts to which they shall be entitled as set forth above, the holders of
the Series A Preferred Stock shall receive a proportionate percentage pro rata
distribution of assets according to the amounts which would be payable in
respect of the shares held by them upon such distribution if all amounts payable
on or with respect to said shares were paid in full. After setting apart or
paying in full the preferential amounts due the holders of the Series A
Preferred Stock, the remaining assets of the Corporation available for
distribution to stockholders, if any, shall be distributed to the holders of
shares of Common Stock, together with the holders of Series A Preferred Stock,
pari passu, in proportion to the number of shares of Common Stock which would
have been held by each such holder if all shares of Series A Preferred Stock
were converted into shares of Common Stock at the then effective Conversion
Price.
b. Deemed Liquidations, Dissolutions. The merger or consolidation of
the Corporation into or with any other corporation or corporations in which the
stockholders of this Corporation shall own less than a majority of the voting
securities of the surviving corporation, or the sale, transfer, or assignment of
all or substantially all of the assets of the Corporation, shall be deemed to be
a liquidation, dissolution, or winding up of the Corporation as those terms are
used in this Section 2. Any securities to be delivered to the holders of the
Series A Preferred Stock and Common Stock upon a merger, reorganization or sale
of substantially all of the assets of the Corporation shall be valued (for
purposes of this Section 2 only) as follows:
i) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) business days prior to the
closing;
ii) If actively traded over-the counter, the value shall be
deemed to be the average of the closing bid prices over the 30-day period ending
three (3) business days prior to the closing; and
iii) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Corporation and all
holders of outstanding shares of Series A Preferred Stock, provided that if the
Corporation and the holders of outstanding shares of Series A Preferred Stock
are unable to reach agreement, then the value shall be determined by an
independent appraisal by an investment banker hired and paid for by the
Corporation.
3. Voting. Except as required by law or as otherwise set forth herein,
the Series A Preferred Stock shall be voted together, and not separately as a
class, with the Corporation's shares of Common Stock at any annual or special
meeting of the stockholders of the Corporation, or may act by written consent in
the same manner as the Corporation's shares of Common Stock, subject to the
following:
a. Number of Votes. Each holder of Series A Preferred Stock shall be
entitled to such number of votes equal to the whole number of shares of Common
Stock of the Corporation into which the holder's Series A Preferred Stock are
convertible immediately after
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<PAGE> 4
the close of business on the record date fixed for such meeting, or, if no
record date is established, at the date such vote is taken, or on the effective
date of any such written consent.
b. Election of Directors. The holders of the outstanding shares of
Preferred Stock and shares of Common Stock, voting together as a single class,
shall elect all directors of the Board of Directors.
4. Conversion. The holders of Series A Preferred Stock shall have the
following conversion rights:
a. Right to Convert. Subject to Section 4(c), each share of Series A
Preferred Stock shall be convertible into fully paid and nonassessable shares of
Common Stock of the Corporation, at the option of the holder thereof at any time
after the date of issuance of such share, exercised by delivery of a written
notice to the Secretary of the Corporation. The number of shares of Common Stock
into which each share of Series A Preferred Stock may be converted shall be
determined by dividing $0.33 by the Conversion Price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. Upon the filing of this Third Amended and Restated
Certificate of Incorporation with the Delaware Secretary of State, the
"Conversion Price" per share of Series A Preferred Stock shall be $0.33. The
Conversion Price per share shall be subject to adjustment as set forth in
Section 3(e).
b. Automatic Conversion.
i) Each share of Series A Preferred Stock shall automatically
be converted into shares of Common Stock at the then effective Conversion Price
upon the closing of a public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of shares of Common Stock for the account of the Corporation to the public
and resulting in aggregate gross offering proceeds to the Corporation (before
expenses, discounts or commissions) of at least $7,500,000 and at a purchase
price of not less than $1.00 per share (as adjusted to reflect stock splits,
stock dividends, or other recapitalizations). In the event of such an offering,
the persons(s) entitled to receive the shares of Common Stock issuable upon such
conversion of Series A Preferred Stock shall not be deemed to have converted
until immediately prior to the closing of such public offering.
ii) Each share of Series A Preferred Stock shall automatically
be converted into shares of Common Stock at the then effective Conversion Price
upon the vote or written consent of the holders of at least fifty percent (50%)
of the authorized shares of Series A Preferred Stock outstanding.
c. Mechanics of Conversion. Before any holder of Series A Preferred
Stock shall be entitled to convert the same into shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed
in blank or accompanied by proper instruments of transfer, at the office of the
Corporation's Secretary, and shall give written notice to the Corporation at
such office that such holder elects to convert the same (except that no such
written notice of election to convert shall be necessary in the event of an
automatic conversion
4
<PAGE> 5
pursuant to subsection 4(b)(i) above) and shall state in writing therein the
name or names in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. The Corporation, as soon as practicable
thereafter, shall issue and deliver at such office to such holder or to the
holder's nominee, certificates for the full number of shares of Common Stock to
which such holder shall be entitled. Such conversion shall be deemed to have
been made as of the date of such surrender of the Series A Preferred Stock to be
converted (except that in the case of an automatic conversion pursuant to
subsection 4(b) above, such conversion shall be deemed to have been made
immediately prior to the closing of the public offering) and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on said date.
d. Fractional Shares. In lieu of any fractional shares of Common
Stock to which a holder of Series A Preferred Stock would otherwise be entitled
upon conversion, the Corporation shall pay cash equal to such fraction
multiplied by the fair market value of one Common Share as determined by the
Board.
e. Adjustment of Conversion Price. The Conversion Price of Series A
Preferred Stock shall be subject to adjustment from time to time as follows:
i) Issuance of Additional Stock Below Purchase Price. If the
Corporation shall issue, after the date upon which any shares of Series A
Preferred were first issued (the "Purchase Date"), any Additional Stock (as
defined below) without consideration or for a consideration per share less than
the Conversion Price in effect immediately prior to the issuance of such
Additional Stock, the Conversion Price in effect immediately prior to each such
issuance shall automatically be adjusted as set forth in this Section 4(e)(i),
unless otherwise provided in this Section 4(e)(i).
(1) Adjustment Formula. Whenever the Conversion Price is
adjusted pursuant to this Section 4(e)(i), the new Conversion Price shall be
determined by multiplying the Conversion Price then in effect by a fraction, (x)
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (the "Outstanding Common") plus the number of
shares of Common Stock that the aggregate consideration received by the
Corporation for such issuance would purchase at such Conversion Price; and (y)
the denominator of which shall be the number of shares of Outstanding Common
plus the number of shares of such Additional Stock. For purposes of the
foregoing calculation, the term "Outstanding Common" shall include shares of
Common Stock deemed issued pursuant to Section 4(e)(i)(5) below but shall not
include shares owned or held by or for the account of the Corporation.
(2) Definition of "Additional Stock." For purposes of this
Section 4(e)(i), "Additional Stock" shall mean any shares of Common Stock issued
(or deemed to have been issued pursuant to Section 4(e)(i)(5) by the Corporation
after the Purchase Date) other than
5
<PAGE> 6
(a) Common Stock issued pursuant to a transaction
described in Section 4(e)(ii) hereof.
(b) Shares of Common Stock issued to employees,
consultants or directors of the Corporation directly or pursuant to a stock
option plan or other employee incentive benefit plan approved by the Board of
Directors of the Corporation.
(c) Warrants to purchase shares of Preferred Stock or
Common Stock, issued or granted to financial institutions or lessors in
connection with commercial credit arrangements, equipment financings or similar
transactions approved in each case by the Board of Directors of the Corporation.
(d) Shares of Common Stock issued or issuable upon
conversion of the Series A Preferred Stock, and
(e) Shares of Common Stock issued or issuable in a
public offering prior to or in connection with which all outstanding shares of
Preferred Stock will be converted to Common Stock.
(3) No Fractional Adjustments. No adjustment of the
Conversion Price for the Preferred Stock shall be made in an amount less than
one cent per share, provided that any adjustments which are not required to be
made by reason of this sentence shall be carried forward and shall be either
taken into account in any subsequent adjustment made prior to three years from
the date of the event giving rise to the adjustment being carried forward, or
shall be made at the end of three years from the date of the event giving rise
to the adjustment being carried forward.
(4) Determination of Consideration. In the case of the
issuance of Common Stock or other securities for cash, the consideration shall
be deemed to be the amount of cash paid therefor before deducting any reasonable
discounts, commissions or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the issuance
and sale thereof. In the case of the issuance of the Common Stock or other
securities for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market value
thereof as determined in good faith by the Board of Directors irrespective of
any accounting treatment and without deduction of any expenses incurred or
commissions or concessions paid or allowed by the Corporation in connection
therewith.
(5) Deemed Issuance of Common Stock. In the case of the
issuance (whether before, on or after the Purchase Date) of options to purchase
or rights to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock or options to purchase or rights to
subscribe for such convertible or exchangeable securities, the following
provisions shall apply for all purposes of this Section 4(e)(i):
(a) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions to
6
<PAGE> 7
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in Section
4(e)(i)(4), if any, received by the Corporation upon the issuance of such
options or rights plus the minimum exercise price provided in such options or
rights (without taking into account potential antidilution adjustments) for the
Common Stock covered thereby.
(b) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the satisfaction
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in Section 4(e)(i)(4)).
(c) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable to the Corporation
upon exercise of such options or rights or upon conversion of or in exchange for
such convertible or exchangeable securities, including, but not limited to, a
change resulting from the antidilution provisions thereof, the Conversion Price
of the Preferred Stock, to the extent in any way affected by or computed using
such options, rights or securities, shall be recomputed to reflect such change,
but no further adjustment shall be made for the actual issuance of Common Stock
or any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(d) Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Conversion Price of the Preferred Stock, to the extent in any way affected
by or computed using such options, rights or securities or options or rights
related to such securities, shall be recomputed to reflect the issuance of only
the number of shares of Common Stock (and convertible or exchangeable securities
which remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(e) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to Sections 4(e)(i)(5)(a)
and
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<PAGE> 8
4(e)(i)(5)(b) shall be appropriately adjusted to reflect any change, termination
or expiration of the type described in either Section 4(e)(i)(5)(c) or
4(e)(i)(5)(d).
(6) No Increased Conversion Price. Notwithstanding any
other provisions of this Section 4(e)(i), except to the limited extent provided
for in Sections 4(e)(i)(5)(c) and 4(e)(i)(5)(d), no adjustment of the Conversion
Price pursuant to this Section 4(e)(i) shall have the effect of increasing the
Conversion Price above the Conversion Price in effect immediately prior to such
adjustment.
ii) Stock Split and Dividends. If the event the Corporation
should at any time or from time to time after the Purchase Date fix a record
date for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Preferred Stock shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of each share
of such series shall be increased in proportion to such increase of the
aggregate of shares of Common Stock outstanding and those issuable with respect
to such Common Stock Equivalents with the number of shares issuable with respect
to Common Stock Equivalents determined from time to time in the manner provided
for deemed issuances in Section 4(e)(i)(5).
iii) Reverse Stock Splits. If the number of shares of Common
Stock outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for the Preferred Stock
shall be appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in outstanding shares.
f. Other Distributions. In the event the Corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in Section 4(e), then, in each such case for
the purpose of this Section 4(f), the holders of Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of the Corporation into
which their shares of Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of the Corporation
entitled to receive such distribution.
g. Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made
8
<PAGE> 9
so that the holders of the Preferred Stock shall thereafter be entitled to
receive upon conversion of such Preferred Stock the number of shares of stock or
other securities or property of the Corporation or otherwise, to which a holder
of Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of such Preferred Stock after the recapitalization to the end that
the provisions of this Section 4 (including adjustment of the Conversion Price
then in effect and the number of shares purchasable upon conversion of such
Preferred Stock) shall be applicable after that event and be as nearly
equivalent as practicable.
h. No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Preferred Stock against impairment.
i. Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available, out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Stock, the full number of shares of Common
Stock deliverable upon the conversion of all Series A Preferred Stock from time
to time outstanding. The Corporation shall from time to time (subject to
obtaining necessary director and stockholder action), in accordance with the
laws of the State of Delaware, increase the authorized amount of its shares of
Common Stock if at any time the authorized number of shares of Common Stock
remaining unissued shall not be sufficient to permit the conversion of all of
the Series A Preferred Stock at the time outstanding.
j. No Reissuance of Series A Preferred Stock. Upon conversion of all
outstanding shares of Series A Preferred Stock pursuant to Section 4, no shares
of Series A Preferred Stock acquired by the Corporation by reason of conversion
or otherwise shall be issued or reissued, and all authorized shares of Series A
Preferred Stock shall be canceled, retired and eliminated from the shares that
the Corporation is authorized to issue.
k. Notices. Any notices required by the provisions of this Section 4
to be given to the holders of Series A Preferred Stock shall be deemed given
three (3) days after deposit in the United States mail, postage prepaid and
addressed to each holder of record at its address appearing on the books of the
Corporation; except that notices given to an address outside of the United
States and Canada shall be deemed given when sent by facsimile transmission with
a confirming copy sent by commercial express delivery service.
5. Protective Provisions. So long as any shares of Series A Preferred
Stock are issued and outstanding, the Corporation shall not, without first
obtaining the approval by vote or
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<PAGE> 10
written consent of the holders of a majority in interest of the outstanding
shares of Series A Preferred Stock:
a. amend or repeal any provision of the Corporation's Certificate of
Incorporation that would adversely alter or change any of the rights,
preferences, privileges or restrictions of the Series A Preferred Stock herein
provided;
b. authorize or issue shares of any class of stock with a preference
or priority as to dividends or assets superior to or on a parity with the Series
A Preferred Stock;
c. pay or declare any dividend on any securities junior (with
respect to distributions on liquidation) to the Series A Preferred Stock except
for repurchases of securities pursuant to agreements providing for the right of
repurchase between the Corporation and its current and former employees,
directors, independent contractors or consultants; or
d. authorize a merger or consolidation of the Corporation into or
with any other corporation or corporations in which the stockholders of this
Corporation shall own less than a majority of the voting securities of the
surviving corporation, the sale of substantially all the assets of Corporation
or recapitalization or reorganization of the Corporation.
6. Residual Rights. All rights accruing to the outstanding shares of
the Corporation not expressly provided for to the contrary herein shall be
vested with the Common Stock.
FIFTH: The business and affairs of the Corporation shall be managed by or under
the direction of the Board. In addition to the powers and authority expressly
conferred upon them by Statute or by this Certificate of Incorporation or the
Bylaws of the Corporation, the directors are hereby empowered to exercise all
such powers and do all such acts and things as may be exercised or done by the
Corporation. Election of directors need not be by written ballot, unless the
Corporation's bylaws so provide.
SIXTH: The Board is authorized to make, adopt, amend, alter or repeal the bylaws
of the Corporation. The stockholders shall also have power to make, adopt,
amend, alter or repeal the Bylaws of the Corporation.
SEVENTH: Subject to Section C.5 of Article FOURTH, this Corporation reserves the
right to amend or repeal any of the provisions contained in this Second Amended
and Restated Certificate of Incorporation in any manner now or hereafter
permitted by law, and the rights of the stockholders of this Corporation are
granted subject to this reservation.
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<PAGE> 11
EIGHTH: To the fullest extent permitted by the Delaware General Corporation Law,
a director of this Corporation shall not be liable to this Corporation or its
stockholders for monetary damages for any breach of fiduciary duties as a
director. If the Delaware General Corporation Law is hereafter amended to
authorize the further elimination or limitation of the liability of a director,
then the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the Delaware General Corporation Law,
as so amended. Any repeal or modification of the foregoing provisions of this
Article EIGHTH by the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification.
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<PAGE> 12
IN WITNESS WHEREOF, this Third Amended and Restated Certificate of
Incorporation has been executed by the undersigned duly authorized officer of
the Corporation on this 1st day of September, 1999.
Jaycor Networks, Inc.,
a Delaware corporation
By: /s/ TERRY M. FLANAGAN
-------------------------------------
Terry M. Flanagan, President
12
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
JAYCOR NETWORKS, INC.
<PAGE> 2
<TABLE>
<CAPTION>
INDEX Page
----
<S> <C> <C>
ARTICLE I STOCKHOLDERS.................................................................... 1
1.1. Annual Meeting........................................................... 1
1.2. Special Meetings......................................................... 1
1.3. Notice of Meetings....................................................... 1
1.4. Quorum................................................................... 1
1.5. Organization............................................................. 2
1.6. Conduct of Business...................................................... 2
1.7. Notice of Stockholder Business........................................... 2
1.8. Proxies and Voting....................................................... 3
1.9. Stock List............................................................... 3
1.10. Stockholder Action by Written Consent.................................... 3
ARTICLE II BOARD OF DIRECTORS............................................................. 4
2.1. Number and Term of Office................................................ 4
2.2. Vacancies and Newly Created Directorships................................ 4
2.3. Removal.................................................................. 4
2.4. Regular Meetings......................................................... 4
2.5. Special Meetings......................................................... 4
2.6. Quorum................................................................... 5
2.7. Participation in Meetings by Conference Telephone........................ 5
2.8. Conduct of Business...................................................... 5
2.9. Powers................................................................... 5
2.10. Compensation of Directors................................................ 6
2.11. Nomination of Director Candidates........................................ 6
ARTICLE III COMMITTEES.................................................................... 6
3.1. Committees of the Board of Directors..................................... 6
3.2. Conduct of Business...................................................... 6
ARTICLE IV OFFICERS....................................................................... 7
4.1. Generally................................................................ 7
4.2. Chairman of the Board.................................................... 7
4.3. President................................................................ 7
4.4. Vice President........................................................... 7
4.5. Chief Financial Officer.................................................. 7
4.6. Secretary................................................................ 8
4.7. Delegation of Authority.................................................. 8
4.8. Removal.................................................................. 8
4.9. Action With Respect to Securities of Other Corporations.................. 8
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE V STOCK........................................................................... 8
5.1. Certificates of Stock.................................................... 8
5.2. Transfers of Stock....................................................... 8
5.3. Record Date.............................................................. 9
5.4. Lost, Stolen or Destroyed Certificates................................... 9
5.5. Regulations.............................................................. 9
ARTICLE VI NOTICES........................................................................ 9
6.1. Notices.................................................................. 9
6.2. Waivers.................................................................. 9
ARTICLE VII MISCELLANEOUS................................................................. 9
7.1. Facsimile Signatures..................................................... 9
7.2. Corporate Seal........................................................... 10
7.3. Reliance Upon Books, Reports and Records................................. 10
7.4. Fiscal Year.............................................................. 10
7.5. Time Periods............................................................. 10
ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................... 10
8.1. Right to Indemnification................................................. 10
8.2. Right of Claimant to Bring Suit.......................................... 11
8.3. Non-Exclusivity of Rights................................................ 11
8.4. Indemnification Contracts................................................ 12
8.5. Insurance................................................................ 12
8.6. Effect of Amendment...................................................... 12
ARTICLE IX AMENDMENTS..................................................................... 12
</TABLE>
ii
<PAGE> 4
BYLAWS
OF
JAYCOR NETWORKS, INC.
ARTICLE I
STOCKHOLDERS
Section 1.1. Annual Meeting. An annual meeting of the stockholders of
Jaycor Networks, Inc. (the "Corporation") for the election of directors and for
the transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
Section 1.2. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes prescribed in the notice of the meeting, may be called
by (a) the Board of Directors pursuant to a resolution adopted by a majority of
the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such resolution
is presented to the Board for adoption), (b) the Chairman of the Board, (c) the
President, or (d) the holders of shares entitled to cast not less than twenty
percent (20%) of the votes at the meeting, and shall be held at such place, on
such date, and at such time as they shall fix. Business transacted at special
meetings shall be confined to the purpose or purposes stated in the notice.
Section 1.3. Notice of Meetings. Written notice of the place, date, and
time of all meetings of the stockholders shall be given not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 1.4. Quorum. At any meeting of the stockholders, the holders of
a majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum for all purposes,
unless or except to the extent that the presence of a larger number may be
required by law or by the Certificate of Incorporation or Bylaws of this
Corporation.
<PAGE> 5
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 1.5. Organization. Such person as the Board of Directors may
have designated or, in the absence of such a person, the chief executive officer
of the Corporation or, in his absence, such person as may be chosen by the
holders of a majority of the shares entitled to vote who are present, in person
or by proxy, shall call to order any meeting of the stockholders and act as
chairman of the meeting. In the absence of the Secretary of the Corporation, the
secretary of the meeting shall be such person as the chairman of such meeting
appoints.
Section 1.6. Conduct of Business. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including regulation of the manner of voting and the conduct of
discussion.
Section 1.7. Notice of Stockholder Business. At an annual or special
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before a
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
properly brought before the meeting by or at the direction of the Board of
Directors, (c) properly brought before an annual meeting by a stockholder, or
(d) properly brought before a special meeting by a stockholder, but if, and only
if, the notice of a special meeting provides for business to be brought before
the meeting by stockholders. For business to be properly brought before a
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a stockholder
proposal to be presented at an annual meeting shall be received at the
Corporation's principal executive offices not less than 120 calendar days in
advance of the date that the Corporation's (or the Corporation's predecessor's)
proxy statement was released to stockholders in connection with the previous
year's annual meeting of stockholders, except that if no annual meeting was held
in the previous year or the date of the annual meeting has been changed by more
than 30 calendar days from the date contemplated at the time of the previous
year's proxy statement, or in the event of a special meeting, notice by the
stockholder to be timely must be received not later than the close of business
on the tenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual or special meeting (a) a brief description of the
business desired to be brought before the annual or special meeting and the
reasons for conducting such business at the annual or special meeting, (b) the
name and address, as they appear on the Corporation's books, of the stockholder
proposing such business, (c) the class and number of shares of the Corporation
which are beneficially owned by
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<PAGE> 6
the stockholder, and (d) any material interest of the stockholder in such
business. Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at an annual or special meeting except in accordance with the
procedures set forth in this Section 1.7. The chairman of an annual or special
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting and in accordance with the
provisions of this Section 1.7, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
Section 1.8. Proxies and Voting. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing filed in accordance with the procedure established for
the meeting.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his name on the record date for the meeting,
except as otherwise provided herein or required by law.
All voting, except where otherwise required by law, may be by a voice
vote; provided, however, that upon demand therefor by a stockholder entitled to
vote or by his or her proxy, a stock vote shall be taken. Every stock vote shall
be taken by ballots, each of which shall state the name of the stockholder or
proxy voting and such other information as may be required under the procedure
established for the meeting. Every vote taken by ballots shall be counted by an
inspector or inspectors appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or these Bylaws, all other matters shall be
determined by a majority of the votes cast.
Section 1.9. Stock List. A complete list of stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in his or her name, shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
duration thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 1.10. Stockholder Action by Written Consent. Any action which
may be taken at any annual or special meeting of stockholders may be taken
without a meeting and without prior notice, if a consent in writing, setting
forth the actions so taken, is signed by the holders of outstanding shares
having not less than the minimum number of votes which would be necessary
3
<PAGE> 7
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. All such consents shall be filed with the
Secretary of the Corporation and shall be maintained in the corporate records.
Prompt notice of the taking of a corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. Number and Term of Office. The number of directors of the
Corporation shall initially be four, and, thereafter shall be fixed from time to
time exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). Each director shall hold
office until his successor is elected and qualified or until his earlier death,
resignation, retirement, disqualification or removal.
Section 2.2. Vacancies and Newly Created Directorships. Newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, or other cause (other then removal from office by
a vote of the stockholders) may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the next annual meeting of
stockholders. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Section 2.3. Removal. Subject to the limitations stated in the
Certificate of Incorporation, any director, or the entire Board of Directors,
may be removed from office at any time, with or without cause, but only by the
affirmative vote of the holders of at least a majority of the voting power of
all of the then outstanding shares of stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
Vacancies in the Board of Directors resulting from such removal may be filled by
(i) a majority of the directors then in office, though less than a quorum, or
(ii) the stockholders at a special meeting of the stockholders properly called
for that purpose, by the vote of the holders of a majority of the shares
entitled to vote at such special meeting. Directors so chosen shall hold office
until the next annual meeting of stockholders.
Section 2.4. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such place or places, on such date or dates, and at
such time or times as shall have been established by the Board of Directors and
publicized among all directors. A notice of each regular meeting shall not be
required.
Section 2.5. Special Meetings. Special meetings of the Board of
Directors may be called by one-half of the directors then in office (rounded up
to the nearest whole number), by the Chairman of the Board or by the President
and shall be held at such place, on such date, and
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<PAGE> 8
at such time as they or he shall fix. Notice of the place, date, and time of
each such special meeting shall be given each director by whom it is not waived
by mailing written notice not less than five (5) days before the meeting (one
(1) day before the meeting if delivered by an overnight courier service and two
(2) days before the meeting if by overseas courier service) or by telephoning,
telecopying, telegraphing or personally delivering the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 2.6. Quorum. At any meeting of the Board of Directors, a
majority of the total number of authorized directors shall constitute a quorum
for all purposes. If a quorum shall fail to attend any meeting, a majority of
those present may adjourn the meeting to another place, date, or time, without
further notice or waiver thereof.
Section 2.7. Participation in Meetings by Conference Telephone. Members
of the Board of Directors, or of any committee of the Board of Directors, may
participate in a meeting of such Board or 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 shall
constitute presence in person at such meeting.
Section 2.8. Conduct of Business. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as the Board
may from time to time determine, and all matters shall be determined by the vote
of a majority of the directors present, except as otherwise provided herein or
required by law. Action may be taken by the Board of Directors without a meeting
if all members thereof consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board of Directors.
Section 2.9. Powers. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance
with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without
cause, and from time to time to pass on the powers and duties of any officer
upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power
to appoint, remove and suspend subordinate officers, employees and agents;
5
<PAGE> 9
(6) To adopt from time to time such stock option, stock
purchase, bonus or other compensation plans for directors, officers, employees
and agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement,
and other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent
with these Bylaws, for the management of the Corporation's business and affairs.
Section 2.10. Compensation of Directors. Directors, as such, may
receive, pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the Board of Directors.
Section 2.11. Nomination of Director Candidates. Nominations for the
election of directors may be made by the Board of Directors or a proxy committee
appointed by the Board of Directors or by any stockholder entitled to vote in
the election of directors.
ARTICLE III
COMMITTEES
Section 3.1. Committees of the Board of Directors. The Board of
Directors, by a vote of a majority of the whole Board, may from time to time
designate committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board and shall,
for those committees and any others provided for herein, elect a director or
directors to serve as the member or members, designating, if it desires, other
directors as alternate members who may replace any absent or disqualified member
at any meeting of the committee. Any committee so designated may exercise the
power and authority of the Board of Directors to declare a dividend, to
authorize the issuance of stock or to adopt an agreement of merger or
consolidation if the resolution which designates the committee or a supplemental
resolution of the Board of Directors shall so provide. In the absence or
disqualification of any member of any committee and any alternate member in his
place, the member or members of the committee present at the meeting and not
disqualified from voting, whether or not he or she or they constitute a quorum,
may by unanimous vote appoint another member of the Board of Directors to act at
the meeting in the place of the absent or disqualified member.
Section 3.2. Conduct of Business. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings;
one-third of the authorized members shall constitute a
6
<PAGE> 10
quorum unless the committee shall consist of one or two members, in which event
one member shall constitute a quorum; and all matters shall be determined by a
majority vote of the members present. Action may be taken by any committee
without a meeting if all members thereof consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of such
committee.
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ARTICLE IV
OFFICERS
Section 4.1. Generally. The officers of the Corporation shall consist of
a President, a Secretary and a Chief Financial Officer. The Corporation may also
have, at the discretion of the Board of Directors, a Chairman of the Board, one
or more Vice Presidents, and such other officers as may from time to time be
appointed by the Board of Directors. Officers shall be elected by the Board of
Directors, which shall consider that subject at its first meeting after every
annual meeting of stockholders. Each officer shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. Any number of offices may be held by the same person.
Section 4.2. Chairman of the Board. The Chairman of the Board, if there
shall be such an officer, shall, if present, preside at all meetings of the
Board of Directors, and exercise and perform such other powers and duties as may
be from time to time assigned to him by the Board of Directors or as provided by
these Bylaws.
Section 4.3. President. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the general manager and chief executive
officer of the Corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
officers of the Corporation. He shall preside at all meetings of the
stockholders. He shall be ex officio a member of all the standing committees,
including the executive committee, if any, and shall have the general powers and
duties of management usually vested in the office of president of a Corporation,
and shall have such other powers and duties as may be prescribed by the Board of
Directors or by these Bylaws.
Section 4.4. Vice President. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Director, 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 have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or these Bylaws.
Section 4.5. Chief Financial Officer. The Chief Financial Officer shall
keep and maintain or cause to be kept and maintained, adequate and correct books
and records of account in written form or any other form capable of being
converted into written form.
The Chief Financial Officer shall deposit all monies and other valuables
in the name and to the credit of the Corporation with such depositories as may
be designated by the Board of Directors. He shall disburse all funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all
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of his transactions as Chief Financial Officer and of the financial condition of
the Corporation, and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or by these Bylaws.
Section 4.6. Secretary. The Secretary shall keep, or cause to be kept, a
book of minutes in written form of the proceedings of the Board of Directors,
committees of the Board, and stockholders. Such minutes shall include all
waivers of notice, consents to the holding of meetings, or approvals of the
minutes of meetings executed pursuant to these Bylaws or the Delaware General
Corporation Law. The Secretary shall keep, or cause to be kept at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of shares held by each.
The Secretary shall give or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required by these Bylaws or by
law to be given, and shall keep the seal of the Corporation in safe custody, and
shall have such other powers and perform such other duties as may be prescribed
by the Board of Directors or these Bylaws.
Section 4.7. Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.8. Removal. Any officer of the Corporation may be removed at
any time, with or without cause, by the Board of Directors.
Section 4.9. Action With Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V
STOCK
Section 5.1. Certificates of Stock. Each stockholder shall be entitled
to a certificate signed by, or in the name of the Corporation by, the President
or a Vice President, and by the Secretary or an Assistant Secretary, or the
Chief Financial Officer, certifying the number of shares owned by him or her.
Any or all of the signatures on such certificate may be by facsimile.
Section 5.2. Transfers of Stock. Transfers of stock shall be made only
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents
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designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 5.4 of these Bylaws, an
outstanding certificate for the number of shares involved shall be surrendered
for cancellation before a new certificate is issued therefor.
Section 5.3. Record Date. The Board of Directors may fix a record date,
which shall not be more than sixty (60) nor fewer than ten (10) days before the
date of any meeting of stockholders, nor more than sixty (60) days prior to the
time for the other action hereinafter described, as of which there shall be
determined the stockholders who are entitled: to notice of or to vote at any
meeting of stockholders or any adjournment thereof; to receive payment of any
dividend or other distribution or allotment of any rights; or to exercise any
rights with respect to any change, conversion or exchange of stock or with
respect to any other lawful action.
Section 5.4. Lost, Stolen or Destroyed Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 5.5. Regulations. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
NOTICES
Section 6.1. Notices. Except as otherwise specifically provided herein
or required by law, all notices required to be given to any stockholder,
director, officer, employee or agent shall be in writing and may in every
instance be effectively given by hand delivery to the recipient thereof, by
depositing such notice in the mails, postage paid, or by sending such notice by
prepaid telegram, mailgram, telecopy or commercial courier service. Any such
notice shall be addressed to such stockholder, director, officer, employee or
agent at his or her last known address as the same appears on the books of the
Corporation. The time when such notice shall be deemed to be given shall be the
time such notice is received by such stockholder, director, officer, employee or
agent, or by any person accepting such notice on behalf of such person, if hand
delivered, or the time such notice is dispatched, if delivered through the mails
or by telegram, courier or mailgram.
Section 6.2. Waivers. A written waiver of any notice, signed by a
stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver. Attendance of a person at a meeting shall constitute a waiver
of notice for such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
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ARTICLE VII
MISCELLANEOUS
Section 7.1. Facsimile Signatures. In addition to the provisions for use
of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 7.2. Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the Chief
Financial Officer or by an Assistant Secretary or other officer designated by
the Board of Directors.
Section 7.3.Reliance Upon Books, Reports and Records. Each director,
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser.
Section 7.4.Fiscal Year. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
Section 7.5.Time Periods. In applying any provision of these Bylaws
which require that an act be done or not done a specified number of days prior
to an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8.1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any other capacity
while serving as a director, officer or employee, shall be indemnified and held
harmless by the
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Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said Law permitted the
Corporation to provide prior to such amendment) against all expenses, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties, amounts paid or to be paid in settlement and amounts expended in
seeking indemnification granted to such person under applicable law, this By-Law
or any agreement with the Corporation) reasonably incurred or suffered by such
person in connection therewith and such indemnification shall continue as to a
person who has ceased to be a director, officer or employee and shall inure to
the benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in Section 8.2, the Corporation shall
indemnify any such person seeking indemnity in connection with an action, suit
or proceeding (or part thereof) initiated by such person only if (a) such
indemnification is expressly required to be made by law, (b) the action, suit or
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation, (c) such indemnification is provided by the Corporation, in its
sole discretion, pursuant to the powers vested in the Corporation under the
Delaware General Corporation Law, or (d) the action, suit or proceeding (or part
thereof) is brought to establish or enforce a right to indemnification under an
indemnity agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law. Such right shall be a
contract right and shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
then so requires, the payment of such expenses incurred by a director or officer
of the Corporation in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this Section or otherwise.
Section 8.2. Right of Claimant to Bring Suit. If a claim under Section
8.1 is not paid in full by the Corporation within ninety (90) days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if such suit is not frivolous or brought in bad faith, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any, has been tendered
to this Corporation) that the claimant has not met the standards of conduct
which make it permissible under the Delaware General Corporation Law for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General
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Corporation Law, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that a claimant has not met such applicable
standard of conduct.
Section 8.3. Non-Exclusivity of Rights. The rights conferred on any
person by Sections 8.1 and 8.2 shall not be exclusive of any other right which
such persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 8.4. Indemnification Contracts. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VIII.
Section 8.5. Insurance. The Corporation may maintain insurance to the
extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under Delaware
General Corporation Law.
Section 8.6. Effect of Amendment. Any amendment, repeal or modification
of any provision of this Article VIII by the stockholders or the directors of
the Corporation shall not adversely affect any right or protection of a director
or officer of the Corporation existing at the time of such amendment, repeal or
modification.
ARTICLE IX
AMENDMENTS
The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the Corporation, subject to the right of the stockholders to adopt,
amend, alter or repeal the Bylaws of the Corporation. Any adoption, amendment or
repeal of Bylaws of the Corporation by the Board of Directors shall require the
approval of a majority of the total number of authorized directors (whether or
not there exist any vacancies in previously authorized directorships at the time
any resolution providing for adoption, amendment or repeal is presented to the
Board). The stockholders shall also have power to adopt, amend or repeal the
Bylaws of the Corporation.
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SECRETARY'S CERTIFICATE OF ADOPTION OF
THE BYLAWS OF
JAYCOR NETWORKS, INC.
I hereby certify:
That I am the duly elected Secretary of Jaycor Networks, Inc., a
Delaware corporation;
That the foregoing Bylaws comprising thirteen (13) pages constitute the
Bylaws of said corporation as duly adopted by the Board of Directors of the
Corporation on January 31, 1997.
IN WITNESS WHEREOF, I have hereunder subscribed my name as of this 31st
day of January, 1997.
/s/ DOROTHY K. BIDWELL
----------------------------------------
Dorothy K. Bidwell, Secretary
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EXHIBIT 4.2
JAYCOR NETWORKS, INC.
INVESTOR'S RIGHTS AGREEMENT
NOVEMBER 12, 1998
<PAGE> 2
JAYCOR NETWORKS, INC.
INVESTOR'S RIGHTS AGREEMENT
This Investor's Rights Agreement (the "Agreement") is made as of the
12th day of November, 1998, by and among Jaycor Networks, Inc., a Delaware
corporation (the "Company") and Adaptec, Inc., a Delaware corporation
("Investor") and Jaymark, Inc., a Delaware corporation ("Jaymark"). As used
herein, the term "Investor" includes the Investor's successors, assigns and
transferees of any of the Company's securities held by the Investor.
RECITALS
The Company and the Investor have entered that certain Asset
Acquisition Agreement (the "Acquisition Agreement") of even date herewith
pursuant to which the Company desires to issue to the Investor (i) 1,618,421
shares (the "Acquired Shares") of the Company's Series A Preferred Stock (the
"Series A Preferred Stock") and (ii) the Warrants (as defined in the Acquisition
Agreement) exercisable for Series A Preferred Stock (collectively, the Acquired
Shares and the shares of Series A Preferred Stock issuable upon exercise of the
Warrants shall hereinafter be referred to as the "Shares") and the Investor
desires to transfer the Purchased Assets (as defined in the Acquisition
Agreement) to the Company. A condition to the Investor's obligations under the
Acquisition Agreement is that the Company, the Investor and Jaymark enter into
this Agreement in order to provide the Investor with (i) certain rights to
register the Company's Common Stock ("Common Stock") issuable upon conversion of
the Shares (the "Conversion Shares") held by the Investor, (ii) certain rights
to receive information pertaining to the Company, (iii) a Co-Sale right with
respect to a sale of the Company stock held by Jaymark, (iv) certain rights to
sell the Shares back to the Company, (v) certain rights to exchange the Shares
for Common Stock of Jaymark, (vi) certain rights to observe the Company's board
of directors meetings, and (vii) certain other covenants by the Company. The
Company and Jaymark desire to induce the Investor to sell the Purchased Assets
pursuant to the Acquisition Agreement by agreeing to the terms and conditions
set forth herein.
AGREEMENT
The parties hereby agree as follows:
1. Registration Rights. The Company and the Investor covenant and agree
as follows:
1.1 Definitions. For the purposes of this Section 1:
(a) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), and the declaration or ordering of effectiveness
of such registration statement or document;
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(b) The term "Registrable Securities" means (i) the Conversion
Shares and (ii) any other shares of Common Stock of the Company 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 for or in replacement of (including but not limited to shares of Common
Stock issued upon a stock split), the shares listed in (i) above, excluding in
all cases, however, any Registrable Securities sold by a person in a transaction
in which his or its rights under this Section 1 are not assigned.
Notwithstanding the foregoing, Common Stock or other securities shall only be
treated as Registrable Securities if and so long as they have not been (A) sold
to or though a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4 (1) thereof so that all transfer restrictions, and restrictive legends
with respect thereto, if any, are removed upon the consummation of such sale;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.10 of this Agreement;
(e) The term "SEC" means the Securities and Exchange
Commission.
1.2 Company Registration. If, during the period beginning two (2)
years after the Company first becomes subject to the periodic reporting
requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (but without any obligation to do so) the Company
proposes to register any of its stock under the Securities Act in connection
with the public offering of such securities solely for cash (other than a
registration on Form S-4, Form S-8 or any successors thereto, a registration in
which the only stock being registered is Common Stock issuable upon conversion
of debt securities which are also being registered, or any registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within fifteen (15) days after mailing of such notice by the
Company in accordance with Section 3.3, the Company shall, subject to the
provisions of Section 1.6, cause to be registered under the Securities Act all
of the Registrable Securities that each such Holder has requested to be
registered.
1.3 Obligations of the Company. Whenever required under this Section
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC such amendments and
supplements to the registration statement filed with the SEC and the prospectus
used in connection with such
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registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement for up to one hundred twenty (120) days.
(b) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(c) Use reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided 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.
(d) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(e) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
of which it is aware as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, such obligation to continue for one hundred twenty
(120) days and file any supplements or amendments as required under Section
1.3(a) to update the prospectus for such event.
(f) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or market on which similar
securities issued by the Company are then listed.
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(h) Use reasonable efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a
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letter dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
(i) To the extent reasonably necessary to effect the
registration of any Registrable Securities, make available for inspection by
each seller of Registrable Securities, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by such seller or underwriter, all pertinent
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement.
1.4 Obligations of Holders.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Holders of Registrable Securities included in a
registration statement will not (until further notice) effect sales thereof
after receipt of telegraphic or written notice from the Company to suspend sales
to permit the Company to correct or update a registration statement or
prospectus; but the obligations of the Company with respect to maintaining any
registration statement current and effective shall be extended by a period of
days equal to the period such suspension is in effect unless (i) such extension
would result in the Company's inability to use the financial statements in the
registration statement initially filed pursuant to the Holder or Holders'
request and (ii) such correction or update is a result of incorrect or
incomplete written information provided to the Company by a Holder expressly for
use in connection with such registration.
(c) The Holders of Registrable Securities included in a
registration statement declared effective by the SEC shall discontinue sales of
shares pursuant to such registration statement upon receipt of notice from the
Company of its intention to remove from registration the shares covered by such
registration statement which remain unsold, and such Holders shall notify the
Company of the number of such registered shares which remain unsold immediately
upon receipt of such notice from the Company.
1.5 Expenses of Registration.
(a) Company Registration. All expenses (other than underwriting
discounts and commissions) incurred in connection with registrations, filings or
qualifications of Registrable Securities pursuant to Section 1.2 for each
Holder, including (without limitation) all registration, filing, and
qualification fees, printers' and accounting fees, fees and disbursements
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of counsel for the Company, and the reasonable fees and disbursements of one
counsel for the selling Holders selected by them with the approval of the
Company, which approval shall not be unreasonably withheld, shall be borne by
the Company.
(b) Underwriting Discounts and Commissions. All underwriting
discounts and commissions incurred in connection with registrations in
connection with each registration statement under Section 1 shall be borne by
the participating sellers (and the Company, if the Company is a seller) in
proportion to the number of shares sold by each, or as they otherwise may agree.
1.6 Underwriting Requirements. In connection with a Company
initiated offering pursuant to Section 1.2 involving an underwriting of shares
of the Company's capital stock, the Company shall not be required under Section
1.2 to include any of the Holders' securities in such underwriting unless they
accept the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by Holders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling Stockholders
according to the total amount of securities entitled to be included therein
owned by each such selling Stockholder or in such other proportions as shall
mutually be agreed to by such selling shareholders). For purposes of the
preceding parenthetical concerning apportionment, for any selling Stockholder
which is a Holder of Registrable Securities and which is a partnership or
corporation, the partners, retired partners and Stockholders of such holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling Stockholder," and any pro-rata reduction with respect to such
"selling Stockholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling Stockholder," as defined in this sentence.
1.7 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.8 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
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(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or Exchange Act, against
any losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) 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 therein 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 state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law; and the
Company will pay to each such Holder, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 1.8 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable to any Holder, underwriter or controlling person for
any such loss, claim, damage, liability, or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder for use in connection with such registration; and each such Holder will
pay, as incurred, any legal or other expenses reasonably incurred by any person
or the Company intended to be indemnified pursuant to this subsection 1.8(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.8(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that in no event shall any indemnity under this subsection
1.8(b) exceed the net proceeds from the offering received by such Holder, except
in the case of willful fraud by such Holder.
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(c) Promptly after receipt by an indemnified party under this
Section 1.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.8, 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 indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of 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
1.8, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.8.
(d) If the indemnification provided for in this Section 1.8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided, that in no event shall any contribution by a Holder
under this subsection 1.8(d) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control; provided, however, that except as expressly provided in
the underwriting agreement, the obligations of the persons selling shares
pursuant to such underwriting agreement to indemnify the underwriters shall not
be considered to conflict with the indemnification obligations between the
Company and the Holders under this Section 1.8.
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(f) The obligations of the Company and Holders under this
Section 1.8 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.9 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration, the Company agrees to use reasonable efforts to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public so long as the
Company remains subject to the periodic reporting requirements under Sections 13
or 15(d) of the Exchange Act;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to enable
the Company to utilize Form S-3 for the sale of its Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.10 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of at least fifty percent (50%) of the Registrable Securities then
outstanding (as adjusted for any future stock splits, reclassifications and the
like), provided the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; and provided, further, that such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act.
For the purposes of determining the number of shares of Registrable Securities
held by a transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired
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<PAGE> 10
partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under Section 1. Notwithstanding this provision
1.10, the registration rights granted under this section may not be assigned to
any person or entity which, in the good faith judgment of the Company's board of
directors, is a competitor of the Company.
1.11 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
during the period of duration (up to, but not exceeding, 180 days for any
underwritten public offering by the Company) specified by the Company and an
underwriter of Common Stock or other securities of the Company, following the
effective date of a registration statement of the Company filed under the
Securities Act (and for the seven (7) days prior to such effective date), it
shall not, to the extent requested by the Company and such underwriter, directly
or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
Common Stock included in such registration; provided, however, that:
(a) such agreement shall be applicable only during the
three-year period following the date of the final prospectus distributed
pursuant to the first such registration statement of the Company which covers
Common Stock (or other securities) to be sold on its behalf to the public in an
underwritten offering; and
(b) all officers and directors of the Company, all five-percent
securityholders, and all other persons with registration rights (whether or not
pursuant to this Agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the share or securities of every other person subject to the
foregoing restriction) until the end of such period, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 1.11.
Notwithstanding the foregoing, the obligations described in this
Section 1.11 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a transaction on Form S-4 or
similar forms which may be promulgated in the future.
1.12 Termination of Registration Rights. No Holder shall be entitled
to exercise any right provided for in this Section 1 after the earlier of (i)
four (4) years following the consummation of the Company's initial public
offering, or (ii) such time as Rule 144 or another similar exemption under the
Securities Act is available for the sale of all of such Holder's shares during a
three (3) month period without registration.
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<PAGE> 11
1.13 Number of Registration Rights. The Company shall not be
obligated to effect, or take any action to effect, any registration pursuant to
this Section 1 after the Company has effected two (2) registrations of any
Registrable Securities pursuant to Section 1.2 and such registrations have been
declared or ordered effective.
2. Covenants and Rights.
2.1 Delivery of Financial Statements. The Company shall deliver to
the Investor (or its assignees or transferees):
(a) as soon as practicable, but in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company, year end
consolidated financial statements of Jaymark (which includes the Company), to
include an income statement, a balance sheet, a statement of stockholder's
equity and a statement of cash flows, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by an independent public
accounting firm of nationally recognized standing selected by Jaymark, provided,
however, at the Company's option, it may provide similar financial statements of
its own, prepared in accordance with GAAP, in place of the consolidated
financial statements of Jaymark, if and when such statements are available to
the Company; and
(b) within forty-five (45) days of the end of each fiscal
quarter, an unaudited income statement and balance sheet for the Company as of
the end of such quarter.
2.2 Co-Sale Right. In the event that Jaymark proposes to sell,
assign, transfer or otherwise convey fifty percent (50%) or more of the shares
of Common Stock or securities convertible into, exchangeable for or exercisable
for Common Stock ("Co-Sale Securities") then held by Jaymark, then Jaymark shall
offer in writing to the Investor the right to participate in such sale on the
same terms and conditions available to Jaymark. Upon written notice to Jaymark
within fifteen (15) business days of receipt by the Investor of notification
from Jaymark of the proposed sale, the Investor may sell that number of shares
of Co-Sale Securities (whether the Investor then holds shares of Common Stock or
securities convertible into, exchangeable for or exercisable for Common Stock)
equal to the total number of shares to be sold in the transaction multiplied by
a fraction, the numerator of which is the number of shares of Co-Sale Securities
held by the Investor and the denominator of which is the number of shares of
Co-Sale Securities held by Jaymark plus the number of shares of Co-Sale
Securities held by the Investor. To the extent the Investor exercises such right
of participation, the number of shares of Co-Sale Securities that Jaymark may
sell in the transaction shall be correspondingly reduced. Notwithstanding the
above, the co-sale rights set forth in this Section 2.2 shall not apply to a
dividend by Jaymark of the Company's shares to Jaymark's stockholders on a pro
rata basis.
2.3 Put Option. At any time after November 12, 2005 if the Company
has not consummated its initial public offering, the Investor shall have the
right to sell to the Company and the Company shall have the obligation to
purchase from the Investor, the Registrable Securities. Such sale shall be made
on the following terms and conditions:
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<PAGE> 12
(a) The price per share at which the Registrable Securities are
to be sold to the Company shall be equal to the then current fair market value
as mutually determined by the Company and the Investor. If the Company and the
Investor cannot agree as set forth above, then they shall select a mutually
agreeable investment banking firm to determine the fair market value of the
Investor's interest in the Company, which determination shall be binding upon
the Company and the Investor. If the Company and the Investor cannot mutually
agree upon an investment banking firm to perform the aforementioned valuation,
then each of the Company and the Investor will choose an investment banking firm
who in turn will choose a mutually agreeable (agreeable to such investment
banking firms) investment banking firm to determine the fair market value of the
Investor's interest in the Company, which determination will be binding upon the
Company and the Investor.
(b) The Investor shall, if exercising the put option created
hereby, deliver to the Company a written notice of its exercise of its rights
under this Section 2.3 (the "Put Notice") specifying the number of Registrable
Securities to be sold, which number shall be not less than one hundred percent
(100%) of the Registrable Securities held by the Investor.
(c) The Company shall, within one hundred twenty (120) days of
its receipt of the Put Notice, pay the aggregate purchase price (the "Put
Price") for the shares specified in the Put Notice by certified check or bank
draft made payable to the order of the Investor. At such time, the Investor
shall deliver to the Company the certificate or certificates representing the
Registrable Securities to the Company hereunder, each certificate to be endorsed
in blank or accompanied by executed stock powers sufficient to transfer such
shares. Notwithstanding the foregoing, the Company's obligation to pay the Put
Price is subject to (i) the Company having legally available funds to make such
payment under applicable corporate law, and (ii) the Company being able to make
such payment without causing the Company or Jaymark to violate or breach the
terms of its then existing third party indebtedness.
(d) If any portion of the Put Price is not paid within the time
limit set forth in subsection 2.3(c) then the Company agrees that it shall pay
any remaining unpaid amount as soon as the conditions in subsections 2.3(c)(i)
and 2.3(c)(ii) are satisfied and remain satisfied after any such payment. For
clarification, the Investor shall not have the right to put its Registrable
Securities to the Company in increments of less than one hundred percent (100%)
of the Registrable Securities held by it.
(e) Beginning with the fiscal year beginning on February 1,
2004, the Company covenants not to pay cash dividends or make any other cash
distribution on its capital stock in a cumulative annual amount in excess of
fifty percent (50%) of Company's cash on hand as reflected on the Company's
previous year's balance sheet.
(f) The provisions of this Section 2.3 and the rights described
herein shall terminate upon the consummation of the Company's initial public
offering.
2.4 Reserve for Conversion Shares. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Series A
Preferred Stock and Common Stock for the purposes of accommodating the
Investor's exercise of a portion or all of
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<PAGE> 13
the Warrants and to accommodate the conversion of some or all of the Shares, and
to otherwise comply with the terms of this Agreement, such number of its duly
authorized shares of Series A Preferred Stock and Common Stock as shall be
sufficient to accommodate the exercise of the Warrants and the conversion of the
then outstanding Shares. If at any time the number of authorized but unissued
shares of Series A Preferred Stock or Common Stock shall not be sufficient to
accommodate the exercise of the Warrants and the conversion of all of the then
outstanding Shares or to otherwise comply with the terms of this Agreement, the
Company will forthwith take such corporate action as may be necessary to
increase its authorized but unissued shares of Series A Preferred Stock or
Common Stock to such number of shares as shall be sufficient for such purposes.
The Company will obtain any authorization, consent, approval or other action by
or make any filing with any court or administrative body that may be required
under applicable state securities laws in connection with the issuance of shares
of Series A Preferred Stock or Common Stock upon the exercise of the Warrants or
conversion of the Shares.
2.5 Compliance with Laws. The Company shall comply with all
applicable laws, rules, regulations and orders, noncompliance with which could
materially adversely affect its business or condition, financial or otherwise.
2.6 Termination of Covenants. The covenants set forth in Sections
2.1 and 2.2 shall terminate and be of no further force or effect upon the
earlier to occur of (i) the consummation of the Company's initial public
offering, or (ii) when the Company shall (A) sell, convey, or otherwise dispose
of all or substantially all of its property or business or merge or consolidate
with any other corporation (other than a wholly owned subsidiary corporation)
where the Stockholders of the Company own less than fifty percent (50%) of the
voting power of the surviving entity after such merger or consolidation or (B)
effect any other transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of,
provided that this subsection (ii) shall not apply to a merger effected
exclusively for the purpose of changing the domicile of the Company.
2.7 Board Observer Rights. Investor shall have the right to
designate one representative to attend the Company's board meetings as an
observer; provided, however, that such representative shall agree to hold in
confidence and trust, and to act in a fiduciary manner with respect to, all
information provided by the Company thereto; provided further, that the Company
shall have the right to exclude such representative from all or any part of a
board meeting if in its sole discretion (i) such exclusion is necessary to
preserve the attorney-client privilege or (ii) the board will be discussing
matters which the Company deems in good faith to be of a competitive business
sensitive nature. Such observer shall receive board packages and notice of
meetings at the same time and in the same manner as the directors, provided,
however, the board observer agrees that the information contained in the board
packages is Confidential Information (as defined in that certain Board Observer
Confidentiality Agreement dated as of even date hereof, by and between the
Company and the board observer (the "Observer Agreement"), and will be treated
as such in accordance with the Observer Agreement. Investor covenants and agrees
that its rights under this Section 2.7 shall terminate immediately should it
contemplate entering the fibre channel chip and/or board level market within the
subsequent 12 month period. In such event Investor shall immediately revoke the
Board Observer's status.
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<PAGE> 14
2.8 Exchange of Shares.
(a) If Jaymark is anticipating an Event (as defined below),
prior to an initial public offering by Company, then Jaymark shall send Investor
written notice, in accordance with Section 3.3, not less than sixty (60) days
prior to the proposed Effective Date (as defined below) of such Event. As used
herein, the term "Event" shall mean (i) Jaymark's initial public offering, or
(ii) for so long as the Company is an affiliate of Jaymark, when Jaymark shall
(A) merge or consolidate with any other corporation (other than a wholly owned
subsidiary corporation) where the stockholders of Jaymark own less than fifty
percent (50%) of the voting power of the surviving entity after such merger or
consolidation or (B) effect any other transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of
Jaymark is disposed of, provided that this subsection shall not apply to a
merger effected exclusively for the purpose of changing the domicile of Jaymark.
As used herein, the term "Effective Date" shall mean, with respect to a
transaction described in (i) above, the anticipated initial filing date of
Jaymark's registration statement, and with respect to a transaction described in
(ii) above, the anticipated closing date.
(b) Within 15 days of receipt of such notice Investor shall
inform Jaymark whether it has an interest in exchanging the Shares held by it
for shares of Jaymark Common Stock. If Investor has a bona fide interest in such
an exchange, then Investor and Jaymark shall select a mutually agreeable
investment banking firm to perform a valuation to determine how much of
Jaymark's anticipated value, as of the Effective Date of the proposed Event, is
attributable to Company (the "Company Value"). If Investor and Jaymark cannot
mutually agree upon an investment banking firm to perform the aforementioned
valuation, then each of Investor and Jaymark will choose an investment banking
firm who in turn will choose a mutually agreeable (agreeable to such investment
banking firms) investment banking firm to determine the Company Value, which
determination will be binding upon Investor and Jaymark.
The investment banking firm who prepares the aforementioned
valuation will, based on the Company Value, attribute a value to the Shares
based upon Investor's percentage of ownership of Company as determined on a
fully diluted basis (the "Value of Investor's Securities"). The valuations
described in this subsection (b) shall be made without discount for lack of
liquidity and shall hereafter be referred to as the "Valuations." The Valuations
shall be completed not less than twenty-five (25) days prior to the anticipated
Effective Date of the Event. Investor and Company shall each pay for fifty
percent (50%) of the cost of the Valuations.
(c) The Valuations shall be binding upon the parties hereto for
a period of 180 days, provided, however, if Jaymark decides not to proceed with
its initial public offering, as evidenced by it withdrawing its registration
statement from the SEC, then the Valuations shall not be binding after the date
of such withdrawal. Thereafter the parties shall mutually agree to extend the
time period for the effectiveness of the Valuations or a new set of Valuations
will have to be performed by the investment banking firm which performed the
initial Valuations.
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<PAGE> 15
(d) Not less than ten (10) days prior to the anticipated
Effective Date of the Event, Investor must inform Jaymark and Company whether it
will elect to exchange the Shares for shares of Jaymark Common Stock. If
Investor elects to exchange the Shares, such exchange will be for not less than
all of the Shares and Investor will receive Common Stock of Jaymark on the
Effective Date of the Event in exchange therefor. Such election to exchange
shall be irrevocable during the period the Valuations are binding, as set forth
in subsection (c).
(e) In the event Investor elects to exchange the Shares, such
securities shall be exchanged automatically as of the Effective Date of the
Event and will be exchanged for that number of shares of Common Stock of Jaymark
determined by dividing the Value of Investor's Shares by the offering price or
the per share valuation, as appropriate.
(f) Investor shall surrender its share certificate or
certificates (or other instruments evidencing the Shares) to an exchange agent
appointed by Jaymark and shall be entitled to receive in exchange therefor a
certificate or certificates representing the number of shares of Common Stock of
Jaymark into which the Shares are exchangeable. The certificates representing
the Jaymark shares will bear appropriate restrictive legends including but not
limited to all legends required by applicable securities laws.
(g) Investor hereby agrees that with respect to any Jaymark
stock acquired by it, during the period of duration (up to, but not exceeding,
180 days for any underwritten public offering by Jaymark) specified by Jaymark
and an underwriter of Jaymark's Common Stock or other securities of Jaymark,
following the effective date of a registration statement of Jaymark filed under
the Securities Act (and for the seven (7) days prior to such effective date), it
shall not, to the extent requested by Jaymark and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (other than to donees who agree to be similarly bound) any securities of
Jaymark held by it at any time during such period except Common Stock included
in such registration.
(h) Fractional shares shall not be issued, but cash shall be
paid for any such fraction in an amount proportionate to the deemed per share
value of a whole share of Common Stock of Jaymark.
(i) Notwithstanding that the exchange of shares pursuant to
this Agreement is automatic as of the Effective Date of the Event without action
on the part of Investor and that such automatic exchange is effective with
respect to voting of shares, dividends shall not be paid on the exchanged shares
until the surrender of certificates as provided in subsection (f), but the
amount of such dividends shall be set aside. Upon such surrender of the
certificate or certificates (or other instruments evidencing the Shares), the
dividends thus set aside shall be paid without interest.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the
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<PAGE> 16
respective permitted successors and assigns of the parties (including
transferees of any of the Shares or the Warrants or any securities issued upon
conversion thereof). Nothing in this Agreement express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
3.2 Amendments and Waivers. Any term of this Agreement may be
amended or waived only with the written consent of the Company and the Holders
of a majority in interest of the Registrable Securities. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each Holder of
any Registrable Securities then outstanding, each future Holder of all such
Registrable Securities, and the Company.
3.3 Notices. Unless otherwise provided, any notice required or
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or sent by
telegram or fax, or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address or fax number as set forth
below or as subsequently modified by written notice.
3.4 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
3.5 Governing Law. This Agreement and all acts and transactions
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of California, without giving effect to principles of
conflicts of laws.
3.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.7 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not be considered in construing
or interpreting this Agreement.
3.8 Aggregation of Stock. All shares of the Company's stock held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
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<PAGE> 17
The parties have executed this Investor's Rights Agreement as of the
date first above written.
JAYCOR NETWORKS, INC. ADAPTEC, INC.
By: /s/ TERRY M. FLANAGAN By: /s/ LARRY BOUCHER
-------------------------------------- --------------------------------
Terry M. Flanagan, President
--------------------------------
Address: 9775 Towne Centre Dr. (Print name and title)
San Diego, CA 92121
Fax Address: 691 South Milpitas Blvd.
Number: (619) 452-0108 Milpitas, CA 95035
Fax
JAYMARK, INC. Number: (408) 262-2533
By: /s/ RANDY JOHNSON
--------------------------------------
Randy Johnson, Chief Financial Officer
Address: 9775 Towne Centre Dr.
San Diego, CA 92121
Fax
Number: (619) 452-0108
16
<PAGE> 1
EXHIBIT 4.3
JNI CORP.
REGISTRATION RIGHTS AGREEMENT
SEPTEMBER 1, 1999
<PAGE> 2
JNI CORP.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made as of the 1st
day of September 1999, by and between JNI Corp., a Delaware corporation (the
"Company"), and Jaymark, Inc., a Delaware corporation ("Investor").
RECITALS
WHEREAS, the Investor holds 23,700,000 shares of the Company's Series A
Preferred Stock and 600,000 shares of the Company's Common Stock (together, the
"Shares");
WHEREAS, the Company is contemplating an initial public offering of its
securities and desires the cooperation and resources that the Investor can
provide; and
WHEREAS, the Company desires to grant certain rights to register the
Common Stock held by the Investor and the Common Stock issuable upon conversion
of the Shares (the "Conversion Shares") to induce for the Investor's cooperation
in connection with the proposed initial public offering.
AGREEMENT
The parties hereby agree as follows:
1. Registration Rights. The Company and the Investor covenant and
agree as follows:
1.1 Definitions. For the purposes of this Section 1:
(a) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), and the declaration or ordering of effectiveness
of such registration statement or document;
(b) The term "Registrable Securities" means (i) the 5,000
shares of Common Stock held by the Investor, (ii) the Conversion Shares, and
(iii) any other shares of Common Stock of the Company 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 for
or in replacement of (including but not limited to shares of Common Stock issued
upon a stock split), the shares listed in (i) and (ii) above, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which his or its rights under this Section 1 are not assigned. Notwithstanding
the foregoing, Common Stock or other securities shall only be treated as
Registrable Securities if and so long as they have not been (A) sold to or
though a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of
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<PAGE> 3
the Securities Act under Section 4 (1) thereof so that all transfer
restrictions, and restrictive legends with respect thereto, if any, are removed
upon the consummation of such sale;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities;
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.10 of this Agreement;
(e) The term "SEC" means the Securities and Exchange
Commission.
1.2 Request for Registration.
(a) If, at any time following the date which is 12 months
after the effective date of a registration statement for the Company's initial
public offering, the Company shall receive a written request from the Holders
that the Company file a registration statement under the Act covering the
registration of the Registrable Securities then outstanding (pursuant to which,
the anticipated aggregate offering price before underwriting discounts and
commissions would exceed $10 million), then the Company shall:
(i) within 10 days of the receipt thereof, give
written notice of such request to all Holders; and
(ii) use its best efforts to effect as soon as
practicable the registration under the Act of all Registrable Securities which
the Holders request to be registered, subject to the limitations of subsection
1.2(b), within 20 days of the mailing of such notice by the Company in
accordance with Section 2.3.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to subsection 1.2(a) and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by the Company and shall be
reasonably acceptable to a majority in interest of the Initiating Holders. In
such event, the right of any Holder to include such Holder's Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
1.4(d)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting. Notwithstanding any
other provision of this Section 1.2, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Initiating Holders shall so advise all
Holders of Registrable Securities which would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be
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<PAGE> 4
included in the underwriting shall be allocated among all Holders thereof,
including the Initiating Holders, in proportion (as nearly as practicable) to
the amount of Registrable Securities of the Company owned by each Holder;
provided, however, that the number of shares of Registrable Securities to be
included in such underwriting shall not be reduced unless all other securities
are first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2, a certificate signed by the President of the Company stating that, in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 120 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2)
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) Within six months after the effective date of
the first registration made pursuant to this Section 1.2;
(iii) During the period starting with the date 60
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date 180 days after the effective date of, a registration subject to
Section 1.3 or Section 1.11 hereof; provided, that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective; or
(iv) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.11 below.
1.3 Company Registration. If, during the period beginning two (2)
years after the Company first becomes subject to the periodic reporting
requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (but without any obligation to do so) the Company
proposes to register any of its stock under the Securities Act in connection
with the public offering of such securities solely for cash (other than a
registration on Form S-4, Form S-8 or any successors thereto, a registration in
which the only stock being registered is Common Stock issuable upon conversion
of debt securities which are also being registered, or any registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within fifteen (15) days after mailing of such notice by the
Company in accordance with Section 3.3, the Company
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<PAGE> 5
shall, subject to the provisions of Section 1.7, cause to be registered under
the Securities Act all of the Registrable Securities that each such Holder has
requested to be registered.
1.4 Obligations of the Company. Whenever required under this Section
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC such amendments and
supplements to the registration statement filed with the SEC and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement for up to one hundred
twenty (120) days.
(b) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(c) Use reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided 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.
(d) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(e) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
of which it is aware as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, such obligation to continue for one hundred twenty
(120) days and file any supplements or amendments as required under Section
1.4(a) to update the prospectus for such event.
(f) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or market on which similar
securities issued by the Company are then listed.
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(h) Use reasonable efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such
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Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
(i) To the extent reasonably necessary to effect the
registration of any Registrable Securities, make available for inspection by
each seller of Registrable Securities, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by such seller or underwriter, all pertinent
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement.
1.5 Obligations of Holders.
(a) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Holders of Registrable Securities included in a
registration statement will not (until further notice) effect sales thereof
after receipt of telegraphic or written notice from the Company to suspend sales
to permit the Company to correct or update a registration statement or
prospectus; but the obligations of the Company with respect to maintaining any
registration statement current and effective shall be extended by a period of
days equal to the period such suspension is in effect unless (i) such extension
would result in the Company's inability to use the financial statements in the
registration statement initially filed pursuant to the Holder or Holders'
request and (ii) such correction or update is a result of incorrect or
incomplete written information provided to the Company by a Holder expressly for
use in connection with such registration.
(c) The Holders of Registrable Securities included in a
registration statement declared effective by the SEC shall discontinue sales of
shares pursuant to such registration statement upon receipt of notice from the
Company of its intention to remove from registration the shares covered by such
registration statement which remain unsold, and such Holders shall notify the
Company of the number of such registered shares which remain unsold immediately
upon receipt of such notice from the Company.
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1.6 Expenses of Registration.
(a) Company Registration. All expenses (other than
underwriting discounts and commissions) incurred in connection with
registrations, filings or qualifications of Registrable Securities pursuant to
Section 1.3 for each Holder, including (without limitation) all registration,
filing, and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders selected by them with the
approval of the Company, which approval shall not be unreasonably withheld,
shall be borne by the Company.
(b) Underwriting Discounts and Commissions. All underwriting
discounts and commissions incurred in connection with registrations in
connection with each registration statement under Section 1 shall be borne by
the participating sellers (and the Company, if the Company is a seller) in
proportion to the number of shares sold by each, or as they otherwise may agree.
1.7 Underwriting Requirements. In connection with a Company
initiated offering pursuant to Section 1.3 involving an underwriting of shares
of the Company's capital stock, the Company shall not be required under Section
1.3 to include any of the Holders' securities in such underwriting unless they
accept the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by Holders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling stockholders
according to the total amount of securities entitled to be included therein
owned by each such selling stockholder or in such other proportions as shall
mutually be agreed to by such selling stockholders). For purposes of the
preceding parenthetical concerning apportionment, for any selling stockholder
which is a Holder of Registrable Securities and which is a partnership or
corporation, the partners, retired partners and stockholders of such holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling stockholder," and any pro-rata reduction with respect to such
"selling stockholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling stockholder," as defined in this sentence.
1.8 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
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(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or Exchange Act, against
any losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) 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 therein 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 state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law; and the
Company will pay to each such Holder, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 1.9 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable to any Holder, underwriter or controlling person for
any such loss, claim, damage, liability, or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder for use in connection with such registration; and each such Holder will
pay, as incurred, any legal or other expenses reasonably incurred by any person
or the Company intended to be indemnified pursuant to this subsection 1.9(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.9(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that in no event shall any indemnity under this subsection
1.9(b) exceed the net proceeds from the offering received by such Holder, except
in the case of willful fraud by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including any
governmental action),
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such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 1.9, 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 indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the reasonable fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of 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 1.9, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations; provided, that in no event shall any contribution by a Holder
under this subsection 1.9(d) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control; provided, however, that except as expressly provided in
the underwriting agreement, the obligations of the persons selling shares
pursuant to such underwriting agreement to indemnify the underwriters shall not
be considered to conflict with the indemnification obligations between the
Company and the Holders under this Section 1.9.
(f) The obligations of the Company and Holders under this
Section 1.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
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1.10 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration, the Company agrees to use reasonable efforts to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public so long as the
Company remains subject to the periodic reporting requirements under Sections 13
or 15(d) of the Exchange Act;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to enable
the Company to utilize Form S-3 for the sale of its Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.11 Form S-3 Registration. In case the Company shall, at any time
after the date which is 12 months after the effective date of a registration
statement for the Company's initial public offering, receive a written request
from any Holder or Holders of Registrable Securities then outstanding that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within 15 days after receipt of such written notice from the Company; provided,
however, that the
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Company shall not be obligated to effect any such registration, qualification or
compliance, pursuant to this Section 1.11: (1) if Form S-3 is not available for
such offering by the Holders; (2) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities at an aggregate price to the public (net
of any underwriters' discounts or commissions) of less than $500,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 60 days after receipt of
the request of the Holder or Holders under this Section 1.11; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; (4) if the Company has previously effected two such registrations in the
twelve months preceding the request; or (5) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(c) Subject to the foregoing, the Company shall use its
reasonable efforts to file a registration statement covering the Registrable
Securities and other securities so requested to be registered as soon as
practicable after receipt of the request or requests of the Holders. All
expenses incurred in connection with registrations requested pursuant to this
Section 1.11, including (without limitation) all registration, filing,
qualification, printing and accounting fees and the reasonable fees and
disbursements of one counsel for the selling Holder or Holders and counsel for
the Company, but excluding any underwriters' discounts or commissions associated
with Registrable Securities, shall be borne by the Company. Registrations
effected pursuant to this Section 1.11 shall not be counted as demands for
registration or registrations effected pursuant to Sections 1.2 or 1.3,
respectively.
1.12 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of at least fifty percent (50%) of the Registrable Securities then
outstanding (as adjusted for any future stock splits, reclassifications and the
like), provided the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; and provided, further, that such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act.
For the purposes of determining the number of shares of Registrable Securities
held by a transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided that
all assignees and transferees who would not qualify individually for assignment
of registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under Section 1.
Notwithstanding this Section 1.12, the registration rights granted under this
section may not be assigned to any person or entity which, in the good faith
judgment of the Company's board of directors, is a competitor of the Company.
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1.13 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
during the period of duration (up to, but not exceeding, 180 days for any
underwritten public offering by the Company) specified by the Company and an
underwriter of Common Stock or other securities of the Company, following the
effective date of a registration statement of the Company filed under the
Securities Act (and for the seven (7) days prior to such effective date), it
shall not, to the extent requested by the Company and such underwriter, directly
or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
Common Stock included in such registration; provided, however, that:
(a) such agreement shall be applicable only during the
three-year period following the date of the final prospectus distributed
pursuant to the first such registration statement of the Company which covers
Common Stock (or other securities) to be sold on its behalf to the public in an
underwritten offering; and
(b) all officers and directors of the Company, all
five-percent securityholders, and all other persons with registration rights
(whether or not pursuant to this Agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the share or securities of every other person subject to the
foregoing restriction) until the end of such period, and each Holder agrees
that, if so requested, such Holder will execute an agreement in the form
provided by the underwriter containing terms which are essentially consistent
with the provisions of this Section 1.13.
Notwithstanding the foregoing, the obligations described in this
Section 1.13 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a transaction on Form S-4 or
similar forms which may be promulgated in the future.
1.14 Termination of Registration Rights. No Holder shall be entitled
to exercise any right provided for in this Section 1 after the earlier of (i)
four (4) years following the consummation of the Company's initial public
offering, or (ii) such time as Rule 144 or another similar exemption under the
Securities Act is available for the sale of all of such Holder's shares during a
three (3) month period without registration.
1.15 Number of Registration Rights. The Company shall not be
obligated to effect, or take any action to effect, any registration pursuant to
this Section 1 after the Company has effected two (2) registrations of any
Registrable Securities pursuant to Section 1.3 and such registrations have been
declared or ordered effective.
2. Miscellaneous.
2.1 Successors and Assigns. Except as otherwise provided in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties (including transferees of any of the
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<PAGE> 13
Shares or any securities issued upon conversion thereof). Nothing in this
Agreement express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
2.2 Amendments and Waivers. Any term of this Agreement may be
amended or waived only with the written consent of the Company and the Holders
of a majority in interest of the Registrable Securities. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each Holder of
any Registrable Securities then outstanding, each future Holder of all such
Registrable Securities, and the Company.
2.3 Notices. Unless otherwise provided, any notice required or
permitted by this Agreement shall be in writing and shall be deemed sufficient
upon delivery, when delivered personally or by overnight courier or sent by
telegram or fax, or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address or fax number as set forth
below or as subsequently modified by written notice.
2.4 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
2.5 Governing Law. This Agreement and all acts and transactions
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of Delaware, without giving effect to principles of
conflicts of laws.
2.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.7 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not be considered in construing
or interpreting this Agreement.
2.8 Aggregation of Stock. All shares of the Company's stock held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
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The parties have executed this Registration Rights Agreement as of the
date first above written.
JNI CORP.
By: /s/ TERRY M. FLANAGAN
-------------------------------------
Terry M. Flanagan, President
Address: 9775 Towne Centre Dr.
San Diego, CA 92121
JAYMARK, INC.
By: /s/ RANDY JOHNSON
-------------------------------------
Randy Johnson, Chief Financial
Officer
Address: 9775 Towne Centre Dr.
San Diego, CA 92121
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EXHIBIT 10.1
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of September 1, 1999, is made by and
between JNI Corp., a Delaware corporation (the "Company"), and ____________ (the
"Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers
and agents and the directors, officers and agents of its subsidiaries to assume
the risk of huge judgments and other expenses which may occur in cases in which
the director, officer or agent received no personal profit and in cases where
the director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and agents
of the Company and its subsidiaries and to encourage such individuals to take
the business risks necessary for the success of the Company and its
subsidiaries, it is necessary for the Company to contractually indemnify its
directors, officers and agents and the directors, officers and agents of its
subsidiaries, and to assume for
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itself maximum liability for expenses and damages in connection with claims
against such directors, officers and agents in connection with their service to
the Company and its subsidiaries, and has further concluded that the failure to
provide such contractual indemnification could result in great harm to the
Company and its subsidiaries and the Company's stockholders.
G. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the Company
and/or one or more subsidiaries of the Company, provided that he is furnished
the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions.
(a) Agent. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses" include all
out-of-pocket costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements), actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement or Section 145 or otherwise;
provided, however, that "expenses" shall not include any judgments, fines, ERISA
excise taxes or penalties, or amounts paid in settlement of a proceeding.
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<PAGE> 3
(c) Proceeding. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, or investigative.
(d) Subsidiary. For purposes of this Agreement, "subsidiary" means
any corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, by the Company and one or more
other subsidiaries, or by one or more other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue
to serve as agent of the Company, at its will (or under separate agreement, if
such agreement exists), in the capacity Indemnitee currently serves as an agent
of the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the By-laws of the Company or any
subsidiary of the Company or until such time as he tenders his resignation in
writing; provided, however, that nothing contained in this Agreement is intended
to create any right to continued employment by Indemnitee.
3. Liability Insurance.
(a) Maintenance of D&O Insurance. The Company hereby covenants and
agrees that, so long as the Indemnitee shall continue to serve as an agent of
the Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.
(b) Rights and Benefits. In all policies of D&O Insurance, the
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if the Indemnitee is a director; or of the
Company's officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a director
or officer but is a key employee.
(c) Limitation on Required Maintenance of D&O Insurance.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
4. Mandatory Indemnification. Subject to Section 9 below, the Company
shall indemnify the Indemnitee as follows:
(a) Successful Defense. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an Agent of the
Company at any time, against all expenses of any type whatsoever
3
<PAGE> 4
actually and reasonably incurred by him in connection with the investigation,
defense or appeal of such proceeding.
(b) Third Party Actions. If the Indemnitee is a person who was or is
a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, the Company shall indemnify the Indemnitee against any and
all expenses and liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee 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 its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
(c) Derivative Actions. If the Indemnitee is a person who was or is
a party or is threatened to be made a party to any proceeding by or in the right
of the Company by reason of the fact that he is or was an agent of the Company,
or by reason of anything done or not done by him in any such capacity, the
Company shall indemnify the Indemnitee against all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding, provided the Indemnitee 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 its stockholders; except that no indemnification
under this subsection 4(c) shall be made in respect to any claim, issue or
matter as to which such person shall have been finally adjudged to be liable to
the Company by a court of competent jurisdiction unless and only to the extent
that the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which the court shall deem proper.
(d) Actions where Indemnitee is Deceased. If the Indemnitee is a
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) actually and reasonably incurred
to the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive.
(e) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) for which payment is actually
made to or on behalf of Indemnitee under a valid and collectible insurance
policy of D&O Insurance, or under a valid and enforceable indemnity clause,
by-law or agreement.
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<PAGE> 5
5. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. Mandatory Advancement of Expenses. Subject to Section 8(a) below,
the Company shall advance all expenses incurred by the Indemnitee in connection
with the investigation, defense, settlement or appeal of any proceeding to which
the Indemnitee is a party or is threatened to be made a party by reason of the
fact that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall be determined ultimately that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20) days
following delivery of a written request therefor by the Indemnitee to the
Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the commencement
of a proceeding pursuant to Section 7(a) hereof, the Company has D&O Insurance
in effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such policies.
(c) In the event the Company shall be obligated to pay the expenses
of any proceeding against the Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceeding, with counsel approved by the
Indemnitee, upon the delivery to the Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
the Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to the Indemnitee under this Agreement for any fees of
counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense, or (C) the Company shall not, in fact, have employed counsel
to assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
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<PAGE> 6
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
General Corporation Law of Delaware or (iv) the proceeding is brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145;
(b) Lack of Good Faith. To indemnify the Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by the
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee under this
Agreement for any amounts paid in settlement of a proceeding unless the Company
consents to such settlement, which consent shall not be unreasonably withheld.
9. Non-exclusivity. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or By-laws, the vote of the Company's
stockholders or disinterested directors, other agreements, or otherwise, both as
to action in his official capacity and to action in another capacity while
occupying his position as an agent of the Company, and the Indemnitee's rights
hereunder shall continue after the Indemnitee has ceased acting as an agent of
the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.
10. Enforcement. Any right to indemnification or advances granted by
this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under this Agreement (other
than an action brought to enforce a claim for expenses pursuant to Section 6
hereof, provided that the required undertaking has been tendered to the Company)
that Indemnitee is not entitled to indemnification because of the limitations
set forth in Sections 4 and 8 hereof. Neither the failure of the Company
(including the Board or its stockholders) to have made a determination prior to
the commencement of such enforcement action that indemnification of Indemnitee
is proper in the circumstances, nor an actual determination by the Company
(including the Board or its stockholders) that such indemnification is improper,
shall be a defense to the action or create a presumption that Indemnitee is not
entitled to indemnification under this Agreement or otherwise.
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<PAGE> 7
11. Subrogation. In the event of 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 documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
12. Survival of Rights.
(a) All agreements and obligations of the Company contained herein
shall continue during the period Indemnitee is an agent of the Company and shall
continue thereafter so long as Indemnitee shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil,
criminal, arbitrational, administrative or investigative, by reason of the fact
that Indemnitee was serving in the capacity referred to herein.
(b) The Company shall require any successor to the Company (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, expressly to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had taken
place.
13. Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
15. Modification and Waiver. No supplement, modification 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. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given (i) if delivered by
hand and receipted for by the party addressee or (ii) if mailed by certified or
registered mail with postage prepaid, on the third business day after the
mailing date. Addresses for notice to either party are as shown on the signature
page of this Agreement, or as subsequently modified by written notice.
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17. Governing Law. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.
The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
JNI CORP.
-------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address:
---------------------------
---------------------------
Attn:
----------------------
INDEMNITEE:
By:
---------------------------------
Address:
---------------------------
---------------------------
8
<PAGE> 1
EXHIBIT 10.2
JAYCOR NETWORKS, INC.
1997 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Jaycor Networks, Inc. 1997 Stock
Option Plan (the "PLAN") is hereby established effective as of February 3, 1997
(the "EFFECTIVE Date").
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of the Company and its shareholders by providing an incentive to
attract, retain and reward persons performing services for the Company and by
motivating such persons to contribute to the growth and profitability of the
Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until
the earlier of its termination by the Board or the date on which all of the
shares of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Options
shall be granted, if at all, before the earlier to occur of (a) the date ten
(10) years from the earlier of the date the Plan is adopted by the Board or the
date the Plan is duly approved by the shareholders of the Company, (b) the
effective date of the registration statement filed by the Company under the
Securities Act in connection with the initial public offering of stock by the
Company, or (c) the date on which Jaymark, pursuant to a sale or exchange of
shares, merger, consolidation, or spin-off transaction, no longer owns, directly
or indirectly, more than fifty percent (50%) of the total combined voting power
of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.
<PAGE> 2
(d) "COMPANY" means Jaycor Networks, Inc., a
Delaware corporation, or any successor corporation thereto.
(e) "EMPLOYEE" means any person treated as an
employee (including an officer or a director who is also treated as an employee)
in the records of the Company; provided, however, that neither service as a
director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan.
(f) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
(g) "FAIR MARKET VALUE" means, as of any date, the
value of a share of Stock or other property as determined by the Board, in its
sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein.
(h) "INCENTIVE STOCK OPTION" means an Option
intended to be (as set forth in the Option Agreement) and which qualifies as an
incentive stock option within the meaning of Section 422(b) of the Code.
(i) "INSIDER" means an officer or a director of the
Company or any other person whose transactions in Stock are subject to Section
16 of the Exchange Act.
(j) "JAYMARK" means Jaymark, Inc., a Delaware
corporation, or any successor corporation thereto.
(k) "NONSTATUTORY STOCK OPTION" means an Option not
intended to be (as set forth in the Option Agreement) or which does not qualify
as an Incentive Stock Option.
(l) "OPTION" means a right to purchase shares of
Stock (subject to adjustment as provided in Section 4.2) pursuant to the terms
and conditions of the Plan. An Option may be either an Incentive Stock Option or
a Nonstatutory Stock Option.
(m) "OPTION AGREEMENT" means a written agreement
between the Company and an Optionee setting forth the terms, conditions and
restrictions of the Option granted to the Optionee and any shares acquired upon
the exercise thereof.
(n) "OPTIONEE" means a person who has been granted
one or more Options.
(o) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(p) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
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<PAGE> 3
(q) "PARTICIPATING COMPANY GROUP" means, at any
point in time, all corporations collectively which are then Participating
Companies.
(r) "RULE 16b-3" means Rule 16b-3 under the Exchange
Act, as amended from time to time, or any successor rule or regulation.
(s) "SECTION 162(M)" means Section 162(m) of the
Code, as amended by the Revenue Reconciliation Act of 1993 (P.L. 103-66).
(t) "STOCK" means the common stock of the Company,
as adjusted from time to time in accordance with Section 4.2.
(u) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
(v) "TEN PERCENT OWNER OPTIONEE" means an Optionee
who, at the time an Option is granted to the Optionee, owns stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of a Participating Company within the meaning of Section 422(b)(6) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are
for convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
the term "or" shall include the conjunctive as well as the disjunctive.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board, including any duly appointed Committee of the Board.
All questions of interpretation of the Plan or of any Option shall be determined
by the Board, and such determinations shall be final and binding upon all
persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
3.2 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:
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<PAGE> 4
(a) to determine the persons to whom, and the time
or times at which, Options shall be granted and the number of shares of Stock to
be subject to each Option;
(b) to designate Options as Incentive Stock Options
or Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of
Stock;
(d) to determine the terms, conditions and
restrictions applicable to each Option (which need not be identical) and any
shares acquired upon the exercise thereof, including, without limitation, (i)
the exercise price of the Option, (ii) the method of payment for shares
purchased upon the exercise of the Option, (iii) the method for satisfaction of
any tax withholding obligation arising in connection with the Option or such
shares, including by the withholding or delivery of shares of stock, (iv) the
timing, terms and conditions of the exercisability of the Option or the vesting
of any shares acquired upon the exercise thereof, (v) the time of the expiration
of the Option, (vi) the effect of the Optionee's termination of employment on
any of the foregoing, and (vii) all other terms, conditions and restrictions
applicable to the Option or such shares not inconsistent with the terms of the
Plan;
(e) to approve one or more forms of Option
Agreement;
(f) to amend, modify, extend, or renew, or grant a
new Option in substitution for, any Option or to waive any restrictions or
conditions applicable to any Option or any shares acquired upon the exercise
thereof;
(g) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an Optionee's
termination of employment with the Company;
(h) to prescribe, amend or rescind rules, guidelines
and policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option Agreement and to make all
other determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
3.4 COMMITTEE COMPLYING WITH SECTION 162(M). If a
Participating Company is a "publicly held corporation" within the meaning of
Section 162(m), the Board may establish a Committee of "outside directors"
within the meaning of Section 162(m) to approve the grant of any Option which
might reasonably be anticipated to result in the payment of employee
remuneration that would otherwise exceed the limit on employee remuneration
deductible for income tax purposes pursuant to Section 162(m).
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<PAGE> 5
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be Two Million One Hundred Fifty Thousand
(2,150,000). Such shares shall consist of authorized but unissued or reacquired
shares of Stock or any combination thereof. If any outstanding Option for any
reason expires or is terminated or canceled or shares, subject to repurchase,
upon the exercise of an Option are repurchased by the Company, the shares
allocable to the unexercised portion of such Option, or such repurchased shares,
shall again be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the
event of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options and in the exercise price per
share of any outstanding Options. Notwithstanding the foregoing, any fractional
share resulting from an adjustment pursuant to this Section 4.2 shall be rounded
up or down to the nearest whole number, as determined by the Board, and in no
event may the exercise price of any Option be decreased to an amount less than
the par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 4.2 shall be final, binding and
conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted
only to Employees. Eligible persons may be granted more than one (1) Option.
5.2 FAIR MARKET VALUE LIMITATION. To the extent that the
aggregate Fair Market Value of stock with respect to which options designated as
Incentive Stock Options are exercisable by an Optionee for the first time during
any calendar year (under all stock option plans of the Participating Company
Group, including the Plan) exceeds One Hundred Thousand Dollars ($100,000), the
portion of such options which exceeds such amount shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5.2, options designated
as Incentive Stock Options shall be taken into account in the order in which
they were granted, and the Fair Market Value of stock shall be determined as of
the time the option with respect to such stock is granted. If the Code is
amended to provide for a different limitation from that set forth in this
Section 5.2, such different limitation shall be deemed incorporated herein
effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. If an Option is treated as an Incentive
Stock Option in part and as a Nonstatutory Stock Option in part by reason of the
limitation set forth in this Section 5.2, the Optionee may designate which
portion of such Option the Optionee is exercising. In the absence of such
designation, the Optionee shall be deemed to have exercised the Incentive Stock
Option portion of the Option first. Separate certificates representing each such
portion shall be issued upon the exercise of the Option.
5
<PAGE> 6
6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
Option Agreements specifying the number of shares of Stock covered thereby, in
such form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall
be established in the sole discretion of the Board; provided, however, that (a)
the exercise price per share of Stock for an Option shall be not less than the
Fair Market Value of a share of Stock on the effective date of grant of the
Option, and (b) no Option granted to a Ten Percent Owner Optionee shall have an
exercise price per share of Stock less than one hundred ten percent (110%) of
the Fair Market Value of a share of Stock on the effective date of grant of the
Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock
Option or a Nonstatutory Stock Option) may be granted with an exercise price
lower than the minimum exercise price set forth above if such Option is granted
pursuant to an assumption or substitution for another option in a manner
qualifying under the provisions of Section 424(a) of the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such
time or times, or upon such event or events, and subject to such terms,
conditions, performance criteria, and restrictions as shall be determined by the
Board and set forth in the Option Agreement evidencing such Option; provided,
however, that (a) no Option shall be exercisable after the expiration of ten
(10) years after the effective date of grant of such Option, and (b) no
Incentive Stock Option granted to a Ten Percent Owner Optionee shall be
exercisable after the expiration of five (5) years after the effective date of
grant of such Option.
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the exercise price for the number of shares
of Stock being purchased pursuant to any Option shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of shares of Stock
owned by the Optionee having a Fair Market Value (as determined by the Company
without regard to any restrictions on transferability applicable to such stock
by reason of federal or state securities laws or agreements with an underwriter
for the Company) not less than the exercise price, (iii) by the assignment of
the proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form approved
by the Company, (v) by such other consideration as may be approved by the Board
from time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
6
<PAGE> 7
(b) TENDER OF STOCK. Notwithstanding the foregoing,
an Option may not be exercised by tender of shares of Stock to the extent such
tender would constitute a violation of the provisions of any law, regulation or
agreement restricting the redemption of the Company's stock. Unless otherwise
provided by the Board at the time the Option is granted, an Option may not be
exercised by the tender of shares of Stock unless such shares either have been
owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any
and all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note
shall be permitted if the exercise of an Option using a promissory note would be
a violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Optionee may be
required to secure any promissory note used to exercise an Option with the
shares acquired upon the exercise of the Option or with other collateral
acceptable to the Company. Unless otherwise provided by the Board, if the
Company at any time is subject to the regulations promulgated by the Board of
Governors of the Federal Reserve System or any other governmental entity
affecting the extension of credit in connection with the securities acquired
upon exercise of the Option, any promissory note shall comply with such
applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.
6.4 TAX WITHHOLDING. The Company shall have the right to
require the Optionee, through payroll withholding, cash payment or otherwise,
including by means of a Cashless Exercise, to make adequate provision for any
tax withholding obligations of the Participating Company Group arising in
connection with the Option or the shares acquired upon the exercise thereof. The
Company shall have no obligation to deliver shares or to release shares from an
escrow established pursuant to the Option Agreement until such tax withholding
obligations have been satisfied by the Optionee.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by
the Board at the time the Option is granted, an Option designated as an
"Incentive Stock Option" shall comply with and be subject to the terms and
conditions set forth in the form of Incentive Stock Option Agreement adopted by
the Board concurrently with its adoption of the Plan and as amended from time to
time.
7.2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by
the Board at the time the Option is granted, an Option designated as a
"Nonstatutory Stock Option" shall comply with and be subject to the terms and
conditions set forth in the form of Nonstatutory Stock Option Agreement adopted
by the Board concurrently with its adoption of the Plan and as amended from time
to time.
7
<PAGE> 8
7.3 STANDARD TERM OF OPTIONS. Except as otherwise provided
in Section 6.2 or by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.
7.4 AUTHORITY TO VARY TERMS. The Board shall have the
authority from time to time to vary the terms of any of the standard forms of
Option Agreement described in this Section 7 either in connection with the grant
or amendment of an individual Option or in connection with the authorization of
a new standard form or forms; provided, however, that the terms and conditions
of any such new, revised or amended standard form or forms of Option Agreement
are not inconsistent with the terms of the Plan.
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange
in a single or series of related transactions by the shareholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the
Company is a party;
(iii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the
Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8
<PAGE> 9
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event
of a Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
Section 8.2, an Option shall be deemed assumed if, following the Transfer of
Control, the Option confers the right to purchase, for each share of Stock
subject to the Option immediately prior to the Transfer of Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Transfer of Control was
entitled. Any Options which are neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control. Notwithstanding
the foregoing, shares acquired upon exercise of an Option prior to the Transfer
of Control and any consideration received pursuant to the Transfer of Control
with respect to such shares shall continue to be subject to all applicable
provisions of the Option Agreement evidencing such Option except as otherwise
provided in such Option Agreement. Furthermore, notwithstanding the foregoing,
if the corporation the stock of which is subject to the outstanding Options
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the outstanding Options shall not
terminate unless the Board otherwise provides in its sole discretion.
9. PROVISION OF INFORMATION. Each Optionee shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common shareholders.
10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, an Option shall be exercisable only by the Optionee or the Optionee's
guardian or legal representative. No Option shall be assignable or transferable
by the Optionee, except by will or by the laws of descent and distribution.
11. INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or officers or
employees of the Participating Company Group, members of the Board and any
officers or employees of the Participating Company Group to whom authority to
act for the Board or the Company is delegated shall be indemnified by the
Company against all reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad
9
<PAGE> 10
faith or intentional misconduct in duties; provided, however, that within sixty
(60) days after the institution of such action, suit or proceeding, such person
shall offer to the Company, in writing, the opportunity at its own expense to
handle and defend the same.
12. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or
amend the Plan at any time. However, subject to changes in applicable law,
regulations or rules that would permit otherwise, without the approval of the
Company's shareholders, there shall be (a) no increase in the maximum aggregate
number of shares of Stock that may be issued under the Plan (except by operation
of the provisions of Section 4.2), (b) no change in the class of persons
eligible to receive Incentive Stock Options, and (c) no other amendment of the
Plan that would require approval of the Company's shareholders under any
applicable law, regulation or rule. In any event, no termination or amendment of
the Plan may adversely affect any then outstanding Option or any unexercised
portion thereof, without the consent of the Optionee, unless such termination or
amendment is required to enable an Option designated as an Incentive Stock
Option to qualify as an Incentive Stock Option or is necessary to comply with
any applicable law, regulation or rule.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the Jaycor Networks, Inc. 1997 Stock Option Plan was duly adopted by the
Board on February 3, 1997 and approved by the Shareholders on February 25, 1997.
/s/ DOROTHY BIDWELL
----------------------------------------
Secretary
10
<PAGE> 11
NETWORKS, INC. JAYCOR
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is made
and entered into as of ___________, 199_, by and between Jaycor Networks, Inc.
and ___________________________ (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the Jaycor Networks,
Inc. 1997 Stock Option Plan an option to purchase certain shares of stock, upon
the terms and conditions set forth in this Option Agreement (the "OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1. DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "DATE OF OPTION GRANT" means , 199_.
(b) "NUMBER OF OPTION SHARES" means ______ shares of
Stock, as adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $ ______ per share of
Stock, as adjusted from time to time pursuant to Section 9.
(d) "INITIAL EXERCISE DATE" means the earliest to
occur of the following: (i) the effective date of the registration statement
filed by the Company under the Securities Act in connection with the initial
public offering of stock by the Company, (ii) the date on which Jaymark,
pursuant to a sale or exchange of shares, merger or consolidation, or spin-off
transaction, no longer owns, directly or indirectly, more than fifty percent
(50%) of the total combined voting power of the Company, or (iii) the date
occurring nine (9) years after the Date of Option Grant.
(e) "INITIAL VESTING DATE" means the date occurring
one (1) year after the Date of Option Grant.
<PAGE> 12
(f) "ACCELERATED VESTED RATIO" means, on any
relevant date, the ratio determined as follows:
(i) Prior to the Initial Vesting Date, the
Accelerated Vested Ratio shall be 1/4.
(ii) On the Initial Vesting Date, the
Accelerated Vested Ratio shall be 1/3, provided that the Optionee's Service is
continuous from the Date of Option Grant until the Initial Vesting Date.
(iii) On the date occurring one year after the
Initial Vesting Date, the Accelerated Vested Ratio shall be 3/4, provided that
the Optionee's Service is continuous from the Initial Vesting Date until such
date.
(iv) On the date occurring two years after
the Initial Vesting Date, the Accelerated Vested Ratio shall be 1/1, provided
that the Optionee's Service is continuous from the Initial Vesting Date until
such date.
(g) "NONACCELERATED VESTED RATIO" means, on any
relevant date, the ratio determined as follows:
(i) Prior to the Initial Vesting Date, the
Nonaccelerated Vested Ratio shall be zero.
(ii) On the Initial Vesting Date, the
Nonaccelerated Vested Ratio shall be 1/10, provided that the Optionee's Service
is continuous from the Date of Option Grant until the Initial Vesting Date.
(iii) On the date occurring one year after the
Initial Vesting Date, the Nonaccelerated Vested Ratio shall be 3/10, provided
that the Optionee's Service is continuous from the Initial Vesting Date until
such date.
(iv) On the date occurring two years after
the Initial Vesting Date, the Nonaccelerated Vested Ratio shall be 3/5, provided
that the Optionee's Service is continuous from the Initial Vesting Date until
such date.
(v) On the date occurring three years after
the Initial Vesting Date, the Nonaccelerated Vested Ratio shall be 1/1, provided
that the Optionee's Service is continuous from the Initial Vesting Date until
such date.
(h) "NUMBER OF VESTED SHARES" means, on any relevant
date, the number of shares determined as follows:
(i) Prior to the date described in Section
1.1(d)(ii), the Number of Vested Shares shall be equal to the Number of Option
Shares multiplied by the
<PAGE> 13
Nonaccelerated Vested Ratio.
(ii) On and after the date described in
Section 1.1(d)(ii), the Number of Vested Shares shall be equal to the Number of
Option Shares multiplied by the Accelerated Vested Ratio.
(i) "OPTION EXPIRATION DATE" means the date ten (10)
years after the Date of Option Grant.
(j) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" shall also mean such Committee(s).
(k) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(l) "COMMITTEE" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted in the Plan, including, without limitation, the
power to amend or terminate the Plan at any time, subject to the terms of the
Plan and any applicable limitations imposed by law.
(m) "COMPANY" means Jaycor Networks, Inc., a
Delaware corporation, or any successor corporation thereto.
(n) "DISABILITY" means the permanent and total
disability of the optionee within the meaning of Section 22(e)(3) of the Code.
(o) "EMPLOYEE" means any person treated as an
employee (including an officer or a director who is also treated as an employee)
in the records of the Company; provided, however, that neither service as a
director nor payment of a director's fee shall be sufficient to constitute
employment for this purpose.
(p) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
(q) "FAIR MARKET VALUE" means, as of any date, the
value of a share of Stock or other property as determined by the Board, in its
sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein.
(r) "JAYMARK" means Jaymark, Inc., a Delaware
corporation, or any successor corporation thereto.
(s) "JAYMARK OPTION" means an option to purchase
shares of the
<PAGE> 14
common stock of Jaymark which was granted to the Optionee after the Date of
Option Grant pursuant to a stock option plan maintained by Jaymark; provided,
however, that a purchase right granted to the Optionee pursuant to an employee
stock purchase plan maintained by Jaymark shall not be treated as a Jaymark
Option for purposes of this Option Agreement.
(t) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(u) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(v) "PARTICIPATING COMPANY GROUP" means, at any
point in time, all corporations collectively which are then Participating
Companies.
(w) "PLAN" means the Jaycor Networks, Inc. 1997
Stock Option Plan.
(x) "SECURITIES ACT" means the Securities Act of
1933, as amended.
(y) "SERVICE" means the Optionee's employment with
the Company.
(z) "STOCK" means the common stock of the Company,
as adjusted from time to time in accordance with Section 9.
(aa) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
1.2. CONSTRUCTION. Captions and titles contained herein are
for convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. TAX STATUS OF OPTION. This Option is intended to be an incentive
stock option within the meaning of Section 422(b) of the Code (an "INCENTIVE
STOCK OPTION"), but the Company does not represent or warrant that this Option
qualifies as such. The Optionee should consult with the Optionee's own tax
advisor regarding the tax effects of this Option and the requirements necessary
to obtain favorable income tax treatment under Section 422 of the Code,
including, but not limited to, holding period requirements.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent
<PAGE> 15
authority with respect to such matter, right, obligation, or election.
4. EXERCISE OF THE OPTION.
4.1. RIGHT TO EXERCISE. Except as otherwise provided herein,
the Option shall be exercisable on and after the Initial Exercise Date and prior
to the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Vested Shares less the number of shares of Stock previously
acquired upon exercise of the Option. In no event shall the Option be
exercisable for more shares than the Number of Option Shares.
4.2. METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares for which the Option is being exercised and
such other representations and agreements as to the Optionee's investment intent
with respect to such shares as may be required pursuant to the provisions of
this Option Agreement. The written notice must be signed by the Optionee and
must be delivered in person, by certified or registered mail, return receipt
requested, by confirmed facsimile transmission, or by such other means as the
Company may permit, to the Chief Financial Officer of the Company, or other
authorized representative of the Company, prior to the termination of the Option
as set forth in Section 6, accompanied by (i) full payment of the aggregate
Exercise Price for the number of shares being purchased and (ii) an executed
copy, if required herein, of the then current form of escrow agreement
referenced below. The Option shall be deemed to be exercised upon receipt of
such written notice, the aggregate Exercise Price, and, if required by the
Company, such executed agreement.
4.3. PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the aggregate Exercise Price for the number
of shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value (as determined
by the Company without regard to any restrictions on transferability applicable
to such stock by reason of federal or state securities laws or agreements with
an underwriter for the Company) not less than the aggregate Exercise Price,
(iii) by means of a Cashless Exercise, as defined in Section 4.3(c), or (iv) by
any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing,
the Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender would constitute a violation of the provisions of any
law, regulation or agreement restricting the redemption of the stock. The Option
may not be exercised by the tender shares of Stock unless such shares either
have been owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means
the assignment in a form acceptable to the Company of the proceeds of a sale or
loan with respect to some or all of the shares acquired upon the exercise of the
Option pursuant to a program or procedure
<PAGE> 16
approved by the Company (including, without limitation, through an exercise
complying with the provisions of Regulation T as promulgated from time to time
by the Board of Governors of the Federal Reserve System). The Company reserves,
at any and all times, the right, in the Company's sole and absolute discretion,
to establish, decline to approve or terminate any program or procedures for the
exercise of the Option to purchase shares of Stock by means of a Cashless
Exercise.
4.4. TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless such tax withholding obligations are
satisfied. Accordingly, the Optionee may not be able to exercise the Option when
desired even though the Option is vested, and the Company shall have no
obligation to issue a certificate for such shares or release such shares from
any escrow provided for herein.
4.5. CERTIFICATE REGISTRATION. Except in the event the
Exercise Price is paid by means of a Cashless Exercise, the certificate for the
shares as to which the Option is exercised shall be registered in the name of
the Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF
SHARES. The grant of the Option and the issuance of shares upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares upon exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations or the requirements of any stock exchange or market system
upon which the stock may then be listed. In addition, the Option may not be
exercised unless (i) a registration statement under the Securities Act shall at
the time of exercise of the Option be in effect with respect to the shares
issuable upon exercise of the Option or (ii) in the opinion of legal counsel to
the Company, the shares issuable upon exercise of the Option may be issued in
accordance with the terms of an applicable exemption from the registration
requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION
MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY,
THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE
OPTION IS VESTED. The inability of the Company to obtain from any regulatory
body having jurisdiction the authority, if any, deemed by the Company's legal
counsel to be necessary to the lawful issuance and sale of any shares subject to
the Option shall relieve
<PAGE> 17
the Company of any liability in respect of the failure to issue or sell such
shares as to which such requisite authority shall not have been obtained. As a
condition to the exercise of the Option, the Company may require the Optionee to
satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.
4.7. FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised
during the lifetime of the Optionee only by the Optionee or the Optionee's
guardian or legal representative and may not be assigned or transferred in any
manner except by will or by the laws of descent and distribution. Following the
death of the Optionee, the Option, to the extent provided in Section 7, may be
exercised by the Optionee's legal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, (c) a Transfer of Control to the extent
provided in Section 8, or (d) the date on which the Optionee exercises a Jaymark
Option (unless the Jaymark Option expressly provides that its exercise shall not
result in the termination of the right to exercise this Option).
7. EFFECT OF TERMINATION OF SERVICE.
7.1. OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service is
terminated because of the Disability of the Optionee, the Option, to the extent
unexercised and exercisable on the date on which the Optionee's Service
terminated, may be exercised by the Optionee (or the Optionee's guardian or
legal representative) at any time prior to the expiration of twelve (12) months
after the date on which the Optionee's Service terminated, but in any event no
later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service is terminated
because of the death of the Optionee, the Option, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee's legal representative or other person who acquired
the right to exercise the Option by reason of the Optionee's death at any time
prior to the expiration of twelve (12) months after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date. The Optionee's Service shall be deemed to have terminated on
account of death if the Optionee dies within three (3) months after the
Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's
Service
<PAGE> 18
terminates for any reason except Disability or death, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee's
Service terminated, may be exercised by the Optionee within three (3) months (or
such other longer period of time as determined by the Board, in its sole
discretion) after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date.
7.2. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth in Section 7.1 is prevented by the provisions of Section 4.6, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified that the Option is exercisable, but in any event no later
than the Option Expiration Date. The Company makes no representation as to the
tax consequences of any such delayed exercise. The Optionee should consult with
the Optionee's own tax advisor as to the tax consequences to the Optionee of any
such delayed exercise.
7.3. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisors as to the tax consequences to the Optionee of any such delayed
exercise.
7.4. LEAVE OF ABSENCE. For purposes of Section 7.1, the
Optionee's Service shall not be deemed to terminate if the Optionee takes any
military leave, sick leave, or other bona fide leave of absence approved by the
Company of ninety (90) days or less. In the event of a leave of absence in
excess of ninety (90) days, the Optionee's Service shall be deemed to terminate
on the ninety-first (91st) day of such leave unless the Optionee's right to
return to Service remains guaranteed by statute or contract. Notwithstanding the
foregoing, unless otherwise designated by the Company (or required by law), a
leave of absence shall not be treated as Service for purposes of determining the
Optionee's Accelerated Vested Ratio or Nonaccelerated Vested Ratio.
8. TRANSFER OF CONTROL.
8.1. DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;
<PAGE> 19
(ii) a merger or consolidation in which the
Company is a party;
(iii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the
Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2. EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of
a Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. For purposes of this Section 8.2, the Option
shall be deemed assumed if, following the Transfer of Control, the Option
confers the right to purchase, for each share of Stock subject to the Option
immediately prior to the Transfer of Control, the consideration (whether stock,
cash or other securities or property) to which a holder of a share of Stock on
the effective date of the Transfer of Control was entitled. The Option shall
terminate and cease to be outstanding effective as of the date of the Transfer
of Control to the extent that the Option is neither assumed or substituted for
by the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control. Notwithstanding the
foregoing, shares acquired upon exercise of the Option prior to the Transfer of
Control and any consideration received pursuant to the Transfer of Control with
respect to such shares shall continue to be subject to all applicable provisions
of this Option Agreement except as otherwise provided herein. Furthermore,
notwithstanding the foregoing, if the corporation the stock of which is subject
to the Option immediately prior to an Ownership Change Event described in
Section 8.1(a)(i) constituting a Transfer of Control is the surviving or
continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning
<PAGE> 20
of Section 1504(a) of the Code without regard to the provisions of Section
1504(b) of the Code, the Option shall not terminate unless the Board otherwise
provides in its sole discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification, or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number, Exercise Price and
class of shares of stock subject to the Option. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 9
shall be rounded up or down to the nearest whole number, as determined by the
Board, and in no event may the Exercise Price be decreased to an amount less
than the par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.
10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee
shall have no rights as a stockholder with respect to any shares covered by the
Option until the date of the issuance of a certificate for the shares for which
the Option has been exercised (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue in the Service of the Company or interfere in any
way with any right of the Company to terminate the Optionee's Service.
11. VESTED SHARE REPURCHASE OPTION.
11.1. GRANT OF VESTED SHARE REPURCHASE OPTION. If the Initial
Exercise Date occurs as a result of the lapse of nine (9) years from the Date of
Option Grant, upon the occurrence of a Repurchase Event, as defined below, the
Company shall have the right to repurchase the shares of Stock acquired by the
Optionee pursuant to the Option (the "REPURCHASE SHARES") under the terms and
subject to the conditions set forth in this Section 11 (the "VESTED SHARE
REPURCHASE OPTION"). Each of the following events shall constitute a "REPURCHASE
EVENT":
(a) Termination of the Optionee's Service for any
reason or no reason, with or without cause, including death or Disability. The
Repurchase Period, as defined below, shall commence on the date of termination
of the Optionee's Service.
(b) The Optionee, the Optionee's legal
representative, or other holder of shares acquired upon exercise of the Option
attempts to sell, exchange, transfer, pledge, or otherwise dispose of any
Repurchase Shares. The Repurchase Period, as defined below, shall commence on
the date the Company receives actual notice of such attempted sale, exchange,
transfer, pledge or other disposition.
(c) The receivership, bankruptcy or other creditor's
proceeding regarding the Optionee or the taking of any of the Optionee's shares
of Stock by legal process,
<PAGE> 21
such as a levy of execution. The Repurchase Period, as defined below, shall
commence on the date the Company receives actual notice of the commencement of
pendency of the receivership, bankruptcy or other creditor's proceeding or the
date of such taking, as the case may be. The Fair Market Value of the Repurchase
Shares shall be determined as of the last day of the month preceding the month
in which the proceeding involved commenced or the taking occurred.
11.2. EXERCISE OF VESTED SHARE REPURCHASE OPTION. The Company
may exercise the Vested Share Repurchase Option by written notice delivered
personally or forwarded by first class mail to the Optionee, the Optionee's
legal representative, or other holder of the Repurchase Shares, as the case may
be, during the Repurchase Period. The "REPURCHASE PERIOD" shall be the period
commencing at the time set forth in Section 11.1 above and ending on the later
of (a) the date ninety (90) days after the commencement of the Repurchase Period
or (b) the date ninety (90) days after the Option is last exercised. If the
Company fails to give notice during the Repurchase Period, the Vested Share
Repurchase Option shall terminate (unless the Company and the Optionee have
extended the time for the exercise of the Vested Share Repurchase Option) unless
and until there is a subsequent Repurchase Event. Notwithstanding a termination
of the Vested Share Repurchase Option, the remaining provisions of this Option
Agreement shall remain in full force and effect. If there is a subsequent
Repurchase Event, the Vested Share Repurchase Option shall again become
exercisable as provided in this Section 11. The Vested Share Repurchase Option
must be exercised, if at all, for all of the Repurchase Shares, except as the
Company and the Optionee otherwise agree.
11.3. PAYMENT FOR REPURCHASE SHARES. The repurchase price per
share being repurchased by the Company pursuant to the Vested Share Repurchase
Option shall be an amount equal to the greater of (a) the Optionee's original
cost per share, as adjusted pursuant to Section 9, or (b) the Fair Market Value
of the shares determined as of the date of the Repurchase Event (except as
otherwise provided in Section 11.1(c) above) by the Board in good faith. Payment
by the Company to the Optionee shall be made in cash on or before the last day
of the Repurchase Period. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to the Company shall be treated as payment to the
Optionee in cash to the extent of the unpaid principal and any accrued interest
canceled.
11.4. ASSIGNMENT OF VESTED SHARE REPURCHASE OPTION. The
Company shall have the right to assign the Vested Share Repurchase Option at any
time, whether or not such option is then exercisable, to one or more persons as
may be selected by the Company.
11.5. TERMINATION OF VESTED SHARE REPURCHASE OPTION. The other
provisions of this Option Agreement notwithstanding, the Vested Share Repurchase
Option shall terminate and be of no further force and effect upon the existence
of a "public market", as defined in Exchange Act, for the class of shares
subject to the Vested Share Repurchase Option.
<PAGE> 22
12. ESCROW.
12.1. ESTABLISHMENT OF ESCROW. To ensure that shares subject
to the Vested Share Repurchase Option will be available for repurchase, the
Company may require the Optionee to deposit the certificate evidencing the
shares which the Optionee purchases upon exercise of the Option with an escrow
agent designated by the Company under the terms and conditions of an escrow
agreement approved by the Company. If the Company does not require such deposit
as a condition of exercise of the Option, the Company reserves the right at any
time to require the Optionee to so deposit the certificate in escrow. Upon a
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such change described in Section 9, subject to the Vested
Share Repurchase Option shall be immediately subject to the escrow to the same
extent as such shares of Stock immediately before such event. The Company shall
bear the expenses of the escrow.
12.2. DELIVERY OF SHARES TO OPTIONEE. As soon as practicable
after the expiration of the Vested Share Repurchase Option, but not more
frequently than once each calendar year, the escrow agent shall deliver to the
Optionee the shares and any other property no longer subject to such
restriction.
12.3. NOTICES AND PAYMENTS. In the event the shares and any
other property held in escrow are subject to the Company's exercise of the
Vested Share Repurchase Option, the notices required to be given to the Optionee
shall be given to the escrow agent, and any payment required to be given to the
Optionee shall be given to the escrow agent. Within thirty (30) days after
payment by the Company, the escrow agent shall deliver the shares and any other
property which the Company has purchased to the Company and shall deliver the
payment received from the Company to the Optionee.
13. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time
to time, there is any stock dividend, stock split or other change, as described
in Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Vested Share Repurchase Option and with the same
force and effect as the shares subject to the Vested Share Repurchase Option
immediately before such event.
14. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee
shall dispose of the shares acquired pursuant to the Option only in accordance
with the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two (2) years after the Date of Option Grant. Until such time as the Optionee
disposes of such shares in a
<PAGE> 23
manner consistent with the provisions of this Option Agreement, unless otherwise
expressly authorized by the Company, the Optionee shall hold all shares acquired
pursuant to the Option in the Optionee's name (and not in the name of any
nominee) for the one-year period immediately after the exercise of the Option
and the two-year period immediately after Date of Option Grant. At any time
during the one-year or two-year periods set forth above, the Company may place a
legend on any certificate representing shares acquired pursuant to the Option
requesting the transfer agent for the Company's stock to notify the Company of
any such transfers. The obligation of the Optionee to notify the Company of any
such transfer shall continue notwithstanding that a legend has been placed on
the certificate pursuant to the preceding sentence.
15. REPRESENTATIONS AND WARRANTIES. In connection with the receipt
of the Option and any acquisition of shares upon the exercise thereof, the
Optionee hereby agrees, represents and warrants as follows:
15.1. The Optionee is acquiring the Option and will acquire
any shares of Stock upon exercise of the Option for the Optionee's own account,
and not on behalf of any other person or as a nominee, for investment and not
with a view to, or sale in connection with, any distribution of the Option or
such shares.
15.2. The Optionee was not presented with or solicited by any
form of general solicitation or general advertising, including, but not limited
to, any advertisement, article, notice, or other communication published in any
newspaper, magazine, or similar media, or broadcast over television, radio or
similar communications media, or presented at any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
15.3. The Optionee has either (a) a preexisting personal or
business relationship with the Company or any of its officers, directors, or
controlling persons, consisting of personal or business contacts of a nature and
duration to enable the Optionee to be aware of the character, business acumen
and general business and financial circumstances of the person with whom such
relationship exists, or (b) such knowledge and experience in financial and
business matters (or has relied on the financial and business knowledge and
experience of the Optionee's professional advisor who is unaffiliated with and
who is not, directly or indirectly, compensated by the Company or any affiliate
or selling agent of the Company) as to make the Optionee capable of evaluating
the merits and risks of the Option and any investment in shares acquired
pursuant to the Option and to protect the Optionee's own interests in the
transaction, or (c) both such relationship and such knowledge and experience.
15.4. The Optionee understands that the Option and any shares
acquired upon exercise of the Option have not been qualified under the Corporate
Securities Law of 1968, as amended, of the State of California by reason of a
specific exemption therefrom, which exemption depends upon, among other things,
the bona fide nature of the Optionee's representations as expressed herein. The
Optionee understands that the Company is relying on the Optionee's
representations and warrants that the Company is entitled to rely on such
representations and that such reliance is reasonable.
<PAGE> 24
16. LEGENDS. The Company may at any time place legends referencing
the Vested Share Repurchase Option and any applicable federal, state or foreign
securities law restrictions on all certificates representing shares of stock
subject to the provisions of this Option Agreement. The Optionee shall, at the
request of the Company, promptly present to the Company any and all certificates
representing shares acquired pursuant to the Option in the possession of the
Optionee in order to carry out the provisions of this Section.
17. RESTRICTIONS ON TRANSFER OF SHARES. No shares acquired upon
exercise of the Option may be sold, exchanged, transferred (including, without
limitation, any transfer to a nominee or agent of the Optionee), assigned,
pledged, hypothecated or otherwise disposed of, including by operation of law,
in any manner which violates any of the provisions of this Option Agreement and,
and any such attempted disposition shall be void. The Company shall not be
required (a) to transfer on its books any shares which will have been
transferred in violation of any of the provisions set forth in this Option
Agreement or (b) to treat as owner of such shares or to accord the right to vote
as such owner or to pay dividends to any transferee to whom such shares will
have been so transferred.
18. BINDING EFFECT. Subject to the restrictions on transfer set
forth herein, this Option Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
19. TERMINATION OR AMENDMENT. The Board may terminate or amend the
Plan or the Option at any time; provided, however, that except as provided in
Section 8.2 in connection with a Transfer of Control, no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation or is
required to enable the Option to qualify as an Incentive Stock Option. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
20. INTEGRATED AGREEMENT. This Option Agreement constitutes the
entire understanding and agreement of the Optionee and the Participating Company
Group with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
<PAGE> 25
21. APPLICABLE LAW. This Option Agreement shall be governed by the
laws of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
JAYCOR NETWORKS, INC.
By:
-------------------------------------
Title:
----------------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Vested Share Repurchase
Option set forth in Section 11, and hereby accepts the Option subject to all of
the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement. The undersigned acknowledges
receipt of a copy of the Plan.
OPTIONEE
Date:
-------------------------- ----------------------------------------
<PAGE> 26
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
JAYCOR NETWORKS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "Option Agreement") is
made and entered into as of ___________, 199_, by and between Jaycor Networks,
Inc. and ___________________________ (the "Optionee").
The Company has granted to the Optionee pursuant to the Jaycor Networks,
Inc. 1997 Stock Option Plan an option to purchase certain shares of stock, upon
the terms and conditions set forth in this Option Agreement (the "Option").
1. Definitions and Construction.
1.1. Definitions. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "Date of Option Grant" means , 199_.
(b) "Number of Option Shares" means _____ shares of
Stock, as adjusted from time to time pursuant to Section 9.
(c) "Exercise Price" means $____ per share of Stock,
as _______________ adjusted from time to time pursuant to Section 9.
<PAGE> 27
(d) "Initial Exercise Date" means the earliest to
occur of the following: (i) the effective date of the registration statement
filed by the Company under the Securities Act in connection with the initial
public offering of stock by the Company, (ii) the date on which Jaymark,
pursuant to a sale or exchange of shares, merger or consolidation, or spin-off
transaction, no longer owns, directly or indirectly, more than fifty percent
(50%) of the total combined voting power of the Company, or (iii) the date
occurring nine (9) years after the Date of Option Grant.
(e) "Initial Vesting Date" means the date occurring
one (1) year after the Date of Option Grant.
(f) "Accelerated Vested Ratio" means, on any
relevant date, the ratio determined as follows:
(i) Prior to the Initial Vesting Date, the
Accelerated Vested Ratio shall be 1/4.
(ii) On the Initial Vesting Date, the
Accelerated Vested Ratio shall be 1/3, provided that the Optionee's Service is
continuous from the Date of Option Grant until the Initial Vesting Date.
(iii) On the date occurring one year after the
Initial Vesting Date, the Accelerated Vested Ratio shall be 3/4, provided that
the Optionee's Service is continuous from the Initial Vesting Date until such
date.
(iv) On the date occurring two years after
the Initial Vesting Date, the Accelerated Vested Ratio shall be 1/1, provided
that the Optionee's Service is continuous from the Initial Vesting Date until
such date.
(g) "Nonaccelerated Vested Ratio" means, on any
relevant date, the ratio determined as follows:
(i) Prior to the Initial Vesting Date, the
Nonaccelerated Vested Ratio shall be zero.
(ii) On the Initial Vesting Date, the
Nonaccelerated Vested Ratio shall be 1/10, provided that the Optionee's Service
is continuous from the Date of Option Grant until the Initial Vesting Date.
(iii) On the date occurring one year after the
Initial Vesting Date, the Nonaccelerated Vested Ratio shall be 3/10, provided
that the Optionee's Service is continuous from the Initial Vesting Date until
such date.
(iv) On the date occurring two years after
the Initial Vesting Date, the Nonaccelerated Vested Ratio shall be 3/5, provided
that the Optionee's Service is continuous from the Initial Vesting Date until
such date.
2
<PAGE> 28
(v) On the date occurring three years after
the Initial Vesting Date, the Nonaccelerated Vested Ratio shall be 1/1, provided
that the Optionee's Service is continuous from the Initial Vesting Date until
such date.
(h) "Number of Vested Shares" means, on any relevant date,
the
number of shares determined as follows:
(i) Prior to the date described in Section
1.1(d)(ii), the Number of Vested Shares shall be equal to the Number of Option
Shares multiplied by the Nonaccelerated Vested Ratio.
(ii) On and after the date described in
Section 1.1(d)(ii), the Number of Vested Shares shall be equal to the Number of
Option Shares multiplied by the Accelerated Vested Ratio.
(i) "Option Expiration Date" means the date ten (10)
years after the Date of Option Grant.
(j) "Board" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" shall also mean such Committee(s).
(k) "Code" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(l) "Committee" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted in the Plan, including, without limitation, the
power to amend or terminate the Plan at any time, subject to the terms of the
Plan and any applicable limitations imposed by law.
(m) "Company" means Jaycor Networks, Inc., a
Delaware corporation, or any successor corporation thereto.
(n) "Disability" means the permanent and total
disability of the optionee within the meaning of Section 22(e)(3) of the Code.
(o) "Employee" means any person treated as an
employee (including an officer or a director who is also treated as an employee)
in the records of the Company; provided, however, that neither service as a
director nor payment of a director's fee shall be sufficient to constitute
employment for this purpose.
(p) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
3
<PAGE> 29
(q) "Fair Market Value" means, as of any date, the
value of a share of Stock or other property as determined by the Board, in its
sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein.
(r) "Jaymark" means Jaymark, Inc., a Delaware
corporation, or any successor corporation thereto.
(s) "Jaymark Option" means an option to purchase
shares of the common stock of Jaymark which was granted to the Optionee after
the Date of Option Grant pursuant to a stock option plan maintained by Jaymark;
provided, however, that a purchase right granted to the Optionee pursuant to an
employee stock purchase plan maintained by Jaymark shall not be treated as a
Jaymark Option for purposes of this Option Agreement.
(t) "Parent Corporation" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(u) "Participating Company" means the Company or any
Parent Corporation or Subsidiary Corporation.
(v) "Participating Company Group" means, at any
point in time, all corporations collectively which are then Participating
Companies.
(w) "Plan" means the Jaycor Networks, Inc. 1997
Stock Option Plan.
(x) "Securities Act" means the Securities Act of
1933, as amended.
(y) "Service" means the Optionee's employment with
the Company.
(z) "Stock" means the common stock of the Company,
as adjusted from time to time in accordance with Section 9.
(aa) "Subsidiary Corporation" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
1.2. Construction. Captions and titles contained herein are
for convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. Tax Status of Option. This Option is intended to be a
nonstatutory stock option and shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Code.
3. Administration. All questions of interpretation concerning this
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All
4
<PAGE> 30
determinations by the Board shall be final and binding upon all persons having
an interest in the Option. Any officer of a Participating Company shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, or election which is the responsibility of or which is allocated to
the Company herein, provided the officer has apparent authority with respect to
such matter, right, obligation, or election.
4. Exercise of the Option.
4.1. Right to Exercise. Except as otherwise provided herein,
the Option shall be exercisable on and after the Initial Exercise Date and prior
to the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Vested Shares less the number of shares of Stock previously
acquired upon exercise of the Option. In no event shall the Option be
exercisable for more shares than the Number of Option Shares.
4.2. Method of Exercise. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares for which the Option is being exercised and
such other representations and agreements as to the Optionee's investment intent
with respect to such shares as may be required pursuant to the provisions of
this Option Agreement. The written notice must be signed by the Optionee and
must be delivered in person, by certified or registered mail, return receipt
requested, by confirmed facsimile transmission, or by such other means as the
Company may permit, to the Chief Financial Officer of the Company, or other
authorized representative of the Company, prior to the termination of the Option
as set forth in Section 6, accompanied by (i) full payment of the aggregate
Exercise Price for the number of shares being purchased and (ii) an executed
copy, if required herein, of the then current form of escrow agreement
referenced below. The Option shall be deemed to be exercised upon receipt of
such written notice, the aggregate Exercise Price, and, if required by the
Company, such executed agreement.
4.3. Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as
otherwise provided below, payment of the aggregate Exercise Price for the number
of shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value (as determined
by the Company without regard to any restrictions on transferability applicable
to such stock by reason of federal or state securities laws or agreements with
an underwriter for the Company) not less than the aggregate Exercise Price,
(iii) by means of a Cashless Exercise, as defined in Section 4.3(c), or (iv) by
any combination of the foregoing.
(b) Tender of Stock. Notwithstanding the foregoing,
the Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender would constitute a violation of the provisions of any
law, regulation or agreement restricting the redemption of the stock. The Option
may not be exercised by the tender shares of Stock unless such shares either
have been owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company.
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<PAGE> 31
(c) Cashless Exercise. A "Cashless Exercise" means
the assignment in a form acceptable to the Company of the proceeds of a sale or
loan with respect to some or all of the shares acquired upon the exercise of the
Option pursuant to a program or procedure approved by the Company (including,
without limitation, through an exercise complying with the provisions of
Regulation T as promulgated from time to time by the Board of Governors of the
Federal Reserve System). The Company reserves, at any and all times, the right,
in the Company's sole and absolute discretion, to establish, decline to approve
or terminate any program or procedures for the exercise of the Option to
purchase shares of Stock by means of a Cashless Exercise.
4.4. Tax Withholding. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless such tax withholding obligations are
satisfied. Accordingly, the Optionee may not be able to exercise the Option when
desired even though the Option is vested, and the Company shall have no
obligation to issue a certificate for such shares or release such shares from
any escrow provided for herein.
4.5. Certificate Registration. Except in the event the
Exercise Price is paid by means of a Cashless Exercise, the certificate for the
shares as to which the Option is exercised shall be registered in the name of
the Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6. Restrictions on Grant of the Option and Issuance of
Shares. The grant of the Option and the issuance of shares upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares upon exercise would constitute a
violation of any applicable federal, state or foreign securities laws or other
law or regulations or the requirements of any stock exchange or market system
upon which the stock may then be listed. In addition, the Option may not be
exercised unless (i) a registration statement under the Securities Act shall at
the time of exercise of the Option be in effect with respect to the shares
issuable upon exercise of the Option or (ii) in the opinion of legal counsel to
the Company, the shares issuable upon exercise of the Option may be issued in
accordance with the terms of an applicable exemption from the registration
requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION
MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY,
THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE
OPTION IS VESTED. The inability of the Company to obtain from any regulatory
body having
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<PAGE> 32
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares subject to the Option
shall relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of the Option, the Company may require
the Optionee to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
4.7. Fractional Shares. The Company shall not be required to
issue fractional shares upon the exercise of the Option.
5. Nontransferability of the Option. The Option may be exercised
during the lifetime of the Optionee only by the Optionee or the Optionee's
guardian or legal representative and may not be assigned or transferred in any
manner except by will or by the laws of descent and distribution. Following the
death of the Optionee, the Option, to the extent provided in Section 7, may be
exercised by the Optionee's legal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
6. Termination of the Option. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, (c) a Transfer of Control to the extent
provided in Section 8, or (d) the date on which the Optionee exercises a Jaymark
Option (unless the Jaymark Option expressly provides that its exercise shall not
result in the termination of the right to exercise this Option).
7. Effect of Termination of Service.
7.1. Option Exercisability.
(a) Disability. If the Optionee's Service is
terminated because of the Disability of the Optionee, the Option, to the extent
unexercised and exercisable on the date on which the Optionee's Service
terminated, may be exercised by the Optionee (or the Optionee's guardian or
legal representative) at any time prior to the expiration of twelve (12) months
after the date on which the Optionee's Service terminated, but in any event no
later than the Option Expiration Date.
(b) Death. If the Optionee's Service is terminated
because of the death of the Optionee, the Option, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee's legal representative or other person who acquired
the right to exercise the Option by reason of the Optionee's death at any time
prior to the expiration of twelve (12) months after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date. The Optionee's Service shall be deemed to have terminated on
account of death if the Optionee dies within three (3) months after the
Optionee's termination of Service.
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<PAGE> 33
(c) Other Termination of Service. If the Optionee's
Service terminates for any reason except Disability or death, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee's Service terminated, may be exercised by the Optionee within three (3)
months (or such other longer period of time as determined by the Board, in its
sole discretion) after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date.
7.2. Extension if Exercise Prevented by Law. Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth in Section 7.1 is prevented by the provisions of Section 4.6, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified that the Option is exercisable, but in any event no later
than the Option Expiration Date.
7.3. Extension if Optionee Subject to Section 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7.4. Leave of Absence. For purposes of Section 7.1, the
Optionee's Service shall not be deemed to terminate if the Optionee takes any
military leave, sick leave, or other bona fide leave of absence approved by the
Company of ninety (90) days or less. In the event of a leave of absence in
excess of ninety (90) days, the Optionee's Service shall be deemed to terminate
on the ninety-first (91st) day of such leave unless the Optionee's right to
return to Service remains guaranteed by statute or contract. Notwithstanding the
foregoing, unless otherwise designated by the Company (or required by law), a
leave of absence shall not be treated as Service for purposes of determining the
Optionee's Accelerated Vested Ratio or Nonaccelerated Vested Ratio.
8. Transfer of Control.
8.1. Definitions.
(a) An "Ownership Change Event" shall be deemed to
have occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the
Company is a party;
(iii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or
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<PAGE> 34
(iv) a liquidation or dissolution of the
Company.
(b) A "Transfer of Control" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"Transaction") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2. Effect of Transfer of Control on Option. In the event of
a Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. For purposes of this Section 8.2, the Option
shall be deemed assumed if, following the Transfer of Control, the Option
confers the right to purchase, for each share of Stock subject to the Option
immediately prior to the Transfer of Control, the consideration (whether stock,
cash or other securities or property) to which a holder of a share of Stock on
the effective date of the Transfer of Control was entitled. The Option shall
terminate and cease to be outstanding effective as of the date of the Transfer
of Control to the extent that the Option is neither assumed or substituted for
by the Acquiring Corporation in connection with the Transfer of Control nor
exercised as of the date of the Transfer of Control. Notwithstanding the
foregoing, shares acquired upon exercise of the Option prior to the Transfer of
Control and any consideration received pursuant to the Transfer of Control with
respect to such shares shall continue to be subject to all applicable provisions
of this Option Agreement except as otherwise provided herein. Furthermore,
notwithstanding the foregoing, if the corporation the stock of which is subject
to the Option immediately prior to an Ownership Change Event described in
Section 8.1(a)(i) constituting a Transfer of Control is the surviving or
continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the Option shall not
terminate unless the Board otherwise provides in its sole discretion.
9. Adjustments for Changes in Capital Structure. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification, or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number, Exercise Price and
class of shares of stock subject to the Option. Notwithstanding the foregoing,
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<PAGE> 35
any fractional share resulting from an adjustment pursuant to this Section 9
shall be rounded up or down to the nearest whole number, as determined by the
Board, and in no event may the Exercise Price be decreased to an amount less
than the par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.
10. Rights as a Stockholder, Employee or Consultant. The Optionee
shall have no rights as a stockholder with respect to any shares covered by the
Option until the date of the issuance of a certificate for the shares for which
the Option has been exercised (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue in the Service of the Company or interfere in any
way with any right of the Company to terminate the Optionee's Service.
11. Vested Share Repurchase Option.
11.1. Grant of Vested Share Repurchase Option. If the Initial
Exercise Date occurs as a result of the lapse of nine (9) years from the Date of
Option Grant, upon the occurrence of a Repurchase Event, as defined below, the
Company shall have the right to repurchase the shares of Stock acquired by the
Optionee pursuant to the Option (the "Repurchase Shares") under the terms and
subject to the conditions set forth in this Section 11 (the "Vested Share
Repurchase Option"). Each of the following events shall constitute a "Repurchase
Event":
(a) Termination of the Optionee's Service for any
reason or no reason, with or without cause, including death or Disability. The
Repurchase Period, as defined below, shall commence on the date of termination
of the Optionee's Service.
(b) The Optionee, the Optionee's legal
representative, or other holder of shares acquired upon exercise of the Option
attempts to sell, exchange, transfer, pledge, or otherwise dispose of any
Repurchase Shares. The Repurchase Period, as defined below, shall commence on
the date the Company receives actual notice of such attempted sale, exchange,
transfer, pledge or other disposition.
(c) The receivership, bankruptcy or other creditor's
proceeding regarding the Optionee or the taking of any of the Optionee's shares
of Stock by legal process, such as a levy of execution. The Repurchase Period,
as defined below, shall commence on the date the Company receives actual notice
of the commencement of pendency of the receivership, bankruptcy or other
creditor's proceeding or the date of such taking, as the case may be. The Fair
Market Value of the Repurchase Shares shall be determined as of the last day of
the month preceding the month in which the proceeding involved commenced or the
taking occurred.
11.2. Exercise of Vested Share Repurchase Option. The Company
may exercise the Vested Share Repurchase Option by written notice delivered
personally or forwarded by first class mail to the Optionee, the Optionee's
legal representative, or other holder of the Repurchase
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<PAGE> 36
Shares, as the case may be, during the Repurchase Period. The "Repurchase
Period" shall be the period commencing at the time set forth in Section 11.1
above and ending on the later of (a) the date ninety (90) days after the
commencement of the Repurchase Period or (b) the date ninety (90) days after the
Option is last exercised. If the Company fails to give notice during the
Repurchase Period, the Vested Share Repurchase Option shall terminate (unless
the Company and the Optionee have extended the time for the exercise of the
Vested Share Repurchase Option) unless and until there is a subsequent
Repurchase Event. Notwithstanding a termination of the Vested Share Repurchase
Option, the remaining provisions of this Option Agreement shall remain in full
force and effect. If there is a subsequent Repurchase Event, the Vested Share
Repurchase Option shall again become exercisable as provided in this Section 11.
The Vested Share Repurchase Option must be exercised, if at all, for all of the
Repurchase Shares, except as the Company and the Optionee otherwise agree.
11.3. Payment for Repurchase Shares. The repurchase price per
share being repurchased by the Company pursuant to the Vested Share Repurchase
Option shall be an amount equal to the greater of (a) the Optionee's original
cost per share, as adjusted pursuant to Section 9, or (b) the Fair Market Value
of the shares determined as of the date of the Repurchase Event (except as
otherwise provided in Section 11.1(c) above) by the Board in good faith. Payment
by the Company to the Optionee shall be made in cash on or before the last day
of the Repurchase Period. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to the Company shall be treated as payment to the
Optionee in cash to the extent of the unpaid principal and any accrued interest
canceled.
11.4. Assignment of Vested Share Repurchase Option. The
Company shall have the right to assign the Vested Share Repurchase Option at any
time, whether or not such option is then exercisable, to one or more persons as
may be selected by the Company.
11.5. Termination of Vested Share Repurchase Option. The other
provisions of this Option Agreement notwithstanding, the Vested Share Repurchase
Option shall terminate and be of no further force and effect upon the existence
of a "public market", as defined in Exchange Act, for the class of shares
subject to the Vested Share Repurchase Option.
12. Escrow.
12.1. Establishment of Escrow. To ensure that shares subject
to the Vested Share Repurchase Option will be available for repurchase, the
Company may require the Optionee to deposit the certificate evidencing the
shares which the Optionee purchases upon exercise of the Option with an escrow
agent designated by the Company under the terms and conditions of an escrow
agreement approved by the Company. If the Company does not require such deposit
as a condition of exercise of the Option, the Company reserves the right at any
time to require the Optionee to so deposit the certificate in escrow. Upon a
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such change described in Section 9, subject to the Vested
Share Repurchase Option
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shall be immediately subject to the escrow to the same extent as such shares of
Stock immediately before such event. The Company shall bear the expenses of the
escrow.
12.2. Delivery of Shares to Optionee. As soon as practicable
after the expiration of the Vested Share Repurchase Option, but not more
frequently than once each calendar year, the escrow agent shall deliver to the
Optionee the shares and any other property no longer subject to such
restriction.
12.3. Notices and Payments. In the event the shares and any
other property held in escrow are subject to the Company's exercise of the
Vested Share Repurchase Option, the notices required to be given to the Optionee
shall be given to the escrow agent, and any payment required to be given to the
Optionee shall be given to the escrow agent. Within thirty (30) days after
payment by the Company, the escrow agent shall deliver the shares and any other
property which the Company has purchased to the Company and shall deliver the
payment received from the Company to the Optionee.
13. Stock Distributions Subject to Option Agreement. If, from time
to time, there is any stock dividend, stock split or other change, as described
in Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to the Vested Share Repurchase Option and with the same
force and effect as the shares subject to the Vested Share Repurchase Option
immediately before such event.
14. Representations and Warranties. In connection with the receipt
of the Option and any acquisition of shares upon the exercise thereof, the
Optionee hereby agrees, represents and warrants as follows:
14.1. The Optionee is acquiring the Option and will acquire
any shares of Stock upon exercise of the Option for the Optionee's own account,
and not on behalf of any other person or as a nominee, for investment and not
with a view to, or sale in connection with, any distribution of the Option or
such shares.
14.2. The Optionee was not presented with or solicited by any
form of general solicitation or general advertising, including, but not limited
to, any advertisement, article, notice, or other communication published in any
newspaper, magazine, or similar media, or broadcast over television, radio or
similar communications media, or presented at any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
14.3. The Optionee has either (a) a preexisting personal or
business relationship with the Company or any of its officers, directors, or
controlling persons, consisting of personal or business contacts of a nature and
duration to enable the Optionee to be aware of the character, business acumen
and general business and financial circumstances of the person with whom such
relationship exists, or (b) such knowledge and experience in financial and
business matters (or has relied on the financial and business knowledge and
experience of the Optionee's professional
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<PAGE> 38
advisor who is unaffiliated with and who is not, directly or indirectly,
compensated by the Company or any affiliate or selling agent of the Company) as
to make the Optionee capable of evaluating the merits and risks of the Option
and any investment in shares acquired pursuant to the Option and to protect the
Optionee's own interests in the transaction, or (c) both such relationship and
such knowledge and experience.
14.4. The Optionee understands that the Option and any shares
acquired upon exercise of the Option have not been qualified under the Corporate
Securities Law of 1968, as amended, of the State of California by reason of a
specific exemption therefrom, which exemption depends upon, among other things,
the bona fide nature of the Optionee's representations as expressed herein. The
Optionee understands that the Company is relying on the Optionee's
representations and warrants that the Company is entitled to rely on such
representations and that such reliance is reasonable.
15. Legends. The Company may at any time place legends referencing
the Vested Share Repurchase Option and any applicable federal, state or foreign
securities law restrictions on all certificates representing shares of stock
subject to the provisions of this Option Agreement. The Optionee shall, at the
request of the Company, promptly present to the Company any and all certificates
representing shares acquired pursuant to the Option in the possession of the
Optionee in order to carry out the provisions of this Section.
16. Restrictions on Transfer of Shares. No shares acquired upon
exercise of the Option may be sold, exchanged, transferred (including, without
limitation, any transfer to a nominee or agent of the Optionee), assigned,
pledged, hypothecated or otherwise disposed of, including by operation of law,
in any manner which violates any of the provisions of this Option Agreement and,
and any such attempted disposition shall be void. The Company shall not be
required (a) to transfer on its books any shares which will have been
transferred in violation of any of the provisions set forth in this Option
Agreement or (b) to treat as owner of such shares or to accord the right to vote
as such owner or to pay dividends to any transferee to whom such shares will
have been so transferred.
17. Binding Effect. Subject to the restrictions on transfer set
forth herein, this Option Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
18. Termination or Amendment. The Board may terminate or amend the
Plan or the Option at any time; provided, however, that except as provided in
Section 8.2 in connection with a Transfer of Control, no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
19. Integrated Agreement. This Option Agreement constitutes the
entire understanding and agreement of the Optionee and the Participating Company
Group with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with
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<PAGE> 39
respect to such subject matter other than those as set forth or provided for
herein. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
20. Applicable Law. This Option Agreement shall be governed by the
laws of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
JAYCOR NETWORKS, INC.
By:
-------------------------------------
Title:
----------------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Vested Share Repurchase
Option set forth in Section 11, and hereby accepts the Option subject to all of
the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement. The undersigned acknowledges
receipt of a copy of the Plan.
OPTIONEE
Date:
----------------------------- ----------------------------------------
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<PAGE> 1
EXHIBIT 10.3
JAYCOR NETWORKS, INC.
1999 STOCK OPTION PLAN
(AS AMENDED AUGUST, 1999)
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. This Jaycor Networks, Inc. 1999 Stock
Option Plan (the "PLAN") is hereby established effective as of April 24, 1999.
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of the Participating Company Group and its shareholders by providing
an incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until
the earlier of its termination by the Board or the date on which all of the
shares of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Options
shall be granted, if at all, within ten (10) years from the earlier of the date
the Plan is adopted by the Board or the date the Plan is duly approved by the
shareholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "BOARD" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.
(d) "COMPANY" means Jaycor Networks, Inc., a
Delaware corporation, or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an
advisor, engaged by a Participating Company to render services other than as an
Employee or a Director.
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(f) "DIRECTOR" means a member of the Board or of the
board of directors of any other Participating Company.
(g) "DISABILITY" means the inability of the
Optionee, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of the Optionee's position with the Participating
Company Group because of the sickness or injury of the Optionee.
(h) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company and, with respect to any Incentive
Stock Option granted to such person, who is an employee for purposes of Section
422 of the Code; provided, however, that neither service as a Director nor
payment of a director's fee shall be sufficient to constitute employment for
purposes of the Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
(j) "FAIR MARKET VALUE" means, as of any date, the
value of a share of Stock or other property as determined by the Board, in its
discretion, or by the Company, in its discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, the Stock is listed on
a national or regional securities exchange or market system, the Fair Market
Value of a share of Stock shall be the closing price of a share of Stock (or the
mean of the closing bid and asked prices of a share of Stock if the Stock is so
quoted instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap
Market or such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in The Wall Street
Journal or such other source as the Company deems reliable. If the relevant date
does not fall on a day on which the Stock has traded on such securities exchange
or market system, the date on which the Fair Market Value shall be established
shall be the last day on which the Stock was so traded prior to the relevant
date, or such other appropriate day as shall be determined by the Board, in its
discretion.
(ii) If, on such date, there is no public
market for the Stock, the Fair Market Value of a share of Stock shall be as
determined by the Board in good faith without regard to any restriction other
than a restriction which, by its terms, will never lapse.
(k) "INCENTIVE STOCK OPTION" means an Option
intended to be (as set forth in the Option Agreement) and which qualifies as an
incentive stock option within the meaning of Section 422(b) of the Code.
(l) "INSIDER" means an officer or a Director of the
Company or any other person whose transactions in Stock are subject to Section
16 of the Exchange Act.
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(m) "NONSTATUTORY STOCK OPTION" means an Option not
intended to be (as set forth in the Option Agreement) or which does not qualify
as an Incentive Stock Option.
(n) "OPTION" means a right to purchase Stock
(subject to adjustment as provided in Section 4.2) pursuant to the terms and
conditions of the Plan. An Option may be either an Incentive Stock Option or a
Nonstatutory Stock Option.
(o) "OPTION AGREEMENT" means a written agreement,
including any related form of stock option grant agreement, between the Company
and an Optionee setting forth the terms, conditions and restrictions of the
Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(p) "OPTIONEE" means a person who has been granted
one or more Options.
(q) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any
point in time, all corporations collectively which are then Participating
Companies.
(t) "RULE 16b-3" means Rule 16b-3 under the Exchange
Act, as amended from time to time, or any successor rule or regulation.
(u) "SECURITIES ACT" means the Securities Act of
1933, as amended.
(v) "SERVICE" means an Optionee's employment or
service with the Participating Company Group, whether in the capacity of an
Employee, a Director or a Consultant. The Optionee's Service shall not be deemed
to have terminated merely because of a change in the capacity in which the
Optionee renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
an Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave the Optionee's Service shall be deemed to have terminated unless
the Optionee's right to return to Service with the Participating Company Group
is guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company or required by law, a leave of absence shall
not be treated as Service for purposes of determining vesting under the
Optionee's Option Agreement. The Optionee's Service shall be deemed to have
terminated either upon an actual termination of Service or upon the corporation
for which the Optionee performs Service ceasing to be a Participating Company.
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Subject to the foregoing, the Company, in its discretion, shall determine
whether the Optionee's Service has terminated and the effective date of such
termination.
(w) "STOCK" means the common stock of the Company,
as adjusted from time to time in accordance with Section 4.2.
(x) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
(y) "TEN PERCENT OWNER OPTIONEE" means an Optionee
who, at the time an Option is granted to the Optionee, owns stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of a Participating Company within the meaning of Section 422(b)(6) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are
for convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board. All questions of interpretation of the Plan or of any
Option shall be determined by the Board, and such determinations shall be final
and binding upon all persons having an interest in the Plan or such Option.
3.2 AUTHORITY OF OFFICERS. Any officer of a Participating
Company shall have the authority to act on behalf of the Company with respect to
any matter, right, obligation, determination or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
determination or election.
3.3 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.4 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its discretion:
(a) to determine the persons to whom, and the time
or times at which, Options shall be granted and the number of shares of Stock to
be subject to each Option;
(b) to designate Options as Incentive Stock Options
or Nonstatutory Stock Options;
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(c) to determine the Fair Market Value of shares of
Stock or other property;
(d) to determine the terms, conditions and
restrictions applicable to each Option (which need not be identical) and any
shares acquired upon the exercise thereof, including, without limitation, (i)
the exercise price of the Option, (ii) the method of payment for shares
purchased upon the exercise of the Option, (iii) the method for satisfaction of
any tax withholding obligation arising in connection with the Option or such
shares, including by the withholding or delivery of shares of stock, (iv) the
timing, terms and conditions of the exercisability of the Option or the vesting
of any shares acquired upon the exercise thereof, (v) the time of the expiration
of the Option, (vi) the effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option
Agreement;
(f) to amend, modify, extend, cancel, renew, reprice
or otherwise adjust the exercise price of, or grant a new Option in substitution
for, any Option or to waive any restrictions or conditions applicable to any
Option or any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an Optionee's
termination of Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines
and policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option Agreement and to make all
other determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be One Million, Four Hundred Nineteen
Thousand (1,419,000) and shall consist of authorized but unissued or reacquired
shares of Stock or any combination thereof. If an outstanding Option for any
reason expires or is terminated or canceled or if shares of Stock are acquired
upon the exercise of an Option subject to a Company repurchase option and are
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repurchased by the Company at the Optionee's exercise price, the shares of Stock
allocable to the unexercised portion of such Option or such repurchased shares
of Stock shall again be available for issuance under the Plan. Notwithstanding
the foregoing, at any such time as the offer and sale of securities pursuant to
the Plan is subject to compliance with Section 260.140.45 of Title 10 of the
California Code of Regulations ("SECTION 260.140.45"), the total number of
shares of Stock issuable upon the exercise of all outstanding Options (together
with options outstanding under any other stock option plan of the Company) and
the total number of shares provided for under any stock bonus or similar plan of
the Company shall not exceed thirty percent (30%) (or such other higher
percentage limitation as may be approved by the shareholders of the Company
pursuant to Section 260.140.45) of the then outstanding shares of the Company as
calculated in accordance with the conditions and exclusions of Section
260.140.45.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the
event of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options and in the exercise price per
share of any outstanding Options. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Options are exchanged
for, converted into, or otherwise become (whether or not pursuant to an
Ownership Change Event, as defined in Section 8.1) shares of another corporation
(the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to
provide that such Options are exercisable for New Shares. In the event of any
such amendment, the number of shares subject to, and the exercise price per
share of, the outstanding Options shall be adjusted in a fair and equitable
manner as determined by the Board, in its discretion. Notwithstanding the
foregoing, any fractional share resulting from an adjustment pursuant to this
Section 4.2 shall be rounded down to the nearest whole number, and in no event
may the exercise price of any Option be decreased to an amount less than the par
value, if any, of the stock subject to the Option. The adjustments determined by
the Board pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted
only to Employees, Consultants, and Directors. For purposes of the foregoing
sentence, "Employees," "Consultants" and "Directors" shall include prospective
Employees, prospective Consultants and prospective Directors to whom Options are
granted in connection with written offers of an employment or other service
relationships with the Participating Company Group. Eligible persons may be
granted more than one (1) Option.
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an
Employee on the effective date of the grant of an Option to such person may be
granted only a Nonstatutory Stock Option. An Incentive Stock Option granted to a
prospective Employee upon the condition that such person become an Employee
shall be deemed granted effective on the date such person commences Service with
a Participating Company, with an exercise price determined as of such date in
accordance with Section 6.1.
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5.3 FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portions
of such options which exceed such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of stock shall be determined as of the time the option
with respect to such stock is granted. If the Code is amended to provide for a
different limitation from that set forth in this Section 5.3, such different
limitation shall be deemed incorporated herein effective as of the date and with
respect to such Options as required or permitted by such amendment to the Code.
If an Option is treated as an Incentive Stock Option in part and as a
Nonstatutory Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Optionee may designate which portion of such Option the
Optionee is exercising. In the absence of such designation, the Optionee shall
be deemed to have exercised the Incentive Stock Option portion of the Option
first. Separate certificates representing each such portion shall be issued upon
the exercise of the Option.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the
number of shares of Stock covered thereby, in such form as the Board shall from
time to time establish. No Option or purported Option shall be a valid and
binding obligation of the Company unless evidenced by a fully executed Option
Agreement. Option Agreements may incorporate all or any of the terms of the Plan
by reference and shall comply with and be subject to the following terms and
conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall
be established in the discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the effective date of grant of the Option, and (c) no Option granted
to a Ten Percent Owner Optionee shall have an exercise price per share less than
one hundred ten percent (110%) of the Fair Market Value of a share of Stock on
the effective date of grant of the Option. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying under the provisions of Section 424(a) of
the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such
time or times, or upon such event or events, and subject to such terms,
conditions, performance criteria, and restrictions as shall be determined by the
Board and set forth in the Option Agreement evidencing such Option; provided,
however, that (a) no Option shall be exercisable after the expiration of ten
(10) years after the effective date of grant of such Option, (b) no Incentive
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Stock Option granted to a Ten Percent Owner Optionee shall be exercisable after
the expiration of five (5) years after the effective date of grant of such
Option, (c) no Option granted to a prospective Employee, prospective Consultant
or prospective Director may become exercisable prior to the date on which such
person commences Service with a Participating Company, and (d) with the
exception of an Option granted to an officer, Director or Consultant, no Option
shall become exercisable at a rate less than twenty percent (20%) per year over
a period of five (5) years from the effective date of grant of such Option,
subject to the Optionee's continued Service. Subject to the foregoing, unless
otherwise specified by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the exercise price for the number of shares
of Stock being purchased pursuant to any Option shall be made (i) in cash, by
check or cash equivalent, (ii) by tender to the Company, or attestation to the
ownership, of shares of Stock owned by the Optionee having a Fair Market Value
(as determined by the Company without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company) not less than
the exercise price, (iii) by the assignment of the proceeds of a sale or loan
with respect to some or all of the shares being acquired upon the exercise of
the Option (including, without limitation, through an exercise complying with
the provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) by the
Optionee's promissory note in a form approved by the Company, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 7, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
(b) LIMITATIONS ON FORMS OF CONSIDERATION.
(i) TENDER OF STOCK. Notwithstanding the
foregoing, an Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock to the extent such tender or
attestation would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company, or attestation to the ownership, of shares of Stock unless such
shares either have been owned by the Optionee for more than six (6) months or
were not acquired, directly or indirectly, from the Company.
(ii) CASHLESS EXERCISE. The Company reserves,
at any and all times, the right, in the Company's sole and absolute discretion,
to establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
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(iii) PAYMENT BY PROMISSORY NOTE. No
promissory note shall be permitted if the exercise of an Option using a
promissory note would be a violation of any law. Any permitted promissory note
shall be on such terms as the Board shall determine at the time the Option is
granted. The Board shall have the authority to permit or require the Optionee to
secure any promissory note used to exercise an Option with the shares of Stock
acquired upon the exercise of the Option or with other collateral acceptable to
the Company. Unless otherwise provided by the Board, if the Company at any time
is subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the extension
of credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but
not the obligation, to deduct from the shares of Stock issuable upon the
exercise of an Option, or to accept from the Optionee the tender of, a number of
whole shares of Stock having a Fair Market Value, as determined by the Company,
equal to all or any part of the federal, state, local and foreign taxes, if any,
required by law to be withheld by the Participating Company Group with respect
to such Option or the shares acquired upon the exercise thereof. Alternatively
or in addition, in its discretion, the Company shall have the right to require
the Optionee, through payroll withholding, cash payment or otherwise, including
by means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in connection
with the Option or the shares acquired upon the exercise thereof. The Company
shall have no obligation to deliver shares of Stock or to release shares of
Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
6.5 REPURCHASE RIGHTS. Shares issued under the Plan may be
subject to a right of first refusal, one or more repurchase options, or other
conditions and restrictions as determined by the Board in its discretion at the
time the Option is granted. The Company shall have the right to assign at any
time any repurchase right it may have, whether or not such right is then
exercisable, to one or more persons as may be selected by the Company. Upon
request by the Company, each Optionee shall execute any agreement evidencing
such transfer restrictions prior to the receipt of shares of Stock hereunder and
shall promptly present to the Company any and all certificates representing
shares of Stock acquired hereunder for the placement on such certificates of
appropriate legends evidencing any such transfer restrictions.
6.6 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Subject to earlier
termination of the Option as otherwise provided herein, an Option shall be
exercisable after an Optionee's termination of Service as follows:
(i) DISABILITY. If the Optionee's Service
with the Participating Company Group is terminated because of the Disability of
the Optionee, the Option, to the extent unexercised and exercisable on the date
on which the Optionee's Service terminated, may be
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exercised by the Optionee (or the Optionee's guardian or legal representative)
at any time prior to the expiration of twelve (12) months (or such longer period
of time as determined by the Board, in its discretion) after the date on which
the Optionee's Service terminated, but in any event no later than the date of
expiration of the Option's term as set forth in the Option Agreement evidencing
such Option (the "OPTION EXPIRATION DATE").
(ii) DEATH. If the Optionee's Service with
the Participating Company Group is terminated because of the death of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee's
legal representative or other person who acquired the right to exercise the
Option by reason of the Optionee's death at any time prior to the expiration of
twelve (12) months (or such longer period of time as determined by the Board, in
its discretion) after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date. The Optionee's Service
shall be deemed to have terminated on account of death if the Optionee dies
within thirty (30) days (or such longer period of time as determined by the
Board, in its discretion) after the Optionee's termination of Service.
(iii) OTHER TERMINATION OF SERVICE. If the
Optionee's Service with the Participating Company Group terminates for any
reason, except Disability or death, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within three (3) months (or such
longer period of time as determined by the Board, in its discretion) after the
date on which the Optionee's Service terminated, but in any event no later than
the Option Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW.
Notwithstanding the foregoing, if the exercise of an Option within the
applicable time periods set forth in Section 6.6(a) is prevented by the
provisions of Section 11 below, the Option shall remain exercisable until thirty
(30) days (or such longer period of time as determined by the Board, in its
discretion) after the date the Optionee is notified by the Company that the
Option is exercisable, but in any event no later than the Option Expiration
Date.
(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.6(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 GENERAL. Unless otherwise provided by the Board at the
time the Option is granted, an Option shall comply with and be subject to the
terms and conditions set forth in the standard form of Option Agreement adopted
by the Board concurrently with its adoption of the Plan and as amended from time
to time.
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7.2 AUTHORITY TO VARY TERMS. The Board shall have the
authority from time to time to vary the terms of any of the standard form of
Option Agreement described in this Section 7 either in connection with the grant
or amendment of an individual Option or in connection with the authorization of
a new standard form or forms; provided, however, that the terms and conditions
of any such new, revised or amended standard form or forms of Option Agreement
are not inconsistent with the terms of the Plan.
8. CHANGE IN CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company: (i)
the direct or indirect sale or exchange in a single or series of related
transactions by the shareholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, a
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event of
a Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
Section 8.2, an Option shall be deemed assumed if, following the Change in
Control, the Option confers the right to purchase in accordance with its terms
and conditions, for each share of Stock subject to the Option immediately prior
to the Change in Control, the consideration (whether stock, cash or other
securities or property) to which a holder of a share of Stock on the effective
date of the Change in Control was entitled. Any Options which are neither
assumed or substituted for by the Acquiring Corporation in connection with the
Change in Control nor exercised as of the date of the Change in Control shall
terminate and cease to be outstanding
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effective as of the date of the Change in Control. Notwithstanding the
foregoing, shares acquired upon exercise of an Option prior to the Change in
Control and any consideration received pursuant to the Change in Control with
respect to such shares shall continue to be subject to all applicable provisions
of the Option Agreement evidencing such Option except as otherwise provided in
such Option Agreement.
9. PROVISION OF INFORMATION.
At least annually, copies of the Company's balance sheet and
income statement for the just completed fiscal year shall be made available to
each Optionee and purchaser of shares of Stock upon the exercise of an Option.
The Company shall not be required to provide such information to key employees
whose duties in connection with the Company assure them access to equivalent
information.
10. NONTRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee or the Optionee's guardian or legal
representative. No Option shall be assignable or transferable by the Optionee,
except by will or by the laws of descent and distribution.
11. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock upon
exercise of Options shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such securities.
Options may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
no Option may be exercised unless (a) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (b) in the opinion
of legal counsel to the Company, the shares issuable upon exercise of the Option
may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of any
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
12. INDEMNIFICATION.
In addition to such other rights of indemnification as they may
have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to
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act for the Board or the Company is delegated shall be indemnified by the
Company against all reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty (60) days
after the institution of such action, suit or proceeding, such person shall
offer to the Company, in writing, the opportunity at its own expense to handle
and defend the same.
13. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time. However,
subject to changes in applicable law, regulations or rules that would permit
otherwise, without the approval of the Company's shareholders, there shall be
(a) no increase in the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of Section 4.2),
(b) no change in the class of persons eligible to receive Incentive Stock
Options, and (c) no other amendment of the Plan that would require approval of
the Company's shareholders under any applicable law, regulation or rule. No
termination or amendment of the Plan may adversely affect any then outstanding
Option or any unexercised portion thereof, without the consent of the Optionee,
unless such termination or amendment is required to enable an Option designated
as an Incentive Stock Option to qualify as an Incentive Stock Option or is
necessary to comply with any applicable law, regulation or rule.
14. SHAREHOLDER APPROVAL.
The Plan or any increase in the maximum aggregate number of
shares of Stock issuable thereunder as provided in Section 4.1 (the "AUTHORIZED
SHARES") shall be approved by the shareholders of the Company within twelve (12)
months of the date of adoption thereof by the Board. Options granted prior to
shareholder approval of the Plan or in excess of the Authorized Shares
previously approved by the shareholders shall become exercisable no earlier than
the date of shareholder approval of the Plan or such increase in the Authorized
Shares, as the case may be.
IN WITNESS WHEREOF, the undersigned Secretary of the Company
certifies that the Jaycor Networks, Inc. 1999 Stock Option Plan was duly adopted
by the Board on April 24, 1999 and amended August, 1999.
Dated: /s/ RANDY JOHNSON
-------------------------- ----------------------------------------
Secretary
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JAYCOR NETWORKS, INC.
TERMS OF STOCK OPTION AGREEMENT
The Company has granted to the Optionee, pursuant to a Stock Option
Grant Agreement (the "GRANT AGREEMENT") and the Company's 1999 Stock Option Plan
(the "PLAN"), an Option to purchase certain shares of Stock, upon the terms and
conditions set forth in this Agreement. The Option shall in all respects be
subject to the terms and conditions of the Grant Agreement and the Plan, the
provisions of which are incorporated herein by reference.
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Unless otherwise defined herein,
capitalized terms shall have the meanings assigned to such terms in the Grant
Agreement or the Plan.
1.2 CONSTRUCTION. Captions and titles contained herein are
for convenience only and shall not affect the meaning or interpretation of any
provision of this Agreement. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
2. TAX CONSEQUENCES.
2.1 TAX STATUS OF OPTION. As indicated in the Grant
Agreement, this Option is intended to be either an Incentive Stock Option within
the meaning of Section 422(b) of the Code or a Nonstatutory Stock Option, which
is not intended to qualify as an Incentive Stock Option. The Optionee should
consult with the Optionee's own tax advisor regarding the tax effects of this
Option (and any requirements necessary to obtain favorable income tax treatment
under Section 422 of the Code, including, but not limited to, holding period
requirements).
2.2 FAIR MARKET VALUE LIMITATION. If this Option is
designated an Incentive Stock Option in the Grant Agreement, to the extent that
the Option (together with all Incentive Stock Options granted to the Optionee
under all stock option plans of the Participating Company Group, including the
Plan) becomes exercisable for the first time during any calendar year for shares
having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000),
the portion of such options which exceeds such amount will be treated as
Nonstatutory Stock Options. For purposes of this Section 2.2, options designated
as Incentive Stock Options are taken into account in the order in which they
were granted, and the Fair Market Value of stock is determined as of the time
the option with respect to such stock is granted. If the Code is amended to
provide for a different limitation from that set forth in this Section 2.2, such
different limitation shall be deemed incorporated herein effective as of the
date required or permitted by such amendment to the Code. If the Option is
treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option
in part by reason of the limitation set forth in this Section 2.2, the Optionee
may designate which portion of such Option the Optionee is exercising. In the
absence of such designation, the Optionee shall be deemed to have exercised the
Incentive Stock Option
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portion of the Option first. Separate certificates representing each such
portion shall be issued upon the exercise of the Option. (NOTE TO OPTIONEE: If
the aggregate Exercise Price of the Option (that is, the Exercise Price
multiplied by the Number of Option Shares) plus the aggregate exercise price of
any other Incentive Stock Options you hold (whether granted pursuant to the Plan
or any other stock option plan of the Participating Company Group) is greater
than $100,000, you should contact the Chief Financial Officer of the Company to
ascertain whether the entire Option qualifies as an Incentive Stock Option.
3. EXERCISE OF THE OPTION.
3.1 RIGHT TO EXERCISE. Except as otherwise provided herein,
the Option shall be exercisable on and after the Initial Vesting Date and prior
to the termination of the Option (as provided in Section 5) in an amount not to
exceed the Number of Option Shares multiplied by the Vested Ratio less the
number of shares previously acquired upon exercise of the Option, subject to the
Optionee's agreement that any shares purchased upon exercise are subject to the
Company's Right of First Refusal and Vested Share Repurchase (as such terms are
defined herein).
3.2 METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as to the Optionee's
investment intent with respect to such shares as may be required pursuant to the
provisions of this Agreement. The written notice must be signed by the Optionee
and must be delivered in person, by certified or registered mail, return receipt
requested, by confirmed facsimile transmission, or by such other means as the
Company may permit, to the Chief Financial Officer of the Company, or other
authorized representative of the Participating Company Group, prior to the
termination of the Option as set forth in Section 5, accompanied by full payment
of the aggregate Exercise Price for the number of shares of Stock being
purchased and an executed copy if required herein, of the then current form of
escrow agreement referenced below. The Option shall be deemed to be exercised
upon receipt by the Company of such written notice and the aggregate Exercise
Price.
3.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the aggregate Exercise Price for the number
of shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company, or
attestation to the ownership, of whole shares of Stock owned by the Optionee
having a Fair Market Value (as determined by the Company without regard to any
restrictions on transferability applicable to such stock by reason of federal or
state securities laws or agreements with an underwriter for the Company) not
less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise,
as defined in Section 3.3(b), or (iv) by any combination of the foregoing.
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<PAGE> 16
(b) LIMITATIONS ON FORMS OF CONSIDERATION.
(i) TENDER OF STOCK. Notwithstanding the
foregoing, the Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock to the extent such tender, or
attestation to the ownership, of Stock would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of the
Company's stock. The Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock unless such shares either have
been owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(ii) CASHLESS EXERCISE. A "CASHLESS EXERCISE"
means the assignment in a form acceptable to the Company of the proceeds of a
sale or loan with respect to some or all of the shares of Stock acquired upon
the exercise of the Option pursuant to a program or procedure approved by the
Company (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure. Generally, and without
limiting the Company's absolute discretion, a "cashless exercise" will only be
permitted at such times in which the shares underlying this Option are publicly
traded.
3.4 TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless the tax withholding obligations of the
Participating Company Group are satisfied. Accordingly, the Optionee may not be
able to exercise the Option when desired even though the Option is vested, and
the Company shall have no obligation to issue a certificate for such shares.
3.5 CERTIFICATE REGISTRATION. Except in the event the
Exercise Price is paid by means of a Cashless Exercise, the certificate for the
shares as to which the Option is exercised shall be registered in the name of
the Optionee, or, if applicable, the Optionee's heirs.
3.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF
SHARES. The grant of the Option and the issuance of shares of Stock upon
exercise of the Option shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
The Option may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law
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<PAGE> 17
or regulations or the requirements of any stock exchange or market system upon
which the Stock may then be listed. In addition, the Option may not be exercised
unless (i) a registration statement under the Securities Act shall at the time
of exercise of the Option be in effect with respect to the shares issuable upon
exercise of the Option or (ii) in the opinion of legal counsel to the Company,
the shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the
Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED
UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT
BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED.
The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares subject to the Option
shall relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of the Option, the Company may require
the Optionee to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
3.7 FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares upon the exercise of the Option.
4. NONTRANSFERABILITY OF THE OPTION.
The Option may be exercised during the lifetime of the Optionee
only by the Optionee or the Optionee's guardian or legal representative and may
not be assigned or transferred in any manner except by will or by the laws of
descent and distribution. Following the death of the Optionee, the Option, to
the extent provided in Section 6, may be exercised by the Optionee's legal
representative or by any person empowered to do so under the deceased Optionee's
will or under the then applicable laws of descent and distribution.
5. TERMINATION OF THE OPTION.
The Option shall terminate and may no longer be exercised on the
first to occur of (a) the Option Expiration Date, (b) the last date for
exercising the Option following termination of the Optionee's Service as
described in Section 6, or (c) pursuant to a Change in Control, to the extent
provided in the Plan.
6. EFFECT OF TERMINATION OF SERVICE.
6.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated,
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but in any event no later than the Option Expiration Date. (NOTE: If an
Incentive Stock Option is exercised more than three (3) months after the date on
which the Optionee's Service as an Employee terminated as a result of a
Disability other than a permanent and total disability as defined in Section
22(e)(3) of the Code, the Option will be treated as a Nonstatutory Stock Option
and not as an Incentive Stock Option to the extent required by Section 422 of
the Code.)
(b) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of twelve
(12) months after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date. The Optionee's Service shall
be deemed to have terminated on account of death if the Optionee dies within
thirty (30) days after the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability, or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months (or such other longer period
of time as determined by the Board, in its sole discretion) after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
6.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth in Section 6.1 is prevented by the provisions of Section 3.6, the
Option shall remain exercisable until thirty (30) days after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date. The Company makes no
representation as to the tax consequences of any such delayed exercise. The
Optionee should consult with the Optionee's own tax advisor as to the tax
consequences of any such delayed exercise.
6.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisor as to the tax consequences of any such delayed exercise.
7. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT.
The Optionee shall have no rights as a shareholder with respect
to any shares covered by the Option until the date of the issuance of a
certificate for the shares for which the Option has been exercised (as evidenced
by the appropriate entry on the books of the Company
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<PAGE> 19
or of a duly authorized transfer agent of the Company). No adjustment shall be
made for dividends, distributions or other rights for which the record date is
prior to the date such certificate is issued, except as provided in Section 4.2
of the Plan. If the Optionee is an Employee, the Optionee understands and
acknowledges that, except as otherwise provided in a separate, written
employment agreement between a Participating Company and the Optionee, the
Optionee's employment is "at will" and is for no specified term. Nothing in this
Agreement shall confer upon the Optionee any right to continue in the Service of
a Participating Company or interfere in any way with any right of the
Participating Company Group to terminate the Optionee's Service as an Employee
or Consultant, as the case may be, at any time.
8. RIGHT OF FIRST REFUSAL.
8.1 GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in
Section 8.7 below, in the event the Optionee, the Optionee's legal
representative, or other holder of shares acquired upon exercise of the Option
proposes to sell, exchange, transfer, pledge, or otherwise dispose of any shares
acquired upon exercise of the Option (the "TRANSFER SHARES") to any person or
entity, including, without limitation, any shareholder of a Participating
Company, the Company shall have the right to repurchase the Transfer Shares
under the terms and subject to the conditions set forth in this Section 8 (the
"RIGHT OF FIRST REFUSAL"). This Right of First Refusal terminates in accordance
with Section 8.9.
8.2 NOTICE OF PROPOSED TRANSFER. Prior to any proposed
transfer of the Transfer Shares, the Optionee shall deliver written notice (the
"TRANSFER NOTICE") to the Company describing fully the proposed transfer,
including the number of Transfer Shares, the name and address of the proposed
transferee (the "PROPOSED TRANSFEREE") and, if the transfer is voluntary, the
proposed transfer price, and containing such information necessary to show the
bona fide nature of the proposed transfer. In the event of a bona fide gift or
involuntary transfer, the proposed transfer price shall be deemed to be the Fair
Market Value of the Transfer Shares, as determined by the Board in good faith.
If the Optionee proposes to transfer any Transfer Shares to more than one
Proposed Transferee, the Optionee shall provide a separate Transfer Notice for
the proposed transfer to each Proposed Transferee. The Transfer Notice shall be
signed by both the Optionee and the Proposed Transferee and must constitute a
binding commitment of the Optionee and the Proposed Transferee for the transfer
of the Transfer Shares to the Proposed Transferee subject only to the Right of
First Refusal.
8.3 BONA FIDE TRANSFER. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 8, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure
described in this Section 8. The Optionee shall not be permitted to transfer the
Transfer Shares if the proposed transfer is not bona fide.
8.4 EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company
determines the proposed transfer to be bona fide, the Company shall have the
right to purchase all, but not less
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than all, of the Transfer Shares (except as the Company and the Optionee
otherwise agree) at the purchase price and on the terms set forth in the
Transfer Notice by delivery to the Optionee of a notice of exercise of the Right
of First Refusal within thirty (30) days after the date the Transfer Notice is
delivered to the Company. The Company's exercise or failure to exercise the
Right of First Refusal with respect to any proposed transfer described in a
Transfer Notice shall not affect the Company's right to exercise the Right of
First Refusal with respect to any proposed transfer described in any other
Transfer Notice, whether or not such other Transfer Notice is issued by the
Optionee or issued by a person other than the Optionee with respect to a
proposed transfer to the same Proposed Transferee. If the Company exercises the
Right of First Refusal, the Company and the Optionee shall thereupon consummate
the sale of the Transfer Shares to the Company on the terms set forth in the
Transfer Notice within sixty (60) days after the date the Transfer Notice is
delivered to the Company (unless a longer period is offered by the Proposed
Transferee); provided, however, that in the event the Transfer Notice provides
for the payment for the Transfer Shares other than in cash, the Company shall
have the option of paying for the Transfer Shares by the present value cash
equivalent of the consideration described in the Transfer Notice as reasonably
determined by the Company. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to any Participating Company shall be treated as
payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled.
8.5 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the
Company fails to exercise the Right of First Refusal in full (or to such lesser
extent as the Company and the Optionee otherwise agree) within the period
specified in Section 8.4 above, the Optionee may conclude a transfer to the
Proposed Transferee of the Transfer Shares on the terms and conditions described
in the Transfer Notice, provided such transfer occurs not later than ninety (90)
days following delivery to the Company of the Transfer Notice. The Company shall
have the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer as bona fide. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this Section 8.
8.6 TRANSFEREES OF TRANSFER SHARES. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interest therein subject to all of the terms and conditions
of this Option Agreement, including this Section 8 providing for the Right of
First Refusal with respect to any subsequent transfer. Any sale or transfer of
any shares acquired upon exercise of the Option shall be void unless the
provisions of this Section 8 are met.
8.7 TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The
Right of First Refusal shall not apply to any transfer or exchange of the shares
acquired upon exercise of the Option if such transfer or exchange is in
connection with an Ownership Change Event. If the
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<PAGE> 21
consideration received pursuant to such transfer or exchange consists of stock
of a Participating Company, such consideration shall remain subject to the Right
of First Refusal unless the provisions of Section 8.9 below result in a
termination of the Right of First Refusal.
8.8 ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall
have the right to assign the Right of First Refusal at any time, whether or not
there has been an attempted transfer, to one or more persons as may be selected
by the Company.
8.9 EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other
provisions of this Option Agreement notwithstanding, the Right of First Refusal
shall terminate and be of no further force and effect upon (a) the occurrence of
a Change in Control, unless the Acquiring Corporation assumes the Company's
rights and obligations under the Option or substitutes a substantially
equivalent option for the Acquiring Corporation's stock for the Option, or (b)
the existence of a public market for the class of shares subject to the Right of
First Refusal. A "PUBLIC MARKET" shall be deemed to exist if (i) such stock is
listed on a national securities exchange (as that term is used in the Exchange
Act) or (ii) such stock is traded on the over-the-counter market and prices
therefor are published daily on business days in a recognized financial journal.
9. VESTED SHARE REPURCHASE OPTION.
9.1 GRANT OF VESTED SHARE REPURCHASE OPTION. Except as
otherwise provided herein, in the event of the occurrence of any Repurchase
Event, as defined below, the Company shall have the right to repurchase the
Vested Shares acquired by the Optionee pursuant to the Option (the "REPURCHASE
SHARES") under the terms and subject to the conditions set forth in this Section
9 (the "VESTED SHARE REPURCHASE OPTION"). Each of the following events shall
constitute a "REPURCHASE EVENT":
(a) Termination of the Optionee's Service with the
Participating Company Group for any reason or no reason, with or without cause,
including death or Disability. The Repurchase Period, as defined below, shall
commence on the date of termination of the Optionee's Service.
(b) The Optionee, the Optionee's legal
representative, or other holder of shares acquired upon exercise of the Option
attempts to sell, exchange, transfer, pledge, or otherwise dispose of any
Repurchase Shares without complying with the provisions of Section 8. The
Repurchase Period, as defined below, shall commence on the date the Company
receives actual notice of such attempted sale, exchange, transfer, pledge or
other disposition.
(c) The receivership, bankruptcy or other creditor's
proceeding regarding the Optionee or the taking of any of the Optionee's shares
of Stock by legal process, such as a levy of execution. The Repurchase Period,
as defined below, shall commence on the date the Company receives actual notice
of the commencement of pendency of the receivership, bankruptcy or other
creditor's proceeding or the date of such taking, as the case may be. The Fair
Market Value of the Repurchase Shares shall be determined as of the last day of
the month preceding the month in which the proceeding involved commenced or the
taking occurred.
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9.2 EXERCISE OF VESTED SHARE REPURCHASE OPTION. The Company
may exercise the Vested Share Repurchase Option by written notice to the
Optionee, the Optionee's legal representative, or other holder of the Repurchase
Shares, as the case may be, during the Repurchase Period. The "REPURCHASE
PERIOD" shall be the period commencing at the time set forth in Section 9.1
above and ending on the later of (a) the date ninety (90) days after the
commencement of the Repurchase Period or (b) the date ninety (90) days after the
Option is last exercised. If the Company fails to give notice during the
Repurchase Period, the Vested Share Repurchase Option shall terminate (unless
the Company and the Optionee have extended the time for the exercise of the
Vested Share Repurchase Option) unless and until there is a subsequent
Repurchase Event. Notwithstanding a termination of the Vested Share Repurchase
Option, the remaining provisions of this Option Agreement shall remain in full
force and effect, including, without limitation, the Right of First Refusal. If
there is a subsequent Repurchase Event, the Vested Share Repurchase Option shall
again become exercisable as provided in this Section 9. The Vested Share
Repurchase Option must be exercised, if at all, for all of the Repurchase
Shares, except as the Company and the Optionee otherwise agree.
9.3 PAYMENT FOR REPURCHASE SHARES. The repurchase price per
share being repurchased by the Company pursuant to the Vested Share Repurchase
Option shall be an amount equal to the Fair Market Value of the shares
determined as of the date of the Repurchase Event (except as otherwise provided
in Section 9.1(c) above) by the Board in good faith. Payment by the Company to
the Optionee shall be made in cash on or before the last day of the Repurchase
Period. For purposes of this Section 9.3, cancellation of any indebtedness of
the Optionee to the Company shall be treated as payment to the Optionee in cash
to the extent of the unpaid principal and any accrued interest canceled.
9.4 TRANSFERS NOT SUBJECT TO VESTED SHARE REPURCHASE OPTION.
The Vested Share Repurchase Option shall not apply to any transfer or exchange
of shares acquired upon exercise of the Option if such transfer or exchange is
in connection with an Ownership Change Event as described in the Plan. If the
consideration received pursuant to such transfer or exchange consists of stock
of a Participating Company, such consideration will remain subject to the Vested
Share Repurchase Option unless the provisions of Section 9.6 below result in a
termination of the Vested Share Repurchase Option.
9.5 ASSIGNMENT OF VESTED SHARE REPURCHASE OPTION. The
Company shall have the right to assign the Vested Share Repurchase Option at any
time, whether or not such option is then exercisable, to one or more persons as
may be selected by the Company.
9.6 EARLY TERMINATION OF VESTED SHARE REPURCHASE OPTION. The
other provisions of this Option Agreement notwithstanding, the Vested Share
Repurchase Option shall terminate and be of no further force and effect upon (a)
the occurrence of a Change in Control as described in the Plan, unless the
Acquiring Corporation assumes the Company's rights and obligations under the
Option or substitutes a substantially equivalent option for the Acquiring
Corporation's stock for the Option, or (b) the existence of a public market, as
defined in Section 8.9, for the class of shares subject to the Vested Share
Repurchase Option.
9
<PAGE> 23
10. ESCROW.
10.1 ESTABLISHMENT OF ESCROW. To ensure that shares subject
to the Vested Share Repurchase Option Provisions will be available for
repurchase, the Company may require the Optionee to deposit the certificate
evidencing the shares which the Optionee purchases upon exercise of the Option
with an agent designated by the Company under the terms and conditions of an
escrow agreement approved by the Company. If the Company does not require such
deposit as a condition of exercise of the Option, the Company reserves the right
at any time to require the Optionee to so deposit the certificate in escrow.
Upon the occurrence of an Ownership Change Event or a change in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this Option Agreement, any and all new, substituted
or additional securities or other property to which the Optionee is entitled by
reason of the Optionee's ownership of shares of Stock acquired upon exercise of
the Option that remain, following such Ownership Change Event or other change,
subject to the Vested Share Repurchase Option Provisions, shall be immediately
subject to the escrow to the same extent as such shares of Stock immediately
before such event. The Company shall bear the expenses of the escrow.
10.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable
after the expiration of the restrictions described in Section 10.1, but not more
frequently than twice each calendar year, the escrow agent shall deliver to the
Optionee the shares and any other property no longer subject to such
restrictions.
10.3 NOTICES AND PAYMENTS. In the event the shares and any
other property held in escrow are subject to the Company's exercise of the Right
of First Refusal or the Vested Share Repurchase Option Provisions, the notices
required to be given to the Optionee shall be given to the escrow agent, and any
payment required to be given to the Optionee shall be given to the escrow agent.
Within thirty (30) days after payment by the Company, the escrow agent shall
deliver the shares and any other property which the Company has purchased to the
Company and shall deliver the payment received from the Company to the Optionee.
11. STOCK DISTRIBUTIONS SUBJECT TO THIS AGREEMENT.
If, from time to time, there is any stock dividend, stock split
or other change, as described in Section 4.2 of the Plan, in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this Agreement, then in such event any and all new,
substituted or additional securities to which the Optionee is entitled by reason
of the Optionee's ownership of the shares acquired upon exercise of the Option
shall be immediately subject to the Right of First Refusal and Vested Share
Repurchase Option with the same force and effect as the shares subject to such
restrictions immediately before such event.
12. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION.
If the Option is designated as an Incentive Stock Option in the
Grant Agreement, the Optionee shall comply with the provisions of this Section.
The Optionee shall promptly notify the Chief Financial Officer of the Company if
the Optionee disposes of any of the shares
10
<PAGE> 24
acquired pursuant to the Option within one (1) year after the date of the
Optionee exercises all or part of the Option or within two (2) years after the
Date of Grant. Until such time as the Optionee disposes of such shares in a
manner consistent with the provisions of this Agreement, unless otherwise
expressly authorized by the Company, the Optionee shall hold all shares acquired
pursuant to the Option in the Optionee's name (and not in the name of any
nominee) for the one-year period immediately after the exercise of the Option
and the two-year period immediately after Date of Grant. At any time during the
one-year or two-year periods set forth above, the Company may place a legend on
any certificate representing shares acquired pursuant to the Option requesting
the transfer agent for the Company's stock to notify the Company of any such
transfers. The obligation of the Optionee to notify the Company of any such
transfer shall continue notwithstanding that a legend has been placed on the
certificate pursuant to the preceding sentence.
13. LEGENDS.
The Company may at any time place legends referencing the Right
of First Refusal, the Vested Share Repurchase Option and any applicable federal,
state or foreign securities law restrictions on all certificates representing
shares of stock subject to the provisions of this Agreement. The Optionee shall,
at the request of the Company, promptly present to the Company any and all
certificates representing shares acquired pursuant to the Option in the
possession of the Optionee in order to carry out the provisions of this Section.
Unless otherwise specified by the Company, legends placed on such certificates
may include, but shall not be limited to, the following:
13.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE
IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES
AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY
TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
13.2 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE
SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR
SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS CORPORATION."
13.3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER, INCLUDING A VESTED SHARE REPURCHASE OPTION
IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE
11
<PAGE> 25
SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR
SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS CORPORATION."
13.4 If this Option is designated as an Incentive Stock
Option in the Grant Agreement: "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE
ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE
STOCK OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED ("ISO"). IN ORDER TO OBTAIN THE PREFERENTIAL TAX TREATMENT AFFORDED TO
ISOs, THE SHARES SHOULD NOT BE TRANSFERRED PRIOR TO [INSERT LATER OF TWO YEARS
AFTER THE DATE OF OPTION GRANT OR ONE YEAR AFTER THE DATE OF EXERCISE]. SHOULD
THE REGISTERED HOLDER ELECT TO TRANSFER ANY OF THE SHARES PRIOR TO THIS DATE AND
FOREGO ISO TAX TREATMENT, THE TRANSFER AGENT FOR THE SHARES SHALL NOTIFY THE
CORPORATION IMMEDIATELY. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED
UNDER THE INCENTIVE STOCK OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE
NAME OF ANY NOMINEE) PRIOR TO THIS DATE OR UNTIL TRANSFERRED AS DESCRIBED
ABOVE."
14. PUBLIC OFFERING.
The Optionee hereby agrees that in the event of any underwritten
public offering of stock, including an initial public offering of stock, made by
the Company pursuant to an effective registration statement filed under the
Securities Act, the Optionee shall not offer, sell, contract to sell, pledge,
hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in the public offering under the
Securities Act. The Optionee shall be subject to this Section provided and only
if the officers and directors of the Company are also subject to similar
arrangements.
15. RESTRICTIONS ON TRANSFER OF SHARES.
No shares acquired upon exercise of the Option may be sold,
exchanged, transferred (including, without limitation, any transfer to a nominee
or agent of the Optionee), assigned, pledged, hypothecated or otherwise disposed
of, including by operation of law, in any manner which violates any of the
provisions of this Agreement, and any such attempted disposition shall be void.
The Company shall not be required (a) to transfer on its books any shares which
will have been transferred in violation of any of the provisions set forth in
this Option Agreement or (b) to treat as owner of such shares or to accord the
right to vote as such owner or to pay dividends to any transferee to whom such
shares will have been so transferred.
12
<PAGE> 26
16. BINDING EFFECT.
Subject to the restrictions on transfer set forth herein, this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, executors, administrators, successors and assigns.
17. TERMINATION OR AMENDMENT.
The Board may terminate or amend the Plan or the Option at any
time; provided, however, that except in connection with a Change in Control, no
such termination or amendment may adversely affect the Option or any unexercised
portion hereof without the consent of the Optionee unless such termination or
amendment is necessary to comply with any applicable law or government
regulation or is required to enable an Option designated as an Incentive Stock
Option in the Grant Agreement to qualify as an Incentive Stock Option. No
amendment or addition to this Agreement shall be effective unless in writing.
18. NOTICES.
Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given (except to the extent that this
Option Agreement provides for effectiveness only upon actual receipt of such
notice) upon personal delivery or upon deposit in the United States Post Office,
by registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address shown on the Grant Agreement or at such other address
as such party may designate in writing from time to time to the other party.
19. INTEGRATED AGREEMENT.
The Grant Agreement, this Agreement and the Plan constitute the
entire understanding and agreement of the Optionee and the Participating Company
Group with respect to the subject matter contained herein and therein and there
are no agreements, understandings, restrictions, representations, or warranties
among the Optionee and the Participating Company Group with respect to such
subject matter other than those as set forth or provided for herein or therein.
To the extent contemplated herein or therein, the provisions of the Grant
Agreement and this Agreement shall survive any exercise of the Option and shall
remain in full force and effect.
20. APPLICABLE LAW.
This Agreement shall be governed by the laws of the State of
California as such laws are applied to agreements between California residents
entered into and to be performed entirely within the State of California.
13
<PAGE> 27
Optionee:
------------------------
Date:
----------------------------
EXERCISE NOTICE
Jaycor Networks, Inc.
9775 Towne Centre Drive
San Diego, CA 92121
Attention: Chief Financial Officer
Ladies and Gentlemen:
1. Exercise of Option. I was granted a stock option (the "OPTION")
to purchase shares of the common stock of Jaycor Networks, Inc. (the "COMPANY")
on _____________, _____, pursuant to the Company's 1999 Stock Option Plan (the
"PLAN") and pursuant to the Stock Option Grant Agreement dated , 19 and the
related Terms of Stock Option Agreement (together, the "OPTION AGREEMENT"). I
hereby elect to exercise the Option as to a total of ______________ shares of
the common stock of the Company (the "SHARES"), all of which have vested in
accordance with the Option Agreement.
2. Payment. Enclosed herewith is full payment in the aggregate
amount of $_____________ (representing $_______ per share) for the Shares in the
manner set forth in the Option Agreement. I authorize payroll withholding and
otherwise will make adequate provision for federal, state, local and foreign tax
withholding obligations of the Company, if any.
3. Binding Effect. I agree that the Shares are being acquired in
accordance with and subject to the terms, provisions and conditions of the
Option Agreement, including the Right of First Refusal and Vested Share
Repurchase Option set forth therein, to all of which I hereby expressly assent.
This Agreement shall inure to the benefit of and be binding upon the my heirs,
executors, administrators, successors and assigns. I agree to deposit the
certificate(s) evidencing the Shares, along with a blank stock assignment
separate from certificate executed by me, with an escrow agent designated by the
Company, to be held by such escrow agent pursuant to the Option Agreement.
4. Transfer. I am aware that Rule 144, promulgated under the
Securities Act, which permits limited public resale of securities acquired in a
nonpublic offering, is not currently available with respect to the Shares and,
in any event, is available only if certain conditions are satisfied. I
understand that any sale of the Shares that might be made in reliance upon Rule
144 may only be made in limited amounts in accordance with the terms and
conditions of such rule and that a copy of Rule 144 will be delivered to me upon
request.
1
<PAGE> 28
I agree that, if the Option is designated an Incentive Stock Option in
the Grant Agreement, I will promptly notify the Chief Financial Officer of the
Company if I transfer any of the Shares acquired pursuant to such incentive
stock option within one (1) year from the date I exercise all or part of the
Option or within two (2) years of the date of grant of the Option.
My address of record is:
------------------------------------------------------------------
------------------------------------------------------------------
My Social Security Number is:
-------------------------------------
I understand that I am purchasing the Shares pursuant to the terms of
the Plan and my Option Agreement, copies of which I have received and carefully
read and understand.
Very truly yours,
------------------------------------
Receipt of the above is hereby acknowledged.
JAYCOR NETWORKS, INC.
By:
---------------------------------
Title:
------------------------------
Dated:
------------------------------
2
<PAGE> 29
JAYCOR NETWORKS, INC.
STOCK OPTION GRANT AGREEMENT
__________ (the "OPTIONEE") has been granted an option (the "OPTION") to
purchase shares of the Common Stock of Jaycor Networks, Inc. pursuant to this
Stock Option Grant Agreement, the Company's 1999 Stock Option Plan (the "PLAN")
and the attached Terms of Stock Option Agreement (the "OPTION AGREEMENT"), the
provisions of which are incorporated herein by reference.
TYPE OF OPTION: [X] Incentive Stock Option
The following terms shall have their respective meanings as set forth below or
in the Plan.
"DATE OF OPTION GRANT" means ________, 1999.
"NUMBER OF OPTION SHARES" means ___________ shares of Stock.
"EXERCISE PRICE" means $____ per share of Stock.
"INITIAL VESTING DATE" means __________________________ , 199___.
"OPTION EXPIRATION DATE" means the date ten (10) years after the Date of
Option Grant.
"VESTED RATIO" means, on any relevant date, the ratio determined as
follows:
(a) Prior to the Initial Vesting Date, the Vested Ratio
shall be zero.
(b) On the Initial Vesting Date, the Vested Ratio shall be
1/10, provided the Optionee's Service has not terminated prior to the Initial
Vesting Date.
(c) On the first anniversary of the Date of Option Grant,
the Vested Ratio shall be 1/4, provided the Optionee's Service has not
terminated prior to the first anniversary of the Date of Option Grant.
(d) For each full month of Optionee's Service from the first
anniversary of the Date of Option Grant until the Vested Ratio equals 1/1, the
Vested Ratio shall be increased by 1/48.
By their signatures below, the parties hereto agree that the Option is governed
by the terms and conditions of the Plan as in effect on the Date of Option Grant
and the Option Agreement, both of which are attached hereto. The Optionee
acknowledges receipt of a copy of the Plan and the Option Agreement, represents
that he or she is familiar with the provisions contained therein, and hereby
accepts the Option subject to all of the terms and conditions thereof.
OPTIONEE JAYCOR NETWORKS, INC.
By:
- --------------------------------- -------------------------------------
Its:
------------------------------------
Address: Address: 9775 Towne Centre Drive
------------------------- San Diego, CA 92121
- ---------------------------------
Attachments: 1999 Stock Option Plan
Terms of Stock Option Agreement
<PAGE> 1
EXHIBIT 10.5
TECHNOLOGY ASSIGNMENT AND LICENSE AGREEMENT
AMONG
JAYCOR, INC.
AND
JAYCOR NETWORKS, INC.
AND
JAYCOR EMERGING TECHNOLOGIES, INC.
<PAGE> 2
TECHNOLOGY ASSIGNMENT AND LICENSE AGREEMENT
This TECHNOLOGY ASSIGNMENT AND LICENSE AGREEMENT ("Agreement") is
entered into as of March 5, 1997 (the "Effective Date") by and among JAYCOR,
INC., a California corporation ("Assignor"), JAYCOR NETWORKS, INC., a Delaware
corporation ("Assignee"), and JAYCOR EMERGING TECHNOLOGIES, INC., a California
corporation ("Parent").
RECITALS
A. Assignee and Assignor are wholly-owned subsidiaries of Parent.
B. Parent, Assignor and Assignee are an affiliated group filing a
consolidated return for federal income tax purposes.
C. In order to facilitate the development of the Fibre Channel
Products (as defined below) for commercial use by Assignee, Assignor and Parent
desire to assign and transfer certain product and technology rights owned by
Assignor to Assignee upon the terms and subject to the conditions of this
Agreement, and Assignee desires to accept such assignment and transfer.
D. The parties desire that Assignor be granted a limited license to
the assigned product and technology rights.
E. To effectuate the transfer of technology and software, Assignor
intends to transfer and assign all its right, title and interest in the
technology and software to Parent and Parent intends to transfer and assign all
right, title and interest so acquired to Assignee.
F. Prior to the execution of this Agreement, the issued and
outstanding capital stock of Assignee consists of five thousand (5,000) shares
of common stock, all of which are held by Parent.
G. Parent has agreed to transfer and assign its interest in the
technology and software acquired from Assignor to Assignee, in exchange for (i)
an additional One Hundred Ninety Five Thousand (195,000) shares of common stock
of Assignee with a fair market value of Thirty Five Cents ($0.35) per share, and
(ii) Seven Million Nine Hundred Thousand (7,900,000) shares of Series A
Preferred Stock of Assignee with a fair market value of One Dollar ($1.00) per
share (collectively, the "Shares").
H. The fair market value of the product and technology rights to be
transferred and assigned by Parent to Assignee is Seven Million Nine Hundred
Sixty Eight Thousand Two Hundred Fifty Dollars ($7,968,250).
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<PAGE> 3
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
mutually agree as follows:
1. Definitions.
1.1 Confidential Information means any and all oral,
written, tangible proprietary or confidential ideas, inventions, information,
data, materials and know-how, or the like related to the Existing Software,
Existing Technology, Improvements, New Software or New Technology, software
code, algorithms, structure, any sequence and organization of the Existing
Software, technical and business information relating to the Existing Software,
Existing Technology, Improvements, New Software or New Technology all of which
Assignee believes to be proprietary or confidential and Assignee's future
business plans related to the Fibre Channel Products. Assignee shall attempt to
identify the confidential status of Confidential Information disclosed by
Assignor, but the failure to so mark or identify shall not destroy the
confidential or proprietary nature of the Confidential Information. Without
limiting the generality of the foregoing, Confidential Information includes,
without limitation, all non-published information of Assignor concerning the
Fibre Channel Products, Existing Technology and Existing Software.
1.2 Effective Date shall be the date specified in the first
paragraph of this Agreement.
1.3 Existing Software shall mean all Software owned by or
licensed to Assignor as of the Effective Date relating to the Fibre Channel
Products.
1.4 Existing Technology shall mean all Technology owned by
or licensed to Assignor as of the Effective Date relating to the Fibre Channel
Products.
1.5 Fibre Channel Products means those products existing as
of the Effective Date which relate to computer networking and storage based upon
the Fibre Channel standard approved by the American National Standards
Institute, including, but not limited to high-speed digital communications
adapters, hubs or switches.
1.6 Government Products means products and services designed
for government-related applications and for sale to the government; provided
however, Government Products shall specifically exclude all commercial products
or applications and non-government related products, even if for sale to the
government.
1.7 Improvement means any enhancement, improvement,
modification or derivative product that is derived from or based upon the
Existing Technology or Existing Software developed by Assignee after the
Effective Date. Improvement shall not include New Software or New Technology.
-3-
<PAGE> 4
1.8 New Software means any Software developed by Assignee
after the Effective Date relating to the Fibre Channel Products which is not an
Improvement.
1.9 New Technology means any Technology developed by
Assignee after the Effective Date relating to the Fibre Channel Products which
is not an Improvement.
1.10 Software means and includes (i) object code which
includes the machine-readable computer code which (a) enables the computer to
execute a program, (b) is derived from the source code by a process generally
referred to as compiling and (c) may be stored in a variety of magnetic media or
other formats and (ii) source code which includes the underlying computer
program which (a) comprises a product, (b) is readable by human beings when
displayed on a monitor or printed on paper, regardless of the media on which the
product is stored, (c) which must be translated by a process generally known as
compiling into object code before the product can be executed by a computer and
(d) which contains test suites and test plans.
1.11 Technology means intangible proprietary intellectual
property, and tangible manifestations thereof, including techniques, designs,
technology, specifications, drawings, technical data, production methods,
copyrights and trade secrets but does not include Software.
1.12 Trademark shall have the meaning as specified in Section
6.
2. Assignment.
2.1 Assignment from Assignor to Parent. Assignor hereby
transfers and assigns to Parent all of Assignor's right, title and interest
worldwide in the Existing Technology and Existing Software. Assignor
acknowledges that, with respect to the Existing Technology, Existing Software,
Improvements, New Software and New Technology, Assignor shall have only the
rights licensed to Assignor in Section 3.
2.2 Assignment from Parent to Assignee. Parent hereby
transfers and assigns to Assignee all Parent's right, title and interest
worldwide in the Existing Technology and Existing Software as such right, title
and interest was acquired by Parent from Assignor pursuant to Section 2.1 and
Assignee hereby accepts such transfer and assignment. In exchange for such
transfer and assignment, Assignee shall issue, sell and deliver, and Parent
shall purchase, acquire and accept, the Shares. The fair market value of the
Existing Technology and Existing Software assigned and transferred to Assignee
is Seven Million Nine Hundred Sixty Eight Thousand Two Hundred Fifty Dollars
($7,968,250).
2.3 Further Assistance. Assignor agrees to perform all acts
deemed necessary or desirable by Assignee to permit and assist Assignee, at
Assignee's expense, in perfecting and enforcing its rights throughout the world
in the Existing Technology and Existing Software. Such acts may include, but are
not limited to, execution of documents and assistance or
-4-
<PAGE> 5
cooperation in the registration and enforcement, including litigation, of
applicable copyrights or other legal proceedings. In the event that Assignee is
unable for any reason whatsoever to secure a signature to any document it
believes is reasonably required in order to apply for or execute any copyright
or other application with respect to the Existing Technology and Existing
Software (including improvements, renewals, extensions, continuations, divisions
or continuations in part thereof), Assignor hereby irrevocably designates and
appoints Assignee and its duly authorized officers and agents as Assignor's
agents and its attorneys-in-fact to act for and on its behalf and instead of it
for the limited purpose of executing and filing any such application and to do
all other lawfully permitted acts to further the prosecution and issuance of
copyrights or other rights therein with the same legal force and effect as if
executed by Assignor.
2.4 Distribution and Assignment. Assignee may distribute the
Existing Software and Existing Technology in any manner which Assignee, in its
sole discretion, deems appropriate, including without limitation, through the
use of exclusive and non-exclusive licenses. Assignee may assign its rights
under this Agreement, without permission from Assignor, to any entity, including
but not limited to any entity which purchases all or substantially all of the
assets of Assignee or its rights to the Existing Software or Existing
Technology. Assignor may not assign its rights or obligations under this
Agreement.
3. License Back. Assignee hereby grants Assignor a non-exclusive,
non-assignable, royalty-free, perpetual license to use the Existing Technology,
Improvements in the Existing Technology and New Technology to make, have made,
use, sell and distribute Government Products. Assignee further grants Assignor a
non-exclusive, non-assignable, royalty-free, perpetual license to use, reproduce
and publicly display the Existing Software, Improvements to the Existing
Software and New Software for the purpose of developing, making, having made,
demonstrating, testing, marketing, using, selling and distributing Government
Products. Assignee grants Assignor the limited right to sublicense Assignor's
rights under this Section 3 for the sole purpose of allowing Assignor to make,
sell or distribute Government Products. Any sublicense shall be governed by the
terms and conditions of the license set forth in this Section 3, and any such
sublicense shall be subject to approval by Assignee.
4. Delivery of Technology and Software. Assignor has delivered the
to Assignee all Existing Technology and Existing Software in a form acceptable
to Assignee.
5. Ownership of Improvements and New Software and New Technology.
All Improvements, New Software and New Technology developed by Assignee shall be
and shall remain the property of the Assignee subject only to the license
granted in Section 3.
6. Assignment of Trademark and Further Assistance. Assignor hereby
assigns to Assignee all of Assignor's right, title and interest worldwide in the
trademark of the FibreStar brand name, and Assignor agrees to perform all acts
deemed necessary or appropriate to effect the assignment and perfect Assignee's
rights in the Trademark.
-5-
<PAGE> 6
7. Representations and Warranties.
7.1 No Patents. Assignor represents and warrants that it
does not own and is not aware of any patents relating to the Existing Technology
or Existing Software.
7.2 Not Developed Pursuant to a Government Contract.
Assignor represents and warrants that the Existing Software and Existing
Technology were not developed pursuant to a contract with the United States
Government under which the United States Government may claim some right or
interest in the Existing Software or Existing Technology.
7.3 Original Work. Assignor represents and warrants that the
Existing Software and Existing Technology are original works of authorship.
Assignor represents and warrants that the Existing Software and Existing
Technology were developed solely by Assignor or Assignor's employees or
contractors and that any Existing Software or Existing Technology created or
developed by Assignor's employees or contractors was done pursuant to an
agreement under which such employees and contractors assigned all right, title
and interest in such Existing Software or Existing Technology to Assignor.
7.4 Ownership. Assignor represents and warrants that
Assignor is the sole and exclusive owner of all right, title and interest in the
Existing Technology and Existing Software and all intellectual property rights
associated with them. Assignor represents and warrants that the Existing
Technology and Existing Software and the intellectual property rights associated
with them are free and clear of all encumbrances, including, without limitation,
security interests, licenses, liens, charges or other restrictions.
7.5 Trade Secret. Assignor represents and warrants that
Assignor has maintained the Existing Software and Existing Technology in
confidence and that it has granted no licenses to the Existing Software or
Existing Technology.
7.6 Non-Infringement. Assignor represents and warrants that
use, reproduction, distribution, or modification of the Existing Software or
Existing Technology does not and will not violate the rights of any third
parties including, but not limited to, trade secrets, copyrights.
7.7 Copyright. Assignor represents and warrants that the
Existing Software and Existing Technology have not been published as defined in
the Copyright Act of 1976.
7.8 Authority. Assignor represents and warrants that
Assignor has full power and authority to make and enter into this Agreement.
Assignor further represents and warrants that the execution and delivery of this
Agreement will transfer to and vest in Assignee good, valid and marketable title
to the Existing Software and Existing Technology free and clear of all security
interests, liens, encumbrances, charges or other restrictions.
-6-
<PAGE> 7
7.9 No Further Development. Assignor represents and warrants
that it has terminated all development efforts and activities related to the
Existing Technology and Existing Software. Assignor further warrants and
represents that it will not undertake additional development work related to the
Existing Technology, Existing Software, Improvements, New Technology or New
Software except as permitted under the license granted in Section 3.
8. No Liabilities Assumed. Parent and Assignee acknowledge that
Assignee is assuming no liabilities of Parent in connection with the transfers
described in this Agreement.
9. Internal Revenue Code Section 351. Parent and Assignee agree
that the exchange of the Existing Technology and the Existing Software for the
Shares is to occur on the same day. The transaction described herein is intended
by the parties to this Agreement to be exempt from federal and state income tax
under Internal Revenue Code Section 351 and under California Revenue and
Taxation Code Section 24451.
10. Indemnification. Assignor agrees to indemnify and hold harmless
(including reasonable attorneys' fees) Assignee, its officers, directors,
employees and sublicensees against any claims, demands or actions by third
parties arising from the infringement of third party rights in any jurisdiction
by the use, reproduction, distribution or modification of the Existing
Technology or Existing Software. Assignee will notify Assignor of any such
claim, action or demand.
11. Confidentiality. Assignor and Parent acknowledge and agree that
Assignee is entitled to prevent Assignee's competitors from obtaining and
utilizing its proprietary trade secrets, including without limitation, trade
secrets embodied in the Existing Technology or Existing Software. Assignor and
Parent shall (i) maintain in confidence such Confidential Information to the
same extent that Assignor and Parent maintain their own proprietary industrial
information (but at a minimum each party shall use reasonable efforts); (ii) not
disclose such Confidential Information to any third party without prior written
consent of Assignee; and (iii) not use such Confidential Information for any
purpose except those permitted by this Agreement. Assignor and Parent will
immediately give notice to Assignee of any unauthorized use or disclosure of the
Confidential Information. Assignor and Parent agree to assist Assignee in
remedying any such unauthorized use or disclosure. This obligation shall
terminate to the extent Assignor or Parent can demonstrate that: (i) the
Confidential Information at the time of disclosure is part of the public domain,
without breach of this Agreement; (ii) the Confidential Information became part
of the public domain, by publication or otherwise, except by breach of the
provisions of this Agreement; or (iii) the Confidential Information is received
from a third party without similar restrictions and without breach of this
Agreement.
12. General Provisions.
12.1 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which will be considered an
original, but all of which together will constitute one and the same instrument.
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<PAGE> 8
12.2 Amendments. This Agreement may be amended or
supplemented only by a writing that is signed by duly authorized representatives
of the parties.
12.3 Choice of Law. This Agreement will be governed by and
construed in accordance with the laws of the State of California without giving
effect to conflict of law principles.
12.4 Severability. In the event that any provision of this
Agreement shall be unenforceable or invalid under any applicable law or be so
held by applicable court decision, such unenforceability or invalidity shall not
render this Agreement unenforceable or invalid as a whole.
12.5 Entire Agreement. This Agreement, including all Exhibits
to this Agreement, constitute the entire agreement between the parties relating
to this subject matter and supersedes all prior or simultaneous representations,
discussions and agreements, whether written or oral.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 9
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first set forth above.
ASSIGNEE: ASSIGNOR:
JAYCOR NETWORKS, INC. JAYCOR, INC.
By: /s/ TERRY M. FLANAGAN By: /s/ ERIC P. WENAAS
------------------------------- -------------------------------------
Terry M. Flanagan, President Eric P. Wenaas, President
PARENT:
JAYCOR EMERGING TECHNOLOGIES, INC.
By: /s/ ERIC P. WENAAS
-------------------------------
Eric P. Wenaas, President
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<PAGE> 1
EXHIBIT 10.7
THE SECURITIES EVIDENCED BY THIS WARRANT AND THE SECURITIES TO BE PURCHASED
UNDER THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES,
THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR 144A UNDER THE ACT, OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER OR
ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SUCH ACT.
Dated November 12, 1998
Void after 5:00 p.m, California Time, seven (7) years after
the date first written above or such earlier date
as may be determined pursuant to the terms hereof.
JAYCOR NETWORKS, INC.
SERIES A PREFERRED STOCK PURCHASE WARRANT
Jaycor Networks, Inc. (the "Company"), a Delaware corporation,
hereby certifies that, for good and valuable consideration, Adaptec, Inc., a
Delaware corporation or assigns (the "Warrant Holder") is entitled, subject to
the terms set forth below, to purchase from the Company the Shares (as defined
below), prior to seven (7) years after the date first written above (the
"Exercise Period"). This Warrant is issued pursuant to that certain Asset
Acquisition Agreement dated November 12, 1998 between the Company and the
Warrant Holder (the "Acquisition Agreement").
1. Terms of Warrant.
(a) The number of shares of the Company's Series A Preferred
Stock (the "Series A Shares") to be issued upon exercise of this Warrant (the
"Shares") and, notwithstanding any other provisions contained herein, the extent
to which this Warrant is exercisable shall be determined as set forth in Section
2.5(b)(i) of the Acquisition Agreement.
(b) The Company covenants to reserve a sufficient number of
Series A Shares for issuance upon the Warrant Holder's exercise of this Warrant.
In the event that all outstanding Series A Shares are converted into shares of
the Company's Common Stock (the "Common Stock") in accordance with the Company's
Certificate of Incorporation, this Warrant shall become exercisable for that
number of shares of Common Stock which would have been issuable with respect to
the Shares subject to this Warrant immediately prior to such conversion.
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<PAGE> 2
2. Exercise of Warrant. This Warrant may be exercised in full or in
part by the Warrant Holder by executing and delivering to the Company the
written notice of exercise in the form attached hereto as Exhibit A at the
Company's principal office accompanied by this Warrant and paying, in cash or by
wire transfer or check payable to the order of the Company the amount obtained
by multiplying the portion of the Warrant designated in the notice of exercise
by $100 (the "Purchase Price").
3. Adjustments.
3.1 Stock Splits, Stock Dividends and Combinations. In case
the Company shall at any time subdivide the outstanding Series A Shares, or
shall issue a stock dividend on its outstanding Series A Shares, the Purchase
Price in effect immediately prior to such subdivision or the issuance of such
stock dividend shall be proportionately decreased, and the number of Shares
shall be proportionately increased, and in case the Company shall at any time
combine the outstanding Series A Shares, the Purchase Price in effect
immediately prior to such combination shall be proportionately increased, and
the number of Shares shall be proportionately decreased, effective at the close
of business on the date of such subdivision, stock dividend or combination, as
the case may be.
3.2 Reorganizations; Reclassifications; Merger and Sales. In
case of any capital reorganization or any reclassification of the capital stock
of the Company or in case of the consolidation or merger of the Company with or
into another corporation or the conveyance of all or substantially all of the
assets of the Company to another corporation, this Warrant shall thereafter be
exercisable for the number of shares of stock or other securities or property to
which a holder of the number of Shares deliverable upon exercise of the Warrant
would have been entitled to upon such conversion, reorganization,
reclassification, consolidation, merger or conveyance; and, in any such case,
appropriate adjustment as determined by the Board of Directors of the Company
shall be made in the application of the provisions herein set forth with respect
to the rights and interests thereafter of the Warrant Holder to the end that the
provisions set forth herein (including provisions with respect to changes in and
other adjustments of the Purchase Price and the number of Shares) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the exchange of
the Warrant.
3.3 Statement of Adjustment. Whenever the Purchase Price
shall be adjusted as provided in this Section 3, the Company shall forthwith
file, at the office of the transfer agent for the Shares or at such other place
as may be designated by the Company, a statement, signed by its chief financial
officer, showing in detail the facts requiring such adjustment, the Purchase
Price in effect before and after such adjustment and the kind and amount of
Shares, shares of capital stock, securities or other property thereafter to be
received upon the exercise of this Warrant. The Company shall also cause a copy
of such statement to be sent in the manner specified in subsection 12.3 to the
Warrant Holder. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
subsection 3.4 of this Section 3.
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<PAGE> 3
3.4 Notice of Adjustment. In the event the Company shall
propose to take any action of the types described in subsections 3.1 or 3.2 of
this Section 3, the Company shall give notice to the Warrant Holder in the
manner set forth in subsection 10.3, which notice shall specify the record date,
if any, with respect to any such action and the date on which such action is to
take place. Such notice shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the Purchase
Price and the number, kind or class of shares or other securities or property
which shall be deliverable or purchasable upon the occurrence of such action or
deliverable upon the exercise hereof. In the case of any action which would
require the fixing of a record date, such notice shall be given at least ten
(10) days prior to the date so fixed, and in case of all other actions, such
notice shall be given at least fifteen (15) days prior to the taking of such
proposed action. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.
3.5 Taxes. The Company shall pay all documentary, stamp or
other transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Company upon the exercise hereof.
3.6 No Fractional Shares. Each adjustment in the number of
Shares purchasable hereunder shall be calculated, to the nearest whole share
with fractional shares disregarded.
4. Delivery of Stock Certificates, Etc. As soon as practicable
after the exercise or conversion of this Warrant (in full or in part) in
accordance with Section 2 above, the Company at its expense will cause to be
issued in the name of and delivered to the Warrant Holder (1) a certificate or
certificates for the number of fully paid and non-assessable Shares to which the
Warrant Holder shall be entitled upon such exercise or conversion and (2) a new
Warrant of like tenor to purchase all of the Shares that may be purchased
pursuant to the portion, if any, of the Warrant not exercised or converted by
the Warrant Holder. The Warrant Holder shall for all purposes be deemed to have
become the holder of record of such Shares on the date on which the Warrant was
surrendered together with a notice of exercise or conversion and, in the case of
exercise, payment of the Purchase Price was made, irrespective of the date of
delivery of such certificate or certificates, except that, if the date of such
surrender, notice and payment is a date when the stock transfer books of the
Company are closed, such person shall be deemed to have become the holder of
record of such Shares at the close of business on the next succeeding date on
which the stock transfer books are open.
5. Covenants as to the Shares and Capital Stock. The Company
covenants and agrees that the Shares and any capital stock issuable upon
conversion of the Shares will, upon issuance, be validly issued and outstanding,
fully paid and nonassessable, with no personal liability attaching to the
ownership thereof, and free from all taxes, liens and charges with respect to
the issuance thereof. The Company further covenants and agrees that the Company
will at all times have authorized and reserved, free from preemptive rights, a
sufficient number of Shares and shares of Common Stock to provide for the
exercise of the rights represented by this Warrant and conversion of the Shares,
respectively. The Company further covenants and agrees that if
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<PAGE> 4
any shares of capital stock to be reserved for the purpose of the issuance upon
the exercise of this Warrant require registration or qualification with or
approval by the Securities and Exchange Commission or any state or regulatory
agency under federal or state law before such shares may be validly issued or
delivered upon exercise, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration, qualification or
approval as the case may be.
6. No Shareholder Rights. Except as provided herein, this Warrant
shall not entitle the Warrant Holder to any voting rights or other rights as a
shareholder of the Company.
7. Warrant Holder Representations. By accepting this Warrant, the
Warrant Holder represents and warrants to the Company as follows:
7.1 Warrant Holder is acquiring this Warrant and the shares
issuable upon exercise or conversion hereof for its own account, to hold for
investment, and Warrant Holder shall not make any sale, transfer or other
disposition of the Shares in violation of applicable federal and state
securities laws (the "Securities Laws") or the General Rules and Regulations
promulgated thereunder by the Securities and Exchange Commission (the "SEC").
7.2 Warrant Holder has been advised that the Warrant and the
shares issuable upon exercise or conversion thereof have not been registered
under the Securities Laws on the ground that this transaction is exempt from
registration, and that reliance by the Company on such exemptions is predicated
in part on Warrant Holder's representations set forth herein.
7.3 Warrant Holder has been informed that under the Act,
this Warrant and the Shares must be held indefinitely unless subsequently
registered under the Act or unless an exemption from such registration is
available with respect to any proposed transfer or disposition by Warrant Holder
of the Warrant and the Shares. Warrant Holder further agrees that the Company
may refuse to permit Warrant Holder to sell, transfer or dispose of the Warrant
and the Shares unless there is in effect a registration statement under the Act
and any applicable state securities laws governing such transfer, or unless
Warrant Holder furnishes an opinion of counsel reasonably satisfactory to
counsel for the Company, to the effect that such registration is not required.
7.4 Warrant Holder also understands and agrees that upon
exercise of the Warrant there may be placed on the certificate(s) evidencing the
Shares, a legend which prohibits the transfer of any of the Shares unless they
are registered or unless the Company receives an opinion of counsel reasonably
satisfactory to the Company that such registration is not required.
8. Transfer of Warrant. This Warrant and all rights hereunder are
transferable to affiliates of the Warrant Holder, in whole or in part, at the
principal office of the Company, by the Warrant Holder in person or by duly
authorized attorney, upon surrender of this Warrant properly endorsed.
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<PAGE> 5
9. Exchange of Warrant. This Warrant is exchangeable, upon the
surrender hereof by the Warrant Holder at the principal office of the Company,
for new Warrants of like tenor representing in the aggregate the rights to
subscribe for and purchase the number of Shares which may be subscribed for and
purchased hereunder, each of such new Warrants to represent the right to
subscribe for and purchase such number of Shares as shall be designated by the
Warrant Holder at the time of such surrender.
10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is
lost, stolen, mutilated or destroyed, the Company may, on such terms as to
indemnify or otherwise as it may in its discretion impose (which shall, in the
case of mutilated Warrant, include the surrender thereof), issue a new Warrant
of like domination and tenor as the Warrant so lost, stolen, mutilated or
destroyed.
11. Registration Rights. The Company and the Warrant Holder hereby
acknowledge that they have entered into an Investor's Rights Agreement dated as
of even date hereof pursuant to the transaction contemplated in the Acquisition
Agreement and that the Shares will be deemed to be Registrable Securities under
such agreement.
12. Miscellaneous.
12.1 Waivers and Amendments. This Warrant or any provision
hereof may be changed, waived discharged or terminated only by a statement in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
12.2 Governing Law. This Warrant shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
12.3 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be made by personal delivery
or mailed by United states mail, first class postage prepaid, or by registered
or certified mail with return receipt requested, addressed as follows:
If to the Warrant Holder:
Adaptec, Inc.
691 South Milpitas Boulevard
Milpitas, California 95035
Attention: Vice President, Business Development
If to the Company:
Jaycor Networks, Inc.
9775 Towne Centre Drive
San Diego, California 92121-2189
Attention: Chief Financial Officer
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<PAGE> 6
12.4 Headings. The headings in this Warrant are for
convenience of reference only and shall not limit or otherwise affect the terms
hereof.
12.5 Assigns. This Warrant shall be binding upon the
Company's successors and assigns.
12.6 Time of the Essence. Time is of the essence as to all
duties set forth in this Warrant.
12.7 Severability. In the event that any provision of this
Warrant becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Warrant shall continue in full force and
effect without said provision, and said provision shall be replaced with the
enforceable provision closest in intent and economic effect as the provision
found to be unenforceable.
12.8 Attorney's Fee. If any action relating to this Warrant
is brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorney's fees, costs and
disbursements.
JAYCOR NETWORKS, INC.
By: /s/ TERRY M. FLANAGAN
-------------------------------------
Terry M. Flanagan, President
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<PAGE> 7
EXHIBIT A
NOTICE OF EXERCISE
Date: _________________
Jaycor Networks, Inc.
9775 Towne Centre Drive
San Diego, CA 92121
Attention: Chief Financial Officer
Gentlemen:
The undersigned hereby elects to exercise the enclosed Warrant issued to
it by Jaycor Networks, Inc. (the "Company"), dated November 12, 1998.
The undersigned elects to exercise the Warrant and to purchase
thereunder _______ shares of the Series A Preferred Stock of the Company (the
"Shares") at a purchase price of _______ Dollars ($ ________________ ), (the
"Purchase Price"). Pursuant to the terms of the Warrant the undersigned has
delivered the Purchase Price herewith in full.
Very truly yours,
----------------------------------------
By:
-------------------------------------
Its:
------------------------------------
Receipt Acknowledged:
Jaycor Networks, Inc.
By:
-----------------------------------
Its:
----------------------------------
<PAGE> 1
EXHIBIT 10.8
THE SECURITIES EVIDENCED BY THIS WARRANT AND THE SECURITIES TO BE PURCHASED
UNDER THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES,
THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR 144A UNDER THE ACT, OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER OR
ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SUCH ACT.
Dated November 12, 1998
Void after 5:00 p.m, California Time, seven (7) years after
the date first written above or such earlier date
as may be determined pursuant to the terms hereof.
JAYCOR NETWORKS, INC.
SERIES A PREFERRED STOCK PURCHASE WARRANT
Jaycor Networks, Inc. (the "Company"), a Delaware corporation, hereby
certifies that, for good and valuable consideration, Adaptec, Inc., a Delaware
corporation or assigns (the "Warrant Holder") is entitled, subject to the terms
set forth below, to purchase from the Company the Shares (as defined below),
prior to seven (7) years after the date first written above (the "Exercise
Period"). This Warrant is issued pursuant to that certain Asset Acquisition
Agreement dated November 12, 1998 between the Company and the Warrant Holder
(the "Acquisition Agreement").
1. Terms of Warrant.
(a) The number of shares of the Company's Series A
Preferred Stock (the "Series A Shares") to be issued upon exercise of this
Warrant (the "Shares") and, notwithstanding any other provisions contained
herein, the extent to which this Warrant is exercisable shall be determined as
set forth in Section 2.5(b)(ii) of the Acquisition Agreement.
(b) The Company covenants to reserve a sufficient
number of Series A Shares for issuance upon the Warrant Holder's exercise of
this Warrant. In the event that all outstanding Series A Shares are converted
into shares of the Company's Common Stock (the "Common Stock") in accordance
with the Company's Certificate of Incorporation, this Warrant shall become
exercisable for that number of shares of Common Stock which would have been
issuable with respect to the Shares subject to this Warrant immediately prior to
such conversion.
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<PAGE> 2
2. Exercise of Warrant. This Warrant may be exercised in full or in
part by the Warrant Holder by executing and delivering to the Company the
written notice of exercise in the form attached hereto as Exhibit A at the
Company's principal office accompanied by this Warrant and paying, in cash or by
wire transfer or check payable to the order of the Company the amount obtained
by multiplying the portion of the Warrant designated in the notice of exercise
by $100 (the "Purchase Price").
3. Adjustments.
3.1 Stock Splits, Stock Dividends and Combinations. In case
the Company shall at any time subdivide the outstanding Series A Shares, or
shall issue a stock dividend on its outstanding Series A Shares, the Purchase
Price in effect immediately prior to such subdivision or the issuance of such
stock dividend shall be proportionately decreased, and the number of Shares
shall be proportionately increased, and in case the Company shall at any time
combine the outstanding Series A Shares, the Purchase Price in effect
immediately prior to such combination shall be proportionately increased, and
the number of Shares shall be proportionately decreased, effective at the close
of business on the date of such subdivision, stock dividend or combination, as
the case may be.
3.2 Reorganizations; Reclassifications; Merger and Sales. In
case of any capital reorganization or any reclassification of the capital stock
of the Company or in case of the consolidation or merger of the Company with or
into another corporation or the conveyance of all or substantially all of the
assets of the Company to another corporation, this Warrant shall thereafter be
exercisable for the number of shares of stock or other securities or property to
which a holder of the number of Shares deliverable upon exercise of the Warrant
would have been entitled to upon such conversion, reorganization,
reclassification, consolidation, merger or conveyance; and, in any such case,
appropriate adjustment as determined by the Board of Directors of the Company
shall be made in the application of the provisions herein set forth with respect
to the rights and interests thereafter of the Warrant Holder to the end that the
provisions set forth herein (including provisions with respect to changes in and
other adjustments of the Purchase Price and the number of Shares) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the exchange of
the Warrant.
3.3 Statement of Adjustment. Whenever the Purchase Price
shall be adjusted as provided in this Section 3, the Company shall forthwith
file, at the office of the transfer agent for the Shares or at such other place
as may be designated by the Company, a statement, signed by its chief financial
officer, showing in detail the facts requiring such adjustment, the Purchase
Price in effect before and after such adjustment and the kind and amount of
Shares, shares of capital stock, securities or other property thereafter to be
received upon the exercise of this Warrant. The Company shall also cause a copy
of such statement to be sent in the manner specified in subsection 12.3 to the
Warrant Holder. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
subsection 3.4 of this Section 3.
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<PAGE> 3
3.4 Notice of Adjustment. In the event the Company shall
propose to take any action of the types described in subsections 3.1 or 3.2 of
this Section 3, the Company shall give notice to the Warrant Holder in the
manner set forth in subsection 10.3, which notice shall specify the record date,
if any, with respect to any such action and the date on which such action is to
take place. Such notice shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the Purchase
Price and the number, kind or class of shares or other securities or property
which shall be deliverable or purchasable upon the occurrence of such action or
deliverable upon the exercise hereof. In the case of any action which would
require the fixing of a record date, such notice shall be given at least ten
(10) days prior to the date so fixed, and in case of all other actions, such
notice shall be given at least fifteen (15) days prior to the taking of such
proposed action. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.
3.5 Taxes. The Company shall pay all documentary, stamp or
other transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Company upon the exercise hereof.
3.6 No Fractional Shares. Each adjustment in the number of
Shares purchasable hereunder shall be calculated, to the nearest whole share
with fractional shares disregarded.
4. Delivery of Stock Certificates, Etc. As soon as practicable
after the exercise or conversion of this Warrant (in full or in part) in
accordance with Section 2 above, the Company at its expense will cause to be
issued in the name of and delivered to the Warrant Holder (1) a certificate or
certificates for the number of fully paid and non-assessable Shares to which the
Warrant Holder shall be entitled upon such exercise or conversion and (2) a new
Warrant of like tenor to purchase all of the Shares that may be purchased
pursuant to the portion, if any, of the Warrant not exercised or converted by
the Warrant Holder. The Warrant Holder shall for all purposes be deemed to have
become the holder of record of such Shares on the date on which the Warrant was
surrendered together with a notice of exercise or conversion and, in the case of
exercise, payment of the Purchase Price was made, irrespective of the date of
delivery of such certificate or certificates, except that, if the date of such
surrender, notice and payment is a date when the stock transfer books of the
Company are closed, such person shall be deemed to have become the holder of
record of such Shares at the close of business on the next succeeding date on
which the stock transfer books are open.
5. Covenants as to the Shares and Capital Stock. The Company
covenants and agrees that the Shares and any capital stock issuable upon
conversion of the Shares will, upon issuance, be validly issued and outstanding,
fully paid and nonassessable, with no personal liability attaching to the
ownership thereof, and free from all taxes, liens and charges with respect to
the issuance thereof. The Company further covenants and agrees that the Company
will at all times have authorized and reserved, free from preemptive rights, a
sufficient number of Shares and shares of Common Stock to provide for the
exercise of the rights represented by this Warrant and conversion of the Shares,
respectively. The Company further covenants and agrees that if
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<PAGE> 4
any shares of capital stock to be reserved for the purpose of the issuance upon
the exercise of this Warrant require registration or qualification with or
approval by the Securities and Exchange Commission or any state or regulatory
agency under federal or state law before such shares may be validly issued or
delivered upon exercise, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration, qualification or
approval as the case may be.
6. No Shareholder Rights. Except as provided herein, this Warrant
shall not entitle the Warrant Holder to any voting rights or other rights as a
shareholder of the Company.
7. Warrant Holder Representations. By accepting this Warrant, the
Warrant Holder represents and warrants to the Company as follows:
7.1 Warrant Holder is acquiring this Warrant and the shares
issuable upon exercise or conversion hereof for its own account, to hold for
investment, and Warrant Holder shall not make any sale, transfer or other
disposition of the Shares in violation of applicable federal and state
securities laws (the "Securities Laws") or the General Rules and Regulations
promulgated thereunder by the Securities and Exchange Commission (the "SEC").
7.2 Warrant Holder has been advised that the Warrant and the
shares issuable upon exercise or conversion thereof have not been registered
under the Securities Laws on the ground that this transaction is exempt from
registration, and that reliance by the Company on such exemptions is predicated
in part on Warrant Holder's representations set forth herein.
7.3 Warrant Holder has been informed that under the Act,
this Warrant and the Shares must be held indefinitely unless subsequently
registered under the Act or unless an exemption from such registration is
available with respect to any proposed transfer or disposition by Warrant Holder
of the Warrant and the Shares. Warrant Holder further agrees that the Company
may refuse to permit Warrant Holder to sell, transfer or dispose of the Warrant
and the Shares unless there is in effect a registration statement under the Act
and any applicable state securities laws governing such transfer, or unless
Warrant Holder furnishes an opinion of counsel reasonably satisfactory to
counsel for the Company, to the effect that such registration is not required.
7.4 Warrant Holder also understands and agrees that upon
exercise of the Warrant there may be placed on the certificate(s) evidencing the
Shares, a legend which prohibits the transfer of any of the Shares unless they
are registered or unless the Company receives an opinion of counsel reasonably
satisfactory to the Company that such registration is not required.
8. Transfer of Warrant. This Warrant and all rights hereunder are
transferable to affiliates of the Warrant Holder, in whole or in part, at the
principal office of the Company, by the Warrant Holder in person or by duly
authorized attorney, upon surrender of this Warrant properly endorsed.
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<PAGE> 5
9. Exchange of Warrant. This Warrant is exchangeable, upon the
surrender hereof by the Warrant Holder at the principal office of the Company,
for new Warrants of like tenor representing in the aggregate the rights to
subscribe for and purchase the number of Shares which may be subscribed for and
purchased hereunder, each of such new Warrants to represent the right to
subscribe for and purchase such number of Shares as shall be designated by the
Warrant Holder at the time of such surrender.
10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is
lost, stolen, mutilated or destroyed, the Company may, on such terms as to
indemnify or otherwise as it may in its discretion impose (which shall, in the
case of mutilated Warrant, include the surrender thereof), issue a new Warrant
of like domination and tenor as the Warrant so lost, stolen, mutilated or
destroyed.
11. Registration Rights. The Company and the Warrant Holder hereby
acknowledge that they have entered into an Investor's Rights Agreement dated as
of even date hereof pursuant to the transaction contemplated in the Acquisition
Agreement and that the Shares will be deemed to be Registrable Securities under
such agreement.
12. Miscellaneous.
12.1 Waivers and Amendments. This Warrant or any provision
hereof may be changed, waived discharged or terminated only by a statement in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
12.2 Governing Law. This Warrant shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
12.3 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be made by personal delivery
or mailed by United states mail, first class postage prepaid, or by registered
or certified mail with return receipt requested, addressed as follows:
If to the Warrant Holder:
Adaptec, Inc.
691 South Milpitas Boulevard
Milpitas, California 95035
Attention: Vice President, Business Development
If to the Company:
Jaycor Networks, Inc.
9775 Towne Centre Drive
San Diego, California 92121-2189
Attention: Chief Financial Officer
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<PAGE> 6
12.4 Headings. The headings in this Warrant are for
convenience of reference only and shall not limit or otherwise affect the terms
hereof.
12.5 Assigns. This Warrant shall be binding upon the
Company's successors and assigns.
12.6 Time of the Essence. Time is of the essence as to all
duties set forth in this Warrant.
12.7 Severability. In the event that any provision of this
Warrant becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Warrant shall continue in full force and
effect without said provision, and said provision shall be replaced with the
enforceable provision closest in intent and economic effect as the provision
found to be unenforceable.
12.8 Attorney's Fee. If any action relating to this Warrant
is brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorney's fees, costs and
disbursements.
JAYCOR NETWORKS, INC.
By: /s/ TERRY M. FLANAGAN
-------------------------------------
Terry M. Flanagan, President
-6-
<PAGE> 7
EXHIBIT A
NOTICE OF EXERCISE
Date: _________________
Jaycor Networks, Inc.
9775 Towne Centre Drive
San Diego, CA 92121
Attention: Chief Financial Officer
Gentlemen:
The undersigned hereby elects to exercise the enclosed Warrant issued to
it by Jaycor Networks, Inc. (the "Company"), dated November 12, 1998.
The undersigned elects to exercise the Warrant and to purchase
thereunder _______ shares of the Series A Preferred Stock of the Company (the
"Shares") at a purchase price of _________ Dollars ($ _________ ), (the
"Purchase Price"). Pursuant to the terms of the Warrant the undersigned has
delivered the Purchase Price herewith in full.
Very truly yours,
---------------------------------------
By:
-------------------------------------
Its:
------------------------------------
Receipt Acknowledged:
Jaycor Networks, Inc.
By:
---------------------------------
Its:
--------------------------------
<PAGE> 1
EXHIBIT 10.9
THE SECURITIES EVIDENCED BY THIS WARRANT AND THE SECURITIES TO BE PURCHASED
UNDER THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES,
THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR 144A UNDER THE ACT, OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER OR
ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SUCH ACT.
Dated November 12, 1998
Void after 5:00 p.m, California Time, seven (7) years after
the date first written above or such earlier date
as may be determined pursuant to the terms hereof.
JAYCOR NETWORKS, INC.
SERIES A PREFERRED STOCK PURCHASE WARRANT
Jaycor Networks, Inc. (the "Company"), a Delaware corporation, hereby
certifies that, for good and valuable consideration, Adaptec, Inc., a Delaware
corporation or assigns (the "Warrant Holder") is entitled, subject to the terms
set forth below, to purchase from the Company the Shares (as defined below),
prior to seven (7) years after the date first written above (the "Exercise
Period"). This Warrant is issued pursuant to that certain Asset Acquisition
Agreement dated November 12, 1998 between the Company and the Warrant Holder
(the "Acquisition Agreement").
1. Terms of Warrant.
(a) The number of shares of the Company's Series A
Preferred Stock (the "Series A Shares") to be issued upon exercise of this
Warrant (the "Shares") and, notwithstanding any other provisions contained
herein, the extent to which this Warrant is exercisable shall be determined as
set forth in Section 2.5(b)(iii) of the Acquisition Agreement.
(b) The Company covenants to reserve a sufficient
number of Series A Shares for issuance upon the Warrant Holder's exercise of
this Warrant. In the event that all outstanding Series A Shares are converted
into shares of the Company's Common Stock (the "Common Stock") in accordance
with the Company's Certificate of Incorporation, this Warrant shall become
exercisable for that number of shares of Common Stock which would have been
issuable with respect to the Shares subject to this Warrant immediately prior to
such conversion.
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<PAGE> 2
2. Exercise of Warrant. This Warrant may be exercised in full or in
part by the Warrant Holder by executing and delivering to the Company the
written notice of exercise in the form attached hereto as Exhibit A at the
Company's principal office accompanied by this Warrant and paying, in cash or by
wire transfer or check payable to the order of the Company the amount obtained
by multiplying the portion of the Warrant designated in the notice of exercise
by $100 (the "Purchase Price").
3. Adjustments.
3.1 Stock Splits, Stock Dividends and Combinations. In case
the Company shall at any time subdivide the outstanding Series A Shares, or
shall issue a stock dividend on its outstanding Series A Shares, the Purchase
Price in effect immediately prior to such subdivision or the issuance of such
stock dividend shall be proportionately decreased, and the number of Shares
shall be proportionately increased, and in case the Company shall at any time
combine the outstanding Series A Shares, the Purchase Price in effect
immediately prior to such combination shall be proportionately increased, and
the number of Shares shall be proportionately decreased, effective at the close
of business on the date of such subdivision, stock dividend or combination, as
the case may be.
3.2 Reorganizations; Reclassifications; Merger and Sales. In
case of any capital reorganization or any reclassification of the capital stock
of the Company or in case of the consolidation or merger of the Company with or
into another corporation or the conveyance of all or substantially all of the
assets of the Company to another corporation, this Warrant shall thereafter be
exercisable for the number of shares of stock or other securities or property to
which a holder of the number of Shares deliverable upon exercise of the Warrant
would have been entitled to upon such conversion, reorganization,
reclassification, consolidation, merger or conveyance; and, in any such case,
appropriate adjustment as determined by the Board of Directors of the Company
shall be made in the application of the provisions herein set forth with respect
to the rights and interests thereafter of the Warrant Holder to the end that the
provisions set forth herein (including provisions with respect to changes in and
other adjustments of the Purchase Price and the number of Shares) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the exchange of
the Warrant.
3.3 Statement of Adjustment. Whenever the Purchase Price
shall be adjusted as provided in this Section 3, the Company shall forthwith
file, at the office of the transfer agent for the Shares or at such other place
as may be designated by the Company, a statement, signed by its chief financial
officer, showing in detail the facts requiring such adjustment, the Purchase
Price in effect before and after such adjustment and the kind and amount of
Shares, shares of capital stock, securities or other property thereafter to be
received upon the exercise of this Warrant. The Company shall also cause a copy
of such statement to be sent in the manner specified in subsection 12.3 to the
Warrant Holder. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
subsection 3.4 of this Section 3.
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<PAGE> 3
3.4 Notice of Adjustment. In the event the Company shall
propose to take any action of the types described in subsections 3.1 or 3.2 of
this Section 3, the Company shall give notice to the Warrant Holder in the
manner set forth in subsection 10.3, which notice shall specify the record date,
if any, with respect to any such action and the date on which such action is to
take place. Such notice shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the Purchase
Price and the number, kind or class of shares or other securities or property
which shall be deliverable or purchasable upon the occurrence of such action or
deliverable upon the exercise hereof. In the case of any action which would
require the fixing of a record date, such notice shall be given at least ten
(10) days prior to the date so fixed, and in case of all other actions, such
notice shall be given at least fifteen (15) days prior to the taking of such
proposed action. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.
3.5 Taxes. The Company shall pay all documentary, stamp or
other transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Company upon the exercise hereof.
3.6 No Fractional Shares. Each adjustment in the number of
Shares purchasable hereunder shall be calculated, to the nearest whole share
with fractional shares disregarded.
4. Delivery of Stock Certificates, Etc. As soon as practicable
after the exercise or conversion of this Warrant (in full or in part) in
accordance with Section 2 above, the Company at its expense will cause to be
issued in the name of and delivered to the Warrant Holder (1) a certificate or
certificates for the number of fully paid and non-assessable Shares to which the
Warrant Holder shall be entitled upon such exercise or conversion and (2) a new
Warrant of like tenor to purchase all of the Shares that may be purchased
pursuant to the portion, if any, of the Warrant not exercised or converted by
the Warrant Holder. The Warrant Holder shall for all purposes be deemed to have
become the holder of record of such Shares on the date on which the Warrant was
surrendered together with a notice of exercise or conversion and, in the case of
exercise, payment of the Purchase Price was made, irrespective of the date of
delivery of such certificate or certificates, except that, if the date of such
surrender, notice and payment is a date when the stock transfer books of the
Company are closed, such person shall be deemed to have become the holder of
record of such Shares at the close of business on the next succeeding date on
which the stock transfer books are open.
5. Covenants as to the Shares and Capital Stock. The Company
covenants and agrees that the Shares and any capital stock issuable upon
conversion of the Shares will, upon issuance, be validly issued and outstanding,
fully paid and nonassessable, with no personal liability attaching to the
ownership thereof, and free from all taxes, liens and charges with respect to
the issuance thereof. The Company further covenants and agrees that the Company
will at all times have authorized and reserved, free from preemptive rights, a
sufficient number of Shares and shares of Common Stock to provide for the
exercise of the rights represented by this Warrant and conversion of the Shares,
respectively. The Company further covenants and agrees that if
-3-
<PAGE> 4
any shares of capital stock to be reserved for the purpose of the issuance upon
the exercise of this Warrant require registration or qualification with or
approval by the Securities and Exchange Commission or any state or regulatory
agency under federal or state law before such shares may be validly issued or
delivered upon exercise, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration, qualification or
approval as the case may be.
6. No Shareholder Rights. Except as provided herein, this Warrant
shall not entitle the Warrant Holder to any voting rights or other rights as a
shareholder of the Company.
7. Warrant Holder Representations. By accepting this Warrant, the
Warrant Holder represents and warrants to the Company as follows:
7.1 Warrant Holder is acquiring this Warrant and the shares
issuable upon exercise or conversion hereof for its own account, to hold for
investment, and Warrant Holder shall not make any sale, transfer or other
disposition of the Shares in violation of applicable federal and state
securities laws (the "Securities Laws") or the General Rules and Regulations
promulgated thereunder by the Securities and Exchange Commission (the "SEC").
7.2 Warrant Holder has been advised that the Warrant and the
shares issuable upon exercise or conversion thereof have not been registered
under the Securities Laws on the ground that this transaction is exempt from
registration, and that reliance by the Company on such exemptions is predicated
in part on Warrant Holder's representations set forth herein.
7.3 Warrant Holder has been informed that under the Act,
this Warrant and the Shares must be held indefinitely unless subsequently
registered under the Act or unless an exemption from such registration is
available with respect to any proposed transfer or disposition by Warrant Holder
of the Warrant and the Shares. Warrant Holder further agrees that the Company
may refuse to permit Warrant Holder to sell, transfer or dispose of the Warrant
and the Shares unless there is in effect a registration statement under the Act
and any applicable state securities laws governing such transfer, or unless
Warrant Holder furnishes an opinion of counsel reasonably satisfactory to
counsel for the Company, to the effect that such registration is not required.
7.4 Warrant Holder also understands and agrees that upon
exercise of the Warrant there may be placed on the certificate(s) evidencing the
Shares, a legend which prohibits the transfer of any of the Shares unless they
are registered or unless the Company receives an opinion of counsel reasonably
satisfactory to the Company that such registration is not required.
8. Transfer of Warrant. This Warrant and all rights hereunder are
transferable to affiliates of the Warrant Holder, in whole or in part, at the
principal office of the Company, by the Warrant Holder in person or by duly
authorized attorney, upon surrender of this Warrant properly endorsed.
-4-
<PAGE> 5
9. Exchange of Warrant. This Warrant is exchangeable, upon the
surrender hereof by the Warrant Holder at the principal office of the Company,
for new Warrants of like tenor representing in the aggregate the rights to
subscribe for and purchase the number of Shares which may be subscribed for and
purchased hereunder, each of such new Warrants to represent the right to
subscribe for and purchase such number of Shares as shall be designated by the
Warrant Holder at the time of such surrender.
10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is
lost, stolen, mutilated or destroyed, the Company may, on such terms as to
indemnify or otherwise as it may in its discretion impose (which shall, in the
case of mutilated Warrant, include the surrender thereof), issue a new Warrant
of like domination and tenor as the Warrant so lost, stolen, mutilated or
destroyed.
11. Registration Rights. The Company and the Warrant Holder hereby
acknowledge that they have entered into an Investor's Rights Agreement dated as
of even date hereof pursuant to the transaction contemplated in the Acquisition
Agreement and that the Shares will be deemed to be Registrable Securities under
such agreement.
12. Miscellaneous.
12.1 Waivers and Amendments. This Warrant or any provision
hereof may be changed, waived discharged or terminated only by a statement in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
12.2 Governing Law. This Warrant shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
12.3 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be made by personal delivery
or mailed by United states mail, first class postage prepaid, or by registered
or certified mail with return receipt requested, addressed as follows:
If to the Warrant Holder:
Adaptec, Inc.
691 South Milpitas Boulevard
Milpitas, California 95035
Attention: Vice President, Business Development
If to the Company:
Jaycor Networks, Inc.
9775 Towne Centre Drive
San Diego, California 92121-2189
Attention: Chief Financial Officer
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<PAGE> 6
12.4 Headings. The headings in this Warrant are for
convenience of reference only and shall not limit or otherwise affect the terms
hereof.
12.5 Assigns. This Warrant shall be binding upon the
Company's successors and assigns.
12.6 Time of the Essence. Time is of the essence as to all
duties set forth in this Warrant.
12.7 Severability. In the event that any provision of this
Warrant becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Warrant shall continue in full force and
effect without said provision, and said provision shall be replaced with the
enforceable provision closest in intent and economic effect as the provision
found to be unenforceable.
12.8 Attorney's Fee. If any action relating to this Warrant
is brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorney's fees, costs and
disbursements.
JAYCOR NETWORKS, INC.
By: /s/ TERRY M. FLANAGAN
-------------------------------------
Terry M. Flanagan, President
-6-
<PAGE> 7
EXHIBIT A
NOTICE OF EXERCISE
Date: _________________
Jaycor Networks, Inc.
9775 Towne Centre Drive
San Diego, CA 92121
Attention: Chief Financial Officer
Gentlemen:
The undersigned hereby elects to exercise the enclosed Warrant issued to
it by Jaycor Networks, Inc. (the "Company"), dated November 12, 1998.
The undersigned elects to exercise the Warrant and to purchase
thereunder _______ shares of the Series A Preferred Stock of the Company (the
"Shares") at a purchase price of ______________ Dollars ($ _______ ), (the
"Purchase Price"). Pursuant to the terms of the Warrant the undersigned has
delivered the Purchase Price herewith in full.
Very truly yours,
----------------------------------------
By:
-------------------------------------
Its:
------------------------------------
Receipt Acknowledged:
Jaycor Networks, Inc.
By:
----------------------------------
Its:
---------------------------------
<PAGE> 1
EXHIBIT 10.12
OCCUPANCY LICENSE AGREEMENT
THIS OCCUPANCY LICENSE AGREEMENT ("Agreement") is made effective as of
November 12, 1998, by and between ADAPTEC, INC., a Delaware corporation
("Licensor"), and JAYCOR NETWORKS INC., a Delaware corporation ("Licensee"), in
the context of the following facts and circumstances:
A. Pursuant to the Asset Acquisition Agreement entered into by and
between Licensor and Licensee dated November 12, 1998, (the "Asset Acquisition
Agreement"), Licensor has agreed to sell, and Licensee has agreed to purchase
the "Tangible Assets" (as such term is defined in the Asset Acquisition
Agreement).
B. Licensor owns that certain building (the "Building") located at 500
Yosemite Drive, Milpitas, California 95035.
C. Licensor and Licensee are desirous of entering into a short-term
occupancy arrangement for the use by Licensee of certain space within the
Building.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. LICENSE AREA AND LOCATION. Licensor hereby grants to Licensee a non-
assignable, non-transferable right and license for the use of that certain area
(the "License Area") containing approximately 1,194 rentable square feet of
space, as shown on the attached Exhibit A. Licensee hereby acknowledges and
agrees that this right of use is a license only and not a leasehold interest and
that Licensee shall not be entitled to any actions, claims, defenses, unlawful
detainer protections, or other rights afforded to lessees, tenants, or "parties
in possession" under applicable law.
Licensor may in its sole discretion, upon forty-five (45) days
written notice to Licensee, relocate the License Area to another location within
the Building; provided, however, that Licensor will not relocate Licensee's lab
and in the event the Licensor elects to relocate some or all of Licensee's
cubicles, such replacement cubicles shall be similar in size and type as the
original cubicles and will be in an area reasonably close in proximity to
Licensee's lab. In addition, in the event that Licensor requests Licensee to
relocate, all reasonable costs of relocation, to be mutually agreed upon by
Licensor and Licensee, will be borne by Licensor.
2. TERM. The term of this Agreement (the "License Term") will commence
as of the date of the Asset Acquisition Agreement (the "Commencement Date"), and
will continue for a period of twelve (12) months (the "Termination Date"),
unless sooner terminated pursuant to the following provisions:
<PAGE> 2
(a) Licensor may terminate this Agreement for cause by giving three
(3) days written notice to Licensee. As used herein, "cause" means any of the
following: (i) Licensee is in material breach of a material obligation under
this Agreement, and Licensee has failed to correct such breach within fourteen
(14) days after written notice from Licensor; or (ii) Licensee causes or permits
hazardous materials or toxic substances to be used or handled in violation of
Paragraph 6 below; or (iii) the License Area is damaged or destroyed by a fire
or other casualty that makes it impracticable for Licensor to continue to allow
Licensee to occupy the License Area.
(b) Licensee may terminate this Agreement for any reason by giving
Licensor no less than thirty (30) days prior written notice. The termination of
the Agreement shall be effective on the last day of the month following the
month in which such termination notice was delivered to Licensor.
On or before the Termination Date, Licensee shall completely remove all of
its personal property and vacate the License Area, leaving all of the
Furnishings therein in the same condition as received.
3. LICENSE FEE. For the use of the License Area, as well as for the use
of the Furnishings, the Common Facilities, and the Services provided by Licensor
as described below, Licensee shall pay to Licensor a fee (the "License Fee") in
the amount of $27.00 per rentable square foot per year, payable in monthly
installments in the amount of $2,686.50, due on the first day of each calendar
month, in such manner and at such address as Licensor shall designate. For any
partial month at the beginning or end of the License Term, the monthly License
Fee will be prorated. A late charge of $400.00 will be assessed if the License
Fee is not paid by the 5th day of the month.
4. SECURITY DEPOSIT. Licensee shall pay to Licensor upon execution of
this Agreement the first month's License Fee, which amount shall be held by
Licensor and applied to the first installment due under this Agreement. Licensee
also shall pay to Licensor upon execution of this Agreement an amount equal to
one month's License Fee as a "Security Deposit", which amount shall be held by
Licensor as security for Licensee's faithful performance under this Agreement.
If Licensee fails to pay any License Fee or other amount due under this
Agreement, as and when due, or otherwise fails to perform its obligations
hereunder, then Licensor may, at its option and without prejudice to any other
remedy which Licensor may have, apply, use or retain all or any portion of the
Security Deposit toward the payment of delinquent amounts or for any loss or
damage sustained by Licensor due to such failure by Licensee. Licensee shall
upon demand restore the Security Deposit to the original sum deposited. The
Security Deposit shall not bear interest nor shall Licensor be required to keep
such sum separate from its general funds. To the extent not otherwise applied by
Licensor as provided herein, the Security Deposit shall be returned to Licensee
within thirty (30) days after the Termination Date.
5. IMPROVEMENTS AND FURNISHINGS. Licensor will provide offices,
cubicles and lab space
20
<PAGE> 3
within the License Area at Licensor's cost, based on Licensor's building
standard specifications, pursuant to the floor plan shown in Exhibit A. Licensor
will also furnish the License Area with Licensor's standard furniture, such as
basic desks, chairs, tables, bookshelves, and filing cabinets as currently
provided. Unless otherwise agreed in the Asset Acquisition Agreement, such
improvements and furnishings (collectively, the "Furnishings") shall at all
times remain Licensor's property. Licensee shall not make any alterations or
modifications to or upon the License Area or any of the Furnishings (including
without limitation any painting, wall hangings or signage), or add to, delete
from or relocate any of the same, without Licensor's prior written approval
which may be withheld in Licensor's sole and absolute discretion. If Licensor
does grant approval for any such alterations or modifications, Licensee will be
required to use Licensor's established vendors for the performance of such work.
6. USE. Licensee will use the License Area during the License Term only
for general office purposes, research and development, light manufacturing, and
sales, and for no other purpose without Licensor's prior written approval which
may be withheld in Licensor's sole and absolute discretion. Except for small
quantities of products used in normal office environments (e.g., toner,
white-out), Licensee shall not cause or permit any hazardous materials or toxic
substances to be used, stored, generated, discharged, treated, handled,
transported to or from, or released in, on, or about the License Area or the
Building, without the prior written consent of Licensor which consent may be
withheld in the sole and absolute discretion of Licensor.
7. COMMON FACILITIES. During the License Term, Licensee and its
employees shall be entitled to use, in common with Licensor's employees,
contractors, agents, invitees and other licensees, those portions of the
Building and related parking areas that are designated by Licensor from time to
time as being available for such common use (the "Common Facilities"). The
Common Facilities include such areas and facilities as reception areas,
hallways, stairs and elevators, the cafeteria, coffee stations (including the
refreshments supplied by Licensor at no cost to Licensor's employees),
bathrooms, locker rooms (including lockers), parking stalls, and other similar
areas and facilities designated by Licensor. The cost of Licensee's use of the
Common Facilities shall be included in the License Fee. Conference and training
rooms will be accessible by Licensee based on availability, subject to such
rules regarding scheduling and priority as may be promulgated by Licensor from
time to time in a non-discriminatory manner.
8. SERVICES PROVIDED BY LICENSOR. Licensor shall provide to Licensee,
during the License Term, the services described below (the "Services") in
accordance with Licensor's typical practices and standards in Licensor's sole
determination. The cost of such Services shall be included in the License Fee
except where expressly provided below or otherwise in this Agreement. In
accepting Licensor's agreement to provide such Services, Licensee expressly
acknowledges that there is the possibility of error or malfunction in any or all
of the same, and agrees that Licensee is fully assuming all risks associated
with Licensee's use or dependence on such Services, except for the negligence or
the intentional
3
<PAGE> 4
misconduct of Licensor or its agents, contractors and employees.
(a) Licensor shall provide general repairs and maintenance,
janitorial services and utilities for the License Area. Licensee shall notify
Licensor as soon as possible after Licensee becomes aware of the need for any
repairs or maintenance, or of any of the foregoing matters that is in need of
correction or attention by Licensor.
(b) Licensor shall provide up to 10 telephone systems and
facilities for Licensee's use in the License Area, including telephone set,
voice mail with direct dial extensions; and up to 10 concurrent telephone calls
through Licensor's PBX and interconnect facilities for networking equipment, all
in such amounts and types and according to such specifications as determined by
Licensor in its sole discretion. Licensee shall pay to Licensor (i) an initial
set-up fee in the amount of $750.00 for the foregoing items; provided, however,
if Licensee elects to utilize the current telephone systems and facilities "AS
IS" without modification, then the initial set-up fee will be waived by
Licensor; (ii) a fee on a time and material basis (with time being billed at $75
per hour) for any changes to such telephone systems or facilities after the
initial set-up; (iii) the monthly charges incurred for toll and long distance
calls (including facsimile) made by Licensee or from the License Area; and (iv)
a basic monthly telephone service charge, in the amount of $65 per line per
month. Licensee shall use one or more of its direct dial extensions as
Licensee's main office phone number, as the receptionists employed by Licensor
will not be expected to take or deliver messages for Licensee except in
extenuating circumstances.
(c) Licensee shall be permitted to utilize Licensor's mail room
services for the receipt and delivery of mail to and from Licensee, provided
that correct postage on all outgoing mail must be pre-affixed by Licensee.
9. OFFICE SUPPLIES AND EQUIPMENT.
a) Licensor shall supply Licensee with a photo copy machine, fax
machine, and supplies, including paper. Any such costs will be included in the
License Fee.
b) Unless otherwise specified in this Agreement, Licensee shall
be responsible for supplying, at Licensee's own cost, all office supplies, and
equipment utilized by Licensee in connection with Licensee's operations in the
License Area, including without limitation computer equipment, modems and
networking equipment, postage meter, and all materials and service. Any vendors,
suppliers or service constructors who will need to enter the Building regularly
for access to the License Area shall be subject to the reasonable approval of
Licensor.
10. COMPLIANCE WITH LAWS.
(a) Licensee and its employees shall in all respects use the
License Area and Common Facilities, and operate Licensee's business therein, in
compliance with all applicable laws, ordinances and
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governmental rules and regulations, including without limitation all fire codes.
(b) Licensee shall secure, at its sole cost and expense, all
necessary use permits, business licenses, and other governmental approvals
necessary for the lawful conduct of Licensee's business.
(c) Licensee shall pay, before delinquency, any and all taxes,
charges, and governmental fees assessed or levied upon or on account of
Licensee's business, Licensee's occupancy of the License Area, and Licensees
personal property.
11. RULES OF CONDUCT. Licensee and its employees shall at all times use
the License Area, the Services, the Furnishings and the Common Facilities in
compliance with the following provisions:
(a) Licensee shall at all times conduct its activities in or about
the Building in a professional and proper manner in accordance with Licensor's
rules and regulations regarding employee conduct, which rules Licensor may
change from time to time in a non-discriminatory manner at Licensor's sole
discretion.
(b) Licensee shall keep the License Area and the Furnishings
therein neat and safe at all times. Any damage caused by Licensee in excess of
normal wear and tear will be the financial responsibility of Licensee.
(c) Licensee shall abide by Licensor's policies and procedures
regarding Building access and security, which policies and procedures Licensor
may change from time to time in Licensor's sole discretion. Licensee shall use
commercially reasonable efforts to safeguard and preserve the confidentiality of
the work spaces, discussions, work product, systems, files, and any other
proprietary information of Licensor, other licensees, and any other users or
occupants of the Building.
(d) Licensee will be provided a copy of Licensor's rules
regulations, and policies and procedures, and will promptly be notified of any
changes in the same.
(e) Licensee nor Licensee's agents, employees, or invitees may do
any of the following in or about the Building: (i) solicit the employees of
Licensor, other licensees or other users or occupants of the Building for
employment; and/or (ii) directly or indirectly or by action in concert with
others, induce or influence (or seek to induce or influence) any person who is
engaged (as an employee, agent, independent contractor, or otherwise) by
Licensor, other licensees or other users or occupants of the Building to
terminate his or her employment or engagement. If, in the reasonable opinion of
Licensor, Licensee or Licensee's agents, employees, or invitees are engaging in
such conduct in, on or about the Building, Licensee, upon demand of Licensor,
shall enforce such restrictions and have such persons removed from the Building.
Licensor shall have the right but not the obligation to remove or exclude from
the Premises or the Building any person engaging in such prohibited conduct.
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(f) Unless otherwise allowed pursuant to the terms of the Asset
Acquisition Agreement, neither Licensor nor Licensor's agents, employees, or
invitees may do any of the following in or about the Building: (i) solicit the
employees of Licensee for employment; and/or (ii) directly or indirectly or by
action in concert with others, induce or influence (or seek to induce or
influence) any person who is engaged (as an employee, agent, independent
contractor, or otherwise) by Licensee to terminate his or her employment or
engagement.
12. CONFIDENTIALITY. Licensee acknowledges that Licensee and other
licensees of the Building may be permitted by Licensor to utilize Licensor's
computer, telephone, message correspondence, and mail delivery facilities for
their operations, and Licensee agrees to use the utmost care to safeguard and
insure that the confidential information, proprietary information, work product,
systems and files of Licensor, other licensees, or any other users or occupants
of the Building are not disclosed or misappropriated. Subject to the terms of
Paragraphs 14 and 18 of this Agreement, Licensor shall use commercially
reasonable efforts to safeguard and preserve the confidentiality of Licensee's
work spaces, discussions, work product, systems, files, and other proprietary
information; provided, however, Licensee acknowledges that if Licensee and other
licensees of the Building utilize Licensor's computer, telephone, message
correspondence, and mail delivery facilities for their operations, Licensor will
have limited means to protect the confidentiality of such confidential
information, work product, systems and files, and Licensee shall waive all
claims for loss or damage to Licensee or any person claiming by, through or
under Licensee resulting from the disclosure or misappropriation of Licensee's
confidential information, work product, systems or files, except to the extent
caused by the gross negligence or intentional misconduct of Licensor.
13. LICENSOR'S RIGHT TO ENTER. Licensee agrees that Licensor shall have
the right to enter the License Area at all times for the purpose of inspecting
the same, making repairs, and performing its obligations under this Agreement.
Licensor shall use commercially reasonable efforts not to interfere with
Licensee's use of the License Area in connection with such entry.
14. NO REPRESENTATIONS BY LICENSOR. Licensee hereby acknowledges and
agrees as follows:
(a) Licensor has made no representations or warranties regarding
the level of safety and security in the Building, and Licensee will be
responsible for adequately protecting its own possessions, work product and
files.
(b) Licensor has made no representations or warranties regarding
the condition of the License Area or the Common Facilities or the suitability
thereof for Licensees purposes, and Licensee accepts the same in its "AS IS"
condition.
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15. REQUIRED INSURANCE. Licensee shall obtain, at its sole cost and
expense, and deliver to Licensor prior to the Commencement Date, signed
certificates of insurance evidencing currently effective policies of insurance
as follows:
(a) Commercial general liability insurance with broad form
contractual liability coverage and with limits of not less than One Million
Dollars ($1,000,000) combined each occurrence and in the aggregate insuring
against any and all liability of Licensee and/or Licensor (as an additional
insured) with respect to the License Area, or arising out of the maintenance,
use or occupancy thereof, or in connection with the conduct of Licensee's
business within the Building.
(b) All Risk property insurance covering Licensee's personal
property and work product, in an amount not less than ninety percent (90%) of
their full replacement cost.
(c) Workers' compensation insurance in such forms and amounts as
is required under the laws of the State in which the Building is located.
Such certificates shall contain a provision that the policy of insurance
may not be canceled or reduced without prior notice to Licensor.
16. INDEMNIFICATION OF LICENSOR. Licensee shall, at its sole cost and
expense, indemnify, protect, defend (with counsel acceptable to Licensor) and
hold harmless Licensor, its partners, shareholders, officers, directors,
attorneys, agents, beneficiaries, employees, affiliates, contractors, and
related entities (collectively, "Licensor's Related Parties") from and against
all liabilities, obligations, damages, penalties, claims, costs, charges and
expenses, including reasonable attorneys' fees, which may arise in any manner
out of or in connection with (i) Licensee's use of the License Area, the
Furnishings, the Services and/or the Common Facilities; (ii) the conduct of
Licensee's business; (iii) any act or omission of Licensee or Licensee's
partners, shareholders, officers, directors, attorneys, agents, beneficiaries,
employees, affiliates, contractors, and related entities (collectively,
"Licensee's Related Parties") in connection with this Agreement; and/or (iv) any
material breach by Licensee under this Agreement; provided, however, Licensee
shall have no obligation to defend or indemnify Licensor from claims which are
caused by the negligence or willful misconduct of Licensor or Licensor's Related
Parties.
17. INDEMNIFICATION OF LICENSEE. Licensor shall, at its sole cost and
expense, indemnify, protect, defend (with counsel acceptable to Licensee) and
hold harmless Licensee, and Licensee's Related Parties from and against all
liabilities, obligations, damages, penalties, claims, costs, charges and
expenses, including reasonable attorneys' fees, which may arise in any manner
out of or in connection with any injury or death to any person or injury or
damage to property caused by, arising out of, or involving (i) any willful
misconduct or negligence of Licensor or Licensor's Related Parties in connection
with this Agreement; and/or (ii) any material breach by Licensor under this
Agreement; provided, however, Licensor shall have no obligation to defend or
indemnify Licensee from claims which are caused
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by the negligence or willful misconduct of Licensee or Licensee's Related
Parties.
18. WAIVER OF RESPONSIBILITY. Except to the extent caused by the willful
misconduct or negligence of Licensor, Licensor and Licensor's Related Parties
shall not be liable for, and Licensee waives, all claims for loss or damage to
Licensee's business or damage or injury to person or property sustained by
Licensee or any person claiming by, through, or under Licensee, resulting from
any accident or occurrence in, on or about the License Area, or any other part
of the Building, including, without limitation, claims for loss, theft or damage
resulting from: (i) any Furnishings or other equipment or appurtenances being in
disrepair; (ii) injury done or occasioned by wind or weather; (iii) any defect
in or failure to operate, for whatever reason, any Furnishings or other
equipment or facilities in or about the Building; (iv) broken glass; (v) any
act, omission or negligence of other licensees, any other users or occupants of
the Building or the public; or (vi) any other cause of any nature. To the
maximum extent permitted by law, Licensee agrees to use and occupy the License
Area, the Furnishings, the Services, and the Common Facilities at Licensee's own
risk.
19. WAIVER OF RIGHT OF RECOVERY. Notwithstanding the terms of Paragraph
17, Licensee (for itself and its insureds) hereby releases and waives all right
of recovery which it might otherwise have (including rights of subrogation)
against Licensor and Licensor's Related Parties by reason of any loss or damage
resulting from any recovery, claim, action or cause for damages or injury or
other occurrence no matter how caused, to the extent that the same is covered by
Licensee's insurance or which would have been covered had Licensee complied with
the requirements of Paragraph 15 of this Agreement. The foregoing waiver shall
be effective whether or not Licensee maintains the insurance required to be
carried pursuant to this Agreement.
Notwithstanding the terms of Paragraph 16, Licensor (for itself and its
insureds) hereby releases and waives all right of recovery which it might
otherwise have (including rights of subrogation) against Licensee and Licensee's
Related Parties by reason of any loss or damage resulting from any recovery,
claim, action or cause for damages or injury or other occurrence no matter how
caused, to the extent that the same is covered by Licensor's insurance.
20. HOLDING OVER. If Licensee fails to vacate the License Area upon
termination of this Agreement, Licensee's presence upon or occupancy of the
License Area shall constitute a trespass. Licensor shall have the benefit of all
provisions of law respecting the recovery of the License Area and removal of
Licensee and its employees, including but not limited to, changing the locks to
the Building and/or the License Area, requesting action by local law enforcement
officers, and/or immediate injunctive relief. Licensee's occupancy of the
License Area subsequent to the termination of this Agreement shall be subject to
all the terms, covenants, and conditions of this Agreement for Licensor's
benefit, except that the License Fee shall be three times the License Fee
otherwise payable hereunder. After termination of this Agreement, Licensor shall
have no obligation to provide or allow Licensee to use any Furnishings,
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Services, or Common Facilities
21. DEFAULT. Each party may exercise any remedy available to it at law
or in equity upon the other party's breach or default of this Agreement, and the
rights, remedies, and benefits provided by this Agreement and by law are
cumulative and nonexclusive. In the event of any action or other proceeding to
interpret or enforce this Agreement, the prevailing party shall be entitled to
recover its reasonable attorney's fees from the other party.
22. MISCELLANEOUS PROVISIONS. This Agreement may be modified only in
writing by Licensor and Licensee. This Agreement is the only agreement between
the parties with respect to the subject matter of this Agreement, and all other
negotiations, representations and agreements between the parties are merged
therein. This Agreement shall be governed by the laws of the State in which the
Building is located. This Agreement shall not be strictly construed against the
party preparing it, but shall be construed as if all parties prepared this
Agreement jointly upon the advice of their respective legal counsel. If any
provision in this Agreement is held by any court to be invalid, void or
unenforceable, the remaining provisions shall nevertheless continue in full
force and effect. Waiver by Licensor of any breach of any term, covenant or
condition herein contained shall not be deemed a waiver of any subsequent breach
of the same or any other term, covenant or condition herein contained. Time is
of the essence of this Agreement and of every term, covenant and condition
hereof.
23. DELIVERY BY COUNTERPARTS AND FACSIMILES. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original
and which together shall constitute one and the same instrument. Each party may
execute and deliver this instrument by facsimile, and facsimiles of signatures
shall be deemed original signatures for all purposes, but each party executing
and delivering this instrument by facsimile shall also send the other party an
original of this instrument containing such party's ink signature. Each person
executing this Agreement represents that the execution of this Agreement has
been duly authorized by the party on whose behalf the person is executing this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
respective dates set forth below.
"Licensor"
ADAPTEC, INC.,
A Delaware Corporation
By: /s/ ROBERT W. KRAISS
--------------------------------------
Robert W. Kraiss
Title: Director of Corporate Facilities
and Real Estate
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Date Signed:
----------------------------
"Licensee"
JAYCOR NETWORKS INC.,
a Delaware Corporation
By: /s/ TERRY M. FLANAGAN
-------------------------------------
Title:
----------------------------------
Date Signed:
----------------------------
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EXHIBIT 4
BLDG 4
[FLOORPLAN]
<PAGE> 1
EXHIBIT 10.13
OCCUPANCY LICENSE AGREEMENT
THIS OCCUPANCY LICENSE AGREEMENT ("Agreement") is made effective as of
November 12, 1998, by and between ADAPTEC, INC., a Delaware corporation
("Licensor"), and JAYCOR NETWORKS INC., a Delaware corporation ("Licensee"), in
the context of the following facts and circumstances:
A. Pursuant to the Asset Acquisition Agreement entered into by and
between Licensor and Licensee dated November 12, 1998, (the "Asset Acquisition
Agreement"), Licensor has agreed to sell, and Licensee has agreed to purchase,
the "Tangible Assets" (as such term is defined in the Asset Acquisition
Agreement).
B. Pursuant to the terms of that certain Office Building Lease ("Lease")
entered into between Licensor, as tenant, and CEP Investments, L.P., as
successor in interest to Vision Pharmaceuticals L.P. ("Master Lessor"), Licensor
currently leases approximately 84,971 square feet (the "Premises") of that
certain building located at 9701 Jeronimo Road, Irvine, California 92618 (the
"Building"). This Agreement is contingent upon the approval of the Master
Lessor as detailed in the Master Lease.
C. Licensor and Licensee are desirous of entering into a short-term
occupancy arrangement for the use by Licensee of a portion of the Premises until
such time as operations conducted therein by Licensee have been relocated.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. LICENSE AREA AND LOCATION. Licensor hereby grants to Licensee a
non-assignable, non-transferable right and license for the use of that certain
area (the "License Area") consisting of approximately 6,179 rentable square feet
of space as shown on the attached Exhibit A. Licensee hereby acknowledges and
agrees that this right of use is a license only and not a leasehold interest and
that Licensee shall not be entitled to any actions, claims, defenses, unlawful
detainer protections, or other rights afforded to lessees, tenants, or "parties
in possession" under applicable law.
2. AGREEMENT SUBORDINATE. This Agreement is subordinate and subject to
all of the terms and conditions of the Master Lease. If the Master Lease
terminates for any reason whatsoever, this Agreement shall terminate
concurrently, and the parties hereto shall be relieved of any liability
thereafter accruing under this Agreement, except for the liabilities of the
parties which by the terms of this Agreement survive the expiration or earlier
termination of this Agreement.
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3. TERM. The term of this Agreement (the "License Term") will commence
as of the date of the Asset Acquisition Agreement (the "Commencement Date"), and
will continue for a period of three (3) months (the "Termination Date");
provided, however, Licensee may elect to extend the License Term for one (1)
additional month by delivering written notice to Licensor no later than January
1, 1999. Notwithstanding the foregoing, the License Term may be sooner
terminated pursuant to the following provisions:
(a) Licensor may terminate this Agreement for cause by giving
three (3) days written notice to Licensee. As used herein, "cause" means any of
the following: (i) Licensee is in material breach of a material obligation under
this Agreement, and Licensee has failed to correct such breach within fourteen
(14) days after written notice from Licensor; or (ii) Licensee causes or permits
hazardous materials or toxic substances to be used or handled in violation of
Paragraph 6 below; or (iii) the License Area is damaged or destroyed by a fire
or other casualty that makes it impracticable for Licensor to continue to allow
Licensee to occupy the License Area.
On or before the Termination Date, Licensee shall completely remove all
of its personal property and vacate the License Area, leaving all of the
Furnishings therein in the same condition as received.
4. LICENSE FEE. For the use of the License Area, as well as for the use
of the Furnishings, the Common Facilities, and the Services provided by Licensor
as described below, Licensee shall pay to Licensor a fee (the "License Fee") in
the amount of $36.00 per rentable square foot per year, payable in monthly
installments in the amount of $18,537.00, due on the first day of each calendar
month, in such manner and at such address as Licensor shall designate. For any
partial month at the beginning or end of the License Term, the monthly License
Fee will be prorated. A late charge of $400.00 will be assessed if the License
Fee is not paid by the 5th day of the month.
5. IMPROVEMENTS AND FURNISHINGS. Licensor will provide offices, cubicles
and lab space within the License Area, based on Licensor's building standard
specifications, pursuant to the floor plan shown in Exhibit A. Licensor will
also furnish the License Area with Licensor's standard furniture, such as basic
desks, chairs, tables, bookshelves, and filing cabinets as currently provided.
Unless otherwise agreed in the Asset Acquisition Agreement, such improvements
and furnishings (collectively, the "Furnishings") shall at all times remain
Licensor's property. Licensee shall not make any alterations or modifications to
or upon the License Area or any of the Furnishings (including without limitation
any painting, wall hangings or signage), or add to, delete from or relocate any
of the same, without Licensor's prior written approval which may be withheld in
Licensor's sole and absolute discretion. If Licensor does grant approval for any
such alterations or modifications, Licensee will be required to use Licensor's
established vendors for the performance of such work.
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6. USE. Licensee will use the License Area during the License Term only
for general office purposes, research and development, light manufacturing, and
sales, and for no other purpose without Licensor's prior written approval which
may be withheld in Licensor's sole and absolute discretion. Such use shall be in
strict compliance with the terms of the Master Lease. Except for small
quantities of products used in normal office environments (e.g., toner,
white-out), Licensee shall not cause or permit any hazardous materials or toxic
substances to be used, stored, generated, discharged, treated, handled,
transported to or from, or released in, on, or about the License Area or the
Premises, without the prior written consent of Licensor which consent may be
withheld in the sole and absolute discretion of Licensor.
7. COMMON FACILITIES. During the License Term, Licensee and its
employees shall be entitled to use, in Common with Licensor's employees,
contractors, agents, invitees, and other licensees, those portions of the
Premises and the Building that are designated in a non-discriminatory manner by
Licensor from time to time as being available for such common use (the "Common
Facilities"). The Common Facilities include such areas and facilities as
reception areas, hallways, stairs and elevators, the cafeteria, coffee stations
(including the refreshments supplied by Licensor at no cost to Licensor's
employees), bathrooms, parking stalls, and other similar areas and facilities
designated by Licensor. The cost of Licensee's use of the Common Facilities
shall be included in the License Fee. Conference and training rooms will be
accessible by Licensee based on availability, subject to such rules regarding
scheduling and priority as may be promulgated by Licensor from time to time in a
non-discriminatory manner.
8. PARKING. Subject to reasonable rules and regulations that may be
promulgated by Master Lessor and/or Licensor from time to time, Licensee shall
have the non-exclusive right in common with other tenants, licensees and
occupants of the Building to use, free of charge during the License Term, no
more than twenty (20) parking spaces in the areas adjacent to the Building.
9. SERVICES PROVIDED BY MASTER LESSOR. The Master Lease is a "full
service" "gross" lease. Accordingly, Licensor shall not be responsible to
Licensee for furnishing any service, maintenance or repairs to the License Area
that are the obligation of the Master Lessor under the Master Lease, including
but not limited to general ground maintenance, trash collection, and janitorial
services. However, if Master Lessor shall fail to perform its obligations under
the Master Lease, Licensor, upon receipt of written notice from Licensee, shall
use commercially reasonable efforts to attempt to enforce the obligations of
Master Lessor under the Master Lease; provided, however, that Licensor shall not
be required to incur any costs or expenses in connection therewith unless
Licensee agrees to reimburse Licensor for any such costs and expenses.
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10. SERVICES PROVIDED BY LICENSOR. Licensor shall provide to Licensee at
no cost, except as set forth below, during the License Term, the services
described below (the "Services") in accordance with Licensor's typical practices
and standards in Licensor's sole determination. In accepting Licensor's
agreement to provide such Services, Licensee expressly acknowledges that there
is the possibility of error or malfunction in any or all of the same, and agrees
that Licensee is fully assuming all risks associated with Licensee's use or
dependence on such Services, except for the negligence or intentional misconduct
of Licensor or its agents, contractors and employees.
(a) Licensor shall provide general repairs and maintenance for
the License Area to the extent required by "Tenant" under the terms of the
Master Lease. Licensee shall notify Licensor as soon as possible after Licensee
becomes aware of the need for any repairs or maintenance, or of any of the
foregoing matters that is in need of correction or attention by Licensor.
(b) Licensor shall provide up to 20 telephone systems and
facilities for Licensee's use in the License Area, including telephone set,
voice mail with direct dial extensions; and up to 20 concurrent telephone calls
through Licensor's PBX and interconnect facilities for networking equipment, all
in such amounts and types and according to such specifications as determined by
Licensor in its sole discretion. Licensee shall pay to Licensor (i) a fee on a
time and material basis (with time being billed at $75 per hour) for any changes
to such telephone systems or facilities; (ii) the monthly charges incurred for
toll and long distance calls (including fax transmissions) made by Licensee or
from the License Area; and (iii) a basic monthly telephone service charge, in
the amount of $65 per line per month. Licensee shall use one or more of its
direct dial extensions as Licensee's main office phone number, as the
receptionists employed by Licensor will not be expected to take or deliver
messages for Licensee except in extenuating circumstances.
(c) Licensee shall be permitted to utilize Licensor's mail room
services for the receipt and delivery of mail to and from Licensee, provided
that correct postage on all outgoing mail must be pre-affixed by Licensee.
(d) The License Fee shall include utilities for general office
equipment during normal business hours, which utilities shall be provided by
Master Lessor in accordance with the terms of the Master Lease. For purposes of
this Agreement, "normal business hours" shall mean Monday through Friday, 7:00
a.m. to 6:00 p.m., and Saturdays from 8:00 a.m. to 1:00 p.m. (but not Sundays or
national holidays).
(e) In the event that Licensee requires utilities during times
other than normal business hours, or uses utilities in excess of that required
for general office equipment, or uses specially metered equipment, then Licensee
shall reimburse Licensor for any such reasonable expenses incurred within ten
(10) days after receipt of an invoice for such costs.
(f) The License Fee shall include routine server back-up and
network maintenance. In the event that Licensee requests information technology
services in excess of those described in the
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<PAGE> 5
preceding sentence, then Licensee shall reimburse Licensor for actual expenses
incurred within ten (10) days after receipt of an invoice for such costs.
11. OFFICE SUPPLIES AND EQUIPMENT.
(a) Licensor shall supply Licensee with a photocopy machine, fax
machine, and supplies, including paper. Any such costs will be included in the
License Fee.
(b) Unless otherwise specified in this Agreement, Licensee shall
be responsible for supplying, at Licensee's own cost, all office supplies and
equipment utilized by Licensee in connection with Licensee's operations in the
License Area, including without limitation computer equipment, modems and
networking equipment, postage meter, and all materials and service. Any vendors,
suppliers or service contractors who will need to enter the Premises regularly
for access to the License Area shall be subject to the reasonable approval of
Licensor.
12. COMPLIANCE WITH LAWS.
(a) Licensee and its employees shall in all respects use the
License Area and Common Facilities, and operate Licensee's business therein, in
compliance with the Master Lease and all applicable laws, ordinances and
governmental rules and regulations, including without limitation all fire codes.
(b) Licensee shall secure, at its sole cost and expense, all
necessary use permits, business licenses, and other governmental approvals
necessary for the lawful conduct of Licensee's business.
(c) Licensee shall pay, before delinquency, any and all taxes,
charges, and governmental fees assessed or levied upon or on account of
Licensee's business, Licensee's occupancy of the License Area, and Licensee's
personal property.
13. RULES OF CONDUCT. Licensee and its employees shall at all times use
the License Area, the Services, the Furnishings and the Common Facilities in
compliance with the following provisions:
(a) Licensee shall at all times conduct its activities in or
about the Premises in a professional and proper manner in accordance with
Licensor's rules and regulations regarding employee conduct, which rules
Licensor may change from time to time in a non-discriminatory manner, at
Licensor's sole discretion.
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<PAGE> 6
(b) Licensee shall keep the License Area and the Furnishings
therein neat and safe at all times. Any damage caused by Licensee in excess of
normal wear and tear will be the financial responsibility of Licensee.
(c) Licensee shall abide by Licensor's policies and procedures
regarding access and security, which policies and procedures Licensor may change
from time to time in Licensor's sole discretion. Licensee shall use commercially
reasonable efforts to safeguard and preserve the confidentiality of work spaces,
discussions, work product, systems, files, and any other proprietary information
of Licensor, other licensees, or any other users or occupants of the Building.
(d) Licensee will be provided a copy of Licensor's rules
regulations, and policies and procedures, and will promptly be notified of any
changes in the same.
(e) Unless otherwise allowed pursuant to the Asset Acquisition
Agreement, neither Licensee nor Licensee's agents, employees, or invitees may do
any of the following in, on or about the Premises or the Building: (i) solicit
the employees of Licensor, other licensees or other users or occupants of the
Building for employment; and/or (ii) directly or indirectly or by action in
concert with others, induce or influence (or seek to induce or influence) any
person who is engaged (as an employee, agent, independent contractor, or
otherwise) by Licensor, other licensees or other users or occupants of the
Building to terminate his or her employment or engagement. If, in the reasonable
opinion of Licensor, Licensee or Licensee's agents, employees, or invitees are
engaging in such conduct in, on or about the Premises or the Building, Licensee,
upon demand of Licensor, shall enforce such restrictions and have such persons
removed from the Building. Licensor shall have the right but not the obligation
to remove or exclude from the Premises or the Building any person engaging in
such prohibited conduct.
(f) Neither Licensor nor Licensor's agents, employees, or
invitees may do any of the following in, on or about the Premises or the
Building: (i) solicit the employees of Licensee for employment; and/or (ii)
directly or indirectly or by action in concert with others, induce or influence
(or seek to induce or influence) any person who is engaged (as an employee,
agent, independent contractor, or otherwise) by Licensee to terminate his or her
employment or engagement.
14. CONFIDENTIALITY. Licensee acknowledges that Licensee and other
licensees of the Premises may be permitted by Licensor to utilize Licensor's
computer, telephone, message correspondence, and mail delivery facilities for
their operations, and Licensee agrees to use the utmost care to safeguard and
insure that the confidential information, proprietary information, work product,
systems and files of Licensor, other licensees, or any other users or occupants
of the Premises are not disclosed or misappropriated. Subject to the terms of
Paragraph 16 and 20 of this Agreement, Licensor shall use commercially
reasonable efforts to safeguard and preserve the confidentiality of Licensee's
work spaces, discussions, work product, systems, files, and other proprietary
information; provided, however, Licensee acknowledges that if Licensee and other
licensees of the Premises utilize Licensor's computer, telephone,
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message correspondence, and mail delivery facilities for their operations,
Licensor will have limited means to protect the confidentiality of such
confidential information, work product, systems and files, and Licensee shall
waive all claims for loss or damage to Licensee or any person claiming by,
through or under Licensee resulting from the disclosure or misappropriation of
Licensee's confidential information, work product, systems or files, except to
the extent caused by the gross negligence or intentional misconduct of Licensor.
15. LICENSOR'S RIGHT TO ENTER. Licensee agrees that Licensor shall have
the right to enter the License Area at all times for the purpose of inspecting
the same, making repairs, and performing its obligations under this Agreement.
Licensor shall use commercially reasonable efforts not to interfere with
Licensee's use of the License Area in connection with such entry.
16. NO REPRESENTATIONS BY LICENSOR. Licensee hereby acknowledges and
agrees as follows:
(a) Licensor has made no representations or warranties regarding
the level of safety and security in the Premises, and Licensee will be
responsible for adequately protecting its own possessions, work product and
files.
(b) Licensor has made no representations or warranties regarding
the condition of the License Area or the Common Facilities or the suitability
thereof for Licensee's purposes, and Licensee accepts the same in its "AS IS"
condition.
17. REQUIRED INSURANCE. Licensee shall obtain, at its sole cost and
expense, and deliver to Licensor upon request, signed certificates of insurance
evidencing currently effective policies of insurance as follows:
(a) Commercial general liability insurance with broad form
contractual liability coverage and with limits of not less than One Million
Dollars ($1,000,000) combined each occurrence and in the aggregate insuring
against any and all liability of Licensee and/or Licensor (as an additional
insured) with respect to the License Area, or arising out of the maintenance,
use or occupancy thereof, or in connection with the conduct of Licensee's
business within the Premises.
(b) All Risk property insurance covering Licensee's personal
property and work product, in an amount not less than ninety percent (90%) of
their full replacement cost.
(c) Workers' compensation insurance in such forms and amounts as
is required under the laws of the State in which the Premises is located.
Such required insurance shall be maintained during the License Term and
shall not be canceled or reduced without prior notice to Licensor.
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<PAGE> 8
18. INDEMNIFICATION OF LICENSOR. Licensee shall, at its sole cost and
expense, indemnify, protect, defend (with counsel acceptable to Licensor) and
hold harmless Licensor, its partners, shareholders, officers, directors,
attorneys, agents, beneficiaries, employees, affiliates, contractors, and
related entities (collectively, "Licensor's Related Parties") from and against
all liabilities, obligations, damages, penalties, claims, costs, charges and
expenses, including reasonable attorneys' fees, which may arise in any manner
out of or in connection with (i) Licensee's use of the License Area, the
Furnishings, the Services and/or the Common Facilities; (ii) the conduct of
Licensee's business; (iii) any act or omission of Licensee or Licensee's
partners, shareholders, officers, directors, attorneys, agents, beneficiaries,
employees, affiliates, contractors, and related entities (collectively,
"Licensee's Related Parties") in connection with this Agreement; and/or (iv) any
breach by Licensee under this Agreement; provided, however, Licensee shall have
no obligation to defend or indemnify Licensor from claims to the extent caused
by the negligence or willful misconduct of Licensor or Licensor's Related
Parties.
19. INDEMNIFICATION OF LICENSEE. Licensor shall, at its sole cost and
expense, indemnify, protect, defend (with counsel acceptable to Licensee) and
hold harmless Licensee, and Licensee's Related Parties from and against all
liabilities, obligations, damages, penalties, claims, costs, charges and
expenses, including reasonable attorneys' fees, which may arise in any manner
out of or in connection with any injury or death to any person or injury or
damage to property caused by, arising out of, or involving (i) any willful
misconduct or negligence of Licensor or Licensor's Related Parties in connection
with this Agreement; and/or (ii) any material breach by Licensor under this
Agreement; provided, however, Licensor shall have no obligation to defend or
indemnify Licensee from claims which are caused by the negligence or willful
misconduct of Licensee or Licensee's Related Parties.
20. WAIVER OF RESPONSIBILITY. Except to the extent caused by the willful
misconduct or negligence of Licensor or Licensor's Related Parties, Licensor and
Licensor's Related Parties shall not be liable for, and Licensee waives, all
claims for loss or damage to Licensee's business or damage or injury to person
or property sustained by Licensee or any person claiming by, through, or under
Licensee, resulting from any accident or occurrence in, on or about the License
Area, or any other part of the Building, including, without limitation, claims
for loss, theft or damage resulting from: (i) any Furnishings or other equipment
or appurtenances being in disrepair; (ii) injury done or occasioned by wind or
weather; (iii) any defect in or failure to operate, for whatever reason, any
Furnishings or other equipment or facilities in or about the Building; (iv)
broken glass; (v) any act, omission or negligence of other licensees, any other
users or occupants of the Building or the public; or (vi) any other cause of any
nature. To the maximum extent permitted by law, Licensee agrees to use and
occupy the License Area, the Furnishings, the Services, and the Common
Facilities at Licensee's own risk.
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<PAGE> 9
21. WAIVER OF RIGHT OF RECOVERY. Notwithstanding the terms of Paragraph
12, Licensee (for itself and its insureds) hereby releases and waives all right
of recovery which it might otherwise have (including rights of subrogation)
against Licensor and Licensor's Related Parties by reason of any loss or damage
resulting from any recovery, claim, action or cause for damages or injury or
other occurrence no matter how caused, to the extent that the same is covered by
Licensee's insurance or which would have been covered had Licensee complied
with the requirements of Paragraph 17 of this Agreement. The foregoing waiver
shall be effective whether or not Licensee maintains the insurance required to
be carried pursuant to this Agreement.
Notwithstanding the terms of Paragraph 18, Licensor (for itself and its
insureds) hereby releases and waives all right of recovery which it might
otherwise have (including rights of subrogation) against Licensee and Licensee's
Related Parties by reason of any loss or damage resulting from any recovery,
claim, action or cause for damages or injury or other occurrence no matter how
caused, to the extent that the same is covered by Licensor's insurance.
22. HOLDING OVER. If Licensee fails to vacate the License Area upon
termination of this Agreement, Licensee's presence upon or occupancy of the
License Area shall constitute a trespass. Licensor shall have the benefit of all
provisions of law respecting the recovery of the License Area and removal of
Licensee and its employees, including but not limited to, changing the locks to
the Premises and/or the License Area, requesting action by local law enforcement
officers, and/or immediate injunctive relief. Licensee's occupancy of the
License Area subsequent to the termination of this Agreement shall be subject to
all the terms, covenants, and conditions of this Agreement for Licensor's
benefit, except that the License Fee shall be three times the License Fee
otherwise payable hereunder. After termination of this Agreement, Licensor shall
have no obligation to provide or allow Licensee to use any Furnishings,
Services, or Common Facilities.
23. DEFAULT. Each party may exercise any remedy available to it at law
or in equity upon the other party's breach or default of this Agreement, and the
rights, remedies, and benefits provided by this Agreement and by law are
cumulative and nonexclusive. In the event of any action or other proceeding to
interpret or enforce this Agreement, the prevailing party shall be entitled to
recover its reasonable attorney's fees from the other party.
24. MISCELLANEOUS PROVISIONS. This Agreement may be modified only in
writing by Licensor and Licensee. This Agreement is the only agreement between
the parties with respect to the subject matter of this Agreement, and all other
negotiations, representations and agreements between the parties are merged
therein. This Agreement shall be governed by the laws of the State in which the
Premises is located. This Agreement shall not be strictly construed against the
party preparing it, but shall be construed as if all parties prepared this
Agreement jointly upon the advice of their respective legal counsel. If any
provision in this Agreement is held by any court to be invalid, void or
unenforceable, the remaining provisions shall
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<PAGE> 10
nevertheless continue in full force and effect. Waiver by Licensor of any breach
of any term, covenant or condition herein contained shall not be deemed a waiver
of any subsequent breach of the same or any other term, covenant or condition
herein contained. Time is of the essence of this Agreement and of every term,
covenant and condition hereof.
25. DELIVERY BY COUNTERPARTS AND FACSIMILES. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original
and which together shall constitute one and the same instrument. Each party may
execute and deliver this instrument by facsimile, and facsimiles of signatures
shall be deemed original signatures for all purposes, but each party executing
and delivering this instrument by facsimile shall also send the other party an
original of this instrument containing such party's ink signature. Each person
executing this Agreement represents that the execution of this Agreement has
been duly authorized by the party on whose behalf the person is executing this
Agreement.
26. BINDING EFFECT. This Agreement shall become binding upon Licensor
and Licensee only when fully executed by Licensor and Licensee.
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<PAGE> 11
(signature page]
IN WITNESS WHEREOF, the parties have executed this Agreement on the
respective dates set forth below.
"Licensor"
ADAPTEC, INC.
a Delaware corporation
By: /s/ LARRY BOUCHER
---------------------------------
Title:
------------------------------
Date Signed:
------------------------
"Licensee"
JAYCOR NETWORKS INC.,
a Delaware Corporation
By: /s/ TERRY M. FLANAGAN
---------------------------------
Title:
------------------------------
Date Signed:
------------------------
11
<PAGE> 12
Adaptec
9701 Jeronimo Road, Irvine, Ca 92618
[Diagram]
Second Floor Plan
<PAGE> 13
Adaptec
9701 Jeronimo Road, Irvine, Ca 92618
[Diagram]
Basement Floor Plan: Exhibit A
<PAGE> 1
EXHIBIT 10.14
CONSULTING SERVICES AGREEMENT
This Consulting Services Agreement ("Agreement") is made by and between
Adaptec, Inc., a Delaware corporation, with a place of business at 691 South
Milpitas Boulevard, Milpitas, CA 95053 ("Consultant"), and Jaycor Networks,
Inc., a Delaware Corporation, with a place of business at 9775 Towne Centre
Drive, San Diego, CA 92121 (the "Company"), and is effective as of the 12th day
of November, 1998 ("Effective Date").
The Company desires to engage Consultant as an independent contractor,
and not as an employee, to perform certain services on the terms and conditions
set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. SCOPE OF SERVICES.
1.1 Duties. Consultant shall perform the consulting services
requested by the Company and outlined on the Statement of Work attached hereto
as Exhibit A ("Statement of Work"), as it may be amended by the Company and
Consultant from time to time (the "Services"). The Statement of Work includes a
listing of those Consultant employees who will perform the Services, and the
required minimum time commitment and term of service for each such employee.
Consultant will use reasonable commercial efforts to make such Consultant
employees available to perform the designated Services during the Term of this
Agreement.
1.2 Performance. Consultant shall use reasonable commercial
efforts to perform the Services in accordance with the Statement of Work. All
Services shall be performed at such facilities as the Company and Consultant
may agree. Consultant agrees, while working on the Company's premises, to
observe the Company's rules and policies relating to conduct, health and
safety and security of, access to or use of the Company's premises or any of
the Company's properties, including proprietary or Confidential Information (as
that term is defined below). All Services are performed on an "AS IS" basis
without any warranty whatsoever, except for Consultant's contractual
commitments hereunder. CONSULTANT EXPRESSLY DISCLAIMS ANY WARRANTY WITH RESPECT
TO THE RESULTS OF THE SERVICES, AND DISCLAIMS ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT OF SUCH
SERVICES, THE RESULTS OF SUCH SERVICES, CONSULTANT TECHNOLOGY AND ANY COMPANY
WORK PRODUCT.
1.3 Project Management. Consultant's initial Project Manager
shall be Tom Gregory. The Company's initial Project Manager shall be Tom
Marmen. Each Project Manager shall be empowered to make any necessary decisions
concerning the scope, performance or timetable of the Services. A party's
Project Manager may be changed upon written notice to the other party.
<PAGE> 2
1.4 Employees, Subcontractors and Third Parties. Except as
specified in Exhibit A, Consultant may use employees, subcontractors or other
third parties to perform the Services (collectively, "Subcontractors"). With
respect to any Subcontractors, Consultant shall be responsible for: (i) payment
of all salaries or other compensation or expenses payable or reimbursable to
such Subcontractor; and (ii) effecting any necessary payroll tax withholding.
1.5 Independent Contractor. The parties agree that Consultant is
an independent contractor in the performance of the Services and is not an
employee of the Company. The Company shall take no deductions from any
compensation paid to Consultant for taxes or related payroll deductions, and
Consultant agrees to file all such forms and pay all such taxes as may be
required by virtue of Consultant's status as an independent contractor. Nothing
herein or in the performance hereof shall imply a joint venture or principal
and agent relationship between the parties. Neither party shall have any right,
power or authority to create any obligation, express or implied, on behalf of
the other.
2. TERM AND TERMINATION.
2.1 Term. This Agreement shall commence on the date and year
first above written and shall continue until the earlier of one (1) year from
the Effective Date or the completion of all Services hereunder, unless earlier
terminated in accordance with the provisions of this Section 2 or upon the
mutual agreement of the parties.
2.2 Termination for Convenience. Company may terminate this
Agreement by delivering written notice to Consultant at least fourteen (14)
days in advance of the desired termination date. In the event of such
termination, the Company shall pay Consultant its accrued but unpaid
compensation for Services rendered through the termination and shall reimburse
Consultant for expenses properly incurred and documented in accordance with the
provisions of Section 3.2.
2.3 Termination for Breach. If either party defaults in the
performance of any material provision of this Agreement, the non-defaulting
party may terminate this Agreement upon notice thereof.
2.4 Unavailability of Consultant Subcontractors. In the event a
Subcontractor assigned to perform Services ceases to be available to perform
Services as a consequence of death, disability, illness, voluntary resignation,
termination for cause or otherwise (but not as a consequence of Consultant's
re-assignment of such Subcontractor for Consultant's convenience)
("Unavailability Event"), the parties will use good faith efforts to agree
upon a suitable replacement. In the event no agreement is reached within five
(5) business days of the Unavailability Event, either party may terminate this
Agreement, upon notice given to the other party, with respect to the Services
performed by the unavailable Subcontractor. In the event of such termination,
the performance of the remainder of this Agreement will continue unimpaired.
2.5 Return of Materials; Cooperation. Upon termination of this
Agreement for any reason, Consultant shall promptly return to the Company (i)
all records, materials, equipment, drawings and document which are owned,
leased or licensed by the Company; and
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<PAGE> 3
(ii) any data of any nature pertaining to or incorporating any Confidential
Information of the Company, including any copies thereof, provided to
Consultant in connection with its performance of the Services.
2.6 Survival. The termination of this Agreement for any reason
shall not terminate the obligations or liabilities of the parties under
Sections 3, 4 and 5 and the applicable portions of Section 6, below, and under
this Section 2, each of which shall survive any such termination.
3. COMPENSATION.
3.1 Compensation. In consideration of the Services, the Company
agrees to pay Consultant as set forth on the Statement of Work. Consultant will
invoice the Company monthly for the Services, and shall include with such
invoice a detailed summary of hours incurred for which payment is due, and the
Company shall pay such invoices within thirty (30) days of receipt of invoice.
3.2 Expense Reimbursement. The Company shall reimburse Consultant
for all reasonable expenses incurred in connection with the performance of the
Services. Reimbursable expenses shall be invoiced to the Company on a monthly
basis, together with all supporting documentation reasonably required by the
Company, and the Company shall pay such invoices within thirty (30) days of
receipt of invoice.
4. PROPRIETARY INFORMATION; CONFIDENTIALITY; WARRANTY
4.1 Definition of Confidential Information. "Confidential
Information" as used in this Agreement shall mean any and all technical and
non-technical information, including but not limited to (i) techniques,
sketches, drawings, models, inventions, know-how, processes, apparatus,
equipment, algorithms, software programs, software source documents, APIs, and
formulae related to the current, future and proposed products and services of
the Company; (ii) the Company's respective information concerning research,
experimental work, development, design details and specifications, engineering,
financial information, procurement requirements, purchasing, manufacturing,
customer lists, business forecasts, sales and merchandising and marketing plans
and information; and (iii) proprietary or confidential information of any third
party who may disclose such information to the Company or Consultant in the
course of the Company's business. Confidential Information should be designated
in writing as "confidential" (or words of similar import) or should be of such
nature or sensitivity that Consultant should clearly understand that the
information is disclosed in confidence.
4.2 Exclusions from Nondisclosure and Non-Use Obligations.
Consultant's obligations under Section 4.3 ("Nondisclosure and Non-Use
Obligations") with respect to Confidential Information shall terminate when
Consultant can document that: (i) the information was in the public domain or
commonly known in the fibre channel industry at or subsequent to the time it
was communicated to Consultant by the Company through no fault of Consultant;
or (ii) the information was rightfully in Consultant's possession free of any
obligation of confidence
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<PAGE> 4
to the Company at or subsequent to the time it was communicated to Consultant
by the Company.
4.3 Nondisclosure and Non-use Obligations. Except as permitted in
this paragraph, Consultant shall neither use nor disclose the Confidential
Information. Consultant may use the Confidential Information solely to perform
under the Statement of Work for the benefit of the Company. Consultant agrees
that Consultant shall treat all Confidential Information of the Company with
the same degree of care as Consultant accords to Consultant's own Confidential
Information, but in no case less than reasonable care. If Consultant is not an
individual, Consultant agrees that Consultant shall disclose Confidential
Information only to those of Consultant's employees who need to know such
information, and Consultant certifies that such employees have previously
agreed, either as a condition of employment or in order to obtain the
Confidential Information, to be bound by terms and conditions substantially
similar to those terms and conditions applicable to Consultant under this
Agreement. Consultant agrees not to communicate any information to the Company
in violation of the proprietary rights of any third party. Consultant will
immediately give notice to the Company of any unauthorized use or disclosure of
the Confidential Information of which Consultant learns. Consultant agrees to
assist the Company in remedying any such unauthorized use or disclosure of the
Confidential Information, to the extent such use or disclosure is by a current
or past Subcontractor who gained access to such Confidential Information
through work for Consultant.
4.4 Ownership of and Licenses to Consultant Technology. Excluding
the Purchased Assets (as that term is defined in that certain Asset Acquisition
Agreement between the Company and Consultant dated November 12, 1998 (the
"Asset Acquisition Agreement")) and subject to the Fibre Channel Cross-License
Agreement between Company and Consultant, dated November 12, 1998, Consultant
owns, or will own, certain pre-existing intellectual property rights in
technology or proprietary data which may be used in the performance of the
Services or be incorporated in the Company Work Product (the "Consultant
Technology"). Consultant expressly retains all right, title and interest in and
to the Consultant Technology and any underlying intellectual property rights.
Provided the Company has complied with all payment obligations set forth in
Section 3.1 hereof, Consultant will provide to the Company a fully-paid,
worldwide, non-exclusive license to use the Consultant Technology solely in
connection with the use and exploitation of the results of the Services and the
Company Work Product, if any.
4.5 Ownership of Company Work Product. Subject to the provisions of
Section 4.4, all right, title and interest in and to the following shall belong
exclusively to the Company: programs, systems, data, materials, processes,
machines, compositions of matter, improvements, inventions (whether or not
protectable under patent laws), works of authorship, information fixed in any
tangible medium of expression (whether or not protectable under copyright
laws), moral rights, mask works, trademarks, trade names, trade dress, trade
secrets, know-how, ideas (whether or not protectable under trade secret laws),
and all other tangible or intangible subject matter protectable under patent,
copyright, moral right, mask work, trademark, trade secret or other laws, that
Consultant, solely or jointly with others, conceives, reduces to practice,
creates, derives, develops or makes (a) within the scope of the Statement of
Work, or
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<PAGE> 5
(b) using Company materials and which relate to the RIO chip or MAC software
(collectively the "Company Work Product"). Consultant hereby assigns and
transfers to the Company in perpetuity all of Consultant's worldwide rights,
title and interest in and to the Company Work Product, including, but not
limited to, all copyrights, trade secret rights and other proprietary rights
therein. Consultant agrees to execute such copyright and other documents of
assignment, transfer or registration as the Company may reasonably request, at
the Company's expense, in order to assist the Company in obtaining, perfecting,
evidencing or protecting its rights.
4.6 Maintenance of Records. Consultant agrees to keep and maintain
current written records of all Company Work Product (in the form of notes,
sketches, drawings and as may be specified by the Company), which records shall
be available to and, subject to Section 4.4, shall remain the sole property of
the Company at all times. Consultant agrees to promptly disclose to the Company
all Company Work Product.
4.7 Injunctive Relief for Breach. Consultant's breach of its
obligations under this Section 4 may result in irreparable and continuing
damage to the Company for which there will be no adequate remedy at law. In the
event of such breach and damage, the Company will be entitled to injunctive
relief and/or a decree for specific performance, and such other and further
relief as may be proper.
5. LIMITATION OF LIABILITY.
IN NO EVENT WILL EITHER PARTY LIABLE FOR ANY INDIRECT, CONSEQUENTIAL OR
INCIDENTAL DAMAGES ARISING OUT OF ITS PERFORMANCE UNDER THIS AGREEMENT,
INCLUDING, BUT NOT LIMITED TO LOST PROFITS, EVEN IF THE OTHER PARTY HAS BEEN
APPRISED OF THE POSSIBILITY OF SUCH DAMAGES, IN NO EVENT SHALL EITHER PARTY'S
LIABILITY HEREUNDER EXCEED THE TOTAL COMPENSATION PAID TO CONSULTANT BY THE
COMPANY FOR THE SERVICES.
6. MISCELLANEOUS.
6.1 Notices. Any notice, demand, request or other communications
hereunder shall be in writing and shall be deemed sufficient when delivered
personally or sent by facsimile (with prompt confirmation of receipt) or upon
deposit in the U.S. mail, as certified or registered first class mail, with
postage prepaid, and addressed, if to the Company, at Company's place of
business set forth above; and if to Consultant, at Consultant's place of
business set forth above, attention: General Counsel, in the case of
Consultant, and Chief Financial Officer, in the case of Company, unless another
address shall have been designated for notice.
6.2 No Conflict of Interest. Consultant warrants that there is no
other contract or duty on its part inconsistent with this Agreement, and that
Consultant will not, during the term of this Agreement, accept work, enter into
a contract, or accept an obligation, inconsistent or incompatible with
Consultant's obligations under this Agreement.
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<PAGE> 6
6.3 Assignment. Except as provided in Section 1.4, neither party
shall assign its rights and obligations hereunder, or any portion thereof,
without the prior written consent of the other party.
6.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without
regard to its conflict of law provisions.
6.5 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall continue in full force and effect.
6.6 Expenses. Except as provided in Section 3.2, each party
hereto shall pay the expenses incurred (including, without limitation, the fees
of counsel) on each party's behalf in connection with this Agreement or any
transactions contemplated by this Agreement.
6.7 Entire Agreement. This Agreement embodies the entire
agreement and understanding of the parties hereto, and supersedes all prior or
contemporaneous written or oral communications or agreements between the
Company and Consultant, regarding the subject matter hereof. This Agreement may
only be amended by written agreement between the Company and Consultant.
6.8 Waivers. No waiver of any provision of this Agreement shall
be effective, except pursuant to a written instrument signed by the party
waiving compliance, and any such waiver shall be effective only in the specific
instance and for the specific purpose stated in such writing.
6.9 Counterparts. This Agreement may be executed in one or two
counterparts each of which shall be an original and all of which together shall
constitute one and the same instrument.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
ADAPTEC, INC. JAYCOR NETWORKS, INC.
("Consultant") ("Company")
By: /s/ LARRY BOUCHER By: /s/ TERRY M. FLANAGAN
------------------------------ -------------------------------------
Title: Title:
--------------------------- ----------------------------------
7
<PAGE> 8
EXHIBIT A
STATEMENT OF WORK
I. DESCRIPTION OF PROJECTS AND TASKS
A. Rio Product
Provide architectural design and black implementation for the Rio Chip
B. Support for Avid
Supporting MAC software and interface as required by the customer.
C. Other
II. REQUIRED EMPLOYEES
1. Mr. Stillman Gates shall perform those services described under
Section I(A) above, on an as needed basis and as requested by Company in its
discretion (which could include up to 40 hours per week in any given week),
until the later of Successful Rio Product Introduction, as that term is defined
in Section 2.5(a) of the Asset Acquisition Agreement, or one (1) year.
2. Mr. Don Lee shall perform those support services Company must
perform for Avid, on an as needed basis and as requested by Company in its
discretion (which could include up to 40 hours per week in any given week) for
a period of six (6) months from the Effective Date of this Agreement
III. COMPENSATION
Company shall pay to Consultant the following hourly rates for actual
Services rendered:
Mr. Gates: Adaptec regular rate of pay to Mr. Gates, plus 34%. (Any
travel expenses will be reimbursed in accordance with Section 3.2.)
Mr. Lee: $100 per hour. (Any travel expenses will be reimbursed in
accordance with Section 3.2.)
Any other Subcontractor: TBD upon agreement upon such Subcontractor.
8
<PAGE> 1
EXHIBIT 10.18
Effective Date: Adaptec use only:
November 12, 1998 Agreement #________
VOLUME PURCHASE AGREEMENT
BETWEEN
JAYCOR NETWORKS, INC. ("JNI")
9775 TOWNE CENTRE DRIVE
SAN DIEGO, CALIFORNIA 92121
AND
ADAPTEC, INC. ("ADAPTEC")
691 SOUTH MILPITAS BOULEVARD
MILPITAS, CALIFORNIA 95035
JNI enters into this Agreement to sell to Adaptec certain products described in
Exhibits A and B attached hereto, as may be amended by mutual written agreement
of the parties (the "Products") in accordance with the terms and conditions
contained in this Agreement
This Agreement consists of this cover page, the attached Terms and Conditions
and Exhibits A (Unrestricted Products and Net Price) and B (Restricted Products
and Net Price) attached. Notwithstanding any pre-printed terms and conditions in
any other document, the terms and conditions of this Agreement shall govern all
purchases of the Products by Adaptec. JNI has read, understands and agrees to
the terms of this Agreement. Each of the undersigned is duly authorized to sign
this Agreement on behalf of the party it represents.
ADAPTEC, INC. JAYCOR NETWORKS, INC.
By: /s/ DOLORES MARCIEL By: /s/ TERRY M. FLANAGAN
-------------------------------- -------------------------------------
Signature Signature
Dolores Marciel
- ----------------------------------- ----------------------------------------
(Print or type Name) (Print or type Name)
Title: Vice President Title:
Corporate Procurement ----------------------------------
- -----------------------------------
Date: 12-7-98 Date:
------------------------------ -----------------------------------
1
<PAGE> 2
ADAPTEC, INC.
TERMS AND CONDITIONS
1. DEFINITIONS
"Adaptec Products" shall mean any Product which JNI receives from
Adaptec pursuant to a Manufacturing Agreement and which is resold to
Adaptec under this Agreement.
"Manufacturing Agreements" shall mean (i) the Chip Manufacturing and
Transition Agreement and (ii) the Board Manufacturing and Transition
Agreement, between Adaptec and JNI, of even date herewith.
"Non-Adaptec Product" shall mean any Product which is not an Adaptec
Product. "Restricted Product" shall mean the chip-level Products listed
in Exhibit B.
2. PRICES AND TAXES, RESALE RESTRICTION
(a) As requested by Adaptec, JNI shall quote to Adaptec its prices
for the Products, which price quotes shall be valid for a period
of thirty (30) days from issuance, and shall apply to any
purchase order issued by Adaptec within such thirty (30) day
period. The execution of this Agreement constitutes a warranty
by JNI that at no time will the prices charged Adaptec for
Products or services ordered under this Agreement exceed:
(i) the prices charged any other JNI customer during the ninety
(90) day period preceding any price quote from JNI to Adaptec
purchasing "substantially similar" Products in similar volumes,
where two products are "substantially similar" if they are the
same, or they have substantially the same functionality,
components and feature sets and are perceived or marketed as
competing products; or
(ii) one hundred fifteen percent (11 15%) of JNI's actual
manufacturing cost for Restricted Products (or the actual price
paid by JNI if the Restricted Product is an Adaptec Product) as
determined by GAAP.
Unless otherwise specified, the prices set forth in this
Agreement are exclusive of all applicable federal, state, and
local taxes, and transportation charges.
(b) Adaptec will have the right to resell Products without
restriction of any kind, except that Adaptec may not sell
products incorporating a Restricted Product if a) such product
is substantially similar in functions, features, and performance
characteristics to the Restricted Product incorporated therein,
and b) such product does not add significant additional value to
the Restricted Product.
3. FORECAST, PURCHASE ORDERS, DELIVERY DATES AND INVOICES
(a) Adaptec will provide JNI, on the Effective Date, and thereafter
on the first day of each calendar month, a rolling forecast of
Adaptec's quantity requirements for each Product for each of the
next six (6) months. While such forecasts will not be regarded
as a commitment to purchase, they shall represent and reflect
Adaptec's good faith expectations of customer demand.
(b) JNI will provide to Adaptec sufficient prior written notice of
JNI's intention to discontinue the manufacture or sale of any
Product so as to allow Adaptec to place orders for such Products
with delivery dates at least twelve (12) months after JNI's
date of notification.
(c) Adaptec will initiate purchases under this Agreement by
submitting written purchase orders to JNI any time after the
Effective Date of this Agreement at JNI's communications numbers
or address set forth on the cover page. All purchase orders will
contain the following: (a) identification of the Products being
ordered, (b) quantity of Products
2
<PAGE> 3
ordered, (c) shipping instructions, (d) delivery schedule, (e)
destination and billing address if different from Adaptec's
address listed on the cover page and (f) the price for the
Products as specified on Exhibit A. JNI will use reasonable
commercial efforts to notify Adaptec in writing of its
acceptance of a purchase order (including the delivery schedule
specified therein) within two business days of receipt of the
purchase order. JNI will accept purchase orders from Adaptec
which comply with the provisions of this Agreement, including
JNI's required lead times for Product manufacturing, and
provided Adaptec is not in breach of any payment or other
provision hereof. JNI may, at its sole discretion, allocate
production and delivery among JNI's customers.
(d) Subject to the provisions of Section 4(c) above, JNI shall
deliver Products on the dates specified in the purchase order
provided JNI receives such purchase order in accordance with the
lead times for the respective Products and provided further that
such requested delivery date is no later than six (6) months
after the expiration of this Agreement.
(e) JNI will submit invoices showing the following information:
agreement number; item number; description of item; quantity of
item; unit prices; each applicable tax; extended totals; and any
other information specified elsewhere herein. Payment of the
applicable invoice will not constitute acceptance of Products
and will be subject to adjustment for errors, shortages, defects
in the Products or other failure of JNI to meet the requirements
of this Agreement. Adaptec may at any time set off any amount
owed by Adaptec to JNI against any amount owed by JNI to
Adaptec. Adaptec shall pay all invoices issued by JNI for the
Products within thirty (30) days of the invoice date.
4. OVERSHIPMENTS
Adaptec will pay only for maximum number of Products ordered.
Overshipments will be held by Adaptec at JNI's risk and expense for a
reasonable time awaiting shipping instructions. Return shipping charges
for excess quantities of Products will be at JNI's expense.
5. PACKING AND SHIPMENT
Unless otherwise specified, the prices included in Exhibit A are
inclusive of all charges for packing, handling, storage or other packing
requirements. Unless otherwise specified, JNI will package and pack all
Products in a manner which is (i) in accordance with good commercial
practice, (ii) acceptable to common carriers for shipment at the lowest
rate for the particular Products, (iii) in accordance with I.C.C.
regulations, and (iv) adequate to ensure safe arrival of the Products at
the named destination. An itemized packing list must accompany each
shipment. Partial or complete delivery may be made up to (2) two days in
advance of the scheduled delivery dates. For Products which are not
managed by JNI's manufacturing or operations groups and which are not
Adaptec Products, JNI shall also supply a certificate of conformance
with each shipment of such Products made to Adaptec. In no event shall
JNI be liable for any delay in delivery, or assume any liability In
connection with shipment, nor shall the carrier be deemed an agent of
JNI.
6. F.O.B. POINT
Unless otherwise specifically provided on the face of any purchase order
submitted under this Agreement, the Products ordered hereunder shall be
delivered F.O.B. JNI's point of shipment. Adaptec will pay freight
charges for shipping.
7. WARRANTY
(a) JNI warrants that for a period of one (1) year from the date of
delivery to Adaptec, all Products delivered (i) will be free
from defects in workmanship, material, and manufacture, (ii)
will comply with the requirements of this Agreement and any
purchase order submitted and accepted hereunder, including any
drawings or specifications incorporated in any purchase order
submitted hereunder or samples furnished by JNI, (iii) will be
free from defects in design (except to the extent that JNI
incorporates or utilizes designs supplied by Adaptec in
connection with the applicable purchase order), and (iv) will
conform to JNI's published specifications The foregoing
warranties are in addition to all other warranties, whether
express or implied, and will survive any delivery, inspection,
acceptance or payment by Adaptec. In no event will JNI have
liability for any Products which have been subjected to abuse,
misuse improper use, negligence, accident, alteration, repair or
rework performed by unauthorized parties.
(b) JNI warrants that the Products will accurately process date/time
data (including, but not limited to, calculating,
3
comparing, and sequencing) from, into and between the twentieth
century and the twenty-first century, and the years 1999 and
2000, including leap year calculations, and will, when used in
combination with other equipment or software, accurately process
date/time data if the other equipment or software properly
exchanges date/time data with it.
(c) If any Products delivered do not meet the warranties specified
herein or otherwise applicable, Adaptec may, at its option, (I)
require JNI to correct any defective or nonconforming Products
by repair (where practicable) or replacement at no cost to
Adaptec, or (ii) return such defective or nonconforming Products
to JNI at JNI's expense and recover from JNI the order price
thereof, or (iii) correct the defective or nonconforming
Products itself and charge JNI with the cost of such correction.
(d) EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 7, THE PRODUCTS
ARE PROVIDED "AS IS", AND JNI MAKES NO REPRESENTATION OR
WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING
BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NONINFRINGEMENT.
8. INSPECTION AND ACCEPTANCE
(a) Any Product delivered by JNI shall be deemed accepted by Adaptec
unless JNI receives written notice of a defect or non-conformity
with respect to such Product within thirty (30) days of shipment
to Adaptec. In case any item is defective in material or
workmanship, or otherwise not in conformity with the
requirements of any purchase order submitted under this
agreement, Adaptec will have the right (i) to reject it, (ii) to
require its correction, if practicable, or (iii) to accept it
with an adjustment in price. Any item that has been rejected or
required to be corrected must be replaced or corrected by and at
the expense of JNI promptly after notice. All returns of the
Products by Adaptec shall comply with JNI's RMA procedures then
in effect..
9. CHANGE ORDERS
(a) As agreed to by JNI, Adaptec may at any time, by a written
order, suspend performance under any purchase order for Products
previously submitted under this Agreement, increase or decrease
the ordered quantities, change the due date or make any other
changes desired by Adaptec. If any such change results in a
change in price in the cost or time required by JNI for
performance under the changed purchase order, JNI shall so
notify Adaptec in writing and the parties shall agree on an
equitable adjustment in the order price or delivery schedule, or
both. No claim by JNI for such an adjustment will be valid
without the prior written approval of Adaptec.
Notwithstanding the foregoing, by written notice to JNI, Adaptec
may at its discretion and with no additional charges incurred,
increase or decrease Product quantities contained in any
purchase order, except to the extent that JNI has placed
non-cancelable purchase orders with Adaptec under the
Manufacturing Agreements for Adaptec Products for the purpose of
filling Adaptec's purchase orders under this Agreement and JNI
cannot resell such ordered Adaptec Products within three (3)
months of Adaptec's decrease.
(b) Nothing in this Section 9 is intended to excuse JNI from
proceeding under the relevant purchase order as changed or
amended.
10. CANCELLATION FOR DEFAULT
(a) It is understood and agreed that time is of the essence for any
purchase order submitted under this Agreement because the
Products or service ordered are needed for products of Adaptec
that have a very short, carefully timed market life; failure of
JNI to deliver on the due date could cause Adaptec's Products to
be unmarketable. Adaptec may, by written notice, terminate this
Agreement or cancel any purchase order previously submitted
under this Agreement in whole or in part if, in Adaptec's
good-faith opinion, JNI has defaulted under this Agreement by
(i) failure to make delivery of the Products or to perform the
services within the time specified in the relevant purchase
order, or any extension thereof by written change order or
amendment; (ii) failure to replace or correct defective items in
accordance with the provisions of Sections 7 or 8 above; (iii)
failure to perform any of the other provisions of this Agreement
or any purchase order submitted under this Agreement; or (iv)
failure to make progress under any
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<PAGE> 4
purchase order submitted under this Agreement so as to endanger
performance in accordance with its terms. Notwithstanding the
foregoing, JNI shall not be deemed in default to the extent that
JNI's failure is the result of Adaptec's failure to perform
under the relevant Manufacturing Agreement.
(b) If this Agreement or any purchase order previously submitted
hereunder is canceled for JNI's default, Adaptec may procure,
upon reasonable terms, Products or services similar or
substantially similar to those ordered from JNI.
(c) If all or a portion of this Agreement or any purchase order
previously submitted hereunder is canceled for JNI's default,
Adaptec may require JNI to transfer title and to deliver to
Adaptec, in the manner and to the extent directed by Adaptec,
all completed Products not yet delivered. JNI will, upon
direction of Adaptec, protect and preserve the property listed
in this paragraph that is in the possession of JNI. Payment for
Products delivered to and accepted by Adaptec under this
paragraph will be in an amount (not to exceed the contract
price) reasonably agreed upon by JNI and Adaptec.
(d) Nothing in this Section 10 is intended to excuse JNI from
proceeding with any uncanceled portion of any purchase order
submitted under this Agreement.
11. TERMINATION FOR CONVENIENCE
(a) Adaptec may not cancel any Products ordered or on order for
delivery within a three (3) month period. Upon Adaptec's
request, JNI will use reasonable efforts to reschedule Products
scheduled for delivery within (3) months of Adaptec's
cancellation.
(b) Upon such termination, JNI will, to the extent and at the times
specified by Adaptec, stop all work under all affected purchase
orders.
12. RISK OF LOSS OR DAMAGE
Title and risk of loss or damage will pass to Adaptec upon delivery of
the Products by JNI to-the carrier, F.O.B. JNI's point of shipment.
13. WAIVER
The failure of either party to enforce at any time any of the provisions
of this Agreement, to exercise any election or option provided herein,
or to require at any time the performance by the other party of any of
the provisions herein will not in any way be construed to be a waiver of
such provisions.
14. REMEDIES
The remedies stated herein are in addition to all other remedies at low
or in equity.
15. INDEMNIFICATION
(a) JNI agrees to indemnify Adaptec, its agents, customers,
successors, and assigns against any loss, damage, and liability
(including costs and expenses) for actual or alleged
infringement of any patent, copyright or trademark arising out
of the use or sale of the Products ordered by Adaptec, its
agents or Customers ("Claim") (except to the extent based on
designs supplied by Adaptec in connection with the purchase
order for such Products); provided, however, that Adaptec: must
promptly notify JNI of any suit, claim or demand involving such
infringement, reasonably cooperate in the defense or settlement
of such Claim (at JNI's expense) and permit JNI to defend
against or settle the same. If any injunction is issued as the
result of any such infringement JNI agrees, at JNI's option, to
(i) refund to Adaptec the amounts paid to JNI for the Products
covered by the injunction, or (iii) furnish Adaptec with
acceptable and noninfringing Products.
(b) JNI agrees to indemnify Adaptec against any and all liability
and expense resulting from any alleged defect in the Products,
whether latent or patent, including allegedly improper
construction and design, or from the failure of the Products to
comply with specifications; provided, however, that Adaptec
must promptly notify JNI upon learning of
5
<PAGE> 5
any of any suit, claim or demand involving such defect and
reasonably Cooperate in the defense or settlement of such claim
(at JNI's expense).
(c) JNI warrants that there are no liabilities for royalties,
mechanics liens or other encumbrances on the Products supplied
and agrees to indemnify Adaptec; against any such liabilities.
(d) JNI will not have liability (i) under Sections 15 (a) or 15(b)
to the extent that a Claim results from designs supplied by
Adaptec: in connection with the purchase order for the Products
giving rise to the Claim; or (ii) under Section 15(a) to the
extent that a Claim results from Adaptec's combination,
operation, or use of the Products with designs, devices, parts,
or software not supplied by JNI.
16. LIMITATION OF LIABILITY
EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, AND EXCEPT AS SET FORTH
IN SECTIONS 15 AND 17, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER OR ANY OTHER PERSON FOR ANY SPECIAL, INDIRECT, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING BUT NOT LIMITED TO, LOSS OF
PROFITS OR DAMAGES TO THE OTHER PARTY'S BUSINESS REPUTATION HOWEVER
CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER IN AN ACTION FOR
CONTRACT, STRICT LIABILITY OR TORT (INCLUDING NEGLIGENCE) OR OTHERWISE,
WHETHER OR NOT THE FIRST PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGE AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY
REMEDY.
17. NON-DISCLOSURE OF CONFIDENTIAL MATTER
JNI will not quote for sale to others, without Adaptec's written
authorization, any Products purchased under Adaptec's specifications or
drawings. All specifications, drawings, samples, and other data
furnished by Adaptec will be treated by JNI as confidential information,
will remain Adaptec's property, and will be returned to Adaptec on
request. The terms of this Agreement and any purchase order submitted
hereunder shall be treated by Adaptec and by JNI as each treats its own
confidential information, and no press release or other like publicity
regarding this Agreement shall be made without the other party's
approval.
18. ASSIGNMENTS
The rights and liabilities of the parties to this Agreement will bind
and inure to the benefit of their respective successors, executors and
administrators, as the case may be. Neither party shall assign any of
its rights or privileges hereunder without the prior written consent of
the other party. Any attempted assignment in violation of the provisions
of this Section 17 will be void.
19. NOTICE OF DELAYS; PRODUCT SHORTAGES
Whenever any event delays or threatens to delay the timely performance
under this Agreement or any purchase order submitted hereunder, JNI will
immediately notify Adaptec of such event and furnish all relevant
details. Receipt by Adaptec of such notice will not constitute a waiver
of the due dates hereunder or under any purchase order submitted
hereunder. In the event of product shortages, JNI shall allocate to
Adaptec available Products in the ratio that the Products then under
order from Adaptec bear to Me total orders of JNI for the same or
similar products.
20. FORCE MAJEURE
Neither party shall be liable for any failure or delay in its
performance under this Agreement due to causes, including but not
limited to, acts of God, war, strikes, fires, floods, earthquakes, work
stoppages and embargoes, material shortages, subcontractor delays,
equipment or other facilities failures (which delays or failures are
beyond the reasonable control, without negligence, of the defaulting
party); provided that the delayed party: (i) gives the other party
written notice of such delay and cause promptly, and in any event within
(10) days of discovery thereof, and (ii) uses its reasonable efforts to
correct such failure or delay in its performance. They delayed party's
time for performance or cure under this Section shall be extended for a
period equal to the duration of the cause or forty-five (45) days,
whichever is less.
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<PAGE> 6
20. NOTICES
Unless otherwise specified in this Agreement, any notice which may be or
is required to be given under this Agreement shall be written and sent
by fax, mail or personally delivered. Such notices shall be delivered
or sent to the address or communications numbers set forth on the cover
page of this Agreement.
21. GOVERNING LAW AND JURISDICTION
The laws of the State of California, U.S.A., specifically including the
provisions of the California Uniform Commercial Code, shall exclusively
govern this Agreement. The federal and state courts within Santa Clara
County, California shall have exclusive jurisdiction to adjudicate any
dispute arising out of this Agreement. JNI hereby expressly consents to
the personal jurisdiction of the federal and state courts within
California.
22. AMENDMENT
This Agreement may be amended only by a written amendment duly signed by
authorized representatives of both parties.
23. SEVERABILITY
If any provision of this Agreement is held invalid by any low, rule,
order or regulation of any government, or by the final determination of
any state or federal court, such Invalidity shall not affect the
enforceability of any other provisions not held to be invalid.
24. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties and
supersedes any and all prior and contemporaneous oral or written
understandings and agreements as to the subject matter hereof. In the
event of a conflict between this Agreement and any purchase order, the
terms of this Agreement will prevail.
25. TERMS AND TERMINATION
(a) Unless earlier terminated under the provisions of Section 10,
the term of this Agreement is two (2) years from the Effective
Date, and will automatically renew for an additional (1) one
year term unless either party notifies the other of its
intention to terminate this Agreement within (90) ninety days of
the expiration of the term then in effect. In the event JNI
notifies Adaptec of its intention to terminate, Adaptec shall
have the option of placing a final purchase order for delivery
of Products for the (6) six-month period following termination.
Except as otherwise provided in Section 10, in the event of a
termination or expiration, the provisions of this Agreement
shall continue to apply to all purchase orders submitted by
Adaptec: prior to the effective date of such termination or
expiration. Except as otherwise provided in this Agreement
termination or expiration shall not relieve or release the party
from making payments which may be owing to the other party under
the terms of this Agreement. The provisions of Section 7, 10,
11, 13 through 17 and 20 through 25 shall survive expiration or
termination of this Agreement for any reason.
(b) Termination For Default Either party may suspend its performance
and/or terminate this Agreement immediately upon written notice
at any time if:
(i) The other party is in material breach of any warranty,
term, condition or covenant of this Agreement other than
those contained in Section 17 and fails to cure that
breach within thirty (30) days after written notice of
that breach and of the first party's Intention to
suspend its performance or terminate;
(ii) The other party is in material breach of any warranty,
term, condition or covenant of Section 17; or
(iii) The other party: (i) becomes insolvent; (ii) admits in
writing its insolvency or inability to pay its debts or
perform its obligations as they mature; or (iii) makes a
general assignment for the benefit of creditors.
(c) Effect of Termination in General. The following terms apply to
any termination under this Agreement, including without
limitation, termination for convenience and for default:
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(i) Immediately upon any termination of this Agreement, JNI shall,
to the extent and at times specified by Adaptec, stop all work
on outstanding purchase orders, incur no further direct cost,
and protect all property in which Adaptec, has or may acquire an
interest pursuant to this Section 25.
(ii) immediately upon any termination of this Agreement, each party
will return to the other party or, pursuant to the other party's
written instructions, destroy all materials in its possession
containing Confidential Information of the other party. Returned
Confidential Information materials shall be shipped freight
collect. In addition JNI shall immediately deliver to Adaptec
any Adaptec designs, inventory or other property of Adaptec
within JNI's possession or control. Such items shall be
delivered FOB the JNI facility at which they are located.
Notwithstanding the foregoing, JNI shall have no obligation to
deliver any inventory until and unless Adaptec has paid in full
all amounts due to JNI.
(iii) If this Agreement is terminated by JNI pursuant to Section
25(b), then Adaptec shall immediately pay to JNI, for all
Products ordered under outstanding purchase orders not fulfilled
due to such termination, the full purchase price for all
materials in finished goods and the proportionate price (based
on status of completion) of any work in process. Upon Adaptec's
payment, such items shall be delivered FOB the JNI facility at
which they are located.
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EXHIBIT A
UNRESTRICTED PRODUCTS
Host Bus Adapter products based on the ASICS set forth in Exhibit B (AHA-F940
and AHA-F950, and the Rio Host Bus Adapters to be designated).
9
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EXHIBIT B
RESTRICTED PRODUCTS
The Restricted Products are the Emerald ASIC (AIC 1160G REV A2) and the RIO
ASIC (AIC 1165).
10
<PAGE> 1
EXHIBIT 10.19
BILL OF SALE
This Bill of Sale ("Bill of Sale") is made as of this 12th day of November,
1998, by and between Jaycor Networks, Inc., a Delaware corporation ("JNI"), and
Adaptec, Inc., a Delaware corporation ("Adaptec").
WHEREAS, JNI and Adaptec are parties to that certain Asset Acquisition
Agreement, dated as of November 12, 1998 (the "Agreement"), pursuant to which
Adaptec is selling to JNI certain of Adaptec's assets;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Capitalized Terms. Unless otherwise defined herein, all capitalized terms
used herein shall have the meanings ascribed to them in the Agreement.
2. Assignment of Purchased Assets by Adaptec. Adaptec hereby transfers, sells,
assigns, conveys and sets over unto JNI, its successors and assigns forever,
all of its respective rights, title and interest in and to all of the
Purchased Assets on the terms and conditions contained in the Agreement.
3. Bill of Sale Binding. This Bill of Sale and the provisions herein contained
shall be binding upon and inure to the benefit of the parties hereto and to
their respective successors and assigns.
4. Governing Law. This Bill of Sale shall be governed by and construed in
accordance with the laws of the State of California without giving effect to
choice of law or conflicts of law rules or provisions.
IN WITNESS WHEREOF, the parties have executed and delivered this Bill of Sale
this 12th day of November, 1998.
JAYCOR NETWORKS, INC.
By: /s/ TERRY M. FLANAGAN
-------------------------------------
Terry M. Flanagan, President
ADAPTEC, INC.
By: /s/ LARRY BOUCHER
-------------------------------------
-------------------------------------
(Print name and title)
<PAGE> 1
EXHIBIT 10.20
BOARD OBSERVER CONFIDENTIALITY AGREEMENT
This Board Observer Confidentiality Agreement (the "Agreement") is made
on December 6, 1998 (the "Effective Date"), by and between Jaycor Networks,
Inc., a Delaware corporation, (the "Company") having a place of business at 9775
Towne Centre Drive, San Diego, California, 92121 and Tom Marmen, an individual
(the "Board Observer") having an address at 691 South Milpitas Blvd., Milpitas,
CA 95035.
RECITALS
WHEREAS The Company and Adaptec, Inc. ("Investor") have entered into
that certain Investor's Rights Agreement dated November 12, 1998; and
WHEREAS pursuant to Section 2.7 of the Investor's Rights Agreement,
Investor has designated the above named Board Observer to attend the Company's
Board of Director meetings on behalf of the Investor as an observer; and
WHEREAS In the course of such observation, the Board Observer will have
access to, or will have disclosed to it, certain information relating to the
Company which is Confidential Information, as that term is defined in this
Agreement; and
WHEREAS the Company desires to establish and set forth the Board
Observer's obligations with respect to the Company's confidential information;
NOW, THEREFORE Company and the Board Observer hereby agrees as follows:
AGREEMENT
1. Confidential Information. "Confidential Information" as used in this
Agreement shall mean any and all technical and non-technical information
including patent, copyright, trade secret, and proprietary information,
know-how, materials and other information related to the current, future and
proposed products and services of Company, and includes, without limitation, its
respective information concerning research, development, financial information,
procurement requirements, purchasing manufacturing, customer lists, business
forecasts, sales and merchandising and marketing plans and information.
"Confidential Information" also includes proprietary or confidential information
of any third party who may disclose such information to Company or Board
Observer in the course of Company's business.
2. Nondisclosure and Nonuse Obligations. Board Observer agrees that it
will not make use of, disseminate, or in any way disclose Confidential
Information of the Company which is supplied to or obtained by it in writing,
orally or by observation, and specifically agrees not to communicate in any
form, including in discussions or in written form, any Confidential Information
to Investor without Company's prior written consent. Should Board Observer
desire a non-confidential version of any Confidential Information presented at a
board meeting, Board Observer shall request such version from Company, who will
promptly prepare and deliver such
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<PAGE> 2
non-confidential version to Board Observer for further dissemination to
Investor. Board Observer will immediately give notice to Company of any
unauthorized use or disclosure of the Confidential Information. Board Observer
agrees to assist Company in remedying any such unauthorized use or disclosure of
the Confidential Information.
3. Exclusions from Nondisclosure and Nonuse Obligations. Board
Observer's obligations under Paragraph 2 ("Nondisclosure and Nonuse
Obligations") with respect to any portion of Confidential Information shall not
apply to information that Board Observer can document: (a) was in the public
domain at or subsequent to the time it was communicated to Board Observer by
Company through no fault of Board Observer; or (b) was rightfully in Board
Observer's possession free of any obligation of confidence at or subsequent to
the time it was communicated to Board Observer by Company. A disclosure of
Confidential Information (i) in response to a valid order by a court or other
governmental body, (ii) otherwise required by law or (iii) necessary to
establish the rights of either party under this Agreement, shall not be
considered to be a breach of this Agreement or a waiver of confidentiality for
other purposes; provided, however, that the Board Observer shall provide prompt
written notice thereof to Company to enable it to seek a protective order or
otherwise prevent such disclosure.
4. Disclosure to Third Parties. Board Observer agrees that it shall not
publish, copy or disclose any Confidential Information of the Company to any
third party and that it shall use diligent efforts to prevent inadvertent
disclosure of such Confidential Information.
5. Exclusion From Board Meetings. Company shall have the right to
exclude Board Observer from all or any part of a board meeting if in its sole
discretion (i) such exclusion is necessary to preserve the attorney-client
privilege or (ii) the board will be discussing matters which the Company deems
in good faith to be of a competitive business nature.
6. Disclosure of Third Party Information. Neither party shall
communicate any information to the other in violation of the proprietary rights
of any third party.
7. Term. This Agreement shall govern all communications between the
parties that are made during the period from the Effective Date of this
Agreement until the earlier of (i) written notice from Board Observer to Company
that Board Observer is no longer Investor's designee to attend the Company's
Board of Directors Meetings, (ii) the date ten (10) days after notice from
Company to Board Observer of its intent to terminate this Agreement, or (iii)
automatically three (3) years after the Effective Date, provided, however, that
Board Observer's obligations under Paragraph 2 ("Nondisclosure and Nonuse
Obligations") with respect to Confidential Information of Company which it has
previously received shall survive such termination unless terminated pursuant to
Paragraph 3 ("Exclusions from Nondisclosure and Nonuse Obligations"). With
regard to Section 7(i) above, Board Observer shall provide Company prompt
written notice of Investor's determination to revoke Board Observer's status as
its Board Observer.
8. Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be delivered as follows with notice deemed given as
indicated: (i) by personal delivery
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<PAGE> 3
when delivered personally; (ii) by overnight courier upon written verification
of receipt; (iii) by telecopy or facsimile transmission upon acknowledgment of
receipt of electronic transmission; or (iv) by certified or registered mail,
return receipt requested, upon verification of receipt. Notice shall be sent to
the addresses set forth above or such other address as either party may specify
in writing.
9. Governing Law. This Agreement shall be governed in all respects by
the laws of the United States of America and by the laws of the State of
California, without application of its conflicts of laws principles. The parties
irrevocably consent to the non-exclusive personal jurisdiction of the federal
and state courts located in California.
10. Severability. Should any provisions of this Agreement be held by a
court of law to be illegal, invalid or unenforceable, the legality, validity and
enforceability of the remaining provisions of this Agreement shall not be
affected or impaired thereby.
11. Waiver. The waiver by Company of a breach of any provision of this
Agreement by Board Observer shall not operate or be construed as a waiver of any
other or subsequent breach by Board Observer.
12. Injunctive Relief. A breach of any of the promises or agreements
contained herein will result in irreparable and continuing damage to Company for
which there will be no adequate remedy at law, and Company shall be entitled to
injunctive relief and/or a decree for specific performance, and such other
relief as may be proper (including monetary damages if appropriate).
13. Entire Agreement. This Agreement constitutes the entire agreement
with respect to the Confidential Information disclosed herein and supersedes all
prior or contemporaneous oral or written agreements concerning such Confidential
Information.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
JAYCOR NETWORKS, INC. BOARD OBSERVER
By: /s/ TERRY M. FLANAGAN By: /s/ THOMAS MARMEN
------------------------------ -------------------------------------
Name: Terry M. Flanagan Name: Thomas Marmen
---------------------------- -----------------------------------
Title: President & CEO
---------------------------
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EXHIBIT 10.21
ADAPTEC, INC.
691 South Milpitas Boulevard
Milpitas, California 95035
Tel: (408) 945-8600
Fax: (408) 957-7137
ADAPTEC LICENSE AGREEMENT
Jaycor Networks, Inc.
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Licensee
9775 Towne Centre Drive
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Street Address
San Diego, CA 92121
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City State Zip Code
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Telephone No. Fax No.
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Contract Representative
This Agreement is entered into by and between Adaptec, Inc. ("Adaptec") and the
Licensee set forth above ("Licensee") as of the date executed by Adaptec
("Effective Date"). Adaptec agrees to grant Licensee certain licenses to the
Software set forth in Section 1.2 of this Agreement, subject to the License
Agreement Terms and Conditions attached hereto.
LICENSEE ACKNOWLEDGES HAVING READ THE TERMS AND CONDITIONS SET FORTH ON
THIS FACING PAGE AND THE AGREEMENT ATTACHED HERETO, UNDERSTANDS ALL SUCH TERMS
AND CONDITIONS, AND AGREES TO BE BOUND THEREBY.
ADAPTEC, INC. JAYCOR NETWORKS, INC.
By: /s/ Andrew S. Brown By: /s/ Randy Johnson
---------------------------- ----------------------------
Title: Chief Financial Officer Title: Chief Financial Officer
------------------------- -------------------------
Date: 3-9-99 Date: 3-31-99
-------------------------- --------------------------
<PAGE> 2
ADAPTEC, INC.
LICENSE AGREEMENT TERMS AND CONDITIONS
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
1.1 Adaptec Remus Software. "Adaptec Remus Software" shall mean
the Adaptec ADU2 Extension (a MacOS extension which allows users to use Remus
based RAID volumes) (RAID 0 and 1).
1.2 Software. "Software" shall mean the Adaptec AVID serial
generator software, in executable binary code form, and all modifications to
such software, if any, supplied by Adaptec to Licensee under this Agreement.
2. LICENSE
2.1 Binary License. As of the Effective Date, Adaptec grants to
Licensee a fully paid, non-exclusive, non-transferable, worldwide license to use
the Software (executable binary code form only) internally, solely for the
purpose of generating serial numbers for the Remus Software ("Licensed Use").
Licensee shall have the right to make a reasonable number of copies of the
Software as is necessary for the Licensed Use.
2.2 No Sublicense. Licensee shall not have a right to grant any
license or sublicense to any third party to use the Software for any purpose,
except a sublicense to use the copy of the Adaptec Remus Software produced and
distributed, with the serial number, by Licensee.
2.3 No Modifications. Licensee shall have no right to modify all
or any part of the Software. Licensee agrees not to take any actions, such as
reverse assembly or reverse compilation, to derive a source code equivalent to
the Software.
3. DELIVERY
3.1 Delivery. As soon as practicable after the Effective Date,
Adaptec shall deliver a master copy of the Software to Licensee.
<PAGE> 3
4. PROPRIETARY OWNERSHIP RIGHTS
4.1 Ownership. Adaptec shall retain all ownership, right, title
and interest in and to the Software (including all copies made hereunder), and
all intellectual property rights (including copyrights) therein.
4.2 Copyright Notices. All copies of the Software made by
Licensee shall contain Adaptec's copyright notice and Licensee shall not remove
any copyright notices contained in the Software.
5. WARRANTY
5.1 Warranty of Media Only. Adaptec warrants that the media upon
which the Software is placed by Adaptec will be free from defects in workmanship
and materials. In the event such media is defective, Adaptec will replace it
upon Licensee's reasonable request. Except as warranted, the Software is
provided "AS IS". Licensee assumes all risk in connection with its use of the
Software.
5.2 Warranty Exclusion. EXCEPT AS PROVIDED IN SECTION 5. 1,
ADAPTEC MAKES NO WARRANTY OF ANY KIND WITH REGARD TO THE SOFTWARE. ADAPTEC
EXPRESSLY DISCLAIMS ANY OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR
NON-INFRINGEMENT, WHETHER ARISING IN LAW, CUSTOM, CONDUCT OR OTHERWISE.
5.3 No Support. Adaptec shall not be required to provide error
corrections, or other support of the Software.
6. LIMITATION OF LIABILITY
6.1 Limitation. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY
LOSS OF PROFITS, LOSS OF USE, CONSEQUENTIAL, SPECIAL OR INCIDENTAL DAMAGES
ARISING UNDER THIS AGREEMENT, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
6.2 Force Majeure. Except for payment of monies due under this
Agreement, nonperformance of either party shall be excused to the extent that
performance is rendered impossible by fire, flood, governmental acts or orders
or restrictions, failure of suppliers, or any other reason where failure to
perform is beyond the control and not caused by the negligence of the
nonperforming party.
7. TERM, TERMINATION
7.1 Term. This Agreement shall commence on the Effective Date and
continue until Licensee ceases to manufacture and distribution of the Adaptec
Remus Software, under its license from Adaptec, unless earlier terminated under
this Section 7.
<PAGE> 4
7.2 Termination for Cause. If either party defaults in the
performance of any material provision of this Agreement, then the non-defaulting
party may give written notice to the defaulting party that if the default is not
cured within thirty (30) days, then the Agreement shall automatically terminate
at the end of such period.
7.3 Survival. The provisions of under Sections 4, 5.2, 6.1, and
the relevant portions of Sections 7 and 8, shall survive any termination of this
Agreement.
7.4 Termination Effect. Within thirty (30) days after the
termination of this Agreement. Licensee shall return to Adaptec the master copy
of the Software originally delivered and all copies thereof. Termination of this
Agreement for any reason shall not affect the rights of any end user to use the
Adaptec Remus Software containing a serial number generated with the Software.
7.5 Additional Remedies. Except as expressly limited by this
Agreement, termination of this Agreement shall be without prejudice to any other
remedy which may be available to a party due to default of this Agreement.
8. MISCELLANEOUS
8.1 Relationship. The relationship between the parties shall be
that of independent contractors. Nothing contained herein shall be construed to
imply a joint venture, principal or agent relationship, or other joint
relationship, and neither party shall have the rights, power or authority to
create any obligation, express or implied, on behalf of the other.
8.2 Governing Law. This Agreement shall be governed in all
respects by the substantive laws of the State of California, United States of
America, exclusive of its conflicts of law rules, as applied to agreements
entered into in California between California residents.
8.3 Jurisdiction; Venue. The parties expressly stipulate that
all litigation under this Agreement shall be brought in the state courts of the
County of Santa Clara, California, or in the U.S. District Court of the Northern
District of California.
8.4 Attorneys' Fees. In the event of any litigation or
arbitration by the parties under this Agreement, the prevailing party shall be
entitled to costs and reasonable attorneys' fees.
8.5 Assignment. Licensee shall not assign or otherwise transfer
any of its rights, obligations or licenses hereunder without the prior written
consent of Adaptec. Subject to the foregoing, the provisions of this Agreement
shall apply to and bind the successors and permitted assigns of the parties.
8.6 Waiver. Failure by any party to enforce any of its rights
under this Agreement shall not be deemed a waiver of any right which that party
has under this Agreement.
<PAGE> 5
8.7 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and delivered personally, by mail
or by facsimile (with facsimiles to be promptly confirmed in writing). All such
written communications delivered by mail shall be mailed, postage prepaid,
either by certified or registered, first-class mail to the parties at their
respective addresses as set forth on the facing page of this Agreement, subject
to the right of either party to change its address by delivering written notice
to the other. Such notices shall be deemed to be effective upon two (2) days
following the date of mailing or upon receipt if by facsimile or personal
delivery.
8.8 Severability. Should any provisions of this Agreement
contravene any law or valid regulation of any government having jurisdiction
over the parties, then such provision shall be automatically terminated and
performance thereof by the parties waived, and all other provisions of this
Agreement shall continue in full force and effect.
8.9 Export Compliance. Licensee shall not export, directly or
indirectly, any Software to any country for which United States' laws or
regulations require an export license or other governmental approval, without
first obtaining such license or approval. Licensee hereby agrees to indemnify
and hold Adaptec harmless from and against any losses, damages, penalties or
causes of action resulting from a violation of this Section.
8.10 Entire Agreement; Amendment. This Agreement (including
facing page) reflects the entire agreement of the parties regarding the subject
matter hereof, and supersedes all prior agreements between the parties, whether
written or oral. This Agreement shall not be amended, altered or changed except
by written agreement signed by both parties. This Agreement is executed in the
English language.
<PAGE> 1
EXHIBIT 10.22
JAYCOR NETWORKS INC.
SUBLEASE AGREEMENT
1. PARTIES. This Sublease, dated October 7, 1998, is made between
Jaycor, Inc. ("Sublandlord") and Jaycor Networks Inc. ("Subtenant").
2. MASTER LEASE. Sublandlord is the Tenant under a written lease
commencing October 7, 1998, wherein CarrAmerica Realty Corporation ("Landlord")
leased to Jaycor, Inc. (Tenant) the real property located in the City of San
Diego, County of San Diego, State of California, described as approximately
105,358 rentable square feet building located at: 9775 Towne Centre Drive, San
Diego, California ("Premises"). Said lease is referred to as the "Master Lease"
and is attached hereto (see Exhibit "B" to Sublease).
3. PREMISES. Sublandlord hereby subleases to Subtenant on the terms
and conditions set forth in this Sublease the following portion of the Master
Premises ("Premises"): approximately 10,103 square feet (see Exhibit "A" to
Sublease).
4. WARRANTY BY SUBLANDLORD. Sublandlord warrants and represents to
Subtenant that the Master Lease has not been amended or modified except as
expressly set forth herein, that Sublandlord is not now, and as of the
commencement of the Term hereof will not be, in default or breach of any of the
provisions of the Master Lease, and that Sublandlord has no knowledge of any
claim by Landlord that Sublandlord is in default or breach of any of the
provisions of the Master Lease.
5. TERM. The Term of this Sublease shall commence on October 7, 1998
("Commencement Date"), and end on October 31, 2004 ("Termination Date"), unless
otherwise sooner terminated in accordance with the provisions of this Sublease.
6. RENT: Subtenant shall pay to Sublandlord as minimum rent, without
deduction, setoff, notice, or demand, at 9775 Towne Centre Drive, San Diego,
California or at such other place as Sublandlord shall designate from time to
time by notice to Subtenant, the sum of Thirteen thousand seven hundred forty
and 08/100 ($13,740.08) Dollars per month, in advance on the first day of each
month of the Term. If the Term begins or ends on a day other than the first or
last day of a month, the rent for the partial months shall be prorated on a per
diem basis.
7. OPERATING COST RENT, TAX RENT, UTILITIES: Sublandlord shall
estimate the Operating Costs, Taxes, and Utilities of the Premises annually. On
the first day of each month, Subtenant shall pay Sublandlord one-twelfth
(1/12th) of this estimate based upon the Prorata Share of Subtenant. The term
"Prorata Share" shall mean that fraction, the numerator of which is the total
number of rentable square feet occupied by Subtenant and the denominator of
which fraction is the total number of rentable square feet of the Premises.
Subtenant's current Prorata Share is 10%.
8. USE OF PREMISES. The Premises shall be used and occupied only for
general office and lab, and for no other use or purpose.
-1-
<PAGE> 2
9. ASSIGNMENT AND SUBLETTING. Subtenant shall not assign this
Sublease or further sublet all or part of the Premises without the written
consent of Sublandlord (and the consent of Landlord, if such is required under
the terms of the Master Lease).
10. RELOCATION WITHIN PREMISES. After the execution of this Sublease
and pursuant to notification of the Subtenant by the Sublandlord, Sublandlord
may relocate the Subtenant to alternate offices within the premises.
11. OTHER PROVISIONS OF SUBLEASE. All applicable terms and conditions
of the Master Lease are incorporated into and made a part of this Sublease as if
Sublandlord were the Landlord thereunder, Subtenant the Tenant thereunder, and
the Premises the Master Premises.
Subtenant assumes and agrees to perform the Tenant's obligations under the
Master Lease during the Term to the extent that such obligations are applicable
to the subleased Premises, except that the obligation to pay rent to Landlord
under the Master Lease shall be considered performed by Subtenant to the extent
and in the amount rent is paid to Sublandlord in accordance with Section 6 of
this Sublease.
Sublandlord: Jaycor, Inc.
9775 Towne Centre Drive
San Diego, CA 92121
Attn: Randy Johnson
Subtenant: Jaycor Networks Inc.
9775 Towne Centre Drive
San Diego, CA 92121
Attn: Terry Flanagan
12. COMPLIANCE. The parties hereto agree to comply with all
applicable federal, state and local laws, regulations, codes, ordinances and
administrative orders having jurisdiction over the parties, property or the
subject matter of this Agreement, including, but not limited to, the 1964 Civil
Rights Act and all amendments thereto, the Foreign Investment in Real Property
Tax Act, the Comprehensive Environmental Response Compensation and Liability
Act, and The Americans With Disabilities Act Disabilities Act.
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<PAGE> 3
Sublandlord certifies that, as of the date of Sublandlord's execution hereof,
Sublandlord is not in default or breach of any of the provisions of the Master
Lease, and that the Master Lease has not been amended or modified.
IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Agreement as of
the date first above written.
SUBLANDLORD: Jaycor, Inc.
By: /s/ RANDY JOHNSON
---------------------------
Dated: October 7th, 1998
SUBTENANT: Jaycor Networks Inc.
By: /s/ TERRY FLANAGAN
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Dated: October 7th, 1998
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<PAGE> 4
EXHIBIT A
SECOND FLOOR FLOOR PLAN
<PAGE> 5
THIRD FLOOR FLOOR PLAN
<PAGE> 6
EXHIBIT B
LEASE
BETWEEN
JAYCOR, INC.
(TENANT)
AND
CARRAMERICA REALTY CORPORATION
(LANDLORD)
<PAGE> 7
LEASE
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. LEASE AGREEMENT...................................................... 2
2. RENT................................................................. 2
A. TYPES OF RENT................................................... 2
(1) BASE RENT.................................................. 2
(3) TAX RENT................................................... 2
(4) ADDITIONAL RENT............................................ 2
(5) RENT....................................................... 3
B. PAYMENT OF OPERATING COST RENT AND TAX RENT..................... 3
(2) CORRECTION OF OPERATING COST RENT.......................... 3
(3) CORRECTION OF TAX RENT..................................... 3
C. DEFINITIONS..................................................... 3
(1) INCLUDED OPERATING COSTS................................... 3
(2) EXCLUDED OPERATING COSTS................................... 3
(3) TAXES...................................................... 4
(4) LEASE YEAR................................................. 5
(5) FISCAL YEAR................................................ 4
D. COMPUTATION OF BASE RENT AND RENT ADJUSTMENTS................... 5
(1) PRORATIONS................................................. 5
(2) DEFAULT INTEREST........................................... 5
(3) RENT ADJUSTMENTS........................................... 5
(4) BOOKS AND RECORDS.......................................... 5
(5) MISCELLANEOUS.............................................. 5
3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND
SURRENDER OF PREMISES..................................................... 5
A. CONDITION OF PREMISES........................................... 5
B. TENANT'S POSSESSION............................................. 6
C. MAINTENANCE..................................................... 6
D. COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS....................... 6
4. UTILITIES AND JANITORIAL SERVICE.......................................... 6
A. UTILITIES....................................................... 6
B. JANITORIAL SERVICE.............................................. 6
5. ALTERATIONS AND REPAIRS................................................... 6
A. LANDLORD'S CONSENT AND CONDITIONS............................... 6
B. DAMAGE TO SYSTEMS............................................... 7
C. NO LIENS........................................................ 7
D. OWNERSHIP OF IMPROVEMENTS....................................... 8
E. REMOVAL AT TERMINATION.......................................... 8
F. LANDLORD'S WORK................................................. 8
6. USE OF PREMISES........................................................... 8
7. GOVERNMENTAL REQUIREMENTS AND PROJECT RULES............................... 9
8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.............................. 9
A. WAIVER OF CLAIMS................................................ 9
B. INDEMNIFICATION................................................. 9
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
C. TENANT'S INSURANCE...............................................10
D. INSURANCE CERTIFICATES...........................................11
E. LANDLORD'S INSURANCE.............................................11
9. FIRE AND OTHER CASUALTY...............................................11
A. TERMINATION......................................................11
B. RESTORATION......................................................11
10. EMINENT DOMAIN........................................................11
11. RIGHTS RESERVED TO LANDLORD...........................................11
A. NAME.............................................................12
B. SIGNS............................................................12
C. WINDOW TREATMENTS................................................12
D. KEYS.............................................................12
E. ACCESS...........................................................12
F. PREPARATION FOR REOCCUPANCY......................................12
G. SHOW PREMISES....................................................12
H. RELOCATION OF TENANT.............................................12
I. USE OF LOCKBOX...................................................13
M. OTHER ACTIONS....................................................13
12. TENANT'S DEFAULT......................................................13
A. RENT DEFAULT.....................................................13
B. ASSIGNMENT/SUBLEASE OR HAZARDOUS SUBSTANCES DEFAULT..............13
C. OTHER PERFORMANCE DEFAULT........................................13
D. CREDIT DEFAULT...................................................14
E. VACATION OR ABANDONMENT DEFAULT..................................14
13. LANDLORD REMEDIES ....................................................14
A. TERMINATION OF LEASE OR POSSESSION...............................14
B. LEASE, TERMINATION, DAMAGES......................................14
C. CONTINUATION OF LEASE............................................14
D. POSSESSION, TERMINATION, DAMAGES.................................15
E. LANDLORD'S REMEDIES CUMULATIVE...................................15
F. WAIVER OF TRAIL BY JURY..........................................15
G. LITIGATION COSTS.................................................15
14. SURRENDER.............................................................15
15. HOLDOVER..............................................................15
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES..........................16
A. SUBORDINATION....................................................16
B. TERMINATION OF GROUND LEASE OR FORECLOSURE OF MORTGAGE...........16
C. SECURITY DEPOSIT.................................................16
D. NOTICE AND RIGHT TO CURE.........................................16
E. DEFINITIONS......................................................16
17. ASSIGNMENT AND SUBLEASE...............................................16
A. IN GENERAL.......................................................16
</TABLE>
ii
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
B. LANDLORD'S CONSENT.............................................. 17
C. PROCEDURE....................................................... 17
D. CHANGE OF MANAGEMENT OR OWNERSHIP............................... 17
E. EXCESS PAYMENTS................................................. 17
18. CONVEYANCE BY LANDLORD............................................... 17
19. ESTOPPEL CERTIFICATE................................................. 17
20. SECURITY DEPOSIT..................................................... 18
21. FORCE MAJEURE........................................................ 18
22. [INTENTIONALLY OMITTED].............................................. 18
23. NOTICES.............................................................. 18
A. LANDLORD........................................................ 19
B. TENANT.......................................................... 19
24. QUIET POSSESSION..................................................... 19
25. REAL ESTATE BROKER................................................... 19
26. MISCELLANEOUS........................................................ 20
A. SUCCESSORS AND ASSIGNS.......................................... 20
B. DATE PAYMENTS ARE DUE........................................... 20
D. TIME OF THE ESSENCE............................................. 20
E. NO OPTION....................................................... 20
F. SEVERABILITY.................................................... 20
G. GOVERNING LAW................................................... 20
H. LEASE MODIFICATION.............................................. 20
I. NO ORAL MODIFICATION............................................ 20
J. LANDLORD'S RIGHT TO CURE........................................ 20
K. CAPTIONS........................................................ 20
L. AUTHORITY....................................................... 20
M. LANDLORD'S ENFORCEMENT OF REMEDIES.............................. 20
N. ENTIRE AGREEMENT................................................ 21
O. LANDLORD'S TITLE................................................ 21
P. LIGHT AND AIR RIGHTS............................................ 21
Q. SINGULAR AND PLURAL............................................. 21
R. NO RECORDING BY TENANT.......................................... 21
S. EXCLUSIVITY..................................................... 21
T. NO CONSTRUCTION AGAINST DRAFTING PARTY.......................... 21
U. SURVIVAL........................................................ 21
V. RENT NOT BASED ON INCOME........................................ 21
W. BUILDING MANAGER AND SERVICE PROVIDERS.......................... 21
X. LATE CHARGE AND INTEREST ON LATE PAYMENTS....................... 21
27. UNRELATED BUSINESS INCOME............................................ 21
28. HAZARDOUS SUBSTANCES................................................. 22
</TABLE>
iii
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
29. EXCULPATION...................................... 23
30. MCSI LEASE....................................... 23
APPENDIX A - DESCRIPTION OF THE PROJECT
APPENDIX B - RULES AND REGULATIONS
APPENDIX C - MORTGAGES CURRENTLY AFFECTING THE PROJECT
APPENDIX D - COMMENCEMENT DATE CONFIRMATION
</TABLE>
iv
<PAGE> 11
LEASE
THIS LEASE (the "Lease") is made as of July 9, 1998 between CARRAMERICA
REALTY CORPORATION, Maryland Corporation (the "Landlord") and the Tenant as
named in the Schedule below. The term "Project" means the building (the
"Building") and the land (the "Land") located at 9775 Towne Centre Drive, San
Diego, California and described in Appendix A. "Premises" means that part of the
Project leased to Tenant and described in the Schedule.
The following schedule (the "Schedule") is an integral part of this Lease.
Terms defined in this Schedule shall have the same meaning throughout the Lease.
SCHEDULE
1. TENANT: JAYCOR, INC., a California corporation.
2. PREMISES: The entire Building, all associated parking facilities, and
all roadways, drives, and other means of access to public roadways,
but only to the extent that said roadways, drives, and other means
of access are owned by Landlord and located on the Land.
3. RENTABLE SQUARE FEET OF THE PREMISES: 105,358 rentable square feet
("Rentable Area").
4. SECURITY DEPOSIT: $143,286.88.
5. COMMENCEMENT DATE: The date of the acquisition of the fee simple
title to the Project by Landlord from Tenant pursuant to the
provisions of that certain Agreement for Purchase and Sale and Joint
Escrow Instructions dated as of April 28, 1998, as heretofore and
hereafter amended; provided, however, that this Lease shall terminate
automatically if Landlord and Tenant do not close on Landlord's
acquisition of the fee simple title to the Project for any reason.
6. TERMINATION DATE/TERM: Six (6) years after the Commencement Date, or
if the Commencement Date is not the first day of a month, then after
the first day of the following month.
7. BASE RENT:
<TABLE>
Period Annual Base Rent Monthly Base Rent
------ ---------------- -----------------
<S> <C> <C>
Initial Lease Year $1,719,442.56 $143,286.88
</TABLE>
For each Lease Year following the initial Lease Year, Base Rent
shall be increased to equal the greater of (i) 102.5 percent of the
Base Rent for the preceding Lease Year, or (ii) the product obtained
by multiplying the Base Rent for the initial Lease Year by a
fraction, the numerator of which is the Consumer Price Index for the
month immediately preceding the first month of the Lease Year for
which the minimum rent is being calculated and the denominator of
which is the Consumer Price Index for the month immediately preceding
the month containing the Commencement Date; provided, however, that
in no event shall the Base Rent for a Lease Year be more than the
Base Rent that would be due and payable if the foregoing calculation
had resulted in an increase of five percent (5%) for such Lease Year.
For purposes of this Lease, "Consumer Price Index" shall mean and
refer to that table in the Consumer Price Index published by the U.S.
Department of Labor, Bureau of Labor Statistics, for the Los Angeles,
Anaheim, Riverside metropolitan area, now known as the "Consumer
Price Index for all Urban Consumers: Selected Areas, all items, Los
Angeles, Anaheim, Riverside". If the Consumer Price Index is not
published for an applicable calendar month or other period, then the
Consumer Price Index for the nearest calendar month or other period
for which it is so published shall be substituted therefor; provided
that: (1) Tenant shall pay to Landlord, promptly upon written demand
by Landlord after such Consumer Price Index is so published, the
amount, if any, by which the installment of the minimum rent for
such twelve-
<PAGE> 12
month period, when calculated by reference to such published Consumer
Price Index, exceeds the aggregate amount of such installments
theretofore paid during such twelve month period; and (2) if the
Consumer Price Index hereafter uses a different standard reference
base or is otherwise revised, an adjustment shall be made therein
for purposes of the provisions of this Lease, using such conversion
factor, formula or table for making such adjustments as is published
by such Bureau, or if such Bureau does not publish the same, then as
is published by Prentice-Hall, Inc., the Bureau of National Affairs,
Commerce Clearing House or any other nationally recognized publisher
of similar statistical information, as selected by Landlord.
8. Sole Permitted Use: General office and electrical laboratory
purposes; however, in no event in violation of any provision of the
Rules and Regulations attached as Appendix B hereto.
1. Lease Agreement. On the terms stated in this Lease, Landlord leases
the Premises to Tenant, and Tenant leases the Premises from Landlord, for the
Term beginning on the Commencement Date and ending on the Termination Date
unless sooner terminated pursuant to this Lease.
2. Rent.
A. Types of Rent. Tenant shall pay the following Rent in the form
of a check to Landlord at an address to be designated by Landlord, or by wire
transfer pursuant to wire transfer instructions provided Landlord, or in such
other manner as Landlord may notify Tenant:
(1) Base Rent in monthly installments, without deduction or
offset, in advance, the first monthly installment payable concurrently with
the execution of this Lease and thereafter on or before the first day of
each month of the Term in the amount set forth on the Schedule.
(2) Operating Cost Rent in an amount equal to all of the
Operating Costs for the applicable Fiscal Year of the Lease, paid monthly
in advance in an estimated amount. The definition of Operating Costs and
the method for billing and payment of Operating Cost Rent are set forth in
Section 2B, 2C and 2D.
(3) Tax Rent in an amount equal to the Taxes for the applicable
Fiscal Year of this Lease, paid monthly in advance in an estimated amount.
A definition of Taxes and the method for billing and payment of Tax Rent
are set forth in Sections 2B, 2C and 2D.
(4) Additional Rent in the amount of all costs, expenses,
liabilities, and amounts which Tenant is required to pay under this Lease,
excluding Base Rent, Operating Cost Rent, Tax Rent, but including any
interest for late payment of any item of Rent.
(5) Rent as used in this Lease means Base Rent, Operating Cost
Rent, Tax Rent, and Additional Rent. Tenant's agreement to pay Rent is an
independent covenant, with no right of setoff, deduction or counterclaim
of any kind.
B. Payment of Operating Cost Rent and Tax Rent.
(1) Payment of Estimated Operating Cost Rent and Tax Rent.
Landlord shall estimate the Operating Costs and Taxes of the Project by
April 1 of each Fiscal Year, or as soon as reasonably possible thereafter.
Landlord may revise these estimates whenever it obtains more accurate
information, such as the final real estate tax assessment or tax rate for
the Project.
Within ten (10) days after receiving the original or revised
estimate from Landlord, Tenant shall pay Landlord one-twelfth (1/12th) of
this estimate, multiplied by the number of months
2
<PAGE> 13
that have elapsed in the applicable Fiscal Year to the date of such
payment including the current month, minus payments previously made by
Tenant for the months elapsed. On the first day of each month thereafter,
Tenant shall pay Landlord one-twelfth (1/12th) of this estimate, until a
new estimate becomes applicable.
(2) Correction of Operating Cost Rent. Landlord shall deliver to
Tenant a report for the previous Fiscal Year (the "Operating Cost Report")
by April 1 of each year, or as soon as reasonably possible thereafter,
setting forth (a) the actual Operating Costs incurred, (b) the amount of
Operating Cost Rent due from Tenant, and (c) the amount of Operating Cost
Rent paid by Tenant. Within twenty (20) days after such delivery, Tenant
shall pay to Landlord the amount due minus the amount paid. If the amount
paid exceeds the amount due, Landlord shall apply the excess to Tenant's
payments of Operating Cost Rent next coming due.
(3) Correction of Tax Rent. Landlord shall deliver to Tenant a
report for the previous Fiscal Year (the "Tax Report") by April 1 of each
year, or as soon as reasonably possible thereafter, setting forth (a) the
actual Taxes, (b) the amount of Tax Rent due from Tenant, and (c) the
amount of Tax Rent paid by Tenant. Within twenty (20) days after such
delivery, Tenant shall pay to Landlord the amount due from Tenant minus the
amount paid by Tenant. If the amount paid exceeds the amount due, Landlord
shall apply any excess as a credit against Tenant's payments of Tax Rent
next coming due.
C. Definitions.
(1) Included Operating Costs. "Operating Costs" means any
expenses, costs and disbursements of any kind other than Taxes, paid or
incurred by Landlord in connection with the management, maintenance,
operation, insurance, repair and other related activities in connection
with any part of the Project and of the personal property, fixtures,
machinery, equipment, systems and apparatus used in connection therewith,
including the cost of providing those services required to be furnished by
Landlord under this Lease and a management fee not to exceed three percent
(3%) of the gross income of the Project. Operating Costs shall also include
the costs of any capital improvements which are intended to reduce
Operating Costs or improve safety, and those made to keep the Project in
compliance with governmental requirements applicable from time to time
(collectively, "Included Capital Items"); provided, that the costs of any
Included Capital Item shall be amortized by Landlord, together with an
amount equal to interest at ten percent (10%) per annum, over the estimated
useful life of such item and such amortized costs are only included in
Operating Costs for that portion of the useful life of the Included Capital
Item which falls within the Term.
(2) Excluded Operating Costs. Operating Costs shall not include:
(a) costs of capital improvements other than Included
Capital Items;
(b) interest and principal payments on mortgages or any
other debt costs, or rental payments on any ground
lease of the Project;
(c) any cost or expenditure for which Landlord is
reimbursed, by insurance proceeds or otherwise, except
by Operating Cost Rent;
(d) depreciation and amortization (except on any Included
Capital Items);
(e) franchise or income taxes imposed upon Landlord;
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(f) legal and auditing fees which are for the benefit of
Landlord such as collecting delinquent rents, preparing tax
returns and other financial statements, and audits other
than those incurred in connection with the preparation of
reports required pursuant to Section 2B above;
(g) the wages of any employee for services not related directly
to the management, maintenance, operation and repair of the
Building; and
(h) advertising and promotional expenditures.
(3) Taxes. "Taxes" means any and all taxes, assessments and charges
of any kind, general or special, ordinary or extraordinary, levied against the
Project, which Landlord shall pay or become obligated to pay in connection with
the ownership, leasing, renting, management, use, occupancy, control or
operation of the Project or of the personal property, fixtures, machinery,
equipment, systems and apparatus used in connection therewith. Taxes shall
include real estate taxes, personal property taxes, sewer rents, water rents,
special or general assessments, transit taxes, ad valorem taxes, and any tax
levied on the rents hereunder or the interest of Landlord under this Lease (the
"Rent Tax"). Taxes shall also include all fees and other costs and expenses
paid by Landlord in reviewing any tax and in seeking a refund or reduction of
any Taxes, whether or not the Landlord is ultimately successful.
For any year, the amount to be included in Taxes (a) from taxes or
assessments payable in installments, shall be the amount of the installments
(with any interest) due and payable during such year, and (b) from all other
Taxes, shall at Landlord's election be the amount accrued, assessed, or
otherwise imposed for such year or the amount due and payable in such year. Any
refund or other adjustment to any Taxes by the taxing authority, shall apply
during the year in which the adjustment is made.
Taxes shall not include any net income (except Rent Tax), capital,
stock, succession, transfer, franchise, gift, estate or inheritance tax, except
to the extent that such tax shall be imposed in lieu of any portion of Taxes.
In addition, Taxes shall not include any increase in real estate taxes caused
by any sale of the Premises by Landlord.
(4) Lease Year. "Lease Year" means each consecutive twelve-month
period beginning with the Commencement Date, except that if the Commencement
Date is not the first day of a calendar month, then the first Lease Year
shall be the period from the Commencement Date through the final day of the
twelve months after the first day of the following month, and each subsequent
Lease Year shall be the twelve months following the prior Lease Year.
(5) Fiscal Year. "Fiscal Year" means the calendar year, except that
the first Fiscal Year and the last Fiscal Year of the Term may be a partial
calendar year.
D. Computation of Base Rent and Rent Adjustments.
(1) Prorations. If this Lease begins on a day other than the first
day of a month, the Base Rent, Operating Cost Rent, and Tax Rent shall be
prorated for such partial month based on the actual number of days in such
month. If this Lease begins on a day other than the first day, or ends on a day
other than the last day, of the Fiscal Year, Operating Cost Rent and Tax Rent
shall be prorated for the applicable Fiscal Year.
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(2) Default Interest. Any sum due from Tenant to Landlord not
paid when due shall bear interest from the date due until paid at the
lesser of twelve percent (12%) per annum or the maximum rate permitted by
law.
(3) Rent Adjustments. The square footage of the Premises and
the Building set forth in the Schedule are conclusively deemed to be the
actual square footage thereof, without regard to any subsequent
remeasurement of the Premises or the Building. If any Operating Cost paid
in one Fiscal Year relates to more than one Fiscal Year, Landlord may
proportionately allocate such Operating Cost among the related Fiscal
Years.
(4) Books and Records. Landlord shall maintain books and records
reflecting the Operating Costs and Taxes in accordance with sound
accounting and management practices. Tenant and his representative or
certified public accountant shall have the right to inspect Landlord's
records at Landlord's office upon at least seventy-two (72) hours' prior
notice during normal business hours during the ninety (90) days following
the respective delivery of the Operating Cost Report or the Tax Report. The
results of any such inspection shall be kept strictly confidential by
Tenant and its agents, and Tenant and its representative or certified
public accountant must agree, in their contract for such services, to such
confidentiality restrictions and shall specifically agree that the results
shall not be made available to any other tenant of the Building. Unless
Tenant sends to Landlord any written exception to either such report within
said ninety (90) day period, such report shall be deemed final and accepted
by Tenant. Tenant shall pay the amount shown on both reports in the manner
prescribed in this Lease, whether or not Tenant takes any such written
exception, without any prejudice to such exception. If Tenant makes a
timely exception, Landlord shall cause its representative or independent
representative or certified public accountant to issue a final and
conclusive resolution of Tenant's exception. Tenant shall pay the cost of
such certification unless Landlord's original determination of annual
Operating Costs or Taxes overstated the amounts thereof by more than five
percent (5%).
(5) Miscellaneous. So long as Tenant is in default of any
obligation under this Lease, Tenant shall not be entitled to any refund of
any amount from Landlord. If this Lease is terminated for any reason prior
to the annual determination of Operating Cost Rent or Tax Rent, either
party shall pay the full amount due to the other within fifteen (15) days
after Landlord's notice to Tenant of the amount when it is determined.
Landlord may commingle any payments, made with respect to Operating Cost
Rent or Tax Rent, without payment of interest.
3. PREPARATION AND CONDITION OF PREMISES: POSSESSION AND SURRENDER OF
PREMISES.
A. Condition of Premises. Landlord leases and Tenant takes the
Premises "AS IS", without any obligation to alter, remodel, improve, repair or
decorate any part of the Premises. Landlord expressly disclaims any warranty or
representation, express or implied, with respect to the Project or any portion
thereof, including, without limitation, any warranty or representation as to
fitness, condition, the existence of any defect, patent or latent,
merchantability, quality or durability.
B. Tenant's Possession. Tenant's taking possession of any portion
of the Premises shall be conclusive evidence that the Premises was in good
order, repair and condition. If Landlord authorizes Tenant to take possession
of any part of the Premises prior to the Commencement Date for purposes of
doing business, all terms of this Lease shall apply to such pre-Term
possession, including Base Rent at the rate set forth for the First Lease Year
in the Schedule prorated for any partial month.
C. Maintenance. Throughout the Term, Tenant shall maintain the
Premises in good order, repair and condition, loss or damage caused by the
elements, ordinary wear, and fire and other casualty excepted, and at the
termination of this Lease, or Tenant's right to possession, Tenant shall return
the Premises
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to Landlord in broom-clean, safe, neat and sanitary condition. To the extent
Tenant fails to perform either obligation, Landlord may, but need not, restore
the Premises to such condition and Tenant shall pay the cost thereof.
D. Compliance with Governmental Requirements. Tenant, at its sole
expense, shall use and occupy the Premises in accordance with, and make
necessary modifications, alterations, or additions (whether substantial or
insubstantial, structural or nonstructural, foreseen or unforeseen) required by,
all laws, orders, judgments, ordinances, regulations, codes, directives,
regulations of any fire insurance underwriters or rating bureaus, permits,
licenses, covenants and restrictions now or hereafter applicable to the
Building or access ways and other areas serving the Building or Tenant's use
thereof and whether or not reflecting a change in policy from that now
existing; provided however, that, with respect to the Americans With
Disabilities Act of 1990 (as amended and as supplemented by further laws from
time to time, the "ADA"), Tenant shall bear the cost of modifications,
alterations, or additions to the Premises required for compliance with (i) the
ADA as in effect on the Commencement Date, and (ii) further laws in amendment or
supplement to the ADA first in effect after the Commencement Date only if the
Premises are not in compliance with such further laws as a result of Tenant's
particular use of the Premises.
4. UTILITIES AND JANITORIAL SERVICE.
A. Utilities. Tenant shall make arrangements with the applicable
provider of utility services for the provision of all water, gas, electricity
and other utilities consumed on the Premises and shall pay directly to such
provider all charges therefor prior to the date due.
B. Janitorial Service. Landlord shall furnish janitorial service in
accordance with Landlord's standards for similar buildings in the market in
which the Building is located.
5. ALTERATIONS AND REPAIRS.
A. Landlord's Consent and Conditions.
Tenant shall not make any improvements or alterations to the
Premises, including but not limited to any improvements or alterations required
under Section 3D of this Lease (the "Work"), without in each instance submitting
plans and specifications for the Work to Landlord and obtaining Landlord's prior
written consent. Tenant shall pay Landlord a fee not to exceed $500.00 for
review of the plans and all other items submitted by Tenant. Landlord will be
deemed to be acting reasonably in withholding its consent for any Work which (a)
impacts the base structural components or systems of the Building or (b) is
visible from outside the Premises.
Notwithstanding the foregoing, Landlord's consent shall not be
required for any alterations that (a) cost less than Ten Thousand Dollars
($10,000), (b) are not visible from and do not affect the exterior of the
Building, and (c) do not affect the appearance or structural integrity or safety
of the Building or the Building's electrical, heating, ventilating, air
conditioning, fire and life safety, plumbing or mechanical systems.
Tenant shall pay for the cost of all Work. All Work shall become the
property of Landlord upon its installation, except for Tenant's trade fixtures
and for items which Landlord requires Tenant to remove at Tenant's cost at the
termination of the Lease pursuant to Section 5E.
The following requirements shall apply to all Work:
(1) Prior to commencement, Tenant shall furnish to Landlord
building permits, certificates of insurance satisfactory to Landlord
(including, without limitation, certificates
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evidencing the insurance Tenant, its contractors and subcontractors
are required to maintain under Section 8C), and, at Landlord's
request, security for payment of all costs.
(2) Tenant shall perform all Work so as to maintain peace and
harmony among other contractors serving the Project and shall avoid
interference with other work to be performed or services to be
rendered in the Project.
(3) The Work shall be performed in a good and workmanlike
manner, meeting the standard for construction and quality of
materials in the Building, and shall comply with all insurance
requirements and all applicable governmental laws, ordinances and
regulations ("Governmental Requirements").
(4) Tenant shall perform all Work so as to minimize or prevent
disruption to other tenants, and Tenant shall comply with all
reasonable requests of Landlord in response to complaints from other
tenants.
(5) Tenant shall perform all Work in compliance with Landlord's
"Policies, Rules and Procedures for Construction Projects" in effect
at the time the Work is performed.
(6) Tenant shall permit Landlord to supervise all Work.
Landlord may charge a supervisory fee not to exceed five percent (5%)
of labor, material, and all other costs of the Work, if Landlord's
employees or contractors perform the Work.
(7) Upon completion, Tenant shall furnish Landlord with
contractor's affidavits and full and final statutory waivers of
liens, as-built plans and specifications, and receipted bills
covering all labor and materials, and all other close-out
documentation required in Landlord's "Policies, Rules and Procedures
for Construction Projects".
B. Damage to Systems. If any part of the mechanical, electrical or
other systems in the Premises shall be damaged, Tenant shall promptly notify
Landlord, and Landlord shall repair such damage. Landlord may also at any
reasonable time make any repairs or alterations which Landlord deems necessary
for the safety and protection of the Project, or which Landlord is required to
make by any court or, subject to the provisions Section 3D, pursuant to any
Governmental Requirement. Tenant shall at its expense make all other repairs
necessary to keep the Premises, and Tenant's fixtures and personal property, in
good order, condition and repair; to the extent Tenant fails to do so, Landlord
may make such repairs itself. The cost of any repairs made by Landlord on
account of Tenant's default, or on account of the mis-use or neglect by Tenant
or its invitees, contractors or agents anywhere in the Project, shall become
Additional Rent payable by Tenant on demand.
C. No Liens. Tenant has no authority to cause or permit any lien
or encumbrance of any kind to affect Landlord's interest in the Project; any
such lien or encumbrance shall attach to Tenant's interest only. If any
mechanic's lien shall be filed or claim of lien made for work of materials
furnished to Tenant, then Tenant shall at its expense within ten (10) days
thereafter either discharge or contest the lien or claim. If Tenant contests
the lien or claim, then Tenant shall (i) within such ten (10) day period,
provide Landlord adequate security for the lien or claim, (ii) contest the lien
or claim in good faith by appropriate proceedings that operate to stay its
enforcement, and (iii) pay promptly any final adverse judgment entered in any
such proceeding. If Tenant does not comply with these requirements, Landlord
may discharge the lien or claim, and the amount paid, as well as attorney's
fees and other expenses incurred by Landlord, shall become Additional Rent
payable by Tenant on demand. Nothing contained in this Lease shall constitute
any consent by Landlord to subject Landlord's estate to liability under any
mechanics' or other lien law. Tenant shall give Landlord adequate opportunity,
and Landlord shall have the right at all times, to post such notices of
nonresponsibility as may be allowed under California law.
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D. Ownership of Improvements. All Work as defined in this Section
5, partitions, hardware, equipment, machinery and all other improvements and
all fixtures except trade fixtures, constructed in the Premises by either
Landlord or Tenant, (i) shall become Landlord's property upon installation
without compensation to Tenant, unless Landlord consents otherwise in writing,
and (ii) shall, at Landlord's option, either (a) be surrendered to Landlord
with the Premises at the termination of the Lease or of Tenant's right to
possession, or (b) be removed in accordance with Section 5E below, provided
that Landlord, if requested by Tenant, has advised Tenant of such requirement
prior to the commencement of any Work.
E. Removal at Termination. Upon the termination of this Lease or
Tenant's right of possession Tenant shall remove from the Project its trade
fixtures, furniture, moveable equipment and other personal property, any
improvements which Landlord elects shall be removed by Tenant pursuant to
Section 5D, and any improvements to any portion of the Project other than the
Premises. If Tenant does not timely remove such property, then Tenant shall be
conclusively presumed to have, at Landlord's election (i) conveyed such
property to Landlord without compensation or (ii) abandoned such property, and
Landlord may dispose of or store any part thereof in any manner at Tenant's
sole cost, without waiving Landlord's right to claim from Tenant all expenses
arising out of Tenant's failure to remove the property, and without liability
to Tenant or any other person. Landlord shall have no duty to be a bailee of
any such personal property. If Landlord elects abandonment, Tenant shall pay to
Landlord, upon demand, any expenses incurred for disposition. Tenant expressly
releases Landlord of and from any and all claims and liability for damage to or
destruction or loss of property left by Tenant upon the Premises at the
expiration or other termination of this Lease and, to the extent permitted by
then applicable law, Tenant shall protect, indemnify, defend and hold Landlord
harmless from and against any and all claims and liability with respect hereto.
F. Landlord's Work. Landlord shall have the right at any time to
change the arrangement and location of all parking, entryway facilities,
landscaped areas, and other areas outside the Building as well as any other
public parts of the Project and, upon giving Tenant reasonable notice thereof,
to change any name (subject to Section 11A of this Lease), number of
designation by which the Premises or the Project is commonly known.
6. USE OF PREMISES. Tenant shall use the Premises only for general
office and laboratory purposes. Tenant shall not allow any use of the Premises
which will negatively affect the cost of coverage of Landlord's insurance on
the Project. Except as provided in the management plan submitted by Tenant to
Landlord pursuant to Section 28 of this Lease, Tenant shall not allow any
inflammable or explosive liquids or materials to be kept on the Premises.
Tenant shall not allow any use of the Premises which would cause the value or
utility of any part of the Premises to diminish or would interfere with any
other Tenant or with the operation of the Project by Landlord. Tenant shall not
cause or permit any nuisance or waste upon the Premises, or allow any offensive
noise or odor in or around the Premises or in any way obstruct or interfere
with the rights of other tenants or occupants of the Project. Further, Tenant
shall not permit its use or occupancy of the Premises to exceed the normal
capacity or design loads of, affect the temperature or humidity otherwise
maintained by, or otherwise adversely affect the operation of the mechanical,
electrical, plumbing and other systems and equipment serving the Premises,
whether due to items of equipment or machinery generating heat, above normal
concentrations of personnel or equipment or other cause.
Tenant acknowledges that the ADA imposes certain requirements upon the
owners, lessees and operators of commercial facilities and places of public
accommodation, including, without limitation, prohibitions on discrimination
against any individual on the basis of disability. Notwithstanding any other
provision of this Lease except for Section 3D (and subject in all respects to
the provisions of Section 3D). Tenant agrees, at Tenant's expense, to take all
proper and necessary action to cause the Premises, any repairs, replacements,
alterations and improvements thereto to be maintained, used and occupied in
compliance with the ADA requirements, whether or not those requirements are
based upon the Tenant's use of the Premises and, further, to otherwise assume
all responsibility to ensure the Premises' continued compliance with all
provisions of the ADA throughout the Term. Subject to the provisions of Section
3D, Tenant shall, at its expense, make
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any alterations or modifications, with or without the Premises, to bring
Tenant's use and occupancy of the Premises into compliance with the ADA.
Subject to the provisions of Section 3D, Tenant shall pay, as additional rent,
all expenses incurred by Landlord in bringing common areas of the Project into
compliance with provisions of the ADA. The Premises shall not be used as a
"place of public accommodation" under the ADA or similar laws, regulations,
statutes and/or ordinances; provided, that if any governmental authority shall
deem the Premises to be a "place of public accommodation" as a result of
Tenant's use, Tenant shall either modify its use to cause such authority to
rescind its designation or be responsible for any alterations, structural or
otherwise, required to be made to the Project or the Premises under such laws.
7. GOVERNMENTAL REQUIREMENTS AND PROJECT RULES. Tenant shall comply
with all Governmental Requirements applying to its use of the Premises. Tenant
shall also comply with all reasonable rules established for the Project,
including, without limitation, the parking area, from time to time by Landlord.
The present rules and regulations are contained in Appendix B. Failure by
another tenant to comply with the rules or failure by Landlord to enforce them
shall not relieve Tenant of its obligation to comply with the rules or make
Landlord responsible to Tenant in any way. Landlord shall use reasonable efforts
to apply the rules and regulations uniformly with respect to Tenant and tenants
in the Building under leases containing rules and regulations similar to this
Lease. In the event of alterations and repairs performed by Tenant, Tenant shall
comply with the provisions of Section 5 of this Lease and also Landlord's
"Policies, Rules and Regulations for Construction Projects".
8. WAIVER OF CLAIMS: INDEMNIFICATION: INSURANCE.
A. Waiver of Claims. To the extent permitted by law, Tenant waives
any claims it may have against Landlord or its officers, directors, employees or
agents for business interruption or damage to property sustained by Tenant as
the result of any act or omission of Landlord.
To the extent permitted by law, Landlord waives any claims it may
have against Tenant or its officers, directors, employees or agents for loss of
rents or damage to property sustained by Landlord as the result of any act or
omission of Tenant.
B. Indemnification. Tenant shall indemnify, defend and hold harmless
Landlord and its officers, directors, employees and agents against any claim by
any third party for injury to any person or damage to or loss of any property
occurring in the Project and arising from any act or omission or negligence of
Tenant or any of Tenant's employees or agents. Tenant's obligations under this
section shall survive the termination of this Lease.
Landlord shall indemnify, defend and hold harmless Tenant and its
officers, directors, employees and agents against any claim by any third party
for injury to any person or damage to or loss of any property occurring in the
Project and arising from any act or omission or negligence of Landlord or any of
Landlord's employees or agents. Landlord's obligations under this section shall
survive the termination of this Lease.
C. Tenant's Insurance. Tenant shall maintain insurance as follows,
with such other terms, coverages and insurers, as Landlord shall reasonably
require from time to time:
(1) Commercial General Liability Insurance, with (a) Contractual
Liability including the indemnification provisions contained in this
Lease, (b) a severability of interest endorsement, (c) limits of
not less than One Million Dollars ($1,000,000) combined single limit
per occurrence and not less than Two Million Dollars ($2,000,000) in
the aggregate for bodily injury, sickness or death, and property
damage, and umbrella coverage of not less than Six Million Dollars
($6,000,000).
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(2) Property insurance against "All Risks" (excepting earthquake and
flood insurance) of physical loss covering the replacement cost of all
improvements, fixtures and personal property. Tenant waives all rights
of subrogation, and Tenant's property insurance shall include a waiver
of subrogation in favor of Landlord.
(3) Workers' compensation or similar insurance in form and amounts
required by law, and Employer's Liability with not less than the
following limits:
Each Accident $500,000
Disease--Policy Limit $500,000
Disease--Each Employee $500,000
Such insurance shall contain a waiver of subrogation provision in
favor of Landlord and its agents.
Tenant's insurance shall be primary and not contributory to that
carried by Landlord, its agents, or mortgagee. Landlord, and if any, Landlord's
building manager or agent and ground lessor, shall be named as additional
insureds as respects to insurance required of the Tenant in Section 8C(1). The
company or companies writing any insurance which Tenant is required to maintain
under this Lease, as well as the form of such insurance, shall at all times be
subject to Landlord's approval, and any such company shall be licensed to do
business in the state in which the Project is located. Such insurance companies
shall have an A.M. Best rating of A VI or better.
Tenant shall cause any contractor of Tenant performing work on the
Premises to maintain insurance as follows, with such other terms, coverages and
insurers, as Landlord shall reasonably require from time to time:
(1) Commercial General Liability Insurance, including contractor's
liability coverage, contractual liability coverage, completed
operations coverage, broad form property damage endorsement, and
contractor's protective liability coverage, to afford protection with
limits, for each occurrence, of not less than One Million Dollars
($1,000,000) with respect to personal injury, death or property damage.
(2) Workers' compensation or similar insurance in form and amounts
required by law, and Employer's Liability with not less than the
following limits:
Each Accident $500,000
Disease--Policy Limit $500,000
Disease--Each Employee $500,000
Such insurance shall contain a waiver of subrogation provision in
favor of Landlord and its agents.
Tenant's contractor's insurance shall be primary and not
contributory to that carried by Tenant, Landlord, their agents or mortgagees.
Tenant and Landlord, and if any, Landlord's building manager or agent, mortgagee
or ground lessor shall be named as additional insured on Tenant's contractor's
insurance policies.
D. Insurance Certificates. Tenant shall deliver to Landlord
certificates evidencing all required insurance within three (3) days prior to
the Commencement Date and each renewal date. Each certificate will provide for
thirty (30) days prior written notice of cancellation to Landlord and Tenant.
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E. Landlord's Insurance. Landlord shall maintain "All-Risk" property
insurance at replacement cost, including loss of rents, on the Building, and
Commercial General Liability insurance policies covering the common areas of the
Project, each with such terms, coverages and conditions as are normally carried
by reasonably prudent owners of properties similar to the Project. With respect
to property insurance, Landlord and Tenant mutually waive all rights of
subrogation, and the respective "All-Risk" coverage property insurance policies
carried by Landlord and Tenant shall contain enforceable waiver of subrogation
endorsements.
9. FIRE AND OTHER CASUALTY.
A. Termination. If a fire or other casualty causes substantial
damage to the Building or the Premises, Landlord shall engage a registered
architect to certify within one (1) month of the casualty to both Landlord and
Tenant the amount of time needed to restore the Building and the Premises to
tenantability, using standard working methods. If the time needed exceeds twelve
(12) months from the beginning of the restoration, or two (2) months therefrom
if the restoration would begin during the last twelve (12) months of the Lease,
then in the case of the Premises, either Landlord or Tenant may terminate this
lease, and in the case of the Building, Landlord may terminate this Lease, by
notice to the other party within ten (10) days after the notifying party's
receipt of the architect's certificate. The termination shall be effective
thirty (30) days from the date of the notice and Rent shall be paid by Tenant to
that date, with an abatement for any portion of the space which has been
untenantable after the casualty.
B. Restoration. If a casualty causes damage to the Building or the
Premises but this Lease is not terminated for any reason, then subject to the
rights of any mortgagees or ground lessors, Landlord shall obtain the applicable
insurance proceeds and diligently restore the Building and the Premises subject
to current Governmental Requirements. Tenant shall replace its damaged
improvements, personal property and fixtures. Rent shall be abated on a per diem
basis during the restoration for any portion of the Premises which is
untenantable, except to the extent that Tenant's negligence caused the casualty.
10. EMINENT DOMAIN. If a part of the Project is taken by eminent domain
or deed in lieu thereof which is so substantial that the Premises cannot
reasonably be used by Tenant for the operation of its business, then either
party may terminate this Lease effective as of the date of the taking. If any
substantial portion of the Project is taken without affecting the Premises, then
Landlord may terminate this Lease as of the date of such taking. Rent shall
abate from the date of the taking in proportion to any part of the Premises
taken. The entire award for a taking of any kind shall be paid to Landlord, and
Tenant shall have no right to share in the award. All obligations accrued to the
date of the taking shall be performed by each party.
11. RIGHTS RESERVED TO LANDLORD.
Landlord may exercise at any time any of the following rights
respecting the operation of the Project without liability to the Tenant of any
kind:
A. Name. To change the name, if any, of the Building; provided,
however, that Landlord will not name the Building so long as Tenant is in
occupancy of the entire Premises under the terms of this Lease.
B. Signs. To install, remove and maintain any signs on the exterior
and in the interior of the Building, and to approve at its sole discretion,
prior to installation, any of Tenant's signs in the Premises visible from the
common areas or the exterior of the Building. The Landlord hereby approves the
sign now existing on the Premises.
C. Window Treatments. To approve, at its discretion, prior to
installation, any shades, blinds, ventilators or window treatments of any kind,
as well as any lighting within the Premises that may be
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visible from the exterior of the Building or any interior common area. The
Landlord hereby approves the window treatments now existing on the Premises.
D. Keys. To retain and use at any time passkeys to enter the Premises
or any door within the Premises. Tenant shall not alter or add any lock or bolt
unless Tenant first provides Landlord with a copy of the key thereto.
E. Access. To have access to inspect the Premises, and to perform its
obligations, or make repairs, alterations, additions or improvements, as
permitted by this Lease. Notwithstanding anything to the contrary contained
herein, Landlord acknowledges that Tenant is engaged in activities relating to
the national defense of the United States of America requiring strict compliance
with applicable governmental regulations relating to security and national
defense ("USA Security Standards and Regulations"). Accordingly, Landlord agrees
that: without prior notice to Tenant, Landlord shall not exercise any right set
forth in this Lease to enter upon any area of the Premises to which access has
been restricted under applicable USA Security Standards and Regulations, except
(1) in the event of fire or other emergency, (2) two of Landlord's employees (as
designated by Landlord from time to time), provided that said employees have
obtained the necessary security clearance, may enter any part of the Premises to
perform maintenance and repairs, and (3) as provided under Appendix B, Item 13.
Any such entry shall be made in accordance with arrangements reasonably
necessary to comply with applicable USA Security Standards and Regulations, and
Landlord shall reasonably cooperate with Tenant in taking all such measures as
may be necessary or appropriate to limit access to the Premises or otherwise to
comply with applicable USA Security Standards and Regulations in accordance with
the foregoing.
F. Preparation for Reoccupancy. To decorate, remodel, repair, alter or
otherwise prepare the Premises for reoccupancy at any time after Tenant abandons
the Premises, without relieving Tenant of any obligation to pay Rent.
G. Show Premises. To show the Premises to prospective purchasers,
tenants, brokers, lenders, investors, rating agencies or others at any
reasonable time, provided that Landlord gives prior notice to Tenant and does
not materially interfere with Tenant's use of the Premises.
H. Relocation of Tenant. To relocate the Tenant, upon six (6) months'
prior written notice, from all or part of the Premises (the "Old Premises") to
another building in San Diego, California (the "New Premises"), provided that:
(1) the size and quality of the New Premises is at least equal to
the size and quality of the Old Premises, unless Tenant agrees to different size
or quality;
(2) the rental rate for the New Premises is not in excess of the
rental rate being paid at the time of relocation for the Old Premises and the
rental rate increases on terms identical with the annual adjustment of rent
calculations for the Old Premises. In the event the New Premises are not of the
same size and quality as the Old Premises, but Tenant is willing to accept the
New Premises, the rental rate shall be proportionally less than the existing
rental rate;
(3) the New Premises must be located in one of the following San
Diego submarkets: UTC/North University City, Torrey Pines, Eastgate Mall (west
of Highway 805), Governor Park, Sorrento Mesa, Del Mar Heights, or other
mutually agreeable sub-markets;
(4) Landlord shall pay the cost of moving Tenant and improving the
New Premises to the standard of the Old Premises;
(5) Landlord shall pay the cost of wiring and/or cable for
telephones, wiring and/or cable for computers, stationery, and other reasonable
costs related to moving;
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(6) Tenant shall cooperate with Landlord in all reasonable ways
to facilitate the move, including supervising the movement of files or fragile
equipment, designating new locations for furniture, equipment, and new
telephone and electrical outlets, and determining the color of paint in the New
Premises; and
(7) the location and suitability of the New Premises and all
terms and conditions of the new rental agreement shall be subject to Tenant's
approval, which approval may be withheld in Tenant's sole and absolute
discretion.
I. Use of Lockbox. To designate a lockbox collection agent for
collections of amounts due Landlord. In that case, the date of payment of Rent
or other sums shall be the date of the agent's receipt of such payment or the
date of actual collection if payment is made in the form of a negotiable
instrument thereafter dishonored upon presentment. However, Landlord may reject
any payment for all purposes as of the date of receipt or actual collection by
mailing to Tenant within 21 days after such receipt or collection a check equal
to the amount sent by Tenant.
J. Repairs and Alterations. Subject to the limitations described in
Section 11E of this Lease, to make repairs or alterations to the Project and in
doing so transport any required material through the Premises, to close
entrances, doors, corridors, elevators and other facilities in the Project, to
open any ceiling in the Premises, or to temporarily suspend services or use of
common areas in the Project. Landlord may perform any such repairs or
alterations during ordinary business hours, except that Tenant may require any
Work in the Premises to be done after business hours if Tenant pays Landlord
for overtime and any other expenses incurred. Landlord may do or permit any
work on any nearby building, land, street, alley or way.
K. Landlord's Agents. If Tenant is in default under this Lease,
possession or utilization of the Security Deposit by any of Landlord's agents
shall not waive any breach by Tenant or any remedies of Landlord under this
Lease.
L. Building Services. To install, use and maintain through the
Premises, pipes, conduits, wires and ducts serving the Building, provided that
such installation, use and maintenance does not unreasonably interfere with
Tenant's use of the Premises.
M. Other Actions. To take any other action which Landlord deems
reasonable in connection with the operation, maintenance or preservation of the
Project.
12. TENANT'S DEFAULT.
Any of the following shall constitute a default by Tenant:
A. Rent Default. Tenant fails to pay any Rent when due; provided,
however, that in the case of only the first two (2) such failures during any
twelve (12) month period, such failure shall not constitute a default unless it
remains uncured for five (5) days after notice from Landlord (provided,
however, that any such notice shall be in lieu of, and not in addition to, any
notice required under Section 161 et seq. of the California Code of Civil
Procedure);
B. Assignment/Sublease or Hazardous Substances Default. Tenant
defaults in its obligations under Section 17 Assignment and Sublease or Section
28 Hazardous Substances;
C. Other Performance Default. Tenant fails to perform any other
obligation to Landlord under this Lease and, in the case of only the first two
(2) such failures during any twelve (12) month period, this failure continues
for ten (10) days after written notice from Landlord (provided, however, that
any such notice shall)
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be in lieu of, and not in addition to, any notice required under Section 161 et
seq. of the California Code of Civil Procedure), except that if Tenant begins to
cure its failure within the ten (10) day period but cannot reasonably complete
its cure within such period, then, so long as Tenant continues to diligently
attempt to cure its failure, the ten (10) day period shall be extended to sixty
(60) days, or such lesser period as is reasonably necessary to complete the
cure;
D. Credit Default. One of the following credit defaults
occurs:
(1) Tenant commences any proceeding under any law relating
to bankruptcy, insolvency, reorganization or relief of debts, or
seeks appointment of a receiver, trustee, custodian or other
similar official for the Tenant or for any substantial part of
its property, or any such proceeding is commenced against Tenant
and either remains undismissed for a period of thirty days or
results in the entry of an order for relief against Tenant which
is not fully stayed within seven days after entry;
(2) Tenant becomes insolvent or bankrupt, does not
generally pay its debts as they become due, or admits in writing
its inability to pay its debts, or makes a general assignment for
the benefit of creditors;
(3) Any third party obtains a levy or attachment under
process of law against Tenant's leasehold interest.
E. Vacation or Abandonment Default. Tenant vacates or abandons
the Premises.
13. LANDLORD REMEDIES.
A. Termination of Lease or Possession. If Tenant defaults,
Landlord may elect by notice to Tenant either to terminate this Lease or to
terminate Tenant's possession of the Premises without terminating this Lease. In
either case, Tenant shall immediately vacate the Premises and deliver possession
to Landlord, and Landlord may repossess the Premises and may, at Tenant's sole
cost, remove any of Tenant's signs and any of its other property, without
relinquishing its right to receive Rent or any other right against Tenant.
Without limiting the generality of the foregoing, upon the termination of this
Lease or the termination of Tenant's right of possession, it shall be lawful for
the Landlord, without formal demand or notice of any kind, to re-enter the
Premises by summary dispossession proceedings or any other action or proceeding
authorized by law and to remove Tenant and all persons and property therefrom.
B. Lease Termination Damages. Except as otherwise provided in
Section 13C, if Tenant abandons the Premises prior to the end of the term
hereof, or if Tenant's right to possession is terminated by Landlord because of
a default by Tenant under this Lease, this Lease shall terminate. Upon such
termination, Landlord may recover from Tenant the following, as provided in
Section 1951.2 of the California Civil Code: (i) the worth at the time of award
of the unpaid Rent and other charges under this Lease that had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid Rent and other charges under this Lease which would have been
earned after termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably avoided; (iii) the
worth at the time of award of the amount by which the unpaid Rent and other
charges under this Lease for the balance of the term of this Lease after the
time of award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; and (iv) any other amount necessary to compensate
Landlord for all the detriment proximately cause by Tenant's failure to perform
its obligations under this Lease or that in the ordinary course of things would
be likely to result therefrom. As used herein, the following terms are defined:
(a) the "worth at the time of award" of the amounts referred to in Sections (i)
and (ii) is computed by allowing interest at the lesser of 15% per annum or the
maximum lawful rate. The "worth at the time of award" of the amount referred to
in Section (iii) is computed by discounting such amount as the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus 1%.
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C. Continuation of Lease. Even if Tenant has abandoned the Premises,
this Lease shall continue in effect for so long as Landlord does not terminate
Tenant's right to possession, and Landlord may enforce all its rights and
remedies under this Lease, including the right to recover rent as it becomes
due. This remedy is intended to be the remedy described in California Civil Code
Section 1951.4, and the following provision from such Civil Code Section is
hereby repeated: "The Lessor has the remedy described in California Civil Code
Section 1951.4 (lessor may continue lease in effect after lessee's breach and
abandonment and recover rent as it becomes due, if lessee has right to sublet or
assign, subject only to reasonable limitations)." Any such payments due Landlord
shall be made upon demand therefor from time to time and Tenant agrees that
Landlord may file suit to recover any sums falling due from time to time.
Notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect in writing to terminate this Lease for such previous breach.
D. Possession Termination Damages. If Landlord terminates Tenant's
right to possession without terminating the Lease and Landlord takes possession
of the Premises itself, Landlord may relet any part of the Premises for such
Rent, for such time, and upon such terms as Landlord in its sole discretion
shall determine, without any obligation to do so prior to renting other vacant
areas in the Building. Any proceeds from reletting the Premises shall first be
applied to the expenses of reletting, including redecoration, repair,
alteration, advertising, brokerage, legal, and other reasonably necessary
expenses. If the reletting proceeds after payment of expenses are insufficient
to pay the full amount of Rent under this Lease, Tenant shall pay such
deficiency to Landlord monthly upon demand as it becomes due. Any excess
proceeds shall be retained by Landlord.
E. Landlord's Remedies Cumulative. All of Landlord's remedies under
this Lease shall be in addition to all other remedies Landlord may have at law
or in equity. Waiver by Landlord of any breach of any obligation by Tenant shall
be effective only if it is in writing, and shall not be deemed a waiver of any
other breach, or any subsequent breach of the same obligation. Landlord's
acceptance of payment by Tenant shall not constitute a waiver of any breach by
Tenant, and if the acceptance occurs after Landlord's notice to Tenant, or
termination of the Lease or of Tenant's right to possession, the acceptance
shall not affect such notice or termination. Acceptance of payment by Landlord
after commencement of a legal proceeding or final judgment shall not affect such
proceeding or judgment. Landlord may advance such monies and take such other
actions for Tenant's account as reasonably may be required to cure or mitigate
any default by Tenant. Tenant shall immediately reimburse Landlord for any such
advance, and such sums shall bear interest at the default interest rate until
paid.
F. WAIVER OF TRIAL BY JURY. EACH PARTY WAIVES TRIAL BY JURY IN THE
EVENT OF ANY LEGAL PROCEEDING BROUGHT BY THE OTHER IN CONNECTION WITH THIS
LEASE. EACH PARTY SHALL BRING ANY ACTION AGAINST THE OTHER IN CONNECTION WITH
THIS LEASE IN A FEDERAL OR STATE COURT LOCATED IN CALIFORNIA, CONSENTS TO THE
JURISDICTION OF SUCH COURTS, AND WAIVES ANY RIGHT TO HAVE ANY PROCEEDING
TRANSFERRED FROM SUCH COURTS ON THE GROUND OF IMPROPER VENUE OR INCONVENIENT
FORUM.
G. Litigation Costs. Tenant shall pay Landlord's reasonable
attorneys' fees and other costs in enforcing this Lease, whether or not suit is
filed; provided, however, that the prevailing party in any litigation arising
under this Lease shall be entitled to reimbursement of its reasonable attorneys'
fees and other costs of suit.
14. SURRENDER. Under termination of this Lease or Tenant's right to
possession, Tenant shall return the Premises to Landlord in good order and
condition, ordinary wear and casualty damage excepted. If Landlord requires
Tenant to remove any alterations, then Tenant shall remove the alterations in a
good and workmanlike manner and restore the Premises to its condition prior to
their installation.
15. HOLDOVER. If Tenant retains possession of any part of the Premises
after the Term, Tenant shall become a month-to-month tenant for the entire
Premises upon all of the terms of this Lease as might be applicable to such
month-to-month tenancy, except that Tenant shall pay all of Base Rent, Operating
Cost Rent and Tax Rent at 150% of the rate in effect immediately prior to such
holdover, computed on a monthly basis for each
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full or partial month Tenant remains in possession. Tenant shall also pay
Landlord all of Landlord's direct and consequential damages. No acceptance of
Rent or other payments by Landlord under these holdover provisions shall operate
as a waiver of Landlord's right to regain possession or any other of Landlord's
remedies.
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES.
A. Subordination. This Lease shall be subordinate to any present or
future ground lease or mortgage respecting the Project, and any amendments to
such ground lease or mortgage, at the election of the ground lessor or mortgagee
as the case may be, effected by notice to Tenant in the manner provided in this
Lease. The subordination shall be effective upon such notice, but at the request
of Landlord or ground lessor or mortgagee. Tenant shall within five (5) days of
the request, execute and deliver to the requesting party any reasonable
documents provided to evidence the subordination; provided, however, that Tenant
shall be required to subordinate to any future mortgage only if Tenant receives
therefrom an agreement that Tenant's use and possession of the Premises will not
be disturbed in any foreclosure proceeding so long as there exists no default
hereunder. Landlord agrees to use reasonable efforts to obtain from any existing
mortgages a subordination, non-disturbance and attornment agreement with respect
to this Lease.
B. Termination of Ground Lease or Foreclosure of Mortgages. If any
ground lease is terminated or mortgage foreclosed or deed in lieu of foreclosure
given and the ground lessor, mortgagee, or purchaser at a foreclosure sale shall
thereby become the owner of the Project. Tenant shall attorn to such ground
lessor or mortgagee or purchaser without any deduction or setoff by Tenant, and
this Lease shall continue in effect as a direct lease between Tenant and such
ground lessor, mortgagee or purchaser. The ground lessor or mortgagee or
purchaser shall be liable as Landlord only during the time such ground lessor or
mortgagee or purchaser is the owner of the Project. At the request of Landlord,
ground lessor or mortgagee, Tenant shall execute and deliver within ten (10)
days of the request any documents furnished by the requesting party to evidence
Tenant's agreement to attorn.
C. Security Deposit. Any ground lessor or mortgagee shall be
responsible for the return of any security deposit by Tenant only to the extent
the security deposit is received by such ground lessor or mortgagee.
D. Notice and Right to Cure. The Project is subject to any ground
lease and mortgage identified with name and address of ground lessor or
mortgagee in Appendix C to this Lease (as the same may be amended from time to
time by written notice to Tenant). Tenant agrees to send by registered or
certified mail to any ground lessor or mortgagee identified either in such
Appendix or in any later notice from Landlord to Tenant a copy of any notice of
default sent by Tenant to Landlord. If Landlord fails to cure such default
within the required time period under this Lease, but ground lessor or mortgagee
begins to cure within ten (10) days after such period and proceeds diligently to
complete such cure, then ground lessor or mortgagee shall have such additional
time as is necessary to complete such cure, including any time necessary to
obtain possession if possession is necessary to cure, and Tenant shall not begin
to enforce its remedies so long as the cure is being diligently pursued.
E. Definitions. As used in this Section 16, "mortgage" shall include
"trust deed" and "mortgagee" shall include "trustee", "mortgagee" shall include
the mortgagee of any ground lessee, and "ground lessor", "mortgagee", and
"purchaser at a foreclosure sale" shall include, in each case, all of its
successors and assigns, however remote.
17. ASSIGNMENT AND SUBLEASE.
A. In General. Tenant shall not, without the prior written consent
of Landlord in each case, (i) make or allow any assignment or transfer, by
operation of law or otherwise, of any part of Tenant's interest in this Lease,
(ii) grant or allow any lien or encumbrance, by operation of law or otherwise,
upon any part of Tenant's interest in this Lease, (iii) sublet any part of the
Premises, or (iv) permit anyone other than Tenant and its
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employees or agents to occupy any part of the Premises. Tenant shall remain
primarily liable for all of its obligations under this Lease, notwithstanding
any assignment or transfer. No consent granted by Landlord shall be deemed to be
a consent to any subsequent assignment or transfer, lien or encumbrance,
sublease or occupancy. Tenant shall pay all of Landlord's attorneys' fees and
other expenses, not to exceed $500, incurred in connection with any consent
requested by Tenant or in reviewing any proposed assignment or subletting. Any
assignment or transfer, grant of lien or encumbrance, or sublease or occupancy
without Landlord's prior written consent shall be void.
B. Landlord's Consent. Landlord will not unreasonably withhold or
delay its consent to any proposed assignment or subletting. It shall be
reasonable for Landlord to withhold its consent to any assignment or sublease if
(i) Tenant is in default under this Lease, (ii) the proposed assignee or
sublessee is a tenant in the Project or an affiliate of such a tenant or a party
that Landlord has identified as a prospective tenant in the Project, (iii) the
financial responsibility, nature of business, and character of the proposed
assignee or subtenant are not at all satisfactory to Landlord in its reasonable
discretion, (iv) in the reasonable judgment of Landlord, the purpose for which
the assignee or subtenant intends to use the Premises (or a portion thereof) is
not in keeping with Landlord's standards for the Building or are in violation of
the terms of this Lease or any other leases in the Project, (v) the proposed
assignee or subtenant is a governmental entity, or (vi) the proposed assignment
is for less than the entire Premises or for less than the remaining Term of the
Lease. The foregoing shall not exclude any other reasonable basis for Landlord
to withhold its consent.
Notwithstanding anything to the contrary contained in Section 17 of this
Lease, Tenant shall have the right to sublease the Premises to any affiliate of
Tenant without Landlord's approval.
C. Procedure. Tenant shall notify Landlord of any proposed
assignment or sublease at least thirty (30) days prior to its proposed effective
date. The notice shall include the name and address of the proposed assignee or
subtenant, its corporate affiliates in the case of a corporation and its
partners in a case of a partnership, an execution copy of the proposed
assignment or sublease, and sufficient information to permit Landlord to
determine the financial responsibility and character of the proposed assignee or
subtenant. As a condition to any effective assignment of this Lease, the
assignee shall execute and deliver in form satisfactory to Landlord at least
fifteen (15) days prior to the effective date of the assignment, an assumption
of all of the obligations of Tenant under this Lease. As a condition to any
effective sublease, subtenant shall execute and deliver in form satisfactory to
Landlord at least fifteen (15) days prior to the effective date of the sublease,
an agreement to comply with all of Tenant's obligations under this Lease, and at
Landlord's option, an agreement (except for the economic obligations which
subtenant will undertake directly to Tenant) to attorn to Landlord under the
terms of the sublease in the event this Lease terminates before the sublease
expires.
D. Change of Management or Ownership. Any transfer of the direct or
indirect power to affect the management or policies of Tenant or direct or
indirect change in 49% or more in the aggregate of the ownership interest in
Tenant shall constitute an assignment of this Lease.
E. Excess Payments. If Tenant shall assign this Lease or sublet any
part of the Premises for consideration in excess of the pro-rata portion of Rent
applicable to the space subject to the assignment or sublet, then Tenant shall
pay to Landlord as Additional Rent 50% of any such excess immediately upon
receipt.
18. CONVEYANCE BY LANDLORD. If Landlord shall at any time transfer
its interest in the Project or this Lease, Landlord shall be released of any
obligations occurring after such transfer, except the obligation to return to
Tenant any security deposit not delivered to its transferee, and Tenant shall
look solely to Landlord's successors for performance of such obligations.
Subject to the provisions of Section 16, this Lease shall not be affected by any
such transfer.
19. ESTOPPEL CERTIFICATE. Each party shall, within five (5) days of
receiving a request from the other party, execute, acknowledge in recordable
form, and deliver to the other party or its designee a certificate
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stating, subject to a specific statement of any applicable exceptions, that the
Lease as amended to date is in full force and effect, that the Tenant is Paying
Rent and other charges on a current basis, and that to the best of the
knowledge of the certifying party, the other party has committed no uncured
defaults and has no offsets or claims. The certifying party may also be
required to state the date of commencement of payment of Rent, the
Commencement Date, the Termination Date, the Base Rent, the current Operating
Cost Rent and Tax Rent estimates, the status of any improvements required to be
completed by Landlord, the amount of any security deposit, and such other
matters as may be reasonably requested. Failure to deliver such statement
within the time required shall be conclusive evidence against the
non-certifying party that this Lease, with any amendments identified by the
requesting party is in full force and effect, that there are no uncured
defaults by the requesting party, that not more than one month's Rent has been
paid in advance, that the non-certifying party has not paid any security
deposit, and that the non-certifying party has no claims or offsets against the
requesting party.
20. SECURITY DEPOSIT. Tenant shall deposit with Landlord on the date of
this Lease, security for the performance of all of its obligations in the
amount set forth on the Schedule. If Tenant defaults under this Lease, Landlord
may use any part of the Security Deposit to make any defaulted payment, to pay
for Landlord's cure of any defaulted obligation, or to compensate Landlord for
any loss or damage resulting from any default. To the extent any portion of the
deposit is used. Tenant shall within five (5) days after demand from Landlord
restore the deposit to its full amount. Landlord may keep the Security Deposit
in its general funds and shall not be required to pay interest to Tenant on the
deposit amount. If Tenant shall perform all of its obligations under this Lease
and return the Premises to Landlord at the end of the Term. Landlord shall
return all of the remaining Security Deposit to Tenant not later than thirty
(30) days after the delivery of possession of the Premises to Landlord. The
Security Deposit shall not serve as an advance payment of Rent or a measure of
Landlord's damages for any default under this Lease.
If Landlord transfers its interest in the Project or this Lease, Landlord
shall either (a) transfer the portion of the Security Deposit then held by
Landlord to its transferee or (b) return to Tenant the portion of the Security
Deposit then held by Landlord and remaining after the deductions permitted
herein. Upon such transfer to such transferee or the return of the Security
Deposit to Tenant, Landlord shall have no further obligation with respect to
the Security Deposit, and Tenant's right to the return of the Security Deposit
shall apply solely against Landlord's transferee.
21. FORCE MAJEURE. Landlord shall not be in default under this Lease to
the extent Landlord is unable to perform any of its obligations on account of
any strike or labor problem, energy shortage, governmental pre-emption or
prescription, flood, earthquake, national emergency, or any other cause of any
kind beyond the reasonable control of Landlord ("Force Majeure").
22. [INTENTIONALLY OMITTED]
23. NOTICES. All notices, consents, approvals, and similar communications
to be given by one party to the other under this Lease (including, without
limitation, any notice required by law to be given by Landlord to Tenant as a
condition to the filing of an action alleging an unlawful detainer of the
Premises and any three (3) day notice under Section 1161(2) or (3) of the
California Code of Civil Procedure), shall be given in writing, mailed or
personally delivered as follows:
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A. Landlord. To Landlord as follows:
CarrAmerica Realty Corporation
3611 South Harbor Boulevard
Suite 230
Santa Ana, CA 92704
Attn: Dwight L. Merriman, III
with a copy to:
CarrAmerica Realty Corporation
1850 K Street, N.W., Suite 500
Washington, D.C. 20006
Attn: Lease Administration
or to such other person at such other address as Landlord may designate by
notice to Tenant.
B. Tenant. To Tenant as follows:
Jaycor, Inc.
9775 Towne Centre Drive
San Diego, CA 92101
Attn: Randy Johnson
with a copy to:
Gary Cary Ware & Freidenrich
Attn: David E. Watson
401 B Street, Suite 1700
San Diego, CA 92101
or to such other person at such other address as Tenant may designate by notice
to Landlord.
Mailed notices shall be sent by United States certified or
registered mail, or by a reputable national overnight courier service, postage
prepaid. Mailed notices shall be deemed to have been given on the earlier of
actual delivery or three (3) business days after posting in the United States
mail in the case of registered or certified mail, and one business day in the
case of overnight courier.
24. QUIET POSSESSION. Subject to the provisions of Section 16, so long
as Tenant shall perform all of its obligations under this Lease, Tenant shall
enjoy peaceful and quiet possession of the Premises against any party claiming
through the Landlord.
25. REAL ESTATE BROKER. Tenant represents to Landlord that Tenant has
not dealt with any real estate broker with respect to this Lease other than The
Sande Company, and no other broker is in any way entitled to any broker's fee or
other payment in connection with this Lease. Tenant shall indemnify and defend
Landlord against any claims by any other broker or third party for any payment
of any kind in connection with this Lease.
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26. MISCELLANEOUS.
A. Successors and Assigns. Subject to the limits on Tenant's
assignment contained in Section 17, the provisions of this Lease shall be
binding upon and inure to the benefit of all successors and assigns of Landlord
and Tenant.
B. Date Payments Are Due. Except for payments to be made by Tenant
under this Lease which are due upon demand, Tenant shall pay to Landlord any
amount for which Landlord renders a statement of account within ten days of
Tenant's receipt of Landlord's statement.
C. Meaning of "Landlord", "Re-Entry, "including" and "Affiliate".
The term "Landlord" means only the owner of the Project and the lessor's
interest in this Lease from time to time. The words "re-entry" and "re-enter"
are not restricted to their technical legal meaning. The words "including" and
similar words shall mean "without limitation." The word "affiliate" shall mean a
person or entity controlling, controlled by or under common control with the
applicable entity. "Control" shall mean the power directly or indirectly, by
contract or otherwise, to direct the management and policies of the applicable
entity.
D. Time of the Essence. Time is of the essence of each provision of
this Lease.
E. No Option. This document shall not be effective for any purpose
until it has been executed and delivered by both parties; execution and delivery
by one party shall not create any option or other right in the other party.
F. Severability. The unenforceability of any provision of this Lease
shall not affect any other provision.
G. Governing Law. This Lease shall be governed in all respects by
the laws of the state in which the Project is located, without regard to the
principles of conflicts of laws.
H. Lease Modification. Tenant agrees to modify this Lease in any way
requested by a mortgagee which does not cause increased expense to Tenant or
otherwise materially adversely affect Tenant's interests under this Lease.
I. No Oral Modification. No modification of this Lease shall be
effective unless it is a written modification signed by both parties.
J. Landlord's Right to Cure. If Landlord breaches any of its
obligations under this Lease, Tenant shall notify Landlord in writing and shall
take no action respecting such breach so long as Landlord immediately begins to
cure the breach and diligently pursues such cure to its completion. Landlord may
cure any default by Tenant; any expenses incurred shall become Additional Rent
due from Tenant on demand by Landlord.
K. Captions. The captions used in this Lease shall have no effect on
the construction of this Lease.
L. Authority. Landlord and Tenant each represents to the other that
it has full power and authority to execute and perform this Lease.
M. Landlord's Enforcement of Remedies. Landlord may enforce any of
its remedies under this Lease either in its own name or through an agent.
20
<PAGE> 31
N. Entire Agreement. This Lease, together with all Appendices,
constitutes the entire agreement between the parties. No representations or
agreements of any kind have been made by either party which are not contained in
this Lease.
O. Landlord's Title. Landlord's title shall always be paramount to
the interest of the Tenant, and nothing in this Lease shall empower Tenant to do
anything which might in any way impair Landlord's title.
P. Light and Air Rights. Landlord does not grant in this Lease any
rights to light and air in connection with Project. Landlord reserves to itself,
the Land, the Building below the improved floor of each floor of the Premises,
the Building above the ceiling of each floor of the Premises, the exterior of
the Premises and the areas on the same floor outside the Premises, along with
the areas within the Premises required for the installation and repair of
utility lines and other items required to serve other tenants of the Building.
Q. Singular and Plural. Wherever appropriate in this Lease, a
singular term shall be construed to mean the plural where necessary, and a
plural term the singular. For example, if at any time two parties shall
constitute Landlord or Tenant, then the relevant term shall refer to both
parties together.
R. No Recording by Tenant. Tenant shall not record in any public
records any memorandum or any portion of this Lease.
S. Exclusivity. Landlord does not grant to Tenant in this Lease any
exclusive right except the right to occupy its Premises.
T. No Construction Against Drafting Party. The rule of
construction that ambiguities are resolved against the drafting party shall not
apply to this Lease.
U. Survival. All obligations of Landlord and Tenant under this
Lease shall survive the termination of this Lease.
V. Rent Not Based on Income. No rent or other payment in respect of
the Premises shall be based in any way upon net income or profits from the
Premises. Tenant may not enter into or permit any sublease or license or other
agreement in connection with the Premises which provides for a rental or other
payment based on net income or profit.
W. Building Manager and Service Providers. Landlord may perform any
of its obligations under this Lease through its employees or third parties hired
by the Landlord.
X. Late Charge and Interest on Late Payments. Without limiting the
provisions of Section 12A, if Tenant fails to pay any installment of Rent or
other charge to be paid by Tenant pursuant to this Lease within seven (7)
business days after the same becomes due and payable, then Tenant shall pay a
late charge equal to the greater of five percent (5%) of the amount of such
payment or $250. In addition, interest shall be paid by Tenant to Landlord on
any late payments of Rent from the date due until paid at the rate provided in
Section 2D(2). Such late charge and interest shall constitute additional Rent
due and payable by Tenant to Landlord upon the date of payment of the delinquent
payment referenced above.
27. UNRELATED BUSINESS INCOME. If Landlord is advised by its counsel at
any time that any part of the payments by Tenant to Landlord under this Lease
may be characterized as unrelated business income under the United States
Internal Revenue Code and its regulations, then Tenant shall enter into any
amendment proposed by Landlord to avoid such income, so long as the amendment
does not require Tenant to make more payments or accept fewer services from
Landlord, than this Lease provides.
21
<PAGE> 32
28. HAZARDOUS SUBSTANCES.
A. Tenant shall not cause or permit any Hazardous Substances to be
brought upon, produced, stored, used, discharged or disposed of in or near the
Project unless Landlord has consented in writing to such storage or use in its
sole and absolute discretion. If any lender or governmental agency shall require
testing for Hazardous Substances in the Premises, Tenant shall pay for such
testing.
B. "Hazardous Substances" means (a) any chemical, compound,
material, mixture or substance that is now or hereafter defined or listed in,
or otherwise classified pursuant to, any Environmental Laws as a "hazardous
substance", "hazardous material", "hazardous waste", "extremely hazardous
waste", "acutely hazardous waste", "radioactive waste", "infectious waste",
"biohazardous waste", "toxic substance", "pollutant", "toxic pollutant",
"contaminant" as well as any formulation not mentioned herein intended to
define, list, or classify substances by reason of deleterious properties such
as ignitability, corrosivity, reactivity, carcinogenicity, toxicity,
reproductive toxicity, "EP toxicity", or "TCLP toxicity"; (b) petroleum,
natural gas, natural gas liquids, liquefied natural gas, synthetic gas usable
for fuel (or mixtures of natural gas and such synthetic gas) and ash produced
by a resource recovery facility utilizing a municipal solid waste stream, and
drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas, or geothermal
resources; (c) "hazardous substance" as defined in Section 25281(f) of the
California Health and Safety Code; (d) "waste" as defined in Section 13050(d)
of the California Water Code; (e) asbestos in any form; (f) urea formaldehyde
foam insulation; (g) polychlorinated biphenyls (PCBs); (h) radon; and (i) any
other chemical, material, or substance exposure to which is limited or
regulated by any Governmental Agency because of its quantity, concentration, or
physical or chemical characteristics, or which poses a significant present or
potential hazard to human health or safety or to the environment if released
into the workplace or the environment. "Hazardous Substances" shall not include
ordinary office supplies and repair, maintenance and cleaning supplies
maintained in reasonable and necessary quantities and used in accordance with
all Environmental Laws. "Environmental Laws" means any and all present and
future federal, state and local laws, ordinances, regulations, policies and any
other requirements of any Governmental Agency relating to health, safety, the
environment or to any Hazardous Substances, including without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(CERCLA), the Resource Conservation Recovery Act (RCRA), the Hazardous
Materials Transportation Act, the Toxic Substance Control Act, the Endangered
Species Act, the Clean Water Act, the Occupational Safety and Health Act, the
California Environmental Quality Act and the applicable provisions of the
California Health and Safety Code, California Labor Code and the California
Water Code, each as hereafter amended from time to time, and the present and
future rules, regulations and guidance documents promulgated under any of the
foregoing.
C. Without limiting Tenant's liability and obligations under
Sections 28D, E, F, and G, the foregoing covenant set forth in Section 28A
shall not extend to insignificant amounts of substances typically found or used
in general office applications so long as (i) such substances are maintained
only in such quantities as are reasonably necessary for Tenant's operations in
the Premises, (ii) such substances are used strictly in accordance with the
manufacturers' instructions therefor and all applicable Environmental Laws,
(iii) such substances are not disposed of in or about the Project in a manner
which would constitute a release or discharge thereof, and (iv) all such
substances are removed from the Project by Tenant upon the expiration or
earlier termination of this Lease. Tenant shall, within thirty (30) days after
demand therefor, provide to Landlord a written list identifying any Hazardous
Materials then maintained by Tenant in the Building, the use of each such
Hazardous Material so maintained by the Tenant together with written
certification by Tenant stating, in substance, that neither Tenant nor any
person for whom Tenant is responsible has released or discharged any Hazardous
Materials in or about the Project.
D. In order to obtain Landlord's consent under this Section 28 with
respect to any Hazardous Material other than as specified in Section 28C above,
Tenant shall first submit a detailed hazardous material management plan
describing all relevant aspects of the same to Landlord for approval, which
approval may be withheld by Landlord in its sole and absolute discretion. No
approval by Landlord shall relieve Tenant of any obligation of Tenant pursuant
to this Section 28, including all removal, clean up and indemnification
obligations. Tenant shall, within five (5) days after receipt thereof, furnish
to Landlord copies of all notices or other
22
<PAGE> 33
communications received by Tenant with respect to any actual or alleged release
or discharge of any Hazardous Material in or about the Premises or the Project
and shall, whether or not Tenant receives any such notice or communication,
notify Landlord in writing of any discharge or release of Hazardous Material by
Tenant or anyone for whom Tenant is responsible in or about the Premises or the
Project. In the event Tenant is required to maintain any hazardous materials
license or permit in connection with any use conducted by Tenant or any
equipment operated by Tenant in the Premises, copies of each such license or
permit, each renewal thereof, and any communication relating to suspension,
renewal or revocation thereof shall be furnished to Landlord within five (5)
days after receipt thereof by Tenant. Compliance by Tenant with this Section
28C shall not relieve Tenant of any other obligation of Tenant pursuant to this
Section 28.
E. Upon any violation of the foregoing covenants and in all events
upon any expiration of the Term, Tenant shall be obligated, at Tenant's sole
cost, to clean up and remove from the Project all Hazardous Materials introduced
into the Project by Tenant or any third party for whom Tenant is responsible.
Such clean-up and removal shall include all testing and investigation required
by any governmental authorities having jurisdiction and preparation and
implementation of any remedial action plan required by any governmental
authorities having jurisdiction. All such clean-up and removal activities of
Tenant shall, in each instance, be conducted to the satisfaction of Landlord and
all governmental authorities having jurisdiction. Landlord's right of entry
pursuant to Section 11 of this Lease shall include the right (but not the
obligation) to enter and inspect the Premises for violations of Tenant's
covenant herein and to supervise any of Tenant's clean-up and removal
activities.
F. To the extent permitted by then applicable law, Tenant shall
protect, indemnify, defend and hold harmless Landlord, the partners of any
entity constituting Landlord and Landlord's partners, officers, employees,
agents, lenders and attorneys from and against any and all claims, liabilities,
losses, actions, costs and expenses (including attorneys' fees and costs of
defense) incurred by such indemnified persons, or any of them, as the result of
(i) the introduction into the Project by Tenant, its employees, agents,
licensees, invitees, contractors or any other person or entity for whom Tenant
is responsible of any Hazardous Material, (ii) the usage by Tenant or anyone for
whom Tenant is responsible of Hazardous Materials in or about the Project, (iii)
the discharge or release in or about the Project by Tenant or anyone for whom
Tenant is responsible of any Hazardous Material, (iv) any injury to or death of
persons or damage to or destruction of property resulting from the use by Tenant
or anyone for whom Tenant is responsible of Hazardous Materials in or about the
Project, and (v) any failure of Tenant or anyone for whom Tenant is responsible
to observe the foregoing covenants. Payment shall not be a condition precedent
to enforcement of the foregoing indemnification provision.
G. Upon any violation of any of the foregoing covenants, Landlord
shall be entitled to exercise all remedies available to a landlord against the
defaulting tenant, including but not limited to those set forth in Section 13 of
this Lease. Without limiting the generality of the foregoing, Tenant expressly
agrees that upon any such violation Landlord may, at its option (i) immediately
terminate this Lease, or (ii) continue this Lease in effect until compliance by
Tenant with its clean-up and removal covenant (notwithstanding the expiration of
the term of this Lease). No action by Landlord hereunder shall impair the
obligations of Tenant pursuant to this Section 28.
29. EXCULPATION. Landlord shall have no personal liability under this
Lease; its liability shall be limited to its interest in the Project, and shall
not extend to any other property or assets of the Landlord. In no event shall
any officer, director, employee, agent, shareholder, partner, member or
beneficiary of Landlord be personally liable for any of Landlord's obligations
hereunder.
30. MCSI LEASE. The parties acknowledge that a portion of the Premises
is currently occupied by Multichannel Communications Sciences, Incorporated
("MCSI") under a lease dated February 1, 1995 with Tenant as landlord, as
amended by First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth and
Ninth Amendments to Lease (the "MCSI Lease"), which MCSI Lease Tenant shall
assign to Landlord effective as of the Commencement Date. Accordingly, this
Lease and all right, title, and estate of Tenant hereunder is subject to the
right, title, and estate of MCSI under the MCSI Lease. Notwithstanding the
foregoing, Landlord shall have no obligation to enforce any provision of the
MCSI Lease or any remedies of the landlord thereunder, or otherwise to incur any
cost or
23
<PAGE> 34
expense in connection with MCSI Lease; provided, however, if Landlord elects not
to enforce any provision of the MCSI Lease or any remedies of the landlord
thereunder, Landlord shall assign to Tenant Landlord's rights, if any, to
enforce said lease provision or remedies. If and to the extent Landlord receives
rental payments under the MCSI Lease, Tenant shall be entitled to a credit in
the amount of rental payments received against Monthly Base Rent next coming
due.
Landlord shall, within thirty (30) days after receiving a written request
from Tenant, exercise its right under Section 56 of the MCSI Lease to terminate
the MCSI Lease; provided, however, Landlord shall have no obligation to take any
action, including the commencement of legal or summary proceedings or otherwise
or to incur any cost or expense in connection with the termination of the MCSI
Lease or the eviction of MCSI. If MCSI contests the termination of the MCSI
Lease or otherwise fails to vacate its premises within the required time, and
Landlord elects not to commence legal or summary proceedings to evict MCSI,
Landlord shall assign to Tenant, Landlord's rights, if any, to commence and
prosecute any such legal or summary proceeding.
Tenant shall, and does hereby agree to, indemnify, defend and hold harmless
Landlord and its officers, directors, employees and agents against any costs,
losses, claims, and expenses, including reasonable attorneys' fees and
disbursements, incurred by Landlord in connection with the termination or
attempted termination of the MCSI Lease, any enforcement or attempted
enforcement of the MCSI Lease, or otherwise in connection with the MCSI Lease.
[SIGNATURE PAGE FOLLOWS]
24
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
LANDLORD:
CARRAMERICA REALTY CORPORATION,
a Maryland corporation
By: /s/ KAREN B. DAUGAN
-----------------------------------
Print Name: Karen B. Daugan
---------------------------
Print Title: Senior Vice President
--------------------------
TENANT:
JAYCOR, INC.
a California corporation
By: /s/ ERIC P. WENAAS
-----------------------------------
Print Name: Eric P. Wenaas
---------------------------
Print Title: President & CEO
--------------------------
25
<PAGE> 36
APPENDIX A
DESCRIPTION OF THE PROJECT
Parcel 1 of Parcel Map No. 15937, in the City of San Diego, County of San Diego,
State of California, filed in the Office of the County Recorder of San Diego
County, January 4, 1990 as File/Page No. 90-006036 of Official Records.
<PAGE> 37
APPENDIX B
RULES AND REGULATIONS
1. Tenant shall not place anything, or allow anything to be placed near
the glass of any window, door, partition of wall which may, in Landlord's
judgment, appear unsightly from outside of the Project.
2. The toilet rooms, urinals, wash bowls and other apparatuses shall
not be used for any purposes other than that for which they were constructed,
and no foreign substance of any kind whatsoever shall be thrown therein, and to
the extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.
3. Tenant shall not use the Premises for housing, lodging or sleeping
purposes; or permit preparation or warming of food in the Premises (warming of
coffee and individual meals with employees and guests excepted). Tenant shall
not occupy or use the Premises or permit the Premises to be occupied or used for
any purpose, act or thing which is in violation of any Governmental Requirement
or which may be dangerous to persons or property.
4. Tenant shall not bring upon, use or keep in the Premises or the
Project any kerosene, gasoline or inflammable or combustible fluid or material,
or any other articles deemed hazardous to persons or property, or use any method
of heating or air conditioning other than that supplied by Landlord.
5. Tenant shall not change existing locks or the mechanism thereof.
Upon termination of the lease, Tenant shall deliver to Landlord all keys and
passes for offices, rooms, parking lot and toilet rooms which shall have been
furnished Tenant.
6. Without the prior written consent of Landlord, Tenant shall not use
the name of the Project or any picture of the Project in connection with, or in
promoting or advertising the business of, Tenant, except Tenant may use the
address of the Project as the address of its business.
7. Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage, which may arise from a cause other than Landlord's
negligence, which includes keeping doors locked and other means of entry to the
Premises closed and secured.
8. Tenant shall not advertise the business, profession or activities of
Tenant conducted in the Project in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business, profession or activities.
9. No vehicle and no animals or pets shall be allowed in the Premises,
halls, freight docks, or any other parts of the Building except that blind
persons may be accompanied by "seeing eye" dogs. Tenant shall not make or permit
any noise, vibration or odor to emanate from the Premises, or do anything
therein tending to create, or maintain, a nuisance, or do any act tending to
injure the reputation of the Building.
10. Tenant shall not do or permit the manufacture, sale, purchase, use
or gift of any fermented, intoxicating or alcoholic beverages without obtaining
written consent of Landlord.
11. Tenant shall not disturb the quiet enjoyment of any other tenant.
12. Tenant shall not provide any janitorial services or cleaning
without Landlord's written consent and then only subject to supervision of
Landlord and at Tenant's sole responsibility and by janitor or cleaning
<PAGE> 38
13. At all times during the last nine (9) months of the Lease Term,
the Landlord and its representatives shall have full access to all parts
of the Premises, and Landlord may place and keep on the windows and doors
of the Premises at any time signs advertising the Premises for Rent.
14. No equipment, mechanical ventilators, awnings, special shades or
other forms of window covering shall be permitted either inside or outside
the windows of the Premises without the prior written consent of Landlord,
and then only at the expense and risk of Tenant, and they shall be of such
shape, color, material, quality, design and make as may be approved by
Landlord.
15. Tenant shall promptly remove all rubbish and waste from the
Premises.
16. Tenant shall not exhibit, sell or offer for sale, Rent or
exchange in the Premises or at the Project any article, thing or service,
except those ordinarily embraced within the use of the Premises specified
in Section 6 of this Lease, without the prior written consent of Landlord.
17. Tenant shall not overload any floors in the Premises or any
public corridors or elevators in the Building.
18. Whenever Landlord's consent, approval or satisfaction is
required under these Rules, then unless otherwise stated, any such
consent, approval or satisfaction must be obtained in advance, such
consent or approval may be granted or withheld in Landlord's reasonable
discretion, and Landlord's satisfaction shall be determined in its
reasonable judgment.
19. Tenant and its employees shall cooperate in all fire drills
conducted by Landlord in the Building.
<PAGE> 39
APPENDIX C
MORTGAGES CURRENTLY AFFECTING THE PROJECT
UNION BANK OF CALIFORNIA LOAN NO.: 405208347501100
<PAGE> 40
APPENDIX D
COMMENCEMENT DATE CONFIRMATION
Landlord: CARRAMERICA REALTY CORPORATION, a Maryland corporation
Tenant: JAYCOR, INC., a California corporation
This Commencement Date Confirmation is made by Landlord and Tenant pursuant
to that certain Lease dated as of ________, 1998 (the "Lease") for certain
premises (the "Premises"). This Confirmation is made pursuant to Item 3 of the
Schedule to the Lease.
1. Lease Commencement Date, Termination Date. Landlord and Tenant hereby
agree that the Commencement Date of the Lease is ________, 1998, and the
Termination Date of the Lease is _______, _______.
2. Acceptance of Premises. Tenant has inspected the Premises and affirms
that the Premises is acceptable in all respects in its current "as is"
condition.
3. Incorporation. This Confirmation is incorporated into the Lease, and
forms an integral part thereof. This Confirmation shall be construed and
interpreted in accordance with the terms of the Lease for all purposes.
TENANT:
JAYCOR, INC.,
a California corporation
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
LANDLORD:
CARRAMERICA REALTY CORPORATION,
a Maryland corporation
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
APPENDIX D
Page 1 of 1
<PAGE> 1
EXHIBIT 10.23
FIRST AMENDMENT TO SUBLEASE
The Sublease dated October 7, 1998, by and between Jaycor, Inc.
("Sublandlord") and Jaycor Networks, Inc. ("Subtenant") is hereby amended as
follows:
1. Premises: Effective December 1, 1998 Sublandlord agrees to lease an
additional 550 rentable square feet ("Additional Premises" - see attached
Exhibit "A") for a total of 10,653 rentable square feet.
2. Base Rent: Commencing December 1, 1998 the Base Rent shall be $14,488.08
per month. Estimated NNN expenses shall be $4,154.67 per month for a total
monthly payment of $18,642.75.
Other than the above-referenced changes to the Sublease, all terms and
conditions of the Original Sublease Agreement will remain in full force and
effect.
AGREED AND ACCEPTED:
SUBLANDLORD: Jaycor, Inc.
/s/ RANDY JOHNSON December 1, 1998
- ----------------------------------
SUBTENANT: Jaycor Networks, Inc.
/s/ TERRY FLANAGAN December 1, 1998
- ----------------------------------
<PAGE> 2
EXHIBIT A
JAYCOR
9775 Towne Center Drive
San Diego, CA 92121
[FLOOR PLAN OF FIRST FLOOR]
<PAGE> 3
[FLOOR PLAN OF SECOND FLOOR]
<PAGE> 1
EXHIBIT 10.24
SECOND AMENDMENT TO SUBLEASE
The Sublease dated October 7, 1998, by and between Jaycor, Inc.
("Sublandlord") and Jaycor Networks, Inc. ("Subtenant"), amended as First
Amendment to Lease on December 1, 1998, is hereby amended as follows:
1. Premises: Effective April 1, 1999 Sublandlord agrees to lease an
additional 3,170 rentable square feet ("Additional Premises" - see
attached Exhibit "A") for a total of 13,823 rentable square feet.
2. Base Rent: Commencing April 1, 1999 the Base Rent shall be $18,799.28 per
month. Estimated NNN expenses shall be $5,390.97 per month for a total
monthly payment of $24,190.25.
Other than the above-referenced changes to the Sublease, all terms and
conditions of the Original Sublease Agreement will remain in full force and
effect.
AGREED AND ACCEPTED:
SUBLANDLORD: Jaycor, Inc.
/s/ RANDY JOHNSON April 1, 1999
- ----------------------------------
SUBTENANT: Jaycor Networks, Inc.
/s/ TERRY FLANAGAN April 1, 1999
- ----------------------------------
<PAGE> 2
EXHIBIT A
JAYCOR
977 S. Towne Center Drive
San Diego, CA 92121
[FLOOR PLAN OF FIRST FLOOR]
<PAGE> 3
[FLOOR PLAN OF SECOND FLOOR]
<PAGE> 4
[FLOOR PLAN OF THIRD FLOOR]
<PAGE> 1
EXHIBIT 10.25
THIRD AMENDMENT TO SUBLEASE
The Sublease dated October 7, 1998, by and between Jaycor, Inc. ("Sublandlord")
and Jaycor Networks, Inc. ("Subtenant"), amended as First Amendment to Lease on
December 1, 1998, and Second Amendment to Lease on April 1, 1999, is hereby
amended as follows:
1. Premises: Effective May 15, 1999 Sublandlord agrees to lease an additional
8,680 rentable square feet ("Additional Premises" - see attached Exhibit
"A") for a total of 22,503 rentable square feet.
2. Base Rent: Commencing May 15, 1999 the Base Rent shall be $30,604.08 per
month. Estimated NNN expenses shall be $13,017.75 per month for a total
monthly payment of $43,621.83.
Other than the above-referenced changes to the Sublease, all terms and
conditions of the Original Sublease Agreement will remain in full force and
effect.
AGREED AND ACCEPTED:
SUBLANDLORD: Jaycor, Inc.
/s/ RANDY JOHNSON May 15, 1999
- ----------------------------------
SUBTENANT: Jaycor Networks, Inc.
/s/ TERRY FLANAGAN May 15, 1999
- ----------------------------------
<PAGE> 2
EXHIBIT A
[FLOOR PLAN OF FIRST FLOOR]
JAYCOR
9775 Towne Center Drive
San Diego, CA 92121
<PAGE> 3
[FLOOR PLAN OF SECOND FLOOR]
<PAGE> 4
[FLOOR PLAN OF THIRD FLOOR]
<PAGE> 1
EXHIBIT 10.26
FOURTH AMENDMENT TO SUBLEASE
The Sublease dated October 7, 1998, by and between Jaycor, Inc. ("Sublandlord")
and Jaycor Networks, Inc. ("Subtenant"), amended as First Amendment to Lease on
December 1, 1998, Second Amendment to Lease on April 1, 1999, and Third
Amendment to Lease on May 15, 1999 is hereby amended as follows:
1. Premises: Effective August 1, 1999 Sublandlord agrees to lease an
additional 1085 rentable square feet ("Additional Premises" - see attached
Exhibit "A") for a total of 23,588 rentable square feet.
2. Base Rent: Commencing August 1, 1999 the Base Rent shall be $32,079.68 per
month. Estimated NNN expenses shall be $13,356.85 per month for a total
monthly payment of $45,436.53.
Other than the above-referenced changes to the Sublease, all terms and
conditions of the Original Sublease Agreement will remain in full force and
effect.
AGREED AND ACCEPTED:
SUBLANDLORD: Jaycor, Inc.
/s/ RANDY JOHNSON August 1, 1999
- ----------------------------------
SUBTENANT: Jaycor Networks, Inc.
/s/ TERRY FLANAGAN August 1, 1999
- ----------------------------------
<PAGE> 2
EXHIBIT A
[Floor plan of First Floor]
<PAGE> 1
EXHIBIT 10.27
INDUSTRIAL LEASE
(MULTI-TENANT; NET)
BETWEEN
THE IRVINE COMPANY
AND
JAYCOR NETWORKS, INC.
<PAGE> 2
INDEX TO LEASE
<TABLE>
<S> <C>
ARTICLE I. BASIC LEASE PROVISIONS
ARTICLE II. PREMISES
Section 2.1 Leased Premises
Section 2.2 Acceptance of Premises
Section 2.3 Building Name and Address
ARTICLE III. TERM
Section 3.1 General
Section 3.2 Delay In Possession
ARTICLE IV. RENT AND OPERATING EXPENSES
Section 4.1 Basic Rent
Section 4.2 Operating Expenses
Section 4.3 Security Deposit
ARTICLE V. USES
Section 5.1 Use
Section 5.2 Signs
Section 5.3 Hazardous Materials
ARTICLE VI. COMMON AREAS; SERVICES
Section 6.1 Utilities and Services
Section 6.2 Operation and Maintenance of Common Areas
Section 6.3 Use of Common Areas
Section 6.4 Parking
Section 6.5 Changes and Additions by Landlord
ARTICLE VII. MAINTAINING THE PREMISES
Section 7.1 Tenant's Maintenance and Repair
Section 7.2 Landlord's Maintenance and Repairs
Section 7.3 Alterations
Section 7.4 Mechanic's Liens
Section 7.5 Entry and Inspection
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANTS PROPERTY
ARTICLE IX. ASSIGNMENT AND SUBLETTING
Section 9.1 Rights of Parties
Section 9.2 Effect of Transfer
Section 9.3 Sublease Requirements
Section 9.4 Certain Transfers
ARTICLE X. INSURANCE AND INDEMNITY
Section 10.1 Tenant's Insurance
Section 10.2 Landlord's Insurance
Section 10.3 Tenant's Indemnity
Section 10.4 Landlord's Nonliability
Section 10.5 Waiver of Subrogation
ARTICLE XI. DAMAGE OR DESTRUCTION
Section 11.1 Restoration
Section 11.2 Lease Governs
ARTICLE XII. EMINENT DOMAIN
Section 12.1 Total or Partial Taking
Section 12.2 Temporary Taking
Section 12.3 Taking of Parking Area
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS
Section 13.1 Subordination
Section 13.2 Estoppel Certificate
Section 13.3 Financials
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE XIV. DEFAULTS AND REMEDIES
Section 14.1 Tenant's Defaults
Section 14.2 Landlord's Remedies
Section 14.3 Late Payments
Section 14.4 Right of Landlord to Perform
Section 14.5 Default by Landlord
Section 14.6 Expenses and Legal Fees
Section 14.7 Waiver of Jury Trial
Section 14.8 Satisfaction of Judgment
Section 14.9 Limitation of Actions Against Landlord
ARTICLE XV. END OF TERM
Section 15.1 Holding Over
Section 15.2 Merger on Termination
Section 15.3 Surrender of Premises; Removal of Property
ARTICLE XVI. PAYMENTS AND NOTICES
ARTICLE XVII. RULES AND REGULATIONS
ARTICLE XVIII. BROKER'S COMMISSION
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
ARTICLE XX. INTERPRETATION
Section 20.1 Gender and Number
Section 20.2 Headings
Section 20.3 Joint and Several Liability
Section 20.4 Successors
Section 20.5 Time of Essence
Section 20.6 Controlling Law
Section 20.7 Severability
Section 20.8 Waiver and Cumulative Remedies
Section 20.9 Inability to Perform
Section 20.10 Entire Agreement
Section 20.11 Quiet Enjoyment
Section 20.12 Survival
ARTICLE XXI. EXECUTION AND RECORDING
Section 21.1 Counterparts
Section 21.2 Corporate and Partnership Authority
Section 21.3 Execution of Lease; No Option or Offer
Section 21.4 Recording
Section 21.5 Amendments
Section 21.6 Executed Copy
Section 21.7 Attachments
ARTICLE XXII. MISCELLANEOUS
Section 22.1 Nondisclosure of Lease Terms
Section 22.2 Guaranty
Section 22.3 Changes Requested by Lender
Section 22.4 Mortgagee Protection
Section 22.5 Covenants and Conditions
Section 22.6 Security Measures
EXHIBITS
Exhibit A Description of Premises
Exhibit B Environmental Questionnaire
Exhibit C Landlord's Disclosures
Exhibit D Insurance Requirements
Exhibit E Rules and Regulations
Exhibit X Work Letter
Exhibit Y Project Site Plan
</TABLE>
(ii)
<PAGE> 4
INDUSTRIAL LEASE
(Multi-Tenant; Net)
THIS LEASE is made as of the 7th day of January, 1999, by and between
THE IRVINE COMPANY, hereafter called "Landlord," and JAYCOR NETWORKS, INC., a
Delaware corporation, hereinafter called "Tenant."
ARTICLE I. BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions" shall mean
and refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.
1. Premises: Suite No. 106 & 107A (the Premises are more particularly
described in Section 2.1).
Address of Building: 9272 Jeronimo Road, Irvine, CA 92618
2. Project Description (if applicable): Irvine Business Park
3. Use of Premises: General Office and Computer R & D
4. Estimated Commencement Date: January 22, 1999
5. Lease Term: Eighteen (18) months, plus such additional days as may be
required to cause this Lease to terminate on the final day of the calendar
month.
6. Basic Rent: Seven Thousand Three Hundred Seven Dollars ($7,307.00) per
month, based on $1.05 per rentable square foot.
7. Guarantor(s): None
8. Floor Area of Premises: Approximately 6,959 rentable square feet
9. Security Deposit: $8,038.00
10. Broker(s): Commercial Property Services
11. Additional Insureds: Insignia\ESG of California, Inc.
12. Address for Payments and Notices:
LANDLORD TENANT
INSIGNIA\ESG OF CALIFORNIA, INC. JAYCOR NETWORKS, INC.
1 Ada, Suite 270 9272 Jeronimo Road, Suite 106
Irvine, CA 92618 Irvine, CA 92618
with a copy of notices to:
IRVINE INDUSTRIAL COMPANY
P.O. Box 6370
Newport Beach, CA 92658-6370
Attn: Vice President, Industrial
Operations
13. Tenant's Liability Insurance Requirement: $2,000,000.00
14. Vehicle Parking Spaces: Twenty-one (21)
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ARTICLE II. PREMISES
SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant leases
from Landlord the premises shown in Exhibit A (the "Premises"), containing
approximately the floor area set forth in Item 8 of the Basic Lease Provisions
and known by the suite number identified in Item 1 of the Basic Lease
Provisions. The Premises are located in the building identified in Item 1 of the
Basic Lease Provisions (which together with the underlying real property, is
called the "Building"), and is a portion of the project shown in Exhibit Y (the
"Project"). Tenant understands that the floor area set forth in Item 8 of the
Basic Lease Provisions may include, at Landlord's option, a factor approximating
the total square footage of any common lobby or internal common features of the
Building times the ratio of the actual square footage of the Premises to the
total square footage of the Building. If, upon completion of the space plans for
the Premises, Landlord's architect or space planner determines that the rentable
square footage of the Premises differs from that set forth in the Basic Lease
Provisions, then Landlord shall so notify Tenant and the Basic Rent (as shown in
Item 6 of the Basic Lease Provisions) shall be promptly adjusted in proportion
to the change in square footage. Within five (5) days following Landlord's
request, the parties shall memorialize the adjustments by executing an amendment
to this Lease prepared by Landlord, provided that the failure or refusal by
either party to execute the amendment shall not affect its validity.
SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that neither
Landlord nor any representative of Landlord has made any representation or
warranty with respect to the Premises or the Building or the suitability or
fitness of either for any purpose, including without limitation any
representations or warranties regarding zoning or other land use matters, and
that neither Landlord nor any representative of Landlord has made any
representations or warranties regarding (i) what other tenants or uses may be
permitted or intended in the Building and the Project, or (ii) any exclusivity
of use by Tenant with respect to its permitted use of the Premises as set forth
in Item 3 of the Basic Lease Provisions. Tenant further acknowledges that
neither Landlord nor any representative of Landlord has agreed to undertake any
alterations or additions or construct any improvements to the Premises except as
expressly provided in this Lease. The taking of possession or use of the
Premises by Tenant for any purpose other than construction shall conclusively
establish that the Premises and the Building were in satisfactory condition and
in conformity with the provisions of this Lease in all respects, except for
those matters which Tenant shall have brought to Landlord's attention on a
written punch list. The list shall be limited to any items required to be
accomplished by Landlord under the Work Letter attached as Exhibit X, and shall
be delivered to Landlord within thirty (30) days after the term ("Term") of this
Lease commences as provided in Article III below. If no items are required of
Landlord under the Work Letter, by taking possession of the Premises Tenant
accepts the improvements in their existing condition, and waives any right or
claim against Landlord arising out of the condition of the Premises. Nothing
contained in this Section shall affect the commencement of the Term or the
obligation of Tenant to pay rent. Landlord shall diligently complete all punch
list items of which it is notified as provided above.
SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any
name selected by Landlord from time to time for the Building and/or the Project
as any part of Tenant's corporate or trade name. Landlord shall have the right
to change the name, address, number or designation of the Building or Project
without liability to Tenant.
ARTICLE III. TERM
SECTION 3.1. GENERAL. The term shall be for the period shown in Item 5
of the Basic Lease Provisions. Subject to the provisions of Section 3.2 below,
the Term shall commence ("Commencement Date") on the earlier of (a) the date
upon which all relevant governmental authorities have approved the Tenant
Improvements in accordance with applicable building codes, as evidenced by
written approval thereof in accordance with the building permits issued for the
Tenant Improvements or issuance of a temporary or final certificate of
occupancy for the Premises, or (b) the date Tenant acquires possession or
commences use of the Premises for any purpose other than fixturization of the
Premises (including, without limitation, installation of phone systems) by
Tenant. Within ten (10) days after possession of the Premises is tendered to
Tenant, the parties shall memorialize on a form provided by Landlord the actual
Commencement Date and the expiration date ("Expiration Date") of this Lease.
Tenant's failure to execute that form shall not affect the validity of
Landlord's determination of those dates.
SECTION 3.2. DELAY IN POSSESSION. If Landlord, for any reason
whatsoever, cannot deliver possession of the Premises to Tenant on or before
the Estimated Commencement Date, this Lease shall not be void or voidable nor
shall Landlord be liable to Tenant for any resulting loss or damage. However,
Tenant shall not be liable for any rent and the Commencement Date shall not
occur until Landlord delivers possession of the Premises and the Premises are
in fact available for Tenant's occupancy with any Tenant Improvements that have
been approved as per Section 3.1(a) above, except that if Landlord's failure to
so deliver possession on the Estimated Commencement Date is attributable to any
action or inaction by Tenant (including without limitation any Tenant Delay
described in the Work Letter attached to this Lease), then the Commencement
Date shall not be advanced to the date on which possession of the Premises is
tendered to Tenant, and Landlord shall be entitled to full performance by
Tenant (including the payment of rent) from the date Landlord would have been
able to deliver the Premises to Tenant but for Tenant's delay(s).
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ARTICLE IV. RENT AND OPERATING EXPENSES
SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset, Basic Rent for the Premises
in the total amount shown (including subsequent adjustments, if any) in Item 6
of the Basic Lease Provisions. Any rental adjustment shown in Item 6 shall be
deemed to occur on the specified monthly anniversary of the Commencement Date,
whether or not that date occurs at the end of a calendar month. The rent shall
be due and payable in advance commencing on the Commencement Date (as prorated
for any partial month) and continuing thereafter on the first day of each
successive calendar month of the Term. No demand, notice or invoice shall be
required for the payment of Basic Rent. An installment of rent in the amount of
one (1) full month's Basic Rent at the initial rate specified in Item 6 of the
Basic Lease Provisions shall be delivered to Landlord concurrently with Tenant's
execution of this Lease and shall be applied against the Basic Rent first due
hereunder.
SECTION 4.2. OPERATING EXPENSES.
(a) Tenant shall pay to Landlord, as additional rent, Tenant's Share
of "Operating Expenses", as defined below, incurred by Landlord in the
operation of the Building and Project. The term "Tenant's Share" means that
portion of an Operating Expense determined by multiplying the cost of such item
by a fraction, the numerator of which is the floor area of the Premises and the
denominator of which is the total square footage of the floor area, as of the
date on which the computation is made, to be charged with such Operating
Expense.
(b) Commencing prior to the start of the first full "Expense Recovery
Period" (as defined below) of the Lease, and prior to the start of each full or
partial Expense Recovery Period thereafter, Landlord shall give Tenant a
written estimate of the amount of Tenant's Share of Operating Expenses for the
Expense Recovery Period. Tenant shall pay the estimated amounts to Landlord in
equal monthly installments, in advance, with Basic Rent. If Landlord has not
furnished its written estimate for any Expense Recovery Period by the time set
forth above, Tenant shall continue to pay cost reimbursements at the rates
established for the prior Expense Recovery Period, if any; provided that when
the new estimate is delivered to Tenant, Tenant shall, at the next monthly
payment date, pay any accrued cost reimbursements based upon the new estimate.
For purposes hereof, "Expense Recovery Period" shall mean every twelve month
period during the Term (or portion thereof for the first and last lease years)
commencing July 1 and ending June 30.
(c) Within one hundred twenty (120) days after the end of each Expense
Recovery Period, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual or prorated Operating Expenses incurred by Landlord
during the period, and the parties shall within thirty (30) days thereafter make
any payment or allowance necessary to adjust Tenant's estimated payments, if
any, to the actual Tenant's Share as shown by the annual statement. Any delay or
failure by Landlord in delivering any statement hereunder shall not constitute a
waiver of Landlord's right to require Tenant to pay Tenant's Share of Operating
Expenses pursuant hereto. Any amount due Tenant shall be credited against
installments next coming due under this Section 4.2, and any deficiency shall be
paid by Tenant together with the next installment. If Tenant has not made
estimated payments during the Expense Recovery Period, any amount owing by
Tenant pursuant to subsection (a) above shall be paid to Landlord in accordance
with Article XVI. Should Tenant fail to object in writing to Landlord's
determination of actual Operating Expenses within sixty (60) days following
delivery of Landlord's expense statement, Landlord's determination of actual
Operating Expenses for the applicable Expense Recovery Period shall be
conclusive and binding on the parties and any future claims to the contrary
shall be barred.
(d) Even though the Lease has terminated and the Tenant has vacated
the Premises, when the final determination is made of Tenant's Share of
Operating Expenses for the Expense Recovery Period in which the Lease
terminates. Tenant shall upon notice pay the entire increase due over the
estimated expenses paid. Conversely, any overpayment made in the event expenses
decrease shall be rebated by Landlord to Tenant.
(e) If, at any time during any Expense Recovery Period, any one or
more of the Operating Expenses are increased to a rate(s) or amount(s) in excess
of the rate(s) or amount(s) used in calculating the estimated expenses for the
year, then the estimate of Tenant's Share of Operating Expenses shall be
increased for the month in which such rate(s) or amount(s) becomes effective and
for all succeeding months by an amount equal to Tenant's Share of the increase.
Landlord shall give Tenant written notice of the amount or estimated amount of
the increase, the month in which the increase will become effective, Tenant's
Share thereof and the month for which the payments are due. Tenant shall pay the
increase to Landlord as a part of Tenant's monthly payments of estimated
expenses as provided in paragraph (b) above, commencing with the month in which
effective.
(f) The term "Operating Expenses" shall mean and include all "Project
Costs" (as hereafter defined) and "Property Taxes" (as hereafter defined).
(g) The term "Project Costs" shall include all expenses of operation
and maintenance of the Building and the Project, together with all appurtenant
Common Areas (as defined in Section 6.2), and shall include the following
charges by way of illustration but not limitation: water and sewer charges;
insurance premiums or reasonable premium equivalents should Landlord elect to
self-insure any risk that Landlord is authorized to insure hereunder; license,
permit, and inspection fees; heat; light; power; janitorial services to any
interior Common Areas; air conditioning; supplies; materials; equipment; tools;
the cost of any environmental, insurance, tax or other consultant utilized by
Landlord in connection with the Building and/or Project; establishment of
reasonable reserves for replacements and/or repair of Common Area
improvements, equipment and supplies; costs incurred in connection with
compliance of any laws or changes in laws applicable to the Building or the
Project; the cost of any capital investments (other than tenant
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<PAGE> 7
improvements for specific tenants) to the extent of the amortized amount thereof
over the useful life of such capital investments calculated at a market cost of
funds, all as determined by Landlord, for each such year of useful life during
the Term; costs associated with the procurement and maintenance of an air
conditioning, heating and ventilation service agreement, and procurement and
maintenance of an intrabuilding network cable service agreement for any
intrabuilding network cable telecommunications lines within the Project, and any
other installation, maintenance, repair and replacement costs associated with
such lines; labor; reasonably allocated wages and salaries, fringe benefits, and
payroll taxes for administrative and other personnel directly applicable to the
Building and/or Project, including both Landlord's personnel and outside
personnel; any expense incurred pursuant to Sections 6.1, 6.2, 6.4, 7.2, and
10.2; and a reasonable overhead/management fee for the professional operation of
the Project. Notwithstanding anything to the contrary herein, Tenant's Share of
any such property management fees shall be determined by multiplying the actual
property management fee charged (which from time to time may be with respect to
the Building only, a portion of the Project only, the entire Project, or the
Project together with other properties owned by Landlord and/or its affiliates)
by a fraction, the numerator of which is the floor area of the Premises (as set
forth in Item 8 of the Basic Lease Provisions contained in the Lease), and the
denominator of which is the total square footage of space charged with such
management fee actually leased to tenants (including Tenant). It is understood
that Project Costs shall include competitive charges for direct services
provided by any subsidiary or division of Landlord.
(h) The term "Property Taxes" as used herein shall include the
following: (i) all real estate taxes or personal property taxes, as such
property taxes may be reassessed from time to time; and (ii) other taxes,
charges and assessments which are levied with respect to this Lease or to the
Building and/or Project, and any improvements, fixtures and equipment and other
property of Landlord located in the Building and/or the Project, except that
general net income and franchise taxes imposed against Landlord shall be
excluded; and (iii) all assessments and fees for public improvements, services,
and facilities and impacts thereon, including without limitation arising out of
any Community Facilities Districts, "Mello Roos" districts, similar assessment
districts, and any traffic impact mitigation assessments or fees; (iv) any tax,
surcharge or assessment which shall be levied in addition to or in lieu of real
estate or personal property taxes, other than taxes covered by Article VIII; and
(v) costs and expenses incurred in contesting the amount or validity of any
Property Tax by appropriate proceedings.
SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of
this Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9
of the Basic Lease Provisions, to be held by Landlord as security for the full
and faithful performance of Tenant's obligations under this Lease (the "Security
Deposit"). Subject to the last sentence of this Section, the Security Deposit
shall be understood and agreed to be the property of Landlord upon Landlord's
receipt thereof, and may be utilized by Landlord in its discretion towards the
payment of all prepaid expenses by Landlord for which Tenant would be required
to reimburse Landlord under this Lease, including without limitation brokerage
commissions and Tenant improvement costs. Upon any default by Tenant, including
specifically Tenant's failure to pay rent or to abide by its obligations under
Sections 7.1 and 15.3 below, whether or not Landlord is informed of or has
knowledge of the default, the Security Deposit shall be deemed to be
automatically and immediately applied, without waiver of any rights Landlord may
have under this Lease or at law or in equity as a result of the default, as a
setoff for full or partial compensation for that default. If any portion of the
Security Deposit is applied after a default by Tenant, Tenant shall within five
(5) days after written demand by Landlord deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its original amount.
Landlord shall not be required to keep this Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on the Security
Deposit. If Tenant fully performs its obligations under this Lease, the Security
Deposit shall be returned to Tenant (or, at Landlord's option, to the last
assignee of Tenant's interest in this Lease) after the expiration of the Term,
provided that Landlord may retain the Security Deposit to the extent and until
such time as all amounts due from Tenant in accordance with this Lease have been
determined and paid in full.
ARTICLE V. USES
SECTION 5.1. USE. Tenant shall use the Premises only for the purposes
stated in Item 3 of the Basic Lease Provisions, all in accordance with
applicable laws and restrictions and pursuant to approvals to be obtained by
Tenant from all relevant and required governmental agencies and authorities. The
parties agree that any contrary use shall be deemed to cause material and
irreparable harm to Landlord and shall entitle Landlord to injunctive relief in
addition to any other available remedy. Tenant, at its expense, shall procure,
maintain and make available for Landlord's inspection throughout the Term, all
governmental approvals, licenses and permits required for the proper and lawful
conduct of Tenant's permitted use of the Premises. Tenant shall not do or permit
anything to be done in or about the Premises which will in any way interfere
with the rights of other occupants of the Building or the Project, or use or
allow the Premises to be used for any unlawful purpose, nor shall Tenant permit
any nuisance or commit any waste in the Premises or the Project. Tenant shall
not perform any work or conduct any business whatsoever in the Project other
than inside the Premises. Tenant shall not do or permit to be done anything
which will invalidate or increase the cost of any insurance policy(ies) covering
the Building, the Project and/or their contents, and shall comply with all
applicable insurance underwriters rules and the requirements of the Pacific Fire
Rating Bureau or any other organization performing a similar function. Tenant
shall comply at its expense with all present and future laws, ordinances,
restrictions, regulations, orders, rules and requirements of all governmental
authorities that pertain to Tenant or its use of the Premises, including without
limitation all federal and state occupational health and safety requirements,
whether or not Tenant's compliance will necessitate expenditures or interfere
with its use and enjoyment of the Premises. Tenant shall comply at its expense
with all present and future covenants, conditions, easements or restrictions now
or hereafter affecting or encumbering the Building and/or Project, and any
amendments or modifications thereto, including without limitation the payment by
Tenant of any periodic or special dues or assessments charged against the
Premises or Tenant which may be allocated
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to the Premises or Tenant in accordance with the provisions thereof. Tenant
shall promptly upon demand reimburse Landlord for any additional insurance
premium charged by reason of Tenant's failure to comply with the provisions of
this Section, and shall indemnify Landlord from any liability and/or expense
resulting from Tenant's noncompliance.
SECTION 5.2 SIGNS. Except as approved in writing by Landlord, in its sole
discretion, Tenant shall have no right to maintain identification signs in any
location in, on or about the Premises, the Building or the Project and shall not
place or erect any signs, displays or other advertising materials that are
visible from the exterior of the Building. The size, design, graphics, material,
style, color and other physical aspects of any permitted sign shall be subject
to Landlord's written approval prior to installation (which approval may be
withheld in Landlord's discretion), any covenants, conditions or restrictions
encumbering the Premises, Landlord's signage program for the Project, as in
effect from time to time and approved by the City in which the Premises are
located ("Signage Criteria"), and any applicable municipal or other governmental
permits and approvals. Tenant acknowledges having received and reviewed a copy
of the current Signage Criteria for the Project. Tenant shall be responsible for
the cost of any permitted sign, including the fabrication, installation,
maintenance and removal thereof. If Tenant fails to maintain its sign, or if
Tenant fails to remove same upon termination of this Lease and repair any damage
caused by such removal, Landlord may do so at Tenant's expense.
SECTION 5.3 HAZARDOUS MATERIALS.
(a) For purposes of this Lease, the term "Hazardous Materials"
includes (i) any "hazardous materials" as defined in Section 25501(n) of the
California Health and Safety Code, (ii) any other substance or matter which
results in liability to any person or entity from exposure to such substance or
matter under any statutory or common law theory, and (iii) any substance or
matter which is in excess of permitted levels set forth in any federal,
California or local law or regulation pertaining to any hazardous or toxic
substance, material or waste.
(b) Tenant shall not cause or permit any Hazardous Materials to be
brought upon, stored, used, generated, released or disposed of on, under, from
or about the Premises (including without limitation the soil and groundwater
thereunder) without the prior written consent of Landlord. Notwithstanding the
foregoing, Tenant shall have the right, without obtaining prior written consent
of Landlord, to utilize within the Premises standard office products that may
contain Hazardous Materials (such as photocopy toner, "White Out", and the
like), provided however, that (i) Tenant shall maintain such products in their
original retail packaging, shall follow all instructions on such packaging with
respect to the storage, use and disposal of such products, and shall otherwise
comply with all applicable laws with respect to such products, and (ii) all of
the other terms and provisions of this Section 5.3 shall apply with respect to
Tenant's storage, use and disposal of all such products. Landlord may, in its
sole discretion, place such conditions as Landlord deems appropriate with
respect to any such Hazardous Materials, and may further require that Tenant
demonstrate that any such Hazardous Materials are necessary or useful to
Tenant's business and will be generated, stored, used and disposed of in a
manner that complies with all applicable laws and regulations pertaining thereto
and with good business practices. Tenant understands that Landlord may utilize
an environmental consultant to assist in determining conditions of approval in
connection with the storage, generation, release, disposal or use of Hazardous
Materials by Tenant on or about the Premises, and/or to conduct periodic
inspections of the storage, generation, use, release and/or disposal of such
Hazardous Materials by Tenant on and from the Premises, and Tenant agrees that
any costs incurred by Landlord in connection therewith shall be reimbursed by
Tenant to Landlord as additional rent hereunder upon demand.
(c) Prior to the execution of this Lease, Tenant shall complete,
execute and deliver to Landlord an Environmental Questionnaire and Disclosure
Statement (the "Environmental Questionnaire") in the form of Exhibit B attached
hereto. The completed Environmental Questionnaire shall be deemed incorporated
into this Lease for all purposes, and Landlord shall be entitled to rely fully
on the information contained therein. On each anniversary of the Commencement
Date until the expiration or sooner termination of this Lease, Tenant shall
disclose to Landlord in writing the names and amounts of all Hazardous Materials
which were stored, generated, used, released and/or disposed of on, under or
about the Premises for the twelve-month period prior thereto, and which Tenant
desires to store, generate, use, release and/or dispose of on, under or about
the Premises for the succeeding twelve-month period. In addition, to the extent
that Tenant is permitted to utilize Hazardous Materials upon the Premises,
Tenant shall promptly provide Landlord with complete and legible copies of all
the following environmental documents relating thereto: reports filed pursuant
to any self-reporting requirements; permit applications, permits, monitoring
reports, workplace exposure and community exposure warnings or notices and all
other reports, disclosures, plans or documents (even those which may be
characterized as confidential) relating to water discharges, air pollution,
waste generation or disposal, and underground storage tanks for Hazardous
Materials; orders, reports, notices, listings and correspondence (even those
which may be considered confidential) of or concerning the release,
investigation of, compliance, cleanup, remedial and corrective actions, and
abatement of Hazardous Materials; and all complaints, pleadings and other legal
documents filed by or against Tenant related to Tenant's use, handling, storage,
release and/or disposal of Hazardous Materials.
(d) Landlord and its agents shall have the right, but not the
obligation, to inspect, sample, and/or monitor the Premises and/or the soil or
groundwater thereunder at any time to determine whether Tenant is complying with
the terms of this Section 5.3, and in connection therewith Tenant shall provide
Landlord with full access to all relevant facilities, records and personnel. If
Tenant is not in compliance with any of the provisions of this Section 5.3, or
in the event of a release of Hazardous Material on, under or about the Premises
caused or permitted by Tenant, its agents, employees, contractors, licensees or
invitees, Landlord and its agents shall have the right, but not the obligation,
without limitation upon any of Landlord's other rights and remedies under this
Lease, to immediately enter upon the Premises without notice and to discharge
Tenant's obligations under this Section 5.3 at Tenant's expense, including
without limitation the taking of emergency or long-term remedial action.
Landlord and its agents shall endeavor to minimize interference with Tenant's
business in connection therewith, but shall not be liable for any such
interference. In addition, Landlord, at Tenant's expense, shall have the right,
but not the obligation, to join and participate in any legal proceedings
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or actions initiated in connection with any claims arising out of the storage,
generation, use, release and/or disposal by Tenant or its agents, employees,
contractors, licensees or invitees of Hazardous Materials on, under, from or
about the Premises.
(e) If the presence of any Hazardous Materials on, under, from or
about the Premises or the Project caused or permitted by Tenant or its agents,
employees, contractors, licensees or invitees results in (i) injury to any
person, (ii) injury to or any contamination of the Premises or the Project, or
(iii) injury to or contamination of any real or personal property wherever
situated, Tenant, at its expense, shall promptly take all actions necessary to
return the Premises and the Project and any other affected real or personal
property owned by Landlord to the condition existing prior to the introduction
of such Hazardous Materials and to remedy or repair any such injury or
contamination, including without limitation, any cleanup, remediation, removal,
disposal, neutralization or other treatment of any such Hazardous Materials.
Notwithstanding the foregoing, Tenant shall not, without Landlord's prior
written consent, take any remedial action in response to the presence of any
Hazardous Materials on, under or about the Premises or the Project or any other
affected real or personal property owned by Landlord or enter into any similar
agreement, consent, decree or other compromise with any governmental agency
with respect to any Hazardous Materials claims; provided however, Landlord's
prior written consent shall not be necessary in the event that the presence of
Hazardous Materials on, under or about the Premises or the Project or any other
affected real or personal property owned by Landlord (i) imposes an immediate
threat to the health, safety or welfare of any individual or (ii) is of such a
nature that an immediate remedial response is necessary and it is not possible
to obtain Landlord's consent before taking such action. To the fullest extent
permitted by law, Tenant shall indemnify, hold harmless, protect and defend
(with attorneys acceptable to Landlord) Landlord and any successors to all or
any portion of Landlord's interest in the Premises and the Project and any
other real or personal property owned by Landlord from and against any and all
liabilities, losses, damages, diminution in value, judgments, fines, demands,
claims, recoveries, deficiencies, costs and expenses (including without
limitation attorneys' fees, court costs and other professional expenses),
whether foreseeable or unforeseeable, arising directly or indirectly out of the
use, generation, storage, treatment, release, on- or off-site disposal or
transportation of Hazardous Materials on, into, from, under or about the
Premises, the Building and the Project and any other real or personal property
owned by Landlord caused or permitted by Tenant, its agents, employees,
contractors, licensees or invitees, specifically including without limitation
the cost of any required or necessary repair, restoration, cleanup or
detoxification of the Premises, the Building and the Project and any other real
or personal property owned by Landlord, and the preparation of any closure or
other required plans, whether or not such action is required or necessary
during the Term or after the expiration of this Lease. If Landlord at any time
discovers that Tenant or its agents, employees, contractors, licensees or
invitees may have caused or permitted the release of a Hazardous Material on,
under, from or about the Premises or the Project or any other real or personal
property owned by Landlord, Tenant shall, at Landlord's request, immediately
prepare and submit to Landlord a comprehensive plan, subject to Landlord's
approval, specifying the actions to be taken by Tenant to return the Premises
or the Project or any other real or personal property owned by Landlord to the
condition existing prior to the introduction of such Hazardous Materials. Upon
Landlord's approval of such cleanup plan, Tenant shall, at its expense, and
without limitation of any rights and remedies of Landlord under this Lease or
at law or in equity, immediately implement such plan and proceed to cleanup
such Hazardous Materials in accordance with all applicable laws and as required
by such plan and this Lease. The provisions of this subsection (e) shall
expressly survive the expiration or sooner termination of this Lease.
(f) Landlord hereby discloses to Tenant, and Tenant hereby
acknowledges, certain facts relating to Hazardous Materials at the Project
known by Landlord to exist as of the date of this Lease, as more particularly
described in Exhibit C attached hereto. Tenant shall have no liability or
responsibility with respect to the Hazardous Materials facts described in
Exhibit C, nor with respect to any Hazardous Materials which Tenant proves were
not caused or permitted by Tenant, its agents, employees, contractors, licensees
or invitees. Notwithstanding the preceding two sentences, Tenant agrees to
notify its agents, employees, contractors, licensees, and invitees of any
exposure or potential exposure to Hazardous Materials at the Premises that
Landlord brings to Tenant's attention.
ARTICLE VI. COMMON AREAS; SERVICES
SECTION 6.1. UTILITIES AND SERVICES. Tenant shall be responsible for
and shall pay promptly, directly to the appropriate supplier, all charges for
water, gas, electricity, sewer, heat, light, power, telephone, refuse pickup,
janitorial service, interior landscape maintenance and all other utilities,
materials and services furnished directly to Tenant or the Premises or used by
Tenant in, on or about the Premises during the Term, together with any taxes
thereon. If any utilities or services are not separately metered or assessed to
Tenant, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such amount to Landlord, as an item of additional rent, within ten (10)
days after receipt of Landlord's statement or invoice therefor. Alternatively,
Landlord may elect to include such cost in the definition of Building Costs in
which event Tenant shall pay Tenant's proportionate share of such costs in the
manner set forth in Section 4.2. Landlord shall not be liable for damages or
otherwise for any failure or interruption of any utility or other service
furnished to the Premises, and no such failure or interruption shall be deemed
an eviction or entitle Tenant to terminate this Lease or withhold or abate any
rent due hereunder. Landlord shall at all reasonable times have free access to
all electrical and mechanical installations of Landlord.
SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the Term,
Landlord shall operate all Common Areas with the Building and the Project. The
term "Common Areas" shall mean all areas within the exterior boundaries of the
Building and other buildings in the Project which are not held for exclusive use
by persons entitled to occupy space, and all other appurtenant areas and
improvements provided by Landlord for the
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common use of Landlord and tenants and their respective employees and invitees,
including without limitation parking areas and structures, driveways,
sidewalks, landscaped and planted areas, hallways and interior stairwells not
located within the premises of any tenant, common electrical rooms and roof
access entries, common entrances and lobbies, elevators, and restrooms not
located within the premises of any tenant.
SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the
Premises shall include the use of the Common Areas in common with Landlord and
with all others for whose convenience and use the Common Areas may be provided
by Landlord, subject, however, to compliance with all rules and regulations as
are prescribed from time to time by Landlord. Landlord shall operate and
maintain the Common Areas in the manner Landlord may determine to be
appropriate. All costs incurred by Landlord for the maintenance and operation
of the Common Areas shall be included in Project Costs unless any particular
cost incurred can be charged to a specific tenant of the Project. Landlord
shall at all times during the Term have exclusive control of the Common Areas,
and may restrain any use or occupancy, except as authorized by Landlord's rules
and regulations. Tenant shall keep the Common Areas clear of any obstruction or
unauthorized use related to Tenant's operations. Nothing in this Lease shall be
deemed to impose liability upon Landlord for any damage to or loss of the
property of, or for any injury to, Tenant, its invitees or employees. Landlord
may temporarily close any portion of the Common Areas for repairs, remodeling
and/or alterations, to prevent a public dedication or the accrual of
prescriptive rights, or for any other reason deemed sufficient by Landlord,
without liability to Landlord.
SECTION 6.4. PARKING. Tenant shall be entitled to the number of vehicle
parking spaces set forth in Item 14 of the Basic Lease Provisions, which spaces
shall be unreserved and unassigned, on those portions of the Common Areas
designated by Landlord for parking. Tenant shall not use more parking spaces
than such number. All parking spaces shall be used only for parking by vehicles
no larger than full size passenger automobiles or pickup trucks. Tenant shall
not permit or allow any vehicles that belong to or are controlled by Tenant or
Tenant's employees, suppliers, shippers, customers or invitees to be loaded,
unloaded or parked in areas other than those designated by Landlord for such
activities. If Tenant permits or allows any of the prohibited activities
described above, then Landlord shall have the right, without notice, in addition
to such other rights and remedies that Landlord may have, to remove or tow away
the vehicle involved and charge the costs to Tenant. Parking within the Common
Areas shall be limited to striped parking stalls, and no parking shall be
permitted in any driveways, access ways or in any area which would prohibit or
impede the free flow of traffic within the Common Areas. There shall be no
overnight parking of any vehicles of any kind unless otherwise authorized by
Landlord, and vehicles which have been abandoned or parked in violation of the
terms hereof may be towed away at the owner's expense. Nothing contained in this
Lease shall be deemed to create liability upon Landlord for any damage to motor
vehicles of visitors or employees, for any loss of property from within those
motor vehicles, or for any injury to Tenant, its visitors or employees, unless
ultimately determined to be caused by the sole active negligence or willful
misconduct of Landlord. Landlord shall have the right to establish, and from
time to time amend, and to enforce against all users all reasonable rules and
regulations (including the designation of areas for employee parking) that
Landlord may deem necessary and advisable for the proper and efficient operation
and maintenance of parking within the Common Areas. Landlord shall have the
right to construct, maintain and operate lighting facilities within the parking
areas, to change the area, level, location and arrangement of the parking areas
and improvements therein; to restrict parking by tenants, their officers, agents
and employees to employee parking areas; to enforce parking charges (by
operation of meters or otherwise); and to do and perform such other acts in and
to the parking areas and improvements therein as, in the use of good business
judgment, Landlord shall determine to be advisable. Any person using the parking
area shall observe all directional signs and arrows and any posted speed limits.
In no event shall Tenant interfere with the use and enjoyment of the parking
area by other tenants of the Building or their employees or invitees. Parking
areas shall be used only for parking vehicles. Washing, waxing, cleaning or
servicing of vehicles, or the storage of vehicles for 24-hour periods, is
prohibited unless otherwise authorized by Landlord. Tenant shall be liable for
any damage to the parking areas caused by Tenant or Tenant's employees,
suppliers, shippers, customers or invitees, including without limitation damage
from excess oil leakage. Tenant shall have no right to install any fixtures,
equipment or personal property in the parking areas.
SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the
right to make alterations or additions to the Building or the Project, or to
the attendant fixtures, equipment and Common Areas. Landlord may at any time
relocate or remove any of the various buildings, parking areas, and other
Common Areas, and may add buildings and areas to the Project from time to time.
No change shall entitle Tenant to any abatement of rent or other claim against
Landlord, provided that the change does not deprive Tenant of reasonable access
to or use of the Premises.
ARTICLE VII. MAINTAINING THE PREMISES
SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole expense
shall comply with all applicable laws and governmental regulations governing
the Premises and make all repairs necessary to keep the Premises in the
condition as existed on the Commencement Date (or on any later date that the
improvements may have been installed), excepting ordinary wear and tear,
including without limitation all glass, windows, doors, door closures,
hardware, fixtures, electrical, plumbing, fire extinguisher equipment and other
equipment. Any damages or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices by Tenant. As part of its maintenance obligations
hereunder, Tenant shall, at Landlord's request, provide Landlord with copies of
all maintenance schedules, reports and notices prepared by, for or on behalf of
Tenant. All repairs shall be at least equal in quality to the original work,
shall be made only by a licensed contractor approved in writing in advance by
Landlord and shall be made only at the time or times approved by Landlord. Any
contractor
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utilized by Tenant shall be subject to Landlord's standard requirements for
contractors, as modified from time to time. Landlord may impose reasonable
restrictions and requirements with respect to repairs, as provided in Section
7.3, and the provisions of Section 7.4 shall apply to all repairs.
Alternatively, Landlord may elect to make any such repair on behalf of Tenant
and at Tenant's expense, and Tenant shall promptly reimburse Landlord for all
costs incurred upon submission of an invoice.
SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR. Subject to Section 7.1
and Article XI, Landlord shall provide service, maintenance and repair with
respect to any air conditioning, ventilating or heating equipment which
serves the Premises and shall maintain in good repair the roof, foundations,
footings, the exterior surfaces of the exterior walls of the Building, and the
structural, electrical and mechanical systems, except that Tenant at its
expense shall make all repairs which Landlord deems reasonably necessary as a
result of the act or negligence of Tenant, its agents, employees, invitees,
subtenants or contractors. Landlord shall have the right to employ or designate
any reputable person or firm, including any employee or agent of Landlord or
any of Landlord's affiliates or divisions, to perform any service, repair or
maintenance function. Landlord need not make any other improvements or repairs
except as specifically required under this Lease, and nothing contained in this
Section shall limit Landlord's right to reimbursement from Tenant for
maintenance, repair costs and replacement costs as provided elsewhere in this
Lease. Tenant understands that it shall not make repairs at Landlord's expense
or by rental offset. Tenant further understands that Landlord shall not be
required to make any repairs to the roof, foundations, footings, structural,
electrical or mechanical systems unless and until Tenant has notified Landlord
in writing of the need for such repair and Landlord shall have a reasonable
period of time thereafter to commence and complete said repair, if warranted.
All costs of any maintenance and repairs on the part of Landlord provided
hereunder shall be considered part of Project Costs.
SECTION 7.3. ALTERATIONS. Tenant shall make no alterations, additions or
improvements to the Premises without the prior written consent of Landlord,
which consent may be given or withheld in Landlord's sole discretion.
Notwithstanding the foregoing, Landlord shall not unreasonably withhold its
consent to any alterations, additions or improvements to the Premises which
cost less than One Dollar ($1.00) per square foot of the improved portions of
the Premises (excluding warehouse square footage) and do not (i) affect the
exterior of the Building or outside areas (or be visible from adjoining sites),
or (ii) affect or penetrate any of the structural portions of the Building,
including but not limited to the roof, or (iii) require any change to the basic
floor plan of the Premises, any change to any structural or mechanical systems
of the Premises, or any governmental permit as a prerequisite to the
construction thereof, or (iv) interfere in any manner with the proper
functioning of or Landlord's access to any mechanical, electrical, plumbing or
HVAC systems, facilities or equipment located in or serving the Building, or
(v) diminish the value of the Premises. Landlord may impose, as a condition to
its consent, any requirements that Landlord in its discretion may deem
reasonable or desirable, including but not limited to a requirement that all
work be covered by a lien and completion bond satisfactory to Landlord and
requirements as to the manner, time, and contractor for performance of the
work. Tenant shall obtain all required permits for the work and shall perform
the work in compliance with all applicable laws, regulations and ordinances,
all covenants, conditions and restrictions affecting the Project, and the Rules
and Regulations (hereafter defined). Tenant understands and agrees that
Landlord shall be entitled to a supervision fee in the amount of five percent
(5%) of the cost of the work. If any governmental entity requires, as a
condition to any proposed alterations, additions or improvements to the
Premises by Tenant, that improvements be made to the Common Areas, and if
Landlord consents to such improvements to the Common Areas, then Tenant shall,
at Tenant's sole expense, make such required improvements to the Common Areas
in such manner, utilizing such materials, and with such contractors (including,
if required by Landlord, Landlord's contractors) as Landlord may require in its
sole discretion. Under no circumstances shall Tenant make any improvement which
incorporates any Hazardous Materials, including without limitation
asbestos-containing construction materials into the Premises. Any request for
Landlord's consent shall be made in writing and shall contain architectural
plans describing the work in detail reasonably satisfactory to Landlord. Unless
Landlord otherwise agrees in writing, all alterations, additions or
improvements affixed to the Premises (excluding moveable trade fixtures and
furniture) shall become the property of Landlord and shall be surrendered with
the Premises at the end of the Term, except that Landlord may, by notice to
Tenant, require Tenant to remove by the Expiration Date, or sooner termination
date of this Lease, all or any alterations, decorations, fixtures, additions,
improvements and the like installed either by Tenant or by Landlord at Tenant's
request and to repair any damage to the Premises arising from that removal.
Except as otherwise provided in this Lease or in any Exhibit to this Lease,
should Landlord make any alteration or improvement to the Premises for Tenant,
Landlord shall be entitled to prompt reimbursement from Tenant for all costs
incurred.
SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free from
any liens arising out of any work performed, materials furnished, or
obligations incurred by or for Tenant. Upon request by Landlord, Tenant shall
promptly cause any such lien to be released by posting a bond in accordance
with California Civil Code Section 3143 or any successor statute. In the event
that Tenant shall not, within thirty (30) days following the imposition of any
lien, cause the lien to be released of record by payment or posting of a proper
bond, Landlord shall have, in addition to all other available remedies, the
right to cause the lien to be released by any means it deems proper, including
payment of or defense against the claim giving rise to the lien. All expenses
so incurred by Landlord, including Landlord's attorneys' fees, and any
consequential or other damages incurred by Landlord arising out of such lien,
shall be reimbursed by Tenant promptly following Landlord's demand, together
with interest from the date of payment by Landlord at the maximum rate
permitted by law until paid. Tenant shall give Landlord no less than twenty
(20) days' prior notice in writing before commencing construction of any kind
on the Premises so that Landlord may post and maintain notices of
nonresponsibility on the Premises.
SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable
times, upon written or oral notice (except in emergencies, when no notice shall
be required) have the right to enter the Premises to inspect them, to supply
services in accordance with this Lease, to protect the interests of Landlord in
the Premises, and to submit the
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Premises to prospective or actual purchasers or encumbrance holders (or, during
the last one hundred and eighty (180) days of the Term or when an uncured
Tenant default exists, to prospective tenants), all without being deemed to
have caused an eviction of Tenant and without abatement of rent except as
provided elsewhere in this Lease. Landlord shall have the right, if desired, to
retain a key which unlocks all of the doors in the Premises, excluding Tenant's
vaults and safes, and Landlord shall have the right to use any and all means
which Landlord may deem proper to open the doors in an emergency in order to
obtain entry to the Premises, and any entry to the Premises obtained by
Landlord shall not under any circumstances be deemed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or any eviction of Tenant
from the Premises.
ARTICLE VIII. TAXES AND ASSESSMENTS OF TENANT'S PROPERTY
Tenant shall be liable for and shall pay, at least ten (10) days before
delinquency, all taxes and assessments levied against all personal property of
Tenant located in the Premises, against all improvements to the Premises made
by Landlord or Tenant which are above Landlord's Project standard in quality
and/or quantity for comparable space within the Project ("Above Standard
Improvements"), and against any alterations, additions or like improvements
made to the Premises by or on behalf of Tenant. When possible Tenant shall
cause its personal property, Above Standard Improvements and alterations to be
assessed and billed separately from the real property of which the Premises
form a part. If any taxes on Tenant's personal property, Above Standard
Improvements and/or alterations are levied against Landlord or Landlord's
property and if Landlord pays the same, or if the assessed value of Landlord's
property is increased by the inclusion of a value placed upon the personal
property, Above Standard Improvements and/or alterations of Tenant and if
Landlord pays the taxes based upon the increased assessment, Tenant shall pay
to Landlord the taxes so levied against Landlord or the proportion of the taxes
resulting from the increase in the assessment. In calculating what portion of
any tax bill which is assessed against Landlord separately, or Landlord and
Tenant jointly, is attributable to Tenant's Above Standard Improvements,
alterations and personal property, Landlord's reasonable determination shall be
conclusive.
ARTICLE IX. ASSIGNMENT AND SUBLETTING
SECTION 9.1. RIGHTS OF PARTIES.
(a) Notwithstanding any provision of this Lease to the contrary,
Tenant will not, either voluntarily or by operation of law, assign, sublet,
encumber, or otherwise transfer all or any part of Tenant's interest in this
lease, or permit the Premises to be occupied by anyone other than Tenant,
without Landlord's prior written consent, which consent shall not unreasonably
be withheld in accordance with the provisions of Section 9.1(b). No assignment
(whether voluntary, involuntary or by operation of law) and no subletting shall
be valid or effective without Landlord's prior written consent and, at
Landlord's election, any such assignment or subletting or attempted assignment
or subletting shall constitute a material default of this Lease. Landlord shall
not be deemed to have given its consent to any assignment or subletting by any
other course of action, including its acceptance of any name for listing in the
Building directory. To the extent not prohibited by provisions of the
Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"),
including Section 365(f)(1), Tenant on behalf of itself and its creditors,
administrators and assigns waives the applicability of Section 365(e) of the
Bankruptcy Code unless the proposed assignee of the Trustee for the estate of
the bankrupt meets Landlord's standard for consent as set forth in Section
9.1(b) of this Lease. If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, any and all monies or other
considerations to be delivered in connection with the assignment shall be
delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to
have assumed all of the obligations arising under this Lease on and after the
date of the assignment, and shall upon demand execute and deliver to Landlord
an instrument confirming that assumption.
(b) If Tenant desires to transfer an interest in this Lease, it shall
first notify Landlord of its desire and shall submit in writing to Landlord:
(i) the name and address of the proposed transferee; (ii) the nature of any
proposed subtenant's or assignee's business to be carried on in the Premises;
(iii) the terms and provisions of any proposed sublease or assignment,
including a copy of the proposed assignment or sublease form; (iv) evidence of
insurance of the proposed assignee or subtenant complying with the requirements
of Exhibit D hereto; (v) a completed Environmental Questionnaire from the
proposed assignee or subtenant; and (vi) any other information requested by
Landlord and reasonably related to the transfer. Except as provided in
Subsection (c) of this Section, Landlord shall not unreasonably withhold its
consent, provided: (1) the use of the Premises will be consistent with the
provisions of this Lease and with Landlord's commitment to other tenants of the
Building and Project; (2) the proposed assignee or subtenant has not been
required by any prior landlord, lender or governmental authority to take
remedial action in connection with Hazardous Materials contaminating a property
arising out of the proposed assignee's or subtenant's actions or use of the
property in question and is not subject to any enforcement order issued by any
governmental authority in connection with the use, disposal or storage of a
Hazardous Material; (3) at Landlord's election, insurance requirements shall be
brought into conformity with Landlord's then current leasing practices; (4) any
proposed subtenant or assignee demonstrates that it is financially responsible
by submission to Landlord of all reasonable information as Landlord may request
concerning the proposed subtenant or assignee, including, but not limited to,
a balance sheet of the proposed subtenant or assignee as of a date within ninety
(90) days of the request for Landlord's consent, statements of income or profit
and loss of the proposed subtenant or assignee for the two-year period
preceding the request for Landlord's consent, and/or a certification signed
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by the proposed subtenant or assignee that it has not been evicted or been in
arrears in rent at any other leased premises for the 3-year period preceding
the request for Landlord's consent; (5) any proposed subtenant or assignee
demonstrates to Landlord's reasonable satisfaction a record of successful
experience in business; (6) the proposed assignee or subtenant is not an
existing tenant of the Building or Project or a prospect with whom Landlord is
negotiating to become a tenant at the Building or Project; and (7) the proposed
transfer will not impose additional burdens or adverse tax effects on Landlord.
If Tenant has any exterior sign rights under this Lease, such rights are
personal to Tenant and may not be assigned or transferred to any assignee of
this Lease or subtenant of the Premises without Landlord's prior written
consent, which may be withheld in Landlord's sole and absolute discretion.
If Landlord consents to the proposed transfer, Tenant may within
ninety (90) days after the date of the consent effect the transfer upon the
terms described in the information furnished to Landlord; provided that any
material change in the terms shall be subject to Landlord's consent as set
forth in this Section. Landlord shall approve or disapprove any requested
transfer within thirty (30) days following receipt of Tenant's written request,
the information set forth above, and the fee set forth below.
(c) Notwithstanding the provisions of Subsection (b) above, in lieu
of consenting to a proposed assignment or subletting, Landlord may elect to (i)
sublease the Premises (or the portion proposed to be subleased), or take an
assignment of Tenant's interest in this Lease, upon the same terms as offered
to the proposed subtenant or assignee (excluding terms relating to the purchase
of personal property, the use of Tenant's name or the continuation of Tenant's
business), or (ii) terminate this Lease as to the portion of the Premises
proposed to be subleased or assigned with a proportionate abatement in the rent
payable under this Lease, effective on the date that the proposed sublease or
assignment would have become effective. Landlord may thereafter, at its option,
assign or re-let any space so recaptured to any third party, including without
limitation the proposed transferee of Tenant.
(d) Tenant agrees that fifty percent (50%) of any amounts paid by
the assignee or subtenant, however described, in excess of (i) the Basic Rent
payable by Tenant hereunder, or in the case of a sublease of a portion of the
Premises, in excess of the Basic Rent reasonably allocable to such portion,
plus (ii) Tenant's direct out-of-pocket costs which Tenant certifies to
Landlord have been paid to provide occupancy related services to such assignee
or subtenant of a nature commonly provided by landlords of similar space, shall
be the property of Landlord and such amounts shall be payable directly to
Landlord by the assignee or subtenant or, at Landlord's option, by Tenant. At
Landlord's request, a written agreement shall be entered into by and among
Tenant, Landlord and the proposed assignee or subtenant confirming the
requirements of this subsection.
(e) Tenant shall pay to Landlord a fee of Five Hundred Dollars
($500.00) if and when any transfer hereunder is requested by Tenant. Such fee is
hereby acknowledged as a reasonable amount to reimburse Landlord for its costs
of review and evaluation of a proposed assignee/subleasee, and Landlord shall
not be obligated to commence such review and evaluation unless and until such
fee is paid.
SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with
the consent of Landlord, shall relieve Tenant of its obligation to pay rent and
to perform all its other obligations under this Lease. Moreover, Tenant shall
indemnify and hold Landlord harmless, as provided in Section 10.3, for any act
or omission by an assignee or subtenant. Each assignee, other than Landlord,
shall be deemed to assume all obligations of Tenant under this Lease and shall
be liable jointly and severally with Tenant for the payment of all rent, and
for the due performance of all of Tenant's obligations, under this Lease. No
transfer shall be binding on Landlord unless any document memorializing the
transfer is delivered to Landlord and both the assignee/subtenant and Tenant
deliver to Landlord an executed consent to transfer instrument prepared by
Landlord and consistent with the requirements of this Article. The acceptance
by Landlord of any payment due under this Lease from any other person shall not
be deemed to be a waiver by Landlord of any provision of this Lease or to be a
consent to any transfer. Consent by Landlord to one or more transfers shall not
operate as a waiver or estoppel to the future enforcement by Landlord of its
rights under this Lease.
SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be deemed included in each sublease:
(a) Each and every provision contained in this Lease (other than
with respect to the payment of rent hereunder) is incorporated by reference
into and made a part of such sublease, with "Landlord" hereunder meaning the
sublandlord therein and "Tenant" hereunder meaning the subtenant therein.
(b) Tenant hereby irrevocably assigns to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the Premises,
and Landlord may collect such rent and income and apply same toward Tenant's
obligations under this Lease; provided, however, that until a default occurs in
the performance of Tenant's obligations under this Lease, Tenant shall have the
right to receive and collect the sublease rentals. Landlord shall not, by
reason of this assignment or the collection of sublease rentals, be deemed
liable to the subtenant for the performance of any of Tenant's obligations
under this sublease. Tenant hereby irrevocably authorizes and directs any
subtenant, upon receipt of a written notice from Landlord stating that an
uncured default exists in the performance of Tenant's obligations under this
Lease, to pay to Landlord all sums then and thereafter due under the sublease.
Tenant agrees that the subtenant may rely on that notice without any duty of
further inquiry and notwithstanding any notice or claim by Tenant to the
contrary. Tenant shall have no right or claim against the subtenant or Landlord
for any rentals so paid to Landlord.
(c) In the event of the termination of this Lease, Landlord may, at
its sole option, take over Tenant's entire interest in any sublease and, upon
notices from Landlord, the subtenant shall attorn to Landlord. In no event,
however, shall Landlord be liable for any previous act or omission by Tenant
under the sublease or for the return of any advance
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rental payments or deposits under the sublease that have not been actually
delivered to Landlord, nor shall Landlord be bound by any sublease modification
executed without Landlord's consent or for any advance rental payment by the
subtenant in excess of one month's rent. The general provisions of this Lease,
including without limitation those pertaining to insurance and indemnification
shall be deemed incorporated by reference into the sublease despite the
termination of this Lease.
SECTION 9.4. CERTAIN TRANSFERS. The sale of all or substantially all of
Tenant's assets (other than bulk sales in the ordinary course of business) or,
if Tenant is a corporation, an unincorporated association, or a partnership, the
transfer, assignment or hypothecation of any stock or interest in such
corporation, association, or partnership in the aggregate of twenty-five percent
(25%) (except for publicly traded shares of stock constituting a transfer of
twenty-five percent (25%) or more in the aggregate, so long as no change in the
controlling interest of Tenant occurs as a result thereof) shall be deemed an
assignment within the meaning and provisions of this Article. Notwithstanding
the foregoing, Landlord's consent shall not be required for the assignment of
this Lease as a result of a merger by Tenant with or into another entity, so
long as (i) the net worth of the successor entity after such merger is at least
equal to the greater of the net worth of Tenant as of the execution of this
Lease by Landlord or the net worth of Tenant immediately prior to the date of
such merger, evidence of which, satisfactory to Landlord, shall be presented to
Landlord prior to such merger, (ii) Tenant shall provide to Landlord, prior to
such merger, written notice of such merger and such assignment documentation and
other information as Landlord may request in connection therewith, and (iii) all
of the other terms and requirements of this Article shall apply with respect to
such assignment.
ARTICLE X. INSURANCE AND INDEMNITY
SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
Evidence of that insurance must be delivered to Landlord prior to the
Commencement Date.
SECTION 10.2. LANDLORD'S INSURANCE. Landlord may, at its election,
provide any or all of the following types of insurance, with or without
deductible and in amounts and coverages as may be determined by Landlord in its
discretion: "all risk" property insurance, subject to standard exclusions,
covering the Building or Project, and such other risks as Landlord or its
mortgagees may from time to time deem appropriate, including leasehold
improvements made by Landlord, and commercial general liability coverage.
Landlord shall not be required to carry insurance of any kind on Tenant's
property, including leasehold improvements, trade fixtures, furnishings,
equipment, plate glass, signs and all other items of personal property, and
shall not be obligated to repair or replace that property should damage occur.
All proceeds of insurance maintained by Landlord upon the Building and Project
shall be the property of Landlord, whether or not Landlord is obligated to or
elects to make any repairs. At Landlord's option, Landlord may self-insure all
or any portion of the risks for which Landlord elects to provide insurance
hereunder.
SECTION 10.3. TENANT'S INDEMNITY. To the fullest extent permitted by
law, Tenant shall defend, indemnify, protect, save and hold harmless Landlord,
its agents, and any and all affiliates of Landlord, including, without
limitation, any corporations or other entities controlling, controlled by or
under common control with Landlord, from and against any and all claims,
liabilities, costs or expenses arising either before or after the Commencement
Date from Tenant's use or occupancy of the Premises, the Building or the Common
Areas, or from the conduct of its business, or from any activity, work, or
thing done, permitted or suffered by Tenant or its agents, employees, invitees
or licensees in or about the Premises, the Building or the Common Areas, or
from any default in the performance of any obligation on Tenant's part to be
performed under this Lease, or from any act or negligence of Tenant or its
agents, employees, visitors, patrons, guests, invitees or licensees. Landlord
may, at its option, require Tenant to assume Landlord's defense in any action
covered by this Section through counsel satisfactory to Landlord. The
provisions of this Section shall expressly survive the expiration or sooner
termination of this Lease.
SECTION 10.4. LANDLORD'S NONLIABILITY. Landlord shall not be liable to
Tenant, its employees, agents and invitees, and Tenant hereby waives all claims
against Landlord for loss of or damage to any property, or loss or interruption
of business or income, or any other loss, cost, damage, injury or liability
whatsoever (including without limitation any consequential damages and lost
profit or opportunity costs) resulting from, but not limited to, Acts of God,
acts of civil disobedience or insurrection, acts or omissions of other tenants
within the Project or their agents, employees, contractors, guests or invitees,
fire, explosion, falling plaster, steam, gas, electricity, water or rain which
may leak or flow from or into any part of the Premises or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, electrical works or other fixtures in
the Building, whether the damage or injury results from conditions arising in
the Premises or in other portions of the Building. It is understood that any
such condition may require the temporary evacuation or closure of all or a
portion of the Building. Except as provided in Sections 11.1 and 12.1 below,
there shall be no abatement of rent and no liability of Landlord by reason of
any injury to or interference with Tenant's business (including without
limitation consequential damages and lost profit or opportunity costs) arising
from the making of any repairs, alterations or improvements to any portion of
the Building, including repairs to the Premises, nor shall any related activity
by Landlord constitute an actual or constructive eviction; provided, however,
that in making repairs, alterations or improvements, Landlord shall interfere
as little as reasonably practicable with the conduct of Tenant's business in
the Premises. Neither Landlord nor its agents shall be liable for interference
with light or other similar intangible interests. Tenant shall immediately
notify Landlord in case of fire or accident in the Premises, the Building or
the Project and of defects in any improvements or equipment.
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SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waives all rights of recovery against the other and the other's agents on
account of loss and damage occasioned to the property of such waiving party to
the extent only that such loss or damage is required to be insured against
under any "all risk" property insurance policies required by this Article X;
provided however, that (i) the foregoing waiver shall not apply to the extent
of Tenant's obligations to pay deductibles under any such policies and this
Lease, and (ii) if any loss is due to the act, omission or negligence or
willful misconduct of Tenant or its agents, employees, contractors, guests or
invitees, Tenant's liability insurance shall be primary and shall cover all
losses and damages prior to any other insurance hereunder. By this waiver it is
the intent of the parties that neither Landlord nor Tenant shall be liable to
any insurance company (by way of subrogation or otherwise) insuring the other
party for any loss or damage insured against under any "all-risk" property
insurance policies required by this Article, even though such loss or damage
might be occasioned by the negligence of such party, its agents, employees,
contractors, guests or invitees. The provisions of this Section shall not limit
the indemnification provisions elsewhere contained in this Lease.
ARTICLE XI. DAMAGE OR DESTRUCTION
SECTION 11.1. RESTORATION.
(a) If the Building of which the Premises are a part is damaged,
Landlord shall repair that damage as soon as reasonably possible, at its
expense, unless: (i) Landlord reasonably determines that the cost of repair is
not covered by Landlord's fire and extended coverage insurance plus such
additional amounts Tenant elects, at its option, to contribute, excluding
however the deductible (for which Tenant shall be responsible for Tenant's
Share); (ii) Landlord reasonably determines that the Premises cannot, with
reasonable diligence, be fully repaired by Landlord (or cannot be safely
repaired because of the presence of hazardous factors, including without
limitation Hazardous Materials, earthquake faults, and other similar dangers)
within two hundred seventy (270) days after the date of the damage; (iii) an
event of default by Tenant has occurred and is continuing at the time of such
damage; or (iv) the damage occurs during the final twelve (12) months of the
Term. Should Landlord elect not to repair the damage for one of the preceding
reasons, Landlord shall so notify Tenant in writing within sixty (60) days
after the damage occurs and this Lease shall terminate as of the date of that
notice.
(b) Unless Landlord elects to terminate this Lease in accordance
with subsection (a) above, this Lease shall continue in effect for the
remainder of the Term; provided that so long as Tenant is not in default under
this Lease, if the damage is so extensive that Landlord reasonably determines
that the Premises cannot, with reasonable diligence, be repaired by Landlord
(or cannot be safely repaired because of the presence of hazardous factors,
earthquake faults, and other similar dangers) so as to allow Tenant's
substantial use and enjoyment of the Premises within two hundred and seventy
(270) days after the date of damage, then Tenant may elect to terminate this
Lease by written notice to Landlord within the sixty (60) day period stated in
subsection (a).
(c) Commencing on the date of any damage to the Building, and ending
on the sooner of the date the damage is repaired or the date this Lease is
terminated, the rental to be paid under this Lease shall be abated in the same
proportion that the floor area of the Premises that is rendered unusable by the
damage from time to time bears to the total floor area of the Premises, but
only to the extent that any business interruption insurance proceeds are
received by Landlord therefor from Tenant's insurance described in Exhibit D.
(d) Notwithstanding the provisions of subsections (a), (b) and (c)
of this Section, and subject to the provisions of Section 10.5 above, the cost
of any repairs shall be borne by Tenant, and Tenant shall not be entitled to
rental abatement or termination rights, if the damage is due to the fault or
neglect of Tenant or its employees, subtenants, invitees or representatives. In
addition, the provisions of this Section shall not be deemed to require
Landlord to repair any improvements or fixtures that Tenant is obligated to
repair or insure pursuant to any other provision of this Lease.
(e) Tenant shall fully cooperate with Landlord in removing Tenant's
personal property and any debris from the Premises to facilitate all
inspections of the Premises and the making of any repairs. Notwithstanding
anything to the contrary contained in this Lease, if Landlord in good faith
believes there is a risk of injury to persons or damage to property from entry
into the Building or Premises following any damage or destruction thereto,
Landlord may restrict entry into the Building or the Premises by Tenant, its
employees, agents and contractors in a non-discriminatory manner, without being
deemed to have violated Tenant's rights of quiet enjoyment to, or made an
unlawful detainer of, or evicted Tenant from, the Premises. Upon request,
Landlord shall consult with Tenant to determine if there are safe methods of
entry into the Building or the Premises solely in order to allow Tenant to
retrieve files, data in computers, and necessary inventory, subject however to
all indemnities and waivers of liability from Tenant to Landlord contained in
this Lease and any additional indemnities and waivers of liability which
Landlord may required.
SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including without limitation Section 11.1. shall govern any damage or
destruction and shall accordingly supersede any contrary statute or rule of law.
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ARTICLE XII. EMINENT DOMAIN
SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of
the Premises is taken by any lawful authority by exercise of the right of
eminent domain, or sold to prevent a taking, either Tenant or Landlord may
terminate this Lease effective as of the date possession is required to be
surrendered to the authority. In the event title to a portion of the Building
or Project, other than the Premises, is taken or sold in lieu of taking, and if
Landlord elects to restore the Building in such a way as to alter the Premises
materially, either party may terminate this Lease, by written notice to the
other party, effective on the date of vesting of title. In the event neither
party has elected to terminate this Lease as provided above, then Landlord
shall promptly, after receipt of a sufficient condemnation award, proceed to
restore the Premises to substantially their condition prior to the taking, and
a proportionate allowance shall be made to Tenant for the rent corresponding to
the time during which, and to the part of the Premises of which, Tenant is
deprived on account of the taking and restoration. In the event of a taking,
Landlord shall be entitled to the entire amount of the condemnation award
without deduction for any estate or interest of Tenant; provided that nothing
in this Section shall be deemed to give Landlord any interest in, or prevent
Tenant from seeking any award against the taking authority for, the taking of
personal property and fixtures belonging to Tenant or for relocation or
business interruption expenses recoverable from the taking authority.
SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises
shall terminate this Lease or give Tenant any right to abatement of rent, and
any award specifically attributable to a temporary taking of the Premises
shall belong entirely to Tenant. A temporary taking shall be deemed to be a
taking of the use or occupancy of the Premises for a period of not to exceed one
hundred eighty (180) days.
SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a
taking of the parking area such that Landlord can no longer provide sufficient
parking to comply with this Lease, Landlord may substitute reasonably
equivalent parking in a location reasonably close to the Building; provided
that if Landlord fails to make that substitution within one hundred eighty
(180) days following the taking and if the taking materially impairs Tenant's
use and enjoyment of the Premises, Tenant may, at its option, terminate this
Lease by written notice to Landlord. If this Lease is not so terminated by
Tenant, there shall be no abatement of rent and this Lease shall continue in
effect.
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS
SECTION 13.1. SUBORDINATION. At the option of Landlord, this Lease shall
be either superior or subordinate to all ground or underlying leases, mortgages
and deeds of trust, if any, which may hereafter affect the Building, and to all
renewals, modifications, consolidations, replacements and extensions thereof;
provided, that so long as Tenant is not in default under this Lease, this Lease
shall not be terminated or Tenant's quiet enjoyment of the Premises disturbed
in the event of termination of any such ground or underlying lease, or the
foreclosure of any such mortgage or deed of trust, to which Tenant has
subordinated this Lease pursuant to this Section. In the event of a termination
or foreclosure, Tenant shall become a tenant of and attorn to the
successor-in-interest to Landlord upon the same terms and conditions as are
contained in this Lease, and shall execute any instrument reasonably required
by Landlord's successor for that purpose. Tenant shall also, upon written
request of Landlord, execute and deliver all instruments as may be required
from time to time to subordinate the rights of Tenant under this Lease to any
ground or underlying lease or to the lien of any mortgage or deed of trust
(provided that such instruments include the nondisturbance and attornment
provisions set forth above), or, if requested by Landlord, to subordinate, in
whole or in part, any ground or underlying lease or the lien of any mortgage or
deed of trust to this Lease.
SECTION 13.2. ESTOPPEL CERTIFICATE.
(a) Tenant shall, at any time upon not less than ten (10) days prior
written notice from Landlord, execute, acknowledge and deliver to Landlord, in
any form that Landlord may reasonably require, a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of the modification and certifying that this Lease,
as modified, is in full force and effect) and the dates to which the rental,
additional rent and other charges have been paid in advance, if any, and (ii)
acknowledging that, to Tenant's knowledge, there are no uncured defaults on the
part of Landlord, or specifying each default if any are claimed, and (iii)
setting forth all further information that Landlord may reasonably require.
Tenant's statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the Building or Project.
(b) Notwithstanding any other rights and remedies of Landlord,
Tenant's failure to deliver any estoppel statement within the provided time
shall be conclusive upon Tenant that (i) this Lease is in full force and effect,
without modification except as may be represented by Landlord, (ii) there are
no uncured defaults in Landlord's performance, and (iii) not more than one
month's rental has been paid in advance.
SECTION 13.3. FINANCIALS.
(a) Tenant shall deliver to Landlord, prior to the execution of this
Lease and thereafter at any time upon Landlord's request, Tenant's current
financial statements, certified true, accurate and complete by the chief
financial officer of Tenant, including balance sheet and profit and loss
statement for the most recent prior year (collectively, the "Statements"),
which Statements shall accurately and completely reflect the financial
condition of Tenant. Landlord
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agrees that it will keep the Statements confidential, except that Landlord
shall have the right to deliver the same to any proposed purchaser of the
Building or Project, and to any encumbrancer of all or any portion of the
Building or Project.
(b) Tenant acknowledges that Landlord is relying on the Statements
in its determination to enter into this Lease, and Tenant represents to
Landlord, which representation shall be deemed made on the date of this Lease
and again on the Commencement Date, that no material change in the financial
condition of Tenant, as reflected in the Statements, has occurred since the
date Tenant delivered the Statements to Landlord. The Statements are
represented and warranted by Tenant to be correct and to accurately and fully
reflect Tenant's true financial condition as of the date of submission by any
Statements to Landlord.
ARTICLE XIV. DEFAULTS AND REMEDIES
SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of
default set forth in this Lease, the occurrence of any one or more of the
following events shall constitute a default by Tenant:
(a) The failure by Tenant to make any payment of rent or additional
rent required to be made by Tenant, as and when due, where the failure
continues for a period of three (3) days after written notice from Landlord to
Tenant; provided, however, that any such notice shall be in lieu of, and not in
addition to, any notice required under California Code of Civil Procedure
Section 1161 and 1161(a) as amended. For purposes of these default and remedies
provisions, the term "additional rent" shall be deemed to include all amounts
of any type whatsoever other than Basic Rent to be paid by Tenant pursuant to
the terms of this Lease.
(b) Assignment, sublease, encumbrance or other transfer of the Lease
by Tenant, either voluntarily or by operation of law, whether by judgment,
execution, transfer by intestacy or testacy, or other means, without the prior
written consent of Landlord.
(c) The discovery by Landlord that any financial statement provided
by Tenant, or by any affiliate, successor or guarantor of Tenant, was
materially false.
(d) The failure of Tenant to timely and fully provide any
subordination agreement, estoppel certificate or financial statements in
accordance with the requirements of Article XIII.
(e) The failure or inability by Tenant to observe or perform any of
the express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in any other subsection of this
Section, where the failure continues for a period of thirty (30) days after
written notice from Landlord to Tenant or such shorter period as is specified
in any other provision of this Lease; provided, however, that any such notice
shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 and 1161(a) as amended.
However, if the nature of the failure is such that more than thirty (30) days
are reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commences the cure within thirty (30) days, and thereafter
diligently pursues the cure to completion.
(f) (i) The making by Tenant of any general assignment for the
benefit of creditors; (ii) the filing by or against Tenant of a petition to
have Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have
debts discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within thirty (30) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within thirty (30) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease, where the seizure is not
discharged within thirty (30) days; or (v) Tenant's convening of a meeting of
its creditors for the purpose of effecting a moratorium upon or composition of
its debts. Landlord shall not be deemed to have knowledge of any event
described in this subsection unless notification in writing is received by
Landlord, nor shall there be any presumption attributable to Landlord of
Tenant's insolvency. In the event that any provision of this subsection is
contrary to applicable law, the provision shall be of no force or effect.
SECTION 14.2. LANDLORD'S REMEDIES.
(a) In the event of any default by Tenant, or in the event of the
abandonment of the Premises by Tenant, then in addition to any other remedies
available to Landlord, Landlord may exercise the following remedies:
(i) Landlord may terminate Tenant's right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. Such
termination shall not affect any accrued obligations of Tenant under this
Lease. Upon termination, Landlord shall have the right to reenter the Premises
and remove all persons and property. Landlord shall also be entitled to recover
from Tenant:
(1) The worth at the time of award of the unpaid rent and
additional rent which had been earned at the time of termination;
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(2) The worth at the time of award of the amount by which
the unpaid rent and additional rent which would have been earned after
termination until the time of award exceeds the amount of such loss that Tenant
proves could have been reasonably avoided;
(3) The worth at the time of award of the amount by which
the unpaid rent and additional rent for the balance of the Term after the time
of award exceeds the amount of such loss that Tenant proves could be reasonably
avoided;
(4) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result from Tenant's default, including, but not limited to, the cost
of recovering possession of the Premises, refurbishment of the Premises,
marketing costs, commissions and other expenses of reletting, including
necessary repair, the unamortized portion of any tenant improvements and
brokerage commissions funded by Landlord in connection with this Lease,
reasonable attorneys' fees, and any other reasonable costs; and
(5) At Landlord's election, all other amounts in addition
to or in lieu of the foregoing as may be permitted by law. The term "rent" as
used in this Lease shall be deemed to mean the Basic Rent and all other sums
required to be paid by Tenant to Landlord pursuant to the terms of this Lease.
Any sum, other than Basic Rent, shall be computed on the basis of the average
monthly amount accruing during the twenty-four (24) month period immediately
prior to default, except that if it becomes necessary to compute such rental
before the twenty-four (24) month period has occurred, then the computation
shall be on the basis of the average monthly amount during the shorter period.
As used in subparagraphs (1) and (2) above, the "worth at the time of award"
shall be computed by allowing interest at the rate of ten percent (10%) per
annum. As used in subparagraph (3) above, the "worth at the time of award"
shall be computed by discounting the amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
(ii) Landlord may elect not to terminate Tenant's right to
possession of the Premises, in which event Landlord may continue to enforce all
of its rights and remedies under this Lease, including the right to collect all
rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet
the Premises, or the appointment of a receiver to protect the Landlord's
interests under this Lease, shall not constitute a termination of the Tenant's
right to possession of the Premises. In the event that Landlord elects to
avail itself of the remedy provided by this subsection (ii), Landlord shall not
unreasonably withhold its consent to an assignment or subletting of the
Premises subject to the reasonable standards for Landlord's consent as are
contained in this Lease.
(b) Landlord shall be under no obligation to observe or perform any
covenant of this Lease on its part to be observed or performed which accrues
after the date of any default by Tenant unless and until the default is cured
by Tenant, it being understood and agreed that the performance by Landlord of
its obligations under this Lease are expressly conditioned upon Tenant's full
and timely performance of its obligation under this Lease. The various rights
and remedies reserved to Landlord in this Lease or otherwise shall be
cumulative and, except as otherwise provided by California law, Landlord may
pursue any or all of its rights and remedies at the same time.
(c) No delay or omission of Landlord to exercise any right or remedy
shall be construed as a waiver of the right or remedy or of any default by
Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any
preceding breach or default by Tenant of any provision of this Lease, other than
the failure of Tenant to pay the particular rent accepted, regardless of
Landlord's knowledge of the preceding breach or default at the time of
acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy
available to Landlord by virtue of the breach or default. The acceptance of any
payment from a debtor in possession, a trustee, a receiver or any other person
acting on behalf of Tenant or Tenant's estate shall not waive or cure a default
under Section 14.1. No payment by Tenant or receipt by Landlord of a lesser
amount than the rent required by this Lease shall be deemed to be other than a
partial payment on account of the earliest due stipulated rent, nor shall any
endorsement or statement on any check of letter be deemed an accord and
satisfaction and Landlord shall accept the check of payment without prejudice to
Landlord's right to recover the balance of the rent or pursue any other remedy
available to it. No act or thing done by Landlord or Landlord's agents during
the Term shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept a surrender shall be valid unless in writing and signed by
Landlord. No employee of Landlord or of Landlord's agents shall have any power
to accept the keys to the Premises prior to the termination of this Lease, and
the delivery of the keys to any employee shall not operate as a termination of
the Lease or a surrender of the Premises.
SECTION 14.3. LATE PAYMENTS.
(a) Any rent due under this Lease that is not received by Landlord
within five (5) days of the date when due shall bear interest at the maximum
rate permitted by law from the date due until fully paid. The payment of
interest shall not cure any default by Tenant under this Lease. In addition,
Tenant acknowledges that the late payment by Tenant to Landlord of rent will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of which will be extremely difficult and impracticable to ascertain. Those
costs may include, but are not limited to, administrative, processing and
accounting charges, and late charges which may be imposed on Landlord by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any rent due from Tenant shall not be received by Landlord or
Landlord's designee within five (5) business days after the date due, then
Tenant shall pay to Landlord, in addition to the interest provided above, a
late charge in a sum equal to the greater of five percent (5%) of the amount
overdue or Two Hundred Fifty Dollars ($250.00) for each delinquent payment.
Acceptance of a late charge by Landlord shall not constitute a waiver of
Tenant's default with respect to the overdue amount, nor shall it prevent
Landlord from exercising any of its rights and remedies.
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(b) Following each second consecutive installment of rent that is not
paid within five (5) days following notice of nonpayment from Landlord, Landlord
shall have the option (i) to require that beginning with the first payment of
rent next due, rent shall no longer be paid in monthly installments but shall be
payable quarterly three (3) months in advance and/or (ii) to require that Tenant
increase the amount, if any, of the Security Deposit by one hundred percent
(100%). Should Tenant deliver to Landlord, at any time during the Term, two (2)
or more insufficient checks, the Landlord may require that all monies then and
thereafter due from Tenant be paid to Landlord by cashier's check.
SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements
to be performed by Tenant under this Lease shall be performed at Tenant's sole
cost and expense and without any abatement of rent or right of set-off. If
Tenant fails to pay any sum of money, other than rent, or fails to perform any
other act on its part to be performed under this Lease, and the failure
continues beyond any applicable grace period set forth in Section 14.1, then in
addition to any other available remedies, Landlord may, at its election make
the payment or perform the other act on Tenant's part. Landlord's election to
make the payment or perform the act on Tenant's part shall not give rise to any
responsibility of Landlord to continue making the same or similar payments or
performing the same or similar acts. Tenant shall, promptly upon demand by
Landlord, reimburse Landlord for all sums paid by Landlord and all necessary
incidental costs, together with interest at the maximum rate permitted by law
from the date of the payment by Landlord. Landlord shall have the same rights
and remedies if Tenant fails to pay those amounts as Landlord would have in the
event of a default by Tenant in the payment of rent.
SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in
default in the performance of any obligation under this Lease unless and until
it has failed to perform the obligation within thirty (30) days after written
notice by Tenant to Landlord specifying in reasonable detail the nature and
extent of the failure; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then Landlord shall not be deemed to be in default if it commences
performance within the thirty (30) day period and thereafter diligently pursues
the cure to completion.
SECTION 14.6. EXPENSES AND LEGAL FEES. All sums reasonably incurred by
Landlord in connection with any event of default by Tenant under this Lease or
holding over of possession by Tenant after the expiration or earlier
termination of this Lease, including without limitation all costs, expenses and
actual accountants, appraisers, attorneys and other professional fees, and any
collection agency or other collection charges, shall be due and payable by
Tenant to Landlord on demand, and shall bear interest at the rate of ten
percent (10%) per annum. Should either Landlord or Tenant bring any action in
connection with this Lease, the prevailing party shall be entitled to recover
as a part of the action its reasonable attorneys' fees, and all other costs.
The prevailing party for the purpose of this paragraph shall be determined by
the trier of the facts.
SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH ACKNOWLEDGES
THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH
RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY
AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER
(AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR
AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR
ANY CLAIM OF INJURY OR DAMAGE.
SECTION 14.8. SATISFACTION OF JUDGEMENT. The obligations of Landlord do
not constitute the personal obligations of the individual partners, trustees,
directors, officers or shareholders of Landlord or its constituent partners.
Should Tenant recover a money judgment against Landlord, such judgment shall
be satisfied only out of the proceeds of sale received upon execution of such
judgment and levied thereon against the right, title and interest of Landlord
in the Project and out of the rent or other income from such property
receivable by Landlord or out of consideration received by Landlord from the
sale or other disposition of all or any part of Landlord's right, title or
interest in the Project and no action for any deficiency may be sought or
obtained by Tenant.
SECTION 14.9. LIMITATION OF ACTIONS AGAINST LANDLORD. Any claim, demand
or right of any kind by Tenant which is based upon or arises in connection with
this Lease shall be barred unless Tenant commences an action thereon within six
(6) months after the date that the act, omission, event or default upon which
the claim, demand or right arises, has occurred.
ARTICLE XV. END OF TERM
SECTION 15.1. HOLDING OVER. This Lease shall terminate without further
notice upon expiration of the Term, and any holding over by Tenant after the
expiration shall not constitute a renewal or extension of this Lease, or give
Tenant any rights under this Lease, except when in writing signed by both
parties. If Tenant holds over for any period after the expiration (or earlier
termination) of the Term without the prior written consent of Landlord, such
possession shall constitute a tenancy at sufferance only; such holding over with
the prior written consent of Landlord shall constitute a month-to-month tenancy
commencing on the first (1st) day following the termination of this Lease. In
either of such events, possession shall be subject to all of the terms of this
Lease, except that the monthly Basic Rent shall be the greater of (a) one
hundred fifty percent (150%) of the Basic Rent for the month immediately
preceding the date of termination for the initial month of hold over, and one
hundred seventy-five percent (175%) of the Basic Rent
16
<PAGE> 20
for the month immediately preceding the date of termination for each month of
hold over thereafter, or (b) the then currently scheduled Basic Rent for
comparable space in the Project. If Tenant fails to surrender the Premises upon
the expiration of this Lease despite demand to do so by Landlord, Tenant shall
indemnify and hold Landlord harmless from all loss or liability, including
without limitation, any claims made by any succeeding tenant relating to such
failure to surrender. Acceptance by Landlord of rent after the termination
shall not constitute a consent to a holdover or result in a renewal of this
Lease. The foregoing provisions of this Section are in addition to and do not
affect Landlord's right of re-entry or any other rights of Landlord under this
Lease or at law.
SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender of
this Lease by Tenant, or a mutual termination of this Lease, shall terminate
any or all existing subleases unless Landlord, at its option, elects in writing
to treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.
SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall
quit and surrender possession of the Premises to Landlord in as good order,
condition and repair as when received or as hereafter may be improved by
Landlord or Tenant, reasonable wear and tear and repairs which are Landlord's
obligation excepted, and shall, without expense to Landlord, remove or cause to
be removed from the Premises all personal property and debris, except for any
items that Landlord may by written authorization allow to remain. Tenant shall
repair all damage to the Premises resulting from the removal, which repair
shall include the patching and filling of holes and repair of structural
damage, provided that Landlord may instead elect to repair any structural
damage at Tenant's expense. If Tenant shall fail to comply with the provisions
of this Section, Landlord may effect the removal and/or make any repairs, and
the cost to Landlord shall be additional rent payable by Tenant upon demand. If
Tenant fails to remove Tenant's personal property from the Premises upon the
expiration of the Term, Landlord may remove, store, dispose of and/or retain
such personal property, at Landlord's option, in accordance with then
applicable laws, all at the expense of Tenant. If requested by Landlord, Tenant
shall execute, acknowledge and deliver to Landlord an instrument in writing
releasing and quitclaiming to Landlord all right, title and interest of Tenant
in the Premises.
ARTICLE XVI. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid, without deduction or
offset, in lawful money of the United States to Landlord at its address set
forth in Item 12 of the Basic Lease Provisions, or at any other place as
Landlord may designate in writing. Unless this Lease expressly provides
otherwise, as for example in the payment of rent pursuant to Section 4.1, all
payments shall be due and payable within five (5) days after demand. All
payments requiring proration shall be prorated on the basis on a thirty (30)
day month and a three hundred sixty (360) day year. Any notice, election,
demand, consent, approval or other communication to be given or other document
to be delivered by either party to the other may be delivered in person or by
courier or overnight delivery service to the other party, or may be deposited
in the United States mail, duly registered or certified, postage prepaid,
return receipt requested, and addressed to the other party at the address set
forth in Item 12 of the Basic Lease Provisions, or if to Tenant, at that
address or, from and after the Commencement Date, at the Premises (whether or
not Tenant has departed from, abandoned or vacated the Premises), or may be
delivered by telegram, telex or telecopy, provided that receipt thereof is
telephonically confirmed. Either party may, by written notice to the other,
served in the manner provided in this Article, designate a different address.
If any notice or other document is sent by mail, it shall be deemed served or
delivered twenty-four (24) hours after mailing. If more than one person or
entity is named as Tenant under this Lease, service of any notice upon any one
of them shall be deemed as service upon all of them.
ARTICLE XVII. RULES AND REGULATIONS
Tenant agrees to observe faithfully and comply strictly with the Rules and
Regulations, attached as Exhibit E, and any reasonable and nondiscriminatory
amendments, modifications and/or additions as may be adopted and published by
written notice to tenants by Landlord for the safety, care, security, good
order, or cleanliness of the Premises, Building, Project and Common Areas.
Landlord shall not be liable to Tenant for any violation of the Rules and
Regulations or the breach of any covenant or condition in any lease by any
other tenant or such tenant's agents, employees, contractors, guests or
invitees. One or more waivers by Landlord of any breach of the Rules and
Regulations by Tenant or by any other tenant(s) shall not be a waiver of any
subsequent breach of that rule or any other. Tenant's failure to keep and
observe the Rules and Regulations shall constitute a default under this Lease.
In the case of any conflict between the Rules and Regulations and this Lease,
this Lease shall be controlling.
ARTICLE XVIII. BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Tenant warrants that it has had no dealings with any other real estate
broker or agent in connection with the negotiation of this Lease, and Tenant
agrees to indemnify and hold Landlord harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real estate broker or agent
employed or claiming to
17
<PAGE> 21
represent or to have been employed by Tenant in connection with the negotiation
of this Lease. The foregoing agreement shall survive the termination of this
Lease. If Tenant fails to take possession of the Premises or if this Lease
otherwise terminates prior to the Expiration Date as the result of failure of
performance by Tenant, Landlord shall be entitled to recover from Tenant the
unamortized portion of any brokerage commission funded by Landlord in addition
to any other damages to which Landlord may be entitled.
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer of Landlord's interest in the Premises, the
transferor shall be automatically relieved of all obligations on the part of
Landlord accruing under this Lease from and after the date of the transfer,
provided that any funds held by the transferor in which Tenant has an interest
shall be turned over, subject to that interest, to the transferee and Tenant is
notified of the transfer as required by law. No holder of a mortgage and/or deed
of trust to which this Lease is or may be subordinate, and no landlord under a
so-called sale-leaseback, shall be responsible in connection with the Security
Deposit, unless the mortgagee or holder of the deed of trust or the landlord
actually receives the Security Deposit. It is intended that the covenants and
obligations contained in this Lease on the part of Landlord shall, subject to
the foregoing, be binding on Landlord, its successors and assigns, only during
and in respect to their respective successive periods of ownership.
ARTICLE XX. INTERPRETATION
SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.
SECTION 20.2. HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.
SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Tenant, the obligations imposed upon each shall be joint and
several and the act of or notice from, or notice or refund to, or the signature
of, any one or more of them shall be binding on all of them with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
termination or modification of this Lease.
SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights and
liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.
SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to the
performance of every provision of this Lease.
SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.
SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material benefit
by either party or the deletion of which is consented to by the party adversely
affected, shall be held invalid or unenforceable to any extent, the remainder of
this Lease shall not be affected and each term and provision of this Lease shall
be valid and enforceable to the fullest extent permitted by law.
SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES. One or more waivers by
Landlord or Tenant of any breach of any term, covenant or condition contained in
this Lease shall not be a waiver of any subsequent breach of the same or any
other term, covenant or condition. Consent to any act by one of the parties
shall not be deemed to render unnecessary the obtaining of that party's consent
to any subsequent act. No breach by Tenant of this Lease shall be deemed to have
been waived by Landlord unless the waiver is in a writing signed by Landlord.
The rights and remedies of Landlord under this Lease shall be cumulative and in
addition to any and all other rights and remedies which Landlord may have.
SECTION 20.9. INABILITY TO PERFORM. In the event that either party shall
be delayed or hindered in or prevented from the performance of any work or in
performing any act required under this Lease by reason of any cause beyond the
reasonable control of that party, then the performance of the work or the doing
of the act shall be excused for the period of the delay and the time for
performance shall be extended for a period equivalent to the period of the
delay. The provisions of this Section shall not operate to excuse Tenant from
the prompt payment of rent or from the timely performance of any other
obligation under this Lease within Tenant's reasonable control.
SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between the
parties concerning the Premises, the Building, and the Project, and all
preliminary negotiations, oral agreements, understandings and/or practices,
except those contained in this Lease, are
18
<PAGE> 22
superseded and of no further effect. Tenant waives the rights to rely on any
representations or promises made by Landlord or others which are not contained
in this Lease. No verbal agreement or implied covenant shall be held to modify
the provisions of this Lease, any statute, law, or custom to the contrary
notwithstanding.
SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of all
the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease. Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without
hindrance or interruption by Landlord or any other person claiming by or
through Landlord.
SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of
the respective parties and their successors and assigns.
ARTICLE XXI. EXECUTION AND RECORDING
SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.
SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a
corporation or partnership, each individual executing this Lease on behalf of
the corporation or partnership represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation or
partnership, and that this Lease is binding upon the corporation or partnership
in accordance with its terms. Tenant shall, at Landlord's request, deliver a
certified copy of its board of directors' resolution or partnership agreement
or certificate authorizing or evidencing the execution of this Lease.
SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of
this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact
executed and delivered this Lease to Tenant, it being intended that this Lease
shall only become effective upon execution by Landlord and delivery of a fully
executed counterpart to Tenant.
SECTION 21.4. RECORDING. Tenant shall not record this Lease without the
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for recording
purposes.
SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease shall
be effective unless in writing signed by authorized signatories of Tenant and
Landlord, or by their respective successors in interest. No actions, policies,
oral or informal arrangements, business dealings or other course of conduct by
or between the parties shall be deemed to modify this Lease in any respect.
SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or similar
reproduction of this Lease shall be deemed an original for all purposes.
SECTION 21.7. ATTACHMENTS. All exhibits, amendments, riders and addenda
attached to this Lease are hereby incorporated into and made a part of this
Lease.
ARTICLE XXII. MISCELLANEOUS
SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and
agrees that the terms of this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's
relationship with other tenants. Accordingly, Tenant agrees that it, and its
partners, officers, directors, employees and attorneys, shall not intentionally
and voluntarily disclose the terms and conditions of this Lease to any other
tenant or apparent prospective tenant of the Building or Project, either
directly or indirectly, without the prior written consent of Landlord,
provided, however, that Tenant may disclose the terms to prospective subtenants
or assignees under this Lease.
SECTION 22.2. GUARANTY. As a condition to the execution of this Lease by
Landlord, the obligations, covenants and performance of the Tenant as herein
provided shall be guaranteed in writing by the Guarantor(s) listed in Item 7 of
the Basic Lease Provisions, if any, on a form of guaranty provided by Landlord.
SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Project, the lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent, provided that the modifications do
not materially increase the obligations of Tenant or materially and adversely
affect the leasehold interest created by this Lease.
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<PAGE> 23
SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the part
of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder or to terminate this Lease shall result in such a release
or termination unless (a) Tenant has given notice by registered or certified
mail to any beneficiary of a deed of trust or mortgage covering the Building
whose address has been furnished to Tenant and (b) such beneficiary is afforded
a reasonable opportunity to cure the default by Landlord (which in no event
shall be less than sixty (60) days), including, if necessary to effect the
cure, time to obtain possession of the Building by power of sale or judicial
foreclosure provided that such foreclosure remedy is diligently pursued. Tenant
agrees that each beneficiary of a deed of trust or mortgage covering the
Building is an express third party beneficiary hereof, Tenant shall have no
right or claim for the collection of any deposit from such beneficiary or from
any purchaser at a foreclosure sale unless such beneficiary or purchaser shall
have actually received and not refunded the deposit, and Tenant shall comply
with any written directions by any beneficiary to pay rent due hereunder
directly to such beneficiary without determining whether an event of default
exists under such beneficiary's deed of trust.
SECTION 22.5. COVENANTS AND CONDITIONS. All of the provisions of this
Lease shall be construed to be conditions as well as covenants as though the
words specifically expressing or imparting covenants and conditions were used
in each separate provision.
SECTION 22.6. SECURITY MEASURES. Tenant hereby acknowledges that Landlord
shall have no obligation whatsoever to provide guard service or other security
measures for the benefit of the Premises or the Project. Tenant assumes all
responsibility for the protection of Tenant, its agents, invitees and property
from acts of third parties. Nothing herein contained shall prevent Landlord, at
its sole option, from providing security protection for the Project or any part
thereof, in which event the cost thereof shall be included within the
definition of Project Costs.
LANDLORD: TENANT:
THE IRVINE COMPANY [SEAL] JAYCOR NETWORKS, INC.,
a Delaware corporation
By: /s/ C. W. BARKER By: /s/ TERRY M. FLANAGAN
------------------------------- ------------------------------------
Clarence W. Barker, Name: Terry M. Flanagan
President, Irvine Industrial Title: President & CEO
Company, a division of The
Irvine Company
By: /s/ GARY A. VACCARO By: /s/ RANDY JOHNSON
------------------------------- ------------------------------------
Gary A. Vaccaro, Name: Randy Johnson
Senior Vice President, Title: CFO
Finance & Acquisitions
20
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[MAP]
1/16"=1' -0" IRVINE BUSINESS PARK
9272 JERONIMO RD SUITE A-108
<PAGE> 25
[MAP]
1/16"=1' -0" IRVINE BUSINESS PARK
9272 JERONIMO RD SUITE A-107A
<PAGE> 26
EXHIBIT B
THE IRVINE COMPANY - INVESTMENT PROPERTIES GROUP
HAZARDOUS MATERIAL SURVEY FORM
The purpose of this form is to obtain information regarding the use of
hazardous substances on Investment Properties Group ("IPG") property.
Prospective tenants and contractors should answer the questions in light of
their proposed activities on the premises. Existing tenants and contractors
should answer the questions as they relate to ongoing activities on the
premises and should update any information previously submitted.
If additional space is needed to answer the questions, you may attach
separate sheets of paper to this form. When completed, the form should be sent
to the following address:
INSIGNIA COMMERCIAL GROUP, INC.
1 Ada, Suite 270
Irvine, CA 92618
Your cooperation in this matter is appreciated. If you have any questions,
please call your property manager at (714) 753-4744 for assistance.
1. GENERAL INFORMATION
Name of Responding Company: Jaycor Networks Inc.
-----------------------------------------------
Check all that apply: Tenant [X] Contractor [ ]
Prospective [X] Existing [ ]
Mailing Address: 9775 Towne Centre Drive San Diego, CA 92121
----------------------------------------------------------
Contact Person & Title: Tom Gregory
---------------------------------------------------
Telephone Number: (619) 535-3121 or (949) 455-8396
---------------------------------------------------------
Current TIC Tenant(s):
Address of Lease Premises:
------------------------------------------------
Length of Lease or Contract Term:
-----------------------------------------
Prospective TIC Tenant(s):
Address of Proposed Lease Premises: 9272 Jeronimo Road Irvine, CA
---------------------------------------
Address of Current Operations: 9701 Jeronimo Road Irvine, CA
--------------------------------------------
Describe the proposed operations to take place on the property, including
principal products manufactured or services to be conducted. Existing
tenants and contractors should describe any proposed changes to ongoing
operations. General office and computer R&D.
---------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
2. HAZARDOUS MATERIALS. For the purposes of this Survey Form, the term
"hazardous material" means any raw material, product or agent considered
hazardous under any state or federal law. The term does not include wastes
which are intended to be discarded.
2.1 Will any hazardous materials be used or stored on site?
Chemical Products Yes [ ] No [X]
Biological Hazards/
Infectious Wastes Yes [ ] No [X]
Radioactive Materials Yes [ ] No [X]
Petroleum Products Yes [ ] No [X]
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<PAGE> 27
2.2 List any hazardous materials to be used or stored, the quantities
that will be on-site at any given time, and the location and method
of storage (e.g., bottles in storage closet on the premises).
Location and Method
Hazardous Materials of Storage Quantity
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
None N/A N/A
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
2.3 Is any underground storage of hazardous materials proposed or
currently conducted on the premises? Yes [ ] No [X]
If yes, describe the materials to be stored, and the size and
construction of the tank. Attach copies of any permits obtained for
the underground storage of such substances.
-------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
3. HAZARDOUS WASTE. For the purposes of this Survey Form, the term "hazardous
waste" means any waste (including biological, infectious or radioactive
waste) considered hazardous under any state or federal law, and which is
intended to be discarded.
3.1 List any hazardous waste generated or to be generated on the
premises, and indicate the quantity generated on a monthly basis.
Location and Method
of Storage Prior to
Hazardous Waste Disposal Quantity
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
None N/A N/A
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
3.2 Describe the method(s) of disposal (including recycling) for each
waste. Indicate where and how often disposal will take place.
Location of Disposal
Hazardous Materials Site Quantity
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
None N/A N/A
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
3.3 Is any treatment or processing of hazardous, infectious or
radioactive wastes currently conducted or proposed to be conducted on
the premise? Yes [ ] No [X]
If yes, please describe any existing or proposed treatment methods.
--------------------------------------------------------------------
--------------------------------------------------------------------
3.4 Attach copies of any hazardous waste permits or licenses issued to
your company with respect to its operations on the premises.
2
<PAGE> 28
4. SPILLS
4.1 During the past year, have any spills or releases of hazardous materials
occurred on the premises? Yes [ ] No [X]
If so, please describe the spill and attach the results of any testing
conducted to determine the extent of such spills.
-----------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
4.2 Were any agencies notified in connection with such spills? Yes [ ] No [ ]
If so, attach copies of any spill reports or other correspondence with
regulatory agencies.
4.3 Were any clean-up actions undertaken in connection with the spills?
Yes [ ] No [ ]
If so, briefly describe the actions taken. Attach copies of any clearance
letters obtained from any regulatory agencies involved and the results of
any final soil or groundwater sampling done upon completion of the
clean-up work.
----------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
5. WASTEWATER TREATMENT/DISCHARGE
5.1 Do you discharge industrial wastewater to:
storm drain? sewer?
----- -----
surface water? X no industrial discharge
----- -----
5.2 Is your industrial wastewater treated before discharge? Yes [ ] No [ ]
If yes, describe the type of treatment conducted.
-----------------------
-------------------------------------------------------------------------
5.3 Attach copies of any wastewater discharge permits issued to your company
with respect to its operations on the premises.
6. AIR DISCHARGES
6.1 Do you have any air filtration systems or stacks that discharge into the
air? Yes [ ] No [X]
6.2 Do you operate any equipment that require air emissions permits?
Yes [ ] No [X]
6.3 Attach copies of any air discharge permits pertaining to these
operations.
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Does your company handle an aggregate of at least 500 pounds, 55 gallons
or 200 cubic feet of hazardous material at any given time? Yes [ ] No [X]
7.2 Has your company prepared a Hazardous Materials Disclosure - Chemical
Inventory and Business Emergency Plan or similar disclosure document
pursuant to state or county requirements? Yes [ ] No [X]
If so, attach a copy.
7.3 Are any of the chemicals used in your operations regulated under
Proposition 65?
If so, describe the procedures followed to comply with these
requirements.
------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
3
<PAGE> 29
7.4 Is your company subject to OSHA Hazard Communication Standard
Requirements? Yes ( ) No ( )
If so, describe the procedures followed to comply with these
requirements.
----------------------------------------------------------------------
----------------------------------------------------------------------
8. ANIMAL TESTING
8.1 Does your company bring or intend to bring live animals onto the
premises for research or development purposes? Yes ( ) No (x)
If so, describe the activity.
-----------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
8.2 Does your company bring or intend to bring animal body parts or
bodily fluids onto the premises for research or development purposes?
Yes ( ) No (x)
If so, describe the activity.
-----------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
9. ENFORCEMENT ACTIONS, COMPLAINTS
9.1 Has your company ever been subject to any agency enforcement actions,
administrative orders, lawsuits, or consent orders/decrees regarding
environmental compliance or health and safety? Yes ( ) No (x)
If so, describe the actions and any continuing obligations imposed as
a result of these actions.
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
9.2 Has your company ever received any request for information, notice of
violation or demand letter, complaint, or inquiry regarding
environmental compliance or health and safety? Yes ( ) No (x)
9.3 Has an environmental audit ever been conducted which concerned
operations or activities on premises occupied by you? Yes ( ) No (x)
9.4 If you answered "yes" to any questions in this section, describe the
environmental action or complaint and any continuing compliance
obligation imposed as a result of the same.
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
---------------------------------
---------------------------------
By: /s/ TERRY FLANAGAN
------------------------------
Name: Terry Flanagan
Title: President/CEO
Date: January 6, 1999
4
<PAGE> 30
EXHIBIT C
LANDLORD'S DISCLOSURES
SPECTRUM
The capitalized terms used and not otherwise defined in this Exhibit shall
have the same definitions as set forth in the Lease. The provisions of this
Exhibit shall supersede any inconsistent or conflicting provisions of the Lease.
1. Landlord has been informed that the El Toro Marine Corps Air Station
(MCAS) has been listed as a Federal Superfund site as a result of chemical
releases occurring over many years of occupancy. Various chemicals including
jet fuel, motor oil and solvents have been discharged in several areas
throughout the MCAS site. A regional study conducted by the Orange County Water
District has estimated that groundwaters beneath more than 2,900 acres have
been impacted by Trichloroethylene (TCE), an industrial solvent. There is a
potential that this substance may have migrated into the ground water
underlying the Premises. The U.S. Environmental Protection Agency, the Santa
Ana Region Quality Control Board, and the Orange County Health Care Agency are
overseeing the investigation/cleanup of this contamination. To the Landlord's
current actual knowledge, the ground water in this area is used for irrigation
purposes only, and there is no practical impediment to the use or occupancy of
the Premises due to the El Toro discharges.
Page 1 of 1
<PAGE> 31
EXHIBIT D
TENANT'S INSURANCE
The following standards for Tenant's insurance shall be in effect at the
Building. Landlord reserves the right to adopt reasonable nondiscriminatory
modifications and additions to those standards. Tenant agrees to obtain and
present evidence to Landlord that it has fully complied with the insurance
requirements.
1. Tenant shall, at its sole cost and expense, commencing on the date
Tenant is given access to the Premises for any purpose and during the entire
Term, procure, pay for and keep in full force and effect: (i) commercial general
liability insurance with respect to the Premises and the operations of or on
behalf of Tenant in, on or about the Premises, including but not limited to
personal injury, owned and nonowned automobile, blanket contractual, independent
contractors, broad form property damage (with an exception to any pollution
exclusion with respect to damage arising out of heat, smoke or fumes from a
hostile fire), fire and water legal liability, products liability (if a product
is sold from the Premises), liquor law liability (if alcoholic beverages are
sold, served, or consumed within the Premises), and severability of interest,
which policy(ies) shall be written on an "occurrence" basis and for not less
than the amount set forth in Item 13 of the Basic Lease Provisions, with a
combined single limit (with a $50,000 minimum limit on fire legal liability) per
occurrence for bodily injury, death, and property damage liability, or the
current limit of liability carried by Tenant, whichever is greater, and subject
to such increases in amounts as Landlord may determine from time to time; (ii)
workers' compensation insurance coverage as required by law, together with
employers' liability insurance; (iii) with respect to improvements, alterations,
and the like required or permitted to be made by Tenant under this Lease,
builder's all-risk insurance, in an amount equal to the replacement cost of the
Work; (iv) insurance against fire, vandalism, malicious mischief and such other
additional perils as may be included in a standard "all risk" form in general
use in the county in which the Premises are situated, insuring Tenant's
leasehold improvements, trade fixtures, furnishings, equipment and items of
personal property of Tenant located in the Premises, in an amount equal to not
less than ninety percent (90%) of their actual replacement cost (with
replacement cost endorsement); and (v) business interruption insurance in
amounts satisfactory to cover one (1) year of loss. In no event shall the limits
of any policy be considered as limiting the liability of Tenant under this
Lease.
2. In the event Landlord consents to Tenant's use, generation or storage
of Hazardous Materials on, under or about the Premises pursuant to Section 5.3
of this Lease, Landlord shall have the continuing right to require Tenant, at
Tenant's sole cost and expense (provided the same is available for purchase
upon commercially reasonable terms), to purchase insurance specified and
approved by Landlord, with coverage not less than Five Million Dollars
($5,000,000.00), insuring (i) any Hazardous Materials shall be removed from the
Premises, (ii) the Premises shall be restored to a clean, healthy, safe and
sanitary condition, and (iii) any liability of Tenant, Landlord and Landlord's
officers, directors, shareholders, agents, employees and representatives,
arising from such Hazardous Materials.
3. All policies of insurance required to be carried by Tenant pursuant
to this Exhibit D containing a deductible exceeding Five Thousand Dollars
($5,000.00) per occurrence must be approved in writing by Landlord prior to the
issuance of such policy. Tenant shall be solely responsible for the payment of
all deductibles.
4. All policies of insurance required to be carried by Tenant pursuant
to this Exhibit D shall be written by responsible insurance companies
authorized to do business in the State of California and with a Best's rating
of not less than "A" subject to final acceptance and approval by Landlord. Any
insurance required of Tenant may be furnished by Tenant under any blanket
policy carried by it or under a separate policy, so long as (i) the Premises
are specifically covered (by rider, endorsement or otherwise), (ii) the limits
of the policy are applicable on a "per location" basis to the Premises and
provide for restoration of the aggregate limits, and (iii) the policy otherwise
complies with the provisions of this Exhibit D. A true and exact copy of each
paid up policy evidencing the insurance (appropriately authenticated by the
insurer) or a certificate of insurance, certifying that the policy has been
issued, provides the coverage required by this Exhibit D and contains the
required provisions, shall be delivered to Landlord prior to the date Tenant is
given the right of possession of the Premises. Proper evidence of the renewal
of any insurance coverage shall also be delivered to Landlord prior to the
expiration of the coverage. Landlord may at any time, and from time to time,
inspect and/or copy any and all insurance policies required by this Lease.
5. Each policy evidencing insurance required to be carried by Tenant
pursuant to this Exhibit D shall contain the following provisions and/or
clauses satisfactory to Landlord: (i) a provision that the policy and the
coverage provided shall be primary and that any coverage carried by Landlord
shall be noncontributory with respect to any policies carried by Tenant except
as to workers' compensation insurance; (ii) a provision including Landlord, the
Additional Insureds identified in Item 11 of the Basic Lease Provisions, and
any other parties in interest designated by Landlord as an additional insured,
except as to workers' compensation insurance; (iii) a waiver by the insurer of
any right to subrogation against Landlord, its agents, employees, contractors
and representatives which arises or might arise by reason of any payment under
the policy or by reason of any act or omission of Landlord, its agents,
employees, contractors or representatives; and (iv) a provision that the
insurer will not cancel or change the coverage provided by the policy without
first giving Landlord thirty (30) days prior written notice.
6. In the event that Tenant fails to procure, maintain and/or pay for,
at the times and for the durations specified in this Exhibit D, any insurance
required by this Exhibit D, or fails to carry insurance required by any
governmental authority, Landlord may at its election procure that insurance and
pay the premiums, in which event Tenant shall repay Landlord all sums paid by
Landlord, together with interest at the maximum rate permitted by law and any
related costs or expenses incurred by Landlord, within ten (10) days following
Landlord's written demand to Tenant.
Page 1 of 1
<PAGE> 32
EXHIBIT E
RULES AND REGULATIONS
This Exhibit sets forth the rules and regulations governing Tenant's use
of the Premises leased to Tenant pursuant to the terms, covenants and
conditions of the Lease to which this Exhibit is attached and therein made part
thereof. In the event of any conflict or inconsistency between this Exhibit and
the Lease, and Lease shall control.
1. Tenant shall not place anything or allow anything to be placed near
the glass of any window, door, partition or wall which may appear unsightly
from outside the Premises.
2. The walls, walkways, sidewalks, entrance passages, courts and
vestibules shall not be obstructed or used for any purpose other than
ingress and egress of pedestrian travel to and from the Premises, and shall not
be used for loitering or gathering, or to display, store or place any
merchandise, equipment or devices, or for any other purpose. The walkways,
entrance passageways, courts, vestibules and roof are not for the use of the
general public and Landlord shall in all cases retain the right to control and
prevent access thereto by all persons whose presence in the judgment of the
Landlord shall be prejudicial to the safety, character, reputation and
interests of the Building and its tenants, provided that nothing herein
contained shall be construed to prevent such access to persons with whom Tenant
normally deals in the ordinary course of Tenant's business unless such persons
are engaged in illegal activities. No tenant or employee or invitee of any
tenant shall be permitted upon the roof of the Building.
3. No awnings or other projection shall be attached to the outside walls
of the Building. No security bars or gates, curtains, blinds, shades or screens
shall be attached to or hung in, or used in connection with, any window or
door of the Premises without the prior written consent of Landlord. Neither the
interior nor exterior of any windows shall be coated or otherwise sunscreened
without the express written consent of Landlord.
4. Tenant shall not mark, nail, paint, drill into, or in any way deface
any part of the Premises or the Building. Tenant shall not lay linoleum, tile,
carpet or other similar floor covering so that the same shall be affixed to
the floor of the Premises in any manner except as approved by Landlord in
writing. The expense of repairing any damage resulting from a violation of this
rule or removal of any floor covering shall be borne by Tenant.
5. The toilet rooms, urinals, wash bowls and other plumbing apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, caused it.
6. Landlord shall direct electricians as to the manner and location of
any future telephone wiring. No boring or cutting for wires will be allowed
without the prior consent of Landlord. The locations of the telephones, call
boxes and other office equipment affixed to the Premises shall be subject to
the prior written approval of Landlord.
7. The Premises shall not be used for manufacturing or for the storage
of merchandise except as such storage may be incidental to the permitted use of
the Premises. No exterior storage shall be allowed at any time without the prior
written approval of Landlord. The Premises shall not be used for cooking or
washing clothes without the prior written consent of Landlord, or for lodging
or sleeping or for any immoral or illegal purposes.
8. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or neighboring
buildings or premises or those having business with them, whether by the use of
any musical instrument, radio, phonograph, noise, or otherwise. Tenant shall
not use, keep or permit to be used, or kept, any foul or obnoxious gas or
substance in the Premises or permit or suffer the Premises to be used or
occupied in any manner offensive or objectionable to Landlord or other
occupants of this or neighboring buildings or premises by reason of any odors,
fumes or gases.
9. No animals shall be permitted at any time within the Premises.
10. Tenant shall not use the name of the Building or the Project in
connection with or in promoting or advertising the business of Tenant, except
as Tenant's address, without the written consent of Landlord. Landlord shall
have the right to prohibit any advertising by any Tenant which, in Landlord's
reasonable opinion, tends to impair the reputation of the Project or its
desirability for its intended uses, and upon written notice from Landlord any
Tenant shall refrain from or discontinue such advertising.
11. Canvassing, soliciting, peddling, parading, picketing, demonstrating
or otherwise engaging in any conduct that unreasonably impairs the value or use
of the Premises or the Project are prohibited and each Tenant shall cooperate
to prevent the same.
12. No equipment of any type shall be placed on the Premises which in
Landlord's opinion exceeds the load limits of the floor or otherwise threatens
the soundness of the structure or improvements of the Building.
13. No air conditioning unit or other similar apparatus shall be
installed or used by any Tenant without the prior written consent of Landlord.
1
<PAGE> 33
14. No aerial antenna shall be erected on the roof or exterior
walls of the Premises, or on the grounds, without in each instance, the prior
written consent of Landlord. Any aerial or antenna so installed without
such written consent shall be subject to removal by Landlord at any time without
prior notice at the expense of the Tenant, and Tenant shall upon Landlord's
demand pay a removal fee to Landlord of not less than $200.00.
15. The entire Premises, including vestibules, entrances,
doors, fixtures, windows and plate glass, shall at all times be maintained in a
safe, neat and clean condition by Tenant. All trash, refuse and waste materials
shall be regularly removed from the Premises by Tenant and placed in the
containers at the locations designated by Landlord for refuse collection. All
cardboard boxes must be "broken down" prior to being placed in the trash
container. All styrofoam chips must be bagged or otherwise contained prior to
placement in the trash container, so as not to constitute a nuisance. Pallets
may not be disposed of in the trash container or enclosures. The burning of
trash, refuse or waste materials is prohibited.
16. Tenant shall use at Tenant's cost such pest extermination
contractor as Landlord may direct and at such intervals as Landlord may require.
17. All keys for the Premises shall be provided to Tenant by
Landlord and Tenant shall return to Landlord any of such keys so provided upon
the termination of the Lease. Tenant shall not change locks or install other
locks on doors of the Premises, without the prior written consent of Landlord.
In the event of loss of any keys furnished by Landlord for Tenant, Tenant shall
pay to Landlord the costs thereof.
18. No person shall enter or remain within the Project while
intoxicated or under the influence of liquor or drugs. Landlord shall have the
right to exclude or expel from the Project any person who, in the absolute
discretion of Landlord, is under the influence of liquor or drugs.
Landlord reserves the right to amend or supplement the
foregoing Rules and Regulations and to adopt and promulgate additional rules and
regulations applicable to the Premises. Notice of such rules and regulations and
amendments and supplements thereto, if any, shall be given to the Tenant.
2
<PAGE> 34
EXHIBIT X
WORK LETTER
TENANT IMPROVEMENTS
The tenant improvement work by Landlord shall consist of installing
VTC flooring in the Premises, rekeying the Premises, and installing tenant
identification signage adjacent to the entry door of the Premises ("Tenant
Improvements"). All materials and finishes utilized in completing the Tenant
Improvements shall be Landlord's building standard. Landlord's total
contribution for the Tenant Improvements, inclusive of Landlord's construction
management fee, shall not exceed Nine Hundred Dollars ($900.00) ("Landlord's
Contribution"). Any excess cost shall be borne solely by Tenant and shall be
paid to Landlord with ten (10) days following Landlord's billing for such
excess cost.
<PAGE> 35
[MAP]
1/16"=1' -0" IRVINE BUSINESS PARK
9272 JERONIMO RD SUITE A-106
<PAGE> 36
[MAP]
BUILDING A
9292 JERONIMO ROAD IRVINE
BUSINESS
BUILDING B COMPLEX
9292 JERONIMO ROAD
BUILDING C
9342 JERONIMO ROAD
<PAGE> 1
EXHIBIT 10.28
SUBLEASE
1. PARTIES. This Sublease ("Sublease") is entered into as of the 14th day of
January 1999, by and between JNI, Inc., a Delaware Corporation ("Sublessee"),
and Obsidian, Inc., a California Corporation, ("Sublessor"), as a Sublease under
the Lease dated November 20, 1998 ("Master Lease") entered into by ProLogis
Limited Partnership - I, as Lessor ("Master Lessor"). A copy of the Master Lease
is attached hereto, marked Exhibit "A", and incorporated herein by reference.
2. PROVISIONS CONSTITUTING SUBLEASE.
A. This Sublease is subject to all of the terms and conditions of the
Master Lease in Exhibit "A", except as specifically set forth herein, and
Sublessee shall assume and perform the obligations of Sublessor as leasee under
the Master Lease to the extent such terms and conditions are applicable to the
Premises subleased pursuant to this Sublease. Sublessee shall not commit or
permit on the subleased Premises any act or omission which shall violate any
term or condition of the Master Lease. In the event of the termination of
Sublessor's interest as Lessee under the Master Lease for any reason, then this
Sublease shall terminate coincidentally therewith without any liability of
Sublessor to Sublessee.
B. All of the terms and conditions contained in the Master Lease are
incorporated herein, except for the introductory summary of basic terms on page
1, paragraphs 4, 5, 6, 7, the first two sentences of Section 8, the first
paragraph of Section 9 (other than the last sentence), 10 (other than the last
sentence), 11, and the introductory clause of the first sentence of Section 30,
36, the address for Sublessor in 37(c), 39, all attachments and exhibits to the
Master Lease other than Exhibits A and C and the Rules and Regulations, and any
specific references to dollar amounts regarding rent and security deposit as
terms and conditions of this Sublease (with each reference therein to Lessor
and Lessee to be deemed to refer to Sublessor and Subleasee, except with
respect to obligations that only Master Lessor can perform), and along with all
of the following paragraphs set out in this Sublease shall be the complete
terms and conditions of this Sublease. In the event the terms in one of the
excepted paragraphs is needed for a logical interpretation of the Master Lease
(i.e., rent amounts outlined in the introductory summary of basic terms on page
1), then the business terms delineated in this Sublease shall be incorporated
for interpretation reasons.
3. PREMISES. Sublessor leases to Sublessee, and Sublessee hires from
Sublessor, approximately 6,059 square feet, situated in the City of Fremont,
County of Alameda, State of California, and located at 3758 Spinnaker Court
(the "Premises"), as shown on attached Exhibit B.
4.1 TERM. The term of this Sublease shall be for a period commencing
February 1, 1999 and ending on July 31, 2000, subject to Section 16 below.
Page 1 of 5
<PAGE> 2
4.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if for
any reason Sublessor cannot deliver possession of the Premises to Sublessee on
such date, Sublessor shall not be subject to any liability therefore, nor shall
such failure affect the validity of this Sublease or the obligations of
Sublessee hereunder or extend the term hereof, but in such case Sublessee shall
not be obligated to pay rent until possession of the Premises is tendered to
Sublessee; provided, however, that if Sublessor shall not have delivered
possession of the Premises within sixty (60) days from such commencement date,
Sublessee may, at Sublessee's option, by notice in writing to Sublessor, cancel
this Sublease within ten (10) business days after the end of such sixty (60) day
period. If this Sublease is canceled as herein provided, Sublessor shall return
any monies previously deposited by Sublessee and the parties shall be discharged
from all obligations hereunder.
4.3 EARLY POSSESSION. Notwithstanding the foregoing, Sublessee can elect
to have early access (rent free) to the Premises starting January 23, 1999, if
Master Lessor has consented to the Sublessee by then. In the event that
Sublessee occupies the Premises prior to the commencement date of the term,
such occupancy shall be subject to all of the provisions of this Sublease. Such
early possession shall not advance the termination date of this Sublease.
5. SIGNAGE. Sublessee shall be able to place their company name on the
right or lower one-half of monument sign in front of the premises and to place
its company name/logo on the glass located in the reception area. The reception
and monument area signage will conform to all CC&R's in regard to size, color,
placement and style, and is subject to Master Lessor approval. Sublessee shall
bear all related expenses.
6. EXTENDED TERM. If Sublessor does not wish to occupy the premises at
the end of the 18 month sublease term, Sublessor will give JNI the first right
to renegotiate an extended term during the thirty (30) days preceding the final
sixty (60) days of the term. If the parties cannot agree on terms and fail to
enter into a new lease during such thirty (30) day period, then neither party
shall have any further obligation to the other under this Section 6. All terms
and conditions of the extended term, including details on the furniture, shall
be mutually agreed upon during such 30 day period.
7. RENT. Sublessee shall pay to Sublessor as rent for the Premises
equal monthly installments of Nine Thousand Eighty-eight and 50/100 Dollars
($9,088.50) in advance, on the first day of each month of the term hereof.
Sublessee shall pay Sublessor upon the execution hereof the sum of Nine
Thousand Eighty-eight and 50/100 Dollars ($9,088.50) as rent for the first
month. Rent for any period during the term hereof which is for less than one
month shall be a pro-rata portion of the monthly installment. Rent shall be
payable without notice or demand and without any deduction, offset, or
abatement in lawful money of the United States of America to Sublessor at the
address stated herein or to such other persons or at such other places as
Sublessor may designate in writing.
Page 2 of 5
<PAGE> 3
8. ADDITIONAL LAB SPACE. Sublessee will also sublease the existing lab that
will be made available sometime in February 1999 and the "Premises" will be
redefined accordingly. Sublessee will pay $1.50 per square foot per month for
the additional space, and such space will be subject to all of the other terms
of the Sublease. The additional space will be handled with a simple lease
addendum indicating the square footage and the commencement date when available.
9. PERSONAL PROPERTY LEASE: This Sublease is expressly conditioned upon
execution of a furniture agreement of even date attached herewith as Exhibit C.
10. PAYMENT OBLIGATIONS OF SUBLESSOR AND SUBLESSEE.
<TABLE>
<S> <C> <C>
A. Maintenance of building
foundations, exterior walls,
roof and roofing: Master Lessor
B. All other building interior
and building exterior
maintenance: Sublessor
C. Outside are maintenance,
including landscaping: Sublessor
D. Real estate taxes and
assessments**: Sublessor
E. Public liability and
property damage insurance***: Sublessee
F. Telephone service: Sublessee
G. Water: Sublessor
H. Gas and electricity*: Sublessor
I. Garbage: Sublessor
J. Janitorial: Sublessor
</TABLE>
* To the extent Tenant's PG&E usage becomes extraordinary (more than $0.18 per
square foot per month, "Extraordinary Usage"), Tenant is obligated to pay any
such excessive usage over $0.18 per square foot per month. Such draw would be
measured (at Sublessor's option) by installing a PG&E sub-meter (emon-demon)
or other reasonably accurate method/approximation for determining Subtenant's
PG&E draw. All payments will be made no later than thirty (30) days after
invoicing.
Page 3 of 5
<PAGE> 4
**Sublessee shall be responsible for all taxes and assessments (other than
taxes on Master Lessor's or Sublessor's income) based on Sublessee's
use, possession or occupancy of the Premises, as well as Sublessee's
personal property.
***Sublessee shall be responsible for obtaining insurance on all personal
property of Sublessee located on the premises.
11. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof the sum of Eighteen Thousand One Hundred Seventy-seven and 00/100
Dollars ($18,177.00) as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. If Sublessee fails to pay rent or other
charges due hereunder, or otherwise defaults with respect to any provision of
this Sublease, Sublessor may use, apply, or retain all or any portion of said
deposit for the payment of any rent, or other charge in default, or for the
payment of any other sum to which Sublessor may become obligated by reason of
Sublessee's default, or to compensate Sublessor for any loss or damage which
Sublessor may suffer thereby. If Sublessor so uses or applies all or any
portion of said deposit, Sublessee shall, within 10 days after written demand
therefor, deposit cash with Sublessor in an amount sufficient to restore said
deposit to the full amount hereinabove stated, and Sublessee's failure to do so
shall be a breach of this Sublease and Sublessor may at its option terminate
this Sublease. Sublessor shall not be required to keep said deposit separate
from its general accounts. If Sublessee performs all of its obligations
hereunder, said deposit, or any amount not applied by Sublessor, shall be
returned without payment of interest for its use to Sublessee (or at
Sublessor's option to the last assignee, if any, of Sublessee's interest
hereunder) within 10 days after the expiration of the term hereof, or after
Sublessee has vacated the Premises, whichever is later.
12. USE. Subject to Section 3 of the Master Lease, the Premises shall be used
and occupied only for general office use, sales, marketing, design, some light
assembly and testing in the lab. No chemicals or hazardous materials will be
used or stored on the premises.
13. BROKERS. Sublessor and Sublessee present that they have only dealt with CPS
representing the Sublessor and Grubb & Ellis representing the Sublessee as
brokers ("Brokers") in connection with this Sublease transaction.
14. COMMISSION. Upon execution of this Sublease, Sublessor shall pay a real
estate commission consistent with that separate Listing Agreement with CPS.
15. CONDITION OF PREMISES. Sublessor and Sublessee agree that the Premises
include existing interior improvements. Except for Sublessor demising the
premises, steam cleaning the premises and delivering premises clean and free of
debris, and paint being "touched up" where needed, Sublessee hereby accepts the
Premises in their condition existing as of the date Sublessee occupies the
Premises, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and relating to the use of the Premises,
and accepts this Sublease subject thereto and to all matters disclosed thereby
and by any exhibits attached hereto. Sublessee acknowledges that neither
Sublessor nor Sublessee's agent nor the Broker has made any representations or
warranty as to the suitability of the Premises for the conduct of Sublessee's
business.
Page 4 of 5
<PAGE> 5
16. MASTER LESSOR'S CONSENT: The effectiveness of this Sublease is expressly
conditioned upon receipt of Master Lessor's written consent by February 1, 1999.
Each party will reasonably cooperate to secure such consent; and neither party
shall be liable to the other if such consent is not secured by February 1, 1999.
SUBLESSOR: Obsidian, Inc., SUBLESSEE: JNI, Inc., a Delaware Corporation
a California Corporation
BY: /s/ [ILLEGIBLE] BY: /s/ RANDY JOHNSON
--------------------------- ---------------------------
TITLE: CFO TITLE: CFO
------------------------ ------------------------
DATE: 1/29/99 DATE: 1/29/99
------------------------- -------------------------
BY: BY:
--------------------------- ---------------------------
TITLE: TITLE:
------------------------ ------------------------
DATE: DATE:
------------------------- -------------------------
Page 5 of 5
<PAGE> 6
EXHIBIT "A"
[California Net Lease]
LEASE AGREEMENT
THIS LEASE AGREEMENT is made this 20th day of November, 1998, between ProLogis
Limited Partnership-1, a Delaware Limited Partnership ("Landlord"), and the
Tenant named below.
Tenant: Obsidian Inc., a California Corporation
Tenant's representative, 3758 Spinnaker Court
address, and phone no.: Fremont, CA 94538
510/492-4400
Premises: That portion of the Building, containing
approximately 22,000 rentable square feet, as
determined by Landlord and commonly known as
3758 Spinnaker Court, Fremont, CA as shown on
Exhibit A.
Project: Spinnaker Business Center
Building: Building #7 (14307)
Tenant's Proportionate Share
of Project: 14.28%
Tenant's Proportionate Share
of Building: 100%
Lease Term: Beginning on the Commencement Date and ending
on the last day of the 55th full calendar
month thereafter.
Commencement Date: December 1, 1998
Initial Monthly Base Rent: Twenty Two Thousand dollars $22,000
Initial Estimated Monthly 1. Common Area Charges: $1,119
Operating Expense Payments:
(estimates only and subject to 2. Taxes: $2,878
adjustment to actual costs and
expenses according to the 3. Insurance: $ 73
provisions of this Lease)
Initial Estimated Monthly
Operating Expense Payments: $ 4,070
Initial Monthly Base Rent and
Operating Expense Payments: $26,070
Security Deposit: $26,400
Broker: N/A
Addenda: Addendum I, II, III, Exhibits A, B and C
1. GRANTING CLAUSE. In consideration of the obligation of Tenant to pay
rent as herein provided and in consideration of the other terms, covenants, and
conditions hereof, Landlord leases to Tenant, and Tenant takes from Landlord,
the Premises, to have and to hold for the Lease Term, subject to the terms,
covenants and conditions of this Lease.
2. ACCEPTANCE OF PREMISES. Tenant shall accept the Premises in its
condition as of the Commencement Date, subject to all applicable laws,
ordinances, regulations, covenants and restrictions. Landlord has made no
representation or warranty as to the suitability of the Premises for the
conduct of Tenant's business, and Tenant waives any implied warranty as to the
suitability of the Premises for Tenant's intended purposes. Except as provided
in Paragraph 10, in no event shall Landlord have any obligation for any defects
in the Premises or any limitation on its use. The taking of possession of the
Premises shall be conclusive evidence that Tenant accepts the Premises and that
the Premises were in good condition at the time possession was taken except for
items that are Landlord's responsibility under Paragraph 10 and any punchlist
items agreed to in writing by Landlord and Tenant.
3. USE. The Premises shall be used only for the purpose of receiving,
storing, shipping and selling (but limited to wholesale sales) products,
materials and merchandise made and/or distributed by Tenant and for such other
lawful purposes as may be incidental thereto; provided, however, with
Landlord's prior written consent, Tenant may also use the Premises for light
manufacturing. Tenant shall not conduct or give notice of any auction,
liquidation or going out of business sale on the Premises. Tenant will use the
Premises in a careful, safe and proper manner and will not commit waste,
overload the floor or structure of the Premises or subject the Premises to use
that would damage the Premises. Tenant shall not permit any objectionable or
unpleasant odors, smoke, dust, gas, noise, or vibrations to emanate from the
Premises, or take any other action that would constitute a nuisance or would
disturb, unreasonably interfere with, or endanger Landlord or any tenants of
the Project. Outside storage, including without limitation, storage of trucks
and other vehicles, is prohibited without Landlord's prior written consent.
Tenant, at
<PAGE> 7
its sole expense, shall use and occupy the Premises in compliance with all laws,
including, without limitation, the Americans With Disabilities Act, orders,
judgments, ordinances, regulations, codes, directives, permits, licenses,
covenants and restrictions now or hereafter applicable to the Premises
(collectively, "Legal Requirements"). The Premises shall not be used as a place
of public accommodation under the Americans With Disabilities Act or similar
state statutes or local ordinances or any regulations promulgated thereunder,
all as may be amended from time to time. Tenant shall, at its expense, make any
alterations or modifications, within or without the Premises, that are required
by Legal Requirements related to Tenant's use or occupation of the Premises.
Tenant will not use or permit the Premises to be used for any purpose or in any
manner that would void Tenant's or Landlord's insurance, increase the insurance
risk, or cause the disallowance of any sprinkler credits. If any increase in the
cost of any insurance on the Premises of the Project is caused by Tenant's use
or occupation of the Premises, of because Tenant vacates the Premises, then
Tenant shall pay the amount of such increase to Landlord. Any occupation of the
Premises by Tenant prior to the Commencement Date shall be subject to all
obligations of Tenant under this Lease.
4. BASE RENT. Tenant shall pay Base Rent in the amount set forth above.
The first month's Base Rent, the Security Deposit, and the first monthly
installment of estimated Operating Expenses (as hereafter defined) shall be due
and payable on the date hereof, and Tenant promises to pay to Landlord in
advance, without demand, deduction or set-off, monthly installments of Base Rent
on or before the first day of each calendar month succeeding the Commencement
Date. Payments of Base Rent for any fractional calendar month shall be prorated.
All payments required to be made by Tenant to Landlord hereunder shall be
payable at such address as Landlord may specify from time to time by written
notice delivered in accordance herewith. The obligation of Tenant to pay Base
Rent and other sums to Landlord and the obligations of Landlord under this Lease
are independent obligations. Tenant shall have no right at any time to abate,
reduce, or set-off any rent due hereunder except as may be expressly provided in
this Lease. Tenant waives and releases all statutory liens and offset rights as
to rent. If Tenant is delinquent in any monthly installment of Base Rent or of
estimated Operating Expenses for more than 5 days, Tenant shall pay to Landlord
on demand a late charge equal to 5 percent of such delinquent sum. The provision
for such late charge shall be in addition to all of Landlord's other rights and
remedies hereunder or at law and shall not be construed as a penalty.
5. SECURITY DEPOSIT. The Security Deposit shall be held by Landlord as
security for the performance of Tenant's obligations under this Lease. The
Security Deposit is not an advance rental deposit or a measure of Landlord's
damages in case of Tenant's default. Upon each occurrence of an Event of Default
(hereinafter defined), Landlord may use all or part of the Security Deposit to
pay delinquent payments due under this Lease, and the cost of any damage,
injury, expense or liability caused by such Event of Default, without prejudice
to any other remedy provided herein or provided by law. Tenant shall pay
Landlord on demand the amount that will restore the Security Deposit to its
original amount. Landlord's obligation respecting the Security Deposit is that
of a debtor, not a trustee; no interest shall accrue thereon. The Security
Deposit shall be the property of Landlord, but shall be paid to Tenant when
Tenant's obligations under this Lease have been completely fulfilled. Landlord
shall be released from any obligation with respect to the Security Deposit upon
transfer of this Lease and the Premises to a person or entity assuming
Landlord's obligations under this Paragraph 5.
6. OPERATING EXPENSE PAYMENTS. During each month of the Lease Term, on
the same date that Base Rent is due, Tenant shall pay Landlord an amount equal
to 1/12 of the annual cost, as estimated by Landlord from time to time, of
Tenant's Proportionate Share (hereinafter defined) of Operating Expenses for the
Project. Payments thereof for any fractional calendar month shall be prorated.
The term "Operating Expenses" means all costs and expenses incurred by Landlord
with respect to the ownership, maintenance, and operation of the Project
including, but not limited to costs of: Taxes (hereinafter defined) and fees
payable to tax consultants and attorneys for consultation and contesting taxes;
insurance; utilities; maintenance, repair and replacement of all portions of the
Project, including without limitation, paving and parking areas, roads, roofs,
alleys, and driveways, mowing, landscaping, exterior painting, utility lines,
heating, ventilation and air conditioning systems, lighting, electrical systems
and other mechanical and building systems; amounts paid to contractors and
subcontractors for work or services performed in connection with any of the
foregoing; charges or assessments of any association to which the Project is
subject; property management fees payable to a property manager, including any
affiliate of Landlord, or if there is no property manager, an administration fee
of 15 percent of Operating Expenses payable to Landlord; security services, if
any; trash collection, sweeping and removal; and additions or alterations made
by Landlord to the Project or the Building in order to comply with Legal
Requirements (other than those expressly required herein to be made by Tenant)
or that are appropriate to the continued operation of the Project or the
Building as a bulk warehouse facility in the market area, provided that the cost
of additions or alterations that are required to be capitalized for federal
income tax purposes shall be amortized on a straight line basis over a period
equal to the lesser of the useful life thereof for federal income tax purposes
or 10 years. Operating Expenses do not include costs, or expenses, depreciation
or amortization for capital repairs and capital replacements required to be made
by Landlord under Paragraph 10 of this Lease, debt service under mortgages or
ground rent under ground leases, costs of restoration to the extent of net
insurance proceeds received by Landlord with respect thereto, leasing
commissions, or the costs of renovating space for tenants.
If Tenant's total payments of Operating Expenses for any year are less
than Tenant's Proportionate Share of actual Operating Expenses for such year,
then Tenant shall pay the difference to Landlord within 30 days after demand,
and if more, then Landlord shall retain such excess and credit it against
Tenant's next payments. For purposes of calculating Tenant's Proportionate Share
of Operating Expenses, a year shall mean a calendar year except the first year,
which shall begin on the Commencement Date, and the last year, which shall end
on the expiration of this Lease. With respect to Operating Expenses which
Landlord allocates to the entire Project, Tenant's "Proportionate Share" shall
be the percentage set forth on the first page of this Lease as Tenant's
Proportionate Share
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<PAGE> 8
of the Project as reasonably adjusted by Landlord in the future for changes in
the physical size of the Premises or the Project; and, with respect to Operating
Expenses which Landlord allocates only to the Building, Tenant's "Proportionate
Share" shall be the percentage set forth on the first page of this Lease as
Tenant's Proportionate Share of the Building as reasonably adjusted by Landlord
in the future for changes in the physical size of the Premises or the Building.
Landlord may equitably increase Tenant's Proportionate Share for any item of
expense or cost reimbursable by Tenant that relates to repair, replacement, or
service that benefits only the Premises or only a portion of the Project or
Building that includes the Premises or that varies with occupancy or use. The
estimated Operating Expenses for the Premises set forth on the first page of
this Lease are only estimates, and Landlord makes no guaranty or warranty that
such estimates will be accurate.
7. UTILITIES. Tenant shall pay for all water, gas, electricity, heat,
light, power, telephone, sewer, sprinkler services, refuse and trash collection,
and other utilities and services used on the Premises, all maintenance charges
for utilities, and any storm sewer charges or other similar charges for
utilities imposed by any governmental entity or utility provider, together with
any taxes, penalties, surcharges or the like pertaining to Tenant's use of the
Premises. Landlord may cause at Tenant's expense any utilities to be separately
metered or charged directly to Tenant by the provider. Tenant shall pay its
share of all charges for jointly metered utilities based upon consumption, as
reasonably determined by Landlord. No interruption or failure of utilities shall
result in termination of this Lease or the abatement of rent. Tenant agrees to
limit use of water and sewer for normal restroom use.
8. TAXES. Landlord shall pay all taxes, assessments and governmental
charges (collectively referred to as "Taxes") that accrue against the Project
during the Lease Term, which shall be included as part of the Operating
Expenses charged to Tenant. Landlord may contest by appropriate legal
proceedings the amount, validity, or application of any Taxes or liens thereof.
All capital levies or other taxes assessed or imposed on Landlord upon the
rents payable to Landlord under this Lease and any franchise tax, any excise,
transaction, sales or privilege tax, assessment, levy or charge measured by or
based, in whole or in part, upon such rents from the Premises and/or the
Project or any portion thereof shall be paid by Tenant to Landlord monthly in
estimated installments or upon demand, at the option of Landlord, as additional
rent; provided, however, in no event shall Tenant be liable for any net income
taxes imposed on Landlord unless such net income taxes are in substitution for
any Taxes payable hereunder. If any such tax or excise is levied or assessed
directly against Tenant, then Tenant shall be responsible for and shall pay the
same at such times and in such manner as the taxing authority shall require.
Tenant shall be liable for all taxes levied or assessed against any personal
property or fixtures placed in the Premises, whether levied or assessed against
Landlord or Tenant.
9. INSURANCE. Landlord shall maintain all risk property insurance
covering the full replacement cost of the Building. Landlord may, but is not
obligated to, maintain such other insurance and additional coverages as it may
deem necessary, including, but not limited to, commercial liability insurance
and rent loss insurance. All such insurance shall be included as part of the
Operating Expenses charged to Tenant. The Project or Building may be included in
a blanket policy (in which case the cost of such insurance allocable to the
Project or Building will be determined by Landlord based upon the insurer's cost
calculations). Tenant shall also reimburse Landlord for any increased premiums
or additional insurance which Landlord reasonably deems necessary as a result of
Tenant's use of the Premises.
Tenant, at its expense, shall maintain during the Lease Term: all risk
property insurance covering the full replacement cost of all property and
improvements installed or placed in the Premises by Tenant at Tenant's expense;
worker's compensation insurance with no less than the minimum limits required by
law; employer's liability insurance with such limits as required by law; and
commercial liability insurance, with a minimum limit of $1,000,000 per
occurrence and a minimum umbrella limit of $1,000,000, for a total minimum
combined general liability and umbrella limit of $2,000,000 (together with such
additional umbrella coverage as Landlord may reasonably require) for property
damage, personal injuries, or deaths of persons occurring in or about the
Premises. Landlord may from time to time require reasonable increases in any
such limits. The commercial liability policies shall name Landlord as an
additional insured, insure on an occurrence and not a claims-made basis, be
issued by insurance companies which are reasonably acceptable to Landlord, not
be cancelable unless 30 days' prior written notice shall have been given to
Landlord, contain a hostile fire endorsement and a contractual liability
endorsement and provide primary coverage to Landlord (any policy issued to
Landlord providing duplicate or similar coverage shall be deemed excess over
Tenant's policies). Such policies or certificates thereof shall be delivered to
Landlord by Tenant upon commencement of the Lease Term and upon each renewal of
said insurance.
The all risk property insurance obtained by Landlord and Tenant shall
include a waiver of subrogation by the insurers and all rights based upon an
assignment from its insured, against Landlord or Tenant, their officers,
directors, employees, managers, agents, invitees and contractors, in connection
with any loss or damage thereby insured against. Neither party nor its officers,
directors, employees, managers, agents, invitees or contractors shall be liable
to the other for loss or damage caused by any risk coverable by all risk
property insurance, and each party waives any claims against the other party,
and its officers, directors, employees, managers, agents, invitees and
contractors for such loss or damage. The failure of a party to insure its
property shall not void this waiver. Landlord and its agents, employees and
contractors shall not be liable for, and Tenant hereby waives all claims against
such parties for, business interruption and losses occasioned thereby sustained
by Tenant or any person claiming through Tenant resulting from any accident or
occurrence in or upon the Premises or the Project from any cause whatsoever,
including without limitation, damage caused in whole or in part, directly or
indirectly, by the negligence of Landlord or its agents, employees or
contractors.
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<PAGE> 9
10. Landlord's Repairs. Landlord shall maintain, at its expense, the
structural soundness of the roof, foundation, and exterior walls of the Building
in good repair, reasonable wear and tear and uninsured losses and damages caused
by Tenant, its agents and contractors excluded. The term "walls" as used in this
Paragraph 10 shall not include windows, glass or plate glass, doors or overhead
doors, special store fronts, dock bumpers, dock plates or levelers, or office
entries. Tenant shall promptly give Landlord written notice of any repair
required by Landlord pursuant to this Paragraph 10, after which Landlord shall
have a reasonable opportunity to repair.
11. Tenant's Repairs. Landlord, at Tenant's expense as provided in
Paragraph 6, shall maintain in good repair and condition the parking areas and
other common areas of the Building, including, but not limited to driveways,
alleys, landscape and grounds surrounding the Premises. Subject to Landlord's
obligation in Paragraph 10 and subject to Paragraphs 9 and 15, Tenant, at its
expense, shall repair, replace and maintain in good condition all portions of
the Premises and all areas, improvements and systems exclusively serving the
Premises including, without limitation, dock and loading areas, truck doors,
plumbing, water, and sewer lines up to points of common connection, fire
sprinklers and fire protection systems, entries, doors, ceilings and roof
membrane, windows, interior walls, and the interior side of demising walls, and
heating, ventilation and air conditioning systems. Such repair and replacements
include capital expenditures and repairs whose benefits may extend beyond the
Term. Heating, ventilation and air conditioning systems and other mechanical and
building systems serving the Premises shall be maintained at Tenant's expense
pursuant to maintenance service contracts entered into by Tenant or, at
Landlord's election, by Landlord. The scope of services and contractors under
such maintenance contracts shall be reasonably approved by Landlord. At
Landlord's request, Tenant shall enter into a joint maintenance agreement with
any railroad that services the Premises. If Tenant fails to perform any repair
or replacement for which it is responsible, Landlord may perform such work and
be reimbursed by Tenant within 10 days after demand therefor. Subject to
Paragraphs 9 and 15, Tenant shall bear the full cost of any repair or
replacement to any part of the Building or Project that results from damage
caused by Tenant, its agents, contractors, or invitees and any repair that
benefits only the Premises.
12. Tenant-Made Alterations and Trade Fixtures. Any alterations, additions,
or improvements made by or on behalf of Tenant to the Premises ("Tenant-Made
Alterations") shall be subject to Landlord's prior written consent. Tenant shall
cause, at its expense, all Tenant-Made Alterations to comply with insurance
requirements and with Legal Requirements and shall construct at its expense any
alteration or modification required by Legal Requirements as a result of any
Tenant-Made Alterations. All Tenant-Made Alterations shall be constructed in a
good and workmanlike manner by contractors reasonably acceptable to Landlord and
only good grades of materials shall be used. All plans and specifications for
any Tenant-Made Alterations shall be submitted to Landlord for its approval.
Landlord may monitor construction of the Tenant-Made Alterations. Tenant shall
reimburse Landlord for its costs in reviewing plans and specifications and in
monitoring construction. Landlord's right to review plans and specifications and
to monitor construction shall be solely for its own benefit, and Landlord shall
have no duty to see that such plans and specifications or construction comply
with applicable laws, codes, rules and regulations. Tenant shall provide
Landlord with the identities and mailing addresses of all persons performing
work or supplying materials, prior to beginning such construction, and Landlord
may post on and about the Premises notices of non-responsibility pursuant to
applicable law. Tenant shall furnish security or make other arrangements
satisfactory to Landlord to assure payment for the completion of all work free
and clear of liens and shall provide certificates of insurance for worker's
compensation and other coverage in amounts and from an insurance company
satisfactory to Landlord protecting Landlord against liability for personal
injury or property damage during construction. Upon completion of any
Tenant-Made Alterations, Tenant shall deliver to Landlord sworn statements
setting forth the names of all contractors and subcontractors who did work on
the Tenant-Made Alterations and final lien waivers from all such contractors and
subcontractors. Upon surrender of the Premises, all Tenant-Made Alterations and
any leasehold improvements constructed by Landlord or Tenant shall remain on the
Premises as Landlord's property, except to the extent Landlord requires removal
at Tenant's expense of any such items or Landlord and Tenant have otherwise
agreed in writing in connection with Landlord's consent to any Tenant-Made
Alterations. Tenant shall repair any damage caused by such removal.
Tenant, at its own cost and expense and without Landlord's prior
approval, may erect such shelves, bins, machinery and trade fixtures
(collectively "Trade Fixtures") in the ordinary course of its business provided
that such items do not alter the basic character of the Premises, do not
overload or damage the Premises, and may be removed without injury to the
Premises, and the construction, erection, and installation thereof complies with
all Legal Requirements and with Landlord's requirements set forth above. Tenant
shall remove its Trade Fixtures and shall repair any damage caused by such
removal.
13. Signs. Tenant shall not make any changes to the exterior of the
Premises, install any exterior lights, decorations, balloons, flags, pennants,
banners, or painting, or erect or install any signs, windows or door lettering,
placards, decorations, or advertising media of any type which can be viewed from
the exterior of the Premises, without Landlord's prior written consent. Upon
surrender or vacation of the Premises, Tenant shall have removed all signs and
repair, paint, and/or replace the building facia surface to which its signs are
attached. Tenant shall obtain all applicable governmental permits and approvals
for sign and exterior treatments. All signs, decorations, advertising media,
blinds, draperies and other window treatment or bars or other security
installations visible from outside the Premises shall be subject to Landlord's
approval and conform in all respects to Landlord's requirements.
14. Parking. Tenant shall be entitled to park in common with other tenants
of the Project in those areas designated for nonreserved parking. Landlord may
allocate parking spaces among Tenant and other tenants in the Project if
Landlord determines that such parking facilities are becoming crowded. Landlord
shall not be responsible for enforcing Tenant's parking rights against any third
parties.
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<PAGE> 10
15. RESTORATION. If at any time during the Lease Term the Premises are
damaged by a fire or other casualty, Landlord shall notify Tenant within 60
days after such damage as to the amount of time Landlord reasonably estimates
it will take to restore the Premises. If the restoration time is estimated to
exceed 6 months, either Landlord or Tenant may elect to terminate this Lease
upon notice to the other party given no later than 30 days after Landlord's
notice. If neither party elects to terminate this Lease or if Landlord
estimates that restoration will take 6 months or less, then, subject to receipt
of sufficient insurance proceeds, Landlord shall promptly restore the Premises
excluding the improvements installed by Tenant or by Landlord and paid by
Tenant, subject to delays arising from the collection of insurance proceeds or
from Force Majeure events. Tenant at Tenant's expense shall promptly perform,
subject to delays arising from the collection of insurance proceeds, or from
Force Majeure events, all repairs or restoration not required to be done by
Landlord and shall promptly re-enter the Premises and commence doing business
in accordance with this Lease. Notwithstanding the foregoing, either party may
terminate this Lease if the Premises are damaged during the last year of the
Lease Term and Landlord reasonably estimates that it will take more than one
month to repair such damage. Tenant shall pay to Landlord with respect to any
damage to the Premises the amount of the commercially reasonable deductible
under Landlord's insurance policy (currently $10,000) within 10 days after
presentment of Landlord's invoice. If the damage involves the premises of other
tenants, Tenant shall pay the portion of the deductible that the cost of the
restoration of the Premises bears to the total cost of restoration, as
determined by Landlord. Base Rent and Operating Expenses shall be abated for
the period of repair and restoration in the proportion which the area of the
Premises, if any, which is not usable by Tenant bears to the total area of the
Premises. Such abatement shall be the sole remedy of Tenant, and except as
provided herein, Tenant waives any right to terminate the Lease by reason of
damage or casualty loss.
16. CONDEMNATION. If any part of the Premises or the Project should be
taken for any public or quasi-public use under governmental law, ordinance, or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof (a "Taking" or "Taken"), and the Taking would prevent or materially
interfere with Tenant's use of the Premises or in Landlord's judgment would
materially interfere with or impair its ownership or operation of the Project,
then upon written notice by Landlord this Lease shall terminate and Base Rent
shall be apportioned as of said date. If part of the Premises shall be Taken,
and this Lease is not terminated as provided above, the Base Rent payable
hereunder during the unexpired Lease Term shall be reduced to such extent as
may be fair and reasonable under the circumstances. In the event of any such
Taking, Landlord shall be entitled to receive the entire price or award from
any such Taking without any payment to Tenant, and Tenant hereby assigns to
Landlord Tenant's interest, if any, in such award. Tenant shall have the right,
to the extent that same shall not diminish Landlord's award, to make a separate
claim against the condemning authority (but not Landlord) for such compensation
as may be separately awarded or recoverable by Tenant for moving expenses and
damage to Tenant's Trade Fixtures, if a separate award for such items is made
to Tenant.
17. ASSIGNMENT AND SUBLETTING. Without Landlord's prior written consent,
which Landlord shall not unreasonably withhold, Tenant shall not assign this
Lease or sublease the Premises or any part thereof or mortgage, pledge, or
hypothecate its leasehold interest or grant any concession or license within the
Premises and any attempt to do any of the foregoing shall be void and of no
effect. For purposes of this paragraph, a transfer of the ownership interests
controlling Tenant shall be deemed an assignment of this Lease unless such
ownership interests are publicly traded. Notwithstanding the above, Tenant may
assign or sublet the Premises, or any part thereof, to any entity controlling
Tenant, controlled by Tenant or under common control with Tenant (a "Tenant
Affiliate"), without the prior written consent of Landlord. Tenant shall
reimburse Landlord for all of Landlord's reasonable out-of-pocket expense in
connection with any assignment or sublease. Upon Landlord's receipt of Tenant's
written notice of a desire to assign or sublet 75% or more of the Premises, or
any part thereof (other than to a Tenant Affiliate), Landlord may, by giving
written notice to Tenant within 30 days after receipt of Tenant's notice,
terminate this Lease with respect to the space described in Tenant's notice, as
of the date specified in Tenant's notice for the commencement of the
proposed assignment or sublease. If Landlord so terminates the Lease, Landlord
may enter into a lease directly with the proposed sublessee or assignee.
Tenant may withdraw its notice to sublease or assign by notifying Landlord
within 10 days after Landlord has given Tenant notice of such termination, in
which case the Lease shall not terminate but shall continue.
It shall be reasonable for the Landlord to withhold its consent to
any assignment or sublease in any of the following instances: (i) an Event of
Default has occurred and is continuing that would not be cured upon the
proposed sublease or assignment; (ii) the assignee or sublessee does not have a
net worth calculated according to generally accepted accounting principles at
least equal to the greater of the net worth of Tenant immediately prior to such
assignment or sublease or the net worth of the Tenant at the time it executed
the Lease; (iii) the intended use of the Premises by the assignee or sublessee
is not reasonably satisfactory to Landlord; (iv) the intended use of the
Premises by the assignee or sublessee would materially increase the pedestrian
or vehicular traffic to the Premises or the Project; (v) occupancy of the
Premises by the assignee or sublessee would, in Landlord's opinion, violate an
agreement binding upon Landlord or the Project with regard to the identity of
tenants, usage in the Project, or similar matters; (vi) the identity or
business reputation of the assignee or sublessee will, in the good faith
judgment of Landlord, tend to damage the goodwill or reputation of the Project;
(vii) the assignment or sublet is to another tenant in the Project and is at
rates which are below those charged by Landlord for comparable space in the
Project; (viii) in the case of a sublease, the subtenant has not acknowledged
that the Lease controls over any inconsistent provision in the sublease; (ix)
the proposed assignee or sublessee is a governmental agency; or (x) there is
vacant space in the Premises suitable for lease to the proposed sublessee or
assignee. Tenant and Landlord acknowledge that each of the foregoing criteria
are reasonable as of the date of execution of this Lease. The foregoing criteria
shall not exclude any other reasonable basis for Landlord to refuse its consent
to such assignment or sublease. Any approved assignment or sublease shall be
expressly subject to the terms and conditions of this Lease. Tenant shall
provide to Landlord all information concerning the assignee or sublessee as
Landlord may request.
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<PAGE> 11
Notwithstanding any assignment or subletting, Tenant and any
guarantor or surety of Tenant's obligations under this Lease shall at all times
remain fully responsible and liable for the payment of the rent and for
compliance with all of Tenant's other obligations under this Lease (regardless
of whether Landlord's approval has been obtained for any such assignments or
sublettings). In the event that the rent due and payable by a sublessee or
assignee (or a combination of the rental payable under such sublease or
assignment plus any bonus or other consideration therefor or incident thereto)
exceeds the rental payable under this Lease, then Tenant shall be bound and
obligated to pay Landlord as additional rent hereunder 50% such excess rental
and other excess consideration within 10 days following receipt thereof by
Tenant.
If this Lease be assigned or if the Premises be subleased (whether in
whole or in part) or in the event of the mortgage, pledge or hypothecation of
Tenant's leasehold interest or grant of any concession or license within the
Premises or if the Premises be occupied in whole or in part by anyone other
than Tenant, then upon a default by Tenant hereunder Landlord may collect rent
from the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold
interest was hypothecated, concessionee or licensee or other occupant and,
except to the extent set forth in the preceding paragraph, apply the amount
collected to the next rent payable hereunder; and all such rentals collected by
Tenant shall be held in trust for Landlord and immediately forwarded to
Landlord. No such transaction or collection of rent or application thereof by
Landlord, however, shall be deemed a waiver of these provisions or a release of
Tenant from the further performance by Tenant of its covenants, duties, or
obligations hereunder.
18. INDEMNIFICATION. Except for the negligence of Landlord, its agents,
employees or contractors, and to the extent permitted by law, Tenant agrees to
indemnify, defend and hold harmless Landlord, and Landlord's agents, employees
and contractors, from and against any and all losses, liabilities, costs and
expenses (including attorneys' fees) resulting from claims by third parties for
injuries to any person and damages to or theft or misappropriation or loss of
property occurring in or about the Project and arising from the use and
occupancy of the Premises or from any activity, work, or thing done, permitted
or suffered by Tenant in or about the Premises or due to any other act or
omission of Tenant, its subtenants, assignees, invitees, employees, contractors
and agents. The furnishing of insurance required hereunder shall not be deemed
to limit Tenant's obligations under this paragraph 18.
19. INSPECTION AND ACCESS. Landlord and its agents, representatives, and
contractors may enter the Premises at any reasonable time to inspect the
Premises and to make such repairs as may be required or permitted pursuant to
this Lease and for any other business purpose. Landlord and Landlord's
representatives may enter the Premises during business hours for the purpose of
showing the Premises to prospective purchasers and, during the last year of the
Lease Term, to prospective tenants. Landlord may erect a suitable sign on the
Premises stating the Premises are available to let or that the Project is
available for sale. Landlord may grant easements, make public dedications,
designate common areas and create restrictions on or about the Premises,
provided that no such easement, dedication, designation or restriction
materially interferes with Tenant's use or occupancy of the Premises. At
Landlord's request, Tenant shall execute such instruments as may be necessary
for such easements, dedications or restrictions.
20. QUIET ENJOYMENT. If Tenant shall perform all of the covenants and
agreements herein required to be performed by Tenant, Tenant shall, subject
to the terms of this Lease, at all times during the Lease Term, have peaceful
and quiet enjoyment of the Premises against any person claiming by, through or
under Landlord.
21. SURRENDER. Upon termination of the Lease Term or earlier termination
of Tenant's right of possession, Tenant shall surrender the Premises to
Landlord in the same condition as received, broom clean, ordinary wear and tear
and casualty loss and condemnation covered by Paragraphs 15 and 16 excepted.
Any Trade Fixtures, Tenant-Made Alterations and property not so removed by
Tenant as permitted or required herein shall be deemed abandoned and may be
stored, removed, and disposed of by Landlord at Tenant's expense, and Tenant
waives all claims against Landlord for any damages resulting from Landlord's
retention and disposition of such property. All obligations of Tenant hereunder
not fully performed as of the termination of the Lease Term shall survive the
termination of the Lease Term, including without limitation, indemnity
obligations, payment obligations with respect to Operating Expenses and
obligations concerning the condition and repair of the Premises.
22. HOLDING OVER. If Tenant retains possession of the Premises after the
termination of the Lease Term, unless otherwise agreed in writing, such
possession shall be subject to immediate termination by Landlord at any time,
and all of the other terms and provisions of this Lease (excluding any expansion
or renewal option or other similar right or option) shall be applicable during
such holdover period, except that Tenant shall pay Landlord from time to time,
upon demand, as Base Rent for the holdover period, an amount equal to double
the Base Rent in effect on the termination date, computed on a monthly basis
for each month or part thereof during such holding over. All other payments
shall continue under the terms of this Lease. In addition, Tenant shall be
liable for all damages incurred by Landlord as a result of such holding over.
No holding over by Tenant, whether with or without consent of Landlord, shall
operate to extend this Lease except as otherwise expressly provided, and this
Paragraph 22 shall not be construed as consent for Tenant to retain possession
of the Premises.
23. EVENTS OF DEFAULT. Each of the following events shall be an event of
default ("Event of Default") by Tenant under this Lease:
(i) Tenant shall fail to pay any installment of Base Rent or any other
payment required herein when due, and such failure shall continue for a period
of 5 days from the date such payment was due,
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(ii) Tenant or any guarantor or surety of Tenant's obligations
hereunder shall (A) make a general assignment for the benefit of creditors;
(B) commence any case, proceeding or other action seeking to have an order
for relief entered on its behalf as a debtor or to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts or seeking
appointment of a receiver, trustee, custodian or other similar official for
it or for all or of any substantial part of its property (collectively a
"proceeding for relief"); (C) become the subject of any proceeding for
relief which is not dismissed within 60 days of its filing or entry; or (D)
die or suffer a legal disability (if Tenant, guarantor, or surety is an
individual) or be dissolved or otherwise fail to maintain its legal
existence (if Tenant, guarantor or surety is a corporation, partnership or
other entity).
(iii) Any insurance required to be maintained by Tenant pursuant to
this Lease shall be cancelled or terminated or shall expire or shall be
reduced or materially changed, except, in each case, as permitted in this
Lease.
(iv) Tenant shall not occupy or shall vacate the Premises or shall
fail to continuously operate its business at the Premises for the permitted
use set forth herein, whether or not Tenant is in monetary or other default
under this Lease.
(v) Tenant shall attempt or there shall occur any assignment,
subleasing or other transfer of Tenant's interest in or with respect to
this Lease except as otherwise permitted in this Lease.
(vi) Tenant shall fail to discharge any lien placed upon the
Premises in violation of this Lease within 30 days after any such lien or
encumbrance is filed against the Premises.
(vii) Tenant shall fail to comply with any provision of this Lease
other than those specifically referred to in this Paragraph 23, and except
as otherwise expressly provided herein, such default shall continue for
more than 30 days after Landlord shall have given Tenant written notice of
such default.
24. LANDLORD'S REMEDIES. Upon each occurrence of an Event of Default and
so long as such Event of Default shall be continuing, Landlord may at any time
thereafter at its election: terminate this Lease or Tenant's right of
possession (but Tenant shall remain liable as hereinafter provided), and/or
pursue any other remedies at law or in equity. Upon the termination of this
Lease or termination of Tenant's right of possession, it shall be lawful for
Landlord, without formal demand or notice of any kind, to re-enter the Premises
by summary dispossession proceedings or any other action or proceeding
authorized by law and to remove Tenant and all persons and property therefrom.
If Landlord re-enters the Premises, Landlord shall have the right to keep in
place and use, or remove and store, all of the furniture, fixtures and
equipment at the Premises.
Except as otherwise provided in the next paragraph, if Tenant breaches
this Lease and abandons the Premises prior to the end of the term hereof, or if
Tenant's right to possession is terminated by Landlord because of an Event of
Default by Tenant under this Lease, this Lease shall terminate. Upon such
termination, Landlord may recover from Tenant the following, as provided in
Section 1951.2 of the Civil Code of California: (i) the worth at the time of
award of the unpaid Base Rent and other charges under this Lease that had been
earned at the time of termination; (ii) the worth at the time of award of the
amount by which the reasonable value of the unpaid Base Rent and other charges
under this Lease which would have been earned after termination until the time
of award exceeds the amount of such rental loss that Tenant proves could have
been reasonably avoided; (iii) the worth at the time of award by which the
reasonable value of the unpaid Base Rent and other charges under this Lease for
the balance of the term of this Lease after the time of award exceeds the amount
of such rental loss that Tenant proves could have been reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under this
Lease or that in the ordinary course of things would be likely to result
therefrom. As used herein, the following terms are defined: (a) the "worth at
the time of award" of the amounts referred to in Sections (i) and (ii) is
computed by allowing interest at the lesser of 18 percent per annum or the
maximum lawful rate. The "worth at the time of award" of the amount referred to
in Section (iii) is computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus one percent;
(b) The "time of award" as used in clauses (i), (ii), and (iii) above is the
date on which judgment is entered by a court of competent jurisdiction; (c) The
"reasonable value" of the amount referred to in clause (ii) above is computed by
determining the mathematical product of (1) the "reasonable annual rental value"
(as defined herein) and (2) the number of years, including fractional parts
thereof, between the date of termination and the time of award. The "reasonable
value" of the amount referred to in clause (iii) is computed by determining the
mathematical product of (1) the annual Base Rent and other charges under this
Lease and (2) the number of years including fractional parts thereof remaining
in the balance of the term of this Lease after the time of award.
Even though Tenant has breached this Lease and abandoned the
Premises, this Lease shall continue in effect for so long as Landlord does not
terminate Tenant's right to possession, and Landlord may enforce all its rights
and remedies under this Lease, including the right to recover rent as it
becomes due. This remedy is intended to be the remedy described in California
Civil Code Section 1951.4, and the following provision from such Civil Code
Section is hereby repeated: "The Lessor has the remedy described in California
Civil Section 1951.4 (lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has right to
sublet or assign, subject only to reasonable limitations." Any such payments
due Landlord shall be made upon demand therefor from time to time and Tenant
agrees that Landlord may file suit to recover any sums failing
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due from time to time. Notwithstanding any such reletting without termination,
Landlord may at any time thereafter elect in writing to terminate this Lease
for such previous breach.
Exercise by Landlord of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance of surrender of the
Premises and/or a termination of this Lease by Landlord, whether by agreement
or by operation of law, it being understood that such surrender and/or
termination can be effected only by the written agreement of Landlord and
Tenant. Any law, usage, or custom to the contrary notwithstanding, Landlord
shall have the right at all times to enforce the provisions of this Lease in
strict accordance with the terms hereof; and the failure of Landlord at any
time to enforce its rights under this Lease strictly in accordance with same
shall not be construed as having created a custom in any way or manner contrary
to the specific terms, provisions, and covenants of this Lease or as having
modified the same. Tenant and Landlord further agree that forbearance or waiver
by Landlord to enforce its rights pursuant to this Lease or at law or in
equity, shall not be a waiver of Landlord's right to enforce one or more of its
rights in connection with any subsequent default. A receipt by Landlord of rent
or other payment with knowledge of the breach of any covenant hereof shall not
be deemed a waiver of such breach, and no waiver by Landlord of any provision
of this Lease shall be deemed to have been made unless expressed in writing and
signed by Landlord. To the greatest extent permitted by law, Tenant waives the
service of notice of Landlord's intention to re-enter as provided for in any
statute, or to institute legal proceedings to that end, and also waives all
right of redemption in case Tenant shall be dispossessed by a judgment or by
warrant of any court or judge. The terms "enter," "re-enter," "entry" or
"re-entry," as used in this Lease, are not restricted in their technical legal
meanings. Any reletting of the Premises shall be on such terms and conditions
as Landlord in its sole discretion may determine (including without limitation
a term different than the remaining Lease Term, rental concessions, alterations
and repair of the Premises, lease of less than the entire Premises to any
tenant and leasing any or all other portions of the Project before reletting
the Premises). Landlord shall not be liable, nor shall Tenant's obligations
hereunder be diminished, because of Landlord's failure to relet the Premises or
collect rent due in respect of such reletting.
25 TENANT'S REMEDIES/LIMITATION OF LIABILITY. Landlord shall not be in
default hereunder unless Landlord fails to perform any of its obligations
hereunder within 30 days after written notice from Tenant specifying such
failure (unless such performance will, due to the nature of the obligation,
require a period of time in excess of 30 days, then after such period of time
as is reasonably necessary). All obligations of Landlord hereunder shall be
construed as covenants, not conditions; and, except as may be otherwise
expressly provided in this Lease, Tenant may not terminate this Lease for
breach of Landlord's obligations hereunder. All obligations of Landlord under
this Lease will be binding upon Landlord only during the period of its
ownership of the Premises and not thereafter. The term "Landlord" in this Lease
shall mean only the owner, for the time being of the Premises, and in the event
of the transfer by such owner of its interest in the Premises, such owner shall
thereupon be released and discharged from all obligations of Landlord
thereafter accruing, but such obligations shall be binding during the Lease
Term upon each new owner for the duration of such owner's ownership. Any
liability of Landlord under this Lease shall be limited solely to its interest
in the Project, and in no event shall any personal liability be asserted
against Landlord in connection with this Lease nor shall any recourse be had to
any other property or assets of Landlord.
26 WAIVER OF JURY TRIAL. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY
JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF
THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.
27 SUBORDINATION. This Lease and Tenant's interest and rights hereunder
are and shall be subject and subordinate at all times to the lien of any first
mortgage, now existing or hereafter created on or against the Project or the
Premises, and all amendments, restatements, renewals, modifications,
consolidations, refinancing, assignments and extensions thereof, without the
necessity of any further instrument or act on the part of Tenant. Tenant
agrees, at the election of the holder of any such mortgage, to attorn to any
such holder. Tenant agrees upon demand to execute, acknowledge and deliver such
instruments, confirming such subordination and such instruments of attornment
as shall be requested by any such holder. Tenant hereby appoints Landlord
attorney in fact for Tenant irrevocably (such power of attorney being coupled
with an interest) to execute, acknowledge and deliver any such instrument and
instruments for and in the name of the Tenant and to cause any such instrument
to be recorded. Notwithstanding the foregoing, any such holder may at any time
subordinate its mortgage to this Lease, without Tenant's consent, by notice in
writing to Tenant, and thereupon this Lease shall be deemed prior to such
mortgage without regard to their respective dates of execution, delivery or
recording and in that event such holder shall have the same rights with respect
to this Lease as though this Lease had been executed prior to the execution,
delivery and recording of such mortgage and had been assigned to such holder.
The term "mortgage" whenever used in this Lease shall be deemed to include
deeds of trust, security assignments and any other encumbrances, and any
reference to the "holder" of a mortgage shall be deemed to include the
beneficiary under a deed of trust.
28 MECHANIC'S LIENS. Tenant has no express or implied authority to
create or place any lien or encumbrance of any kind upon, or in any manner to
bind the interest of Landlord or Tenant in, the Premises or to charge the
rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any
construction or repairs. Tenant covenants and agrees that it will pay or cause
to be paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed on the
Premises and that it will save and hold Landlord harmless from all loss, cost
or expense based on or arising out of asserted claims or liens against the
leasehold estate or against the interest of Landlord in the Premises or under
this Lease. Tenant shall give Landlord immediate written notice of the placing
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of any lien or encumbrance against the Premises and cause such lien or
encumbrance to be discharged within 30 days of the filing or recording thereof;
provided, however, Tenant may contest such liens or encumbrances as long as such
contest prevents foreclosure of the lien or encumbrance and Tenant causes such
lien or encumbrance to be bonded or insured over in a manner satisfactory to
Landlord within such 30 day period.
29 Estoppel Certificates. Tenant agrees, from time to time, within 10
days after request of Landlord, to execute and deliver to Landlord, or
Landlord's designee, any estoppel certificate requested by Landlord, stating
that this Lease is in full force and effect, the date to which rent has been
paid, that Landlord is not in default hereunder (or specifying in detail the
nature of Landlord's default), the termination date of this Lease and such other
matters pertaining to this Lease as may be requested by Landlord. Tenant's
obligation to furnish each estoppel certificate in a timely fashion is a
material inducement for Landlord's execution of this Lease. No cure or grace
period provided in this Lease shall apply to Tenant's obligations to timely
deliver an estoppel certificate. Tenant hereby irrevocably appoints Landlord as
its attorney in fact to execute on its behalf and in its name any such estoppel
certificate if Tenant fails to execute and deliver the estoppel certificate
within 10 days after Landlord's written request thereof.
30 Environmental Requirements. Except for Hazardous Material contained in
products used by Tenant in de minimis quantities for ordinary cleaning and
office purposes, materials listed in Addendum II, and other material in de
minimis quantities reasonably necessary for Tenant's business and maintained in
compliance with this Lease, Tenant shall not permit or cause any party to bring
any Hazardous Material upon the Premises or transport, store, use, generate,
manufacture or release any Hazardous Material in or about the Premises without
Landlord's prior written consent. Tenant, at its sole cost and expense, shall
operate its business in the Premises in strict compliance with all Environmental
Requirements and shall remediate in manner satisfactory to Landlord any
Hazardous Materials released on or from the Project by Tenant, its agents,
employees, contractors, subtenants or invitees. Tenant shall complete and
certify to disclosure statements as requested by Landlord from time to time
relating to Tenant's transportation, storage, use, generation, manufacture, or
release of Hazardous Materials on the Premises. The term "Environmental
Requirements" means all applicable present and future statutes, regulations,
ordinances, rules, codes, judgments, orders or other similar enactments of any
governmental authority or agency regulating or relating to health, safety, or
environmental conditions on, under, or about the Premises or the environment,
including without limitation, the following: the Comprehensive Environmental
Response, Compensation and Liability Act; the Resource Conservation and
Recovery Act; and all state and local counterparts thereto, and any regulations
or policies promulgated or issued thereunder. The term "Hazardous Materials"
means and includes any substance, material, waste, pollutant, or contaminant
listed or defined as hazardous or toxic, under any Environmental Requirements,
asbestos and petroleum, including crude oil or any fraction thereof, natural
gas, or synthetic gas usable for fuel (or mixtures of natural gas and such
synthetic gas). As defined in Environmental Requirements, Tenant is and shall be
deemed to be the "operator" of Tenant's "facility" and the "owner" of all
Hazardous Materials brought on the Premises by Tenant, its agents, employees,
contractors or invitees, and the wastes, by-products, or residues generated,
resulting, or produced therefrom.
Tenant shall indemnify, defend, and hold Landlord harmless from and
against any and all losses (including, without limitation, diminution in value
of the Premises or the Project and loss of rental income form the Project),
claims, demands, actions, suits, damages (including, without limitation,
punitive damages), expenses (including, without limitation, remediation,
removal, repair, corrective action, or cleanup expenses), and costs (including,
without limitation, actual attorneys' fees, consultant fees or expert fees and
including, without limitation, removal or management of any asbestos brought
into the Premises or disturbed in breach of the requirements of this Paragraph
30, regardless of whether such removal or management is required by law) which
are brought or recoverable against, or suffered or incurred by Landlord as a
result of any release of Hazardous Materials for which Tenant is obligated to
remediate as provided above or any other breach of the requirements under this
Paragraph 30 by Tenant, its agents, employees, contractors, subtenants,
assignees or invitees, regardless of whether Tenant had knowledge of such
noncompliance. The obligations of Tenant under this Paragraph 30 shall survive
any termination of this Lease.
Landlord shall have access to, and a right to perform inspections and
tests of, the Premises to determine Tenant's compliance with Environmental
Requirements, its obligations under this Paragraph 30, or the environmental
condition of the Premises. Access shall be granted to Landlord upon Landlord's
prior notice to Tenant and at such times so as to minimize, so far as may be
reasonable under the circumstances, any disturbance to Tenant's operations. Such
inspections and tests shall be conducted at Landlord's expense, unless such
inspections or tests reveal that Tenant has not complied with any Environmental
Requirement, in which case Tenant shall reimburse Landlord for he reasonable
cost of such inspection and tests. Landlord's receipt of or satisfaction with
any environmental assessment in no way waives any rights that Landlord holds
against Tenant.
31 Rules and Regulations. Tenant shall, at all times during the Lease
Term and any extension thereof, comply with all reasonable rules and regulations
at any time or from time to time established by Landlord covering use of the
Premises and the Project. The current rules and regulations are attached hereto.
In the event of any conflict between said rules and regulations and other
provisions of this Lease, the other terms and provisions of this Lease shall
control. Landlord shall not have any liability or obligation for the breach of
any rules or regulations by other tenants in the Project.
32 Security Services. Tenant acknowledges and agrees that, while Landlord
may patrol the Project, Landlord is not providing any security services with
respect to the Premises and that Landlord shall not be liable to Tenant for, and
Tenant waives any claim against Landlord with respect to, any loss by theft or
any other damage
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suffered or incurred by Tenant in connection with any unauthorized entry into
the Premises or any other breach of security with respect to the Premises.
33 FORCE MAJEURE. Landlord shall not be held responsible for delays in
the performance of its obligations hereunder when caused by strikes, lockouts,
labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefor, governmental restrictions, governmental
regulations, governmental controls, delay in issuance of permits, enemy or
hostile governmental action, civil commotion, fire or other casualty, and other
causes beyond the reasonable control of Landlord ("Force Majeure").
34 ENTIRE AGREEMENT. This Lease constitutes the complete agreement of
Landlord and Tenant with respect to the subject matter hereof. No
representations, inducements, promises or agreements, oral or written, have
been made by Landlord or Tenant, or anyone acting on behalf of Landlord or
Tenant, which are not contained herein, and any prior agreements, promises,
negotiations, or representations are superseded by this Lease. This Lease may
not be amended except by an instrument in writing signed by both parties hereto.
35 SEVERABILITY. If any clauses or provision of this Lease is illegal,
invalid or unenforceable under present or future laws, then and in that event,
it is the intention of the parties hereto that the remainder of this Lease
shall not be affected thereby. It is also the intention of the parties to this
Lease that in lieu of each clause or provision of this Lease that is illegal,
invalid or unenforceable, there be added, as a part of this Lease, a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible and be legal, valid and enforceable.
36 BROKERS. Tenant represents and warrants that it has dealt with no
broker, agent or other person in connection with this transaction and that no
broker, agent or other person brought about this transaction, other than the
broker, if any, set forth on the first page of this Lease, and Tenant agrees to
indemnify and hold Landlord harmless from and against any claims by any other
broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with Tenant with regard to this leasing
transaction.
37 MISCELLANEOUS. (a) Any payments or charges due from Tenant to
Landlord hereunder shall be considered rent for all purposes of this Lease.
(b) If and when included with the term "Tenant," as used in this
instrument, there is more than one person, firm or corporation, each shall be
jointly and severally liable for the obligations of Tenant.
(c) All notices required or permitted to be given under this Lease shall
be in writing and shall be sent by registered or certified mail, return receipt
requested, or by a reputable national overnight courier service, postage
prepaid, or by hand delivery addressed to the parties at their addresses below,
and with a copy sent to Landlord at 14100 East 35th Place, Aurora, Colorado
80011. Either party may by notice given aforesaid change its address for all
subsequent notices. Except where otherwise expressly provided to the contrary,
notice shall be deemed given upon delivery.
(d) Except as otherwise expressly provided in this Lease or as otherwise
required by law, Landlord retains the absolute right to withhold any consent or
approval.
(e) At Landlord's request from time to time Tenant shall furnish Landlord
with true and complete copies of its most recent annual and quarterly financial
statements prepared by Tenant or Tenant's accountants and any other financial
information or summaries that Tenant typically provides to its lenders or
shareholders.
(f) Neither this Lease nor a memorandum of lease shall be filed by or on
behalf of Tenant in any public record. Landlord may prepare and file, and upon
request by Landlord Tenant will execute, a memorandum of lease.
(g) The normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of this Lease or any exhibits or amendments hereto.
(h) The submission by Landlord to Tenant of this Lease shall have no
binding force or effect, shall not constitute an option for the leasing of the
Premises, nor confer any right or impose any obligations upon either party
until execution of this Lease by both parties.
(i) Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires. The captions
inserted in this Lease are for convenience only and in no way define, limit or
otherwise describe the scope or intent of this Lease, or any provision hereof,
or in any way affect the interpretation of this Lease.
(j) Any amount not paid by Tenant within 5 days after its due date in
accordance with the terms of this Lease shall bear interest from such due date
until paid in full at the lesser of the highest rate permitted by applicable
law or 15 percent per year. It is expressly the intent of Landlord and Tenant
at all times to comply with applicable law governing the maximum rate or amount
of any interest payable on or in connection with this Lease. If applicable law
is ever judicially interpreted so as to render usurious any interest called for
under this Lease, or contracted for, charged, taken, reserved, or received with
respect to this Lease, then it is Landlord's and Tenant's express intent that
all excess amounts theretofore collected by Landlord be credited on the
applicable obligation (or, if the obligation has been or would thereby be paid
in full, refunded to Tenant), and the provisions of this Lease immediately
shall be
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deemed reformed and the amounts thereafter collectible hereunder reduced,
without the necessity of the execution of any new document, so as to comply
with the applicable law, but so as to permit the recovery of the fullest amount
otherwise called for hereunder.
(k) Construction and interpretation of this Lease shall be governed by
the laws of the state in which the Project is located, excluding any principles
of conflicts of laws.
(l) Time is of the essence as to the performance of Tenant's obligations
under this Lease.
(m) All exhibits and addenda attached hereto are hereby incorporated into
this Lease and made a part hereof. In the event of any conflict between such
exhibits or addenda and the terms of this Lease, such exhibits or addenda shall
control.
38 LANDLORD'S LIEN/SECURITY INTEREST. Tenant hereby grants Landlord a
security interest, and this Lease constitutes a security agreement, within the
meaning of and pursuant to the Uniform Commercial Code of the state in which
the Premises are situated as to all of Tenant's property situate in, or upon,
or used in connection with the Premises (except merchandise sold in the
ordinary course of business) as security for all of Tenant's obligations
hereunder, including, without limitation, the obligation to pay rent. Such
personalty thus encumbered includes specifically all trade and other fixtures
for the purpose of this Paragraph and inventory, equipment, contract rights,
accounts receivable and the proceeds thereof. In order to perfect such security
interest, Tenant shall execute such financing statements and file the same at
Tenant's expense at the state and county Uniform Commercial Code filing offices
as often as Landlord in its discretion shall require; and Tenant hereby
irrevocably appoints Landlord its agent for the purpose of executing and filing
such financing statements on Tenant's behalf as Landlord shall deem necessary.
39 LIMITATION OF LIABILITY OF TRUSTEES, SHAREHOLDERS, AND OFFICERS OF
PROLOGIS TRUST. Any obligation or liability whatsoever of ProLogis Trust, a
Maryland real estate investment trust, which may arise at any time under this
Lease or any other obligation or liability which may be incurred by it pursuant
to any other instrument, transaction, or undertaking contemplated hereby shall
not be personally binding upon, nor shall resort for the enforcement thereof be
had to the property of, its trustees, directors, shareholders, officers,
employees or agents, regardless of whether such obligation or liability is in
the nature of contract, tort, or otherwise.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.
TENANT: LANDLORD:
Obsidian Inc., a ProLogis Limited Partnership-I, a
California Corporation Delaware Limited Partnership
By: ProLogis Trust, a Maryland Real
Estate Investment Trust General
Partner
By: /s/ [ILLEGIBLE] By: /s/ NED K. ANDERSON
------------------------------ ------------------------------
Ned K. Anderson
Title: CFO Title: Senior Vice President
------------------------------
Address: Address:
3758 Spinnaker Court 47775 Fremont Boulevard
Fremont, CA 94538 Fremont, CA 94538
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Rules and Regulations
1. The sidewalk, entries, and driveways of the Project shall not be obstructed
by Tenant, or its agents, or used by them for any purpose other than
ingress and egress to and from the Premises.
2. Tenant shall not place any objects, including antennas, outdoor furniture,
etc., in the parking areas, landscaped areas or other areas outside of its
Premises, or on the roof of the Project.
3. Except for seeing-eye dogs, no animals shall be allowed in the offices,
halls, or corridors in the Project.
4. Tenant shall not disturb the occupants of the Project or adjoining
buildings by the use of any radio or musical instrument or by the making of
loud or improper noises.
5. If Tenant desires telegraphic, telephonic or other electric connections in
the Premises, Landlord or its agent will direct the electrician as to where
and how the wires may be introduced; and, without such direction, no boring
or cutting of wires will be permitted. Any such installation or connection
shall be made at Tenant's expense.
6. Tenant shall not install or operate any steam or gas engine or boiler, or
other mechanical apparatus in the Premises, except as specifically approved
in the Lease. The used of oil, gas or inflammable liquids for heating,
lighting or any other purpose is expressly prohibited. Explosives or other
articles deemed extra hazardous shall not be brought into the Project.
7. Parking any type of recreational vehicles is specifically prohibited on or
about the Project. Except for the overnight parking of operative vehicles,
no vehicle of any type shall be stored in the parking areas at any time. In
the event that a vehicle is disabled, it shall be removed within 48 hours.
There shall be no "For Sale" or other advertising signs on or about any
parked vehicle. All vehicles shall be parked in the designated parking
areas in conformity with all signs and other markings. All parking will be
open parking, and no reserved parking, numbering or lettering of individual
spaces will be permitted except as specified by Landlord.
8. Tenant shall maintain the Premises free from rodents, insects and other
pests.
9. Landlord reserves the right to exclude or expel from the Project any person
who, in the judgment of Landlord, is intoxicated or under the influence of
liquor or drugs or who shall in manner do any act violation of the Rules
and Regulations of the Project.
10. Tenant shall not cause any unnecessary labor by reason of Tenant's
carelessness or indifference in the preservation of good order and
cleanliness. Landlord shall not be responsible to Tenant for any loss of
property on the Premises, however occurring, or for any damage done to the
effects of Tenant by the janitors or any other employee or person.
11. Tenant shall give Landlord prompt notice of any defects in the water, lawn
sprinkler, sewage, gas pipes, electrical lights and fixtures, heating
apparatus, or any other service equipment affecting the Premises.
12. Tenant shall not permit storage outside the Premises, including without
limitation, outside storage of trucks and other vehicles, or dumping of
waste or refuse or permit any harmful materials to be placed in any
drainage system or sanitary system in or about the Premises.
13. All movable trash receptacles provided by the trash disposal firm for the
Premises must be kept in the trash enclosure areas, if any, provided for
that purpose.
14. No auction, public or private, will be permitted on the Premises or the
Project.
15. No awnings shall be placed over the windows in the Premises except with the
prior written consent of Landlord.
16. The Premises shall not be used for lodging, sleeping or cooking or for any
immoral or illegal purposes or for any purpose other than that specified in
the Lease. No gaming devices shall be operated in the Premises.
17. Tenant shall ascertain from Landlord the maximum amount of electrical
current which can safely be used in the Premises, taking into account the
capacity of the electrical wiring in the Project and the Premises and the
needs of other tenants and shall not use more than such safe capacity.
Landlord's consent to the installation of electric equipment shall not
relieve Tenant from the obligation not to use more electricity than such
safe capacity.
18. Tenant assumes full responsibility for protecting the Premises from theft.
robbery and pilferage.
19. Tenant shall not install or operate on the Premises any machinery or
mechanical devices of a nature not directly related to Tenant's ordinary
use of the Premises and shall keep all such machinery free of vibration,
noise and air waves which may be transmitted beyond the Premises.
-12-
<PAGE> 18
HVAC Maintenance/Service Contract Requirements
A service contract with a Landlord approved HVAC contractor must become
effective within thirty (30) days of occupancy and service visits should be
performed on a quarterly basis. The following are the approved HVAC contractors:
Thermoscape 510/445-0700
Phoenix Heating and Air Conditioning 408/487-0390
Cal-Air Conditioning 408/947-0155
We suggest that you send the following list to one of the above HVAC contractors
to be assured that these items are included in the maintenance contract:
1. Adjust belt tension;
2. Lubricate all moving parts, as necessary;
3. Inspect and adjust all temperature and safety controls;
4. Check refrigeration system for leaks and operation;
5. Check refrigeration system for moisture;
6. Inspect compressor oil level and crank case heaters;
7. Check head pressure, suction pressure and oil pressure;
8. Inspect air filters and replace when necessary;
9. Check space conditions;
10. Check condensate drains and drain pans and clean, if necessary;
11. Inspect and adjust all valves;
12. Check and adjust dampers;
13. Run machine through complete cycle.
Note: A certificate must be provided for our files not later than thirty
(30) days after mutual execution hereof. Failure to provide such
certificate or perform said services, when required, shall constitute
material default of this lease.
-13-
<PAGE> 19
ADDENDUM I
BASE RENT ADJUSTMENTS
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED _________________, 1998, BETWEEN
ProLogis Limited Partnership-I
and
Obsidian Inc.
Base Rent shall equal the following amounts for the respective periods set forth
below:
<TABLE>
<CAPTION>
Period Monthly Base Rent
------- -----------------
<S> <C>
12/01/98 - 06/30/99 $22,000
07/01/99 - 06/30/01 $24,200
07/01/01 - 06/30/03 $26,400
</TABLE>
-14-
<PAGE> 20
ADDENDUM II
ONE RENEWAL OPTION AT MARKET
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED______________________, BETWEEN
ProLogia Limited Partnership-I
and
Obsidian, Inc.
(a) Provided that as of the time of the giving of the Extension Notice
and the Commencement Date of the Extension Term, (x) Tenant is the Tenant
originally named herein, (y) Tenant actually occupies all of the Premises
initially demised under this Lease and any space added to the Premises, and (z)
no Event of Default exists or would exist but for the passage of time or the
giving of notice, or both; then Tenant shall have the right to extend the Lease
Term for an additional term of 60 months (such additional term is hereinafter
called the "Extension Term") commencing on the day following the expiration of
the Lease Term (hereinafter referred to as the "Commencement Date of the
Extension Term"). Tenant shall give Landlord notice (hereinafter called the
"Extension Notice") of its election to extend the term of the Lease Term at
least 6 months, but not more than 9 months, prior to the scheduled expiration
date of the Lease Term.
(b) The Base Rent payable by Tenant to Landlord during the Extension
Term shall be the greater of (i) the Base Rent applicable to the last year of
the initial Lease term and (ii) the then prevailing market rate for comparable
space in the Project and comparable buildings in the vicinity of the Project,
taking into account the size of the Lease, the length of the renewal term,
market escalations and the credit of Tenant. The Base Rent shall not be reduced
by reason of any costs or expenses saved by Landlord by reason of Landlord's not
having to find a new tenant for such premises (including, without limitation,
brokerage commissions, costs of improvements, rent concessions or lost rental
income during any vacancy period). In the event Landlord and Tenant fail to
reach an agreement on such rental rate and execute the Amendment (defined below)
at least 5 months prior to the expiration of the Lease, then Tenant's exercise
of the renewal option shall be deemed withdrawn and the Lease shall terminate on
its original expiration date.
(c) The determination of Base Rent does not reduce the Tenant's
obligation to pay or reimburse Landlord for Operating Expenses and other
reimbursable items as set forth in the Lease, and Tenant shall reimburse and pay
Landlord as set forth in the Lease with respect to such Operating Expenses and
other items with respect to the Premises during the Extension Term without
regard to any cap on such expenses set forth in the Lease.
(d) Except for the Base Rent as determined above, Tenant's occupancy of
the Premises during the Extension Term shall be on the same terms and conditions
as are in effect immediately prior to the expiration of the Initial Lease Term;
provided, however, Tenant shall have no further right to any allowances, credits
or abatements or any options to expand, contract, renew or extend the Lease.
(e) If Tenant does not give the Extension Notice within the period set
forth in paragraph (a) above, Tenant's right to extend the Lease Term shall
automatically terminate. Time is of the essence as to the giving of the
Extension Notice.
(f) Landlord shall have no obligation to refurbish or otherwise improve
the Premises for the Extension Term. The Premises shall be tendered on the
Commencement Date of the Extension Term in "as-is" condition.
(g) If the Lease is extended for the Extension Term, then Landlord
shall prepare and Tenant shall execute an amendment to the Lease confirming the
extension of the Lease Term and the other provisions applicable thereto (the
"Amendment").
(h) If Tenant exercises its right to extend the term of the Lease for
the Extension Term pursuant to this Addendum, the term "Lease Term" as used in
the Lease, shall be construed to include, when practicable, the Extension Term
except as provided in (d) above.
<PAGE> 21
EXHIBIT C
PERSONAL PROPERTY LEASE
During the term of the Sublease, Sublessor leases nineteen (19) office cubicles
with nineteen chairs and six (6) kitchen tables with nineteen chairs (the
"Furniture") to Sublessee for the sum of One Thousand Eight Hundred Seventeen
and 70/100 Dollars ($1,817.70) per month, payable monthly in advance along with
rent payments under the Sublease without offset or deduction. Sublessor can
elect to treat any failure to timely pay such sum as a failure to pay rent
under the Sublease. Late payments will bear interest at the rate of one percent
(1%) per month or any lower legal maximum.
Sublessee accepts the Furniture "as is,"where is," and Sublessor makes no
express or implied warranties on the Furniture, INCLUDING THE IMPLIED
WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND MERCHANTABILITY. Sublessee
will maintain the Furniture on the premises throughout the term, and at the end
of the term, the Furniture will be in the same condition as when received,
subject to normal wear. The Furniture will not be removed from the premises.
Sublessee will insure the Furniture at its full replacement cost in the same
manner as its own personal property pursuant to the Sublease and is responsible
for the timely payment of any personal property taxes on the Furniture.
Sublessee will indemnify Sublessor from all claims, liability, loss and
expense, including reasonable attorneys' and experts' charges occasioned by
Sublessee's breach of this lease.
Capitalized or other defined terms have the same meaning ascribed to them in the
Sublease, unless defined in this lease. The prevailing party in any action to
enforce or interpret this lease is entitled to recover reasonable attorneys' and
experts' charges. This agreement will be governed by California law and forum,
all parties hereby consenting to venue in the Alameda County Superior Court of
California. This is the complete agreement of the parties with respect to its
subject matter, superseding any other discussions and understandings. Its
provisions may be modified or waived only in writing. If any provision is
unenforceable, then the remaining provisions will remain enforceable to the
extent fair and consistent with the primary purpose of this lease. Adequate and
lawful consideration is acknowledged by all parties. Notices will be in writing
to the addresses (or to updated addresses after notice) provided in the
Sublease. Each party represents its authority to enter into this agreement.
SUBLESSOR: Obsidian, Inc., SUBLESSEE: JNI, Inc.,
a California Corporation a Delaware Corporation
BY: /s/ [ILLEGIBLE] BY: /s/ RANDY JOHNSON
----------------------------- -------------------------------
TITLE: CFO TITLE: VP Finance/CFO
-------------------------- ----------------------------
DATE: 1-23-99 DATE: 1/27/99
-------------------------- ----------------------------
BY: BY:
----------------------------- -------------------------------
TITLE: TITLE:
-------------------------- ----------------------------
DATE: DATE:
-------------------------- ----------------------------
<PAGE> 22
ADDENDUM
This Addendum to Sublease ("Addendum") shall be attached to and made a part of
that certain Sublease Agreement by and between Obsidian, Inc. ("Sublessor") and
JNI, Inc. ("Sublessee"), for the approximately 6,059 square foot premises
located at 3758 Spinnaker Court, Fremont, California, and dated January 14,
1999, for reference purposes only. In the event of any conflict or inconsistency
between the terms and provisions of the Sublease and the terms and provisions of
this Addendum, the terms and provisions of this Addendum shall prevail.
1. LAB FIT-UP: Sublessee can have immediate occupancy of the lab space post
sublease execution for the purpose of wiring data and phone lines, etc.
Sublessee can only work in lab when Obsidian employee is present until
Obsidian completely vacates lab, currently estimated to be February 8,
1999.
2. LAB IS FREE THROUGH APRIL 30, 1999. Sublessee shall have no obligation to
pay rent on the additional lab space (660 square feet) until May 1, 1999,
when the total square footage of the premises shall increase from 6,059
square feet to 6,719 square feet.
3. SUBLESSOR REMOVES ITS PHONE AND DATA LINES. Sublessor shall remove its
phone and data lines at Sublessor's cost, currently estimated to be
$1,000.00.
4. COMMENCEMENT DATE/EARLY OCCUPANCY: Sublease will commence February 8, 1999,
and Sublessee will have early occupancy starting February 3, 1999 if Master
Lessor has consented to the Sublease.
SUBLESSOR SUBLESSEE
Obsidian, Inc. JNI, Inc.
By: /s/ [ILLEGIBLE] By: /s/ RANDY JOHNSON
----------------------- -----------------------
Title: CFO Title: VP Finance/ CFO
--------------------- ---------------------
Date: 1-28-99 Date: 1-27-99
--------------------- ---------------------
<PAGE> 1
EXHIBIT 10.29
SEVERANCE AND CHANGE OF
CONTROL AGREEMENT
THIS SEVERANCE AND CHANGE OF CONTROL AGREEMENT (the "Agreement")
is made effective as of ____________, 1999, between JNI Corp., a Delaware
corporation ("JNI"), and __________ ("Employee"). This Agreement was approved
and made effective by the Compensation Committee of the Board of Directors of
JNI on ___________, 1999.
RECITALS
A. Employee is presently employed as the [________________] of JNI.
B. The terms and conditions of Employee's employment with JNI are
consistent with JNI's employment policies and practices.
C. Employee and JNI desire to memorialize in writing their
understanding regarding severance payments and vesting of options
in the event of a change of control.
D. Employee and JNI acknowledge that this Agreement supersedes any
and all other agreements, either oral or in writing, between
Employee and JNI and/or Jaymark, Inc. and all other subsidiaries
or affiliates of JNI with respect to the matters discussed
herein.
AGREEMENT
In consideration of the promises and of the mutual covenants
contained herein, and for other good and valuable consideration, receipt of
which is hereby acknowledged, the parties hereto do hereby agree as follows:
1. Effect of Certain Terminations after Change in Control.
1.1 Severance Compensation. If within one year after a Change in
Control, as that term is defined below, Employee's employment is terminated
without "cause," or Employee voluntarily resigns for "good reason," then (i) JNI
shall pay to Employee, within thirty days of such termination without cause or
resignation with good reason, severance compensation in an amount equal to 12
months' base salary and (ii) all options granted to Employee under JNI's 1997
Stock Option Plan or its 1999 Stock Option Plan which, as of the date of such
termination without cause or voluntary resignation for good reason, remain
unexercised and unvested, shall, to the extent permissible by law, become
immediately vested in full and exercisable otherwise in accordance with the
terms of the stock option agreements relating to such options. Notwithstanding
the foregoing, if it is determined that the amounts payable to Employee under
this Agreement, when considered together with any other amounts payable to
Employee as a result of a Change in Control, cause such payments to be treated
as excess parachute payments within the meaning of Section 280G of the Internal
Revenue Code, JNI shall reduce the amount
<PAGE> 2
payable to Employee under this Section 1.1 to an amount that will not subject
Employee to the imposition of tax under Section 4999 of the Internal Revenue
Code.
1.2 Change in Control. A "Change in Control" means (i) the
acquisition by an individual person or entity or a group of individuals or
entities acting in concert, directly or indirectly, through one transaction or a
series of related transactions, of more than 50% of the outstanding voting
securities of JNI, (ii) a merger or consolidation of JNI with or into another
entity after which the stockholders of JNI immediately prior to such transaction
hold less than 50% of the voting securities of the surviving entity or (iii) a
sale of all or substantially all of the assets of JNI; provided, however, that a
Change in Control shall not be deemed to have occurred if and to the extent that
Jaymark, Inc. distributes or otherwise disposes of the shares of JNI that
Jaymark, Inc. holds as of the date of this Agreement to its stockholders on a
pro rata basis.
1.3 Termination for "Cause." For purposes of this Agreement, a
termination for "cause" occurs if Employee is terminated for any of the
following reasons: (i) theft, dishonesty, or falsification of any JNI records;
(ii) improper disclosure of JNI's confidential or proprietary information; (iii)
Employee's failure or inability to perform any reasonable assigned duties after
written notice from JNI of, and a reasonable opportunity to cure, such failure
or inability; or (iv) Employee's conviction of any criminal act which impairs
his ability to perform his duties as and employee of JNI. Notwithstanding the
foregoing clause (iii), Employee may not be terminated for cause as a result of
his failure or inability to perform assigned duties which are inconsistent with
his duties and responsibilities in effect during the year preceding the Change
in Control (or such shorter period of time as Employee was employed by JNI).
1.4 Voluntary Resignation for "Good Reason." After a Change in
Control, Employee may terminate his employment with JNI for "good reason" by
serving notice of resignation to JNI with a description of the circumstances
giving rise to the good reason. "Good reason" means that, within one year of a
Change in Control, Employee's compensation, including salary, bonus and equity
compensation, are reduced from the compensation level in effect for Employee
during the year preceding the Change in Control (or such shorter period of time
as Employee was employed by JNI).
1.5 Payment Upon Death or Disability. Neither death nor
disability shall affect JNI's obligations hereunder.
2. General Provisions.
2.1 Severability. If any provision of this agreement is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
2.2 Successors and Assigns. The rights and obligations of JNI
under this Agreement shall ensure to the benefit of and shall be binding upon
the successors and assigns of JNI. Employee shall not be entitled to assign any
of his rights or obligations under this Agreement, other than to his estate as
provided in Section 1.5.
2
<PAGE> 3
2.3 Applicable Law. This Agreement shall be interpreted,
construed, governed and enforced in accordance with the laws of the State of
California.
2.4 Amendments. No amendment or modification of the terms or
conditions of this Agreement shall be valid unless in subsequent writing and
signed by the parties thereto.
IN WITNESS WHEREOF, the parties hereto execute this Agreement,
effective as of the date first above written.
EMPLOYEE: JAYCOR NETWORKS, INC.
_______________________________ By:______________________________________
[_________________] Title:___________________________________
Address:______________________ Address: 9775 Towne Centre Drive
San Diego, CA 92121
______________________
3
<PAGE> 1
EXHIBIT 10.30
REVOLVING LOAN AGREEMENT
This Agreement is effective as of February 1, 1997, by and between
JAYCOR, INC., a California corporation and JAYCOR NETWORKS, INC., a Delaware
corporation, with reference to the following facts:
A. From time to time, either party may borrow sums of money from the
other in the ordinary course of business.
B. The parties desire to enter into this Agreement to provide for such
borrowings and evidence the obligation to repay the same.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Advances. With the mutual consent of the borrowing party and
the lending party, each of the parties may borrow and/or lend to the other
parties such sums as may be requested from time to time in the ordinary course
of business. All such advances shall be on such commercially reasonable terms as
are agreed upon by the parties borrowing and lending such sums. Amounts borrowed
from time to time may be repaid and reborrowed at any time.
2. Evidence of Advances. All advances shall be evidenced on the
books and records of the lending party, which shall be presumptive evidence of
each such advance in the amount outstanding. Each such repayment shall likewise
be evidenced on the books and records of such party.
3. Interest Rate. Unless otherwise agreed to, any advance shall
bear interest at a floating rate equal to the weighted average cost of capital
of the lending party or any other such mutually agreeable index.
4. Payments. Unless otherwise agreed to, advances shall be repaid
upon demand, and if no demand is made, within ten (10) years of the date of such
advance.
5. Defaults and Remedies. Upon default in payments or performance
under this Agreement or pursuant to any other agreement with respect to such
advances, if the advancing party so elects (notice of election being expressly
waived), all principal remaining unpaid to such advancing party by the
defaulting party, together with any accrued interest thereon, and all other sums
due hereunder or under any other agreement between said advancing party and said
borrowing party, shall at once become due and payable. No delay or omission of
the advancing party in exercising any right or power arising in connection with
any event of default shall be construed as a waiver or as an acquiescence
therein, nor shall any single or partial exercise thereof preclude any further
exercise thereof. The advancing party, may at its sole option, waive any of the
conditions herein and no waiver shall be deemed to be a waiver of the advancing
party's rights, but rather shall be deemed to have been made in pursuance of
this
<PAGE> 2
Agreement and not in modification thereof. No waiver of any event of default
shall be construed to be a waiver of or acquiescence in or consent to any
preceding or subsequent event of default.
6. Notice. Unless otherwise provided in this Agreement, all
notices or demands by any party relating to this Agreement shall be in writing.
7. Waivers of Notice. Each borrowing party waives notice of
acceptance hereof, notice of the existence, creation or acquisition of any of
the obligations; notice of an event of default; notice of the amount of the
obligations outstanding at any time; notice of intent to accelerate; notice of
acceleration; notice of any adverse change in the financial condition of any
other borrowing party or of any other fact that might increase the borrowing
party's risk; presentment for payment; demand; protest and notice thereof as to
any instrument; default; and all other notices and demands to which the
borrowing party would otherwise be entitled.
8. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by any party without each other party's prior written consent,
which consent may be granted or withheld in each party's sole discretion. This
Agreement is made solely for the benefit of the parties hereto and no for any
other party.
9. Time of Essence. Time is of the essence for the performance of
all obligations set forth in this Agreement.
10. Amendments in Writing. This Agreement may be amended or
terminated only pursuant to a writing executed by all of the parties.
11. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of California,
without giving effect to any choice of law or conflict of law provision of rule
(whether in the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
12. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
BY: /s/ ERIC P. WENAAS 4/20/98
------------------------------------------
TITLE: President and CEO
---------------------------------------
JAYCOR, INC., a California corporation
BY: /s/ TERRY M. FLANAGAN
-----------------------------------------
TITLE: President
---------------------------------------
JAYCOR NETWORKS, INC.,
a Delaware corporation
<PAGE> 1
EXHIBIT 10.31
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is entered into as of August
31, 1998, between Jaycor Networks, Inc., a Delaware corporation ("Grantor"),
and Jaycor, Inc., a California corporation ("Secured Party").
PRELIMINARY STATEMENTS
A. Grantor and Secured Party have entered into a Revolving Loan Agreement
effective as of February 1, 1997 (said Revolving Loan Agreement, as it may
hereafter be amended, supplemented or otherwise modified from time to time,
being the "Credit Agreement", the terms defined therein and not otherwise
defined herein being used herein as therein defined), pursuant to which Secured
Party has made certain commitments, subject to the terms and conditions set
forth in the Credit Agreement, to extend certain credit facilities to Grantor.
B. It is a condition precedent to the extensions of credit by Secured
Party under the Credit Agreement that Grantor shall have granted the security
interests and undertaken the obligations contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
Secured Party to make the loans under the Credit Agreement and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with Secured Party as follows:
SECTION 1. Grant of Security. Grantor hereby assigns to Secured Party, and
hereby grants to Secured Party a security interest in, all of Grantor's right,
title and interest in and to the property described on Exhibit A attached
hereto, whether now or hereafter existing or in which Grantor now has or
hereafter acquires an interest and wherever the same may be located (the
"Collateral").
SECTION 2. Security for Obligations. This Agreement secures, and the
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise, of all obligations and liabilities of every
nature of Grantor now or hereafter existing, under or arising out of or in
connection with the Credit Agreement or otherwise, and all extensions or
renewals thereof, whether for principal, interest, fees, expenses, indemnities
or otherwise, whether voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, whether or not jointly owed with others,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Secured Party as a preference,
fraudulent transfer or otherwise (all such obligations and liabilities being the
"Underlying Debt"), and all obligations of every nature of Grantor now or
hereafter existing under this Agreement (all such obligations of Grantor,
together with the Underlying Debt, being the "Secured Obligations").
-1-
<PAGE> 2
SECTION 3. Grantor Remains Liable. Anything contained herein to the
contrary notwithstanding, (a) Grantor shall remain liable under any contracts
and agreements included in the Collateral, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Secured Party of any
of its rights hereunder shall not release Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) Secured Party shall not have any obligation or liability under any contracts
and agreements included in the Collateral by reason of this Agreement, nor shall
Secured Party be obligated to perform any of the obligations or duties of
Grantor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. Representations and Warranties. Grantor represents and warrants
as follows:
(a) Ownership of Collateral. Except for the security interest
created by this Agreement, Grantor owns the Collateral free and clear of any
lien, mortgage, security interest or other encumbrance. Except such as may have
been filed in favor of Secured Party relating to this Agreement, no effective
financing statement or other instrument similar in effect covering all or any
part of the Collateral is on file in any filing or recording office.
(b) Location of Equipment and Inventory. All of the Equipment and
Inventory (as such terms are defined in Exhibit A) is, as of the date hereof,
located at the places specified in Schedule 1 annexed hereto.
(c) Office Locations. The chief place of business, the chief
executive office and the office where Grantor keeps its records regarding the
Accounts is, and has been for the four month period preceding the date hereof,
located at 9775 Towne Centre Drive, San Diego, California 92121.
(d) Fictitious Names. Grantor does not do business under any
trade-name or fictitious business name.
(e) Delivery of Certain Collateral. All notes and other instruments
(excluding checks) comprising any and all items of Collateral have been
delivered to Secured Party duly endorsed and accompanied by duly executed
instruments of transfer or assignment in blank.
(f) Governmental Authorizations. No authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the grant by Grantor of the security
interest granted hereby or for the execution, delivery or performance of this
Agreement by Grantor or (ii) the perfection of or the exercise by Secured Party
of its rights and remedies hereunder (except as may have been taken by or at the
direction of Grantor).
(g) Perfection. This Agreement, together with the filing of a UCC-1
financing statement with the Secretary of State of California creates a valid,
perfected and, first priority security interest in the Collateral, securing the
payment of the Secured Obligations, and all
-2-
<PAGE> 3
filings and other actions necessary or desirable to perfect and protect such
security interest have been duly made or taken.
(h) Other Information All information heretofore, herein or
hereafter supplied to Secured Party by or on behalf of Grantor with respect to
the Collateral is accurate and complete in all respects.
SECTION 5. Further Assurances.
(a) Grantor agrees that from time to time, at the expense of
Grantor, Grantor will promptly execute and deliver all further instruments and
documents, and take all further action that may be necessary or desirable, or
that Secured Party may request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, Grantor will: (i)
if any Account shall be evidenced by a promissory note or other instrument
(excluding checks), deliver and pledge to Secured Party hereunder such note or
instrument, duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Secured Party;
(ii) execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as Secured Party may request, in order to perfect and preserve the
security interests granted or purported to be granted hereby; (iii) at any
reasonable time, upon demand by Secured Party, exhibit the Collateral to and
allow inspection of the Collateral by Secured Party, or persons designated by
Secured Party; and (iv) at Secured Party's request, appear in and defend any
action or proceeding that may affect Grantor's title to or Secured Party's
security interest in all or any part of the Collateral.
(b) Grantor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor. Grantor agrees that
a carbon, photographic or other reproduction of this Agreement or of a financing
statement signed by Grantor shall be sufficient as a financing statement and may
be filed as a financing statement in any and all jurisdictions.
(c) Grantor will furnish to Secured Party from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail.
SECTION 6. Covenants of Grantor. Grantor shall:
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Secured Party of any change in Grantor's name, identity
or corporate structure within 15 days of such change;
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<PAGE> 4
(c) give Secured Party 30 days' prior written notice of any change
in Grantor's chief place of business, chief executive office or residence;
(d) if Secured Party gives value to enable Grantor to acquire rights
in or the use of any Collateral, use such value for such purposes; and
(e) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to the
extent the validity thereof is being contested in good faith; provided that
Grantor shall in any event pay such taxes, assessments, charges, levies or
claims not later than five days prior to the date of any proposed sale under any
judgment, writ or warrant of attachment entered or filed against Grantor or any
of the Collateral as a result of the failure to make such payment.
SECTION 7. Special Covenants with Respect to Equipment and Inventory.
Grantor shall:
(a) keep the Equipment and Inventory (other than Inventory sold in
the ordinary course of business) at the places there for specified on Schedule 1
annexed hereto or, upon 30 days' prior written notice to Secured Party, at such
other places in jurisdictions where all action that may be necessary or
desirable, or that Secured Party may request, in order to perfect and protect
any security interest granted or purported to be granted hereby, or to enable
Secured Party to exercise and enforce its rights and remedies hereunder, with
respect to such Equipment and Inventory shall have been taken;
(b) cause the Equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and in accordance with any manufacturer's manual, and shall forthwith,
or, in the case of any loss or damage to any of the Equipment when subsection
(c) of Section SECTION 8 is not applicable, as quickly as practicable after the
occurrence thereof, make or cause to be made all repairs, replacements and other
improvements in connection therewith that are necessary or desirable to such
end. Grantor shall promptly furnish to Secured Party a statement respecting any
material loss or damage to any of the Equipment;
(c) keep correct and accurate records of the Inventory, itemizing
and describing the kind, type and quantity of Inventory, Grantor's cost there
for and (where applicable) the current list prices for the Inventory; and
(d) if any Inventory is in possession or control of any of Grantor's
agents or processors if the aggregate book value of all such Inventory exceeds
$50,000, and in any event upon the occurrence of a default under the Credit
Agreement (an "Event of Default"), instruct such agent or processor to hold all
such Inventory for the account of Secured Party and subject to the instructions
of Secured Party.
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SECTION 8. Insurance.
(a) Grantor shall, at its own expense, maintain insurance with
respect to the Equipment and Inventory in such amounts, against such risks, in
such form and with such insurers as shall be satisfactory to Secured Party from
time to time. Such insurance shall include, without limitation, property damage
insurance and liability insurance. Each policy for property damage insurance
shall provide for all losses to be paid directly to Secured Party. Each policy
shall in addition name Grantor and Secured Party as insured parties thereunder
(without any representation or warranty by or obligation upon Secured Party) as
their interests may appear and have attached thereto a loss payable clause
acceptable to Secured Party that shall (i) contain an agreement by the insurer
that any loss thereunder shall be payable to Secured Party notwithstanding any
action, inaction or breach of representation or warranty by Grantor, (ii)
provide that there shall be no recourse against Secured Party for payment of
premiums or other amounts with respect thereto, and (iii) provide that at least
30 days' prior written notice of cancellation, material amendment, reduction in
scope or limits of coverage or of lapse shall be given to Secured Party by the
insurer. Grantor shall, if so requested by Secured Party, deliver to Secured
Party original or duplicate policies of such insurance and, as often as Secured
Party may reasonably request, a report of a reputable insurance broker with
respect to such insurance. Further, Grantor shall, at the request of Secured
Party, duly execute and deliver instruments of assignment of such insurance
policies to comply with the requirements of Section SECTION 5((a)) and cause the
respective insurers to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by
Grantor pursuant to this Section SECTION 8 may be paid directly to the Person
who shall have incurred liability covered by such insurance. In case of any loss
involving damage to Equipment or Inventory when subsection (c) of this Section 8
is not applicable, Grantor shall make or cause to be made the necessary repairs
to or replacements of such Equipment or Inventory, and any proceeds of insurance
maintained by Grantor pursuant to this Section SECTION 8 shall be paid to
Grantor as reimbursement for the costs of such repairs or replacements.
(c) Upon (i) the occurrence and during the continuation of any Event
of Default or (ii) the actual or constructive loss (in excess of $100,000 per
occurrence) of any Equipment or Inventory, all insurance payments in respect of
such Equipment or Inventory shall be paid to and applied by Secured Party as
specified in Section SECTION 17.
SECTION 9. Special Covenants with respect to Accounts and Related
Contracts.
(a) Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Accounts and Related Contracts at the location there for specified in Section
SECTION 4 or, upon 30 days' prior written notice to Secured Party, at such other
location in a jurisdiction where all action that may be necessary or desirable,
or that Secured Party may request, in order to perfect and protect any security
interest granted or purported to be granted hereby, or to enable Secured Party
to exercise and enforce its rights and remedies hereunder, with respect to such
Accounts and Related Contracts shall have been taken. Grantor will hold and
preserve such records and will permit representatives of
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Secured Party at any time during normal business hours to inspect and make
abstracts from such records, and Grantor agrees to render to Secured Party, at
Grantor's cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto. Promptly upon the request of Secured
Party, Grantor shall deliver to Secured Party complete and correct copies of
each Related Contract.
(b) Grantor shall, for not less than 5 years from the date on which
such Account arose, maintain (i) complete records of each Account, including
records of all payments received, credits granted and merchandise returned, and
(ii) all documentation relating thereto.
(c) Except as otherwise provided in this subsection ((c)), Grantor
shall continue to collect, at its own expense, all amounts due or to become due
Grantor under the Accounts and Related Contracts. In connection with such
collections, Grantor may take (and, at Secured Party's direction, shall take)
such action as Grantor or Secured Party may deem necessary or advisable to
enforce collection of amounts due or to become due under the Accounts; provided,
however, that Secured Party shall have the right at any time, upon the
occurrence and during the continuation of an Event of Default or an event which
with the giving of notice or the lapse of time, or both, would constitute an
Event of Default, and upon written notice to Grantor of its intention to do so,
to notify the account debtors or obligors under any Accounts of the assignment
of such Accounts to Secured Party, and to direct such account debtors or
obligors to make payment of all amounts due or to become due to Grantor
thereunder directly to Secured Party, to notify each person maintaining a
lockbox or similar arrangement to which account debtors or obligors under any
Accounts have been directed to make payment to remit all amounts representing
collections on checks and other payment items from time to time sent to or
deposited in such lock box or other arrangement directly to Secured Party and,
upon such notification and at the expense of Grantor, to enforce collection of
any such Accounts and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as Grantor might have done.
After receipt by Grantor of the notice from Secured Party referred to in the
proviso to the preceding sentence, (i) all amounts and proceeds (including
checks and other instruments) received by Grantor in respect of the Accounts and
the Related Contracts shall be received in trust for the benefit of Secured
Party hereunder, shall be segregated from other funds of Grantor and shall be
forthwith paid over or delivered to Secured Party in the same form as so
received (with any necessary endorsement) to be held as cash Collateral and
applied as provided by Section SECTION 17, and (ii) Grantor shall not adjust,
settle or compromise the amount or payment of any Account, or release wholly or
partly any account debtor or obligor thereof, or allow any credit or discount
thereon.
SECTION 10. Deposit Accounts.
(a) Accurate lists of all deposit and brokerage accounts of Grantor
existing on the date hereof have been provided to Secured Party. Grantor shall
notify Secured Party within five (5) days of the opening or creating of any new
deposit or brokerage accounts, and shall provide Secured Party with such
information as Secured Party may require in order to perfect or protect its
security interest in such deposit or brokerage accounts.
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<PAGE> 7
(b) Upon the occurrence and during the continuation of a default
under the Credit Agreement, Secured Party may exercise dominion and control
over, and refuse to permit further withdrawals (whether of money, securities,
instruments or other property) from any deposit accounts maintained with Secured
Party constituting part of the Collateral.
SECTION 11. License of Patents, Trademarks, Copyrights, etc. Grantor
hereby assigns, transfers and conveys to Secured Party, effective upon the
occurrence of any Event of Default, the nonexclusive right and license to use
all trademarks, trade names, copyrights, patents or technical processes owned or
used by Grantor that relate to the Collateral and any other collateral granted
by Grantor as security for the Secured Obligations, together with any goodwill
associated therewith, all to the extent necessary to enable Secured Party to
use, possess and realize on the Collateral and to enable any successor or assign
to enjoy the benefits of the Collateral. This right and license shall inure to
the benefit of all successors, assigns and transferees of Secured Party and its
successors, assigns and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or
otherwise. Such right and license is granted free of charge, without requirement
that any monetary payment whatsoever be made to Grantor.
SECTION 12. Transfers and Other Liens. Grantor shall not:
(a) except to the extent permitted in the Credit Agreement, sell,
assign (by operation of law or otherwise) or otherwise dispose of any of the
Collateral; or
(b) except for the security interest created by this Agreement, and
except to the extent permitted in the Credit Agreement, create or suffer to
exist any Lien upon or with respect to any of the Collateral to secure the
indebtedness or other obligations of any person.
SECTION 13. Secured Party Appointed Attorney-in-Fact. Grantor hereby
irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full
authority in the place and stead of Grantor and in the name of Grantor, Secured
Party or otherwise, from time to time in Secured Party's discretion to take any
action and to execute any instrument that Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation: (a) to sign and file on behalf of Grantor any financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral; (b) to obtain and adjust insurance required to be maintained by
Grantor or paid to Secured Party pursuant to Section SECTION 8; (c) to ask,
demand, collect, sue for, recover, compound, receive and give acquittance and
receipts for monies due and to become due under or in respect of any of the
Collateral; (d) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clauses (a) and (b) above; (e) to
file any claims or take any action or institute any proceedings that Secured
Party may deem necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of Secured Party with respect to
any of the Collateral; (f) to pay or discharge taxes or liens levied or placed
upon or threatened against the Collateral, the legality or validity thereof and
the amounts necessary to discharge the same to be determined by Secured Party in
its sole discretion, any such payments made by Secured Party to become
obligations of Grantor to Secured Party, due and payable immediately
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without demand; (g) to sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with Accounts and other
documents relating to the Collateral; and (h) upon the occurrence and during the
continuation of an Event of Default, generally to sell, transfer, pledge, make
any agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though Secured Party were the absolute owner thereof for
all purposes, and to do, at Secured Party's option and Grantor's expense, at any
time or from time to time, all acts and things that Secured Party deems
necessary to protect, preserve or realize upon the Collateral and Secured
Party's security interest therein in order to effect the intent of this
Agreement, all as fully and effectively as Grantor might do.
SECTION 14. Secured Party May Perform. If Grantor fails to perform any
agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Grantor under Section SECTION 18.
SECTION 15. Standard of Care. The powers conferred on Secured Party
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, and other non-waivable
duties imposed by applicable law, Secured Party shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Secured Party accords its own
property.
SECTION 16. Remedies. If any Event of Default shall have occurred and be
continuing Secured Party may exercise in respect of the Collateral, in addition
to all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "Code") (whether
or not the Code applies to the affected Collateral), and also may (a) require
Grantor to, and Grantor hereby agrees that it will at its expense and upon
request of Secured Party forthwith, assemble all or part of the Collateral as
directed by Secured Party and make it available to Secured Party at a place to
be designated by Secured Party that is reasonably convenient to both parties,
(b) enter onto the property where any Collateral is located and take possession
thereof with or without judicial process, (c) prior to the disposition of the
Collateral, store, process, repair or recondition the Collateral or otherwise
prepare the Collateral for disposition in any manner to the extent Secured Party
deems appropriate, (d) take possession of Grantor's premises or place custodians
in exclusive control thereof, remain on such premises and use the same and any
of Grantor's equipment for the purpose of completing any work in process, taking
any actions described in the preceding clause (c) and collecting any Secured
Obligation, and (e) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of Secured Party's offices or elsewhere, for cash, on credit or for
future delivery, at such time or times and at such price or prices and upon such
other terms as Secured Party may deem commercially reasonable. Secured Party may
be the purchaser
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<PAGE> 9
of any or all of the Collateral at any such sale and Secured Party shall be
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any such public
sale, to use and apply any of the Secured Obligations as a credit on account of
the purchase price for any Collateral payable by Secured Party at such sale.
Each purchaser at any such sale shall hold the property sold absolutely free
from any claim or right on the part of Grantor, and Grantor hereby waives (to
the extent permitted by applicable law) all rights of redemption, stay and/or
appraisal which it now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted. Grantor agrees that, to the
extent notice of sale shall be required by law, at least ten days' notice to
Grantor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Secured
Party shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. Secured Party may adjourn any public or private sale
from time to time by announcement at the time and place fixed there for, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned. Grantor hereby waives any claims against Secured Party arising
by reason of the fact that the price at which any Collateral may have been sold
at such a private sale was less than the price which might have been obtained at
a public sale, even if Secured Party accepts the first offer received and does
not offer such Collateral to more than one offeree. If the proceeds of any sale
or other disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the fees of any
attorneys employed by Secured Party to collect such deficiency.
SECTION 17. Application of Proceeds. Except as expressly provided
elsewhere in this Agreement, all proceeds received by Secured Party in respect
of any sale of, collection from, or other realization upon all or any part of
the Collateral may in the discretion of Secured Party, be held by Secured Party
as Collateral for, and/or then, or at any other time thereafter, applied in full
or in part by Secured Party against, the Secured Obligations in the following
order of priority:
FIRST: To the payment of all costs and expenses of such sale, collection
or other realization, including reasonable compensation to Secured Party and its
agents and counsel, and all other expenses, liabilities and advances made or
incurred by Secured Party in connection therewith, and all amounts for which
Secured Party is entitled to indemnification hereunder and all advances made by
Secured Party hereunder for the account of Grantor, and to the payment of all
costs and expenses paid or incurred by Secured Party in connection with the
exercise of any right or remedy hereunder, all in accordance with Section
SECTION 18;
SECOND: To the payment of all other Secured Obligations in such order
as Secured Party shall elect; and
THIRD: To the payment to or upon the order of Grantor, or to whosoever may
be lawfully entitled to receive the same or as a court of competent jurisdiction
may direct, of any surplus then remaining from such proceeds.
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SECTION 18. Indemnity and Expenses.
(a) Grantor agrees to indemnify Secured Party from and against any
and all claims, losses and liabilities in any way relating to, growing out of or
resulting from this Agreement and the transactions contemplated hereby
(including, without limitation, enforcement of this Agreement), except to the
extent such claims, losses or liabilities result solely from Secured Party's
gross negligence or willful misconduct as finally determined by a court of
competent jurisdiction.
(b) Grantor will pay to Secured Party upon demand the amount of any
and all costs and expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, that Secured Party may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of Secured Party hereunder, or (iv) the failure by Grantor to
perform or observe any of the provisions hereof.
SECTION 19. Continuing Security Interest: Transfer of Secured Obligations.
This Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the indefeasible payment in full
of the Secured Obligations, the cancellation or termination of the Credit
Agreement, (b) be binding upon Grantor, its successors and assigns, and (c)
inure, together with the rights and remedies of Secured Party hereunder, to the
benefit of Secured Party and its successors, transferees and assigns. Without
limiting the generality of the foregoing clause (c), Secured Party may assign or
otherwise transfer any Secured Obligations held by it to any other Person, and
such other Person shall thereupon become vested with all the benefits in respect
thereof granted to Secured Party herein or otherwise. Upon the indefeasible
payment in full of all Secured Obligations, the cancellation or termination of
the Credit Agreement, the security interest granted hereby shall terminate and
all rights to the Collateral shall revert to Grantor. Upon any such termination,
Secured Party will, at Grantor's expense, execute and deliver to Grantor such
documents as Grantor shall reasonably request to evidence such termination.
SECTION 20. Amendments, etc. No amendment or waiver of any provision of
this Agreement, or consent to any departure by Grantor here from, shall in any
event be effective unless the same shall be in writing and signed by Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.
SECTION 21. Notices. Any notice or other communication herein required or
permitted to be given shall be in writing and may be personally served,
telecopied, telexed or sent by United States mail or courier service and shall
be deemed to have been given when delivered in person or by courier service,
upon receipt of telecopy or telex, or four Business Days after depositing it in
the United States mail registered or certified, with postage prepaid and
properly addressed. For the purposes hereof, the address of each party hereto
shall be as set forth under such party's name on the signature pages hereof or,
as to either party, such other address as shall be designated by such party in a
written notice delivered to the other party hereto.
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SECTION 22. Failure or Indulgence Not Waiver. Remedies Cumulative. No
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege. All
rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 23. Severability. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
SECTION 24. Headings. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
SECTION 25. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA, EXCEPT AS REQUIRED BY MANDATORY PROVISION OF LAW AND EXCEPT
TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
Unless otherwise defined herein or in the Credit Agreement, terms used in
Article 9 of the Uniform Commercial Code in the State of California are used
herein as therein defined.
SECTION 26. Consent to Jurisdiction and Service of Process. All judicial
proceedings brought against the Grantor with respect to this Agreement and the
Loan Documents may be brought in any state or federal court of competent
jurisdiction in the State of California and by execution and delivery of this
Agreement, the Grantor accepts for itself and in connection with its properties,
generally and unconditionally, the nonexclusive jurisdiction of the aforesaid
courts, and irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement. The Grantor irrevocably waives any right it may
have to assert the doctrine of forum non conveniens or to object to venue to the
extent any proceeding is brought in accordance with this Section. In any action
against the Grantor, service of process may be made upon the Grantor by
registered or certified mail, return receipt requested, to its address indicated
in the applicable signature page hereto, which service shall be deemed
sufficient for personal jurisdiction and shall be deemed effective ten (10) days
after mailing.
SECTION 27. Waiver of Jury Trial. GRANTOR AND SECURED PARTY HEREBY AGREE
TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL ENCOMPASSING OF ANY AND
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ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT
MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
GRANTOR AND SECURED PARTY EACH ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT FOR GRANTOR AND SECURED PARTY TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT GRANTOR AND SECURED PARTY HAVE ALREADY RELIED ON THIS WAIVER IN ENTERING
INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR
RELATED FUTURE DEALINGS. GRANTOR AND SECURED PARTY FURTHER WARRANT AND REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may he filed as a written consent to
a trial by the court.
SECTION 28. Counterparts. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 13
IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement
to be duly executed and delivered by their respective officers there unto duly
authorized as of the date first written above.
JAYCOR NETWORKS, INC.
By: /s/ TERRY M. FLANAGAN
----------------------------------
Title: President
-------------------------------
Notice Address:
9775 Towne Centre Drive
San Diego, CA 92121
Attn: Chief Financial Officer
JAYCOR, INC.
By: /s/ RANDY JOHNSON
----------------------------------
Title: Chief Financial Officer
-------------------------------
Notice Address:
9775 Towne Centre Drive
San Diego, CA 92121
Attn: Chief Financial Officer
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<PAGE> 14
EXHIBIT A
The Collateral shall consist of all right, title and interest of Grantor
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located (any and all such
equipment, parts and accessions being the "Equipment");
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Grantor's custody or possession or in transit
and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above (all such
inventory, accessions and products being the "Inventory");
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, tax
refunds, payments of insurance, rights to receive dividends, distributions,
cash, instruments and other property in respect of or exchange for pledged
shares or other equity interests, and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Grantor
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Grantor, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Grantor and Grantor's books relating
to any of the foregoing (any and all such accounts, contract rights, royalties,
license rights and other forms of obligations being the "Accounts," and any and
all such credit insurance, guaranties and security agreements being the "Related
Contracts");
(e) All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and
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confidential information, now owned or hereafter acquired; all mask work or
similar rights available for the protection of semiconductor chips, now owned or
hereafter acquired; all claims for damages by way of any past, present and
future infringement of any of the foregoing; and
(g) Grantor's books relating to any of the foregoing, and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
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<PAGE> 16
SCHEDULE 1
TO SECURITY AGREEMENT
Locations of Equipment:
Locations of Inventory:
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EXHIBIT 10.32
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement (this "Agreement") is made
as of August 31, 1998, by and between JAYCOR NETWORKS, INC. ("Grantor"), and
JAYCOR, INC. ("Secured Party").
RECITALS
A. Secured Party has agreed to make certain advances of money and to
extend certain financial accommodations to Grantor (the "Loans") in the amounts
and manner set forth in that certain Revolving Loan Agreement effective as of
February 1, 1997 (as the same may be amended, the "Credit Agreement").
B. In order to induce Secured Party to make the Loans, Grantor has
agreed to grant a first priority security interest in certain intangible
property to Secured Party for purposes of securing the obligations of Grantor to
Secured Party.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. Grant of Security Interest. As collateral security for the prompt and
complete payment and performance of all of Grantor's present or future
indebtedness, obligations and liabilities to Secured Party, Grantor hereby
assigns, transfers, conveys and grants a first priority security interest to
Secured Party, as security, in and to Grantor's entire right, title and interest
in, to and under the following (all of which shall collectively be called the
"Intellectual Property Collateral"):
(a) Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof that is created by Grantor, whether published or
unpublished and whether or not the same also constitutes a trade secret, now or
hereafter existing, created, acquired or held, including without limitation
those set forth on Exhibit A attached hereto (collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Grantor
now or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, including without
limitation the patents and patent applications set forth on Exhibit B attached
hereto (collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill
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of the business of Grantor connected with and symbolized by such trademarks,
including without limitation those set forth on Exhibit C attached hereto
(collectively, the "Trademarks");
(f) Right to the proceeds (excluding attorneys' and other
professional and expert fees and expenses) arising from any and all claims for
damages by way of past, present and future infringement of any of the rights
included above, with the right, but not the obligation, to sue on behalf of and
collect such damages for said use or infringement of the intellectual property
rights identified above;
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights; and
(h) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(i) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
2. Authorization and Request. Grantor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks record
this security agreement.
3. Covenants and Warranties. Grantor represents, warrants, covenants and
agrees as follows:
(a) Grantor is now the sole owner of the Intellectual Property
Collateral, except for non-exclusive licenses granted by Grantor to its
customers in the ordinary course of business;
(b) Performance of this Agreement does not conflict with or
result in a breach of any agreement to which Grantor is party or by which
Grantor is bound, except to the extent that certain intellectual property
agreements prohibit the assignment of the rights thereunder to a third party
without the licensor's or other party's consent and this Agreement constitutes
an assignment;
(c) During the term of this Agreement, Grantor will not transfer
or otherwise encumber any interest in the Intellectual Property Collateral,
except for non-exclusive licenses granted by Grantor in the ordinary course of
business or as set forth in this Agreement;
(d) To its knowledge, each of the Patents is valid and
enforceable, and no part of the Intellectual Property Collateral has been judged
invalid or unenforceable, in whole or in part, and no claim has been made that
any part of the Intellectual Property Collateral violates the rights of any
third party;
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(e) Grantor shall promptly advise Secured Party of any material
change in the composition of the Intellectual Property Collateral, including but
not limited to any subsequent ownership right of the Grantor in or to any
Trademark, Patent or Copyright not specified in this Agreement;
(f) Grantor shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Secured Party in writing of material infringements detected and
(iii) not allow any Trademarks, Patents or Copyrights to be abandoned, forfeited
or dedicated to the public without the written consent of Secured Party, which
shall not be unreasonably withheld, unless Grantor determines that reasonable
business practices suggest that abandonment is appropriate.
(g) Grantor shall promptly register the most recent version of
any of Grantor's Copyrights, if not so already registered, and shall, from time
to time, execute and file such other instruments, and take such further actions
as Secured Party may reasonably request from time to time to perfect or continue
the perfection of Secured Party's interest in the Intellectual Property
Collateral;
(h) This Agreement creates, and in the case of after acquired
Intellectual Property Collateral, this Agreement will create at the time Grantor
first has rights in such after acquired Intellectual Property Collateral, in
favor of Secured Party a valid and perfected first priority security interest in
the Intellectual Property Collateral in the United States securing the payment
and performance of the obligations evidenced by the Note upon making the filings
referred to in clause (i) below;
(i) To its knowledge, except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests and assignment created hereunder,
and except as has been already made or obtained, no authorization, approval or
other action by, and no notice to or filing with, any U.S. governmental
authority or U.S. regulatory body is required either (i) for the grant by
Grantor of the security interest granted hereby or for the execution, delivery
or performance of this Agreement by Grantor in the U.S. or (ii) for the
perfection in the United States or the exercise by Secured Party of its rights
and remedies hereunder;
(j) All information heretofore, herein or hereafter supplied to
Secured Party by or on behalf of Grantor with respect to the Intellectual
Property Collateral is accurate and complete in all material respects.
(k) Grantor shall not enter into any agreement that would
materially impair or conflict with Grantor's obligations hereunder without
Secured Party's prior written consent, which consent shall not be unreasonably
withheld. Grantor shall not permit the inclusion in any material contract to
which it becomes a party of any provisions that could or might in any way
prevent the creation of a security interest in Grantor's rights and interests in
any property included within the definition of the Intellectual Property
Collateral acquired under such
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contracts, except that certain contracts may contain anti-assignment provisions
that could in effect prohibit the creation of a security interest in such
contracts, and except that Grantor shall not be prohibited from granting
exclusive and non-exclusive licenses, or entering into marketing and
distribution agreements in the normal course of its business.
(l) Upon any executive officer of Grantor obtaining actual
knowledge thereof, Grantor will promptly notify Secured Party in writing of any
event that materially adversely affects the value of any Intellectual Property
Collateral, the ability of Grantor to dispose of any Intellectual Property
Collateral or the rights and remedies of Secured Party in relation thereto,
including the levy of any legal process against any of the Intellectual Property
Collateral.
4. Secured Party's Rights. Secured Party shall have the right, but not
the obligation, to take, at Grantor's sole expense, any actions that Grantor is
required under this Agreement to take but which Grantor fails to take, after
fifteen (15) days' notice to Grantor. Grantor shall reimburse and indemnify
Secured Party for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this section 4.
5. Inspection Rights. Grantor hereby grants to Secured Party and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable written notice to Grantor, any of Grantor's plants
and facilities that manufacture, install or store products (or that have done so
during the prior six-month period) that are sold utilizing any of the
Intellectual Property Collateral, and to inspect the products and quality
control records relating thereto upon reasonable written notice to Grantor and
as often as may be reasonably requested.
6. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Grantor will, subject to any prior
licenses, encumbrances and restrictions and prospective licenses, make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places in the United States, all such instruments, including appropriate
financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademark Office and the Register of Copyrights,
and take all such action as may reasonably be deemed necessary or advisable, or
as requested by Secured Party, to perfect Secured Party's security interest in
all Copyrights, Patents and Trademarks and otherwise to carry out the intent and
purposes of this Agreement, or for assuring and confirming to Secured Party the
grant or perfection of a security interest in all Intellectual Property
Collateral.
(b) Grantor hereby irrevocably appoints Secured Party as
Grantor's attorney-in-fact, with full authority in the place and stead of
Grantor and in the name of Grantor, from time to time in Secured Party's
discretion, to take any action and to execute any instrument which Secured Party
may deem necessary or advisable to accomplish the purposes of this Agreement,
including:
(i) To modify, in its sole discretion, this Agreement without
first obtaining Grantor's approval of or signature to such modification by
amending Exhibit A, Exhibit B and Exhibit C, thereof, as appropriate, to include
reference to any right, title or interest
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in any Copyrights, Patents or Trademarks acquired by Grantor after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents or Trademarks in which Grantor no longer has or claims any
right, title or interest; and
(ii) To file, in its sole discretion, one or more
financing or continuation statements and amendments thereto, relative to any of
the Intellectual Property Collateral without the signature of Grantor where
permitted by law.
7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under this Agreement:
(a) An Event of Default occurs under the Credit Agreement; or
(b) Grantor breaches any warranty or agreement made by Grantor in
this Agreement and, as to any breach that is capable of cure, Grantor fails to
cure such breach within five (5) days of the occurrence of such breach.
8. Remedies. Upon the occurrence and continuance of an Event of Default,
Secured Party shall have the right to exercise all the remedies of a secured
party under the California Uniform Commercial Code, including without limitation
the right to require Grantor to assemble the Intellectual Property Collateral
and any tangible property in which Secured Party has a security interest and to
make it available to Secured Party at a place designated by Secured Party.
Secured Party shall have a nonexclusive, royalty free license to use the
Copyrights, Patents and Trademarks to the extent reasonably necessary to permit
Secured Party to exercise its rights and remedies upon the occurrence of an
Event of Default. Grantor will pay any expenses (including reasonable attorneys'
fees) incurred by Secured Party in connection with the exercise of any of
Secured Party's rights hereunder, including without limitation any expense
incurred in disposing of the Intellectual Property Collateral. All of Secured
Party's rights and remedies with respect to the Intellectual Property Collateral
shall be cumulative.
9. Indemnity. Grantor agrees to defend, indemnify and hold harmless
Secured Party and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement, and
(b) all losses or expenses in any way suffered, incurred, or paid by Secured
Party as a result of or in any way arising out of, following or consequential to
transactions between Secured Party and Grantor, whether under this Agreement or
otherwise (including without limitation reasonable attorneys' fees and
reasonable expenses), except for losses arising from or out of Secured Party's
gross negligence or willful misconduct.
10. Reassignment. At such time as Grantor shall completely satisfy all
of the obligations secured hereunder, Secured Party shall execute and deliver to
Grantor all deeds, assignments and other instruments as may be necessary or
proper to revest in Grantor full title to the property assigned hereunder,
subject to any disposition thereof which may have been made by Secured Party
pursuant hereto.
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11. Course of Dealing. No course of dealing, nor any failure to
exercise, nor any delay in exercising any right, power or privilege hereunder
shall operate as a waiver thereof.
12. Attorneys' Fees. If any action relating to this Agreement is brought
by either party hereto against the other party, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements.
13. Amendments. This Agreement may be amended only by a written
instrument signed by both parties hereto.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. Governing Law. This Agreement shall be governed by the laws of the
State of California, without regard for choice of law provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
Address of Grantor: Grantor:
9775 Towne Centre Drive JAYCOR NETWORKS, INC.
San Diego, CA 92121
Attn: Chief Financial Officer By: /s/ TERRY M. FLANAGAN
------------------------------
Title: President
Address of Secured Party: Secured Party:
9775 Towne Centre Drive JAYCOR, INC.
San Diego, CA 92121
Attn: Chief Financial Officer By: /s/ RANDY JOHNSON
------------------------------
Title: Chief Financial Officer
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EXHIBIT A
Copyrights
Registration/ Registration/
Application Application
Description Number Date
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EXHIBIT B
Patents
Registration/ Registration/
Application Application
Description Number Date
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EXHIBIT C
Trademarks
Registration/ Registration/
Application Application
Description Number Date
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EXHIBIT 10.33
TRANSITIONAL SERVICES AGREEMENT
BY AND BETWEEN
JNI CORP.
A DELAWARE CORPORATION
AND
JAYMARK, INC.
A DELAWARE CORPORATION
SEPTEMBER 1, 1999
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TRANSITIONAL SERVICES AGREEMENT
This Transitional Services Agreement (the "AGREEMENT") is entered
into as of September 1, 1999 by and between JNI Corp., a Delaware corporation
("JNI"), and Jaymark, Inc., a Delaware corporation ("JAYMARK").
W I T N E S S E T H :
WHEREAS, JNI is a subsidiary of Jaymark, and JNI intends to make an
initial public offering of its securities (the "Offering"), after which JNI and
Jaymark intend to separate their operations.
WHEREAS, each party has requested that the other party provide
certain transitional services and each party is willing to provide such
transitional services, subject to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the premises, the mutual
agreements hereinafter contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, JNI and Jaymark
(collectively, the "PARTIES") hereby agree as follows:
1. Services to be provided to JNI by Jaymark. Jaymark shall provide the
following services (the "SERVICES") to JNI:
(a) Accounting and Administrative Services. Jaymark shall provide
accounting and other administrative services to JNI in accordance with past
practices; and
(b) Consulting Services. If JNI gives Jaymark written notification
that JNI no longer requires the Services described in Section 1(a), then from
the effective date of such notification through December 31, 2001, if and as
requested by JNI, Jaymark will provide consulting services to JNI regarding the
Services described in Section 1(a).
2. Compensation for Services.
(a) As compensation for services rendered pursuant to Section 1(a),
JNI shall compensate Jaymark in an amount determined in accordance with
Jaymark's historical practice of allocation of expenses to JNI on a payroll
basis.
(b) As compensation for services rendered pursuant to Section 1(b),
JNI shall compensate Jaymark for services rendered on an hourly basis at a rate
and on terms consistent with Jaymark's billing practices with respect to its
government contracting operations.
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3. Term of Services.
(a) Jaymark shall provide the Services described in Section 1(a) for
the period commencing on the effective date of the Offering and continuing until
the earlier of (i) December 31, 2000, or (ii) the date specified by JNI in a
written notification that such Services are no longer required.
(b) Jaymark shall provide the Services described in Section 1(b) for
the period commencing on the effective date of any termination made in
accordance with Section 3(a) until the earlier of (i) December 31, 2000, or (ii)
the date specified by JNI in a written notification that such Services are no
longer required.
4. Level of Services.
Jaymark shall use the same degree of care, but in no event less than
reasonable care, in rendering Services under this Agreement as it utilized in
rendering such services in the ordinary course, consistent with past practice
and as conducted prior to the effective date of the Offering. Jaymark shall not
be liable for any lost profits or special, incidental, consequential or
exemplary damages as a result of the performance of the Services contemplated to
be performed by Jaymark pursuant to this Agreement.
5. Limitation on Jaymark's Liability.
Jaymark and JNI hereby acknowledge that Jaymark is not in the
business of providing the Services and that such Services are being provided
pursuant to this Agreement solely as an accommodation to JNI. JNI's sole and
exclusive remedy and Jaymark's sole and exclusive liability for any failure by
Jaymark to provide, and for any losses of JNI attributable to the provision of,
the Services in the manner specified in Section 1 shall be reperformance of such
services. Jaymark disclaims all warranties with respect to the Services.
6. Inability to Perform.
Each party shall be excused from its non-monetary obligations under
this Agreement, and shall have no liability for any resulting loss or damage,
but only in the event and to the extent that its performance is delayed or
prevented by any circumstance reasonably beyond its control, including, but not
limited to, fire, flood, epidemic, explosion, act of any government in its
sovereign capacity, act of God or of the public enemy, strike, walkout or other
labor dispute, and riot or civil disturbance. Neither party shall be required to
pay for any Services which are not being performed hereunder for any of the
above reasons.
7. Assignment.
No Party shall convey, assign or otherwise transfer any of its
rights or obligations under this Agreement without the express written consent
of the other Party, except that any Party may (without obtaining any such
consent) assign, in whole or in part, its rights to receive or to provide
Services hereunder to any entity acquiring or otherwise succeeding to all or
substantially all of any of its businesses. Any conveyance, assignment or
transfer requiring the express written consent of the other Party which is made
without such consent shall be void ab
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initio. No assignment of this Agreement shall relieve the assigning Party of its
obligations hereunder.
8. Governing Law.
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of California applicable to contracts made and to
be performed entirely within such State, without regard to the conflicts of law
principles of such State.
9. Cooperation; Further Assurances.
Each Party shall cooperate and use its reasonable efforts to have
its officers and employees cooperate with the other Party and provide such
information as such Party may require or reasonably request in connection with
performance of the Services. From time to time, as and when requested by any
Party, the other Party will execute and deliver, or cause to be executed and
delivered, all such documents and instruments and will take, or cause to be
taken, all such actions, as such other Party may reasonably deem necessary or
desirable to consummate the transactions contemplated by this Agreement.
10. Entire Agreement.
This Agreement shall constitute the entire agreement among the
Parties with respect to the subject matter hereof and thereof and supersede all
other prior agreements, understandings, representations and warranties, both
written and oral, between the Parties relating thereto.
11. Captions.
The section titles and captions herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be deemed
to limit or otherwise affect any of the provisions hereof. Unless otherwise
specified, all references herein to numbered sections are to sections of this
Agreement.
12. Counterparts.
This Agreement may be executed in separate counterparts, each such
counterpart being deemed an original instrument, and all such counterparts shall
together constitute the same agreement.
13. No Third Party Beneficiaries.
This Agreement is binding upon and is for the benefit of the
Parties and their respective successors and permitted assigns. This Agreement is
not made for the benefit of any person not a party hereto and no person, other
than the Parties or their respective successors and permitted assigns will
acquire or have any benefit, right, remedy or claim under or by reason of this
Agreement.
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14. Severability.
If any provision of this Agreement is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby. If the economic or legal substance of
the transactions contemplated hereby is affected in any manner adverse to any
party as a result thereof, the parties shall negotiate in good faith in an
effort to agree upon a suitable and equitable substitute provision to effect the
original intent of the parties.
15. Independent Contractors.
The relationship between Jaymark and JNI under this Agreement is
that of independent contractors. Nothing contained in this Agreement or
otherwise shall be construed to constitute or create a partnership, agency,
relationship, joint venture, equity interest or lease between the Parties. No
Party has the power or authority to act on behalf of the other party, except as
expressly set forth in this Agreement or as authorized in writing by the other
Party.
16. Modification or Amendment.
This Agreement cannot be amended, modified or supplemented except
by a written agreement executed by Jaymark and JNI.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as
of the date first above written.
Jaymark, INC.
By: /s/ Randy Johnson
---------------------------------
Name:
Title:
JNI CORP.
By: /s/ Terry Flanagan
---------------------------------
Name:
Title:
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EXHIBIT 10.34
TAX SHARING AGREEMENT
This Tax Sharing Agreement (the "Agreement"), effective as of September
1, 1999, by and between Jaymark, Inc., a Delaware corporation ("Jaymark"), and
JNI Corp., a Delaware corporation ("JNI"), is made and entered into in
connection with the initial public offering ("IPO") of JNI.
WHEREAS, Jaymark on behalf of itself and its present and future
subsidiaries other than JNI (the "Jaymark Group"), and JNI on behalf of itself
and any future subsidiaries (the "JNI Group") have determined that it is
necessary and desirable to provide for allocation between the Jaymark Group and
the JNI Group of all responsibilities, liabilities, and benefits relating to
taxes paid or payable by either group for all taxable periods, whether beginning
before, on, or after the IPO of JNI, and to provide for certain other matters.
NOW, THEREFORE, in consideration of the mutual agreements, provisions,
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions Specific to this Contract.
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
(a) Code: the Internal Revenue Code of 1986, as amended.
(b) Post-IPO Period: any taxable period after the IPO date of JNI.
(c) Pre-IPO Period: any taxable period ending on or before the IPO
date of JNI.
(d) Tax: all income and franchise taxes of the Jaymark Group and
the JNI Group.
(e) Tax Attribute: any net operating loss or credit carryforward.
(f) Tax Benefit: the tax effect of any loss, deduction, credit, or
other item that decreases taxes paid or payable.
(g) Tax Detriment: the tax effect of any income, gain, recapture of
credit, or other item that increases taxes paid or payable.
(h) Tax Representative: for the Jaymark Group, their chief
financial officer whose address is 9775 Towne Centre Drive, San Diego,
California, 92121. For the JNI Group, their chief financial officer whose
address 9775 Towne Centre Drive, San Diego, California, 92121.
<PAGE> 2
ARTICLE II
FILING OF TAX RETURNS
2.1 Pre-IPO Period Income Tax Returns.
(a) Federal Income Tax Returns. The income and other tax items of
JNI for any Pre-IPO Period shall be included in Jaymark's consolidated federal
income tax return. Items of income, gain, loss, deduction and credit shall be
taken into account in accordance with the Treasury Regulations promulgated under
Code Section 1502. Jaymark shall prepare and timely file all consolidated
federal income tax returns for any Pre-IPO Period.
(b) State Income Tax Returns. The income and other tax items of JNI
for any Pre-IPO Period shall be included in Jaymark's consolidated or combined
state income tax return as permitted or required under applicable state law.
Jaymark shall prepare and timely file all consolidated or combined state income
tax returns that included a Jaymark Group member and JNI and any JNI stand alone
state income tax return for any Pre-IPO Period. Any JNI stand alone state tax
returns shall be the responsibility of JNI.
2.2 Post-IPO Period Income Tax Returns. JNI shall be responsible for
preparing and timely filing all federal, state, and foreign income tax returns
for each JNI Group member for Post-IPO Periods. If the Tax Representatives of
the Jaymark Group and the JNI Group or the California Franchise Tax Board
determine that the Jaymark Group and JNI Group should jointly file a unitary
California combined return of franchise or income tax for a Post-IPO Period,
then Jaymark shall be responsible for having such tax return prepared, with each
of JNI and Jaymark to be responsible for payment of one-half of the fees paid to
any outside accountant for preparing such return.
2.3 Other Tax Returns. All tax reports or returns not covered by
Section 2.1 or 2.2 shall be prepared and filed by JNI for the JNI Group and by
Jaymark for the Jaymark Group.
ARTICLE III
PAYMENT OF TAXES
3.1 Payment of Taxes In General.
(a) Except as otherwise provided in this Article 3, Jaymark shall
pay, and shall indemnify and hold harmless JNI from and against, all taxes
attributable to Jaymark Group, whether heretofore or hereafter arising or
incurred. Jaymark shall be entitled to any reduction in or refund of taxes for
which it is responsible pursuant to the preceding sentence (except any reduction
in or refund of taxes resulting from carrybacks of JNI as described in Section
3.4).
(b) Except as otherwise provided in this Article 3, JNI shall pay,
and shall indemnify and hold harmless each Jaymark Group member from and
against, (i) all taxes of JNI for any Pre-IPO Period and (ii) all taxes for any
Post-IPO Period that are attributable to JNI Group. JNI shall be entitled to any
reduction in or refund of taxes for which it is responsible pursuant to the
preceding sentence.
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(c) If a member of the Jaymark Group or JNI receives a refund of
taxes to which the other group is entitled under this Article 3, then such
member shall remit such refund to the other group by promptly sending such
refund to Jaymark or JNI, as the case may be. However, any amount payable by any
Jaymark Group member or JNI in respect of any such refund shall be reduced by
the Tax Detriment incurred or to be incurred by the other party as a result of
the refund claim.
3.2 Payment of Certain Income Taxes.
(a) Jaymark shall charge JNI for its share of Jaymark's
consolidated federal income tax liability and Tax Attributes not heretofore paid
for any Pre-IPO Period. JNI's share shall be determined as the amount of
separate company taxable income, before utilization of any net operating loss or
tax credits, computed under the Code, less the actual amount of JNI net
operating loss and credits permitted to be utilized in the consolidated tax
return. JNI shall pay or cause to be paid promptly its share of such tax
liability upon the later of (i) receiving written notification from Jaymark of
the amount of such liability or (ii) the IPO. Such payment shall be made
directly to Jaymark.
(b) Jaymark shall also charge JNI for its share of any state income
tax due under a consolidated, combined, or stand alone state income tax returns
and not heretofore paid for a Pre-IPO Period. JNI's share shall be determined as
the amount of separate company taxable income, before utilization of any net
operating loss or tax credits, computed under applicable state law, less the
amount of JNI net operating loss and credits permitted to be utilized on such
tax return. JNI shall pay its share of such tax liability upon the later of (i)
receiving written notification from Jaymark of the amount of such liability or
(ii) the IPO. Such payment shall be made directly to Jaymark.
3.3 Adjustments to Tax Liability and Tax Attributes.
(a) Jaymark shall be responsible for, and shall indemnify and hold
harmless JNI from and against, all adjustments to taxes (including, without
limitation, additions to tax, interest, and penalties) attributable to the
Jaymark Group, whether heretofore or hereafter arising or incurred. Jaymark
shall not be responsible for, nor shall it indemnify or hold harmless JNI from
and against, any adjustments to taxes (including, without limitation, additions
to tax, interest, and penalties) of JNI for any Post-IPO Period.
(b) Jaymark shall be entitled to any net Tax Benefit and shall bear
any net Tax Detriment resulting from adjustments to taxes attributable to the
Jaymark Group (except adjustments resulting from carrybacks of JNI from a
Post-IPO Period). If an adjustment to a tax item attributable to the Jaymark
Group reduces the tax liability of JNI, JNI shall pay promptly to Jaymark the
amount of the Tax Benefit realized by JNI. If an adjustment to a tax item
attributable to the Jaymark Group increases the tax liability of JNI, Jaymark
shall pay promptly to JNI the amount of the Tax Detriment realized by JNI upon
receiving written notification from JNI of such amount.
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(c) JNI shall be responsible for, and shall indemnify and hold
harmless each Jaymark Group member from and against, all adjustments to taxes
(including, without limitation, additions to tax, interest, and penalties) (i)
for any Pre-IPO Period with respect to JNI and (ii) for any Post-IPO Period with
respect to JNI's Group. JNI shall be entitled to any Tax Benefit and shall bear
any Tax Detriment resulting from such adjustments. If an adjustment to a tax
item for which JNI is responsible under this Section 3.3 reduces the tax
liability of a Jaymark Group member, Jaymark shall pay promptly to JNI the
amount of the Tax Benefit realized by the Jaymark Group. If an adjustment to a
tax item for which JNI is responsible under this Section 3.3 increases the tax
liability of a Jaymark Group member, JNI shall pay promptly (in the manner
provided in Section 3.2 above) the amount of the Tax Detriment incurred by the
Jaymark Group upon receiving written notification from Jaymark of such amount.
3.4 Carrybacks from Post-IPO Periods to Pre-IPO Periods. Any loss,
credit, or other item attributable to JNI's Group and arising in a Post-IPO
Period may be utilized by the JNI Group and/or carried back to a consolidated or
combined return of the Jaymark Group for a Pre-IPO Period as may be permitted
under applicable law. Jaymark shall cooperate with any JNI group member to the
extent reasonably necessary and to the extent not deemed detrimental to Jaymark
(including, without limitation, amending any return and filing any claim for
refund) for such member to realize the Tax Benefit of carrying such loss,
credit, or other item back to such Pre-IPO Period. Jaymark shall remit promptly
to JNI any refund or reduction in tax resulting from such carryback; provided,
however, that the amount payable in respect of any such refund shall be reduced
by the amount of any taxes incurred by any Jaymark Group member as a result of
the accrual or receipt of the refund.
ARTICLE IV
COOPERATION
4.1 Cooperation in General.
(a) Each of Jaymark and JNI agrees to make available to the other
party records in its custody and in the custody of any member of its group, to
furnish other information, and otherwise to cooperate to the extent reasonably
required for the filing of tax returns or audits and documents relating to the
assets or Group of such other party. Any information requested to be provided
under this Section 4.1 shall be provided within forty-five (45) days of a
written request for such information.
(b) So long as the JNI Group is included in the consolidated
financial statements of Jaymark, JNI shall timely provide the necessary
financial information of the JNI Group to Jaymark so that Jaymark may prepare
its financial statements to meet its deadlines.
4.2 Notice, Defense, and Settlement of Tax Claims.
(a) If a member of the Jaymark Group or JNI Group receives written
notice of a deficiency contest, audit, or other proceeding with respect to a
proposed tax liability for which a member of the other group is liable under
this Agreement (including liability hereunder to indemnify or reimburse a member
of the other group), then the recipient shall notify the other group of such
matter by promptly sending written notice thereof to Jaymark or JNI, as the case
4
<PAGE> 5
may be. Jaymark and JNI shall cooperate to contest and defend any such proposed
tax liability. The corporation that is liable under applicable law for such
proposed tax liability (without regard to this Agreement) shall not settle,
compromise, or otherwise agree to pay such liability without the consent of the
corporation that is liable for such tax under this Agreement. Such consent shall
not be unreasonably withheld.
(b) Jaymark shall be responsible for responding to any notice of
deficiency, contest, audit, or other proceedings with respect to a proposed tax
liability of a consolidated or combined federal or state tax return of the
Jaymark Group and JNI for a Pre-IPO Period. JNI shall be responsible for
responding to any notice of deficiency, contest, audit, or other proceedings
with respect to a proposed tax liability of a stand alone tax return of JNI for
a Pre-IPO Period. In addition, JNI shall be responsible for responding to any
proposed tax claim for non-corporation income or franchise taxes, including but
not limited to sales, property, and payroll taxes, attributable to JNI for a
Pre-IPO Period.
4.3 Confidentiality. Members of both the Jaymark Group and the JNI
Group understand the confidential nature of financial information disclosed in
tax returns and the related supporting documentation. Each of Jaymark and JNI
hereby agree to not release any tax and supporting documentation or information
with respect to the other party to any outside party (including taxing
authorities) without the consent of the Tax Representative of the other party.
ARTICLE V
RESOLUTION OF DISPUTES
Any dispute or ambiguity concerning the amount of any payment provided
for under this Agreement shall be resolved, in a manner consistent with the
principles and procedures set forth in this Agreement, by an internationally
recognized accounting firm (so-called "Big-Five" accounting firm) jointly
selected by the parties hereto. The judgment of such accounting firm shall be
conclusive and binding upon each of the parties to this Agreement. The
accounting firm's fee shall be borne equally by each of the parties to this
Agreement.
ARTICLE VI
GENERAL
6.1 Waiver. Any waiver by any party of any default by the other
hereunder shall not be deemed to be a continuing waiver of such default or a
waiver of any other default or of any of the terms and conditions of this
Agreement.
6.2 Amendments. The terms and conditions of this Agreement may not be
superseded, modified, or amended except in writing stating that it is such a
modification and signed by an authorized representative of each party hereto.
6.3 Governing Law; Forum Selection. This Agreement shall be governed by
the laws of the State of California, U.S.A., without reference to conflict of
laws principles. All disputes arising out of this Agreement shall be subject to
the exclusive jurisdiction and venue of the California state courts of San Diego
County (or, if there is exclusive federal jurisdiction, the
5
<PAGE> 6
United States District Court for the Southern District of California), and the
parties consent to the personal and exclusive jurisdiction and venue of these
courts.
6.4 Attorneys' Fees. The prevailing party in any legal action brought
by one party against the other shall be entitled, in addition to any other
rights and remedies it may have, to reimbursement for its expenses incurred
thereby, including court costs and reasonable attorneys' fees.
6.5 Complete Agreement. This Agreement constitutes the entire agreement
between the parties as to the subject matter hereof, and supersedes and replaces
all prior or contemporaneous agreements, written or oral, regarding such subject
matter.
6.6 Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of each party hereto, its respective successors and assigns, and
each member of the Jaymark Group and the JNI Group not a party hereto.
6.7 Notices. Any notice which any party desires or is obligated to give
to the other shall be given in writing or by facsimile or telex and sent to Tax
Representative at the appropriate address set forth above, or to such other
address as the party to receive the notice may have last designated in writing
in the manner herein provided. Except as otherwise expressly provided herein,
notice shall be deemed to have been received on the earlier of the date when
actually received or ten (10) days after being deposited in the mail, postage
prepaid, registered or certified mail, or within one (1) day if by facsimile or
telex, promptly confirmed in writing, properly addressed to the parties.
6.8 Headings; Counterparts. Headings to Sections of this Agreement are
to facilitate reference only, do not form a part of this Agreement, and shall
not in any way affect the interpretation hereof. This Agreement may be executed
in two (2) or more counterparts or duplicate originals, all of which shall be
regarded as one and the same instrument, and which shall be the official and
governing version in the interpretation of this Agreement.
6.9 Partial Invalidity. If any provision in this Agreement shall be
found or be held to be invalid or unenforceable in any jurisdiction in which
this Agreement is being performed, then the meaning of said provision shall be
construed, to the extent feasible, so as to render the provision enforceable,
and if no feasible interpretation would save such provision, it shall be severed
from the remainder of this Agreement which shall remain in full force and
effect. In such event, the parties shall negotiate, in good faith, a substitute,
valid and enforceable provision which most nearly effects the parties' intent in
entering into this Agreement.
6
<PAGE> 7
IN WITNESS WHEREOF, Jaymark and JNI have caused this Agreement to be
duly executed by their respective officers, each of whom is duly authorized, as
of the date first above written.
JAYMARK, INC. JNI CORP.
By: /s/ RANDY JOHNSON By: /s/ TERRY FLANAGAN
------------------------------ ------------------------------
Title: Chief Financial Officer Title: President
--------------------------- ---------------------------
7
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated September 1, 1999 relating to the financial statements and
financial statement schedule of JNI Corp., which appear in such Registration
Statement. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
San Diego, California
September 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS DATED DECEMBER 31, 1997 AND 1998 AND STATEMENTS OF OPERATIONS OF
STOCKHOLDERS' EQUITY (DEFICIT) AND OF CASH FLOWS FOR THE 3 YEARS ENDED DECEMBER
31, 1998; AND THE 6 MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH N/A.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 3,300 4,199
<ALLOWANCES> 133 388
<INVENTORY> 1,175 3,049
<CURRENT-ASSETS> 4,711 8,863
<PP&E> 2,466 3,295
<DEPRECIATION> 371 878
<TOTAL-ASSETS> 7,814 12,713
<CURRENT-LIABILITIES> 6,541 9,253
<BONDS> 0 0
0 0
25 25
<COMMON> 1 1
<OTHER-SE> 1,147 3,304
<TOTAL-LIABILITY-AND-EQUITY> 7,814 12,713
<SALES> 12,189 15,071
<TOTAL-REVENUES> 12,189 15,071
<CGS> 5,361 5,444
<TOTAL-COSTS> 11,586 14,431
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 191 270
<INTEREST-EXPENSE> 265 289
<INCOME-PRETAX> 338 351
<INCOME-TAX> 27 (1,405)
<INCOME-CONTINUING> 311 1,756
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 311 1,756
<EPS-BASIC> .52 2.93
<EPS-DILUTED> .01 .06
</TABLE>
