<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 19, 1999
REGISTRATION NO. 333-87017
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FINISAR CORPORATION
(Exact name of Registrant as specified in its charter)
--------------------------
<TABLE>
<S> <C> <C>
CALIFORNIA 3674 94-3038428
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code number) Identification
incorporation or organization) No.)
</TABLE>
1308 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 548-1000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------------
JERRY S. RAWLS
CHIEF EXECUTIVE OFFICER
FINISAR CORPORATION
1308 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 548-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
DENNIS C. SULLIVAN, ESQ. PETER E. WILLIAMS III, ESQ.
JOHN M FOGG, ESQ. BRIAN D. MCALLISTER, ESQ.
ANDREW M. JACOBSON, ESQ. TIMOTHY J. HARRIS, ESQ.
GRAY CARY WARE & FREIDENRICH LLP MORRISON & FOERSTER LLP
400 HAMILTON AVENUE 755 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94301-1825 PALO ALTO, CALIFORNIA 94304-1018
(650) 328-6561 (650) 813-5600
--------------------------
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 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock (no par value)......... 8,855,000 shares $14.00 $123,970,000 $34,464 (3)
</TABLE>
(1) Includes 1,155,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act.
(3) A fee of $31,970 was previously paid by the Registrant pursuant to Rule
457(o) promulgated under the Securities Act in connection with the
Registration Statement on September 13, 1999. Pursuant to Rule 457(b) of the
Securities Act, such fee is credited against the registration fee, and
accordingly, an additional $2,494 is being paid in connection with the
filing of this Amendment No. 1 to the Registration Statement.
------------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8
(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 18, 1999
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
PROSPECTUS
7,700,000 SHARES
[FINISAR LOGO]
COMMON STOCK
--------------
This is Finisar Corporation's initial public offering.
We expect the public offering price to be between $12.00 and $14.00 per
share. Currently, no public market exists for the shares. After pricing of this
offering, we expect that the common stock will trade on the Nasdaq National
Market under the symbol "FNSR."
INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
-----------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ---------
<S> <C> <C>
Public offering price.................................................... $ $
Underwriting discount.................................................... $ $
Proceeds, before expenses, to Finisar Corporation........................ $ $
</TABLE>
The underwriters may also purchase up to an additional 1,155,000 shares
from some of our stockholders at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments. We will not receive any of the proceeds from any shares that
may be sold by the selling stockholders.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares will be ready for delivery on or about , 1999.
------------------
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
SOUNDVIEW TECHNOLOGY GROUP
------------------
The date of this prospectus is , 1999.
<PAGE>
[INSIDE FRONT COVER]
[FINISAR LOGO]
FIBER OPTIC SOLUTIONS FOR GIGABIT ETHERNET AND FIBRE CHANNEL
<TABLE>
<S> <C>
OPTICAL DATA LINKS OPTICAL LINK EXTENDERS
[Picture of Finisar's Optical Data [Picture of Finisar's Optical Link
Links.] Extenders.]
- - Transmitters, Receivers, and - Extending the Distance of High-Speed
Transceivers for Switches, Hubs, Data Links
Servers and Storage Arrays - Up to 120 km
- - Built-in Diagnostics - Built-in Self Test and Link Test
- - Multi-mode and Single-mode for
Multiple Transmission Distances
OPTICITY NETWORK PERFORMANCE TEST SYSTEMS
[Picture of Finisar's Opticity 3000.] [Picture of a Finisar Network Performance
Test System.]
- - Extending the Capacity of Fiber Optic - Testing and Monitoring of High-Speed
Rings and Point-to-Point Links Networking Systems
- - Multiple Channels up to 10 Gbps - Multiple High-Speed Protocols
- - SNMP Compatible - Multiple Applications
</TABLE>
[Diagram of optical networking system, including Gigabit Ethernet Local Area
network, Gigabit Ethernet Remote Campus LAN, Multi-Protocol Internet Service
Provider, Fibre Channel Remote SAN BackUp Site, Fibre Channel Storage Area
network and pictures of four Finisar Corporation products.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 5
Forward-Looking Statements................................................................................. 17
Use of Proceeds............................................................................................ 18
Dividend Policy............................................................................................ 18
Capitalization............................................................................................. 19
Dilution................................................................................................... 20
Selected Financial Data.................................................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 22
Business................................................................................................... 31
Management................................................................................................. 47
Related Party Transactions................................................................................. 54
Principal and Selling Stockholders......................................................................... 55
Description of Capital Stock............................................................................... 57
Shares Eligible for Future Sale............................................................................ 60
Underwriting............................................................................................... 61
Legal Matters.............................................................................................. 64
Experts.................................................................................................... 64
Where You Can Find More Information........................................................................ 64
Index to Financial Statements.............................................................................. F-1
</TABLE>
INFORMATION IN PROSPECTUS
Unless specifically stated, the information in this prospectus:
- reflects the automatic conversion of all outstanding shares of our
convertible redeemable preferred stock into an aggregate of 8,981,897
shares of our common stock and 12,039,486 shares of our redeemable
preferred stock and the redemption of such shares of redeemable preferred
stock for $2,640,260 upon the closing of this offering;
- assumes no exercise of the underwriters' over-allotment option;
- assumes the reincorporation of our company in Delaware prior to the
closing of this offering; and
- reflects the creation of a new class of preferred stock and an increase in
the number of authorized shares of common stock to 200,000,000 upon the
closing of this offering.
Beginning in fiscal 2000, our financial records have been maintained on the
basis of a fiscal year ending on April 30, with fiscal quarters ending on the
Sunday closest to the end of the period (thirteen week periods). For ease of
comparison, all references to period end dates in this prospectus have been
presented as though the period ended on the last day of the calendar month. The
first quarter of fiscal 2000 ended on August 1, 1999.
You should rely only on the information contained in this prospectus.
Neither we nor the underwriters have authorized any person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We and the underwriters are not making
an offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
prospectus is accurate as of the date on the front cover of this prospectus
only. Our business, financial condition, results of operations and prospects may
have changed since that date.
Finisar is a registered trademark of Finisar Corporation. This prospectus
contains product names, trade names and trademarks of Finisar and other
organizations.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING "RISK
FACTORS" AND THE FINANCIAL DATA AND RELATED NOTES, BEFORE MAKING AN INVESTMENT
DECISION.
FINISAR CORPORATION
We are a leading provider of fiber optic subsystems and network performance
test systems which enable high-speed data communications over Gigabit
Ethernet-based local area networks, or LANs, and Fibre Channel-based storage
area networks, or SANs. Our optical subsystems convert electrical signals into
optical signals for reliable, high-speed data transmission over varying
distances, speeds and transmission mediums. We sell our optical subsystems to
manufacturers of networking and storage equipment that develop and market
systems based on Gigabit Ethernet and Fibre Channel, which are advanced
transmission protocols used in high-speed LAN and SAN applications. LANs
interconnect computer users within an organization and allow users to share
common computer resources. SANs allow storage to be networked among users and
provide high-speed interconnections between storage systems and servers. We also
provide unique network performance test systems which assist networking and
storage equipment manufacturers in the efficient design of reliable, high-speed
networking systems and the testing and monitoring of the performance of these
systems.
The growing number of users accessing networks, the increasing need to
accommodate data traffic which requires greater transmission capacity, or
bandwidth, and the increasingly important role that data communication networks
play within corporations and other organizations has created the need for a new
generation of high-speed, high-performance networking and storage systems that
rely on fiber optic transmission technology. Many of these systems operate over
Gigabit Ethernet-based LANs, Fibre Channel-based SANs or extended versions of
these networks. These systems utilize fiber optic subsystems which enable them
to transmit data at very high speeds with high accuracy, often over long
distances. In addition to creating a need for optical subsystems, complex
transmission protocols such as Gigabit Ethernet and Fibre Channel have resulted
in a demand for advanced network performance test systems. As these protocols
have emerged, system testing has become more difficult, requiring increasingly
sophisticated and specialized test systems capable of capturing data at high
speeds, filtering the data and identifying various types of intermittent errors
and other network problems.
The development and manufacture of high quality, cost-effective fiber optic
subsystems for LANs and SANs present a number of significant technical
challenges. Data integrity, reliability and standards compliance become
increasingly difficult at high transmission speeds. Additionally, manufacturers
require optical subsystems which support a broad range of network applications.
To date, we believe that only a limited number of companies have developed the
specialized expertise required to engineer fiber optic subsystems and network
performance test systems which meet the requirements of manufacturers of
high-speed data networking and storage systems. Our optical subsystems and
network performance test systems are designed to provide the following key
benefits to systems manufacturers:
VALUE-ADDED FUNCTIONS AND INTELLIGENCE. Our high-speed fiber optic
subsystems are engineered to provide our customers with value-added
functionality beyond the basic capability of enabling high-speed data
transmission. For example, many of our optical subsystems include a
microprocessor containing specially developed software that allows customers to
monitor the optical performance of each port on their systems in real time.
Additionally, many of our subsystems are engineered to automatically recognize
different versions of the Fibre Channel protocol and to interoperate with our
customers' older, installed networking systems, often referred to as legacy
systems. Real-time monitoring and interoperability are particularly important in
the Gigabit Ethernet LAN and Fibre Channel SAN markets where reliability and
time to market are critical. Our test systems also contain value-added software
functions that permit users to simulate and track errors.
1
<PAGE>
HIGH LEVEL OF DATA INTEGRITY. Through the use of advanced packaging and
circuit design, our optical subsystems deliver data at very high speeds over
varying distances with very low error rates. This high level of data integrity
allows our subsystems to operate reliably over a wide range of temperatures and
other field conditions which we believe enables our customers to design and
deliver more robust systems.
HIGH RELIABILITY. We design all of our optical subsystems to provide the
high reliability required for data networking and storage applications that are
critical to an enterprise. Our products have very low failure rates. Using
standard statistical methodology and testing, we have been able to predict that
some of our products can be expected to operate reliably for up to 40 million
hours. In addition, because our subsystems are designed to emit lower levels of
electromagnetic interference, or EMI, than the standards set by the Federal
Communications Commission, we offer manufacturers greater flexibility in the
design of their systems and integration of other components and subsystems.
BROAD OPTICAL SUBSYSTEM PRODUCT LINE. We offer a broad line of optical
subsystems which operate at varying protocols, speeds, fiber types, voltages,
wavelengths and distances and are available in a variety of industry standard
packaging configurations, or form factors. The breadth of our optical subsystems
product line is important to many of our customers who manufacture a wide range
of networking products for diverse applications.
BROAD TEST SYSTEM PRODUCT LINE. We offer a broad line of test systems to
assist our customers in efficiently designing reliable, high-speed networking
systems and testing and monitoring the performance of these systems. We believe
our test systems enable our customers to focus their attention on the
development of new products, reduce overall development costs and speed time to
market.
Our goal is to be the optical subsystem and network performance test system
provider of choice for multiple protocols and network applications. We intend to
maintain our technological leadership through continual enhancement of our
existing products and the development of new products as evolving technology
permits higher speed transmission of data, with greater capacity, over longer
distances. We plan to leverage our relationships with our existing customers as
they enter new, high-speed data communications markets and to expand our sales
and marketing organization in order to establish new relationships with other
key data and storage networking manufacturers. We intend to capitalize on our
customers' satisfaction and our service-oriented approach to take advantage of
cross-selling opportunities. We also plan to expand our international sales
efforts.
We sell our products to leading networking and storage equipment
manufacturers such as 3Com, EMC, Emulex, IBM, Newbridge Networks and Sun
Microsystems, as well as emerging manufacturers such as Brocade Communications
and Extreme Networks. For the fiscal year ended April 30, 1999, we had revenues
of $35.5 million and net income of $3.1 million. For the quarter ended July 31,
1999, we had revenues of $13.9 million and net income of $1.3 million.
CORPORATE INFORMATION
Finisar was incorporated in California in April 1987. Our principal
executive offices are located at 1308 Moffett Park Drive, Sunnyvale, California
94089, our telephone number is (408) 548-1000 and our website is located at
www.finisar.com. Information on our website is not a part of this prospectus.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... 7,700,000 shares
Common stock to be outstanding after this
offering................................... 49,707,462 shares
Use of proceeds.............................. To repay outstanding indebtedness and redeem
our redeemable preferred stock and for
general corporate purposes, principally
working capital and capital expenditures. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol....... FNSR
</TABLE>
The number of shares that will be outstanding after the offering is based on
the number of shares outstanding as of September 30, 1999 and excludes:
- 2,036,740 shares of common stock issuable upon exercise of options
outstanding at September 30, 1999 under our 1989 and 1999 stock option
plans, with a weighted average exercise price of $1.2054 per share,
268,000 shares issuable upon exercise of options granted subsequent to
September 30, 1999 with an exercise price of $10.20 per share, and an
additional 5,065,000 shares reserved for issuance under our 1999 stock
option plan as of October 15, 1999; and
- 250,000 shares of common stock reserved for issuance under our 1999
employee stock purchase plan.
3
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary financial data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes thereto included
elsewhere in this prospectus. The statement of operations data for the fiscal
years ended April 30, 1997, 1998 and 1999 are derived from, and are qualified by
reference to, our audited financial statements included elsewhere in this
prospectus. The statement of operations data for the fiscal years ended April
30, 1995 and 1996 are derived from unaudited financial statements not included
in this prospectus. The statement of operations data for the three month periods
ended July 31, 1998 and 1999 and the balance sheet data as of July 31, 1999 are
derived from, and are qualified by reference to, our unaudited financial
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED APRIL 30, JULY 31,
----------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................... $ 2,684 $ 5,660 $ 8,457 $ 22,067 $ 35,471 $ 6,794 $ 13,879
Gross profit................. 1,822 2,538 5,019 13,362 19,957 4,128 7,627
Income from operations....... 654 700 1,374 7,094 5,254 1,603 2,247
Net income................... 433 463 947 4,358 3,077 1,053 1,300
Net income per share (1):
Basic...................... $ 0.01 $ 0.01 $ 0.02 $ 0.10 $ 0.08 $ 0.03 $ 0.04
Diluted.................... $ 0.01 $ 0.01 $ 0.02 $ 0.10 $ 0.07 $ 0.03 $ 0.03
Shares used in per share
calculations (1):
Basic...................... 44,000 44,000 44,000 43,753 36,860 41,800 29,464
Diluted.................... 44,000 44,000 44,000 43,753 44,938 41,800 42,610
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1999
-------------------------------------------
PRO PRO FORMA
ACTUAL FORMA(2) AS ADJUSTED(3)
--------- ----------- -------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 5,404 $ 5,404 $ 83,642
Working capital.................................. 14,007 14,007 92,245
Total assets..................................... 24,459 24,459 102,697
Long-term debt................................... 11,019 11,019 4
Convertible redeemable preferred stock........... 26,260 -- --
Total stockholders' equity (deficit)(4).......... (19,950) 3,669 95,562
</TABLE>
- ------------------------
(1) See Note 1 to our financial statements for a description of the computation
of the number of shares and net income per share.
(2) The pro forma amounts give effect to the conversion of all outstanding
shares of our convertible redeemable preferred stock into 8,981,897 shares
of our common stock and 12,039,486 shares of our redeemable preferred stock.
(3) The pro forma as adjusted amounts reflect the pro forma amounts, as further
adjusted to reflect the sale of 7,700,000 shares of common stock by Finisar
in this offering, at an assumed initial public offering price of $13.00 per
share after deducting the estimated underwriting discount and estimated
offering expenses, and our receipt and application of the net proceeds,
including the repayment of our term loan and redemption of all outstanding
shares of redeemable preferred stock upon the closing of this offering. See
"Use of Proceeds" and "Capitalization."
(4) Total stockholders' equity (deficit) reflects retained earnings of $10.8
million prior to giving effect to the repurchase of shares of our common
stock for $31.7 million in November 1998.
4
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING A
DECISION TO BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS COULD BE HARMED, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. YOU SHOULD ALSO REFER
TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING OUR FINANCIAL
STATEMENTS AND THE RELATED NOTES.
OUR FUTURE REVENUES ARE UNPREDICTABLE, OUR OPERATING RESULTS ARE LIKELY TO
FLUCTUATE FROM QUARTER TO QUARTER, AND IF WE FAIL TO MEET THE EXPECTATIONS OF
SECURITIES ANALYSTS OR INVESTORS, OUR STOCK PRICE COULD DECLINE SIGNIFICANTLY
Our quarterly and annual operating results have fluctuated in the past and
are likely to fluctuate significantly in the future due to a variety of factors,
some of which are outside of our control. Accordingly, we believe that
period-to-period comparisons of our results of operations are not meaningful and
should not be relied upon as indications of future performance. Some of the
factors that could cause our quarterly or annual operating results to fluctuate
include market acceptance of our products and the Gigabit Ethernet and Fibre
Channel standards, product development and production, competitive pressures and
customer retention.
We may experience a delay in generating or recognizing revenues for a number
of reasons. Orders at the beginning of each quarter typically do not equal
expected revenues for that quarter and are generally cancelable at any time.
Accordingly, we depend on obtaining orders in a quarter for shipment in that
quarter to achieve our revenue objectives. Failure to ship these products by the
end of a quarter may adversely affect our operating results. Furthermore, our
customer agreements typically provide that the customer may delay scheduled
delivery dates and cancel orders within specified time frames without
significant penalty. Because we base our operating expenses on anticipated
revenue trends and a high percentage of our expenses are fixed in the short
term, any delay in generating or recognizing forecasted revenues could
significantly harm our business.
It is likely that in some future quarters our operating results may fall
below the expectations of securities analysts and investors. In this event, the
trading price of our common stock would significantly decline.
OUR SUCCESS IS DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE EMERGING HIGH-SPEED
LAN, SAN AND EXTENDED NETWORK MARKETS
Our optical subsystem and network performance test system products are used
exclusively in high-speed local area networks, or LANs, storage area networks,
or SANs, and extended networks. Accordingly, widespread adoption of high-speed
LANs, SANs and extended networks is critical to our future success. The markets
for high-speed LANs, SANs and extended networks have only recently begun to
develop and are rapidly evolving. Because these markets are new and evolving, it
is difficult to predict their potential size or future growth rate. Potential
end-user customers who have invested substantial resources in their existing
data storage and management systems may be reluctant or slow to adopt a new
approach, like high-speed LANs, SANs or extended networks. Our success in
generating revenue in these emerging markets will depend, among other things, on
the growth of these markets. There is significant uncertainty as to whether
these markets ultimately will develop or, if they do develop, that they will
develop rapidly. If the markets for high-speed LANs, SANs or extended networks
fail to develop or develop more slowly than expected, or if our products do not
achieve widespread market acceptance in these markets, our business would be
significantly harmed.
5
<PAGE>
WE WILL FACE CHALLENGES TO OUR BUSINESS IF OUR TARGET MARKETS ADOPT ALTERNATE
STANDARDS TO FIBRE CHANNEL AND GIGABIT ETHERNET TECHNOLOGY OR IF OUR PRODUCTS
FAIL TO COMPLY WITH EVOLVING INDUSTRY STANDARDS AND GOVERNMENT REGULATIONS
We have based our product offerings principally on Fibre Channel and Gigabit
Ethernet standards and our future success is substantially dependent on the
continued market acceptance of these standards. If an alternative technology is
adopted as an industry standard within our target markets, we would have to
dedicate significant time and resources to redesign our products to meet this
new industry standard. For example, manufacturers have begun to develop
networking systems with per-port transmission speeds of 10 gigabits per second,
or Gbps, ten times faster than Gigabit Ethernet. We cannot assure you that we
will be successful in re-designing our products or developing new products to
meet this new standard or any other standard that may emerge. Our products
comprise only a part of an entire networking system, and we depend on the
companies that provide other components to support industry standards as they
evolve. The failure of these companies, many of which are significantly larger
than we are, to support these industry standards could negatively impact market
acceptance of our products. Moreover, if we introduce a product before an
industry standard has become widely accepted, we may incur significant expenses
and losses due to lack of customer demand, unusable purchased components for
these products and the diversion of our engineers from future product
development efforts. In addition, because we may develop some products prior to
the adoption of industry standards, we may develop products that do not comply
with the eventual industry standard. Our failure to develop products that comply
with industry standards would limit our ability to sell our products. Finally,
if new standards evolve, we may not be able to successfully design and
manufacture new products in a timely fashion, if at all, that meet these new
standards.
In the United States, our products must comply with various regulations and
standards defined by the Federal Communications Commission and Underwriters
Laboratories. Internationally, products that we develop also will be required to
comply with standards established by local authorities in various countries.
Failure to comply with existing or evolving standards established by regulatory
authorities or to obtain timely domestic or foreign regulatory approvals or
certificates could significantly harm our business.
WE DEPEND ON LARGE PURCHASES FROM A FEW SIGNIFICANT CUSTOMERS, AND ANY LOSS,
CANCELLATION, REDUCTION OR DELAY IN PURCHASES BY THESE CUSTOMERS COULD HARM OUR
BUSINESS
A small number of customers have accounted for a significant portion of our
revenues. Our success will depend on our continued ability to develop and manage
relationships with significant customers. Sales to Newbridge Networks
Corporation and EMC Corporation represented 34.9% and 19.0% of our revenues
during the three month period ended July 31, 1999, 25.1% and 20.8% of our
revenues for fiscal 1999 and 43.9% and 14.6% of our revenues for fiscal 1998.
Although we are attempting to expand our customer base, we expect that
significant customer concentration will continue for the foreseeable future.
The markets in which we sell our products are dominated by a relatively
small number of systems manufacturers, thereby limiting the number of our
potential customers. Our dependence on large orders from a relatively small
number of customers makes our relationship with each customer critically
important to our business. We cannot assure you that we will be able to retain
our largest customers, that we will be able to attract additional customers or
that our customers will be successful in selling their products which
incorporate our products. We have in the past experienced delays and reductions
in orders from some of our major customers. In addition, our customers have in
the past sought price concessions from us and will continue to do so in the
future. Further, some of our customers may in the future shift their purchases
of products from us to our competitors or to joint ventures between these
customers and our competitors. The loss of one or more of our largest customers,
any reduction or delay in sales to these customers, our inability to
successfully develop relationships with additional customers or future price
concessions that we may make could significantly harm our business.
6
<PAGE>
BECAUSE WE DO NOT HAVE LONG-TERM CONTRACTS WITH OUR CUSTOMERS, OUR CUSTOMERS MAY
CEASE PURCHASING OUR PRODUCTS AT ANY TIME IF WE FAIL TO MEET OUR CUSTOMERS'
NEEDS
We do not have long-term contracts with our customers. As a result, our
agreements with our customers do not provide any assurance of future sales.
Accordingly:
- our customers can stop purchasing our products at any time without
penalty;
- our customers are free to purchase products from our competitors; and
- our customers are not required to make minimum purchases.
Sales are typically made pursuant to individual purchase orders, often with
extremely short lead times. If we are unable to fulfill these orders in a timely
manner, we will lose sales and customers.
OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, AND TO COMPETE EFFECTIVELY,
WE MUST CONTINUALLY INTRODUCE NEW PRODUCTS THAT ACHIEVE MARKET ACCEPTANCE
The markets for our products are characterized by rapid technological
change, frequent new product introductions, changes in customer requirements and
evolving industry standards. We expect that new technologies will emerge as
competition and the need for higher and more cost effective bandwidth increases.
Our future performance will depend on the successful development, introduction
and market acceptance of new and enhanced products that address these changes as
well as current and potential customer requirements. The introduction of new and
enhanced products may cause our customers to defer or cancel orders for existing
products. We have in the past experienced delays in product development and such
delays may occur in the future. Therefore, to the extent customers defer or
cancel orders in the expectation of a new product release or there is any delay
in development or introduction of our new products or enhancements of our
products, our operating results would suffer. We also may not be able to develop
the underlying core technologies necessary to create new products and
enhancements, or to license these technologies from third parties. Product
development delays may result from numerous factors, including:
- changing product specifications and customer requirements;
- difficulties in hiring and retaining necessary technical personnel;
- difficulties in reallocating engineering resources and overcoming resource
limitations;
- difficulties with contract manufacturers;
- changing market or competitive product requirements; and
- unanticipated engineering complexities.
The development of new, technologically advanced products is a complex and
uncertain process requiring high levels of innovation and highly skilled
engineering and development personnel, as well as the accurate anticipation of
technological and market trends. We cannot assure you that we will be able to
identify, develop, manufacture, market or support new or enhanced products
successfully, if at all, or on a timely basis. Further, we cannot assure you
that our new products will gain market acceptance or that we will be able to
respond effectively to product announcements by competitors, technological
changes or emerging industry standards. Any failure to respond to technological
change would significantly harm our business.
CONTINUED COMPETITION IN OUR MARKETS MAY LEAD TO A REDUCTION IN OUR PRICES,
REVENUES AND MARKET SHARE
The markets for optical subsystems and network performance test systems for
use in LANs, SANs and extended networks are highly competitive. Our current
competitors include a number of domestic and international companies, many of
which have substantially greater financial, technical, marketing, distribution
resources and brand name recognition than we have. We expect that more
companies, including some of our customers, will enter the market for optical
subsystems and network performance
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test systems. We may not be able to compete successfully against either current
or future competitors. Increased competition could result in significant price
erosion, reduced revenue, lower margins or loss of market share, any of which
would significantly harm our business. For optical subsystems, we compete
primarily with Agilent Technologies, Inc., Cielo Communications, Inc.,
International Business Machines Corporation and Vixel Corporation. For network
performance test systems, we compete primarily with Ancot Corporation, I-Tech
Corporation and Xyratex International. Our competitors continue to introduce
improved products with lower prices, and we will have to do the same to remain
competitive. In addition, some of our current and potential customers may
attempt to integrate their operations by producing their own optical subsystems
and network performance test systems or acquiring one of our competitors,
thereby eliminating the need to purchase our products. Furthermore, larger
companies in other related industries, such as the telecommunications industry,
may develop or acquire technologies and apply their significant resources,
including their distribution channels and brand name recognition, to capture
significant market share.
WE EXPECT AVERAGE SELLING PRICES OF OUR PRODUCTS TO DECREASE WHICH MAY REDUCE
GROSS MARGINS OR REVENUES, AND, AS A RESULT, WE MUST CONTINUE TO REDUCE OUR
PRODUCT COSTS IN ORDER TO PRICE OUR PRODUCTS COMPETITIVELY
The market for optical subsystems is characterized by declining average
selling prices resulting from factors such as increased competition, the
introduction of new products and increased unit volumes as manufacturers
continue to deploy network and storage systems. We have in the past experienced
and in the future may experience, substantial period-to-period fluctuations in
operating results due to declining average selling prices. We anticipate that
average selling prices will decrease in the future in response to product
introductions by competitors or us, or by other factors, including price
pressures from significant customers. Therefore, we must continue to develop and
introduce on a timely basis new products that incorporate features that can be
sold at higher average selling prices. Failure to do so could cause our revenues
and gross margins to decline, which would significantly harm our business.
We may be unable to reduce the cost of our products sufficiently to enable
us to compete with others. Our cost reduction efforts may not allow us to keep
pace with competitive pricing pressures or lead to improved gross margins. In
order to remain competitive, we must continually reduce the cost of
manufacturing our products through design and engineering changes. We may not be
successful in redesigning our products or delivering our products to market in a
timely manner. We cannot assure you that any redesign will result in sufficient
cost reductions to allow us to reduce the price of our products to remain
competitive or improve our gross margin.
WE ARE SUBJECT TO A PENDING LEGAL PROCEEDING
In April 1999, Methode Electronics, a manufacturer of electronic component
devices, filed a lawsuit against us and another manufacturer alleging that our
optoelectronic products infringe four patents held by Methode. The lawsuit seeks
monetary damages and injunctive relief. We believe that we have strong defenses
against Methode's lawsuit, and we intend to defend the suit vigorously. However,
the litigation is in the preliminary stage, and we cannot predict its outcome.
The litigation process is inherently uncertain and we may not prevail. Patent
litigation is particularly complex and can extend for a protracted time, which
can substantially increase the cost of such litigation. In connection with the
Methode litigation, we have incurred, and expect to continue to incur,
substantial legal fees and expenses. The Methode litigation has also diverted,
and is expected to continue to divert, the efforts and attention of some of our
key management and technical personnel. As a result, our defense of this
litigation, regardless of its eventual outcome, has been, and will likely
continue to be, costly and time consuming. Should the outcome of the litigation
be adverse to us, we could be required to pay significant monetary damages to
Methode and could be enjoined from selling those of our products found to
infringe Methode's patents unless and until we are able to negotiate a license
from Methode.
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In the event that we obtain a license from Methode, we would likely be required
to make royalty payments with respect to sales of our products covered by the
license. Any such royalty payments would increase our cost of revenues and
reduce our gross profit. If we are required to pay significant monetary damages,
are enjoined from selling any of our products or are required to make royalty
payments pursuant to any such license agreement, our business would be
significantly harmed. See "Business--Pending Legal Proceeding."
OUR CUSTOMERS OFTEN EVALUATE OUR PRODUCTS FOR LONG AND VARIABLE PERIODS WHICH
CAUSES THE TIMING OF PURCHASES AND OUR RESULTS OF OPERATIONS TO BE UNPREDICTABLE
The period of time between our initial contact with a customer and the
receipt of an actual purchase order may span a year or more. During this time,
customers may perform, or require us to perform, extensive and lengthy
evaluation and testing of our products before purchasing and using them in their
equipment. Our customers do not typically share information on the duration or
magnitude of these qualification procedures. The length of these qualification
processes also may vary substantially by product and customer, and, thus, cause
our results of operations to be unpredictable. While our potential customers are
qualifying our products and before they place an order with us, we may incur
substantial sales and marketing expenses and expend significant management
effort. Even after incurring such costs we ultimately may not sell any products
to such potential customers. In addition, these qualification processes often
make it difficult to obtain new customers, as customers are reluctant to expend
the resources necessary to qualify a new supplier if they have one or more
existing qualified sources. Once our products have been qualified, our
agreements with our customers have no minimum purchase commitments. Failure of
our customers to incorporate our products into their systems would significantly
harm our business.
WE DEPEND ON CONTRACT MANUFACTURERS FOR SUBSTANTIALLY ALL OF OUR ASSEMBLY
REQUIREMENTS AND IF THESE MANUFACTURERS FAIL TO PROVIDE US WITH ADEQUATE
SUPPLIES OF HIGH-QUALITY PRODUCTS, OUR COMPETITIVE POSITION, REPUTATION AND
BUSINESS COULD BE HARMED
We currently rely on three contract manufacturers for substantially all of
our assembly requirements. We do not have long term contracts with any of these
manufacturers. We have experienced delays in product shipments from contract
manufacturers in the past, which in turn delayed product shipments to our
customers. We may in the future experience similar delays or other problems,
such as inferior quality and insufficient quantity of product, any of which
could significantly harm our business. We cannot assure you that we will be able
to effectively manage our contract manufacturers or that these manufacturers
will meet our future requirements for timely delivery of products of sufficient
quality and quantity. We intend to regularly introduce new products and product
enhancements, which will require that we rapidly achieve volume production by
coordinating our efforts with those of our suppliers and contract manufacturers.
The inability of our contract manufacturers to provide us with adequate supplies
of high-quality products or the loss of any of our contract manufacturers would
cause a delay in our ability to fulfill orders while we obtain a replacement
manufacturer and would significantly harm our business.
If the demand for our products grows, we will need to increase our material
purchases, contract manufacturing capacity and internal test and quality
assurance functions. Any disruptions in product flow could limit our revenue,
adversely affect our competitive position and reputation and result in
additional costs or cancellation of orders under agreements with our customers.
In addition, we are considering sourcing a significant portion of our
contract manufacturing internationally. Additional risks associated with
international contract manufacturing include:
- unexpected changes in regulatory requirements;
- legal uncertainties regarding liability, tariffs and other trade barriers;
- inadequate protection of intellectual property in some countries;
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- greater incidence of shipping delays;
- limited oversight of manufacturing operations;
- potential political and economic instability; and
- currency fluctuations.
Any of these factors could significantly impair our ability to source our
contract manufacturing requirements internationally.
WE MAY LOSE SALES IF OUR SUPPLIERS FAIL TO MEET OUR NEEDS
We currently purchase several key components used in the manufacture of our
products from single or limited sources. We depend on these sources to meet our
needs. Moreover, we depend on the quality of the products supplied to us over
which we have limited control. We have encountered shortages and delays in
obtaining components in the past and expect to encounter shortages and delays in
the future. If we cannot supply products due to a lack of components, or are
unable to redesign products with other components in a timely manner, our
business will be significantly harmed. We have no long-term or short-term
contracts for any of our components. As a result, a supplier can discontinue
supplying components to us without penalty. If a supplier discontinued supplying
a component, our business may be harmed by the resulting product manufacturing
and delivery delays.
We use rolling forecasts based on anticipated product orders to determine
our component requirements. Lead times for materials and components that we
order vary significantly and depend on factors such as specific supplier
requirements, contract terms and current market demand for particular
components. If we overestimate our component requirements, we may have excess
inventory, which would increase our costs. If we underestimate our component
requirements, we may have inadequate inventory, which could interrupt our
manufacturing and delay delivery of our products to our customers. Any of these
occurrences would significantly harm our business.
WE ARE DEPENDENT ON WIDESPREAD MARKET ACCEPTANCE OF TWO PRODUCT FAMILIES, AND
OUR REVENUES WILL DECLINE IF THE MARKET DOES NOT CONTINUE TO ACCEPT EITHER OF
THESE PRODUCT FAMILIES
We currently derive substantially all of our revenue from sales of our
optical subsystems and network performance test systems. We expect that revenue
from these products will continue to account for substantially all of our
revenue for the foreseeable future. Accordingly, widespread acceptance of these
products is critical to our future success. If the market does not continue to
accept either our optical subsystems or our network performance test systems,
our revenues will decline significantly. Factors that may affect the market
acceptance of our products include the continued growth of the markets for LANs,
SANs and extended versions of these networks and, in particular, Gigabit
Ethernet and Fibre Channel-based technologies as well as the performance, price
and total cost of ownership of our products and the availability, functionality
and price of competing products and technologies. Many of these factors are
beyond our control. In addition, in order to achieve widespread market
acceptance, we must differentiate ourselves from the competition through product
offerings and brand name recognition. We cannot assure you that we will be
successful in making this differentiation or achieving widespread acceptance of
our products. Failure of our existing or future products to maintain and achieve
widespread levels of market acceptance will significantly impair our revenue
growth.
BECAUSE OF INTENSE COMPETITION FOR TECHNICAL PERSONNEL, WE MAY NOT BE ABLE TO
RECRUIT OR RETAIN NECESSARY PERSONNEL
We believe our future success will depend in large part upon our ability to
attract and retain highly skilled managerial, technical, sales and marketing,
finance and manufacturing personnel. In particular, we will need to increase the
number of technical staff members with experience in high-speed networking
applications as we further develop our product lines. Competition for these
highly skilled employees in our industry is intense. Our failure to attract and
retain these qualified employees could
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significantly harm our business. The loss of the services of any of our
qualified employees, the inability to attract or retain qualified personnel in
the future or delays in hiring required personnel could hinder the development
and introduction of and negatively impact our ability to sell our products. In
addition, employees may leave our company and subsequently compete against us.
Moreover, companies in our industry whose employees accept positions with
competitors frequently claim that their competitors have engaged in unfair
hiring practices. We have been subject to claims of this type and may be subject
to such claims in the future as we seek to hire qualified personnel. Some of
these claims may result in material litigation. We could incur substantial costs
in defending ourselves against these claims, regardless of their merits.
CONTINUED RAPID GROWTH WILL STRAIN OUR OPERATIONS AND REQUIRE US TO INCUR COSTS
TO UPGRADE OUR INFRASTRUCTURE
We have experienced a period of rapid growth, which has placed a significant
strain on our resources. Unless we manage our growth effectively, we may make
mistakes in operating our business, such as inaccurate sales forecasting,
material planning and financial reporting, which may result in fluctuations in
our operating results and cause the price of our stock to decline. We plan to
continue to expand our operations significantly. This anticipated growth will
continue to place a significant strain on our management and operational
resources. In order to manage our growth effectively, we must implement and
improve our operational systems, procedures and controls on a timely basis. If
we cannot manage growth effectively, our business could be significantly harmed.
OUR PRODUCTS MAY CONTAIN DEFECTS WHICH MAY CAUSE US TO INCUR SIGNIFICANT COSTS,
DIVERT OUR ATTENTION FROM PRODUCT DEVELOPMENT EFFORTS AND RESULT IN A LOSS OF
CUSTOMERS
Networking products frequently contain undetected software or hardware
defects when first introduced or as new versions are released. Our products are
complex and defects may be found from time to time. In addition, our products
are often embedded in or deployed in conjunction with our customers' products
which incorporate a variety of components produced by third parties. As a
result, when problems occur, it may be difficult to identify the source of the
problem. These problems may cause us to incur significant damages or warranty
and repair costs, divert the attention of our engineering personnel from our
product development efforts and cause significant customer relation problems or
loss of customers, all of which would harm our business.
OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY MAY SIGNIFICANTLY HARM OUR
BUSINESS
Our success and ability to compete is dependent in part on our proprietary
technology. We rely on a combination of patent, copyright, trademark and trade
secret laws, as well as confidentiality agreements and licensing arrangements,
to establish and protect our proprietary rights. To date, we have relied
primarily on proprietary processes and know-how to protect our intellectual
property. Although we have filed for several patents, some of which have issued,
we cannot assure you that any patents will issue as a result of pending patent
applications or that our issued patents will be upheld. Any infringement of our
proprietary rights could result in significant litigation costs, and any failure
to adequately protect our proprietary rights could result in our competitors
offering similar products, potentially resulting in loss of a competitive
advantage and decreased revenues. Despite our efforts to protect our proprietary
rights, existing patent, copyright, trademark and trade secret laws afford only
limited protection. In addition, the laws of some foreign countries do not
protect our proprietary rights to the same extent as do the laws of the United
States. Attempts may be made to copy or reverse engineer aspects of our products
or to obtain and use information that we regard as proprietary. Accordingly, we
may not be able to prevent misappropriation of our technology or deter others
from developing similar technology. Furthermore, policing the unauthorized use
of our products is difficult. Litigation may be necessary in the future to
enforce our intellectual property rights or to determine the
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validity and scope of the proprietary rights of others. This litigation could
result in substantial costs and diversion of resources and could significantly
harm our business.
CLAIMS THAT WE INFRINGE THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS COULD RESULT IN
SIGNIFICANT EXPENSES OR RESTRICTIONS ON OUR ABILITY TO SELL OUR PRODUCTS
The networking industry is characterized by the existence of a large number
of patents and frequent litigation based on allegations of patent infringement.
We are currently involved in a patent infringement lawsuit. See "Risk
Factors--We are subject to a pending legal proceeding." In addition, from time
to time, other parties may assert patent, copyright, trademark and other
intellectual property rights to technologies and in various jurisdictions that
are important to our business. Any claims asserting that our products infringe
or may infringe proprietary rights of third parties, if determined adversely to
us, could significantly harm our business. Any claims, with or without merit,
could be time-consuming, result in costly litigation, divert the efforts of our
technical and management personnel, cause product shipment delays or require us
to enter into royalty or licensing agreements, any of which could significantly
harm our business. Royalty or licensing agreements, if required, may not be
available on terms acceptable to us, if at all. In addition, our agreements with
our customers typically require us to indemnify our customers from any expense
or liability resulting from claimed infringement of third party intellectual
property rights. In the event a claim against us was successful and we could not
obtain a license to the relevant technology on acceptable terms or license a
substitute technology or redesign our products to avoid infringement, our
business would be significantly harmed.
IF WE ARE UNABLE TO EXPAND OUR DIRECT SALES OPERATION AND RESELLER DISTRIBUTION
CHANNELS OR SUCCESSFULLY MANAGE OUR EXPANDED SALES ORGANIZATION, OUR ABILITY TO
INCREASE OUR REVENUES WILL BE HARMED
Historically, we have relied primarily on a limited direct sales
organization, supported by third party manufacturers' representatives, to sell
our products domestically and on indirect distribution channels to sell our
products internationally. Our distribution strategy focuses primarily on
developing and expanding our direct sales organization in North America and our
indirect distribution channels internationally. We may not be able to
successfully expand our direct sales organization and the cost of any expansion
may exceed the revenue generated. To the extent that we are successful in
expanding our direct sales organization, we cannot assure you that we will be
able to compete successfully against the significantly larger and well-funded
sales and marketing operations of many of our current or potential competitors.
In addition, if we fail to develop relationships with significant international
resellers or domestic manufacturers' representatives, of if these resellers or
representatives are not successful in their sales or marketing efforts, sales of
our products may decrease and our business would be significantly harmed. We
have granted exclusive rights to substantially all of our resellers to sell our
product and to our representatives to market our products in their specified
territories. Our resellers and representatives may not market our products
effectively or continue to devote the resources necessary to provide us with
effective sales, marketing and technical support. Our inability to effectively
manage the expansion of our domestic sales and support staff or maintain
existing or establish new relationships with domestic manufacturer
representatives and international resellers would harm our business.
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IF WE OR OUR SUPPLIERS, MANUFACTURERS, CUSTOMERS OR SERVICE PROVIDERS FAIL TO BE
YEAR 2000 COMPLIANT, OUR BUSINESS MIGHT BE SEVERELY DISRUPTED
The risk that software or hardware inaccurately process dates following the
year 2000 presents several risks for our business. In particular, we are subject
to:
- costs associated with the failure of our products to be year 2000
compliant, including potential warranty or other claims from our
customers, which may result in significant expense to us;
- business shutdowns or slowdowns as a result of a failure of the internal
management systems we use to run our business, which could disrupt our
business operations;
- interruption of product or component supplies, or a reduction in product
quality, as a result of the failure of systems used by our manufacturers
or suppliers; and
- reductions or deferrals in sales activities as a result of year 2000
compliance issues of our customers.
Our internal year 2000 compliance review is focused on reviewing our
internal computer information and security systems for year 2000 compliance, and
developing and implementing remedial programs to resolve year 2000 issues in a
timely manner; however, we have not tested our products in every possible
computer environment, and therefore such products may not be fully year 2000
compliant. Additionally, we are contacting our third party suppliers and
manufacturers and requesting their written assurances that their systems are
year 2000 compliant. To date, our year 2000 costs have been primarily driven by
the cost of our personnel conducting the year 2000 compliance review. We
estimate such costs to date have been $100,000.
If our suppliers, manufacturers, vendors, major distributors and partners
fail to correct their year 2000 problems, these failures could result in an
interruption in, or a failure of, our normal business activities or operations.
In particular, the failure of a sole or limited source supplier or contract
manufacturer to be year 2000 compliant could seriously interrupt our
manufacturing process, which could substantially reduce our revenues. If a year
2000 problem occurs, it may be difficult to determine which vendor's products
have caused the problem. These failures could interrupt our operations and
damage our relationships with our customers. Due to the general uncertainty
inherent in the year 2000 problem resulting from the readiness of third-party
suppliers and vendors, we are unable to determine at this time whether any year
2000 failures will harm us.
Our customers' purchasing plans could be affected by year 2000 issues if
they need to expend significant resources to fix their existing systems. This
situation may reduce funds available to purchase our products. Therefore, some
customers may wait to purchase our products until after the year 2000, which may
reduce our revenue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance."
ANY ACQUISITIONS THAT WE UNDERTAKE COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS, DILUTE STOCKHOLDER VALUE AND HARM OUR OPERATING RESULTS
We expect to review opportunities to buy other businesses or technologies
that would complement our current products, expand the breadth of our markets or
enhance our technical capabilities, or that may otherwise offer growth
opportunities. While we have no current agreements or negotiations underway, we
may buy businesses, products or technologies in the future. If we make any
future acquisitions, we could issue stock that would dilute existing
stockholders' percentage ownership, incur substantial debt or assume contingent
liabilities. Our experience in acquiring other business and technologies is
limited. Potential acquisitions also involve numerous risks, including:
- problems assimilating the purchased operations, technologies or products;
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- unanticipated costs associated with the acquisition;
- diversion of management's attention from our core business;
- adverse effects on existing business relationships with suppliers and
customers;
- risks associated with entering markets in which we have no or limited
prior experience; and
- potential loss of key employees of purchased organizations.
We cannot assure you that we would be successful in overcoming problems
encountered in connection with such acquisitions, and our inability to do so
could significantly harm our business.
OUR EXECUTIVE OFFICERS AND DIRECTORS AND ENTITIES AFFILIATED WITH THEM WILL
CONTINUE TO OWN A LARGE PERCENTAGE OF OUR VOTING STOCK AFTER THE OFFERING, WHICH
WILL ALLOW THEM TO CONTROL ALL MATTERS REQUIRING STOCKHOLDER APPROVAL
Upon completion of this offering, our executive officers, directors and 5%
or greater stockholders will beneficially own 33,503,887 shares or approximately
66.5% of the outstanding shares of common stock, or shares or %, assuming
the full exercise of the underwriters' over-allotment option. These
stockholders, acting together, would be able to control all matters requiring
approval by stockholders, including the election or removal of directors and the
approval of mergers or other business combination transactions. This
concentration of ownership could have the effect of delaying or preventing a
change in our control or otherwise discouraging a potential acquirer from
attempting to obtain control of us, which in turn could have an adverse effect
on the market price of our common stock or prevent our stockholders from
realizing a premium over the market price for their shares of common stock. See
"Principal and Selling Stockholders."
IF WE ARE UNABLE TO EXPAND OUR INTERNATIONAL OPERATIONS OR MANAGE THEM
EFFECTIVELY, OUR BUSINESS WOULD BE SIGNIFICANTLY HARMED
Historically, substantially all of our sales have been made to customers in
North America. To address expanding international markets, we have recently
established relationships with distributors in Japan, the United Kingdom and
Israel. The growth of our distribution channels outside of North America will be
subject to a number of risks and uncertainties, including:
- the difficulties and costs of obtaining regulatory approvals for our
products;
- unexpected changes in regulatory requirements;
- legal uncertainties regarding liability, tariffs and other trade barriers;
- inadequate protection of intellectual property in some countries;
- increased difficulty in collecting delinquent or unpaid accounts;
- potentially adverse tax consequences;
- adoption of different local standards; and
- potential political and economic instability.
Any of these factors could significantly harm our existing international
operations and business or significantly impair our ability to expand into
international markets.
Our international sales currently are U.S. dollar-denominated. As a result,
an increase in the value of the U.S. dollar relative to foreign currencies could
make our products less competitive in international markets. In the future, we
may elect to invoice some of our international customers in
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local currency. Doing so will subject us to fluctuations in exchange rates
between the U.S. dollar and the particular local currency.
DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE
OR PREVENT A POTENTIAL TAKEOVER, EVEN IF SUCH A TRANSACTION WOULD BE BENEFICIAL
TO OUR STOCKHOLDERS
Some provisions of our Certificate of Incorporation and Bylaws, as well as
provisions of Delaware law, may discourage, delay or prevent a merger or
acquisition that a stockholder may consider favorable. These provisions include:
- authorizing the board to issue additional preferred stock;
- prohibiting cumulative voting in the election of directors;
- limiting the persons who may call special meetings of stockholders;
- prohibiting stockholder actions by written consent;
- creating a classified Board of Directors pursuant to which our directors
are elected for staggered three-year terms; and
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
For a more detailed discussion of such anti-takeover provisions, see
"Description of Capital Stock."
OUR MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THIS
OFFERING AND MAY NOT OBTAIN A SIGNIFICANT RETURN ON THE USE OF THESE PROCEEDS
Net proceeds of this offering are not allocated for a specific purpose. Our
management will have broad discretion in determining how to spend the net
proceeds from this offering and may spend the proceeds in a manner that our
stockholders may not deem desirable. We cannot assure you that our investments
and use of the net proceeds of this offering will yield favorable returns or
results.
OUR HEADQUARTERS AND CONTRACT MANUFACTURERS ARE ALL LOCATED IN NORTHERN
CALIFORNIA WHERE NATURAL DISASTERS MAY OCCUR
Currently, our corporate headquarters and contract manufacturers are located
in Northern California. Northern California historically has been vulnerable to
natural disasters and other risks, such as earthquakes, fires and floods, which
at times have disrupted the local economy and posed physical risks to our and
our manufacturers' property. We presently do not have redundant, multiple site
capacity in the event of a natural disaster. In the event of such disaster, our
business would suffer.
SUBSTANTIAL NUMBERS OF SHARES OF OUR COMMON STOCK WILL BECOME AVAILABLE FOR SALE
IN THE PUBLIC MARKET SIMULTANEOUSLY, WHICH COULD CAUSE THE MARKET PRICE OF OUR
STOCK TO DECLINE
Sales of substantial amounts of our common stock in the public market
following this offering, or the appearance that a large number of shares is
available for sale, could cause the market price of our common stock to decline.
The number of shares of common stock available for sale in the public market
will be limited by lock-up agreements under which the holders of substantially
all of our outstanding shares of common stock and options and warrants to
purchase common stock will agree not to sell or otherwise dispose of any of
their shares for a period of 180 days after the date of this prospectus without
the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Upon the expiration of these lock-up agreements and assuming the full exercise
of all vested options to purchase common stock outstanding on October 15, 1999,
approximately 39,807,829 shares of common
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stock will become eligible for sale simultaneously. Moreover, Merrill Lynch may,
in its sole discretion and at any time without notice, release all or any
portion of the securities subject to lock-up agreements. In addition to the
adverse effect a price decline could have on holders of common stock, that
decline would likely impede our ability to raise capital through the issuance of
additional shares of common stock or other equity securities. See "Shares
Eligible for Future Sale" and "Underwriting."
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK
VALUE OF THE STOCK YOU PURCHASE
The initial public offering price of our common stock will be substantially
higher than the pro forma net tangible book value per share of the outstanding
common stock immediately after the offering. Therefore, based on an assumed
initial public offering price of $13.00 per share, if you purchase our common
stock in this offering you will suffer immediate dilution of approximately
$11.06 per share. If additional shares are sold by the underwriters following
exercise of their over-allotment option, or if outstanding options or warrants
for our common stock are exercised, there will be further dilution. See
"Dilution."
OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY BE UNABLE TO RESELL YOUR SHARES AT
OR ABOVE THE OFFERING PRICE
There previously has not been a public market for our common stock. We
cannot predict the extent to which investor interest in us will lead to the
development of a trading market or how liquid that market might become. The
initial public offering price for our common stock 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. For a
discussion of the factors to be considered in determining the initial public
offering price, see "Underwriting."
In addition, the stock market in general, and the Nasdaq National Market and
stocks of technology companies in particular, have experienced extreme price and
volume fluctuations. This volatility is often unrelated or disproportionate to
the operating performance of these companies. Broad market and industry factors
may adversely affect the market price of our common stock, regardless of our
actual operating performance. In the past, following periods of volatility in
the market price of a company's securities, securities class-action litigation
has often been initiated against these companies. This litigation, if initiated,
could result in substantial costs and a diversion of management's attention and
resources, which would significantly harm our business.
16
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. We use words like
"anticipates," "believes," "plans," "expects," "future," "intends" and similar
expressions to identify these forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us, including:
- uncertainty regarding the commercial acceptance of high-speed networking
and storage technologies;
- uncertainty regarding our future operating results;
- our ability to introduce new products;
- delays or losses of sales due to long sales and implementation cycles for
our products;
- the possibility of lower prices, reduced gross margins and loss of market
share due to increased competition; and
- increased demands on our resources due to anticipated growth.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information or future events.
17
<PAGE>
USE OF PROCEEDS
We estimate our net proceeds from the sale of the 7,700,000 shares of common
stock offered by Finisar in this offering to be approximately $91.9 million,
based on an assumed initial public offering price of $13.00 per share and after
deducting the estimated underwriting discount and offering expenses. We will not
receive any of the proceeds from any shares that may be sold by the selling
stockholders upon exercise of the underwriters' over-allotment option.
We intend to use the net proceeds of this offering:
- to repay outstanding indebtedness of approximately $11.0 million under our
bank credit facility;
- to redeem all outstanding shares of our redeemable preferred stock for
$2,640,260; and
- for general corporate purposes, including capital expenditures and working
capital.
We may also use a portion of the net proceeds to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. However, we have no current commitments or agreements with respect
to any of these types of acquisitions or investments. Pending these uses, we
intend to invest the net proceeds from this offering in short-term,
investment-grade, interest-bearing securities.
Borrowings under our credit facility bear interest at our election at the
time of borrowing at either the London Interbank Offering Rate or the bank's
prime rate. The interest rate on our credit facility was 7.38% per annum as of
September 30, 1999.
DIVIDEND POLICY
We have never paid cash dividends on our capital stock. We currently intend
to retain future earnings to finance the growth and development of our business,
and we do not anticipate paying any cash dividends in the foreseeable future. In
addition, the terms of our bank credit agreement currently prohibit the payment
of dividends on our capital stock.
18
<PAGE>
CAPITALIZATION
The following table sets forth our short-term debt and total capitalization
as of July 31, 1999:
- on an actual basis;
- on a pro forma basis, giving effect to the conversion of all outstanding
shares of convertible redeemable preferred stock into 8,981,897 shares of
common stock and 12,039,486 shares of redeemable preferred stock; and
- on a pro forma basis, as further adjusted to reflect the sale of 7,700,000
shares of common stock by Finisar in this offering, at an assumed initial
public offering price of $13.00 per share after deducting the estimated
underwriting discount and estimated offering expenses, and our receipt and
application of the net proceeds.
<TABLE>
<CAPTION>
JULY 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current portion of capital lease obligations.................................. $ 51 $ 51 $ 51
--------- ----------- -----------
--------- ----------- -----------
Long-term portion of note payable and capital lease obligations............... $ 11,019 $ 11,019 $ 4
Convertible redeemable preferred stock, no par value: 12,100,000 shares
authorized, 12,039,486 shares issued and outstanding, actual; 12,100,000
shares authorized, no shares issued or outstanding, pro forma; no shares
authorized, issued or outstanding, proforma as adjusted..................... 26,260 -- --
Redeemable preferred stock, no par value: 12,100,000 shares authorized, no
shares issued or outstanding, actual; 12,100,000 shares authorized,
12,039,486 issued and outstanding, pro forma; no shares authorized, issued
or outstanding, pro forma as adjusted....................................... -- 2,640 --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; no shares authorized, issued or
outstanding, actual and pro forma; 5,000,000 shares authorized, no
shares issued or outstanding, pro forma as adjusted..................... -- -- --
Common stock, no par value; 75,000,000 shares authorized, 32,512,365
shares issued and outstanding, actual; 75,000,000 shares authorized,
41,494,262 shares issued and outstanding, pro forma; Common Stock,
$0.001 par value; 200,000,000 shares authorized, 49,194,262 shares
issued and outstanding, pro forma as adjusted (1)....................... 4,073 27,692 119,585
Deferred stock compensation............................................... (1,373) (1,373) (1,373)
Notes receivable from stockholders........................................ (1,671) (1,671) (1,671)
Retained earnings (accumulated deficit) (2)............................... (20,979) (20,979) (20,979)
--------- ----------- -----------
Total stockholders' equity (deficit) (2)................................ $ (19,950) $ 3,669 $ 95,562
--------- ----------- -----------
--------- ----------- -----------
Total capitalization.................................................. $ 17,329 $ 17,328 $ 95,566
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------------
(1) Excludes:
- 1,356,540 shares of common stock issuable upon exercise of options
outstanding at July 31, 1999 under our 1989 and 1999 stock option plans,
with a weighted average exercise price of $0.50 per share, 1,470,000
shares of common stock issuable upon exercise of options granted
subsequent to July 31, 1999 with a weighted average exercise price of
$3.5347 per share, and an additional 5,065,000 shares reserved for
issuance under our 1999 stock option plan as of October 15, 1999; and
- 250,000 shares of common stock reserved for issuance under our 1999
employee stock purchase plan.
See "Management--Stock Plans," "Description of Capital Stock" and Note 6 to
our financial statements.
(2) Reflects retained earnings of $10.8 million prior to giving effect to the
repurchase of shares of our common stock for $31.7 million in November 1998.
19
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of July 31,
1999 was approximately $3.6 million, or $0.09 per share. Pro forma net tangible
book value per share represents the amount of our total assets, excluding net
intangible assets, less our total liabilities, divided by the total number of
shares of common stock outstanding, after giving effect to the conversion of all
outstanding shares of convertible redeemable preferred stock into an aggregate
of 8,981,897 shares of common stock and 12,039,486 shares of redeemable
preferred stock, and the redemption of all outstanding shares of redeemable
preferred stock. Dilution in pro forma net tangible book value per share
represents the difference between the amount per share paid by investors in this
offering and the pro forma net tangible book value per share of our common stock
immediately after the offering. After giving effect to the sale of the 7,700,000
shares of common stock by us in this offering, at an assumed initial public
offering price of $13.00 per share, and after deducting the estimated
underwriting discount and estimated offering expenses payable by us, the pro
forma net tangible book value of our common stock would have been $95.5 million,
or $1.94 per share. This represents an immediate increase in net tangible book
value of $1.85 per share to existing stockholders and an immediate dilution of
$11.06 per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $ 13.00
---------
Pro forma net tangible book value per share as of July 31,
1999........................................................ $ 0.09
Increase per share attributable to new investors.............. $ 1.85
---------
Pro forma net tangible book value per share after this
offering...................................................... $ 1.94
---------
Dilution per share to new investors............................. $ 11.06
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis, as of July 31, 1999:
- the number of shares of common stock purchased from us;
- the total consideration paid to us;
- the average price per share paid by existing stockholders; and
- the average price per share paid by new investors, before deducting the
estimated underwriting discount and offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................... 41,494,262 84.3% $ 26,799,005 21.1% $ 0.65
New investors................................... 7,700,000 15.7 100,100,000 78.9 13.00
------------- ----- -------------- -----
Total....................................... 49,194,262 100.0% $ 126,899,005 100.0%
------------- ----- -------------- -----
------------- ----- -------------- -----
</TABLE>
In the event that the underwriters exercise in full their over-allotment
option, sales by the selling stockholders in this offering will reduce the
number of shares of common stock held by existing stockholders to 40,339,262, or
approximately 82.0% of the total number of shares of common stock outstanding
after this offering, and will increase the number of shares held by new
investors to 8,855,000, or approximately 18.0% of the total number of shares of
common stock outstanding after this offering. See "Principal and Selling
Stockholders."
The information in the above table excludes 1,356,540 shares of common stock
issuable upon exercise of options outstanding at July 31, 1999 under our 1989
and 1999 stock option plans, with a weighted average exercise price of $0.50 per
share, and 1,470,000 shares of common stock issuable upon exercise of options
granted subsequent to July 31, 1999 with a weighted average exercise price of
$3.5347 per share as of October 15, 1999. To the extent these options are
exercised, there will be further dilution to the new investors. See
"Management--Stock Plans" and Note 6 to our financial statements.
20
<PAGE>
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes thereto included
elsewhere in this prospectus. The statement of operations data set forth below
for the years ended April 30, 1997, 1998 and 1999 and the balance sheet data as
of April 30, 1998 and 1999 are derived from, and are qualified by reference to,
our audited financial statements included elsewhere in this prospectus. The
balance sheet data as of April 30, 1997 are derived from audited financial
statements not included in this prospectus. The statement of operations data set
forth below for the years ended April 30, 1995 and 1996 and the balance sheet
data as of April 30, 1995 and 1996 are derived from unaudited financial
statements not included in this prospectus. The statement of operations data set
forth below for the three month periods ended July 31, 1998 and 1999 and the
balance sheet data as of July 31, 1999 are derived from, and are qualified by
reference to, our unaudited financial statements included elsewhere in this
prospectus. The unaudited financial statements include all normal recurring
adjustments that we consider necessary for a fair presentation of our financial
position and results of operations. The results of operations for the three
months ended July 31, 1999 are not necessarily indicative of the results that
may be expected for the full fiscal year ending April 30, 2000, or any other
future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED APRIL 30, JULY 31,
----------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 2,684 $ 5,660 $ 8,457 $ 22,067 $ 35,471 $ 6,794 $ 13,879
Cost of revenues................................ 862 3,122 3,438 8,705 15,514 2,666 6,252
--------- --------- --------- --------- --------- --------- ---------
Gross profit.................................... 1,822 2,538 5,019 13,362 19,957 4,128 7,627
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development...................... 745 1,442 2,536 3,806 7,864 1,394 2,840
Sales and marketing........................... 144 116 645 1,629 4,145 833 1,542
General and administrative.................... 279 280 464 833 2,299 298 759
Amortization of deferred compensation......... -- -- -- -- 395 -- 239
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.................... 1,168 1,838 3,645 6,268 14,703 2,525 5,380
--------- --------- --------- --------- --------- --------- ---------
Income from operations.......................... 654 700 1,374 7,094 5,254 1,603 2,247
Interest income (expense), net.................. 1 10 13 4 (275) (7) (90)
Other income (expense), net..................... -- -- -- (25) (28) 25 (28)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes...................... 655 710 1,387 7,073 4,951 1,621 2,129
Provision for income taxes...................... 222 247 440 2,715 1,874 568 829
--------- --------- --------- --------- --------- --------- ---------
Net income...................................... $ 433 $ 463 $ 947 $ 4,358 $ 3,077 $ 1,053 $ 1,300
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per share:
Basic......................................... $ 0.01 $ 0.01 $ 0.02 $ 0.10 $ 0.08 $ 0.03 $ 0.04
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Diluted....................................... $ 0.01 $ 0.01 $ 0.02 $ 0.10 $ 0.07 $ 0.03 $ 0.03
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in per share calculations:
Basic......................................... 44,000 44,000 44,000 43,753 36,860 41,800 29,464
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Diluted....................................... 44,000 44,000 44,000 43,753 44,938 41,800 42,610
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
----------------------------------------------------- JULY 31,
1995 1996 1997 1998 1999 1999
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 474 $ 772 $ 422 $ 722 $ 5,044 $ 5,404
Working capital................................. 757 856 1,685 5,729 13,011 14,007
Total assets.................................... 1,277 1,948 2,987 7,761 20,955 24,459
Long-term debt.................................. -- -- -- 416 11,032 11,019
Convertible redeemable preferred stock.......... -- -- -- -- 26,260 26,260
Total stockholders' equity (deficit)............ 678 1,141 2,088 6,447 (21,503) (19,950)
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ substantially from
those anticipated in these forward-looking statements as a result of many
factors, including those set forth under "Risk Factors" and elsewhere in this
prospectus. The following discussion should be read together with our financial
statements and related notes thereto included elsewhere in this prospectus.
OVERVIEW
We are a leading provider of fiber optic subsystems and network performance
test systems which enable high-speed data communications over local area
networks, or LANs, and storage area networks, or SANs. We are focused on
providing high-performance, reliable, value-added optical subsystems for
networking and storage equipment manufacturers that develop and market systems
based on Gigabit Ethernet and Fibre Channel protocols. Our line of optical
subsystems supports a wide range of network applications, transmission speeds,
distances and mediums. We also provide unique network performance test systems
which assist networking and storage equipment manufacturers in the design of
reliable, high-speed networking systems and the testing and monitoring of the
performance of these systems.
We were incorporated in 1987 and funded our initial product development
efforts largely through revenues derived under research and development
contracts. After shipping our first product in 1991, we continued to finance our
operations principally through internal cash flow and periodic bank borrowings
until November 1998. At that time we raised $5.6 million of net proceeds from
the sale of equity securities and bank borrowings to fund the continued growth
and development of our business.
Our revenues are derived principally from sales of our optical subsystems
and network performance test systems to networking and storage systems
manufacturers. Sales to our two largest customers accounted for 45.1% of our
revenues for the fiscal year ended April 30, 1999 and 53.5% of our revenues for
the three months ended July 31, 1999. Although we are attempting to expand our
customer base, we expect that significant customer concentration will continue
for the foreseeable future.
We sell our products through our direct sales force, with the support of our
manufacturers' representatives, directly to domestic customers and indirectly
through distribution channels to international customers. We recognize revenues
at the time of shipment. The evaluation and qualification cycle prior to the
initial sale for our optical subsystems may span a year or more, while the sales
cycle for our test systems is usually considerably shorter. Historically,
substantially all of our sales have been made to customers in North America. To
address expanding international markets, we have recently established
relationships with distributors in Japan, the United Kingdom and Israel.
The market for optical subsystems is characterized by declining average
selling prices resulting from factors such as increased competition, the
introduction of new products and increased unit volumes as manufacturers
continue to deploy network and storage systems. We anticipate that our average
selling prices will decrease in future periods, although the timing and amount
of these decreases cannot be predicted with any certainty.
Our cost of revenues consists of materials, salaries and related expenses
for manufacturing personnel, manufacturing overhead and warranty expense. We
outsource the majority of our assembly operations, and we conduct manufacturing
engineering, supply chain management, quality assurance and documentation
control at our facility in Sunnyvale, California. Accordingly, a significant
portion of our cost of revenues consists of payments to our contract
manufacturers. There can be no assurance
22
<PAGE>
that we will be able to reduce our cost of revenues to keep pace with
anticipated decreases in average selling prices.
Our gross profit margins vary among our product families, and our gross
margins are generally higher on our network performance test systems than on our
optical subsystems. We expect that our overall gross margins will fluctuate from
period to period as a result of shifts in product mix, anticipated decreases in
average selling prices and our ability to reduce product costs.
Research and development expenses consist primarily of salaries and related
expenses for design engineers and other technical personnel, the cost of
developing prototypes and fees paid to consultants. We charge all research and
development expenses to operations as incurred. We believe that continued
investment in research and development is critical to our long-term success.
Accordingly, we expect that our research and development expenses will increase
in future periods.
Sales and marketing expenses consist primarily of commissions paid to
manufacturers' representatives, salaries and related expenses for personnel
engaged in sales, marketing and field support activities and other costs
associated with the promotion of our products. We intend to pursue aggressive
selling and marketing campaigns and to expand our direct sales organization. We
therefore expect that our sales and marketing expenses will increase in future
periods.
General and administrative expenses consist primarily of salaries and
related expenses for administrative, finance and human resources personnel,
professional fees and other corporate expenses. We expect that, in support of
our continued growth and our operations as a public company, general and
administrative expenses will continue to increase for the foreseeable future.
General and administrative expenses are also likely to be affected in future
periods by significant legal fees and expenses incurred in connection with
pending patent litigation.
In connection with the grant of stock options to employees between August 1,
1998 and April 30, 1999, we recorded deferred stock compensation of $2.0 million
in fiscal 1999, representing the difference between the deemed value of our
common stock for accounting purposes and the option exercise price of these
options at the date of grant. Deferred compensation is presented as a reduction
of stockholder's equity, with accelerated amortization recorded over the vesting
period which is typically five years. We amortized $395,000 and $239,000 of
deferred compensation during fiscal 1999 and the three months ended July 31,
1999. In connection with stock options granted in August and September 1999, we
will record additional deferred compensation of $4.8 million in the three months
ending October 31, 1999. We expect to record amortization expense relating to
deferred stock compensation approximately as follows: $2.2 million during the
remainder of fiscal 2000, $1.9 million during fiscal 2001, $1.1 million during
fiscal 2002, $609,000 during fiscal 2003 and $336,000 thereafter. The amount of
deferred compensation expense to be recorded in future periods could decrease if
options for which accrued but unvested compensation has been recorded are
forfeited.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED APRIL 30, JULY 31,
------------------------------- --------------------
1997 1998 1999 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues..................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................................. 40.7 39.4 43.7 39.2 45.0
--------- --------- --------- --------- ---------
Gross profit................................................. 59.3 60.6 56.3 60.8 55.0
--------- --------- --------- --------- ---------
Operating expenses:
Research and development................................... 30.0 17.2 22.2 20.5 20.5
Sales and marketing........................................ 7.6 7.4 11.7 12.3 11.1
General and administrative................................. 5.5 3.8 6.5 4.4 5.5
Amortization of deferred compensation...................... -- -- 1.0 -- 1.7
--------- --------- --------- --------- ---------
Total operating expenses................................. 43.1 28.4 41.4 37.2 38.8
--------- --------- --------- --------- ---------
Income from operations....................................... 16.2 32.2 14.9 23.6 16.2
Interest income (expense), net............................... 0.2 0.0 (0.8) (0.1) (0.6)
Other income (expense), net.................................. -- (0.1) (0.1) 0.4 (0.2)
--------- --------- --------- --------- ---------
Income before income taxes................................... 16.4 32.1 14.0 23.9 15.4
Provision for income taxes................................... 5.2 12.3 5.3 8.4 6.0
--------- --------- --------- --------- ---------
Net income................................................... 11.2% 19.8% 8.7% 15.5% 9.4%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
COMPARISON OF THREE MONTHS ENDED JULY 31, 1999 AND JULY 31, 1998
REVENUES. Revenues increased 104% from $6.8 million for the three months
ended July 31, 1998 to $13.9 million for the three months ended July 31, 1999.
This increase was primarily due to increased unit sales of our optical
subsystems and, to a lesser extent, increased unit sales of our network
performance test systems. Sales of optical subsystems and test systems accounted
for 68.3% and 31.7%, respectively, of revenues for the three months ended July
31, 1999, compared to 54.0% and 46.0%, respectively, for the three months ended
July 31, 1998. Sales to Newbridge Networks and EMC Corporation accounted for
34.9% and 19.0%, respectively, of revenues for the three months ended July 31,
1999, compared to 14.9% and 32.0%, respectively, for the three months ended July
31, 1998.
GROSS PROFIT. Gross profit increased from $4.1 million for the three months
ended July 31, 1998 to $7.6 million for the three months ended July 31, 1999. As
a percentage of revenues, gross profit decreased from 60.8% for the three months
ended July 31, 1998 to 55.0% for the three months ended July 31, 1999. This
decrease in gross profit margin was primarily related to a shift in product mix,
with a greater proportion of revenues being generated by sales of optical
subsystems, compared to sales of network performance test systems.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 104% from $1.4 million for the three months ended July 31, 1998 to
$2.8 million for the three months ended July 31, 1999. This increase was
primarily related to an increase in the number of research and development
personnel and increased expenditures for materials purchased for development
projects currently in process. Despite this increase, research and development
expenses remained constant as a percentage of revenues at 20.5% in the three
months ended July 31, 1998 and 1999.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 85%
from $833,000 for the three months ended July 31, 1998 to $1.5 million for the
three months ended July 31, 1999. This
24
<PAGE>
increase was primarily related to an increase in commissions paid to
manufacturers' representatives associated with the increase in revenues and an
increase in the number of sales and marketing personnel. Sales and marketing
expenses declined as a percentage of revenues from 12.3% in the three months
ended July 31, 1998 to 11.1% in the three months ended July 31, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 155% from $298,000 for the three months ended July 31, 1998 to
$759,000 for the three months ended July 31, 1999. This increase was primarily
the result of increased legal expenses, most of which were incurred in
connection with pending patent litigation, increased expenses for other
professional services, and an increase in the number of general and
administrative personnel. General and administrative expenses increased as a
percentage of revenues from 4.4% in the three months ended July 31, 1998 to 5.5%
in the three months ended July 31, 1999.
INTEREST INCOME (EXPENSE), NET. Interest income (expense), net decreased
from an expense of $7,000 for the three months ended July 31, 1998 to an expense
of $90,000 for the three months ended July 31, 1999. The increase in interest
expense reflected additional interest associated with a term loan of $11.0
million beginning in November 1998.
PROVISION FOR INCOME TAXES. The provision for income taxes increased from
$568,000 for the three months ended July 31, 1998 based on an effective rate of
35.0% to $829,000 for the three months ended July 31, 1999 based on a projected
annual effective tax rate of 35.0%, excluding the impact of deferred stock
compensation charges of 3.9%. The projected 1999 annual effective tax rate
differs from the statutory rate primarily due to state taxes offset by research
and development credits and projected benefits from a foreign sales corporation.
See Note 7 to our financial statements.
COMPARISON OF FISCAL YEARS ENDED APRIL 30, 1997, 1998 AND 1999
REVENUES. Revenues increased from $8.5 million in fiscal 1997 to $22.1
million in fiscal 1998 and $35.5 million in fiscal 1999. The 161% increase from
fiscal 1997 to fiscal 1998 reflected increased unit sales across both of our
product lines, with sales of optical subsystems and network performance test
systems representing 75.8% and 24.2% of revenues, respectively, in fiscal 1998,
compared to 71.9% and 28.1% in fiscal 1997. The 61% increase from fiscal 1998 to
fiscal 1999 was primarily due to increased unit sales of test systems which
accounted for 40.1% of revenues in fiscal 1999, while optical subsystems
accounted for 59.9%. Sales to our two principal customers during fiscal 1997,
1998 and 1999 were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
SALES (IN MILLIONS)
------------------------------- -------------------------------
1997 1998 1999 1997 1998 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Newbridge Networks................................ $ 3.5 $ 9.7 $ 8.9 41.4% 43.9% 25.1%
EMC............................................... $ 0.1 $ 3.2 $ 7.4 1.2% 14.6% 20.8%
</TABLE>
GROSS PROFIT. Gross profit increased from $5.0 million in fiscal 1997 to
$13.4 million in fiscal 1998 and $20.0 million in fiscal 1999. With product mix
remaining relatively unchanged between fiscal 1997 and 1998, our gross profit
margin remained relatively constant at 59.3% in fiscal 1997 and 60.6% in fiscal
1998. Our gross profit margin decreased to 56.3% in fiscal 1999 reflecting
startup costs associated with the introduction of new optical subsystem products
and lower average selling prices for some optical subsystems which more than
offset the shift in product mix toward a greater percentage of higher-margin
test system sales.
25
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased from $2.5 million in fiscal 1997 to $3.8 million in fiscal 1998 and
$7.9 million in fiscal 1999. The 50% increase from fiscal 1997 to fiscal 1998
was primarily due to an increase in the number of research and development
personnel. The 107% increase from fiscal 1998 to fiscal 1999 was primarily
related to an increase in the number of research and development personnel and
increased expenditures related to prototype development. Research and
development expenses declined as a percentage of revenues from 30.0% in fiscal
1997 to 17.2% in fiscal 1998 reflecting the 161% increase in revenues, but
increased to 22.2% in fiscal 1999.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from
$645,000 in fiscal 1997 to $1.6 million in fiscal 1998 and $4.1 million in
fiscal 1999. The 153% increase from fiscal 1997 to fiscal 1998 and the 154%
increase from fiscal 1998 to fiscal 1999 were each primarily due to increases in
commissions paid to manufacturers' representatives as a result of increased
sales and increases in the number of direct sales and marketing personnel. Sales
and marketing expenses as a percentage of revenues remained relatively unchanged
at 7.6% in fiscal 1997 compared to 7.4% in fiscal 1998, but increased to 11.7%
in fiscal 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $464,000 in fiscal 1997 to $833,000 in fiscal 1998 and $2.3
million in fiscal 1999. The 80% increase in fiscal 1998 was primarily related to
an increase in the number of administrative personnel. The 176% increase in
fiscal 1999 was primarily related to an expense of $397,000 in connection with
the relocation of our primary operations from Mountain View, California to our
new facility in Sunnyvale, California as well as increased expenditures for
legal and other professional services. General and administrative expenses
declined as a percentage of revenues from 5.5% in fiscal 1997 to 3.8% in fiscal
1998 and increased to 6.5% in fiscal 1999.
INTEREST INCOME (EXPENSE), NET. Interest income (expense), net remained
relatively unchanged from fiscal 1997 to fiscal 1998. In fiscal 1999, interest
expense of $275,000 reflected borrowings under our $11.0 million term loan
beginning in November 1998.
PROVISION FOR INCOME TAXES. The provision for income taxes increased from
$440,000 in fiscal 1997 to $2.7 million in fiscal 1998 and decreased to $1.9
million in fiscal 1999. The provision for income taxes is based on annual
effective tax rates of 31.7%, 38.4% and 35.0%, excluding the impact of deferred
stock compensation charges of 2.8%. The annual effective tax rates differ from
the statutory rate primarily due to state taxes, offset by research and
development tax credits. See Note 7 to our financial statements.
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QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly statement of operations
data for the five quarters ended July 31, 1999, and such data expressed as a
percentage of revenues. This information reflects all normal non-recurring
adjustments that we consider necessary for a fair presentation of such
information in accordance with generally accepted accounting principles. The
results for any quarter are not necessarily indicative of results that may be
expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31,
1998 1998 1999 1999 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................................... $ 6,794 $ 7,402 $ 8,985 $ 12,290 $ 13,879
Cost of revenues............................................. 2,666 3,058 4,171 5,619 6,252
--------- --------- --------- --------- ---------
Gross profit................................................. 4,128 4,344 4,814 6,671 7,627
--------- --------- --------- --------- ---------
Operating expenses:
Research and development................................... 1,394 1,764 1,890 2,816 2,840
Sales and marketing........................................ 833 871 1,160 1,281 1,542
General and administrative................................. 298 421 484 1,096 759
Amortization of deferred compensation...................... -- 99 120 176 239
--------- --------- --------- --------- ---------
Total operating expenses................................. 2,525 3,155 3,654 5,369 5,380
--------- --------- --------- --------- ---------
Income from operations....................................... 1,603 1,189 1,160 1,302 2,247
Interest income (expense), net............................... (7) 17 (141) (144) (90)
Other income (expense), net.................................. 25 -- (21) (32) (28)
--------- --------- --------- --------- ---------
Income before income taxes................................... 1,621 1,206 998 1,126 2,129
Provision for income taxes................................... 568 458 384 464 829
--------- --------- --------- --------- ---------
Net income................................................... $ 1,053 $ 748 $ 614 $ 662 $ 1,300
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
AS A PERCENTAGE OF REVENUES:
Revenues..................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................................. 39.2 41.3 46.4 45.7 45.0
--------- --------- --------- --------- ---------
Gross profit................................................. 60.8 58.7 53.6 54.3 55.0
--------- --------- --------- --------- ---------
Operating expenses:
Research and development................................... 20.5 23.8 21.1 22.9 20.5
Sales and marketing........................................ 12.3 11.8 12.9 10.4 11.1
General and administrative................................. 4.4 5.7 5.4 8.9 5.5
Amortization of deferred compensation...................... -- 1.3 1.3 1.4 1.7
--------- --------- --------- --------- ---------
Total operating expenses................................. 37.2 42.6 40.7 43.6 38.8
--------- --------- --------- --------- ---------
Income from operations....................................... 23.6 16.1 12.9 10.7 16.2
Interest income (expense), net............................... (0.1) 0.2 (1.6) (1.2) (0.6)
Other income (expense), net.................................. 0.4 -- (0.2) (0.3) (0.2)
--------- --------- --------- --------- ---------
Income before income taxes................................... 23.9 16.3 11.1 9.2 15.4
Provision for income taxes................................... 8.4 6.2 4.3 3.8 6.0
--------- --------- --------- --------- ---------
Net income................................................... 15.5% 10.1% 6.8% 5.4% 9.4%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Revenues increased steadily over the last five quarters as a result of
increased unit sales to an expanding customer base. The 37% increase in revenues
for the three months ended April 30, 1999 was primarily due to substantial
increases in shipments to several of our major customers and the introduction of
a new optical subsystem product.
Gross profit margins fluctuated over the five-quarter period, principally as
a result of a shift in product mix toward a greater percentage of lower margin
optical subsystem products and a lower percentage of higher margin test systems.
Gross margins were also negatively impacted in the second
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half of fiscal 1999 by start-up costs associated with the introduction of new
optical subsystem products and lower average selling prices for some optical
subsystems.
Quarterly increases in operating expenses reflected the continued expansion
of our operations throughout the five-quarter period. An expense of $397,000 in
connection with the relocation of our primary operations to our new facility was
included in general and administrative expenses for the fourth quarter ended
April 30, 1999. Net interest expense increased significantly beginning in the
three months ended January 31, 1999 as a result of the $11.0 million term loan
in November 1998.
We may experience a delay in generating or recognizing revenues for a number
of reasons. Orders at the beginning of each quarter typically do not equal
expected revenues for that quarter and are generally cancelable at any time.
Accordingly, we depend on obtaining orders in a quarter for shipment in that
quarter to achieve our revenue objectives. In addition, the timing of product
releases, purchase orders and product availability could result in significant
product shipments at the end of a quarter. Failure to ship these products by the
end of a quarter may adversely affect our operating results. Furthermore, our
customer agreements typically provide that the customer may delay scheduled
delivery dates and cancel orders within specified time frames without
significant penalty.
Most of our expenses, such as employee compensation and lease payments for
facilities and equipment are relatively fixed in the near term. In addition, our
expense levels are based in part on our expectations regarding future revenues.
As a result, any shortfall in revenues relative to our expectations could cause
significant changes in our operating results from quarter to quarter. Our
quarterly and annual operating results have fluctuated in the past and are
likely to fluctuate significantly in the future due to a variety of factors,
some of which are outside of our control. Due to the foregoing factors, you
should not rely on our quarterly revenues and operating results to predict our
future performance.
LIQUIDITY AND CAPITAL RESOURCES
From our inception through November 1998, we financed our operations
primarily through internal cash flow and periodic bank borrowings. In November
1998, we raised $5.6 million of net proceeds from the sale of preferred stock
and bank borrowings to fund the continued growth and development of our
business.
As of July 31, our principal sources of liquidity were $5.4 million in cash
and cash equivalents, and $6.5 million available under a revolving loan
facility. Borrowings under the facility are collateralized by substantially all
of our assets and bear interest at our election at the time of borrowing at
either the London Interbank Offering Rate or the bank's prime rate. The interest
rate on our facility was 7.04% as of July 31, 1999.
Net cash provided by operating activities was $742,000 in fiscal 1998, $1.1
million in fiscal 1999 and $913,000 in the three months ended July 31, 1999.
Cash provided by operations for these periods was primarily due to continued
growth in revenues and net income offset in part by an increase in related
assets and liabilities for working capital purposes.
Net cash used in investing activities was $855,000 in fiscal 1998, $2.1
million in fiscal 1999 and $550,000 in the three months ended July 31, 1999. Net
cash used in investing activities consisted primarily of purchases of equipment.
Net cash provided by financing activities was $413,000 in fiscal 1998 and
$5.4 million in fiscal 1999, and $2,000 was used in the three months ended July
31, 1999. Net cash provided by financing activity in fiscal 1999 primarily
consisted of net proceeds of $26.3 million from the sale of preferred stock and
$11.0 million in bank borrowings under a term loan, offset by $31.7 million used
to repurchase shares of our outstanding common stock.
We had no material commitments for capital expenditures at July 31, 1999,
but we expect such expenditures to total approximately $5.0 million in fiscal
2000. These expenditures will primarily be for equipment, furniture and
leasehold improvements. We also have total minimum lease obligations of
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$8.7 million from July 31, 1999 through April 30, 2007, under non-cancelable
operating and capital leases.
We believe that our existing balances of cash and cash equivalents, together
with the net proceeds of this offering, our available credit facilities and cash
flow expected to be generated from our future operations, will be sufficient to
meet our cash needs for working capital and capital expenditures for at least
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 extent to
which we utilize subcontractors, the timing and extent of spending to support
product development efforts and the expansion of our sales and marketing
efforts. There can be no assurance that additional equity or debt financing, if
required, will be available on terms that are acceptable or at all.
IMPACT OF YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two-digit entries in date code fields. Beginning in the year 2000,
these date code fields will need to accept four-digit entries to distinguish
21st century dates from 20th century dates. Computer programs or hardware that
have date-sensitive software or embedded chips and have not been upgraded to
comply with these "year 2000" requirements may recognize a date using "00" as
the year 1900 rather that the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
GENERAL READINESS ASSESSMENT. The year 2000 problem can affect the
computers, software and other equipment that we use in our operations. As a
result, we have instituted a year 2000 compliance plan, implemented by a team of
our internal information technology staff responsible for monitoring the
assessment and remediation of our year 2000 projects and reporting that status
to our executive staff. This project team is continuing to assess the potential
effect and costs of remediating the year 2000 problem for our internal systems.
To date, we have not obtained verification or validation from any independent
third parties of our processes to assess and correct any of our year 2000
problems or the costs associated with these activities.
ASSESSMENT OF FINISAR'S PRODUCTS. We have assessed the ability of our
products to operate properly in the year 2000. We believe that our current
products are year 2000 compliant. Accordingly, we do not believe that the year
2000 issue presents a material exposure as it relates to our products.
ASSESSMENT OF INTERNAL INFRASTRUCTURE. We believe that we have identified
most of the major computers, software applications and related equipment used in
connection with our internal operations that need to be evaluated to determine
if they must be modified, upgraded or replaced to minimize the possibility of a
material disruption to our business. Based on a review of these computer
systems, we have determined that, except for a limited number of computers that
run under the Microsoft Windows95 operating system, our computer systems and
applications are compliant with the year 2000 format. We expect to remediate any
remaining year 2000 problems prior to December 31, 1999.
SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, telephone switches, security systems and other common devices, may
be affected by the year 2000 problem. We have assessed the potential effect of
the year 2000 problem on our office and facilities equipment and have determined
that no problems exist that cannot be remediated by the replacement of
relatively inexpensive equipment.
COSTS OF REMEDIATION. We estimate the total cost to us of completing any
required modifications, upgrades or replacements of our internal systems will
not exceed $100,000, most of which we expect to incur during calendar year 1999.
Based on the activities described above, we do not believe that the year 2000
problem will have a material adverse effect on our business or operating
results.
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<PAGE>
SUPPLIERS. As part of our review of the year 2000 problem, we have
contacted third-party suppliers of components and key contractors used in the
assembly of our products to identify and, to the extent possible, resolve issues
involving the year 2000 problem. However, we have limited or no control over the
actions of these third-party suppliers and subcontractors. Thus, while we expect
that we will be able to resolve any significant year 2000 problems with these
third parties, there can be no assurance that these suppliers will resolve any
or all year 2000 problems before the occurrence of a material disruption to the
operation of our business. Any failure on the part of these third parties to
timely resolve year 2000 problems with their systems in a timely manner could
have a material adverse effect on our business. We expect to complete this
process before December 31, 1999.
MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS. We expect to identify and
resolve all year 2000 problems that could materially adversely affect our
business operations before December 31, 1999. However, we believe that it is not
possible to determine with complete certainty that all year 2000 problems
affecting us have been identified or corrected. The number of devices and
systems that could be affected and the interactions among these devices and
systems are too numerous to address. In addition, no one can accurately predict
whether failures will occur as a result of the year 2000 problem or the
severity, timing, duration or financial consequences of these potential
failures. As a result, we believe that the following consequences are possible:
- a significant number of operational inconveniences and inefficiencies for
us, our contract manufacturers and our customers that will divert
management's time and attention and financial and human resources from
ordinary business activities;
- possible business disputes and claims, including claims under product
warranty, due to year 2000 problems experienced by our customers and
incorrectly attributed to our products, which we believe will be resolved
in the ordinary course of business; and
- a few serious business disputes alleging that we failed to comply with the
terms of contracts or industry standards of performance, some of which
could result in litigation or contract termination.
CONTINGENCY PLANS. While we have not yet fully developed a comprehensive
contingency plan to address situations that may result if we are is unable to
achieve year 2000 readiness of our critical operations, such a plan is likely to
include the accelerated replacement of affected equipment or software which
could have a material adverse impact on our financial results and operations.
DISCLAIMER. The discussion of our efforts and expectations relating to year
2000 compliance are forward-looking statements. Our ability to achieve year 2000
compliance, and the level of incremental costs associated therewith, could be
adversely affected by, among other things, the availability and cost of contract
personnel and external resources, third-party suppliers' ability to modify
proprietary software and unanticipated problems not identified in the ongoing
compliance review.
30
<PAGE>
BUSINESS
We are a leading provider of fiber optic subsystems and network performance
test systems which enable high-speed data communications over local area
networks, or LANs, and storage area networks, or SANs. We are focused on
providing high-performance, reliable, value-added optical subsystems, which
convert electrical signals into optical signals, for networking and storage
equipment manufacturers that develop and market systems based on Gigabit
Ethernet and Fibre Channel, which are advanced transmission protocols used in
LAN and SAN applications. Our line of optical subsystems supports a wide range
of network applications, transmission speeds, distances and mediums. We also
provide unique network performance test systems which assist networking and
storage equipment manufacturers in the efficient design of reliable, high-speed
networking systems and the testing and monitoring of the performance of these
systems. We sell our products to leading networking and storage equipment
manufacturers such as 3Com, EMC, Emulex, IBM, Newbridge Networks and Sun
Microsystems, as well as emerging manufacturers such as Brocade Communications
and Extreme Networks. For the fiscal year ended April 30, 1999, we had revenues
of $35.5 million and net income of $3.1 million. For the quarter ended July 31,
1999, we had revenues of $13.9 million and net income of $1.3 million.
INDUSTRY BACKGROUND
The ubiquity of computing by businesses, organizations and individuals
worldwide and the need to interconnect multiple computing and storage devices to
enable widespread communications has given rise to the multi-billion dollar
computer networking and storage industries. There has been a rapid growth in the
number of corporate and residential users accessing communications networks.
This growth has resulted in large-scale equipment expenditures by enterprises
and service providers to develop and expand their network and storage
infrastructures. Networking and storage equipment expenditures are also
accelerating due to the need to upgrade equipment to reliably accommodate data
traffic which requires greater transmission capacity, or bandwidth, such as
e-commerce and online transaction processing-related traffic, multimedia file
transfers and movement of large blocks of stored data across networks. The
transmission and storage of data has become increasingly mission-critical as
enterprises increasingly rely on data-intensive applications to support a wider
range of functions over a geographically dispersed employee and customer base.
The continuing expansion of the network infrastructure, the growing number of
users accessing networks, the need to accommodate higher bandwidth, and the
increasingly mission-critical nature of data networking and storage networking
have created the need for a new generation of high-speed, high-performance
networking and storage systems that rely on fiber optic transmission technology.
EVOLUTION OF NETWORKS, NETWORKING SYSTEMS AND NETWORKING PROTOCOLS
GIGABIT ETHERNET AND LOCAL AREA NETWORKS. Early LANs were implemented to
connect a limited number of users within relatively close proximity. Most of
these LANs used the Ethernet transmission protocol which was developed to allow
users to access the LAN and share basic common services such as file servers and
printers. Because these early LANs had relatively limited performance
requirements, short connection distances and low transmission speeds, systems on
these LANs were generally connected by copper cabling.
As deployment of LANs increased, Ethernet became the predominant LAN
technology, with a greater than 95% market share in 1998 in terms of port
shipments according to the Dell'Oro Group. As bandwidth needs and server
processing power increased and larger numbers of users strained the early LAN
infrastructure, Ethernet technology evolved from the original 10 megabits per
second, or Mbps, version to 100 Mbps Fast Ethernet. In response to continually
increasing bandwidth and performance requirements, Gigabit Ethernet technology,
which operates at 1,000 Mbps, was introduced in 1998. Dataquest estimates that
sales of Gigabit Ethernet switches will increase from $364 million in 1998 to
over $3.7 billion in 2002, representing a compound annual growth rate of 79%.
These switches
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contain varying numbers of ports which serve as the connection to the network.
According to Dataquest, the number of Gigabit Ethernet port shipments is
projected to grow from 211,000 in 1998 to over 6 million in 2002, representing a
compound annual growth rate of 130%. Most of these Gigabit Ethernet ports will
rely on fiber optic subsystems, which allow data to be transmitted accurately,
at very high speeds and over long distances. Although the transmission speeds
currently offered by Gigabit Ethernet are expected to meet the increasing
bandwidth needs of enterprise and service provider networks for the near future,
manufacturers have begun to develop networking systems with per-port
transmission speeds of 10 gigabits per second, or Gbps, ten times faster than
Gigabit Ethernet. Because of the scalability and migration capacity built into
the Gigabit Ethernet protocol, manufacturers developing these systems are able
to leverage this standard much as they did when they migrated from 100 Mbps Fast
Ethernet to 1,000 Mbps Gigabit Ethernet. This next generation of high-speed
networking systems will require even higher performance fiber optic subsystems.
FIBRE CHANNEL AND STORAGE AREA NETWORKS. Like data networking technology,
data storage technology has evolved rapidly over the past decade. Traditionally,
storage devices were connected to a single server and LAN in close proximity
using a standard interface protocol known as the Small Computer Systems
Interface, or SCSI. SCSI currently allows storage devices and servers to
communicate at a maximum speed of 80 megabytes per second, over a maximum
transmission distance of 12 meters and supports a maximum of 15 devices on a
single bus. Although these distances and speeds were sufficient for early
storage applications, SCSI has become a limiting technology for emerging storage
applications, which require networking at high speeds over long distances and
need to interconnect large numbers of users.
In recent years, demand has increased for faster, more efficient
interconnection of data storage systems with servers and LANs. Contributing to
this demand are:
- the need to connect increasing numbers of storage devices and servers to a
growing number of users;
- the need to interconnect servers and storage systems supplied by multiple
vendors;
- the increasingly mission-critical nature of stored data and the need for
rapid access to this data; and
- the expense and complexity associated with managing increasingly large
amounts of data storage.
Although advances in technology, including the recent development of Gigabit
Ethernet, increased LAN transmission speeds by more than 1,000 times during the
1990s, storage-to-server data transmission speeds on SCSI-based systems
increased by less than ten times during this period. This speed disparity
created a bottleneck between storage systems and servers and the LANs connected
to those servers. Recently, the Fibre Channel interconnect protocol has been
standardized to address the speed, distance and connectivity limitations of
SCSI-based storage while maintaining backward compatibility with the installed
base of SCSI-based storage systems. Fibre Channel allows up to 126 devices to
communicate at rates up to 1.062 Gbps over distances of up to 10 kilometers. The
Fibre Channel protocol has enabled the development of high-speed storage area
networks, or SANs, which provide the interconnection between storage systems and
servers.
Fibre Channel-based SANs provide many benefits, including transmission
speeds comparable to high-speed LANs and transmission distances which allow
broader sharing of resources. SANs also enable enhanced network applications
such as storage backup, and better overall storage management achievable through
centralized storage resources. IDC projects that the market for Fibre Channel
systems will grow from $2.2 billion in 1998 to over $19.6 billion in 2002,
representing a compound annual growth rate of 73%. In addition, emf Associates
forecasts the number of Fibre Channel port shipments will grow from 2.2 million
in 1998 to over 46.7 million in 2002, representing a compound annual growth rate
of 115%. Most of these ports will rely on fiber optic subsystems to transmit and
receive data at very high speeds with high accuracy, and often over long
distances. Like manufacturers
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of Gigabit Ethernet-based LAN systems, Fibre Channel-based SAN system
manufacturers are already developing the next generation of SAN products with
speeds of 2.125 Gbps, twice as fast as current Fibre Channel speeds. Like
Gigabit Ethernet, the Fibre Channel protocol is scalable, allowing for the
potential development of systems with speeds of over 8 Gbps. The speeds
contemplated by future generation SAN systems will require even higher
performance fiber optics subsystems.
In addition to SANs, Fibre Channel technology is being used in other
high-speed data communications applications including the interconnection of
clusters of switches based on the asynchronous transfer mode, or ATM, protocol.
ATM switches are often used in service provider network cores to switch traffic
between multiple networks. In these core networks, multiple switches are often
grouped together in a service provider's central office. The interconnections
between these systems are often provided by Fibre Channel-based subsystems which
allow high-speed, cost-effective communication links between these switches.
EXTENDED LANS AND SANS. As technologies such as Gigabit Ethernet and Fibre
Channel have enabled transmission of data at higher speeds over longer distances
than previous networking technologies permitted, they have allowed the
geographic extension of LANs and SANs over installed but unused fiber optic
cable, known as "dark" fiber lines. Enterprises have recently begun to lease
dark fiber from service providers to implement these extended networks. These
extended LANs and SANs can interconnect network systems throughout a corporate
campus or metropolitan area rather than only within a single building. Extended
networks enable organizations to use their networks for enhanced applications
such as real-time backup storage at distances of up to 120 kilometers for
disaster protection. In addition, by using dark fiber lines, extended data
networks can offer organizations a potentially cost-effective way to address
increased bandwidth requirements. We believe that future extended networks will
incorporate both Fibre Channel and Gigabit Ethernet transmission protocols. As
with shorter-distance LANs and SANs, these extended networks will require
high-performance fiber optic subsystems.
DEMAND FOR HIGH-SPEED DATA COMMUNICATION TEST SYSTEMS
The design and development of data and storage networking systems require
extensive testing to ensure system performance and reliability. As new, highly
complex transmission protocols such as Gigabit Ethernet and Fibre Channel have
emerged, system testing has become more difficult, requiring increasingly
sophisticated and specialized test systems capable of capturing data at high
speeds, filtering the data and identifying various types of intermittent errors
and other network problems. Other new technologies are continually being
developed, such as the System Input/Output, or SIO, transmission protocol, which
is being engineered to interconnect clusters of computer devices. In the past,
many systems manufacturers designed their own test equipment each time they
developed a new product. However, as the pace of technological change has
accelerated, the performance requirements of data communications systems have
increased and competition has afforded shorter market windows within which
manufacturers can develop and introduce new products. Thus, system manufacturers
have increasingly focused on the design and development of their own products
and turned to specialized independent suppliers for state-of-the-art test
equipment. As Ethernet and Fibre Channel-based systems reach even higher
transmission speeds and new standards like SIO emerge, the internal development
of test equipment by systems manufacturers will become more challenging, further
increasing the demand for high performance, easy-to-use test systems from
independent suppliers.
EVOLUTION OF FIBER OPTIC SUBSYSTEMS FOR NETWORKING
Fiber optic transmission technology was originally developed for use in long
distance telecommunications networks to increase capacity and speed. In
contrast, early LANs and storage systems, with their relatively limited
performance requirements, short connection distances and low transmission
speeds, did not require the performance capabilities of fiber optics. Systems on
these networks were generally interconnected using copper cabling.
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As the bandwidth, storage capacity and transmission distance requirements of
enterprises and service providers have increased, it has become necessary to
utilize the superior transmission capabilities of fiber optics to build
practical, high-speed LANs based on Gigabit Ethernet technology and high-speed
SANs based on Fibre Channel. As these fiber optic LANs and SANs are being
deployed, fiber optics is becoming the dominant transmission technology for
high-speed data networking and storage applications. Systems connected with
fiber optics require optical subsystems to convert electrical signals into
optical signals and back into electrical signals at high speeds.
The development and manufacture of high quality, cost-effective fiber optic
subsystems for LANs and SANs present a number of significant technical
challenges, including the following:
- As data rates increase, it becomes significantly more difficult to
maintain data integrity because high speed signals can be degraded unless
subsystem components such as lasers, detectors and integrated circuits are
properly integrated and packaged;
- The increasingly mission-critical nature of data transmission and storage
has magnified the impact of system failures, increasing the need for
system reliability and the importance of real-time performance monitoring;
- Manufacturers of high speed networking equipment require optical
subsystems that support a wide range of transmission distances, protocols
and applications; and
- Compliance with standards set by the Federal Communications Commission, or
FCC, for electromagnetic interference emissions, or EMI, is significantly
more difficult to achieve at higher data rates.
To date, we believe that only a limited number of companies have developed
the specialized expertise required to engineer fiber optic subsystems and test
systems which meet the requirements of manufacturers of high-speed data
networking and storage systems.
THE FINISAR SOLUTION
We are a leading provider of fiber optic subsystems and network performance
test systems which enable high-speed data communications over LANs and SANs. We
are focused on providing high-performance, reliable, value-added optical
subsystems for networking and storage equipment manufacturers that develop and
market systems based on Gigabit Ethernet and Fibre Channel protocols. Our line
of optical subsystems supports a wide range of network applications,
transmission speeds, distances and mediums. We also provide unique network
performance test systems which assist networking and storage equipment
manufacturers in the efficient design of reliable, high-speed networking systems
and the testing and monitoring of the performance of these systems. Our products
provide the following key benefits to manufacturers of high-speed data
networking and storage systems:
VALUE-ADDED FUNCTIONS AND INTELLIGENCE. Our high-speed fiber optic
subsystems are engineered to deliver value-added functionality and intelligence.
For example, many of our optical subsystems include a microprocessor containing
specially-developed software that allows customers to monitor the optical
performance of each port on their systems in real time. In addition, many of our
subsystems are engineered to automatically recognize different versions of the
Fibre Channel protocol and to interoperate with our customers' older, installed
networking systems, often referred to as legacy systems. Real-time monitoring
and interoperability are particularly important in the Gigabit Ethernet LAN and
Fibre Channel SAN markets where reliability and time to market are critical. Our
test systems also contain value-added software functions that permit users to
simulate and track errors.
HIGH LEVEL OF DATA INTEGRITY. Through the use of advanced packaging and
circuit design, our optical subsystems deliver data at very high speeds over
varying distances with very low error rates. We engineer our subsystems to
exceed the industry standard error rate of 1 bit per trillion bits transmitted.
This degree of data integrity allows our subsystems to operate reliably over a
wide range of
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temperatures and other field conditions which we believe enables our customers
to design and deliver more robust systems.
HIGH RELIABILITY. We design all of our subsystems to provide the high
reliability required for data networking and storage applications that are
critical to an enterprise. Using standard statistical methodology and testing,
we have been able to predict that some of our products can be expected to
operate reliably for up to 40 million hours. Our subsystems are engineered to
operate with minimal power requirements thereby increasing product life, and to
function across a wide range of temperatures and voltages. This reliability and
flexibility have allowed our subsystems to be designed into the products of
manufacturers who provide systems for a variety of mission-critical
applications. In addition, because our subsystems emit lower levels of EMI than
the standards set by the FCC standards, we offer manufacturers greater
flexibility in the design of their systems and integration of other components
and subsystems.
BROAD OPTICAL SUBSYSTEM PRODUCT LINE. We offer a broad line of optical
subsystems which operate at varying protocols, speeds, fiber types, voltages,
wavelengths and distances and are available in a variety of industry standard
packaging configurations, or form factors. Our optical subsystems are designed
to comply with key networking protocols such as Fibre Channel and Gigabit
Ethernet and to plug directly into standard port configurations used in our
customers' products. The breadth of our optical subsystems product line is
important to many of our customers who manufacture a wide range of networking
products for diverse applications.
BROAD TEST SYSTEM PRODUCT LINE. We believe that we are a leading provider
of network performance test systems for Fiber Channel-based networks. We offer a
broad line of test systems to assist our customers in efficiently designing
reliable, high-speed networking systems and testing and monitoring the
performance of these systems. We believe our test systems enable our customers
to focus their attention on the development of new products, reduce overall
development costs and speed time to market.
STRATEGY
Our objective is to be the leading provider of fiber optic subsystems and
test systems to manufacturers of high-speed data networking and storage systems.
Key elements of our strategy include the following:
MAINTAIN TECHNOLOGY LEADERSHIP IN HIGH-SPEED FIBER OPTIC TRANSMISSION. We
have been focused on the development of fiber optic subsystems since 1988.
Current Finisar employees were actively involved in the original development of
the Fibre Channel standard and, more recently, in the development and
implementation of Gigabit Ethernet and the emerging SIO protocol. Our years of
engineering experience, our multi-disciplinary technical expertise and our
participation in the development of industry standards have enabled us to become
a leader in the design and development of fiber optic subsystems and test
systems. We intend to maintain our technological leadership through continual
enhancement of our existing products and the development of new products as
evolving technology permits higher speed transmission of data, with greater
capacity, over longer distances. For example, we are designing flexible hardware
and software architectures to support emerging technologies such as 10 Gbps
Ethernet, 2 Gbps Fibre Channel, wavelength division multiplexing, or WDM, and
the SIO protocol. We also intend to focus on increased product integration to
enhance the price/performance capabilities of our products.
LEVERAGE CORE COMPETENCIES ACROSS MULTIPLE, HIGH-GROWTH MARKETS. We believe
that fiber optic technology will increasingly become the transmission technology
of choice for multiple high-growth data communication markets, including Gigabit
Ethernet-based LANs, Fibre Channel-based SANs and extended LANs and SANs. These
markets are characterized by differentiated applications with unique design
criteria such as product function, performance, cost, in-system monitoring, size
limitations and
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software. We intend to target opportunities where our core competencies in
high-speed data transmission protocols such as Gigabit Ethernet, Fibre Channel
and SIO can be leveraged into leadership positions as these technologies are
extended across multiple markets and applications. Our goal is to be the optical
subsystem and network performance test system provider of choice for multiple
protocols and network applications.
STRENGTHEN AND EXPAND CUSTOMER RELATIONSHIPS. Over the past 11 years, we
have established valuable relationships and a loyal base of customers by
providing high-quality products and superior service. Our service-oriented
approach has allowed us to work closely with leading data and storage network
system manufacturers, understand and address their current needs and anticipate
their future requirements. We intend to leverage our relationships with our
existing customers as they enter new, high-speed data communications markets. We
have recently established new customer relationships with several emerging
Gigabit Ethernet and Fibre Channel networking equipment manufacturers. We intend
to expand our sales and marketing organization in order to establish new
relationships with other key data communications network manufacturers.
CAPITALIZE ON CROSS-SELLING OPPORTUNITIES. Many manufacturers of high-speed
data networking and storage systems purchase both optical subsystems and test
systems from third-party providers. Frequently, however, different groups or
departments within a manufacturer's organization are responsible for qualifying
and purchasing subsystems and test equipment. We are increasingly able to
capitalize on our customers' satisfaction with one of our product lines and our
service-oriented approach to gain valuable introductions that lead to sales of
our other product line. As this trend develops, we intend to leverage our unique
expertise in both optical subsystems and test systems. In particular, the
widespread acceptance of our Fibre Channel test systems is providing
opportunities to develop new customers for our optical subsystems.
EXPAND INTERNATIONAL OPERATIONS. Historically, substantially all of our
sales have been made to system manufacturers located in North America. In the
fiscal year ended April 30, 1999, sales to customers outside North America
represented less than 3% of our total revenues. Recently, manufacturers in other
parts of the world have developed and introduced high-speed networking products
based on the Gigabit Ethernet and Fibre Channel protocols and international
markets for our products are beginning to expand. To better address these
expanding international markets, we have recently established relationships with
distributors in Japan, the United Kingdom and Israel. We intend to further
extend our international operations by expanding our network of distributors and
sales representatives in key international markets. As international Fibre
Channel and Gigabit Ethernet standards are substantially the same as those in
North America, we do not expect that we will require substantial product
development efforts to enter international markets.
PRODUCTS
We provide a broad line of complementary optical subsystems and test systems
for high-speed data communications over Gigabit Ethernet LANs and Fibre Channel
SANs.
OPTICAL SUBSYSTEMS
Our optical subsystems product line consists of three product
families--optical data links, optical link extenders and Opticity 3000. Our
optical data links are integrated into our customers' systems and used for both
short- and long-distance fiber optic communications. Our optical link extenders
are external subsystems used for fiber optic communications over long distances.
Our Opticity 3000 is an external link extender subsystem which also includes
multiplexer functionality that permits multi-channel data transmission over long
distances.
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OPTICAL DATA LINKS
Our family of optical data link products consists of transmitters, receivers
and transceivers based on the Gigabit Ethernet and Fibre Channel protocols. A
transmitter converts electrical signals into optical signals for transmission
over fiber optics. A receiver converts incoming optical signals into electric
signals. A transceiver combines both transmitter and receiver functions. Our
optical data link products perform these functions with high reliability and
data integrity and support a wide range of protocols, transmission speeds, fiber
types, wavelengths, transmission distances, form factors and software
enhancements. As illustrated below, an optical data link is plugged into a port
on a switch, hub, server or storage array and provides the physical connection
from that system to the LAN, SAN or extended network.
[Diagram of optical data link using Finisar Corporation products.]
Our high-speed fiber optic subsystems are engineered to deliver value-added
functionality and intelligence. Most of our optical data link products include a
microprocessor with proprietary embedded software that allows customers to
monitor transmitted and received optical power, temperature, drive current and
other link parameters of each port on their systems in real time. In addition,
our intelligent optical data links are used by many enterprise networking and
storage system manufacturers to enhance the ability of their systems to diagnose
and correct abnormalities in fiber optic networks.
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The following table describes our principal optical data link products:
<TABLE>
<CAPTION>
TRANSMISSION TRANSMISSION FORM SOFTWARE
PROTOCOLS SPEED (GBPS) FIBER TYPES WAVELENGTHS(NM) DISTANCES FACTORS ENHANCEMENTS
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
TRANSMITTERS
Fibre Channel 1.062 Multimode 850 500 m 17-pin Built-in
diagnostics
Gigabit Ethernet 1.25 Singlemode 1310 10 km
1550 30 km
80 km
- ------------------------------------------------------------------------------------------------------------------
RECEIVERS
Fibre Channel 1.062 Multimode 850 500 m 17-pin Reports on received
optical power
levels
Gigabit Ethernet 1.25 Singlemode 1310 10 km
1550 30 km
80 km
- ------------------------------------------------------------------------------------------------------------------
TRANSCEIVERS
Fibre Channel 1.062 Multimode 850 500 m 28-pin Built-in
diagnostics
Gigabit Ethernet 1.25 Singlemode 1310 10 km 9-pin OFC auto-sense
1550 30 km GBIC Serial
identification
80 km RJ-45
</TABLE>
OPTICAL LINK EXTENDERS
Our FLX-2000 family of optical link extenders allows enterprises to extend
the distance of fiber optic links in Gigabit Ethernet and Fibre Channel-based
networks while preserving data integrity and reliability. Using our optical link
extenders, Gigabit Ethernet networks can be extended from the maximum standard
distance of 5 kilometers to up to 120 kilometers, and Fibre Channel networks can
be extended from the maximum standard distance of 10 kilometers to up to 120
kilometers. Our optical link extenders enable new network applications such as
remote storage and real-time backup, as well as geographic extensions of a
network. In addition, our optical link extenders provide a value-added
diagnostic function by measuring the bit error rate on data links and monitoring
and reporting system status.
OPTICITY 3000
Introduced in September 1999, our Opticity 3000 combines link extender and
basic, cost-effective wavelength division multiplexing functions that allow
enterprises and service providers to extend the distance of transmission and
increase the amount of data transmitted over fiber optic data links. The
Opticity 3000 is able to multiplex up to eight channels of Fibre Channel or
Gigabit Ethernet traffic on a single fiber pair, providing aggregate full-duplex
bandwidth of up to 10 Gbps. The Opticity 3000 can be remotely managed using
standard network management protocols such as the Simple Network Management
Protocol. Opticity 3000 also has features such as redundant power supply
designed to maximize reliability and uptime in case of failures.
NETWORK PERFORMANCE TEST SYSTEMS
Our GT and GLA family of network performance test systems assist networking
and storage system manufacturers in the efficient design of reliable, high-speed
networking systems and the testing and monitoring of the performance of these
systems. We believe we are the leading supplier of test equipment for the Fibre
Channel protocol used in enterprise SANs. We also offer Gigabit Ethernet test
systems. Our test systems allow engineers, service technicians and network
managers to capture data at
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high speeds, filter the data and identify various types of intermittent errors
and other network problems.
We recently contracted with Intel Corporation to provide test systems which
support the emerging NGIO protocol. NGIO is a peripheral component interconnect,
or PCI, bus replacement technology for use in all platforms from the desktop to
clustered enterprise level systems. We recently introduced a new family of test
systems for use in the development and commercialization of products based on
NGIO technology and we delivered our first NGIO test system, a data analyzer, in
September 1999. More recently, Intel has combined its NGIO development effort
with the efforts of IBM and others who had been supporting a competing
specification called Future IO. The combined effort has been re-designated
System Input/Output, or SIO. We expect to support the emerging SIO standard as a
leading supplier of test equipment for products based on this new standard.
Our GT and GLA family of test system products includes data generators, data
analyzers, error injector/data jammers and low-cost, real-time link monitors.
The following table describes our GT and GLA family of products:
<TABLE>
<CAPTION>
INTRODUCTION PROTOCOL TRANSMISSION
PRODUCT DESCRIPTION DATE SUPPORTED SPEED APPLICATION CONFIGURATION
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
GIGABIT LINK ANALYZERS
GLA-2100 5/94 Fibre Channel 1.062 Gbps Physical Layer PC-Hosted
Testing
GLA-3100ES 10/96 ESCON 200 Mbps R&D Service PC-Hosted
GLA-3100FC 1/97 Fibre Channel 1.062 Gbps R&D Service PC-Hosted
- ---------------------------------------------------------------------------------------------------------------
GT FIBRE CHANNEL GIGABIT TRAFFIC SYSTEM
GT-A 1/98 Fibre Channel 1.062 Gbps R&D Portable, Desk
Protocol and Top, High
Performance Analysis Perf. Tower
Card Set
GT-G 1/98 Fibre Channel 1.062 Gbps Inter-operability Portable, Desk
Data Generator Card Top, High
Perf. Tower
GT-J 2/99 Fibre Channel 1.062 Gbps Error Recovery Portable, Desk
Error Injector Module Top, High
Perf. Tower
- ---------------------------------------------------------------------------------------------------------------
GT FIBRE CHANNEL GIGABIT TRAFFIC JAMMER
Full Duplex 2/99 Fibre Channel 1.062 Gbps Error Recovery Portable, Desk
Error Injector System Top, High
Perf. Tower
- ---------------------------------------------------------------------------------------------------------------
GT GIGABIT TRAFFIC CHECK
GT-C-FC 5/98 Fibre Channel 1.062 Gbps Field Service Hand Held
Link Monitor
GT-C-GE 5/98 Gigabit 1.25 Gbps Field Service Hand Held
Link Monitor Ethernet
</TABLE>
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<PAGE>
CUSTOMERS
The following table is a list of our customers who have purchased more than
$75,000 of our products during the 12-month period ended July 31, 1999:
<TABLE>
<S> <C> <C>
3Com Corporation Essential Communications Mitsui & Co. Ltd.
Alcatel Extreme Networks, Inc. Mylex Corporation
Amdahl Corporation Fermi National Accelerator Lab Network Appliance, Inc.
Atl Products, Incorporated. Fibre Technologies Ltd. Newbridge Networks Corporation
Boeing Corporation Fujitsu Computer Products Qlogic Corporation
Brocade Communications Systems, Inc. Gadzoox Networks, Inc. Quantum Corporation
Bull Electronics GCH Test & Computer Services Ltd. Raytheon Corporation
Comdisco, Incorporated Hewlett-Packard Corporation Seagate Technology Inc.
Compaq Computer Corporation Hitachi Sequent Computer Systems, Inc.
ConvergeNet Technologies Inc. Hy-Line Computer Components Storage Networks Inc.
Crossroads Systems, Incorporated International Business Machines Storagetek, Inc.
Corp.
Data General Corporation Inrange Technologies Corp. Sun Microsystems Inc.
Dell Computers Corporation Intel Corporation The Shure Group
Digital Equipment Corporation Jaycor Networks Inc. Thomas & Betts Corporation
Dolch Computer Systems Lockheed Martin Corporation Vixel Corporation
EG&G Incorporated LSI Logic Corporation VME Microsystems International
EMC Corporation McData Corporation W J Hughes Research Center
Emulex Corporation McDonnell Douglas Corporation Western Digital Corporation
</TABLE>
Sales to our two principal customers, Newbridge Networks and EMC
Corporation, accounted for 43.9% and 14.6% of our revenues in fiscal 1998, 25.1%
and 20.8% in fiscal 1999 and 34.9% and 19.0% in the three months ended July 31,
1999.
CUSTOMER CASE STUDIES
The following are representative examples of how our customers have used our
products:
STORAGE ARRAY MANUFACTURER. A manufacturer of storage arrays required a
Fibre Channel optical subsystem for a new, high-performance storage array. The
manufacturer specified high reliability and the ability to tolerate relatively
large variances in system temperature and voltage. We supplied a unique Fibre
Channel transceiver that operates over ranges of -10 DEG.C to +85 DEG.C and
5Vplus or minus10%, compared to industry standard ranges of 0 DEG.C to 50 DEG.C
and 5Vplus or minus5%. In addition, the diagnostic and communications
microprocessor incorporated into our transceiver allows the manufacturer's
storage arrays to automatically monitor their optical network connections and
set alarms when abnormal conditions are detected. We currently are the sole
source supplier of Fibre Channel optical transceivers used in the manufacturer's
storage arrays.
The same manufacturer was faced with the challenge of demonstrating to its
customers that its storage systems could reliably recover from error conditions
and move data over a Fibre Channel link between the customer's storage array and
computer systems. Errors in computer storage networks are typically random and
difficult to reproduce and track to their source. Because of the relationship we
had built supplying transceivers, the manufacturer contacted us about its
problem. We supplied our GT-J Error Injector Module, which the manufacturer used
to inject errors into its network systems in a controlled and repeatable manner.
This test system also allowed the manufacturer to capture detailed information
about each injected error and the behavior of the storage system as it attempted
to detect the error and correct the problem. With this information, the
manufacturer was able to modify its storage system software to ensure that
errors were automatically recognized and corrected, increasing the reliability
of its storage systems and satisfying its customers. Because of the successful
application of this test system, the manufacturer subsequently began using other
Finisar test systems in multiple levels of its product verification, from
low-level software and hardware testing to systems integration.
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<PAGE>
TELECOMMUNICATIONS SWITCH MANUFACTURER. A telecommunications switch
manufacturer required high-speed links to connect clusters of switches within
its customers' central offices. The customer desired the high level of
reliability of a core telecommunications system, delivered over mulitmode
optical fiber. We developed unique transmitter and receiver subsystems
incorporating a long-wavelength, telecommunications-grade laser to accommodate
the customer's specification. These subsystems have operated reliably for an
aggregate of more than a billion operating hours over a two and one-half year
period. Recently, the customer also began using our singlemode optical
subsystems to connect switch frames over longer distances between multiple
offices. The customer ships its switches throughout the world, and we are
currently the single source supplier of optical subsystems for these
inter-switch links.
GIGABIT ETHERNET SWITCH MANUFACTURER. A Gigabit Ethernet switch
manufacturer required optical transceivers that could operate at a wider
temperature range (-10 DEG.C to +85 DEG.C) with lower electromagnetic
interference emissions than other available products. After six months of
testing, the customer qualified our GBIC optical transceivers, initially for use
in its newest switch product and, more recently in all its switch platforms
which support the GBIC form factor. The customer has designated Finisar as its
single source supplier for GBIC optical transceivers. As a result of the
performance of our GBIC transceivers, the customer has qualified other Finisar
optical subsystems for use in some of its other high-speed switches.
MERCHANT BANK. A merchant bank required long distance storage backup for
trading floor applications on servers at two sites located in the same city but
beyond the standard distance supported by the Fibre Channel protocol. These
applications contain critical data on equity trades and currency conversion
rates that require real-time backup. The customer selected our Fibre Channel
link extenders to allow the two sites to be connected over two different routes
of leased single-mode fiber cable. One route is 14 kilometers in length, and the
other is 37 kilometers. The two routes use different ducts installed in
different parts of the city. Each server has access to local and remote data
storage systems. The network is configured so that all points in the network are
linked to all other points, allowing all disks to be mirrored in real-time and
for a data path in operation to remain operational in the event of a major
outage. This configuration provides disaster protection in case either fiber
cable is damaged.
TECHNOLOGY
The development of high quality fiber optic subsystems and test systems for
high-speed data communications requires multidisciplinary expertise in the
following six technology areas:
HIGH FREQUENCY SEMICONDUCTOR DESIGN. Our fiber optic subsystems development
efforts are supported by an engineering team that specializes in analog/digital
integrated circuit design. This group works in both silicon and gallium
arsenide, or GaAs, semiconductor technologies where circuit element frequencies
are very fast and can be as high as 60 GHz. We have designed proprietary
circuits including laser drivers and receiver pre- and post-amplifiers. Our
designs allowed us to be early entrants in the 1.0 Gbps data communications
market and more recently in the 2.5 Gbps data communications market. These
advanced semiconductor devices provide significant cost advantages and will be
critical in the development of future products capable of even faster data
rates.
OPTICAL SUBSYSTEM DESIGN. Finisar has established itself as a low-cost
design leader beginning with its initial Gbps optical subsystems in 1992. From
that base we have developed new singlemode laser alignment approaches and
low-cost, all-metal packaging techniques for improved EMI performance and
environmental tolerance. We develop our own component and packaging and designs
and integrate these designs with proprietary manufacturing processes that allow
our products to be manufactured in high volume.
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<PAGE>
COMPLEX LOGIC DESIGN. Our test equipment designs are based on field
programmable gate arrays, or FPGAs. In recent customer trials, our newest
products are being used to operate with clock frequencies of up to 125 MHz and
logic densities up to 1 million gates per chip. Our test systems use FPGAs that
are programmed by the host PC and therefore can be configured differently for
different tests. All of our logic design is done in the VHDL hardware
description language which will enable migration to ASICs as volumes warrant. We
develop VHDL code in a modular fashion for reuse in logic design which comprises
a critical portion of our intellectual property. This re-usable technology base
of logic design is available for use in both our test system and optical
subsystem product lines and allows us to reduce the time to market for our new
and enhanced products.
SOFTWARE TECHNOLOGY. We devote substantial engineering resources to the
development of software technology for use in all of our product lines. We have
developed software to control our test systems, analyze data collected by our
test systems, and monitor, maintain, test and calibrate our optical subsystems.
A majority of our software technology and expertise is focused on the use of
object-oriented development techniques to develop software subsystems that can
be reused across multiple product lines. We have created substantial
intellectual property in the area of data analysis software for our Fibre
Channel test equipment. This technology allows us to rapidly sort, filter and
analyze large amounts of data using a proprietary database format. This database
format is both hardware platform-independent and protocol-independent. This
independence allows all of the software tools developed for our existing test
products to be utilized in all of our new test products that collect data
traces. Because the database format is also protocol-independent, new protocols
can be added quickly and easily. Another important component of our intellectual
property is our graphical user interface, or GUI, design. Many years of customer
experience with our test products have enabled us to define a simple yet
effective method to display complex protocols in clear and concise GUIs for
intuitive use by engineers.
SYSTEM DESIGN. The design of all of our products requires a combination of
sophisticated technical competencies--optical engineering, high-speed digital
and analog design, ASIC design and software engineering. We have built an
organization of people with skills in all of these areas. It is the integration
of these technical competencies that enables us to produce products that meet
the needs of our customers. Our combination of these technical competencies has
enabled us to design and manufacturer optical subsystems with built-in optical
test multiplexing, and network monitoring, as well as test systems that
integrate optical and protocol testing with user interface software.
MANUFACTURING SYSTEM DESIGN. The design skills gained in our test systems
group are also used in the manufacturing of our optical subsystems. We utilize
our high-speed FPGA design blocks and concepts and GUI software elements to
provide specialized manufacturing test systems for our internal use. These test
systems are optimized for test capacity and broad test coverage. We use
automated, software-controlled testing to enhance the field reliability of all
Finisar products. All of our products are subjected to temperature testing of
powered systems as well as full functional tests.
COMPETITION
The market for optical subsystems and network performance test systems for
use in LANs, SANs and extended networks are highly competitive. We believe the
principal competitive factors in the optical subsystem and test system markets
are:
- product performance, features, functionality and reliability;
- price/performance characteristics;
- timeliness of new product introductions;
- adoption of emerging industry standards;
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<PAGE>
- service and support;
- size and scope of distribution network;
- brand name;
- access to customers; and
- size of installed customer base.
We believe we compete favorably with our competitors with respect to most of
the foregoing factors. However, we cannot assure you that we will be able to
compete successfully against either current or future competitors.
SALES, MARKETING AND TECHNICAL SUPPORT
We sell our products in North America through our direct sales force and a
network of independent manufacturers' representatives. Our direct sales
force maintains close contact with our customers and provides technical support
to our manufacturers' representatives. In our international markets, our direct
sales force works with local resellers who assist us in providing support and
maintenance to the territories they cover. We have recently established
relationships with distributors in Japan, the United Kingdom and Israel.
Both our optical subsystems and our network performance test systems are
often sold to the same customer. We are increasingly able to capitalize on our
customers' satisfaction with one of our product lines and our service-oriented
approach to gain valuable introductions that can lead to sales of our other
product line. We anticipate that we will continue to benefit from these trends
in the future.
Our marketing efforts are focused on increasing awareness of our optical
subsystems and test systems product lines and our brand name. Key components of
our marketing efforts include:
- continuing our active participation in industry associations and standards
committees to promote and further enhance Gigabit Ethernet and Fibre
Channel technologies, promote standardization in the LAN and SAN markets,
and increase our visibility as industry experts; and
- leveraging major trade show events and LAN and SAN conferences to promote
our broad product lines.
In addition, our marketing group provides marketing support services for our
executive staff, our direct sales force and our manufacturers' representatives
and resellers. Through our marketing activities, we provide technical and
strategic sales support to our direct sales personnel and resellers including
in-depth product presentations, technical manuals, sales tools, pricing,
marketing communications, marketing research, trademark administration and other
support functions.
A high level of continuing service and support is critical to our objective
of developing long-term customer relationships. We emphasize customer service
and technical support in order to provide our customers and their end users with
the knowledge and resources necessary to successfully utilize our product line.
Our customer service utilizes a technical team of field and factory applications
engineers, technical marketing personnel and, when required, product design
engineers. We provide extensive customer support throughout the qualification
and sale process. In addition, we also provide many resources through our World
Wide Web site, including product documentation and technical information. We
intend to continue to provide our customers with comprehensive product support
and believe it is critical to remaining competitive.
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MANUFACTURING
We outsource the majority of our assembly operations, and we conduct
manufacturing engineering, supply chain management, quality assurance and
documentation control operations at our facility in Sunnyvale, California. This
approach enables us to focus on our design strengths, reduce fixed costs and
capital expenditures and provide flexibility in meeting market demand.
We currently rely on three U.S.-based contract manufacturers for
substantially all of our assembly operations. We do not have long-term contracts
with any of our contract manufacturers, and none of them are obligated to
perform assembly services for us for any specific period or at any specified
price, except as may be provided in a particular purchase order. We are
currently considering the use of contract manufacturers in Asia for a portion of
our assembly requirements.
We design and develop a number of the key components of our products,
including ASICs, printed circuit boards and software. In addition, our
manufacturing team works closely with our engineers to manage the supply chain.
Product testing and burn-in are performed at our facility. We also use
inspection, testing and statistical process controls to assure the quality and
reliability of our products. In addition, most of our optical subsystems have an
intelligent interface that allows us to monitor product quality during the
manufacturing process.
Although we use standard parts and components for our products where
possible, we currently purchase a few key components used in the manufacture of
our products from single or limited sources. Our principal single source
components include ASICs and lasers. Generally, purchase commitments with our
single or limited source suppliers are on a purchase order basis. Any
interruption or delay in the supply of any of these components, or the inability
to procure these components from alternate sources at acceptable prices and
within a reasonable time, would substantially harm our business. In addition,
qualifying additional suppliers can be time-consuming and expensive and may
increase the likelihood of errors.
We use a rolling twelve-month forecast based on anticipated product orders
to determine our material requirements. Lead times for materials and components
we order vary significantly, and depend on factors such as the specific
supplier, contract terms and demand for a component at a given time. It is our
practice to maintain a 12-month inventory of sole source components to decrease
the risk of a component shortage.
RESEARCH AND DEVELOPMENT
In fiscal 1998 and fiscal 1999, our research and development expenses were
$3.8 million and $7.9 million, respectively. We believe that our future success
depends on our ability to continue to enhance our existing products and to
develop new products that maintain technological competitiveness. We focus our
product development activities on addressing the evolving needs of our customers
within the LAN, SAN and extended network markets. We work closely with our
original equipment manufacturers and system integrators to monitor changes in
the marketplace. We design our products around current industry standards and
will continue to support emerging standards that are consistent with our product
strategy. Our research and development groups are aligned with our different
product lines and we have specific groups devoted to ASIC design and test,
gigabit per second subsystem design, test equipment hardware and software
design. In addition, our research and development also includes manufacturing
engineer efforts whereby we examine each product for its manufacturability,
predicted reliability, expected lifetime and manufacturing costs.
We are currently undertaking development efforts for our product lines with
emphasis on increasing reliability, integrity and performance, as well as
value-added functions. Some examples of products that we are working on are 10
Gbps Ethernet and 2.125 Gbps Fibre Channel optical subsystems. We also intend to
focus on increased product integration to enhance the price/performance
capabilities of our products. We believe that our research and development
efforts are key to our
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<PAGE>
ability to maintain technical competitiveness and to deliver innovative products
that address the needs of the market. However, there can be no assurance that
our product development efforts will result in commercially successful products,
or that our products will not be rendered obsolete by changing technology or new
product announcements by other companies.
INTELLECTUAL PROPERTY
Our success and ability to compete is dependent in part on our proprietary
technology. We rely on a combination of patent, copyright, trademark and trade
secret laws, as well as confidentiality agreements and licensing arrangements,
to establish and protect our proprietary rights. To date, we have relied
primarily on proprietary processes and know-how to protect our intellectual
property. Although we have filed for several patents, some of which have issued,
we cannot assure you that any patents will issue as a result of pending patent
applications or that our issued patents will be upheld. Any infringement of our
proprietary rights could result in significant litigation costs, and any failure
to adequately protect our proprietary rights could result in our competitors
offering similar products, potentially resulting in loss of a competitive
advantage and decreased revenues. Despite our efforts to protect our proprietary
rights, existing patent, copyright, trademark and trade secret laws afford only
limited protection. In addition, the laws of some foreign countries do not
protect our proprietary rights to the same extent as do the laws of the United
States. Attempts may be made to copy or reverse engineer aspects of our products
or to obtain and use information that we regard as proprietary. Accordingly, we
may not be able to prevent misappropriation of our technology or deter others
from developing similar technology. Furthermore, policing the unauthorized use
of our products is difficult. Litigation may be necessary in the future to
enforce our intellectual property rights or to determine the validity and scope
of the proprietary rights of others. This litigation could result in substantial
costs and diversion of resources and could significantly harm our business.
The networking industry is characterized by the existence of a large number
of patents and frequent litigation based on allegations of patent infringement.
From time to time, third parties may assert patent, copyright, trademark and
other intellectual property rights to technologies and in various jurisdictions
that are important to our business. Any claims asserting that our products
infringe or may infringe proprietary rights of third parties, if determined
adversely to us, could significantly harm our business. Any claims, with or
without merit, could be time-consuming, result in costly litigation, divert the
efforts of our technical and management personnel, cause product shipment delays
or require us to enter into royalty or licensing agreements, any of which could
significantly harm our business. Royalty or licensing agreements, if required,
may not be available on terms acceptable to us, if at all. In addition, our
agreements with our customers typically require us to indemnify our customers
from any expense or liability resulting from claimed infringement of third party
intellectual property rights. In the event a claim against us was successful and
we could not obtain a license to the relevant technology on acceptable terms or
license a substitute technology or redesign our products to avoid infringement,
our business would be significantly harmed.
PENDING LITIGATION
In April 1999, Methode Electronics, a manufacturer of electronic component
devices, filed a lawsuit against us and another manufacturer, Hewlett-Packard
Co., in the United States District Court for the Northern District of Illinois
alleging that our optoelectronic products infringe four patents held by Methode.
The lawsuit seeks monetary damages and injunctive relief. In August 1999, the
Court granted a motion to transfer the case to the United States District Court
for the Northern District of California. It is our position that the Methode
patents are invalid, unenforceable and/or not infringed by our products. We
believe that we have strong defenses against Methode's lawsuit, and we intend to
defend the suit vigorously. However, the litigation is in the preliminary stage,
and we cannot predict its outcome. The litigation process is inherently
uncertain. Patent litigation is particularly complex and can extend for a
protracted time, which can substantially increase the cost of such litigation.
In connection
45
<PAGE>
with the Methode litigation, we have incurred, and expect to continue to incur,
substantial legal fees and expenses. The Methode litigation has also diverted,
and is expected to continue to divert, the efforts and attention of some of our
key management and technical personnel. As a result, our defense of this
litigation, regardless of its eventual outcome, has been, and will likely
continue to be, costly and time consuming. Should the outcome of the litigation
be adverse to us, we could be required to pay significant monetary damages to
Methode and could be enjoined from selling those of our products found to
infringe Methode's patents unless and until we are able to negotiate a license
from Methode. In the event we obtain a license from Methode, we would likely be
required to make royalty payments with respect to sales of our products covered
by the license. Any such payments would increase our cost of revenues and reduce
our gross profit. If we are required to pay significant monetary damages, are
enjoined from selling any of our products or are required to make royalty
payments pursuant to any such license agreement, our business would be
significantly harmed.
FACILITIES
Our facility is located in Sunnyvale, California. We lease approximately
50,000 square feet for our corporate headquarters which includes research and
development, sales and marketing, general and administrative and manufacturing
operations. This lease expires in July 2006. We believe our current facilities
will be adequate to meet our needs for the foreseeable future. In addition, we
have an option to lease approximately 25,000 additional square feet at the same
location to accommodate our future space requirements. We may exercise this
option upon the expiration of a third-party lease with a maximum term of three
years.
In addition, we continue to lease our prior facility in Mountain View,
California under a lease expiring in May 2002. We intend to continue subleasing
this 20,000 square foot facility through the expiration of the lease term.
EMPLOYEES
As of September 30, 1999, we employed a total of 186 full-time employees. We
also from time to time employ part-time employees and hire contractors. Our
employees are not represented by any collective bargaining agreement, and we
have never experienced a work stoppage. We believe that our employee relations
are good.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, and their ages as of September 30,
1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Jerry S. Rawls............................... 55 President, Chief Executive Officer and Director
Frank H. Levinson............................ 46 Chairman of the Board and Chief Technical Officer
Mark J. Farley............................... 37 Vice President, Digital Systems Engineering
Jan Lipson................................... 48 Vice President, Optical Engineering
Stephen K. Workman........................... 48 Vice President, Finance, Chief Financial Officer
and Secretary
Michael C. Child............................. 44 Director
Roger C. Ferguson............................ 56 Director
</TABLE>
JERRY S. RAWLS has served as a member of our Board of Directors since March
1989, as our President since April 1989 and as our Chief Executive Officer since
August 1999. From September 1968 to February 1989, Mr. Rawls was employed by
Raychem Corporation, a materials science and engineering company, where he held
various management positions including Division General Manager of the Aerospace
Products Division and Interconnection Systems Division. Mr. Rawls holds a B.S.
in Mechanical Engineering from Texas Tech University and an M.S. in Industrial
Administration from Purdue University.
FRANK H. LEVINSON founded Finisar in April 1987 and has served as a member
of our Board of Directors since February 1988 and as our Chairman of the Board
and Chief Technical Officer since August 1999. Mr. Levinson also served as our
Chief Executive Officer from February 1988 to August 1999. From September 1980
to December 1983, Mr. Levinson was a Member of Technical Staff at AT&T Bell
Laboratories. From January 1984 to July 1984, he was a Member of Technical Staff
at Bellcore, a provider of services and products to the communications industry.
From April 1985 to December 1985, Mr. Levinson was the principal optical
scientist at Raychem Corporation, and from January 1986 to February 1988, he was
Optical Department Manager at Raynet, Inc., a fiber optic systems company. Mr.
Levinson holds a B.S. in Mathematics/Physics from Butler University and an M.S.
and Ph.D. in Astronomy from the University of Virginia.
MARK J. FARLEY has served as our Vice President, Digital Systems Engineering
since April 1996. From August 1991 to April 1996, Mr. Farley was a consulting
design engineer. During that time, Mr. Farley was heavily involved in the design
of Finisar's early products. From September 1986 to August 1991, Mr. Farley was
a hardware design manager with Raynet, Inc. From September 1984 to September
1986, he was a hardware design manager at Tandem Computers. Mr. Farley holds a
B.S. in Electrical Engineering from the Massachusetts Institute of Technology.
JAN LIPSON has served as our Vice President, Optical Engineering since April
1998. From June 1995 to April 1998, Mr. Lipson was Vice-President, Advanced
Technology for Ortel Corporation, a fiber optic components supplier to the cable
television industry. From March 1982 to June 1995, Mr. Lipson was employed by
AT&T Bell Laboratories, and most recently held the position of Department Head
and Development Manager for the Subsystems Development Group in the Lightwave
Communications Area. From October 1978 to March 1982, Mr. Lipson was a member of
the technical staff at Los Alamos National Labs. Mr. Lipson holds a B.S. in
Physics from the California Institute of Technology, a Ph.D. in Physics from the
University of California at San Diego and an M.B.A. from the University of
Pittsburgh.
STEPHEN K. WORKMAN has served as our Vice President, Finance and Chief
Financial Officer since March 1999 and as our Secretary since August 1999. From
November 1989 to March 1999, Mr. Workman served as Chief Financial Officer at
Ortel Corporation. Mr. Workman holds a B.S. in Engineering Science and an M.S.
in Industrial Administration from Purdue University.
47
<PAGE>
MICHAEL C. CHILD has been a member of our Board of Directors since November
1998. Mr. Child has been employed by TA Associates, Inc., a venture capital
investment firm, since July 1982 where he currently serves as a Managing
Director. Mr. Child holds a B.S. in Electrical Engineering from the University
of California at Davis and an M.B.A. from the Stanford Graduate School of
Business.
ROGER J. FERGUSON has been a member of our Board of Directors since August
1999. Mr. Ferguson has served as Chief Executive Officer of Semio Inc., an early
stage software company, since July 1999 and as a principal in VenCraft, LLC, a
venture capital partnership, since July 1997. From 1993 to 1997, Mr. Ferguson
was Chief Executive Officer of DataTools, Inc., a database software company.
From 1987 to 1993, Mr. Ferguson served as Chief Operating Officer for Network
General Inc., a network analysis company. Mr. Ferguson also serves on the Boards
of Directors of Microtest, Inc. and several other private companies. Mr.
Ferguson holds a B.A. in Psychology from Dartmouth College and an M.B.A. from
the Amos Tuck School at Dartmouth.
Our President, Secretary and Chief Financial Officer are elected by the
Board of Directors, all other executive officers are elected by the Board of
Directors or appointed by the President, and all officers serve at the
discretion of the Board of Directors. Each of our officers and directors, other
than nonemployee directors, devotes his full time to the affairs of Finisar.
COMPOSITION OF THE BOARD OF DIRECTORS
Our Board of Directors is currently fixed at four directors. Mr. Child was
elected to serve on our Board of Directors pursuant to a voting agreement
entered into in November 1998 in connection with the sale of our convertible
redeemable preferred stock. This agreement will terminate upon the closing of
this offering. Upon the closing of this offering, our certificate of
incorporation will provide that the terms of office of the members of the Board
of Directors will be divided into three classes: Class I, whose term will expire
at the annual meeting of stockholders to be held in 2000, Class II, whose term
will expire at the annual meeting of stockholders to be held in 2001 and Class
III, whose term will expire at the annual meeting of stockholders to be held in
2002. The Class I director will be Mr. Ferguson, the Class II director will be
Mr. Levinson and the Class III directors will be Messrs. Child and Rawls. At
each annual meeting of stockholders after the initial classification, the
successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following their election. Our nonemployee directors devote such time to our
affairs as is necessary to discharge their duties. There are no family
relationships among any of our directors, officers or key employees.
BOARD COMMITTEES
The audit committee of our Board of Directors recommends the appointment of
our independent auditors, reviews our internal accounting procedures and
financial statements and consults with and reviews the services provided by our
independent auditors, including the results and scope of their audit. The audit
committee currently consists of Messrs. Child and Ferguson.
The compensation committee of our Board of Directors reviews and recommends
to the Board of Directors the compensation and benefits of all executive
officers of Finisar and establishes and reviews general policies relating to
compensation and benefits of Finisar employees. The compensation committee
currently consists of Messrs. Child and Ferguson.
COMPENSATION OF DIRECTORS
Directors of Finisar do not receive cash compensation for their services as
directors or members of committees of the Board of Directors. However,
non-employee directors are eligible to receive stock options. We do reimburse
directors for their reasonable expenses incurred in attending meetings of the
Board of Directors.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table sets forth information regarding compensation received
during the fiscal year ended April 30, 1999 by our Chief Executive Officer and
each of our other executive officers whose total salary and bonus earned during
the fiscal year ended April 30, 1999 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM AND OTHER
COMPENSATION
-------------------------
ANNUAL COMPENSATION NUMBER OF
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION
- ----------------------------------------------- --------- --------- ----------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Jerry S. Rawls (2) ............................ $ 190,000 $ 106,192 $ 4,677 -- $ --
President
Frank H. Levinson (2) ......................... 190,000 106,192 3,581 -- --
Chief Executive Officer
Mark J. Farley ................................ 160,000 64,731 2,857 -- --
Vice President, Digital Systems Engineering
Jan Lipson .................................... 140,000 44,077 162 300,000 (3) --
Vice President, Optical Engineering
</TABLE>
- ------------------------------
(1) Represents contributions to each executive officer's 401(k) plan account.
(2) In August 1999, Mr. Rawls was elected to the additional office of Chief
Executive Officer, and Mr. Levinson became Chairman of the Board and Chief
Technical Officer.
(3) This option is immediately exercisable, subject to a right of repurchase in
favor of Finisar which lapses at the rate of 20% per year over a period of
five years.
OPTION GRANTS
The following table sets forth information regarding grants of stock options
to each of the executive officers named in the Summary Compensation Table above
during the fiscal year ended April 30, 1999. All of these options were granted
under our 1989 stock option plan. The percentage of total options set forth
below is based on an aggregate of 2,900,000 options granted during the fiscal
year. All options were granted at the fair market value of our common stock, as
determined by the Board of Directors on the date of grant. Potential realizable
values are net of exercise price, but before taxes associated with exercise.
Amounts represent hypothetical gains that could be achieved for the options if
exercised at the end of the option term. The assumed 5% and 10% rates of stock
price appreciation are provided in accordance with rules of the SEC and do not
represent Finisar's estimate or projection of the future common stock price.
49
<PAGE>
OPTIONS GRANTED IN FISCAL YEAR ENDED APRIL 30, 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
--------------------------------------------- DEEMED RATES OF
NUMBER OF % OF TOTAL VALUE PER STOCK PRICE
SECURITIES OPTIONS SHARE AT APPRECIATION
UNDERLYING GRANTED TO EXERCISE DATE OF FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION GRANT --------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE ($/SHARE) 5% 10%
- ------------------------- ----------- ----------------- ------------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Jerry S. Rawls........... -- -- -- -- -- -- --
Frank H. Levinson........ -- -- -- -- -- -- --
Mark J. Farley........... -- -- -- -- -- -- --
Jan Lipson............... 300,000(1) 10.3 0.15 8/6/08 0.15 $ 28,300 $ 71,718
</TABLE>
- ------------------------------
(1) This option is immediately exercisable, subject to a right of repurchase in
favor of Finisar which lapses at the rate of 20% per year over a period of
five years.
OPTION EXERCISES AND FISCAL YEAR-END HOLDINGS
The following table sets forth the number of shares of common stock acquired
and the value realized upon exercise of stock options during the fiscal year
ended April 30, 1999 and the number of shares of common stock subject to
exercisable and unexercisable options held as of April 30, 1999 by each of the
executive officers named in the Summary Compensation Table above.
AGGREGATE OPTION EXERCISES IN FISCAL 1999 AND VALUES AT APRIL 30, 1999
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED
IN-THE-MONEY
NUMBER OF OPTIONS AT 4/30/99 OPTIONS AT 4/30/99 (2)
SHARES
ACQUIRED ON VALUE ------------------------ ------------------------
NAME EXERCISE REALIZED (1) VESTED UNVESTED VESTED UNVESTED
- ------------------------- ----------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jerry S. Rawls........... -- -- -- -- -- --
Frank H. Levinson........ -- -- -- -- -- --
Mark J. Farley........... 1,538,460 $ 30,769 -- 661,540 -- $ 780,617
Jan Lipson............... 300,000 33,000 -- -- -- --
</TABLE>
- ------------------------------
(1) The value realized upon exercise is based on the deemed fair value of the
underlying securities on the date of exercise, minus the per share exercise
price, multiplied by the number of shares acquired upon exercise.
(2) The value of unexercised options set forth above is calculated based on the
deemed fair value of the underlying securities on April 30, 1999 of $1.31
per share, minus the exercise price.
STOCK PLANS
1999 STOCK OPTION PLAN
Finisar's 1999 stock option plan was adopted by the Board of Directors and
approved by the stockholders in April 1999. Finisar is authorized to issue up to
7,000,000 shares of common stock under this plan. This number of shares will be
increased on May 1, 2001 and each subsequent May 1 during the term of the plan
by 5% of the number of shares of common stock issued and outstanding on the
immediately preceding April 30. The 1999 stock option plan is currently being
administered by the Board of Directors. The plan allows grants of incentive
stock options, within the meaning of Section 422 of the Internal Revenue Code,
to employees, including officers and employee directors. In addition, it allows
grants of nonstatutory options to employees, non-employee directors and
consultants. The plan expires in April 2009, but may be terminated sooner by the
Board of Directors.
The exercise price of incentive stock options granted under the 1999 stock
option plan must not be less than the fair market value of a share of the common
stock on the date of grant. In the case of
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<PAGE>
nonstatutory stock options, the exercise price must not be less than 85% of the
fair market value of a share of the common stock on the date of grant. With
respect to an incentive stock option granted to any optionee who owns stock
representing more than 10% of the voting power of all classes of Finisar's
outstanding capital stock, the exercise price of the option must be equal to at
least 110% of the fair market value of a share of the common stock on the date
of grant, and the term of the option may not exceed five years. The terms of all
other options may not exceed ten years. The aggregate fair market value
(determined as of the date of option grant) of the common stock for which
incentive stock options may become exercisable for the first time by any
optionee may not exceed $100,000 in any calendar year. The Board of Directors
has the discretion to determine vesting schedules and exercise requirements, if
any, of all options granted under the plan. However, the plan provides that in
connection with a change in control, if the acquiring corporation fails to
assume the plan's outstanding options or replace them with substantially
equivalent new options, all options will become immediately exercisable in full.
In addition, the plan allows the Board of Directors to provide in any option
agreement full acceleration of the exercisability of these options if, within 12
months following a change in control, the optionee is terminated without cause
or resigns for "good reason," which includes:
- the assignment of any duties, or limitation of responsibilities, that are
substantially inconsistent with the optionee's status prior to the change
of control,
- the relocation of an optionee's principal work place more than fifty miles
from his work place prior to the change of control or the imposition of
substantially more demanding travel requirements, or
- any material reduction in base compensation, bonus or benefits.
As of September 30, 1999, under the 1999 stock option plan 672,800 shares of
common stock had been issued upon exercise of options outstanding, options to
purchase 994,200 shares of common stock, with a weighted average exercise price
of $2.1659, were outstanding, and 5,333,000 shares of common stock remained
available for future grants.
1989 STOCK OPTION PLAN
Finisar's 1989 stock option plan was adopted by the Board of Directors and
approved by the stockholders in April 1989. Prior to the expiration of its
ten-year term in April 1999, a total of 7,675,611 shares of common stock were
reserved for issuance under the 1989 stock option plan. Although no additional
options will be granted under this plan, the options for 1,042,540 shares of
common stock outstanding as of September 30, 1999 will remain subject to its
provisions and the plan will continue to be administered by the Board of
Directors.
The 1989 stock option plan allowed the grant of incentive stock options and
nonstatutory stock options. The exercise price of incentive stock options
granted under the plan was required to be not less than the fair market value of
a share of the common stock on the date of grant. The exercise price of
nonstatutory stock options granted under the plan was required to be not less
than 85% of the fair market value of a share of common stock on the date of
grant. With respect to any optionee who owned stock representing more than 10%
of the voting power of all classes of Finisar's outstanding capital stock, the
exercise price of any option was required to be equal to at least 110% of the
fair market value of a share of the common stock on the date of grant, the term
of any incentive stock option could not exceed five years and the term of any
nonstatutory stock option could not exceed five years and one day. The terms of
all other options could not exceed ten years. The aggregate fair market value
(determined as of the date of option grant) of the common stock for which
incentive stock options could become exercisable for the first time by any
optionee could not exceed $100,000 in any calendar year. The Board of Directors
had the discretion to determine vesting schedules and exercise requirements, if
any, of all option grants under this plan. However, the plan provided that in
connection with a sale of all or substantially all of the assets of Finisar, or
a merger of Finisar with or into another corporation, if the acquiring
corporation fails to assume the plan's outstanding options or
51
<PAGE>
replace them with equivalent new options, all options will become immediately
vested and exercisable in full.
As of September 30, 1999, under the 1989 stock option plan 6,618,660 shares
of common stock had been issued upon exercise of options outstanding and options
to purchase 1,042,540 shares of common stock, at a weighted average exercise
price of $0.285, were outstanding.
1999 EMPLOYEE STOCK PURCHASE PLAN
Finisar's 1999 employee stock purchase plan was adopted by the Board of
Directors and approved by the stockholders in September 1999. A total of 250,000
shares of common stock are reserved for issuance under the plan, cumulatively
increased by 250,000 shares on May 1, 2001 and each May 1 thereafter through May
1, 2010. This plan, which is intended to qualify under Section 423 of the
Internal Revenue Code, will be administered by the Board of Directors.
Employees, including officers and employee directors, are eligible to
participate in the plan if they are employed by Finisar for more than 20 hours
per week and more than five months in any calendar year. The plan will be
implemented during sequential 12-month offering periods, generally commencing on
or about December 1 of each year. However, the first such offering period will
commence on the effective date of this offering and will terminate on November
30, 2000. In addition, a six-month offering period will generally commence on
June 1 of each year.
The employee stock purchase plan permits eligible employees to purchase our
common stock through payroll deductions, which may not exceed 20% of the
employee's total compensation. Stock may be purchased under the plan at a price
equal to 85% of the fair market value of our common stock on either the first or
the last day of the offering period, whichever is lower. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of a participant's employment
with Finisar. Participants may not purchase shares of common stock having a
value, measured at the beginning of the offering period, greater than $25,000 in
any calendar year or more than a number of shares in any offering period
determined by dividing $25,000 (or $12,500 with respect to a six-month offering
period) by the fair market value of a share of Finisar common stock determined
at the beginning of the offering period.
401(k) PLAN
Our 401(k) retirement and deferred savings plan covers all eligible
employees and is intended to qualify as a tax-qualified plan under the Internal
Revenue Code. Employees are eligible to participate in the plan on the first day
of the month immediately following twelve months of service with Finisar. The
plan provides that each participant may contribute up to 12% of his or her
pre-tax gross compensation up to a statutory limit, which is $10,000 in calendar
year 1999. All amounts contributed by participants and earnings on participant
contributions are fully vested at all times. Finisar may contribute an amount
equal to one-half of the first 5% of each participant's contribution. Finisar's
contributions vest one-fifth per year over five years. Finisar's contributions
to the plan through July 31, 1999 totaled approximately $113,000.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
As permitted by the Delaware General Corporation Law, we have adopted
provisions in our certificate of incorporation which provide that our directors
shall not be personally liable for monetary damages to Finisar or its
stockholders for a breach of fiduciary duty as a director, except liability for:
- a breach of the director's duty of loyalty to Finisar or its stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
52
<PAGE>
- an act related to our unlawful stock repurchase or payment of a dividend
under Section 174 of the Delaware General Corporation Law; or
- transactions from which the director derived an improper personal benefit.
These limitations of liability do not apply to liabilities arising under the
federal securities laws and do not affect the availability of equitable remedies
such as injunctive relief or rescission. Our certificate of incorporation also
authorizes us to indemnify our officers, directors and other agents to the
fullest extent permitted under Delaware law.
As permitted by the Delaware General Corporation Law, our bylaws provide
that:
- we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law, subject to
limited exceptions;
- we are required to advance expenses, as incurred, to our directors and
officers in connection with a legal proceeding to the fullest extent
permitted by the Delaware General Corporation Law, subject to limited
exceptions; and
- the rights provided in the bylaws are not exclusive.
We intend to enter into separate indemnification agreements with each of our
directors and officers which may be broader than the specific indemnification
provisions contained in the Delaware General Corporation Law. These
indemnification agreements may require us, among other things, to indemnify our
directors and officers against liabilities that may arise by reason of their
status or service as directors or officers, other than liabilities arising from
willful misconduct. These indemnification agreements also may require us to
advance any expenses incurred by the directors or officers as a result of any
proceeding against them as to which they could be indemnified and to obtain
directors' and officers' insurance if available on reasonable terms.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification by us is
sought. In addition, we are not aware of any threatened litigation or proceeding
which may result in a claim for indemnification.
We intend to maintain directors' and officers' liability insurance.
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<PAGE>
RELATED PARTY TRANSACTIONS
FINANCING TRANSACTION
In November 1998, we sold and issued an aggregate of 12,039,486 shares of
our convertible redeemable preferred stock at a price of $2.1932 per share. TA
Associates, Inc., of which Mr. Child is a Managing Director, and its affiliated
entities purchased 9,422,305 of such shares for an aggregate purchase price of
$20,665,000. Upon the closing of this offering, each share of convertible
redeemable preferred stock will be converted into 0.7460371 of a share of common
stock and one share of redeemable preferred stock, and all outstanding shares of
redeemable preferred stock will be redeemed for $0.2193 per share.
LOAN TO OFFICER
In August 1998, we loaned $225,000 to Mr. Lipson. This loan was evidenced by
a promissory note bearing interest at the rate of 2% per annum and
collateralized by a deed of trust owned by Mr. Lipson. Mr. Lipson repaid this
loan in full in December 1998.
CONTRIBUTIONS TO CAPITAL AND REPURCHASES OF COMMON STOCK
In March 1998, Mr. Levinson and his wife contributed 2,200,000 shares of our
common stock, having a fair market value of $0.13 per share, to the capital of
Finisar.
We used a portion of the proceeds of our convertible redeemable preferred
stock financing and related bank borrowings in November 1998 to repurchase
7,397,922 shares of our common stock from Mr. Levinson at a per share price of
$2.1932 for an aggregate purchase price of $16,225,123, 5,439,373 and 1,400,000
shares of our common stock from Mr. Rawls and a trust for the benefit of members
of his family, respectively, at a per share price of $2.1932 for aggregate
purchase prices of $11,929,633 and $3,070,480, respectively, and 220,000 shares
of our common stock from Mr. Farley at a per share price of $2.1932 for an
aggregate purchase price of $482,504. Giving effect to the repurchases of common
stock, the net proceeds from our sale of the convertible redeemable preferred
stock were $5.6 million.
OPTION GRANTS AND EXERCISES
In March 1998, we granted Mr. Farley an option to purchase an aggregate of
2,200,000 shares of common stock, with an exercise price of $0.13 per share. Mr.
Farley exercised a portion of this option to purchase 1,538,460 shares. The
exercise price was paid by Mr. Farley by delivery to us of a promissory note in
the principal amount of $200,000, bearing interest at the rate of 6% per annum
and collateralized by shares of our common stock owned by Mr. Farley. Mr. Farley
repaid this loan in full in January 1999.
In March 1999, we granted Mr. Workman an option to purchase an aggregate of
200,000 shares of common stock, with an exercise price of $1.31 per share. Mr.
Workman exercised this option in full in April 1999. The exercise price was paid
by Mr. Workman by delivery to us of a promissory note in the principal amount of
$262,000 bearing interest at the rate of 6% per annum. This promissory note is
payable in full by April 2004 and is collateralized by shares of our common
stock owned by Mr. Workman.
OTHER TRANSACTIONS
We intend to enter into indemnification agreements with each of our
directors and officers. These indemnification agreements will require Finisar to
indemnify such individuals to the fullest extent permitted by Delaware law.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to us regarding the
beneficial ownership of our common stock as of September 30, 1999, and as
adjusted to reflect the sale of the common stock offered hereby, by:
- each stockholder who is known by us to beneficially own more than 5% of
common stock;
- each of our executive officers listed on the Summary Compensation Table
under "Management;"
- each of our directors; and
- all of our executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED (1)
NUMBER OF SHARES ----------------------------
BENEFICIALLY OWNED BEFORE AFTER
BENEFICIAL OWNER (1)(2) OFFERING OFFERING (2)
- --------------------------------------------------------------- ----------------------- ----------- ---------------
<S> <C> <C> <C>
SIGNIFICANT STOCKHOLDERS:
Entities affiliated with TA Associates, Inc. (3)............... 7,029,388 16.7% 14.1%
Entities affiliated with Summit Partners (4)................... 1,843,660 4.4 3.7
EXECUTIVE OFFICERS AND DIRECTORS:
Jerry S. Rawls................................................. 8,470,627 20.2 17.0
Frank H. Levinson (5).......................................... 15,598,872 37.1 31.4
Mark J. Farley (6)............................................. 1,885,000 4.4 3.7
Jan Lipson (7)................................................. 300,000 * *
Michael C. Child (8)........................................... 7,029,388 16.7 14.1
Roger C. Ferguson (9).......................................... 20,000 * *
All executive officers and directors as a group (7
persons)(10)................................................. 33,503,887 78.5 66.5
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. All shares of common stock subject to options exercisable within
60 days following September 30, 1999 are deemed to be outstanding and
beneficially owned by the person holding those options for the purpose of
computing the number of shares beneficially owned and the percentage of
ownership of that person. They are not, however, deemed to be outstanding
and beneficially owned for the purpose of computing the percentage ownership
of any other person. Accordingly, percent ownership is based on: (i) before
the offering, 42,007,462 shares of Common Stock outstanding as of September
30, 1999 plus any shares issuable pursuant to options held by the person or
group in question which may be exercised within 60 days of September 30,
1999; and (ii) after the offering, an additional 7,700,000 shares to be
issued by the Company in the offering. Except as indicated in the other
footnotes to the table and subject to applicable community property laws,
based on information provided by the persons named in the table, these
persons have sole voting and investment power with respect to all shares of
the common stock shown as beneficially owned by them.
(2) Assumes no exercise of the underwriters' over-allotment option. If the
underwriters exercise their over-allotment option in full, the selling
stockholders will sell an aggregate of 1,155,000 shares of Common Stock. In
such event, (i) entities affiliated with TA Associates, Inc. will sell
between 910,456 and 1,147,751 shares and will beneficially own between
5,881,637 and 6,118,932 shares, or between 11.8% and 12.3% of the
outstanding common stock, after completion of this offering, and (ii) other
selling shareholders will sell between 7,249 and 244,544 shares.
55
<PAGE>
(3) Includes 1,699,095 shares held by Advent Atlantic and Pacific III L.P.,
5,097,285 shares held by TA/ Advent VIII, L.P., 102,047 shares held by TA
Investors LLC and 130,961 shares held by TA Executives Fund LLC. TA/Advent
VIII L.P., Advent Atlantic & Pacific III L.P., TA Executives Fund LLC and TA
Investors LLC are part of an affiliated group of investment partnerships.
The general partner of TA/Advent VIII L.P. is TA Associates VIII LLC. The
general partner of Advent Atlantic and Pacific III L.P. is TA Associates AAP
III Partners L.P. TA Associates, Inc. is the general partner of TA
Associates AAP III Partner L.P. and is the sole manager of TA Advent VIII
LLC, TA Executives Fund LLC and TA Investors LLC. In such capacity, TA
Associates, Inc., through an executive committee, exercises sole voting and
investment power with respect to all shares held of record by the named
investment partnerships; individually, no stockholder, director or officer
of TA Associates, Inc., is deemed to have or share such voting or investment
power. The address of TA Associates, Inc. is 125 High Street, High Street
Tower, Suite 2500, Boston, MA 02110.
(4) Includes 1,408,567 shares held by Summit Ventures V, L.P., 250,728 shares
held by Summit Ventures V Companion Fund L.P., 95,083 shares held by Summit
V Advisors Fund (QP), L.P., 29,057 shares held by Summit V Advisors Fund,
L.P. and 60,225 shares held by Summit Investors III, L.P., each of which is
an affiliate of Summit Partners, L.P. Summit Partners V, L.P. is the general
partner of each of Summit Ventures V, L.P., Summit Ventures V Companion
Fund, L.P., Summit Ventures V Advisors Fund (QP), L.P. and Summit V Advisors
Fund, L.P. Summit Partners, LLC is the general partner of Summit Partners V,
L.P. Summit Partners, LLC, through an investment committee, exercises sole
voting and investment power with respect to the shares owned by the Summit
Funds; individually no member of Summit Partners LLC is deemed to have or
share such voting or investment power. The address of Summit Partners, LLC
is c/o Walter Kortschak, 499 Hamilton Avenue, Suite 200, Palo Alto, CA
94301.
(5) Includes 14,098,872 shares held by the Frank H. & Wynnette Levinson 1998
Revocable Trust, 500,000 shares held by the Rose Wynnette Levinson 1998 Gift
Trust, 500,000 shares held by the Alana Marie Levinson 1998 Gift Trust and
500,000 shares held by the Frank Henry Levinson 1998 Gift Trust.
(6) Includes 661,540 shares issuable upon exercise of options exercisable within
60 days following September 30, 1999 and 300,000 shares held by the Julia
Christine Farley Irrevocable Trust.
(7) Includes 240,000 shares subject to a right of repurchase in favor of Finisar
which lapses over time.
(8) Mr. Child disclaims beneficial ownership of all shares held by affiliates of
TA Associates, Inc. of which Mr. Child is a Managing Director, except to the
extent of 14,454 shares of common stock in which he has an ownership
interest through TA Investors LLC and 2,551 shares of common stock in which
the Child Childrens Trust has an ownership interest through TA Investors
LLC.
(9) Includes 20,000 shares subject to a right of repurchase in favor of Finisar
which lapses over time.
(10) Including 7,012,383 shares held by TA Associates, Inc. and its affiliates
as to which Mr. Child disclaims beneficial ownership. See Note 3 above.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will consist
of 200,000,000 shares of common stock, $0.001 par value per share, and 5,000,000
shares of preferred stock, $0.001 par value per share.
The following is a summary of the material terms of our common stock and
preferred stock. Please see our certificate of incorporation, filed as an
exhibit to the registration statement of which this prospectus is a part, for
more detailed information.
COMMON STOCK
As of September 30, 1999, there were 33,025,565 shares of our common stock
outstanding held of record by 140 stockholders. The holders of our common stock
are entitled to one vote for each share held of record on all matters submitted
to a vote of stockholders. Upon the closing of this offering, holders of a
majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Subject to
preferences applicable to any outstanding preferred stock, holders of common
stock are entitled to receive ratably any dividends 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 Finisar, holders of common
stock are entitled to share ratably in the assets remaining after payment of
liabilities and the liquidation preferences of any outstanding preferred stock.
Holders of our common stock have no preemptive, conversion or redemption rights.
Each outstanding share of common stock is, and all shares of common stock to be
outstanding upon the closing of this offering will be, fully paid and
non-assessable.
PREFERRED STOCK
Upon the closing of this offering, all shares of our convertible redeemable
preferred stock outstanding will be converted into an aggregate of 8,981,897
shares of common stock and 12,039,486 shares of redeemable preferred stock, and
all outstanding shares of redeemable preferred stock will be redeemed.
Thereafter, up to 5,000,000 shares of undesignated preferred stock will be
authorized for issuance. Our Board of Directors has the authority, without
further action by its stockholders, to issue preferred stock in one or more
series. In addition, the Board of Directors may fix the rights, preferences and
privileges of any preferred stock it determines to issue. Any or all of these
rights may be superior to the rights of the common stock. Preferred stock could
thus be issued quickly with terms calculated to delay or prevent a change in
control of Finisar or to make removal of management more difficult.
Additionally, the issuance of preferred stock may decrease the market price of
our common stock. At present, we have no plans to issue any shares of preferred
stock.
REGISTRATION RIGHTS
Under the Securities Purchase Agreement dated as of November 6, 1998, the
purchasers of our convertible redeemable preferred stock have various
registration rights with respect to the 8,981,897 shares of common stock into
which their convertible redeemable preferred stock will be converted upon the
closing of this offering.
Beginning 180 days after the date of this prospectus, these holders have the
right to require Finisar, on not more than two occasions, to file a registration
statement under the Securities Act to register their shares at our expense.
Demand for this registration must be made by holders of at least 20% of the
shares that are entitled to this registration. The underwriters of the offering
have the right, subject to some limitations, to limit the number of shares
included.
If we propose to register any of our securities under the Securities Act for
our own account or for the account of other security holders, the purchasers of
our convertible redeemable preferred stock are entitled to notice of that
registration and have the right to include some or all of their shares of common
stock in that registration, at our expense, subject to marketing and other
limitations.
57
<PAGE>
The purchasers of our convertible redeemable preferred stock have the right
to require Finisar, no more frequently than twice during any nine month period,
to file a registration statement on Form S-3 under the Securities Act to
register their shares at Finisar's expense. Demand for this registration must be
made by the holders of at least 20% of the shares that are entitled to this
registration. The underwriters of this offering have the right, subject to some
limitations, to limit the number of shares included.
ANTITAKEOVER PROVISIONS
DELAWARE LAW
Finisar will be subject to Section 203 of the Delaware General Corporation
Law regulating corporate takeovers, which prohibits a Delaware corporation from
engaging in any business combination with an "interested stockholder," unless:
- prior to the date of the transaction, the Board of Directors of the
corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;
- the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding (a) shares
owned by persons who are directors and also officers, and (b) shares owned
by employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or
- on or subsequent to the date of the transaction, the business combination
is approved by the board and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Except as otherwise specified in Section 203, an "interested stockholder" is
defined to include (a) any person that is the owner of 15% or more of the
outstanding voting securities of the corporation, or is an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within three years immediately prior
to the date of determination and (b) the affiliates and associates of any such
person.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Provisions of our certificate of incorporation and bylaws, which will become
effective upon the closing of this offering, may have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of Finisar. These provisions could cause the
price of our common stock to decrease. Some of these provisions allow us to
issue preferred stock without any vote or further action by the stockholders,
eliminate the right of stockholders to act by written consent without a meeting
and eliminate cumulative voting in the election of directors. These provisions
may make it more difficult for stockholders to take specific corporate actions
and could have the effect of delaying or preventing a change in control of
Finisar.
Our certificate of incorporation provides that, upon the closing of this
offering, the Board of Directors will be divided into three classes of
directors, with each class serving a staggered three-year term. See
"Management--Composition of the Board of Directors." The classification system
of electing directors may discourage a third party from making a tender offer or
otherwise attempting to obtain control of us and may maintain the incumbency of
the Board of Directors, because the classification of the Board of Directors
generally increases the difficulty of replacing a majority of the directors.
58
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer and Trust Company.
LISTING
Finisar has applied to have its common stock approved for listing on the
Nasdaq National Market under the trading symbol "FNSR."
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been a public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market, or the possibility of these sales, could adversely affect the trading
price of the common stock.
Upon completion of this offering, we will have outstanding 49,707,462 shares
of common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options to purchase common stock after September
30, 1999. Of these shares, the 7,700,000 shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, except for any shares purchased by "affiliates" of Finisar, as defined in
Rule 144 under the Securities Act, which would be subject to the limitations and
restrictions described below.
The remaining 42,007,462 shares of common stock outstanding upon completion
of this offering will be "restricted securities" as defined in Rule 144. These
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144 or 701 under the
Securities Act, which are summarized below. Sales of these restricted securities
in the public market, or the availability of these shares for sale, could
adversely affect the trading price of our common stock.
Holders of approximately 39,807,829 of these restricted securities,
including all of our officers and directors and the entities affiliated with
them, have entered into lock-up agreements providing that, subject to limited
exceptions, they will not sell, directly or indirectly, any common stock without
the prior consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated for a
period of 180 days from the date of this prospectus.
All of these restricted securities will be eligible for sale in the public
market, subject in some cases to the volume limitations and other restrictions
of Rule 144, beginning 180 days after the date of this prospectus upon
expiration of the lock-up agreements described above.
Shares issued upon exercise of options granted by us prior to the date of
this prospectus will be available for sale in the public market under Rule 701
of the Securities Act. Rule 701 permits resales of these shares in reliance upon
Rule 144 but without compliance with various restrictions, including the holding
period requirement, imposed under Rule 144. In general, under Rule 144,
beginning 90 days after the date of this prospectus, a person (or persons whose
shares are aggregated) who has beneficially owned restricted securities for at
least one year would be entitled to sell within any three-month period a number
of shares not to exceed the greater of (1) one percent of the then outstanding
shares of common stock or (2) the average weekly trading volume of our common
stock during the four calendar weeks preceding the filing of a Form 144 with
respect to the sale. Sales under Rule 144 are also subject to manner of sale and
notice requirements, as well as to the availability of current public
information about us. Under Rule 144(k), a person who is not deemed to have been
an affiliate at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
We have reserved an aggregate of 34,550,000 shares of common stock for
issuance pursuant to our 1989 and 1999 stock option plans and our 1999 employee
stock purchase plan. As of September 30, 1999, options to purchase an aggregate
of 2,036,740 shares of common stock were outstanding under our stock option
plans. We intend to file registration statements on Form S-8 under the
Securities Act approximately 90 days after the date of this prospectus to
register an aggregate of 7,614,740 shares of common stock issued or reserved for
issuance under our stock option plans and employee stock purchase plan. Shares
of common stock issued under the foregoing plans, after the filing of related
registration statements, will be freely tradable in the public market, subject
in the case of the holders to the Rule 144 limitations applicable to Finisar
affiliates, lock-up agreements with the underwriters and vesting restrictions
imposed by Finisar.
60
<PAGE>
UNDERWRITING
GENERAL
Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities
Inc., Dain Rauscher Wessels, a division of Dain Rauscher Incorporated, Morgan
Keegan & Company, Inc. and SoundView Technology Group, Inc. are acting as
representatives of each of the underwriters named below. Subject to the terms
and conditions set forth in a purchase agreement, we have agreed to sell to each
of the underwriters, and each of the underwriters, severally and not jointly,
has agreed to purchase, the number of shares of our common stock set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................................................
J.P. Morgan Securities Inc. ...............................................................
Dain Rauscher Wessels......................................................................
Morgan Keegan & Company, Inc. .............................................................
SoundView Technology Group, Inc. ..........................................................
----------
Total............................................................................ 7,700,000
----------
----------
</TABLE>
Subject to the terms and conditions set forth in the purchase agreement,
each of the underwriters is committed to purchase all of the shares of our
common stock being sold pursuant to the purchase agreement if any shares of our
common stock are purchased. Under certain circumstances, under the terms of the
purchase agreement, the commitments of the non-defaulting underwriters may be
increased or the purchase agreement may be terminated. We and the selling
stockholders have agreed to indemnify the underwriters against some liabilities,
including some liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that they propose initially to offer the
shares of our common stock to the public at the initial public offering price
set forth on the cover page of this prospectus, and to certain dealers at such
price less a concession not in excess of $ per share of common stock.
The underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share of common stock on sales to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The following table shows the per share and total public offering price, the
underwriting discount to be paid by us and the selling stockholders to the
underwriters and the proceeds before expenses to
61
<PAGE>
us and the selling stockholders. This information is presented assuming either
no exercise or full exercise by the underwriters of their over-allotment
options.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
---------- ---------- ----------
<S> <C> <C> <C>
Public offering price.............................................. $ $ $
Underwriting discount.............................................. $ $ $
Proceeds, before expenses, to Finisar.............................. $ $ $
Proceeds to the selling stockholders............................... $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by us.
OVER-ALLOTMENT OPTION
The selling stockholders have granted to the underwriters an option,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of 1,155,000 additional shares of common stock from the selling
stockholders at the public offering price less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares of our common
stock proportionate to such underwriter's initial amount reflected in the
foregoing table.
RESERVED SHARES
At our request, the underwriters have reserved approximately shares of
our common stock for sale at the public offering price to our directors,
consultants and other persons with relationships to Finisar. The number of
shares of our common stock available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares which are not orally confirmed for purchase within one day of the pricing
of the offering will be offered by the underwriters to the general public on the
same basis as the other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We, our executive officers and directors, and most of our existing
stockholders have agreed, with certain exceptions, not to directly or
indirectly:
- 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 for the sale of, or otherwise dispose of or transfer any shares
of our common stock or any securities convertible into or exchangeable or
exercisable for our common stock, whether now owned or later acquired by
the person executing the agreement or with respect to which the person
executing the agreement later acquires the power of disposition, or file
any registration statement under the Securities Act relating to any shares
of our common stock for a period of 180 days after the date of this
prospectus; or
- enter into any swap or other agreement that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of our
common stock, whether any such swap or transaction is to be settled by
delivery of our common stock or other securities, in cash or otherwise,
without the prior written consent of Merrill Lynch for a period of 180 days
after the date of this prospectus. See "Shares Eligible for Future Sale."
62
<PAGE>
NASDAQ NATIONAL MARKET LISTING
Before this offering, there has been no public market for our common stock.
The public offering price will be determined through negotiations among us and
the representatives. In addition to prevailing market conditions the factors to
be considered by us and the representatives in determining the public offering
price of our common stock are:
- the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us;
- certain aspects of our financial information;
- the history of, and the prospects for, our company and the industry in
which we compete;
- an assessment of our management, our past and present operations, the
prospects for, and timing of, our future revenue;
- the present state of our development;
- the percentage interest of Finisar being sold as compared to the valuation
for the entire company; and
- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
There can be no assurance that an active trading market will develop for our
common stock or that our common stock will trade in the public market subsequent
to the offering at or above the public offering price.
We have applied for a listing of our common stock on the Nasdaq National
Market under the symbol "FNSR."
The underwriters have advised us that they do not expect sales to accounts
over which the underwriters exercise discretionary authority to exceed 5% of the
total number of shares of our common stock offered by them.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and purchase our common stock. As an
exception to these rules, the representatives are permitted to engage in certain
transactions that stabilize the price of our common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, that is, if they sell more shares of common stock
than are set forth on the cover page of this prospectus, the representatives may
reduce that short position by purchasing common stock in the open market. The
representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described above. In general, purchases of a
security for the purpose of stabilization or to reduce a short position could
cause the price of the security to be higher than it might be in the absence of
such purchases.
The representatives may also impose a penalty bid on certain underwriters
and selling group members. This means that, if the representatives purchase
shares of our common stock in the open market to reduce the underwriters' short
position or to stabilize the price of our common stock, they may reclaim the
amount of the selling concession from the underwriters and selling group members
that sold those shares as part of the offering. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
63
<PAGE>
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. Certain legal
matters relating to the offering will be passed upon for the underwriters by
Morrison & Foerster LLP, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements and schedule at April 30, 1998 and 1999 and for the fiscal years
ended April 30, 1997, 1998 and 1999, as set forth in their report. We have
included our financial statements and schedule in this prospectus and elsewhere
in the registration statement in reliance on Ernst & Young LLP's reports, given
on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1, including
the exhibits and schedules thereto, under the Securities Act with respect to the
shares to be sold in this offering. This prospectus does not contain all the
information set forth in the registration statement. For further information
about us and the shares to be sold in this offering, please refer to the
registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to, are not
necessarily complete, and in each instance please refer to the copy of the
contract, agreement or other document filed as an exhibit to the registration
statement, each statement being qualified in all respects by this reference.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information we file with the SEC at the SEC's
public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.C.,
Washington, D.C. 20549 and at the regional offices of the SEC located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You
can request copies of these documents upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings,
including the registration statement will also be available to you on the SEC's
Web site. The address of this site is http://www.sec.gov.
64
<PAGE>
FINISAR CORPORATION
FINANCIAL STATEMENTS
INDEX
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Audited Financial Statements
Balance Sheets........................................................................ F-3
Statements of Operations.............................................................. F-4
Statement of Convertible Redeemable Preferred Stock and Changes in Stockholders'
Equity (Deficit).................................................................... F-5
Statements of Cash Flows.............................................................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Finisar Corporation
We have audited the accompanying balance sheets of Finisar Corporation as of
April 30, 1998 and 1999, and the related statements of operations, convertible
redeemable preferred stock and changes in stockholders' equity (deficit), and
cash flows for each of the three years in the period ended April 30, 1999. These
financial statements are the responsibility of Finisar Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Finisar Corporation at April
30, 1998 and 1999, and the results of its operations and its cash flows for each
of the three years in the period ended April 30, 1999, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
June 25, 1999
F-2
<PAGE>
FINISAR CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
APRIL 30, JULY 31,
---------------------- JULY 31, 1999 (NOTE
1998 1999 1999 1)
--------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 721,675 $ 5,043,796 $ 5,403,638
Accounts receivable (net of allowance for doubtful
accounts of $16,538, $265,138 and $407,318 at April 30,
1998, 1999 and July 31, 1999)........................... 2,787,515 6,656,148 7,561,823
Inventories............................................... 2,731,323 5,236,328 6,959,246
Deferred income taxes..................................... 387,200 1,047,442 1,047,442
Prepaid expenses.......................................... -- 193,505 164,550
--------- ----------- -----------
Total current assets........................................ 6,627,713 18,177,219 21,136,699
Income taxes receivable..................................... 81,385 -- --
Other assets................................................ -- 295,976 465,692
Property and equipment, net................................. 1,052,241 2,481,735 2,856,145
--------- ----------- -----------
Total assets................................................ $7,761,339 $20,954,930 $24,458,536
--------- ----------- -----------
--------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 265,276 $ 1,394,461 $ 2,514,526
Accrued compensation...................................... 116,108 1,498,811 1,402,862
Other accrued liabilities................................. 372,972 1,476,408 1,949,588
Income tax payable........................................ -- 742,669 1,211,669
Note payable, current portion............................. 100,000 -- --
Capital lease obligations, current portion................ 44,047 53,539 50,952
--------- ----------- -----------
Total current liabilities................................... 898,403 5,165,888 7,129,597
--------- ----------- -----------
Long-term liabilities:
Note payable, long-term portion........................... 350,000 11,015,000 11,015,000
Capital lease obligations, long-term portion.............. 66,244 17,462 4,381
--------- ----------- -----------
Total long-term liabilities................................. 416,244 11,032,462 11,019,381
--------- ----------- -----------
Commitments and contingencies
Convertible redeemable preferred stock:
No par value, 12,100,000 shares authorized: no shares
issued and outstanding at April 30, 1998; 12,039,486
shares issued and outstanding at April 30, 1999 and July
31, 1999; no shares issued and outstanding pro forma;
liquidation preference $26,405,000 at April 30, 1999 and
July 31, 1999........................................... -- 26,259,664 26,259,664 $ --
Redeemable preferred stock:
No par value, 12,100,000 shares authorized; no shares
issued and outstanding at April 30, 1998, 1999 or July
31, 1999; 12,039,486 shares issued and outstanding pro
forma................................................... -- -- -- 2,640,260
Stockholders' equity (deficit):
Common stock:
No par value, 75,000,000 shares authorized; 41,800,000,
32,382,365, 32,512,365 and 41,494,262 shares issued
and outstanding at April 30, 1998 and 1999, July 31,
1999 and pro forma, respectively...................... 95,200 3,908,824 4,072,824 27,692,228
Deferred stock compensation............................... -- (1,612,178) (1,372,986) (1,372,986)
Notes receivable from stockholders........................ -- (1,520,788) (1,671,437) (1,671,437)
Retained earnings (accumulated deficit)................... 6,351,492 (22,278,942) (20,978,507) (20,978,507)
--------- ----------- ----------- ------------
Total stockholders' equity (deficit)........................ 6,446,692 (21,503,084) (19,950,106) $3,669,298
--------- ----------- ----------- ------------
------------
Total liabilities and stockholders' equity (deficit)........ $7,761,339 $20,954,930 $24,458,536
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
FINISAR CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED APRIL 30, THREE MONTHS ENDED JULY 31,
------------------------------------------ ---------------------------
1997 1998 1999 1998 1999
------------ ------------- ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................... $ 8,457,000 $ 22,066,942 $ 35,471,114 $ 6,793,507 $ 13,879,459
Cost of revenues....................... 3,438,000 8,704,928 15,513,930 2,665,500 6,252,055
------------ ------------- ------------- ------------ -------------
Gross profit........................... 5,019,000 13,362,014 19,957,184 4,128,007 7,627,404
------------ ------------- ------------- ------------ -------------
Operating expenses:
Research and development............. 2,536,000 3,806,132 7,863,646 1,393,903 2,840,391
Sales and marketing.................. 645,000 1,629,451 4,145,370 833,652 1,542,143
General and administrative........... 463,622 832,548 2,299,346 297,943 758,873
Amortization of deferred stock
compensation....................... -- -- 395,202 -- 239,192
------------ ------------- ------------- ------------ -------------
Total operating expenses............... 3,644,622 6,268,131 14,703,564 2,525,498 5,380,599
------------ ------------- ------------- ------------ -------------
Income from operations................. 1,374,378 7,093,883 5,253,620 1,602,509 2,246,805
Interest income........................ 15,000 38,141 154,058 -- 98,755
Interest expense....................... (2,000) (33,240) (428,507) (6,607) (188,141)
Other income (expense) net............. -- (25,451) (28,173) 25,253 (27,984)
------------ ------------- ------------- ------------ -------------
Income before income taxes............. 1,387,378 7,073,333 4,950,998 1,621,155 2,129,435
Provision for income taxes............. 440,000 2,714,900 1,873,693 568,169 829,000
------------ ------------- ------------- ------------ -------------
Net income............................. $ 947,378 $ 4,358,433 $ 3,077,305 $ 1,052,986 $ 1,300,435
------------ ------------- ------------- ------------ -------------
------------ ------------- ------------- ------------ -------------
Net income per share:
Basic................................ $ 0.02 $ 0.10 $ 0.08 $ 0.03 $ 0.04
------------ ------------- ------------- ------------ -------------
------------ ------------- ------------- ------------ -------------
Diluted.............................. $ 0.02 $ 0.10 $ 0.07 $ 0.03 $ 0.03
------------ ------------- ------------- ------------ -------------
------------ ------------- ------------- ------------ -------------
Shares used in computing net income per
share:
Basic................................ 44,000,000 43,752,877 36,860,000 41,800,000 29,463,905
------------ ------------- ------------- ------------ -------------
------------ ------------- ------------- ------------ -------------
Diluted.............................. 44,000,000 43,752,877 44,937,917 41,800,000 42,609,931
------------ ------------- ------------- ------------ -------------
------------ ------------- ------------- ------------ -------------
Pro forma net income per share:
Basic................................ $ 0.07 $ 0.03
------------- -------------
------------- -------------
Diluted.............................. $ 0.07 $ 0.03
------------- -------------
------------- -------------
Shares used in computing pro forma net
income per share:
Basic................................ 41,166,389 38,445,802
------------- -------------
------------- -------------
Diluted.............................. 44,937,917 42,609,931
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
FINISAR CORPORATION
STATEMENT OF CONVERTIBLE REDEEMABLE PREFERRED STOCK AND
CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
-----------------------------------------
CONVERTIBLE REDEEMABLE
PREFERRED STOCK COMMON STOCK
------------------------ ------------------------- DEFERRED STOCK
SHARES AMOUNT SHARES AMOUNT COMPENSATION
----------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1996......................... -- $ -- 44,000,000 $ 95,200 $ --
Net income and comprehensive income............. -- -- -- -- --
----------- ----------- ----------- ------------ --------------
Balance at April 30, 1997......................... -- -- 44,000,000 95,200 --
Contribution of shares by principal
shareholder................................... -- -- (2,200,000) -- --
Net income and comprehensive income............. -- -- -- -- --
----------- ----------- ----------- ------------ --------------
Balance at April 30, 1998......................... -- -- 41,800,000 95,200 --
Stock options exercised......................... -- -- 5,039,660 1,806,244 --
Issuance of preferred stock at $2.1932 per
share, net of issuance costs of $145,334 12,039,486 26,259,664 -- -- --
Repurchase of common stock at $2.1932 per
share......................................... -- -- (14,457,295) -- --
Deferred stock compensation..................... -- -- -- 2,007,380 (2,007,380)
Amortization of deferred stock compensation..... -- -- -- -- 395,202
Net income and comprehensive income............. -- -- -- -- --
----------- ----------- ----------- ------------ --------------
Balance at April 30, 1999......................... 12,039,486 26,259,664 32,382,365 3,908,824 (1,612,178)
Stock options exercised
(unaudited)................................... -- -- 130,000 164,000 --
Amortization of deferred stock compensation
(unaudited)................................... -- -- -- -- 239,192
Net income and comprehensive income
(unaudited)................................... -- -- -- -- --
----------- ----------- ----------- ------------ --------------
Balance at July 31, 1999 (unaudited).............. 12,039,486 $26,259,664 32,512,365 $ 4,072,824 $(1,372,986)
----------- ----------- ----------- ------------ --------------
----------- ----------- ----------- ------------ --------------
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------------------
NOTES RETAINED TOTAL
RECEIVABLE EARNINGS STOCKHOLDERS'
FROM (ACCUMULATED EQUITY
STOCKHOLDERS DEFICIT) (DEFICIT)
------------ ------------ -------------
<S> <C> <C> <C>
Balance at April 30, 1996......................... $ -- $ 1,045,681 $ 1,140,881
Net income and comprehensive income............. -- 947,378 947,378
------------ ------------ -------------
Balance at April 30, 1997......................... -- 1,993,059 2,088,259
Contribution of shares by principal
shareholder................................... -- -- --
Net income and comprehensive income............. -- 4,358,433 4,358,433
------------ ------------ -------------
Balance at April 30, 1998......................... -- 6,351,492 6,446,692
Stock options exercised......................... (1,520,788) -- 285,456
Issuance of preferred stock at $2.1932 per
share, net of issuance costs of $145,334 -- -- --
Repurchase of common stock at $2.1932 per
share......................................... -- (31,707,739) (31,707,739)
Deferred stock compensation..................... -- -- --
Amortization of deferred stock compensation..... -- -- 395,202
Net income and comprehensive income............. -- 3,077,305 3,077,305
------------ ------------ -------------
Balance at April 30, 1999......................... (1,520,788) (22,278,942) (21,503,084)
Stock options exercised
(unaudited)................................... (150,649) -- 13,351
Amortization of deferred stock compensation
(unaudited)................................... -- -- 239,192
Net income and comprehensive income
(unaudited)................................... -- 1,300,435 1,300,435
------------ ------------ -------------
Balance at July 31, 1999 (unaudited).............. $(1,671,437) $(20,978,507) $ (19,950,106)
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
FINISAR CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS ENDED APRIL 30, JULY 31,
---------------------------------- ---------------------
1997 1998 1999 1998 1999
--------- ---------- ----------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................... $ 947,378 $4,358,433 $ 3,077,305 $1,052,986 $1,300,435
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization.................... 41,127 161,699 432,628 65,027 176,008
Amortization of deferred stock compensation...... -- -- 395,202 -- 239,192
Loss on fixed assets disposal.................... -- 29,963 237,498 -- --
Changes in operating assets and liabilities:
Accounts receivable............................ (764,617) (1,583,937) (3,868,633) (946,732) (905,675)
Inventories.................................... (505,663) (1,780,709) (2,505,005) (492,561) (1,722,918)
Other assets................................... (720) 7,900 (489,481) (4,903) (140,761)
Deferred income taxes.......................... -- (240,622) (660,242) -- --
Accounts payable............................... (53,890) (178,640) 1,129,185 (302,258) 1,120,065
Accrued compensation........................... 20,450 54,758 1,382,703 503,143 (95,949)
Income tax payable............................. -- (298,478) 824,054 61,170 469,000
Other accrued liabilities...................... 109,278 211,928 1,103,436 693,954 473,180
--------- ---------- ----------- --------- ----------
Net cash provided by (used in) operating
activities....................................... (206,657) 742,295 1,058,650 629,826 912,577
--------- ---------- ----------- --------- ----------
INVESTING ACTIVITIES
Purchases of property and equipment................ (143,642) (855,446) (2,099,620) (144,406) (550,418)
--------- ---------- ----------- --------- ----------
Net cash used in investing activities.............. (143,642) (855,446) (2,099,620) (144,406) (550,418)
--------- ---------- ----------- --------- ----------
FINANCING ACTIVITIES
Payments on capital lease obligations.............. -- (37,367) (39,290) -- (15,668)
Proceeds from borrowings under bank note........... -- 500,000 11,015,000 -- --
Repayments of borrowings under bank note........... -- (50,000) (450,000) (25,000) --
Proceeds from issuance of common stock............. -- -- 285,456 -- 13,351
Proceeds from issuance of preferred stock.......... -- -- 26,259,664 -- --
Repurchase of common stock......................... -- -- (31,707,739) -- --
--------- ---------- ----------- --------- ----------
Net cash provided by (used in) financing
activities....................................... -- 412,633 5,363,091 (25,000) (2,317)
--------- ---------- ----------- --------- ----------
Net (decrease) increase in cash and cash
equivalents...................................... (350,299) 299,482 4,322,121 460,420 359,842
Cash and cash equivalents at beginning of period... 772,492 422,193 721,675 721,675 5,043,796
--------- ---------- ----------- --------- ----------
Cash and cash equivalents at end of period......... $ 422,193 $ 721,675 $ 5,043,796 $1,182,095 $5,403,638
--------- ---------- ----------- --------- ----------
--------- ---------- ----------- --------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest............................. $ 1,595 $ 32,659 $ 363,650 $ 6,607 $ 188,141
--------- ---------- ----------- --------- ----------
--------- ---------- ----------- --------- ----------
Cash paid for taxes................................ $ 440,000 $3,254,000 $ 1,709,881 $ 50,699 $ 360,000
--------- ---------- ----------- --------- ----------
--------- ---------- ----------- --------- ----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
ACTIVITIES
Acquisition of property and equipment under capital
lease obligations................................ $ 15,211 $ 132,447 $ -- $ -- $ --
--------- ---------- ----------- --------- ----------
--------- ---------- ----------- --------- ----------
Issuance of common stock in exchange for notes
receivable....................................... $ -- $ -- $ 1,520,788 $ -- $ 150,649
--------- ---------- ----------- --------- ----------
--------- ---------- ----------- --------- ----------
Deferred stock compensation related to
options granted.................................. $ -- $ -- $ 2,007,380 $ -- $ --
--------- ---------- ----------- --------- ----------
--------- ---------- ----------- --------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
FINISAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Finisar Corporation ("Finisar" or the "Company") was incorporated in the
state of California on April 17, 1987. Finisar designs, manufactures, and
markets fiber optic subsystems and network performance test systems for
high-speed data communications.
INTERIM FINANCIAL INFORMATION
The interim financial information at July 31, 1999 and for the three months
ended July 31, 1998 and 1999 is unaudited but, in the opinion of management, has
been prepared on the same basis as the annual financial statements and includes
all adjustments (consisting only of normal recurring adjustments) that Finisar
considers necessary for a fair presentation of its financial position at such
date and its operating results and cash flows for those periods. Results for the
interim period are not necessarily indicative of the results to be expected for
the entire year, or any future period.
FISCAL PERIODS
In fiscal 2000, the Company began to maintain its financial records on the
basis of a fiscal year ending on April 30, with fiscal quarters ending on the
Sunday closest to the end of the period (thirteen week periods). For ease of
reference, all references to period end dates have been presented as though the
period ended on the last day of the calender month. The first quarter of fiscal
2000 ended on August 1, 1999.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
REVENUE RECOGNITION
Revenue is recognized at the time of product shipment, net of allowances for
estimated returns. Warranty expenses are also estimated and provided for at the
time of shipment.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject Finisar to concentrations of
credit risk include cash and cash equivalents and accounts receivable. Finisar
places its cash and cash equivalents with high-credit quality financial
institutions. At times, such investments may be in excess of FDIC insurance
limits. Concentrations of credit risk, with respect to accounts receivable,
exist to the extent of amounts presented in the financial statements. Accounts
receivable from two customers represented 32.3% and 33.2% of the total balance
at April 30, 1998, 32.2% and 18.2% at April 30, 1999 and 23.5% and 28.5% at July
31, 1999, respectively. Generally, Finisar does not require collateral or other
security to support customer receivables. Finisar performs periodic credit
evaluations of its customers and maintains an allowance for potential credit
losses based on historical experience and other information available to
management. Losses to date have been within management's expectations.
F-7
<PAGE>
FINISAR CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CURRENT VULNERABILITIES DUE TO CERTAIN CONCENTRATIONS
Finisar sells products primarily to customers located in North America.
During fiscal 1997, 1998, and 1999, revenues from two customers represented
41.4% and 1.2%, and 43.9% and 14.6%, and 25.1% and 20.8% of total revenues,
respectively (34.9% and 19.0% in the quarter ended July 31, 1999).
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as incurred.
CASH AND CASH EQUIVALENTS
Finisar's cash equivalents consist of money market funds with qualified
financial institutions. Finisar considers all highly liquid investments with an
original maturity from the date of purchase of three months or less to be cash
equivalents.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets, generally five years.
STOCK-BASED COMPENSATION
Finisar accounts for employee stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion No. 25") and has adopted the disclosure-only
alternative of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123").
NET INCOME PER SHARE
Basic and diluted net income per share are presented in accordance with SFAS
No. 128, "Earnings Per Share" ("SFAS 128"), for all periods presented. Pursuant
to Securities and Exchange Commission Staff Accounting Bulletin No. 98, common
shares and convertible preferred shares issued or granted for nominal
consideration prior to the anticipated effective date of Finisar's initial
public offering (the "Offering," see Note 10) should be included in the
calculation of basic and diluted net income per share as if they had been
outstanding for all periods presented. To date, Finisar has not had any
issuances or grants for nominal consideration.
Basic net income per share has been computed using the weighted-average
number of shares of common stock outstanding during the period. Diluted net
income per share has been computed using the weighted-average number of shares
of common stock and dilutive potential common shares from options (under the
treasury stock method) and convertible redeemable preferred stock (on an if-
converted basis) outstanding during the period. Basic and diluted pro forma net
income per share have been computed as described above and also give effect to
the conversion of all convertible redeemable preferred stock which automatically
convert upon the completion of the Company's initial public offering.
F-8
<PAGE>
FINISAR CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents the calculation of basic and diluted and pro
forma basic and pro forma diluted net income per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY
FISCAL YEARS ENDED APRIL 30, 31,
---------------------------------------- --------------------------
1997 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income............................. $ 947,378 $ 4,358,433 $ 3,077,305 $ 1,052,986 $ 1,300,435
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Historical:
Denominator for basic net income per
share:
Weighted-average shares
outstanding--basic................... 36,860,000 29,463,905
Effect of dilutive securities:
Employee stock options................. -- -- 728,448 -- 1,240,289
Stock subject to repurchase............ -- -- 3,043,080 -- 2,923,840
Convertible redeemable preferred
stock................................ -- -- 4,306,389 -- 8,981,897
------------ ------------ ------------ ------------ ------------
Dilutive potential common shares......... -- -- 8,077,917 -- 13,146,026
------------ ------------ ------------ ------------ ------------
Denominator for diluted net income per
share.................................. 44,000,000 43,752,877 44,937,917 41,800,000 42,609,931
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Basic net income per share............... $ 0.02 $ 0.10 $ 0.08 $ 0.03 $ 0.04
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Diluted net income per share............. $ 0.02 $ 0.10 $ 0.07 $ 0.03 $ 0.03
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Denominator for pro forma basic net
income per share:
Weighted average shares
outstanding--basic................... 36,860,000 29,463,905
Convertible redeemable preferred
stock................................ 4,306,389 8,981,897
------------ ------------
Weighted-average shares
outstanding--pro forma basic......... 41,166,389 38,445,802
------------ ------------
Effect of dilutive securities:
Employee stock options................. 728,448 1,240,289
Stock subject to repurchase............ 3,043,080 2,923,840
------------ ------------
Pro forma dilutive potential common
shares................................. 3,771,528 4,164,129
------------ ------------
Denominator for pro forma diluted net
income per share....................... 44,937,917 42,609,931
------------ ------------
------------ ------------
Pro forma basic net income per share..... $ 0.07 $ 0.03
------------ ------------
------------ ------------
Pro forma diluted net income per share... $ 0.07 $ 0.03
------------ ------------
------------ ------------
</TABLE>
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
If the Offering is consummated, all of the convertible redeemable preferred
stock will be automatically converted into common stock and redeemable preferred
stock upon completion of the
F-9
<PAGE>
FINISAR CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
offering (see Note 10). Unaudited pro forma stockholders' equity at July 31,
1999, as adjusted for the assumed conversion of such shares, is disclosed on the
balance sheets.
COMPREHENSIVE INCOME
Effective May 1, 1998, Finisar adopted Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income". Comprehensive income is equal to net income for all
periods presented and has been disclosed in the statement of stockholders'
equity.
SEGMENT REPORTING
Effective May 1, 1998, Finisar adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 superseded SFAS No. 14, "Financial Reporting
for Segments of a Business Enterprise." SFAS 131 establishes standards for the
way that public business enterprises report information about operating segments
in interim financial reports. SFAS 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The adoption of SFAS 131 did not affect Finisar's results of operations or
financial position.
EFFECT OF NEW ACCOUNTING STATEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). Finisar is required to adopt SFAS 133 for the year ending April 30, 2002.
SFAS 133 establishes methods of accounting for derivative financial instruments
and hedging activities. Because Finisar currently holds no derivative financial
instruments as defined by SFAS 133 and does not currently engage in hedging
activities, adoption of SFAS 133 is not expected to have a material effect on
Finisar's financial condition or results of operations.
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use" ("SOP 98-1"). SOP 98-1 requires that entities capitalize
certain costs related to internal use software once certain criteria have been
met. Finisar is required to implement SOP 98-1 for the year ending April 30,
2000. Adoption of SOP 98-1 is not expected to have a material effect on
Finisar's financial condition or results of operations.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
presentation.
F-10
<PAGE>
FINISAR CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
-------------------------- JULY 31,
1998 1999 1999
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials........................................................... $ 1,546,445 $ 2,907,811 $ 3,717,834
Work-in-process......................................................... 988,788 1,763,038 2,856,203
Finished goods.......................................................... 196,090 565,479 385,209
------------ ------------ ------------
$ 2,731,323 $ 5,236,328 $ 6,959,246
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
-------------------------- JULY 31,
1998 1999 1999
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment...................................................... $ 505,343 $ 839,547 $ 1,011,128
Office equipment, furniture, and fixtures............................... 422,852 445,421 445,421
Research and development equipment...................................... 215,888 1,021,549 1,185,272
Manufacturing equipment................................................. 146,583 773,352 988,466
------------ ------------ ------------
1,290,666 3,079,869 3,630,287
Accumulated depreciation and amortization............................... (238,425) (598,134) (774,142)
------------ ------------ ------------
Property and equipment, net............................................. $ 1,052,241 $ 2,481,735 $ 2,856,145
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Finisar has financed $132,447 of equipment purchased under capital lease
arrangements as of April 30, 1998 and 1999 and July 31, 1999. Accumulated
amortization of assets acquired under capital leases was $17,063, $43,552 and
$50,174 at April 30, 1998 and 1999 and July 31, 1999, respectively.
F-11
<PAGE>
FINISAR CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. COMMITMENTS
Future minimum payments under noncancelable capital and operating lease
agreements are as follows as of April 30, 1999:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASE LEASE
------------ ----------
<S> <C> <C>
Fiscal years ending April 30:
2000.......................................................... $ 349,300 $ 59,176
2001.......................................................... 363,128 17,144
2002.......................................................... 377,650 --
2003.......................................................... 31,572 --
------------ ----------
Total minimum payments required................................. $ 1,121,650 76,320
------------
------------
Amount representing interest.................................... (5,319)
----------
Present value of future lease payments.......................... 71,001
Current portion................................................. (53,539)
----------
Long-term portion............................................... $ 17,462
----------
----------
</TABLE>
Rent expense was approximately $77,034, $412,000, $366,905 and $136,822 for
the years ended April 30, 1997, 1998, and 1999 and the quarter ended July 31,
1999.
In August 1999, Finisar entered into a new facility operating lease. This
lease is non-cancellable and has a term of 7 years. Future lease payments for
fiscal years 2000, 2001, 2002, 2003, and thereafter are $580,306, $1,012,944,
$1,044,032, $1,075,120 and $3,904,110, respectively.
5. LOAN AGREEMENT
On November 4, 1998, Finisar borrowed the principal amount of $11,015,000
under a secured term loan agreement and entered into a secured revolving loan
facility for additional borrowings of up to $6,500,000. The revolving loan
facility expires in April 2003. No amounts were outstanding under the revolving
loan facility at April 30, 1999 or July 31, 1999. All business assets have been
pledged as collateral for borrowings under the term loan and the revolving loan
facility.
The term loan is repayable quarterly, commencing April 30, 2001. Quarterly
repayment amounts are $275,375, $826,125, and $1,652,250 in 2001, 2002, and
2003, respectively. Interest is payable monthly on the outstanding principal
amount of borrowings under the term loan and the revolving loan facility at the
effective prime or LIBOR rate (7.04% at April 30, 1999 and July 31, 1999).
Finisar believes that as of April 30, 1999, the fair value of the term loan
approximates its carrying value.
The loan agreement contains certain financial covenants and currently
prohibits the payment of dividends. At April 30, 1999 and July 31, 1999, Finisar
was in compliance with those covenants.
6. CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
Finisar's Articles of Incorporation provide for the issuance of up to
75,000,000 shares of common stock. The holder of each share of common stock
shall have the right to one vote.
F-12
<PAGE>
FINISAR CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
Common stock subject to future issuance is as follows:
<TABLE>
<CAPTION>
JULY 31,
1999
APRIL 30, ------------
1999
------------ (UNAUDITED)
<S> <C> <C>
Conversion of convertible redeemable preferred stock.............. 8,981,897 8,981,897
Exercise of outstanding options................................... 1,486,540 1,356,540
Common stock available for grant under stock option
plans........................................................... 6,535,000 6,535,000
------------ ------------
17,003,437 16,873,437
------------ ------------
------------ ------------
</TABLE>
CONVERTIBLE REDEEMABLE PREFERRED STOCK
Holders of convertible redeemable preferred stock are entitled to non
cumulative dividends at an annual rate equal to $0.1316 per share (adjusted for
stock splits and like events), in preference to other stockholders if, when and
as declared by the board of directors. No dividends have been declared as of
April 30, 1999 or July 31, 1999.
The holders of outstanding convertible redeemable preferred stock, voting as
a single class, are entitled to appoint one director of Finisar. In all other
matters, each holder of convertible redeemable preferred stock has voting rights
based on the number of shares of common stock into which the preferred stock is
convertible, as described below.
The holders of outstanding convertible redeemable preferred stock are
entitled to receive upon liquidation and in certain other circumstances (a
merger, acquisition, or similar event), an amount per share of $2.1932 plus all
accrued but unpaid dividends (including any unpaid interest on such amounts).
Any remaining assets shall be distributed on a pro rata basis among the holders
of all common stock and preferred stock (on an if-converted basis).
Upon the approval of the holders of a majority of the outstanding shares of
convertible redeemable preferred stock, the convertible redeemable preferred
stock will be redeemed by Finisar for cash in three installments of the
following percentages on the following dates: November 6, 2004 (33.3%); November
6, 2005 (50%); and November 6, 2006 (16.7%). The redemption price for each share
is $2.1932 plus all accrued but unpaid dividends (including any unpaid interest
on such amounts). At the option of each individual holder of convertible
redeemable preferred stock, each share of convertible redeemable preferred stock
is convertible, without any payment of additional consideration, into one fully
paid share of redeemable preferred stock and one fully paid share of common
stock (adjusted for stock splits, stock sales, issue of options, warrants, and
like events). Upon the closing of an underwritten public offering prior to July
30, 2000 (in which the aggregate net proceeds exceed $20,000,000) each share of
convertible redeemable preferred stock will be automatically converted into one
fully paid share of redeemable preferred stock and a fraction of a fully paid
share of common stock as determined under a formula contained in the Articles of
Incorporation. If the public offering price exceeds $7.0955 per share, each
share of convertible redeemable preferred stock will be automatically converted
into approximately 0.746 shares of common stock.
On November 6, 1998 and November 25, 1998, Finisar issued an aggregate of
12,039,486 shares of convertible redeemable preferred stock to investors at
$2.1932 per share, resulting in gross cash proceeds of $26,405,000.
F-13
<PAGE>
FINISAR CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
REDEEMABLE PREFERRED STOCK
Holders of outstanding redeemable preferred stock are entitled to non
cumulative dividends at an annual rate equal to $0.0381 per share (adjusted for
stock splits and like events), in preference to holders of common stock as and
when declared by the board of directors. No dividends have been declared as of
April 30, 1999 or July 31, 1999.
The holders of redeemable preferred stock have no voting rights.
The holders of redeemable preferred stock are entitled to receive upon
liquidation and in certain other circumstances (a merger, acquisition, or
similar event), an amount per share of $0.6345 plus all accrued but unpaid
dividends (including any unpaid interest on such amounts).
Upon the approval of the majority of redeemable preferred stockholders, the
redeemable preferred shares must be redeemed by Finisar for cash. The redemption
price for each share shall be $0.6345 plus all accrued but unpaid dividends
(including any unpaid interest on such amounts). Upon the closing of an
underwritten public offering, Finisar may elect at any time, to redeem in cash
all of the outstanding shares of redeemable preferred stock.
At any time after the sixth anniversary of the issuance of the redeemable
preferred stock, any holder of redeemable preferred stock can require Finisar to
redeem in cash up to 33% of the outstanding shares of redeemable preferred stock
held at that time. This redemption percentage increase to 66% after the seventh
anniversary and to 100% on the eighth anniversary of the issuance of shares.
At April 30, 1999 and July 31, 1999, no redeemable preferred stock had been
issued.
STOCK PLANS
As discussed in Note 1 and as permitted under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), Finisar has elected to follow APB Opinion No. 25 and related
interpretations in accounting for stock-based awards to employees.
During fiscal 1989 and 1999, Finisar adopted the 1989 and 1999 Stock Option
Plans (the "Plans"). Under the Plans, 34,300,000 shares of Finisar's common
stock are reserved for issuance upon exercise of options that may be granted to
eligible participants. Under the Plans, options to purchase common stock may be
granted at an exercise price of not less than 85% of the fair value of a share
of common stock on the date of grant (110% of the fair value in certain
instances) as determined by the board of directors. For purposes of determining
the fair market value of the common stock, the board of directors has considered
a number of factors including appraisals by independent third parties, the price
paid for convertible redeemable preferred stock in arms'-length transactions and
the illiquid nature of the common stock. Options generally vest over five years
and have a maximum term of 10 years. All options granted under the Plans are
immediately exercisable. As of April 30, 1999, 3,043,080 shares issued upon
exercise of options are subject to repurchase (2,923,840 shares at July 31,
1999).
F-14
<PAGE>
FINISAR CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
A summary of activity under the Plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING WEIGHTED-
OPTIONS ---------------------------- AVERAGE
AVAILABLE FOR NUMBER OF EXERCISE
GRANT SHARES PRICE PER SHARE PRICE
------------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
Balance at April 30, 1996........................... 18,430,800 7,269,200 $ 0.0027-$0.02 $ 0.0033
Options granted................................... (442,000) 442,000 $ 0.05 $ 0.05
Options canceled.................................. 7,000,000 (7,000,000) $ 0.0027 $ 0.0027
------------- ----------- --------------- -------------
Balance at April 30, 1997........................... 24,988,800 711,200 $ 0.0125-$0.05 $ 0.038
Options granted................................... (2,937,000) 2,937,000 $ 0.13 $ 0.13
Options canceled.................................. 22,000 (22,000) $ 0.05 $ 0.05
------------- ----------- --------------- -------------
Balance at April 30, 1998........................... 22,073,800 3,626,200 $ 0.0125-$0.13 $ 0.1125
Decrease in authorized shares..................... (12,638,800) -- -- --
Options granted................................... (2,900,000) 2,900,000 $ 0.15-$1.31 $ 0.7029
Options exercised................................. -- (5,039,660) $ 0.0125-$1.31 $ 0.3593
------------- ----------- --------------- -------------
Balance at April 30, 1999........................... 6,535,000 1,486,540 $ 0.05-$1.31 $ 0.5693
Options exercised (unaudited)..................... -- (130,000) $ 0.05-$1.31 $ 1.2615
------------- ----------- --------------- -------------
Balance at July 31, 1999 (unaudited)................ 6,535,000 1,356,540 $ 0.05-$1.31 $ 0.5029
------------- ----------- --------------- -------------
------------- ----------- --------------- -------------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
----------------------------------------------------
NUMBER WEIGHTED- WEIGHTED-
OUTSTANDING AT AVERAGE REMAINING AVERAGE
EXERCISE PRICE APRIL 30, 1999 CONTRACTUAL LIFE EXERCISE PRICE
- ----------------------------------------------------------------- -------------- ------------------- ---------------
(IN YEARS)
<S> <C> <C> <C>
$0.05............................................................ 107,000 7.72 $ 0.05
$0.13............................................................ 691,540 8.76 $ 0.13
$0.15............................................................ 116,000 9.18 $ 0.15
$0.26............................................................ 15,000 9.32 $ 0.26
$1.31............................................................ 557,000 9.81 $ 1.31
--------------
$0.05-$1.31...................................................... 1,486,540 9.12
--------------
--------------
</TABLE>
The weighted-average fair value of options granted during fiscal 1999 was
$0.15.
RESTRICTED SHARES ISSUED FOR PROMISSORY NOTES
During fiscal 1999, employees exercised options for 2,646,308 shares of
common stock in exchange for promissory notes in the aggregate principal amount
of $1,520,788. The notes are full recourse, are secured by the shares and bear
interest at a rate of 6% per annum. The shares are restricted and are subject to
a right of repurchase at the original exercise price in favor of Finisar. This
repurchase right lapses in accordance with the original vesting schedule of the
option, which is generally five years.
F-15
<PAGE>
FINISAR CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
DEFERRED STOCK COMPENSATION
In connection with the grant of certain stock options to employees, Finisar
recorded deferred stock compensation of $2,007,380 during fiscal 1999,
representing the difference between the deemed value of common stock for
accounting purposes and the option exercise price of these options at the date
of grant. Deferred compensation is presented as a reduction of stockholders'
equity, with graded amortization recorded over the five year vesting period. The
Company recorded amortization of deferred stock compensation of approximately
$395,000 and $239,000 during these periods based on a graded vesting method. At
July 31, 1999, approximately $1,400,000 remained to be amortized on a graded
vesting method over the corresponding vesting period of each respective option,
generally five years. The amortization expense relates to options awarded to
employees in all operating expense categories. The amount of deferred
compensation expense to be recorded in future periods could decrease if options
for which accrued but unvested compensation has been recorded are forfeited.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Pro forma information regarding net income is required by SFAS 123 as if
Finisar had accounted for its employee stock options granted subsequent to April
30, 1995 under the fair value method of SFAS 123. The fair value for Finisar's
stock option grants was estimated at the date of grant using the minimum value
option valuation model. The minimum value option valuation model was developed
for use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions. Because Finisar's
stock-based awards have characteristics significantly different from those of
traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its stock-based awards. The fair value of these options was estimated at the
date of grant using the minimum value method option pricing model with the
following weighted-average assumptions for fiscal years 1997, 1998, and 1999:
risk-free interest rates of 6% for 1997 and 1998 and 5.5% for 1999; a dividend
yield of 0%; and a weighted-average expected life of the option of four years.
F-16
<PAGE>
FINISAR CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Finisar
Corporation's pro forma information is as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
APRIL 30,
----------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net income:
As reported....................................... $ 947,378 $ 4,358,433 $ 3,077,305
------------ ------------ ------------
------------ ------------ ------------
Pro forma......................................... $ 946,924 $ 4,332,764 $ 3,032,651
------------ ------------ ------------
------------ ------------ ------------
Basic net income per share:
As reported....................................... $ 0.02 $ 0.10 $ 0.08
------------ ------------ ------------
------------ ------------ ------------
Pro forma......................................... $ 0.02 $ 0.10 $ 0.07
------------ ------------ ------------
------------ ------------ ------------
Diluted net income per share:
As reported....................................... $ 0.02 $ 0.10 $ 0.06
------------ ------------ ------------
------------ ------------ ------------
Pro Forma......................................... $ 0.02 $ 0.10 $ 0.06
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
7. INCOME TAXES
Finisar's provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
--------------------------------------
1997 1998 1999
---------- ------------ ------------
<S> <C> <C> <C>
Current:
Federal............................................. $ 422,773 $ 2,390,613 $ 1,995,827
State............................................... 122,740 564,909 538,107
---------- ------------ ------------
545,513 2,955,522 2,533,934
Deferred:
Federal............................................. (81,773) (225,479) (508,263)
State............................................... (23,740) (15,143) (151,978)
---------- ------------ ------------
(105,513) (240,622) (660,241)
---------- ------------ ------------
Provision for income taxes............................ $ 440,000 $ 2,714,900 $ 1,873,693
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
Finisar provision for income taxes differs from the amount computed by
applying the federal statutory rate to income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Expected income tax provision at U.S. federal statutory rate
(34%).......................................................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit.............................. 5.0 5.0 4.8
Research & development credits................................... (7.0) (0.8) (4.0)
Other permanent differences...................................... (0.3) 0.2 3.0
--------- --------- ---------
31.7% 38.4% 37.8%
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-17
<PAGE>
FINISAR CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Significant components of Finisar's deferred federal and state income taxes
are as follows:
<TABLE>
<CAPTION>
APRIL 30,
------------------------
1998 1999
---------- ------------
<S> <C> <C>
Deferred tax assets:
Inventory reserve................................................. $ 164,934 $ 503,049
Accruals not currently deductible................................. 235,587 679,639
---------- ------------
Total deferred tax assets........................................... 400,521 1,182,688
Deferred tax liabilities:
Tax depreciation over book depreciation............................. (13,321) (135,246)
---------- ------------
Net deferred tax assets............................................. $ 387,200 $ 1,047,442
---------- ------------
---------- ------------
</TABLE>
8. SEGMENTS AND GEOGRAPHIC INFORMATION
Finisar operates in one industry segment, the design, manufacture, and
marketing of fiber optic subsystems and network performance test systems for
high-speed data communications. The following is a summary of operations within
geographic areas based on the location of the entity purchasing the Company's
product:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
------------------------------------------
1997 1998 1999
------------ ------------- ------------- THREE MONTHS
ENDED JULY
31, 1999
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues from sales to unaffiliated customers:
United States....................................... $ 4,676,165 $ 9,877,244 $ 24,822,399 $ 8,128,699
Canada.............................................. 3,573,479 9,695,295 8,940,592 4,876,732
Rest of the World................................... 207,356 2,494,403 1,708,123 874,028
------------ ------------- ------------- -------------
$ 8,457,000 $ 22,066,942 $ 35,471,114 $ 13,879,459
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
Revenues generated in the U.S. and Canada (collectively, North America) are
all to customers located in those geographic regions.
9. PENDING LITIGATION
In April 1999, Methode Electronics, a manufacturer of electronic component
devices, filed a lawsuit against Finisar and another manufacturer,
Hewlett-Packard Co., in the United States District Court for the Northern
District of Illinois alleging that Finisar's optoelectronic products infringe
four patents held by Methode. The lawsuit seeks monetary damages and injunctive
relief. In August 1999, the Court granted a motion to transfer the case to the
United States District Court for the Northern District of California. It is
Finisar's position that the Methode patents are invalid, unenforceable and/or
not infringed by Finisar's products. Finisar believes that it has strong
defenses against Methode's lawsuit, and Finisar intends to defend the suit
vigorously and does not believe it will have a material impact on its results of
operations or financial position. However, the litigation is in the preliminary
stage, and Finisar cannot predict its outcome. The litigation process is
inherently uncertain. Patent litigation is particularly complex and can extend
for a protracted time, which can substantially increase the cost of such
litigation. Should the outcome of the litigation be adverse, Finisar could be
required to
F-18
<PAGE>
FINISAR CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. PENDING LITIGATION (CONTINUED)
pay significant monetary damages to Methode and could be enjoined from selling
those of Finisar's products found to infringe Methode's patents unless and until
Finisar is able to negotiate a license from Methode. If Finisar is required to
pay significant monetary charges, is enjoined from selling any of Finisar's
products or is required to make royalty payments pursuant to any such business
agreement, Finisar's business would be significantly harmed.
10. EVENTS SUBSEQUENT TO THE DATE OF THE AUDIT REPORT
The board of directors has authorized Finisar to file a registration
statement with the U.S. Securities and Exchange Commission for an initial public
offering of its common stock. If the offering is consummated under the terms
presently anticipated, all of the currently outstanding shares of convertible
redeemable preferred stock will be automatically converted into 8,981,897 shares
of common stock and 12,039,486 shares of redeemable preferred stock and all
shares of such redeemable preferred stock will be redeemed for approximately
$2,640,000 from the net proceeds of the offering.
REINCORPORATION
In September 1999, Finisar's board of directors authorized the
reincorporation of the Company in the state of Delaware. Following the
reincorporation, Finisar will be authorized to issue 200,000,000 shares of
$0.001 par value common stock and 5,000,000 shares of $0.001 par value preferred
stock. The board of directors has the authority to issue the undesignated
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof.
1999 EMPLOYEE STOCK PURCHASE PLAN
Finisar's 1999 Employee Stock Purchase Plan was adopted by the board of
directors and approved by the stockholders in September 1999. A total of 250,000
shares of common stock are reserved for issuance under the plan, cumulatively
increased by 250,000 shares on May 1, 2001 and each May 1 thereafter through May
1, 2010. Employees, including officers and employee directors, are eligible to
participate in the plan if they are employed by Finisar for more than 20 hours
per week and more than five months in any calendar year. The plan will be
implemented during sequential 12-month offering periods, generally commencing on
or about December 1 of each year. However, the first such offering period will
commence on the effective date of the offering and will terminate on November
30, 2000. In addition, a six-month offering period will generally commence on
June 1 of each year.
The employee stock purchase plan permits eligible employees to purchase
Finisar common stock through payroll deductions, which may not exceed 20% of the
employee's total compensation. Stock may be purchased under the plan at a price
equal to 85% of the fair market value of Finisar common stock on either the
first or the last day of the offering period, whichever is lower.
1999 STOCK OPTION PLAN
Finisar's 1999 Stock Option Plan was amended by the board of directors and
approved by the stockholders in September 1999. The amendment increased the
aggregate maximum number of shares that may be issued under the Plan on May 1,
2001 and each May 1 thereafter by a number of shares equal to 5% of the number
of shares of Finisar's common stock issued and outstanding as of the immediately
preceding April 30, subject to certain restrictions on the aggregate maximum
number of shares that may be issued pursuant to incentive stock options.
F-19
<PAGE>
[INSIDE BACK COVER]
[FINISAR LOGO]
FIBER OPTIC SOLUTIONS FOR GIGABIT ETHERNET AND FIBRE CHANNEL
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 1999, (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
7,700,000 SHARES
[FINISAR LOGO]
COMMON STOCK
------------------
P R O S P E C T U S
------------------
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
SOUNDVIEW TECHNOLOGY GROUP
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all costs and expenses, other than the
underwriting discounts and commissions payable by the Registrant in connection
with the sale and distribution of the common stock being registered. All amounts
shown are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market application
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 34,464
NASD filing fee................................................. 12,000
Nasdaq National Market application fee.......................... 95,000
Blue sky qualification fees and expenses........................ 6,000
Printing and engraving expenses................................. 150,000
Legal fees and expenses......................................... 300,000
Accounting fees and expenses.................................... 240,000
Director and officer liability insurance........................ 300,000
Transfer agent and registrar fees............................... 7,500
Miscellaneous expenses.......................................... 55,036
---------
Total......................................................... $1,200,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's certificate of
incorporation and bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements (Exhibit
10.1) with its directors and officers which would 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 willful
misconduct of a culpable nature). The Registrant also intends to maintain
director and officer liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnification agreements may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of the Registrant and its officers and directors for certain
liabilities arising under the Securities Act, or otherwise.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
See also related undertakings in Item 17 below.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Since July 31, 1996, Finisar has issued and sold the following
unregistered securities:
1. From inception through July 31, 1999, Finisar issued options to
purchase an aggregate of 40,328,200 shares of common stock under its 1989
and 1999 stock options plans, of which 6,769,660 have been exercised.
2. In November 1998, Finisar sold 12,039,486 shares of its convertible
redeemable preferred stock to certain investors at a purchase price of
$2.1932 per share, for an aggregate purchase price of $26,405,000.
There were no underwriters employed in connection with any of the
transactions set forth in this Item 15.
The issuances described in Items 15(a)(1) and 15(a)(2) were deemed 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.
Certain issuances described in Item 15(a)(1) were deemed exempt from
registration under the Securities Act in reliance on Section 4(2) or 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 Finisar or had access, through
employment or other relationships, to such information.
For additional information concerning these equity investment transactions,
see the section entitled "Certain Transactions" in the prospectus.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Purchase Agreement
3.1 Amended and Restated Articles of Incorporation of Registrant
3.2 Amended and Restated Bylaws of Registrant
3.3 Certificate of Incorporation of Registrant (Delaware)
3.4 Bylaws of Registrant (Delaware)
3.5 Form of Restated Certificate of Incorporation of Registrant to be filed after the closing of the
offering
4.1 Specimen certificate representing the common stock
5.1 Opinion of Gray Cary Ware & Freidenrich LLP
10.1 Form of Indemnity Agreement between Registrant and Registrant's directors and officers
10.2 1989 Stock Option Plan
*10.3 1999 Stock Option Plan
*10.4 1999 Employee Stock Purchase Plan
10.5 Securities Purchase Agreement between Registrant and certain investors, dated as of November 6, 1998
10.6 Shareholders' Agreement among Registrant and certain of its shareholders, dated as of November 6, 1998
10.7 Voting Agreement among Registrant and certain of its shareholders, dated as of November 6, 1998
10.8 Loan Agreement between Registrant and Fleet National Bank, dated as of November 6, 1998
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.9 Security Agreement between Registrant and Fleet National Bank, dated as of November 4, 1998
10.10 Security Agreement Re: Contracts, Leases, License and Permits between Registrant and Fleet National
Bank, dated as of November 4, 1998
10.11 Building Office Lease for 582 Market Street, Suite 609-610, San Francisco, CA, dated December 17, 1996
between Registrant and Niantic Corporation
10.12 Building Lease for 274 Ferguson Drive, Mountain View, CA, dated April 30, 1997 between Registrant and
DM Group VIII and DM Group VIII-E
10.13 Building Lease for 1308 Moffett Park Drive, Sunnyvale, CA, dated May 26, 1999 between Registrant and
Aetna Life Insurance Company
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
*24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES.
The following financial statement schedule of Finisar is filed as part of
this Registration Statement and should be read in conjunction with the financial
statements and related notes.
<TABLE>
<CAPTION>
SCHEDULE PAGE
- ----------------------------------------------------------------------------------------------------------- -----------
<S> <C>
II -- Valuation and Qualifying Accounts.................................................................... S-1
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
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 Commission such indemnification is against public policy
as expressed in the Securities Act, and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered 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,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to
II-3
<PAGE>
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, 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 the time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this amendment no. 1 to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Sunnyvale, State of
California, on October 18, 1999
FINISAR CORPORATION
BY: /S/ STEPHEN K. WORKMAN
-----------------------------------------
Stephen K. Workman
VICE PRESIDENT, FINANCE,
CHIEF FINANCIAL OFFICER
AND SECRETARY
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------------- -------------
/s/ JERRY S. RAWLS* President and Chief Executive October 18,
- ------------------------------ Officer (PRINCIPAL EXECUTIVE 1999
Jerry S. Rawls OFFICER)
/s/ FRANK H. LEVINSON* Chairman of the Board and Chief October 18,
- ------------------------------ Technical Officer 1999
Frank H. Levinson
Vice President, Finance, Chief October 18,
/s/ STEPHEN K. WORKMAN Financial Officer and Secretary 1999
- ------------------------------ (PRINCIPAL FINANCIAL AND
Stephen K. Workman ACCOUNTING OFFICER)
/s/ MICHAEL C. CHILD* Director October 18,
- ------------------------------ 1999
Michael C. Child
/s/ ROGER C. FERGUSON* Director October 18,
- ------------------------------ 1999
Roger C. Ferguson
<TABLE>
<S> <C> <C> <C>
*By: /s/ STEPHEN K. WORKMAN
-------------------------
Stephen K. Workman
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
FINISAR CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT ----------------------------
BEGINNING CHARGED TO CHARGED TO BALANCE AT
OF COSTS AND OTHER DEDUCTIONS-- END OF
PERIOD EXPENSES ACCOUNTS WRITE-OFFS PERIOD
----------- ----------- --------------- --------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended April 30, 1997..................... $ -- $ -- $ -- $ -- $ --
Year ended April 30, 1998..................... -- 16,538 -- -- 16,538
Year ended April 30, 1999..................... 16,538 248,600 -- -- 265,138
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Purchase Agreement
3.1 Amended and Restated Articles of Incorporation of Registrant
3.2 Amended and Restated Bylaws of Registrant
3.3 Certificate of Incorporation of Registrant (Delaware)
3.4 Bylaws of Registrant (Delaware)
3.5 Form of Restated Certificate of Incorporation of Registrant to be filed after the closing of the
offering
4.1 Specimen certificate representing the common stock
5.1 Opinion of Gray Cary Ware & Freidenrich LLP
10.1 Form of Indemnity Agreement between Registrant and Registrant's directors and officers
10.2 1989 Stock Option Plan
*10.3 1999 Stock Option Plan
*10.4 1999 Employee Stock Purchase Plan
10.5 Securities Purchase Agreement between Registrant and certain investors, dated as of November 6, 1998
10.6 Shareholders' Agreement among Registrant and certain of its shareholders, dated as of November 6, 1998
10.7 Voting Agreement among Registrant and certain of its shareholders, dated as of November 6, 1998
10.8 Loan Agreement between Registrant and Fleet National Bank, dated as of November 6, 1998
10.9 Security Agreement between Registrant and Fleet National Bank, dated as of November 4, 1998
10.10 Security Agreement Re: Contracts, Leases, License and Permits between Registrant and Fleet National
Bank, dated as of November 4, 1998
10.11 Building Office Lease for 582 Market Street, Suite 609-610, San Francisco, CA, dated December 17, 1996
between Registrant and Niantic Corporation
10.12 Building Lease for 274 Ferguson Drive, Mountain View, CA, dated April 30, 1997 between Registrant and
DM Group VIII and DM Group VIII-E
10.13 Building Lease for 1308 Moffett Park Drive, Sunnyvale, CA, dated May 26, 1999 between Registrant and
Aetna Life Insurance Company
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
*24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Exhibit 1.1
[Draft of 09/28/99]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINISAR CORPORATION
(a Delaware corporation)
__________ Shares of Common Stock
PURCHASE AGREEMENT
Dated: _________, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. Representations and Warranties.....................................................3
SECTION 2. Sale and Delivery to Underwriters; Closing........................................11
SECTION 3. Covenants of the Company..........................................................12
SECTION 4. Payment of Expenses...............................................................15
SECTION 5. Conditions of Underwriters' Obligations...........................................16
SECTION 6. Indemnification...................................................................19
SECTION 7. Contribution......................................................................22
SECTION 8. Representations, Warranties and Agreements to Survive Delivery....................23
SECTION 9. Termination of Agreement..........................................................24
SECTION 10. Default by One or More of the Underwriters........................................24
SECTION 11. Default by the Company............................................................25
SECTION 12. Notices...........................................................................25
SECTION 13. Parties...........................................................................26
SECTION 14. Governing Law and Time............................................................26
SECTION 15. Effect of Headings................................................................26
</TABLE>
i
<PAGE>
FINISAR CORPORATION
(a Delaware corporation)
___________ Shares of Common Stock
(Par Value $_____ Per Share)
PURCHASE AGREEMENT
_______, 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
J.P. Morgan & Co.
Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated
Morgan Keegan & Company, Inc.
Soundview Technology Group, Inc.
as Representatives of the several Underwriters
C/O MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Finisar Corporation, a Delaware corporation (the "Company"), and the
persons listed in Schedule B hereto (the "Selling Stockholders"), confirm their
respective agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, J.P. Morgan & Co., Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, Morgan Keegan & Company, Inc. and
Soundview Technology Group, Inc. are acting as Representatives, (in such
capacity, the "Representatives"), with respect to (i) the sale by the Company
and the purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares of Common Stock, par value $_____ per share, of the
Company ("Common Stock") set forth in Schedules A and B hereto and (ii) the
grant by the Selling Stockholders to the Underwriters, acting severally and not
jointly, of the option described
<PAGE>
in Section 2(b) hereof to purchase all or any part of __________ additional
shares of Common Stock to cover over-allotments, if any. The aforesaid
__________ shares of Common Stock (the "Initial Securities") to be purchased by
the Underwriters and all or any part of the ___________ shares of Common Stock
subject to the option described in Section 2(b) hereof (the "Option Securities")
are hereinafter called, collectively, the "Securities".
The Company and the Selling Stockholders understand that the
Underwriters propose to make a public offering of the Securities as soon as the
Representatives deem advisable after this Agreement has been executed and
delivered.
The Company, the Selling Stockholders and the Underwriters agree that
up to _______ shares of the Securities to be purchased by the Underwriters (the
"Reserved Securities") shall be reserved for sale by the Underwriters to certain
eligible employees and persons having business relationships with the Company,
as part of the distribution of the Securities by the Underwriters, subject to
the terms of this Agreement, the applicable rules, regulations and
interpretations of the National Association of Securities Dealers, Inc. ("NASD")
and all other applicable laws, rules and regulations. To the extent that such
Reserved Securities are not orally confirmed for purchase by such eligible
employees and persons having business relationships with the Company by the end
of the first business day after the date of this Agreement, such Reserved
Securities may be offered to the public as part of the public offering
contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-_____) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final prospectus in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is herein
called the "Prospectus." If Rule 434 is relied on, the term
2
<PAGE>
"Prospectus" shall refer to the preliminary prospectus dated _____, 1999
together with the Term Sheet and all references in this Agreement to the date of
the Prospectus shall mean the date of the Term Sheet. For purposes of this
Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any Term Sheet or any amendment or supplement to
any of the foregoing shall be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agrees with each Underwriter,
as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and any
request on the part of the Commission for additional information has been
complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any Option Securities
are purchased, at the Date of Delivery), the Registration Statement, the
Rule 462(b) Registration Statement and any amendments and supplements
thereto complied and will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and did not and
will not contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Prospectus, any preliminary
prospectus and any supplement thereto or prospectus wrapper prepared in
connection therewith, at their respective times of issuance and at the
Closing Time, complied and will comply in all material respects with any
applicable laws or regulations of foreign jurisdictions in which the
Prospectus and such preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the offer and sale of
Reserved Securities . Neither the Prospectus nor any amendments or
supplements thereto (including any prospectus wrapper), at the time the
Prospectus or any such amendment or supplement was issued and at the
Closing Time (and, if any Option Securities are purchased, at the Date of
Delivery), included or will include an untrue statement of a material
fact or omitted or will omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading. If Rule 434 is used, the Company
will comply with the requirements of Rule 434 and the Prospectus shall
not be "materially different", as such term is used in Rule 434, from the
prospectus included in the Registration Statement at the time it became
effective. The representations and warranties in this subsection shall
not apply to statements in or omissions from the Registration Statement
3
<PAGE>
or Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through Merrill
Lynch expressly for use in the Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of
the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus delivered
to the Underwriters for use in connection with this offering was
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(ii) INDEPENDENT ACCOUNTANTS. The accountants who certified the
financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(iii) FINANCIAL STATEMENTS. The financial statements included in
the Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the Company
at the dates indicated and the statement of operations, stockholders'
equity and cash flows of the Company for the periods specified; said
financial statements have been prepared in conformity with generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules included in the
Registration Statement present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data
and the summary financial information included in the Prospectus present
fairly the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements included in the
Registration Statement.
(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of
the Company, whether or not arising in the ordinary course of business (a
"Material Adverse Effect"), (B) there have been no transactions entered
into by the Company, other than those in the ordinary course of business,
which are material with respect to the Company, and (C) there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(v) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its obligations
under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of
4
<PAGE>
property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse
Effect.
(vi) NO SUBSIDIARIES. The Company has no subsidiaries.
(vii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or
options referred to in the Prospectus). The shares of issued and
outstanding capital stock, including the Securities to be purchased by
the Underwriters from the Selling Stockholders, have been duly authorized
and validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock, including the Securities to be
purchased by the Underwriters from the Selling Stockholders, was issued
in violation of the preemptive or other similar rights of any
securityholder of the Company.
(viii) AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Company.
(ix) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The Securities
to be purchased by the Underwriters from the Company have been duly
authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company pursuant to this
Agreement against payment of the consideration set forth herein, will be
validly issued and fully paid and non-assessable; the Common Stock
conforms to all statements relating thereto contained in the Prospectus
and such description conforms to the rights set forth in the instruments
defining the same; no holder of the Securities will be subject to
personal liability by reason of being such a holder; and the issuance of
the Securities is not subject to the preemptive or other similar rights
of any securityholder of the Company.
(x) ABSENCE OF DEFAULTS AND CONFLICTS. The Company is not in
violation of its charter or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition contained
in any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other agreement or instrument to which the
Company is a party or by which it may be bound, or to which any of the
property or assets of the Company is subject (collectively, "Agreements
and Instruments") except for such defaults that would not result in a
Material Adverse Effect; and the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
herein and in the Registration Statement (including the issuance and sale
of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectus under the caption "Use of
Proceeds") and compliance by the Company with its obligations hereunder
have been duly authorized by all necessary corporate action and do not
and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default or
Repayment Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company pursuant to, the Agreements
5
<PAGE>
and Instruments (except for such conflicts, breaches or defaults or
liens, charges or encumbrances that would not result in a Material
Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any applicable
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any of its assets, properties or
operations. As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other evidence
of indebtedness (or any person acting on such holder's behalf) the right
to require the repurchase, redemption or repayment of all or a portion of
such indebtedness by the Company.
(xi) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company exists or, to the knowledge of the Company, is
imminent, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers, customers or contractors, which, in either case, may
reasonably be expected to result in a Material Adverse Effect.
(xii) ABSENCE OF PROCEEDINGS. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company,
which is required to be disclosed in the Registration Statement (other
than as disclosed therein), or which might reasonably be expected to
result in a Material Adverse Effect, or which might reasonably be
expected to materially and adversely affect the properties or assets
thereof or the consummation of the transactions contemplated in this
Agreement or the performance by the Company of its obligations hereunder;
the aggregate of all pending legal or governmental proceedings to which
the Company is a party or of which any of their respective property or
assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material
Adverse Effect.
(xiii) ACCURACY OF EXHIBITS. There are no contracts or documents
which are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto which have not been so
described and filed as required.
(xiv) POSSESSION OF INTELLECTUAL PROPERTY. The Company owns or
possesses, or can acquire on reasonable terms, adequate patents, patent
rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks, trade names or other intellectual property (collectively,
"Intellectual Property") necessary to carry on the business now operated
by it, and the Company has not received any notice or is otherwise aware
of any infringement of or conflict with asserted rights of others with
respect to any Intellectual Property or of any facts or circumstances
which would render any Intellectual Property invalid or inadequate to
protect the interest of the Company therein, and which infringement or
conflict (if the subject of any unfavorable
6
<PAGE>
decision, ruling or finding) or invalidity or inadequacy, singly or in
the aggregate, would result in a Material Adverse Effect.
(xv) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale
of the Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except (i) such as have been already
obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or state securities laws and (ii) such as have been obtained
under the laws and regulations of jurisdictions outside the United States
in which the Reserved Securities are offered.
(xvi) POSSESSION OF LICENSES AND PERMITS. The Company possesses
such permits, licenses, approvals, consents and other authorizations
(collectively, "Governmental Licenses") issued by the appropriate
federal, state, local or foreign regulatory agencies or bodies necessary
to conduct the business now operated by it; the Company is in compliance
with the terms and conditions of all such Governmental Licenses, except
where the failure so to comply would not, singly or in the aggregate,
have a Material Adverse Effect; all of the Governmental Licenses are
valid and in full force and effect, except when the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to be
in full force and effect would not have a Material Adverse Effect; and
the Company has not received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(xvii) TITLE TO PROPERTY. The Company has good and marketable
title to all real property owned by the Company and good title to all
other properties owned by it, in each case, free and clear of all
mortgages, pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (a) are described in the
Prospectus or (b) do not, singly or in the aggregate, materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company; and all of the
leases and subleases material to the business of the Company under which
the Company holds properties described in the Prospectus, are in full
force and effect, and the Company has no notice of any material claim of
any sort that has been asserted by anyone adverse to the rights of the
Company under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company to the continued
possession of the leased or subleased premises under any such lease or
sublease.
(xviii) COMPLIANCE WITH CUBA ACT. The Company has complied with,
and is and will be in compliance with, the provisions of that certain
Florida act relating to disclosure of doing business with Cuba, codified
as Section 517.075 of the Florida statutes, and the rules and regulations
thereunder (collectively, the "Cuba Act") or is exempt therefrom.
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(xix) INVESTMENT COMPANY ACT. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(xx) ENVIRONMENTAL LAWS. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in
a Material Adverse Effect, (A) the Company is not in violation of any
federal, state, local or foreign statute, law, rule, regulation,
ordinance, code, policy or rule of common law or any judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution
or protection of human health, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company has all permits, authorizations
and approvals required under any applicable Environmental Laws and are
each in compliance with their requirements, (C) there are no pending or
threatened administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental Law
against the Company and (D) there are no events or circumstances that
might reasonably be expected to form the basis of an order for clean-up
or remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company relating to
Hazardous Materials or any Environmental Laws.
(xxi) REGISTRATION RIGHTS. There are no persons with registration
rights or other similar rights to have any securities registered pursuant
to the Registration Statement or otherwise registered by the Company
under the 1933 Act that has not waived that right.
(b) REPRESENTATIONS AND WARRANTIES BY THE SELLING STOCKHOLDERS. The
Selling Stockholders represent and warrant to each Underwriter as of the date
hereof, as of the Closing Time, and, if the Selling Stockholders are selling
Option Securities on a Date of Delivery, as of each such Date of Delivery, and
agree with each Underwriter, as follows:
(i) ACCURATE DISCLOSURE. To the best knowledge of such Selling
Stockholder, the representations and warranties of the Company contained
in Section 1(a) hereof are true and correct; such Selling Stockholder has
reviewed and is familiar with the Registration Statement and the
Prospectus and neither the Prospectus nor any amendments or supplements
thereto (including any prospectus wrapper) includes any untrue statement
of a material fact or omits to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; such Selling Stockholder is not
prompted to sell the Securities to
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be sold by such Selling Stockholder hereunder by any information
concerning the Company or any subsidiary of the Company which is not set
forth in the Prospectus.
(ii) AUTHORIZATION OF AGREEMENTS. Each Selling Stockholder has
the full right, power and authority to enter into this Agreement and a
Power of Attorney and Custody Agreement (the "Power of Attorney and
Custody Agreement") and to sell, transfer and deliver the Securities to
be sold by such Selling Stockholder hereunder. The execution and delivery
of this Agreement and the Power of Attorney and Custody Agreement and the
sale and delivery of the Securities to be sold by such Selling
Stockholder and the consummation of the transactions contemplated herein
and compliance by such Selling Stockholder with its obligations hereunder
have been duly authorized by such Selling Stockholder and do not and will
not, whether with or without the giving of notice or passage of time or
both, conflict with or constitute a breach of, or default under, or
result in the creation or imposition of any tax, lien, charge or
encumbrance upon the Securities to be sold by such Selling Stockholder or
any property or assets of such Selling Stockholder pursuant to any
contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, license, lease or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder may
be bound, or to which any of the property or assets of such Selling
Stockholder is subject, nor will such action result in any violation of
the provisions of the charter or by-laws or other organizational
instrument of such Selling Stockholder, if applicable, or any applicable
treaty, law, statute, rule, regulation, judgment, order, writ or decree
of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over such Selling Stockholder or any of its
properties.
(iii) GOOD AND MARKETABLE TITLE. Such Selling Stockholder has and
will at the Closing Time and, if any Option Securities are purchased, on
the Date of Delivery have good and marketable title to the Securities to
be sold by such Selling Stockholder hereunder, free and clear of any
security interest, mortgage, pledge, lien, charge, claim, equity or
encumbrance of any kind, other than pursuant to this Agreement; and upon
delivery of such Securities and payment of the purchase price therefor as
herein contemplated, assuming each such Underwriter has no notice of any
adverse claim, each of the Underwriters will receive good and marketable
title to the Securities purchased by it from such Selling Stockholder,
free and clear of any security interest, mortgage, pledge, lien, charge,
claim, equity or encumbrance of any kind.
(iv) DUE EXECUTION OF POWER OF ATTORNEY AND CUSTODY AGREEMENT.
Such Selling Stockholder has duly executed and delivered, in the form
heretofore furnished to the Representatives, the Power of Attorney and
Custody Agreement with ___________ and ____________ as attorneys-in-fact
(the "Attorneys-in-Fact") and __________, as custodian (the "Custodian");
the Custodian is authorized to deliver the Securities to be sold by such
Selling Stockholder hereunder and to accept payment therefor; and each
Attorney-in-Fact is authorized to execute and deliver this Agreement and
the certificate referred to in Section 5(f) or that may be required
pursuant to Sections 5(l) and 5(m) on behalf of such Selling Stockholder,
to sell, assign and transfer to the Underwriters the Securities to be
sold by such Selling Stockholder hereunder, to determine the purchase
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price to be paid by the Underwriters to such Selling Stockholder, as
provided in Section 2(a) hereof, to authorize the delivery of the
Securities to be sold by such Selling Stockholder hereunder, to accept
payment therefor, and otherwise to act on behalf of such Selling
Stockholder in connection with this Agreement.
(v) ABSENCE OF MANIPULATION. Such Selling Stockholder has not
taken, and will not take, directly or indirectly, any action which is
designed to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
Securities.
(vi) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
consent, approval, authorization, order, registration, qualification or
decree of, any court or governmental authority or agency, domestic or
foreign, is necessary or required for the performance by each Selling
Stockholder of its obligations hereunder or in the Power of Attorney and
Custody Agreement, or in connection with the sale and delivery of the
Securities hereunder or the consummation of the transactions contemplated
by this Agreement, except (i) such as may have previously been made or
obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or state securities law, and (ii) such as have been obtained
under the laws and regulations of jurisdictions outside the United States
in which the Reserved Securities are offered.
(vii) RESTRICTION ON SALE OF SECURITIES. During a period of 180
days from the date of the Prospectus, such Selling Stockholder will not,
without the prior written consent of Merrill Lynch, (i) 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
share of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or file any registration statement under
the 1933 Act with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership
of the Common Stock, whether any such swap or transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or
such other securities, in cash or otherwise. The foregoing sentence shall
not apply to the Securities to be sold hereunder.
(vii) CERTIFICATES SUITABLE FOR TRANSFER. Certificates for all of
the Securities to be sold by such Selling Stockholder pursuant to this
Agreement, in suitable form for transfer by delivery or accompanied by
duly executed instruments of transfer or assignment in blank with
signatures guaranteed, have been placed in custody with the Custodian
with irrevocable conditional instructions to deliver such Securities to
the Underwriters pursuant to this Agreement.
(ix) NO ASSOCIATION WITH NASD. Neither such Selling Stockholder
nor any of his/her/its affiliates directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with, or has any other association with (within the meaning of
Article I, Section 1(m) of the By-laws of the National Association
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of Securities Dealers, Inc.), any member firm of the National Association
of Securities Dealers, Inc.
(c) OFFICER'S CERTIFICATES. Any certificate signed by any officer of
the Company delivered to the Representatives or to counsel for the Underwriters
shall be deemed a representation and warranty by the Company to each Underwriter
as to the matters covered thereby; and any certificate signed by or on behalf of
the Selling Stockholders as such and delivered to the Representatives or to
counsel for the Underwriters pursuant to the terms of this Agreement shall be
deemed a representation and warranty by such Selling Stockholder to the
Underwriters as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING.
(a) INITIAL SECURITIES. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter and each Underwriter,
severally and not jointly, agrees to purchase from the Company, at the price per
share set forth in Schedule C, that proportion of the number of Initial
Securities set forth in Schedule B opposite the name of the Company, which the
number of Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof, bears to the total number of Initial Securities, subject, in
each case, to such adjustments among the Underwriters as the Representatives in
their sole discretion shall make to eliminate any sales or purchases of
fractional securities.
(b) OPTION SECURITIES. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Selling Stockholders acting severally and not
jointly, hereby grant an option to the Underwriters, severally and not jointly,
to purchase up to an additional __________ shares of Common Stock, as set forth
in Schedule B, at the price per share set forth in Schedule C, less an amount
per share equal to any dividends or distributions declared by the Company and
payable on the Initial Securities but not payable on the Option Securities. The
option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Representatives to the
Selling Stockholders setting forth the number of Option Securities as to which
the several Underwriters are then exercising the option and the time and date of
payment and delivery for such Option Securities. Any such time and date of
delivery (a "Date of Delivery") shall be determined by the Representatives, but
shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter defined. If
the option is exercised as to all or any portion of the Option Securities, each
of the Underwriters, acting severally and not jointly, will purchase that
proportion of the total number of Option Securities then being purchased which
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter bears to the total number of Initial Securities, subject in
each case to such adjustments as the Representatives in their discretion shall
make to eliminate any sales or purchases of fractional shares.
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(c) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Morrison & Foerster LLP, 755 Page Mill Road, Palo Alto, California 94304-1018,
or at such other place as shall be agreed upon by the Representatives and the
Company, at 7:00 A.M. (California time) on the third (fourth, if the pricing
occurs after 4:30 P.M. (Eastern time) on any given day) business day after the
date hereof (unless postponed in accordance with the provisions of Section 10),
or such other time not later than ten business days after such date as shall be
agreed upon by the Representatives and the Company (such time and date of
payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Company and the Selling Stockholders, on each Date of Delivery as
specified in the notice from the Representatives to the Selling Stockholders.
Payment shall be made to the Company and the Selling Stockholders by
wire transfer of immediately available funds to bank accounts designated by the
Company and the Custodian pursuant to each Selling Stockholder's Power of
Attorney and Custody Agreement, as the case may be, against delivery to the
Representatives for the respective accounts of the Underwriters of certificates
for the Securities to be purchased by them. It is understood that each
Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
one full business day before the Closing Time or the relevant Date of Delivery,
as the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
Underwriter as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS.
The Company, subject to Section 3(b), will comply with the requirements of Rule
430A or Rule 434, as applicable, and will notify the Representatives
immediately, and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement shall become effective, or any
supplement to the Prospectus or any amended Prospectus shall have been filed,
(ii) of the receipt of any comments from the Commission, (iii) of any request by
the Commission for any amendment to the Registration Statement or any amendment
or supplement to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order
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suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for any of
such purposes. The Company will promptly effect the filings necessary pursuant
to Rule 424(b) and will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus transmitted for filing under Rule 424(b)
was received for filing by the Commission and, in the event that it was not, it
will promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
(b) FILING OF AMENDMENTS. The Company will give the Representatives
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectus,
will furnish the Representatives with copies of any such documents a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or counsel
for the Underwriters shall object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished or
will deliver to the Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters. The copies of
the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably request. The
Prospectus and any amendments or supplements thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will comply
with the 1933 Act and the 1933 Act Regulations so as to permit the completion of
the distribution of the Securities as contemplated in this Agreement and in the
Prospectus. If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the opinion of
counsel for the Underwriters or for the Company, to amend the Registration
Statement or amend
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or supplement the Prospectus in order that the Prospectus will not include
any untrue statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light
of the circumstances existing at the time it is delivered to a purchaser, or
if it shall be necessary, in the opinion of such counsel, at any such time to
amend the Registration Statement or amend or supplement the Prospectus in
order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or
the Prospectus comply with such requirements, and the Company will furnish to
the Underwriters such number of copies of such amendment or supplement as the
Underwriters may reasonably request.
(f) BLUE SKY QUALIFICATIONS. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Securities for offering and
sale under the applicable securities laws of such states and other jurisdictions
(domestic or foreign) as the Representatives may designate and to maintain such
qualifications in effect for a period of not less than one year from the later
of the effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(g) RULE 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(h) USE OF PROCEEDS. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds".
(i) INCLUSION IN NASDAQ NATIONAL MARKET. The Company will use its best
efforts to effect and maintain the quotation of the Securities on the Nasdaq
National Market and will file with the Nasdaq National Market all documents and
notices required by the Nasdaq National Market of companies that have securities
that are traded in the over-the-counter market and quotations for which are
reported by the Nasdaq National Market.
(j) RESTRICTION ON SALE OF SECURITIES. During a period of 180 days
from the date of the Prospectus, the Company will not, without the prior written
consent of Merrill Lynch, (i) directly or indirectly, 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 any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any
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transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Securities to be sold hereunder, (B) any
shares of Common Stock issued by the Company upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof and
referred to in the Prospectus, or (C) any shares of Common Stock issued or
options to purchase Common Stock granted pursuant to existing employee benefit
plans of the Company referred to in the Prospectus.
(k) REPORTING REQUIREMENTS. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to be filed with the Commission pursuant to the 1934
Act within the time periods required by the 1934 Act and the rules and
regulations of the Commission thereunder.
(l) COMPLIANCE WITH NASD RULES. The Company hereby agrees that it will
ensure that the Reserved Securities will be restricted as required by the NASD
or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of this Agreement. The Underwriters
will notify the Company as to which persons will need to be so restricted. At
the request of the Underwriters, the Company will direct the transfer agent to
place a stop transfer restriction upon such securities for such period of time.
Should the Company release, or seek to release, from such restrictions any of
the Reserved Securities, the Company agrees to reimburse the Underwriters for
any reasonable expenses (including, without limitation, legal expenses) they
incur in connection with such release.
(m) COMPLIANCE WITH RULe 463. The Company will file with the
Commission such reports on Form SR as may be required pursuant to Rule 463 of
the 1933 Act Regulations.
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. The Company and the Selling Stockholder will pay or
cause to be paid all expenses incident to the performance of their obligations
under this Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation, printing
and delivery to the Underwriters of this Agreement, any Agreement among
Underwriters and such other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Securities, (iii) the
preparation, issuance and delivery of the certificates for the Securities to the
Underwriters, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale, issuance or delivery of the Securities to the
Underwriters, (iv) the fees and disbursements of the Company's counsel,
accountants and other advisors, (v) the qualification of the Securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectus and any amendments or supplements thereto, (vii)
the preparation, printing and delivery to the Underwriters of copies of the Blue
Sky Survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities, (ix) the filing fees incident
to, and
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the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the NASD of the terms of the sale of the
Securities, (x) the fees and expenses incurred in connection with the inclusion
of the Securities in the Nasdaq National Market, and (xi) all costs and expenses
of the Underwriters, including the fees and disbursements of counsel for the
Underwriters, in connection with matters related to the Reserved Securities
which are designated by the Company for sale to employees and others having a
business relationship with the Company.
(b) EXPENSES OF THE SELLING STOCKHOLDERS. The Selling Stockholders,
jointly and severally, will pay all expenses incident to the performance of
their respective obligations under, and the consummation of the transactions
contemplated by this Agreement, including (i) any stamp duties, capital duties
and stock transfer taxes, if any, payable upon the sale of the Securities to the
Underwriters, and their transfer between the Underwriters pursuant to an
agreement between such Underwriters, and (ii) the fees and disbursements of
their respective counsel and accountants.
(c) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5, Section 9(a)(i)
or Section 11 hereof, the Company and the Selling Stockholders shall reimburse
the Underwriters for all of their out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the Underwriters.
(d) ALLOCATION OF EXPENSES. The provisions of this Section shall not
affect any agreement that the Company and the Selling Stockholders may make for
the sharing of such costs and expenses.
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Selling Stockholders
contained in Section 1 hereof or in certificates of any officer of the Company
or on behalf of the Selling Stockholders delivered pursuant to the provisions
hereof, to the performance by the Company of its covenants and other obligations
hereunder, and to the following further conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission, and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the Commission
in accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434,
a Term Sheet shall have been filed with the Commission in accordance with Rule
424(b).
(b) OPINIONS OF COUNSEL FOR COMPANY. At Closing Time, the
Representatives shall have received the favorable opinions, dated as of Closing
Time, of Gray Cary Ware &
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Freidenrich LLP, counsel for the Company, and Penni & Edmonds, patent counsel
for the Company, in form and substance satisfactory to counsel for the
Underwriters, together with signed or reproduced copies of such letter for each
of the other Underwriters to the effect set forth in Exhibits A-1 and A-2,
respectively, hereto and to such further effect as counsel to the Underwriters
may reasonably request.
(c) OPINION OF COUNSEL FOR THE SELLING STOCKHOLDERS. At Closing Time,
the Representatives shall have received the favorable opinion, dated as of
Closing Time, of ________________________, counsel for the Selling Stockholders,
in form and substance satisfactory to counsel for the Underwriters, together
with signed or reproduced copies of such letter for each of the other
Underwriters to the effect set forth in Exhibit B hereto and to such further
effect as counsel to the Underwriters may reasonably request.
(d) OPINION OF COUNSEL FOR UNDERWRITERS. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Morrison & Foerster LLP, counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other Underwriters
with respect to the matters set forth in clauses (i), (ii), (v), (vi) (solely as
to preemptive or other similar rights arising by operation of law or under the
charter or by-laws of the Company), (viii) through (x), inclusive, (xii), (xiv)
(solely as to the information in the Prospectus under "Description of Capital
Stock -- Common Stock") and the penultimate paragraph of Exhibit A hereto. In
giving such opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New York, the federal
law of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to the Representatives. Such
counsel may also state that, insofar as such opinion involves factual matters,
they have relied, to the extent they deem proper, upon certificates of officers
of the Company and certificates of public officials.
(e) OFFICERS' CERTIFICATE. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company, whether or not arising in the ordinary course of business, and the
Representatives shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of Closing Time, to the effect that (i) there has been
no such material adverse change, (ii) the representations and warranties in
Section 1(a) hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time, (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or are contemplated by the
Commission.
(f) CERTIFICATE OF SELLING STOCKHOLDERS. At Closing Time, the
Representative shall have received a certificate of an Attorney-in-Fact on
behalf of each Selling Stockholder, dated as of Closing Time, to the effect that
(i) the representations and warranties of each Selling Stockholder contained in
Section 1(b) hereof are true and correct in all respects with the same force and
effect as though expressly made at and as of Closing Time and (ii) each Selling
17
<PAGE>
Stockholder has complied in all material respects with all agreements and all
conditions on its part to be performed under this Agreement at or prior to
Closing Time.
(g) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of this
Agreement, the Representatives shall have received from Ernst & Young LLP a
letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(h) BRING-DOWN COMFORT LETTER. At Closing Time, the Representatives
shall have received from Ernst & Young LLP a letter, dated as of Closing Time,
to the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (g) of this Section, except that the specified date
referred to shall be a date not more than three business days prior to Closing
Time.
(i) APPROVAL INCLUSION IN NASDAQ NATIONAL MARKET. At Closing Time, the
Securities shall have been approved for inclusion in the Nasdaq National Market,
subject only to official notice of issuance.
(j) NO OBJECTION. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
(k) LOCK-UP AGREEMENTS. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the form of
Exhibit C hereto signed by the persons listed on Schedule D hereto.
(l) CONDITIONS TO PURCHASE OF OPTION SECURITIES. In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Company and the Selling Stockholders contained herein and the statements
in any certificates furnished by the Company and the Selling Stockholders
hereunder shall be true and correct as of each Date of Delivery and, at the
relevant Date of Delivery, the Representatives shall have received:
(i) OFFICERS' CERTIFICATE. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming
that the certificate delivered at the Closing Time pursuant to Section
5(e) hereof remains true and correct as of such Date of Delivery.
(ii) CERTIFICATE OF SELLING STOCKHOLDERS. A certificate, dated
such Date of Delivery, of an Attorney-in-Fact on behalf of each Selling
Stockholder confirming that the certificate delivered at Closing Time
pursuant to Section 5(f) remains true and correct as of such Date of
Delivery.
18
<PAGE>
(iii) OPINIONS OF COUNSEL FOR COMPANY. The favorable opinion of
Gray Cary Ware & Freidenrich LLP counsel for the Company, and Penni &
Edmonds, patent counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, dated such Date of
Delivery, relating to the Option Securities to be purchased on such Date
of Delivery and otherwise to the same effect as the opinions required by
Section 5(b) hereof.
(iv) OPINION OF COUNSEL FOR THE SELLING STOCKHOLDERS. The
favorable opinion of _________________________, counsel for the Selling
Stockholders, in form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(c) hereof.
(v) OPINION OF COUNSEL FOR UNDERWRITERS. The favorable opinion
of Morrison & Foerster LLP, counsel for the Underwriters, dated such Date
of Delivery, relating to the Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion required
by Section 5(d) hereof.
(vi) BRING-DOWN COMFORT LETTER. A letter from Ernst & Young LLP,
in form and substance satisfactory to the Representatives and dated such
Date of Delivery, substantially in the same form and substance as the
letter furnished to the Representatives pursuant to Section 5(g) hereof,
except that the "specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to such Date of
Delivery.
(m) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of Delivery
counsel for the Underwriters shall have been furnished with such documents and
opinions as they may require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company and the Selling Stockholders in connection with the
issuance and sale of the Securities as herein contemplated shall be satisfactory
in form and substance to the Representatives and counsel for the Underwriters.
(n) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option Securities
on a Date of Delivery which is after the Closing Time, the obligations of the
several Underwriters to purchase the relevant Option Securities, may be
terminated by the Representatives by notice to the Company at any time at or
prior to Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party except as
provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any
such termination and remain in full force and effect.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF UNDERWRITERS. The Company and the Selling
Stockholders, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if
19
<PAGE>
any, who controls any Underwriter within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A Information
and the Rule 434 Information, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
included in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of (A) the violation of any
applicable laws or regulations of foreign jurisdictions where Reserved
Securities have been offered and (B) any untrue statement or alleged
untrue statement of a material fact included in the supplement or
prospectus wrapper material distributed in any foreign jurisdictions in
connection with the reservation and sale of the Reserved Securities to
eligible employees and others having a business relationship with the
Company or the omission or alleged omission therefrom of a material fact
necessary to make the statements therein, when considered in conjunction
with the Prospectus or preliminary prospectus, not misleading;
(iii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission or in connection with any
violation of the natured referred to in Section 6(a)(ii)(A) hereof;
provided that (subject to Section 6(d) below) any such settlement is
effected with the written consent of the Company; and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation
of the natured referred to in Section 6(a)(ii)(A) hereof, to the extent
that any such expense is not paid under (i), (ii) or (iii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
20
<PAGE>
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS AND SELLING
STOCKHOLDERS. Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and each Selling
Stockholder and each person, if any, who controls each Selling Stockholder
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in Section 6(a), as incurred, but only with respect to
untrue statements or omissions, or alleged untrue statements or omissions, made
in the Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the Prospectus (or any amendment or supplement thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section 6(a)
above, counsel to the indemnified parties shall be selected by Merrill Lynch,
and, in the case of parties indemnified pursuant to Section 6(b) above, counsel
to the indemnified parties shall be selected by the Company. An indemnifying
party may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
21
<PAGE>
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(iii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(e) INDEMNIFICATION FOR RESERVED SECURITIES. In connection with the
offer and sale of the Reserved Securities, the Company agrees, promptly upon a
request in writing, to indemnify and hold harmless the Underwriters from and
against any and all losses, liabilities, claims, damages and expenses incurred
by them as a result of the failure of eligible employees and others having a
business relationship with the Company to pay for and accept delivery of
Reserved Securities which, by the end of the first business day following the
date of this Agreement, were subject to a properly confirmed agreement to
purchase.
(f) OTHER AGREEMENTS WITH RESPECT TO INDEMNIFICATION. The provisions
of this Section shall not affect any agreement among the Company and the Selling
Stockholder with respect to indemnification.
SECTION 7. CONTRIBUTION. If the indemnification provided for in Section 6
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholder on the one hand and the Underwriters on the other hand from
the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Stockholders on the one hand and of the Underwriters on the other hand
in connection with the statements or omissions, or in connection with any
violation of the nature referred to in Section 6(a)(ii)(A) hereof, which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other hand in
connection with the offering of the Securities pursuant to this Agreement shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Securities pursuant to this Agreement (before deducting
expenses) received by the Company and the Selling Stockholders and the total
underwriting discount received by the Underwriters, in each case as set forth on
the cover of the Prospectus, or, if Rule 434 is used, the corresponding location
on the Term Sheet, bear to the aggregate initial public offering price of the
Securities as set forth on such cover.
22
<PAGE>
The relative fault of the Company and the Selling Stockholders on the
one hand and the Underwriters on the other hand shall be determined by reference
to, among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company and the Selling Stockholders or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission or any
violation of the nature referred to in Section 6(a)(ii)(A) hereof.
The Company and the Selling Stockholder and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 7
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
7. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company or any
Selling Stockholder within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company or
such Selling Stockholder, as the case may be. The Underwriters' respective
obligations to contribute pursuant to this Section 7 are several in proportion
to the number of Initial Securities set forth opposite their respective names in
Schedule A hereto and not joint.
The provisions of this Section shall not affect any agreement among the
Company and the Selling Stockholders with respect to contribution.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or the Selling
Stockholders submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
23
<PAGE>
Underwriter or controlling person, or by or on behalf of the Company or the
Selling Stockholders, and shall survive delivery of the Securities to the
Underwriters.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Representatives may terminate this
Agreement, by notice to the Company and the Selling Stockholders, at any time at
or prior to Closing Time (i) if there has been, since the time of execution of
this Agreement or since the respective dates as of which information is given in
the Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company, whether or not arising in the ordinary course of business, or (ii) if
there has occurred any material adverse change in the financial markets in the
United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representatives, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the Nasdaq National Market, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority, or (iv) if a banking moratorium has been
declared by either Federal or New York authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more of
the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, each of the non-defaulting
Underwriters shall be obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
Securities to be purchased on such date, this Agreement or, with respect to any
Date of Delivery which occurs
24
<PAGE>
after the Closing Time, the obligation of the Underwriters to purchase and of
the Company to sell the Option Securities to be purchased and sold on such Date
of Delivery shall terminate without liability on the part of any non-defaulting
Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Selling Stockholders to sell the relevant
Option Securities, as the case may be, either the (i) Representatives or (ii)
the Company and any Selling Stockholder shall have the right to postpone Closing
Time or the relevant Date of Delivery, as the case may be, for a period not
exceeding seven days in order to effect any required changes in the Registration
Statement or Prospectus or in any other documents or arrangements. As used
herein, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 10.
SECTION 11. DEFAULT BY ONE OR MORE OF THE SELLING STOCKHOLDERS OR THE
COMPANY. (a) If a Selling Stockholder shall fail at Closing Time or at a Date of
Delivery to sell and deliver the number of Securities which such Selling
Stockholder or Selling Stockholders are obligated to sell hereunder, and the
remaining Selling Stockholders do not exercise the right hereby granted to
increase, pro rata or otherwise, the number of Securities to be sold by them
hereunder to the total number to be sold by all Selling Stockholders as set
forth in Schedule B hereto, then the Underwriters may, at the option of the
Representatives, by notice from the Representatives to the Company and the
non-defaulting Selling Stockholders, either (a) terminate this Agreement without
any liability on the fault of any non-defaulting party except that the
provisions of Sections 1, 4, 6, 7 and 8 shall remain in full force and effect or
(b) elect to purchase the Securities which the non-defaulting Selling
Stockholders and the Company has agreed to sell hereunder. No action taken
pursuant to this Section 11 shall relieve any Selling Stockholder so defaulting
from liability, if any, in respect of such default.
In the event of a default by any Selling Stockholder as referred to in
this Section 11, each of the Representatives, the Company and the non-defaulting
Selling Stockholders shall have the right to postpone Closing Time or Date of
Delivery for a period not exceeding seven days in order to effect any required
change in the Registration Statement or Prospectus or in any other documents or
arrangements.
(b) If the Company shall fail at Closing Time or at any Date of
Delivery to sell the number of Securities that it is obligated to sell
hereunder, then this Agreement shall terminate without any liability on the part
of any nondefaulting party; provided, however, that the provisions of Sections
1, 4, 6, 7 and 8 shall remain in full force and effect. No action taken pursuant
to this Section shall relieve the Company from liability, if any, in respect of
such default.
SECTION 12. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives
25
<PAGE>
at North Tower, World Financial Center, New York, New York 10281-1201 and 101
California Street, Suite 1420, San Francisco, California 94111, attention of
Stephen R. Miller; notices to the Company shall be directed to it at 1308
Moffett Park Drive, Sunnyvale, California 94089, attention of _____________; and
notices to the Selling Stockholders shall be directed to them at
___________________________________, attention of _______________.
SECTION 13. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters, the Company and the Selling Stockholders
and their respective successors. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Underwriters, the Company and the Selling
Stockholders and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters, the Company and the Selling Stockholders
and their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. EFFECT OF HEADINGS. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
26
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Attorney-in-Fact for
the Selling Stockholder a counterpart hereof, whereupon this instrument, along
with all counterparts, will become a binding agreement among the Underwriters,
the Company and the Selling Stockholder in accordance with its terms.
Very truly yours,
FINISAR CORPORATION
By
-------------------------------------
Title
----------------------------------
By
-------------------------------------
Name
-----------------------------------
As Attorney-in-Fact acting on behalf of the
Selling Stockholders named in Schedule B hereto
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
J.P. MORGAN & CO.
DAIN RAUSCHER WESSELS, A DIVISION OF
DAIN RAUSCHER INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
SOUNDVIEW TECHNOLOGY GROUP, INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
----------------------------------------------------
Authorized Signatory
For themselves and as Representatives of the other
Underwriters named in Schedule A hereto.
27
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Name of Underwriter Initial Securities
------------------- ------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................
J.P. Morgan & Co................................................
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated.
Morgan Keegan & Company, Inc....................................
Soundview Technology Group, Inc.................................
-------
Total..................................................
</TABLE>
Sch A - 1
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Initial Maximum Number of Option
Securities to be Sold Securities to be Sold
--------------------- ------------------------
<S> <C> <C>
FINISAR CORPORATION
[Selling Stockholders]
Total...............................
</TABLE>
Sch B - 1
<PAGE>
SCHEDULE C
FINISAR CORPORATION
__________ Shares of Common Stock
(Par Value $_____ Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $______.
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $______, being an amount equal to the initial
public offering price set forth above less $______ per share; provided that the
purchase price per share for any Option Securities purchased upon the exercise
of the over-allotment option described in Section 2(b) shall be reduced by an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial Securities but not payable on the Option Securities.
Sch C -1
<PAGE>
SCHEDULE D
List of persons and entities
subject to lock-up
All Stockholders, optionholders, warrant holders, officers and directors
Sch D -1
<PAGE>
Exhibit A-1
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Purchase
Agreement.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus in the column entitled "Actual" under
the caption "Capitalization" (except for subsequent issuances, if any, pursuant
to the Purchase Agreement or pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectus or pursuant to the exercise of
convertible securities or options referred to in the Prospectus); the shares of
issued and outstanding capital stock of the Company, including the Securities to
be purchased by the Underwriters from the Selling Stockholder(s), have been duly
authorized and validly issued and are fully paid and non-assessable; and none of
the outstanding shares of capital stock of the Company was issued in violation
of the preemptive or other similar rights of any securityholder of the Company.
(v) The Securities to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale to the Underwriters
pursuant to the Purchase Agreement and, when issued and delivered by the Company
pursuant to the Purchase Agreement against payment of the consideration set
forth in the Purchase Agreement, will be validly issued and fully paid and
non-assessable and no holder of the Securities is or will be subject to personal
liability by reason of being such a holder.
(vi) The issuance and sale of the Securities by the Company and the
sale of the Securities by the Selling Stockholder is not subject to the
preemptive or other similar rights of any securityholder of the Company.
(vii) To the best of our knowledge, the Company does not have any
subsidiaries.
(viii) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
A-1-1
<PAGE>
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectus pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); and, to the best of our knowledge, no
stop order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission.
(x) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectus, and each amendment or supplement to the Registration
Statement and Prospectus, as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which we need express no opinion) complied as to form
in all material respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
(xi) If Rule 434 has been relied upon, the Prospectus was not
"materially different," as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it became effective.
(xii) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company and the
requirements of the Nasdaq National Market.
(xiii) To the best of our knowledge, there is not pending or threatened
any action, suit, proceeding, inquiry or investigation, to which the Company or
any subsidiary is a party, or to which the property of the Company or any
subsidiary is subject, before or brought by any court or governmental agency or
body, domestic or foreign, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of the
transactions contemplated in the Purchase Agreement or the performance by the
Company of its obligations thereunder.
(xiv) The information in the Prospectus under "Description of Capital
Stock--Common Stock", "Description of Capital Stock--Preferred Stock" and in the
Registration Statement under Item 14, to the extent that it constitutes (a)
matters of law, (b) summaries of legal matters, the Company's charter and bylaws
or legal proceedings, or (c) legal conclusions, has been reviewed by us and is
correct in all material respects.
(xv) To the best of our knowledge, there are no statutes or regulations
that are required to be described in the Prospectus that are not described as
required.
(xvi) All descriptions in the Registration Statement of contracts and
other documents to which the Company or its subsidiaries are a party are
accurate in all material respects; to the best of our knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or
A-1-2
<PAGE>
filed or incorporated by reference as exhibits thereto, and the descriptions
thereof or references thereto are correct in all material respects.
(xvii) To the best of our knowledge, neither the Company nor any
subsidiary is in violation of its charter or by-laws and no default by the
Company or any subsidiary exists in the due performance or observance of any
material obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement.
(xviii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act and the
1933 Act Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which we need express
no opinion) is necessary or required in connection with the due authorization,
execution and delivery of the Purchase Agreement or for the offering, issuance,
sale or delivery of the Securities.
(xix) The execution, delivery and performance of the Purchase Agreement
and the consummation of the transactions contemplated in the Purchase Agreement
and in the Registration Statement (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use Of Proceeds") and compliance
by the Company with its obligations under the Purchase Agreement do not and will
not, whether with or without the giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined in Section 1(a)(x) of the Purchase Agreement) under or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any subsidiary pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or any other
agreement or instrument, known to us, to which the Company or any subsidiary is
a party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any subsidiary is subject (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that would not
have a Material Adverse Effect), nor will such action result in any violation of
the provisions of the charter or by-laws of the Company or any subsidiary, or
any applicable law, statute, rule, regulation, judgment, order, writ or decree,
known to us, of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any subsidiary or any of their
respective properties, assets or operations.
(xx) To the best of our knowledge, there are no persons with
registration rights or other similar rights to have any securities registered
pursuant to the Registration Statement or otherwise registered by the Company
under the 1933 Act.
(xxi) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act.
(xxii) Nothing has come to our attention that would lead us to believe
that the Registration Statement or any amendment thereto, including the Rule
430A Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other
A-1-3
<PAGE>
financial data included therein or omitted therefrom, as to which we need make
no statement), at the time such Registration Statement or any such amendment
became effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or any amendment or
supplement thereto (except for financial statements and schedules and other
financial data included therein or omitted therefrom, as to which we need make
no statement), at the time the Prospectus was issued, at the time any such
amended or supplemented prospectus was issued or at the Closing Time, included
or includes an untrue statement of a material fact or omitted or omits to state
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A-1-4
<PAGE>
Exhibit A-2
FORM OF OPINION OF COMPANY'S PATENT COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) The information in the Prospectus under "Risk Factors -- We are
subject to a pending legal proceeding" and "Business--Pending Litigation" has
been reviewed by us and is correct in all material respects.
(ii) Nothing has come to our attention that would lead us to believe
that the Registration Statement or any amendment thereto, including the Rule
430A Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time such Registration
Statement or any such amendment became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time the Prospectus
was issued, at the time any such amended or supplemented prospectus was issued
or at the Closing Time, included or includes an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(iii) To our knowledge, there are no legal or governmental proceedings
other than proceedings described in the sections of the Prospectus referred to
above in paragraph (i) and patent applications pending, relating to patent
rights of the Company to which the Company is a party, and, to our knowledge, no
such proceedings are threatened or contemplated by governmental authorities or
others.
(iv) To our knowledge, the Company has not received any communication
in which it is alleged that the Company is infringing or violating the patent
rights of third parties other than with respect to the proceedings described in
the sections of the Prospectus referred to above in paragraph (i).
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A-2-1
<PAGE>
Exhibit B
FORM OF OPINION OF COUNSEL FOR THE SELLING STOCKHOLDER
TO BE DELIVERED PURSUANT TO SECTION 5(c)
(i) No filing with, or consent, approval, authorization, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign, (other than the issuance of the order
of the Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state securities
laws, as to which we need express no opinion) is necessary or required to be
obtained by the Selling Stockholders for the performance by each Selling
Stockholder of its obligations under the Purchase Agreement or in the Power of
Attorney and Custody Agreement, or in connection with the offer, sale or
delivery of the Securities.
(ii) Each Power of Attorney and Custody Agreement has been duly
executed and delivered by the respective Selling Stockholder named therein and
constitutes the legal, valid and binding agreement of each Selling Stockholder.
(iii) The Purchase Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder.
(iv) Each Attorney-in-Fact has been duly authorized by the Selling
Stockholders to deliver the Securities on behalf of the Selling Stockholders in
accordance with the terms of the Purchase Agreement.
(v) The execution, delivery and performance of the Purchase Agreement
and the Power of Attorney and Custody Agreement and the sale and delivery of the
Securities and the consummation of the transactions contemplated in the Purchase
Agreement and in the Registration Statement and compliance by the Selling
Stockholders with their obligations under the Purchase Agreement have been duly
authorized by all necessary action on the part of the Selling Stockholders and
do not and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default under or
result in the creation or imposition of any tax, lien, charge or encumbrance
upon the Securities or any property or assets of the Selling Stockholders
pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, license, lease or other instrument or agreement to which any
Selling Stockholder is a party or by which it may be bound, or to which any of
the property or assets of the Selling Stockholders may be subject nor will such
action result in any violation of the provisions of the charter or by-laws of
the Selling Stockholders, if applicable, or any law, administrative regulation,
judgment or order of any governmental agency or body or any administrative or
court decree having jurisdiction over such Selling Stockholder or any of its
properties.
(vi) To the best of our knowledge, each Selling Stockholder has valid
and marketable title to the Securities to be sold by such Selling Stockholder
pursuant to the Purchase Agreement, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any
B-1
<PAGE>
kind, and has full right, power and authority to sell, transfer and deliver such
Securities pursuant to the Purchase Agreement. By delivery of a certificate or
certificates therefor such Selling Stockholder will transfer to the Underwriters
who have purchased such Securities pursuant to the Purchase Agreement (without
notice of any defect in the title of such Selling Stockholder and who are
otherwise bona fide purchasers for purposes of the Uniform Commercial Code)
valid and marketable title to such Securities, free and clear of any pledge,
lien, security interest, charge, claim, equity or encumbrance of any kind.
(vii) Nothing has come to our attention that would lead us to believe
that the Registration Statement or any amendment thereto, including the Rule
430A Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time such Registration
Statement or any such amendment became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time the Prospectus
was issued, at the time any such amended or supplemented prospectus was issued
or at the Closing Time, included or includes an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
B-2
<PAGE>
Exhibit C
FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS
PURSUANT TO SECTION 5(K)
__________, 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
J.P. Morgan & Co.,
Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated,
Morgan Keegan & Company, Inc.,
Soundview Technology Group, Inc.,
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
C/O MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
North Tower
World Financial Center
New York, New York 10281-1209
Re: PROPOSED PUBLIC OFFERING BY FINISAR CORPORATION
Dear Sirs:
The undersigned, a securityholder and/or an officer and/or director of
Finisar Corporation, a Delaware corporation (the "Company"), understands that
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") proposes to enter into a Purchase Agreement (the "Purchase
Agreement") with the Company providing for the public offering of shares (the
"Securities") of the Company's common stock, par value $[_____] per share (the
"Common Stock"). In recognition of the benefit that such an offering will confer
upon the undersigned as a securityholder and/or an officer and/or director of
the Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with each
underwriter to be named in the Purchase Agreement that, during a period of 180
days from the date of the Purchase Agreement, the undersigned will not, without
the prior written consent of Merrill Lynch, directly or indirectly, (i) 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 for
the sale of, or otherwise dispose of or transfer any shares of the Company's
Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock, whether now owned or hereafter acquired by the undersigned or
with respect to which the undersigned has or hereafter acquires the power of
disposition, or file any registration statement under the Securities Act of
1933, as amended, with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any
C-1
<PAGE>
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities, in
cash or otherwise. In addition, the undersigned hereby waives any right to
receive notice of the proposed offering and related registration and to cause
the Company to include in the proposed registration any securities of the
undersigned.
Very truly yours,
Signature:
--------------------------------
Print Name:
-------------------------------
C-2
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
FINISAR CORPORATION
Jerry S. Rawls and Wynette Levinson certify that:
They are the President and Secretary, respectively, of Finisar
Corporation, a California corporation (the "Corporation").
The Amended and Restated Articles of Incorporation of the Corporation
are hereby amended and restated in their entirety to read as set forth:
***
I.
The name of this corporation is Finisar Corporation.
II.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law other than the banking business, the trust company business or the practice
of a profession permitted to be incorporated by the California Corporations
Code.
III.
AUTHORIZATION TO ISSUE TWO CLASSES. This Corporation is authorized to
issue two classes of shares designated, respectively, Preferred Stock and Common
Stock. The Corporation is authorized to issue 24,200,000 shares of Preferred
Stock, no par value (the "Preferred Stock") and 75,000,000 shares of Common
Stock, no par value (the "Common Stock").
IV.
A. SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
1. DESIGNATION. A total of Twelve Million One Hundred Thousand
(12,100,000) shares of the Corporation's Preferred Stock shall be designated as
Series A Convertible Redeemable Preferred Stock, no par value per share (the
"Convertible Preferred Stock").
2. ELECTION OF DIRECTORS; VOTING.
(a) ELECTION OF DIRECTORS. The holders of outstanding shares
of Convertible Preferred Stock shall, voting together as a separate class, be
entitled to elect one (1) Director
<PAGE>
("Director") of the Corporation. Such Director shall be the candidate receiving
the highest number of affirmative votes (with only the holders of Convertible
Preferred Stock entitled to cast one vote for or against each candidate with
respect to each share of Convertible Preferred Stock held by such holder) of the
outstanding shares of Convertible Preferred Stock (the "Convertible Preferred
Stock Director Designee"), with votes cast against such candidates and votes
withheld having no legal effect. The election of the Convertible Preferred Stock
Director Designee by the holders of the Convertible Preferred Stock shall occur
(i) at the annual meeting of holders of capital stock, (ii) at any special
meeting of holders of capital stock, (iii) at any special meeting of holders of
Convertible Preferred Stock called by holders of a majority of the outstanding
shares of Convertible Preferred Stock or (iv) by the written consent of holders
of a majority of the outstanding shares of Convertible Preferred Stock. If at
any time when any share of Convertible Preferred Stock is outstanding the
Convertible Preferred Stock Director Designee should cease to be a Director for
any reason, the vacancy shall only be filled by the vote or written consent of
the holders of the outstanding shares of Convertible Preferred Stock, voting
together as a separate class, in the manner and on the basis specified above.
(b) VOTING GENERALLY. Each holder of Convertible Preferred
Stock shall be entitled to the number of votes equal to the largest number of
full shares of Common Stock into which the shares of Convertible Stock held by
such holder could be converted pursuant to Section A.6 hereof on the record date
for such meeting or the effective date of the written consent of shareholders,
if applicable. Each holder of Convertible Preferred Stock shall be entitled to
notice of any shareholders' meeting in accordance with the bylaws of the
Corporation and shall vote with holders of the Common Stock, voting together as
a single class, upon all matters submitted to a vote of shareholders excluding
those matters required to be submitted to a class or series vote pursuant to the
terms hereof (including without limitation Section A.8) or by law.
3. DIVIDENDS.
(a) The holders of shares of Convertible Preferred Stock will
be entitled to receive, if when and as declared by the Board of Directors, out
of any funds legally available therefor, noncumulative dividends at the rate of
6% of the Convertible Base Liquidation Preference Amount (as defined below) per
share per annum (appropriately adjusted for stock splits and combinations) for
each share of Convertible Preferred Stock then held by them ( the "Convertible
Preferred Stock Dividend Rate"). Such dividends may be payable quarterly or
otherwise as the Board of Directors may from time to time determine. Dividends
may be declared and paid upon shares of Common Stock in any fiscal year of the
Corporation, only if dividends shall have been paid to or declared and set apart
upon all shares of Convertible Preferred Stock, and all shares of any other
series of Preferred Stock on a parity with the Convertible Preferred Stock, at
its annual rate for each quarter of such fiscal year of the Corporation,
including the quarter in which such dividends upon shares of Common Stock are
declared, or if the amount of dividends to be paid on each share of Common Stock
exceed the amount payable at the Convertible Preferred Stock Dividend Rate, an
amount of dividends on each share of Convertible Preferred Stock equal to the
amount to be paid on each share of Common Stock in excess of the amount to be
paid on each share of Common Stock, and all
<PAGE>
redemptions then due and payable on the Convertible Preferred Stock shall have
been paid in full or set apart for payment in full. No right shall accrue to
holders of Convertible Preferred Stock by reason of the fact that dividends on
said shares are not declared in any prior year, nor shall any undeclared or
unpaid dividends bear or accrue interest.
(b) If any dividend or other distribution payable in property
other than cash is declared on the Common Stock excluding any dividend or other
distribution for which adjustment to the Conversion Price (as defined below) is
provided by Section A.7(a), each holder of shares of Convertible Preferred Stock
on the record date for such dividend or distribution shall be entitled to
receive on the date of payment or distribution of such dividend or other
distribution, the same property that such holder would have received if on such
record date such holder was the holder of record of the number of shares of
Common Stock into which the shares of Convertible Preferred Stock then held by
such holder are convertible.
4. LIQUIDATION.
(a) LIQUIDATION PREFERENCE.
(i) Upon any Liquidation Event (as defined below), each
holder of outstanding shares of Convertible Preferred Stock shall be entitled to
be paid first out of the assets of the Corporation available for distribution to
shareholders, whether such assets are capital, surplus or earnings, and before
any amount shall be paid or distributed to the holders of Common Stock or of any
other stock ranking on liquidation junior to the Convertible Preferred Stock, an
amount in cash equal to (i) $2.1932 per share of Convertible Preferred Stock
held by such holder (adjusted appropriately for stock splits, stock dividends,
recapitalizations and the like with respect to the Convertible Preferred Stock)
(the "Convertible Base Liquidation Preference Amount"), plus (ii) any accrued
but unpaid dividends to which such holder of outstanding shares of Convertible
Preferred Stock is then entitled pursuant to Sections A.3 and A.5(d) hereof,
plus (iii) any interest accrued pursuant to Section A.5(c) to which such holder
of Convertible Preferred Stock is entitled (collectively, the "Convertible
Preferred Liquidation Preference Amount"), and thereafter shall share ratably
with the holders of Common Stock, with such distributions to be made as if each
share of Convertible Preferred Stock had been converted into the number of
shares of Common Stock issuable upon the conversion of such holder's shares of
Convertible Preferred Stock immediately prior to any such Liquidation Event;
PROVIDED, HOWEVER, that if, upon any Liquidation Event, the amounts payable with
respect to the Convertible Preferred Stock are not paid in full, the holders of
the Convertible Preferred Stock shall share ratably any distribution of assets
in proportion to the full preferential amounts to which they are entitled. The
provisions of this Section A.4 shall not in any way limit the right of the
holders of Convertible Preferred Stock to elect to convert their shares of
Convertible Preferred Stock into Redeemable Preferred Stock and Common Stock
pursuant to Section A.6 prior to or in connection with any Liquidation Event.
(ii) For purposes of these Articles, the term
"Liquidation Event" shall mean (v) any liquidation, dissolution or winding up of
the Corporation or any of its subsidiaries; (w) a merger or consolidation of the
Corporation with or into another entity or any other
<PAGE>
transaction or series of related transactions, in any such case in connection
with or as a result of which the Corporation is not the surviving entity or the
owners of the Corporation's outstanding equity securities prior to the
transaction or series of related transactions do not own at least a majority of
the outstanding equity securities of the surviving, resulting or consolidated
entity; (x) any purchase by any party of shares of capital stock of the
Corporation (either through a negotiated stock purchase or a tender for such
shares), the effect of which is that such party that did not beneficially own a
majority of the voting power of the outstanding shares of capital stock of the
Corporation immediately prior to such purchase beneficially owns at least a
majority of such voting power immediately after such purchase; (y) the
redemption or repurchase of shares representing a majority of the voting power
of the outstanding shares of capital stock of the Corporation; or (z) the sale
or lease or other disposition of all or substantially all of the assets of the
Corporation or winding up of the Corporation and shall entitle the holders of
the Convertible Preferred Stock to receive at the closing in cash, securities or
other property (valued as provided in Section A.4(a)(iii) below) amounts as
specified in Section A.4(a)(i).
(iii) Whenever the distribution provided for in this
Section A.4(a) shall be payable in securities or property other than cash, the
value of such distribution shall be the fair market value of such securities or
other property. Securities shall be valued in the manner set forth in the
definitive agreement for such acquisition, merger, consolidation or other
transaction, and if no such method of valuation is set forth in such definitive
agreement:
(x) If traded on a securities exchanges or through
the Nasdaq National Market, the value shall be deemed to
be the average of the closing prices of the securities on
such exchange or system over the thirty (30) day period
ending three (3) days prior to the closing;
(y) If actively traded over-the-counter but not on
the Nasdaq National Market, the value shall be deemed to
be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period
ending three (3) days prior to the closing; and
(z) If there is no active market, the value shall be
the fair market value thereof, as determined in good
faith by the Board of Directors of the Corporation.
(b) NOTICE. Prior to the occurrence of any Liquidation
Event, the Corporation will furnish each holder of Convertible Preferred Stock
notice in accordance with Section A.9 together with a certificate prepared by
the chief financial officer of the Corporation describing in detail the facts of
such Liquidation Event, stating in detail the amount(s) per share of Convertible
Preferred Stock each holder of Convertible Preferred Stock would receive
pursuant to the provisions of Section A.4(a) hereof and stating in detail the
fact upon which such amount was determined.
5. REDEMPTION.
(a) REDEMPTION EVENTS.
<PAGE>
(i) The holder or holders of not less than a majority in
voting power of the outstanding Convertible Preferred Stock may require the
Corporation to redeem the outstanding Convertible Preferred Stock in three equal
installments with the first such installment for thirty-three and one-third
percent (33-1/3%) of the then outstanding shares of Convertible Preferred Stock
being due and payable on November 6, 2004 the second such installment for fifty
percent (50%) of the then-outstanding shares of Convertible Preferred Stock
being due and payable on November 6, 2005 and the third and final such
installment for all remaining outstanding shares of Convertible Preferred Stock
being due and payable on November 6, 2006.
(ii) An election pursuant to subparagraph (i) of this
Section A.5(a) shall be made by such holders giving the Corporation and each
other holder of Convertible Preferred Stock not less than ninety (90) days prior
written notice, which notice shall set forth the date for such redemption.
(b) REDEMPTION DATE; REDEMPTION PRICE. Upon the election of
the holders of at least a majority of the voting power of the outstanding
Convertible Preferred Stock to cause the Corporation to redeem the Convertible
Preferred Stock pursuant to Section A.5(a)(i), all holders of Convertible
Preferred Stock shall be deemed to have elected to cause all of the Convertible
Preferred Stock to be so redeemed. Any date upon which a redemption shall occur
in accordance with Section A.5(a) shall be referred to as a "Convertible
Preferred Redemption Date." The redemption price for each share of Convertible
Preferred Stock redeemed pursuant to Section A.5 shall be an amount in cash
equal to (i) the Convertible Base Liquidation Preference Amount plus (ii) any
accrued but unpaid dividends on such shares of Convertible Preferred Stock
pursuant to Sections A.3 and A.5(d) hereof, plus (iii) any interest accrued with
respect to such share of Convertible Preferred Stock pursuant to Section A.5(c)
to which such holder of Convertible Preferred Stock is entitled (collectively,
the "Convertible Preferred Redemption Price"). The aggregate Convertible
Preferred Redemption Price shall be payable in cash in immediately available
funds to the respective holders of the Convertible Preferred Stock on the
Convertible Preferred Redemption Date, subject to Section A.5(c). After an
election has been made under this Section A.5(b) by the holders of at least a
majority of the voting power of the outstanding Convertible Preferred Stock,
until the full Convertible Preferred Redemption Price has been paid to such
holders for all shares of Convertible Preferred Stock being redeemed: (A) no
dividend whatsoever shall be paid or declared, and no distribution shall be
made, on any capital stock of the Corporation (other than the Convertible
Preferred Stock in accordance with Section A.5(d)); and (B) no shares of capital
stock of the Corporation (other than the Convertible Preferred Stock in
accordance with this Section A.5) shall be purchased, redeemed or acquired by
the Corporation and no monies shall be paid into or made available for a sinking
fund or set aside or made available for the purchase, redemption or acquisition
thereof. Notwithstanding the election to cause the Corporation to redeem the
Convertible Preferred Stock as provided above, until the full Convertible
Preferred Redemption Price has been paid to the holders of the Convertible
Preferred Stock, the holders of at least a majority of the voting power of the
outstanding Convertible Preferred Stock may rescind such election by providing
written notice thereof to the Corporation.
<PAGE>
(c) REDEMPTION PROHIBITED. If, at a Convertible Preferred
Redemption Date, the Corporation is prohibited under the Corporations Code of
the State of California from redeeming all shares of Convertible Preferred Stock
for which redemption is required hereunder, then it shall redeem such shares on
a pro-rata basis among the holders of Convertible Preferred Stock in proportion
to the full respective redemption amounts to which they are entitled hereunder
to the extent possible and shall redeem the remaining shares to be redeemed as
soon as the Corporation is not prohibited from redeeming some or all of such
shares under the Corporations Code of the State of California. The shares of
Convertible Preferred Stock not redeemed shall remain outstanding and entitled
to all of the rights and preferences provided in these Articles. In the event
that the Corporation fails to redeem shares for which redemption is required
pursuant to this Section A.5, then during the period from the applicable
Convertible Preferred Redemption Date through the date on which such shares are
redeemed, the applicable Convertible Preferred Redemption Price of such shares
shall bear interest at the per annum rate of the greater of (i) 9% or (ii) 3%
over the Citibank, N.A. prime rate published in the Wall Street Journal on such
Convertible Preferred Redemption Date, compounded annually; PROVIDED, HOWEVER,
that in no event shall such interest exceed the maximum permitted rate of
interest under applicable law (the "Maximum Permitted Rate"). In the event that
fulfillment of any provision hereof results in such rate of interest being in
excess of the Maximum Permitted Rate, the obligation to be fulfilled shall
automatically be reduced to the extent required to eliminate such excess.
(d) DIVIDEND AFTER CONVERTIBLE PREFERRED REDEMPTION DATE.
From and after a Convertible Preferred Redemption Date, no shares of Convertible
Preferred Stock subject to redemption shall be entitled to dividends, if any, as
contemplated by Section A.3; PROVIDED, HOWEVER, that in the event that shares of
Convertible Preferred Stock are unable to be redeemed and continue to be
outstanding in accordance with Section A.5(c), such shares shall continue to be
entitled to dividends and interest thereon as provided in Sections A.3 and
A.5(c) until the date on which such shares are actually redeemed by the
Corporation.
(e) SURRENDER OF CERTIFICATES. The Corporation shall give,
not less than 10 days prior to the Convertible Preferred Redemption Date,
written notice (the "Redemption Notice") to all holders of the Convertible
Preferred Stock, which shall require each holder submitting shares for
redemption to surrender to the Corporation on or before the Convertible
Preferred Redemption Date, at the place designated in the Redemption Notice,
such holder's certificate or certificates representing the shares of Convertible
Preferred Stock to be redeemed. On or prior to the Redemption Date, each holder
of shares of Convertible Preferred Stock submitted for redemption shall
surrender the certificate or certificates evidencing such shares to the
Corporation, at the place designated in the Redemption Notice and shall
thereupon be entitled to receive payment of the appropriate Redemption Price by
certified check or wire transfer. In the event the certificate or certificates
are lost, stolen or missing, the holder of Convertible Preferred Stock shall
deliver an affidavit or agreement satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection therewith (an
"Affidavit of Loss") with respect to such certificates at the place set forth in
the Redemption Notice. Each surrendered certificate shall be cancelled and
retired; PROVIDED, HOWEVER, that if the holder has exercised its redemption
right pursuant to Section A.5(a)(i) or the Corporation is prohibited from
<PAGE>
redeeming all shares of Convertible Preferred Stock as provided in Section
A.5(c), the holder shall not be required to surrender said certificate(s) to the
Corporation until said holder has received a new stock certificate for those
shares of Convertible Preferred Stock not so redeemed.
6. CONVERSION. The holders of the Convertible Preferred Stock
shall have the following conversion rights:
(a) CONVERSION UPON ELECTION. Upon the written election of
the holder or holders of not less than a majority in voting power of the
outstanding shares of Convertible Preferred Stock, which may be exercised at any
time, and without the payment of any additional consideration, each of the
outstanding shares of Convertible Preferred Stock shall be automatically
converted into (i) the number of fully paid and nonassessable shares of Common
Stock which results from dividing the Conversion Price (as defined in this
Section A.6(a)) per share in effect for the Convertible Preferred Stock at the
time of conversion into the per share Conversion Value (as defined in this
Section A.6(a)) of the Convertible Preferred Stock and (ii) one (1) fully paid
and non-assessable share of Redeemable Preferred Stock per share of Convertible
Preferred Stock. The foregoing election may be conditioned on the occurrence of
any Liquidation Event or initial public offering. The "Conversion Price" for
each share of Convertible Preferred Stock shall initially be $2.1932 and the
"Conversion Value" for each share of Convertible Preferred Stock shall be
initially $2.1932. The Conversion Price per share of Convertible Preferred Stock
shall be subject to adjustment from time to time as provided in Section A.7
hereof. The number of shares of Common Stock into which a share of Convertible
Preferred Stock is convertible is hereinafter referred to as the "Common Stock
Conversion Rate." The number of shares of Redeemable Preferred Stock into which
a share of Convertible Preferred Stock is convertible is hereinafter referred to
as the "Redeemable Conversion Rate." If the holders of shares of Convertible
Preferred Stock elect to convert the outstanding shares of Convertible Preferred
Stock at a time when there are any accrued but unpaid dividends or other amounts
due on or in respect of such shares, such dividends and other amounts shall
become part of the Redeemable Liquidation Preference Amount, and shall become
payable and shall be paid in full upon a Liquidation Event as set forth in
Section B.4 or redemption of the Redeemable Preferred Stock (as set forth in
Section B.5).
(b) AUTOMATIC CONVERSION UPON QPO. Each share of Convertible
Preferred Stock shall automatically be converted, without the payment of any
additional consideration (except as set forth in the final paragraph of this
Section A.6(b)), into shares of Common Stock and Redeemable Preferred Stock as
of, and in all cases subject to, the closing of the Corporation's first QPO (as
defined below in this Section A.6(b)); PROVIDED that if a closing of a QPO
occurs, all outstanding shares of Convertible Preferred Stock shall be deemed to
have been converted into shares of Common Stock and Redeemable Preferred Stock
as provided herein immediately prior to such closing. Any such conversion shall
be at the Common Stock Conversion Rate and Redeemable Conversion Rate in effect
upon the closing of the QPO, as provided in Section A.6(a). "QPO" and "Qualified
Public Offering" mean a firm commitment public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, PROVIDED
that (i) such registration statement covers the offer and sale of Common Stock
of which the aggregate net proceeds after deducting underwriting discounts and
<PAGE>
commissions attributable to sales for the account of the Corporation exceed
$20,000,000 at a per share price to public (as set forth in the final prospectus
in connection with such public offering (the "Public Offering Price") equal to
at least two (2) times the Conversion Price, and (ii) all shares of Redeemable
Preferred Stock which are outstanding or issuable upon such automatic conversion
are redeemed immediately upon and as of the closing of such offering or
contemporaneously with such offering for cash.
If the holders of shares of Convertible Preferred Stock are required to
convert the outstanding shares of Convertible Preferred Stock pursuant to this
Section A.6(b) at a time when there are any accrued but unpaid dividends or
other amounts due on or in respect of such shares, such dividends and other
amounts shall be paid in full in cash by the Corporation in connection with such
conversion.
(c) PROCEDURE FOR CONVERSION UPON ELECTION. Upon the
execution of the election to convert pursuant to Section A.6(a), all outstanding
shares of Convertible Preferred Stock shall be converted automatically into
shares of Common Stock and Redeemable Preferred Stock at the applicable
conversion rates specified in Section A.6(a), without any further action by the
holders of such shares and whether or not the certificates representing such
shares of Convertible Preferred Stock are surrendered to the Corporation or its
transfer agent. The Corporation shall not be obligated to issue certificates
evidencing the shares of Redeemable Preferred Stock or Common Stock issuable
upon such conversion unless certificates evidencing such shares of the
Convertible Preferred Stock so converted, or an Affidavit or Affidavits of Loss
with respect to such certificates, are delivered to the Corporation or its
transfer agent. Upon such conversion, all rights with respect to the Convertible
Preferred Stock so converted shall terminate, except any of the rights of the
holders thereof upon surrender of their certificate or certificates therefor or
delivery of an Affidavit of Loss thereof to receive certificates for the number
of shares of Common Stock and Redeemable Preferred Stock into which such
Convertible Preferred Stock has been converted. Upon such surrender of a
certificate representing Convertible Preferred Stock, or delivery of an
Affidavit of Loss, the Corporation shall issue and send by hand delivery, by
courier or by first class mail (postage prepaid) to the holder thereof or to
such holder's designee, at the address designated by such holder, certificates
for the number of shares of Common Stock and Redeemable Preferred Stock to which
such holder shall be entitled upon conversion. The issuance of certificates for
Common Stock and Redeemable Preferred Stock upon conversion of Convertible
Preferred Stock will be made without charge to the holders of such shares for
any issuance tax in respect thereof or other costs incurred by the Corporation
in connection with such conversion and the related issuance of such stock.
Certificates so surrendered shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. Notwithstanding anything to the contrary set forth in this Section
A.6(c), in the event that the holders of shares of Convertible Preferred Stock
elect to convert such shares pursuant to Section A.6(a) conditioned upon the
occurrence of any Liquidation Event or initial public offering, then (i) the
conversion shall be effective as of and shall be subject to the occurrence of
such Liquidation Event or initial public offering, and (ii) if such Liquidation
Event or initial public offering occurs, then the conversion shall be deemed to
have occurred immediately prior thereto; provided that the Corporation shall
<PAGE>
make appropriate provisions (x) for the Common Stock issued upon such conversion
to be treated on the same basis as all other Common Stock in such Liquidation
Event or initial public offering, provided further that such conversion shall
not be construed to provide or require the registration of any shares of Common
Stock for sale; and (y) for the payment of the Redeemable Liquidation Preference
Amount (as defined in Section B.4) in connection with any Liquidation Event or
the redemption of the Redeemable Preferred Stock (issued upon such conversion)
upon election of such redemption in connection with any Liquidation Event or
initial public offering, if applicable, as provided herein.
(d) PROCEDURE FOR AUTOMATIC CONVERSION. As of, and in all
cases subject to, the closing of a QPO (the "Automatic Conversion Date"), all
outstanding shares of Convertible Preferred Stock shall be converted
automatically into shares of Common Stock and Redeemable Preferred Stock at the
applicable conversion rates specified in Section A.6(a) and without any further
action by the holders of such shares and whether or not the certificates
representing such shares of Convertible Preferred Stock are surrendered to the
Corporation or its transfer agent; PROVIDED, HOWEVER, that all holders of
Convertible Preferred Stock shall be given prior written notice of the
occurrence of a QPO in accordance with Section A.9 hereof. The Corporation shall
not be obligated to issue certificates evidencing the shares of Redeemable
Preferred Stock or Common Stock issuable on the Automatic Conversion Date (or
the payment for the shares of Redeemable Preferred Stock which are redeemed
immediately after such automatic conversion as provided below and in Section
B.5(a)(i)) unless certificates evidencing such shares of the Convertible
Preferred Stock being converted, or an Affidavit or Affidavits of Loss with
respect to such certificates, are delivered to the Corporation or its transfer
agent. On the Automatic Conversion Date, all rights with respect to the
Convertible Preferred Stock so converted shall terminate, except any of the
rights of the holders thereof upon surrender of their certificate or
certificates therefor or delivery of an Affidavit of Loss thereof to receive
certificates for the number of shares of Common Stock and Redeemable Preferred
Stock into which such Convertible Preferred Stock has been converted (or the
payment to which such holder is entitled as provided below and in Sections
A.6(b) and B.5(a)(i)). All accrued and unpaid dividends shall be paid in full
prior to or upon the closing of such QPO. Certificates so surrendered shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. Upon surrender of such
certificates or Affidavit of Loss the Corporation shall issue and deliver to
such holder, promptly (and in any event in such time as is sufficient to enable
such holder to participate in such QPO) at such office and in its name as shown
on such surrendered certificate or certificates, a certificate or certificates
for the number of shares of Common Stock and number of shares of Redeemable
Preferred Stock into which the shares of the Convertible Preferred Stock
surrendered were convertible on the Automatic Conversion Date. Notwithstanding
anything to the contrary set forth in this Section A.6(d), the Corporation may
deliver, in lieu of certificates for Redeemable Preferred Stock, a payment in an
amount and form determined pursuant to Section B.5(b) hereof on account of the
redemption of such Redeemable Preferred Stock, and upon such payment the
Redeemable Preferred Stock into which such Convertible Preferred Stock would
have been converted shall be deemed to have been issued and redeemed by the
Corporation.
<PAGE>
(e) 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 and Redeemable Preferred Stock solely for
the purpose of effecting the conversion of the shares of Convertible Preferred
Stock such number of its shares of Common Stock and Redeemable Preferred Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Convertible Preferred Stock, and if at any time the number
of authorized but unissued shares of Convertible Preferred Stock, shares of
Common Stock and Redeemable Preferred Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Convertible Preferred Stock,
the Corporation will take such corporate action as may be necessary to increase
its authorized but unissued shares of Common Stock and Redeemable Preferred
Stock to such number of shares as shall be sufficient for such purpose.
(f) NO CLOSING OF TRANSFER BOOKS. The Corporation shall not
close its books against the transfer of shares of Convertible Preferred Stock in
any manner which would interfere with the timely conversion of any shares of
Convertible Preferred Stock.
7. ADJUSTMENTS. The Conversion Price in effect from time to time
shall be subject to adjustment from and after the original issue date of the
Convertible Preferred Stock, as follows:
(a) ADJUSTMENTS TO CONVERSION PRICE.
(i) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. Upon
the issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of outstanding shares
of Common Stock into a greater number of shares of Common Stock, or the
combination of outstanding shares of Common Stock into a smaller number of
shares of the Common Stock, the Conversion Price shall simultaneously with the
happening of such dividend, subdivision or split be adjusted by multiplying the
then effective Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such event
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event. An adjustment made pursuant to this
Section A.7(a)(i) shall be given effect, upon payment of such a dividend or
distribution, as of the record date for the determination of shareholders
entitled to receive such dividend or distribution (on a retroactive basis) and
in the case of a subdivision or combination shall become effective immediately
as of the effective date thereof.
(ii) SALE OF COMMON STOCK. In the event the Corporation
shall at any time, or from time to time, issue, sell or exchange any shares of
Common Stock (including shares held in the Corporation's treasury, but excluding
up to an aggregate 6,075,611 shares of Common Stock (as appropriately adjusted
for stock splits, stock dividends and the like)) issued or issuable to officers,
Directors, employees of, or consultants, advisors, independent contractors to
the Corporation (collectively, "Eligible Employees") or upon the exercise of
options or other rights issued to such Eligible Employees (the "Excluded
Shares"), for a consideration per share less than the Conversion Price in effect
immediately prior to the issuance, sale or exchange of such shares, then, and
thereafter successively upon ech such issuance, sale or exchange, the Conversion
Price in effect immediately prior to the issuance, sale or exchange of such
shares
<PAGE>
shall forthwith be reduced to an amount determined by multiplying such
Conversion Price by a fraction:
(A) the numerator of which shall be (X) the number
of shares of Common Stock and Preferred Stock of all classes outstanding
immediately prior to the issuance of such additional shares of Common Stock
(excluding treasury shares but including shares of Common Stock issuable upon
conversion or exchange of outstanding convertible or exchangeable securities of
the Company), plus (Y) the number of shares of Common Stock to which the net
aggregate consideration received by the Corporation for the total number of such
additional shares of Common Stock so issued would purchase at the Conversion
Price (prior to adjustment), and
(B) the denominator of which shall be (X) the number
of shares of Common Stock and Preferred Stock of all classes outstanding
immediately prior to the issuance of such additional shares of Common Stock
(excluding treasury shares but including shares of Common Stock issuable upon
conversion or exchange of outstanding convertible or exchangeable securities of
the Company), plus (Y) the number of such additional shares of Common Stock so
issued.
(iii) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE SECURITIES.
In the event the Corporation shall at any time or from time to time, issue
options, warrants or rights to subscribe for shares of Common Stock or issue any
securities convertible into or exchangeable for shares of Common Stock (other
than any options or warrants for Excluded Shares), for a consideration per share
(determined by dividing the Net Aggregate Consideration (as determined below) by
the aggregate number of shares of Common Stock that would be issued if all such
options, warrants, rights or convertible securities were exercised or converted
to the fullest extent permitted by their terms) less than the Conversion Price
in effect immediately prior to the issuance of such options or rights or
convertible or exchangeable securities, the Conversion Price in effect
immediately prior to the issuance of such options, warrants or rights or
securities shall be reduced to an amount determined by multiplying such
Conversion Price by a fraction:
(A) the numerator of which shall be (X) the number
of shares of Common Stock and Preferred Stock of all classes outstanding
immediately prior to the issuance of such options, rights or convertible
securities (excluding treasury shares but including shares of Common Stock
issuable upon conversion or exchange of outstanding convertible or exchangeable
securities of the Company), plus (Y) the number of shares of Common Stock which
the total amount of consideration received by the Corporation for the issuance
of such options, warrants, rights or convertible securities plus the minimum
amount set forth in the terms of such security as payable to the Corporation
upon the exercise or conversion thereof (the "Net Aggregate Consideration")
would purchase at the Conversion Price prior to adjustment, and
(B) the denominator of which shall be (X) the number
of shares of Common Stock and Preferred Stock of all classes outstanding
immediately prior to the issuance of such options, warrants, rights or
convertible securities (excluding treasury shares but including shares of Common
Stock issuable upon conversion or exchange of outstanding
<PAGE>
convertible or exchangeable securities of the Company), plus (Y) the aggregate
number of shares of Common Stock that would be issued if all such options,
warrants, rights or convertible securities were exercised or converted.
(iv) EXPIRATION OR CHANGE IN PRICE. If the consideration
per share provided for in any options or rights to subscribe for shares of
Common Stock or any securities exchangeable for or convertible into shares of
Common Stock changes at any time, the Conversion Price in effect at the time of
such change shall be readjusted to the Conversion Price which would have been in
effect at such time had such options or convertible securities provided for such
changed consideration per share (determined as provided in Section A.7(a)(iii)
hereof), at the time initially granted, issued or sold; PROVIDED that such
adjustment of the Conversion Price will be made only as and to the extent that
the Conversion Price effective upon such adjustment remains less than or equal
to the Conversion Price that would be in effect if such options, rights at
securities had not been issued. No adjustment of the Conversion Price shall be
made under this Section A.7(a) upon the issuance of any additional share of
Common Stock which are issued pursuant to the exercise of any warrants, options
or other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible securities if an adjustment
shall previously have been made upon the issuance of such warrants, options or
other rights. Any adjustment of the Conversion Price shall be disregarded if,
as, and when the rights to acquire shares of Common Stock upon exercise or
conversion of the warrants, options, rights or convertible securities which gave
rise to such adjustment expire or are canceled without having been exercised, so
that the Conversion Price effective immediately upon such cancellation or
expiration shall be equal to the Conversion Price in effect at the time of the
issuance of the expired or canceled warrants, options, rights or convertible
securities, with such additional adjustments as would have been made to that
Conversion Price had the expired or canceled warrants, options, rights or
convertible securities not been issued.
(b) OTHER ADJUSTMENTS. In the event the Corporation shall
make or issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event lawful and adequate provision shall be made so that the holders
of Convertible Preferred Stock shall receive upon conversion thereof in addition
to the number of shares of Common Stock receivable thereupon, the number of
securities of the Corporation which they would have received had their
Convertible Preferred Stock been converted into Common Stock and Redeemable
Preferred Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the date of conversion,
retained such securities receivable by them as aforesaid during such period,
giving application to all adjustments called for during such period under this
Section A.7 as applied to such distributed securities.
If the Common Stock issuable upon the conversion of the
Convertible Preferred Stock shall be changed into the same or different
number of shares of any class or classes of stock, whether by
reclassification or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section A.7),
then and in each such event the holder of each share
<PAGE>
of Convertible Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change,
by holders of the number of shares of Common Stock into which such shares of
Convertible Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(c) MERGERS AND OTHER REORGANIZATIONS. If at any time or from
time to time there shall be a capital reorganization of the Common Stock (other
than a subdivision, combination, reclassification or exchange of shares provided
for elsewhere in this Section A.7) or a merger or consolidation of the
Corporation with or into another Corporation or the sale of all or substantially
all of the Corporation's properties and assets to any other person, then, as a
part of and as a condition to the reorganization, merger, consolidation or sale,
lawful and adequate provision shall be made so that the holders of the
Convertible Preferred Stock shall thereafter be entitled to receive upon
conversion of the Convertible Preferred Stock the number of shares of stock or
other securities or property of the Corporation or of the successor Corporation
resulting from such merger or consolidation or sale, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
provisions shall be made with respect to the rights of the holders of the
Convertible Preferred Stock after the reorganization, merger, consolidation or
sale to the end that the provisions of this Section A.7 (including without
limitation provisions for adjustment of the Conversion Price and the number of
shares purchasable upon conversion of the Convertible Preferred Stock) shall
thereafter be applicable, as nearly as may be, with respect to any shares of
stock, securities or assets to be deliverable thereafter upon the conversion of
the Convertible Preferred Stock.
(d) SPECIAL ADJUSTMENTS TO CONVERSION PRICE OF CONVERTIBLE
PREFERRED STOCK. In addition to the foregoing adjustments, if the Corporation
shall effect a firmly-underwritten initial public offering prior to July 30,
2000, the Conversion Price shall be adjusted as follows:
(i) If the Public Offering Price ("POP") is less than or
equal to $4.4113, then no adjustment shall be made to the Conversion Price under
this Section A.7(d).
(ii) If the POP is greater than $4.4113 and less than or
equal to $5.7135, then the Conversion Price shall be adjusted by the following
formula (rounded to the nearest hundredth of a cent):
Conversion Price = $2.1932+[(POP - $4.4113)/($5.7135-$4.4113)]*
($2.5250-$2.1932).
(iii) If the POP is greater than $5.7135 and less than or
equal to $7.0955, then the Conversion Price shall be adjusted by the following
formula (rounded to the nearest hundredth of a cent):
Conversion Price = $2.5250+[(POP - $5.7135)/($7.0955-$5.7135)]*
($2.9398-$2.5250).
<PAGE>
(iv) If the POP is greater than $7.0955, then the
Conversion Price shall be $2.9398, subject to adjustment as provided elsewhere
in this Section A.7.
The prices set forth above, including the POP, wherever appearing,
shall be adjusted for stock splits, stock dividends, reclassifications,
combinations and the like.
(e) CERTIFICATE OF ADJUSTMENT. Upon the occurrence of each
adjustment or readjustment pursuant to this Section A.7, the Corporation at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Convertible
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustments is
based. The Corporation shall, upon written request at any time of any holder of
Convertible Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Prices before and after such adjustment or readjustment, and (iii)
the number of shares of Common Stock and Redeemable Preferred Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of such holder's shares of Convertible Preferred Stock.
8. COVENANTS. So long as any shares of Convertible Preferred Stock
shall be outstanding, the Corporation shall not, without first having provided
the written notice of such proposed action to each holder of outstanding shares
of Convertible Preferred Stock and having obtained the affirmative vote or,
written consent of the holders of at least a majority in voting power of the
outstanding shares of Convertible Preferred Stock, voting as a single class,
with each share of Convertible Preferred Stock entitling the holder thereof to
one vote per share of Convertible Preferred Stock held by such holder:
(a) directly or indirectly redeem, purchase, or otherwise
acquire for consideration any share of its Common Stock or any other class of
its capital stock except for (i) redemption of Convertible Preferred Stock or
Redeemable Preferred Stock pursuant to and as provided in this Certificate, (ii)
repurchase of up to 14,610,000 shares of Common Stock from the shareholders of
the Corporation pursuant to Repurchase Agreements entered into before December
4, 1998, (iii) redemption or repurchase of Common Stock valued at a maximum of
$10,000 per annum issued pursuant to the Plan from Eligible Employees (as
defined in Section A.7(a)(ii)) pursuant to an agreement containing vesting
and/or repurchase provisions approved by the Board of Directors of the
Corporation or a committee thereof, or (iv) repurchase of Common Stock pursuant
to and only to the extent required by the Amended and Restated Shareholders'
Agreement dated effective November 4, 1998 by and among the Corporation, the
Investors and the Employee Holders (as defined therein);
(b) adopt any amendment to these Articles, to the
Corporation's Bylaws or adopt any certificate of designations, preferences and
rights for another series of the Corporation's capital stock that eliminates,
amends or restricts or otherwise adversely affects the rights and preferences of
the Convertible Preferred Stock or the Redeemable Preferred Stock, or increase
the authorized shares of Convertible Preferred Stock or Redeemable Preferred
Stock;
(c) with the exception of the repurchase of up to 14,610,000
shares of
<PAGE>
Common Stock within thirty (30) days of the filing of these Articles, declare or
make dividend payments on any shares of Common Stock or any other class of the
Corporation's capital stock;
(d) create, or obligate itself to create, any class or series
of shares having preference over or being on a parity with the Convertible
Preferred Stock or the Redeemable Preferred Stock;
(e) increase the size of the Board of Directors to more than
seven (7) members; or
(f) pay any bonuses to the Corporation's executive officers
other than bonuses consistent with past practices unless any such bonus shall
have been approved by the compensation committee of the Board of Directors.
Further, the Corporation and each subsidiary of the Corporation shall
not, by amendment of these Articles of Incorporation or any certificate of
designations, preferences and rights for another series of the Corporation's
capital stock or through any Liquidation Event or other reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation and
each subsidiary of the Corporation but shall at all times in good faith assist
in the carrying out of all the provisions of these Articles and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the holders of the Convertible Preferred Stock and the Redeemable
Preferred Stock set forth in these Articles against impairment. Any successor to
the Corporation or any subsidiary of the Corporation shall agree, as a condition
to such succession, to carry out and observe the obligations of the Corporation
hereunder with respect to the Convertible Preferred Stock and the Redeemable
Preferred Stock.
9. NOTICE.
(a) LIQUIDATION EVENTS. In the event (i) the Corporation
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution or who are
entitled to vote at a meeting (or by written consent) in connection with any of
the transactions identified in clause (ii) hereof, or (ii) any Liquidation Event
(as defined in Section A.4), QPO (as defined in Section A.6) or any other public
offering becomes reasonably likely to occur, the Corporation shall mail or cause
to be mailed by first class mail (postage prepaid) to each holder of Convertible
Preferred Stock (or each holder of Redeemable Preferred Stock, as applicable) at
least twenty (20) business days prior to such record date specified therein or
the expected effective date of any such transaction, whichever is earlier, a
notice specifying (A) the date of such record date for the purpose of such
dividend or distribution or meeting or consent and a description of such
dividend or distribution or the action to be taken at such meeting or by such
consent, (B) the date on which any such Liquidation Event, QPO or other public
offering is expected to become effective, and (C) the date on which the books of
the Corporation shall close or a record shall be taken with respect to any such
event.
(b) WAIVER OF NOTICE. The holder or holders of not less than
a majority in
<PAGE>
voting power of the outstanding shares of Convertible Preferred Stock (or
Redeemable Preferred Stock, as applicable) may, at any time upon written notice
to the Corporation, waive any notice provisions specified herein for the benefit
of such holders, and any such waiver shall be binding upon the holders of all
such securities.
(c) GENERAL. In the event that the Corporation provides any
notice, report or statement to any holder of Common Stock, the Corporation shall
at the same time provide a copy of any such notice, report or statement to each
holder of outstanding shares of Convertible Preferred Stock (or Redeemable
Preferred Stock, as applicable).
10. NO REISSUANCE OF CONVERTIBLE PREFERRED STOCK. No share or
shares of Convertible Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be cancelled, retired and eliminated from the shares which the
Corporation shall be authorized to issue.
B. REDEEMABLE PREFERRED STOCK
1. DESIGNATION. A total of Twelve Million One Hundred Thousand
(12,100,00) shares of the Corporation's Preferred Stock shall be designated
as Redeemable Preferred Stock, no par value per share (the "Redeemable
Preferred Stock").
2. VOTING.
(a) VOTING GENERALLY. Except with respect to the election to
redeem the Redeemable Preferred Stock pursuant to Section B.5, the holders of
Redeemable Preferred Stock shall not be entitled to vote on any matters except
to the extent otherwise required under the Corporations Code of the State of
California.
(b) WAIVER OF NOTICE. The holder or holders of not less than
a majority in voting power of the outstanding shares of Redeemable Preferred
Stock may, at any time upon written notice to the Corporation, waive any notice
provisions specified herein for the benefit of such holders, and any such waiver
shall be binding upon the holders of all such securities.
3. DIVIDENDS.
(a) The holders of shares of Redeemable Preferred Stock will
be entitled to receive, if, when and as declared by the Board of Directors, out
of any funds legally available therefor, noncumulative dividends at the rate of
6% of the Redeemable Base Liquidation Preferred Amount (as defined below) per
share per annum (appropriately adjusted for stock splits and combinations) for
each share of Redeemable Preferred Stock then held by them. Such dividends may
be payable quarterly or otherwise as the Board of Directors may from time to
time determine. Dividends may be declared and paid upon shares of Common Stock
in any fiscal year of the Corporation, only if dividends shall have been paid to
or declared and set apart upon all shares of Redeemable Preferred Stock, and all
shares of any other series of Preferred Stock on a parity with the Redeemable
Preferred Stock, at its annual rate for each quarter of such fiscal year of the
Corporation, including the quarter in which such dividends upon shares of Common
Stock
<PAGE>
are declared and all redemptions then due and payable on the Convertible
Preferred Stock and the Redeemable Preferred Stock shall have been paid in full
or set apart for payment in full. No right shall accrue to holders of Redeemable
Preferred Stock by reason of the fact that dividends on said shares are not
declared in any prior year, nor shall any undeclared or unpaid dividends bear or
accrue interest.
(b) If any dividend or other distribution payable in property
other than cash is declared on the Common Stock, each holder of shares of
Redeemable Preferred Stock on the record date for such dividend or distribution
shall be entitled to receive on the date of payment or distribution of such
dividend or other distribution the same property that such holder would have
received if such holder was the holder of a like number of shares of Common
Stock.
4. LIQUIDATION. Upon any Liquidation Event, each holder of an
outstanding share of Redeemable Preferred Stock shall be entitled to be paid out
of the assets of the Corporation available for the distribution to shareholders,
whether such assets are capital, surplus or earnings, and before any amount
shall be paid or distributed to the holders of Common Stock or of any other
stock ranking on liquidation junior to the Redeemable Preferred Stock, an amount
in cash equal to the sum of (a) $0.6345 per share of Redeemable Preferred Stock
held by such holder (adjusted appropriately for stock splits, stock dividends,
recapitalizations and the like with respect to the Redeemable Preferred Stock)
(which amount shall be referred to hereinafter as the "Initial Redeemable Base
Liquidation Amount" or "IRBLA"), plus (b) any accrued but unpaid dividends to
which such holder of outstanding shares of Redeemable Preferred Stock is
entitled pursuant to Sections B.3 and B.5(d) hereof (the sum of the IRBLA and
the amount determined under clause (b) being referred to hereinafter as the
"Redeemable Base Liquidation Amount" or "RBLA"), plus (c) any accrued but unpaid
dividends or other amounts due in respect of the shares of Convertible Preferred
Stock converted into such shares of Redeemable Preferred Stock, plus (d) any
interest accrued pursuant to Section B.5(c) to which such holder of outstanding
shares of Redeemable Preferred Stock is entitled, if any (the sum of the RBLA
and the amount determined under clause (c) being referred to hereinafter as the
"Redeemable Liquidation Preference Amount"); PROVIDED, HOWEVER, that if, upon
any Liquidation Event, the amounts payable with respect to the Redeemable
Liquidation Preference Amount are not paid in full, the holders of the
Redeemable Preferred Stock shall share ratably in any distribution of assets in
proportion to the full respective preferential amounts to which they are
entitled.
Notwithstanding the foregoing, if the Corporation effects a
firmly-underwritten initial public offering, the Initial Redeemable Base
Liquidation Amount shall be adjusted as follows:
(i) If the POP is less than or equal to $4.4113, then no
adjustment shall be made to the IRBLA.
(ii) If the POP is greater than $4.4113 and less than or
equal to $5.7135, then the IRBLA shall be determined by the following formula
(rounded to the nearest hundredth of cent):
IRBLA = $0.6345 - [(POP - $4.4113)/($5.7135 - $4.4113)]* ($0.6345-
$0.4269).
<PAGE>
(iii) If the POP is greater than $5.7135 and less than or
equal to $7.0955, then the IRBLA shall be determined by the following formula
(rounded to the nearest hundredth of a cent):
IRBLA = $0.4269 - [(POP - $5.7135)/($7.0955 -
$5.7135)]*($0.4269-$0.2193).
(iv) If the POP is greater than $7.0955, then the IRBLA
shall be $0.2193.
The prices set forth above, including the POP, wherever appearing,
shall be adjusted for stock splits, stock dividends, reclassifications,
combinations and the like.
5. REDEMPTION.
(a) REDEMPTION EVENTS.
(i) UPON ELECTION OF HOLDERS UPON A QPO. Upon the
election of the holder or holders of not less than a majority of the outstanding
Redeemable Preferred Stock, the Corporation shall redeem in cash all (and not
less than all, except as set forth in Section B.5(c)) of the outstanding shares
of Redeemable Preferred Stock upon the closing of the QPO. The foregoing
election shall be made by such holders giving the Corporation and each other
holder of the Redeemable Preferred Stock written notice not less than five (5)
days prior to the closing of the QPO.
(ii) UPON ELECTION OF CORPORATION UPON A QPO. The
Corporation may elect to redeem in cash all (but not less than all, other than
pursuant to Section B.5(c) below) of the outstanding shares of Redeemable
Preferred Stock at any time upon the closing of a QPO. The foregoing election
shall be made by the Corporation giving each holder of Redeemable Preferred
Stock written notice not less than five (5) days prior to the closing of a QPO.
(iii) LAPSE OF TIME.
(A) At any time after the sixth anniversary of the
issuance of the Convertible Preferred Stock on any one occasion any holder of
Redeemable Preferred Stock may require the Corporation to redeem in cash up to
thirty-three percent (33%) of the outstanding shares of Redeemable Preferred
Stock held by such holder at such time.
(B) At any time after the seventh anniversary of the
issuance of the Convertible Preferred Stock on any one occasion any holder of
Redeemable Preferred Stock may require the Corporation to redeem up to sixty-six
percent (66%) of the outstanding shares of Redeemable Preferred Stock held by
such holder at such time.
(C) At any time after the eighth anniversary of the
issuance of the Convertible Preferred Stock on any one occasion any holder of
Redeemable Preferred Stock may require the Corporation to redeem in cash up to
one hundred percent (100%) of the outstanding shares of Redeemable Preferred
Stock held by such holder at such time.
<PAGE>
(D) UPON A LIQUIDATION EVENT. Upon the election of
the holder or holders of not less than a majority in voting power of the
outstanding Redeemable Preferred Stock, the Corporation shall redeem in cash all
(and not less than all, other than pursuant to Section B.5(c) below) of the
outstanding shares of Redeemable Preferred Stock upon the occurrence of a
Liquidation Event or public offering not constituting a QPO. The foregoing
election shall be made by such holders giving the Corporation and each other
holder of Redeemable Preferred Stock (or Convertible Stock, as applicable) not
less than five (5) days prior written notice, which notice shall set forth the
date for such redemption.
(b) REDEMPTION DATE, REDEMPTION PRICE. Any holder of
Redeemable Preferred Stock may exercise such holder's right of redemption
pursuant to Section B.5(a)(iii) by such holder giving the Corporation not less
than ten (10) days prior written notice, which notice shall set forth the date
for such redemption. Upon the election of the holders of not less than a
majority in voting power of the outstanding Redeemable Preferred Stock to cause
the Corporation to redeem the Redeemable Preferred Stock pursuant to Section
B.5(a)(i) or (a)(iv), all holders of Redeemable Preferred Stock shall be deemed
to have elected to cause the Redeemable Preferred Stock subject to such election
to be so redeemed. Any date upon which a redemption shall actually occur in
accordance with Section B.5(a) shall be referred to as a "Redemption Date." The
redemption price for each share of Redeemable Preferred Stock redeemed pursuant
to this Section B.5 shall be the per share Redeemable Liquidation Preference
Amount (the "Redemption Price"). The aggregate Redemption Price shall be payable
in cash in immediately available funds on the Redemption Date. Until the
aggregate Redemption Price, including any interest thereon, has been paid in
cash for all shares of Redeemable Preferred Stock redeemed as of the applicable
Redemption Date or Redemption Notes have been issued pursuant to Section
B.5(a)(i); (A) no dividend whatsoever shall be paid or declared, and no
distribution shall be made, on any capital stock of the Corporation (other than
the Redeemable Preferred Stock in accordance with Section B.5(d)); and (B) no
shares of capital stock of the Corporation (other than the Redeemable Preferred
Stock in accordance with this Section B.5) shall be purchased, redeemed or
acquired by the Corporation and no monies shall be paid into or set aside or
made available for a sinking fund for the purchase, redemption or acquisition
thereof.
(c) REDEMPTION PROHIBITED. If, at a Redemption Date,
the Corporation is prohibited under the Corporations Code of the State of
California from redeeming all shares of Redeemable Preferred Stock for which
redemption is required hereunder, then it shall redeem such shares on a
pro-rata basis among the holders of Redeemable Preferred Stock in proportion
to the full respective redemption amounts to which they are entitled
hereunder to the extent possible and shall redeem the remaining shares to be
redeemed as soon as the Corporation is not prohibited from redeeming some or
all of such shares under the Corporations Code of the State of California,
subject to the last paragraph of Section A.8. The shares of Redeemable
Preferred Stock not redeemed shall remain outstanding and entitled to all of
the rights and preferences provided in these Articles. In the event that the
Corporation fails for any reason to redeem shares for which redemption is
triggered pursuant to Section B.5 (other than pursuant to the third sentence
of Section B.5(a)(i)), including without limitation due to a prohibition of
such redemption under the Corporations Code of the State of California, then
during the period from the applicable Redemption Date through the date on
which such shares are redeemed, the
<PAGE>
applicable Redeemable Base Liquidation Amount of such shares shall bear
interest at the greater of (i) 9% or (ii) 3% over the Citibank N.A. prime rate
published in the Wall Street Journal on the Redemption Date, compounded
annually; provided, however, that in no event shall such interest rate exceed
the Maximum Permitted Rate.
(d) DIVIDEND AFTER REDEMPTION DATE. From and after the
closing of a QPO or upon consummation of a Liquidation Event or a public
offering not constituting a QPO (in the case of a redemption pursuant to Section
B.5(a)(i) or (iv)) or the date specified for redemption in the election notice
as set forth in Section B.5(a)(ii) or (v) or Section B.5(v), no shares of
Redeemable Preferred Stock subject to redemption shall be entitled to any
further dividends pursuant to Section B.3 hereof; PROVIDED, HOWEVER, that in the
event that shares of Redeemable Preferred Stock are unable to be redeemed and
continue to be outstanding in accordance with Section B.5(c), such shares shall
continue to be entitled to dividends and interest thereon as provided in
Sections B.3 and B.5(c) until the date on which such shares are actually
redeemed by the Corporation.
(e) SURRENDER OF CERTIFICATES. The Corporation shall
give, not less than 10 days prior to the Redemption Date, a Redemption Notice to
all holders of the Redeemable Preferred Stock which shall require each holder
submitting shares for redemption to surrender to the Corporation on or before
the Redemption Date, at the place designated in the Redemption Notice, such
holder's certificate or certificates representing the shares of Redeemable
Preferred Stock to be redeemed. On or prior to the Redemption Date, each holder
of shares of Redeemable Preferred Stock submitted for redemption shall surrender
the certificate or certificates evidencing such shares to the Corporation, at
the place designated in the Redemption Notice and shall thereupon be entitled to
receive payment of the appropriate Redemption Price by certified check or wire
transfer. In the event the certificates are lost, stolen or missing, the holder
of Redeemable Preferred Stock shall deliver an Affidavit of Loss with respect to
such certificates at the place set forth in the Redemption Notice. Each
surrendered certificate shall be canceled and retired; PROVIDED, HOWEVER, that
if the holder has exercised its right pursuant to Section B.5(a)(iii)(A) or the
Corporation has exercised its right pursuant to Section B.5(a)(v)(A), the holder
shall not be required to surrender said certificate(s) to the Corporation until
said holder has received a new stock certificate for those shares of Redeemable
Preferred Stock not so redeemed.
6. NOTICE. In the event that the Corporation provides or is
required to provide notice to any holder of Convertible Preferred Stock or any
holder of Common Stock in accordance with the provisions of this Certificate
(including the provisions of Section A.9) and/or the Corporation's bylaws, the
Corporation shall at the same time provide a copy of such notice to each holder
of outstanding Redeemable Preferred Stock.
7. NO REISSUANCE OF REDEEMABLE PREFERRED STOCK. No share or shares
of Redeemable Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired and eliminated from the shares which the
Corporation shall be authorized to issue.
<PAGE>
1. LIMITATION OF DIRECTORS' LIABILITY. The liability of the
directors of this corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
2. INDEMNIFICATION OF CORPORATION AGENTS. This corporation is
authorized to provide indemnification of its agents (as defined in Section 310
of the California General Corporations Law) through bylaws provisions,
agreements with agents, vote of shareholders or disinterested directors, or
otherwise, in excess of the indemnification otherwise permitted by such Section
317, subject only to the limits set forth in Section 204 of the California
General Corporations Law with respect to actions for breach of duty to the
corporation and shareholders.
3. REPEAL OR MODIFICATION. Any repeal or modification of the
foregoing provisions of this Article V shall not adversely affect any right of
indemnification or limit of liability of an agent of this corporation relating
to acts or omissions occurring prior to such repeal or modification."
* * *
The foregoing amendment and restatement has been duly approved by the
Board of Directors of the Company.
The foregoing amendment and restatement has been duly approved by the
required vote of shareholders in accordance with Sections 902 and 903 of the
California General Corporations Law. The total number of outstanding shares is
45,737,660 shares of Common Stock. The number of shares voting in favor of the
amendment equaled or exceeded the votes required. The percentage vote was more
than 50% of the outstanding Common Stock.
We further declare under penalty of perjury under the laws of
California that the matters set forth in this amendment and restatement are true
of our own knowledge.
Executed in Palo Alto, California on November 1, 1998.
/s/ Jerry S. Rawls
---------------------------------
Jerry S. Rawls, President
/s/ Wynette Levinson
---------------------------------
Wynette Levinson, Secretary
<PAGE>
RESTATED BYLAWS
OF
FINISAR CORPORATION
<PAGE>
RESTATED BYLAWS
OF
FINISAR CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The board of directors shall fix the location of the principal
executive office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the board
of directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS
Meetings of shareholders shall be held at any place within or outside
the State of California designated by the board of directors. In the absence of
any such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of shareholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of shareholders shall be held on the 2nd Tuesday
of July in each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected, and
any other proper business may be transacted.
1
<PAGE>
2.3 SPECIAL MEETING
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 2.5 of these bylaws not less than ten (10) (or,
if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty
(30)) nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
2
<PAGE>
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of shareholders shall be given either (i)
personally or (ii) by first-class mail or (iii) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in Section 605 of the Code) on the record
date for the shareholders' meeting, or (iv) by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, then all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available to the
shareholder on written demand of the shareholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting except
as provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at the meeting at which the
adjournment is taken. However, if a new record date for the adjourned meeting is
fixed or if the adjournment is for more than forty-five (45) days from the
3
<PAGE>
date set for the original meeting, then notice of the adjourned meeting shall
be given. Notice of any such adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
2.8 VOTING
The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may
be otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any shareholder entitled to vote on any matter may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or, except when the matter is the election of directors, may
vote them against the proposal; but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or a vote by
classes is required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit. The
candidates receiving the highest number of affirmative votes, up to the number
of directors to be elected, shall be elected; votes against any candidate and
votes withheld shall have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of shareholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though they had been taken at a meeting duly
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held after regular call and notice, if a quorum be present either in person or
by proxy, and if, either before or after the meeting, each person entitled to
vote, who was not present in person or by proxy, signs a written waiver of
notice or a consent to the holding of the meeting or an approval of the minutes
thereof. The waiver of notice or consent or approval need not specify either the
business to be transacted or the purpose of any annual or special meeting of
shareholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section
2.4 of these bylaws, the waiver of notice or consent or approval shall state the
general nature of the proposal. All such waivers, consents, and approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director may be elected at any time to fill
any vacancy on the board of directors, provided that it was not created by
removal of a director and that it has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these bylaws. In the case of approval of (i) a contract or transaction in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of a corporate "agent,"
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pursuant to Section 317 of the Code, (iii) a reorganization of the corporation,
pursuant to Section 1201 of the Code, and (iv) a distribution in dissolution
other than in accordance with the rights of outstanding preferred shares,
pursuant to Section 2007 of the Code, the notice shall be given at least ten
(10) days before the consummation of any action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held; and
(b) the record date for determining shareholders entitled to
give consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article
VIII of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) the person who
executed the proxy revokes it prior to the time of voting by delivering a
writing to the corporation stating that the proxy is revoked or by executing a
subsequent proxy and presenting it to the meeting or by voting in person at the
meeting, or (ii) written notice of the death or incapacity of the maker of that
proxy is received by the corporation before the vote pursuant to that proxy is
counted; provided, however, that no proxy shall be valid after the expiration of
eleven (11) months from the date of the proxy, unless
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otherwise provided in the proxy. The dates contained on the forms of proxy
presumptively determine the order of execution, regardless of the postmark dates
on the envelopes in which they are mailed. The revocability of a proxy that
states on its face that it is irrevocable shall be governed by the provisions of
Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION
Before any meeting of shareholders, the board of directors may appoint
an inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The number
of inspectors shall be either one (1) or three (3). If inspectors are appointed
at a meeting pursuant to the request of one (1) or more shareholders or proxies,
then the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
then the chairman of the meeting may, and upon the request of any shareholder or
a shareholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the
voting power of each, the number of shares represented at the meeting, the
existence of a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in
any way arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the Code and any limitations in the
articles of incorporation and these bylaws relating to action required to be
approved by the shareholders or by the
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outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall not be less than (3)
nor more than (5). The exact number of directors shall be four (4) until
changed, within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number fixed
without provision for an indefinite number by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
The undersigned further certifies that this amendment has been duly
approved by the directors of the corporation at a meeting of the Board of
Directors held on October 30, 1998.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Directors shall be elected at each annual meeting of shareholders to
hold office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist (i) in the event of the death, resignation or removal of any director,
(ii) if the board of directors by resolution
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declares vacant the office of a director who has been declared of unsound mind
by an order of court or convicted of a felony, (iii) if the authorized number of
directors is increased, or (iv) if the shareholders fail, at any meeting of
shareholders at which any director or directors are elected, to elect the number
of directors to be elected at that meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election
other than to fill a vacancy created by removal, if by written consent, shall
require the consent of the holders of a majority of the outstanding shares
entitled to vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of California that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of California that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
if the times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
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3.8 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.10 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not
be given unless the meeting is adjourned for more than twenty-four (24) hours.
If the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
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3.13 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS*
The corporation may, upon the approval of the board of directors alone,
make loans of money or property to, or guarantee the obligations of, any officer
of the corporation or its parent or subsidiary, whether or not a director, or
adopt an employee benefit plan or plans authorizing such loans or guaranties
provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation, (ii) the
corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code,
also requires shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors
or in any committee;
(c) the fixing of compensation of the directors for
serving on the board or any committee;
(d) the amendment or repeal of these bylaws or the
adoption of new bylaws;
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* This Section is effective only if it has been approved by the shareholders
in accordance with Sections 315(b) and 152 of the Code.
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(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation,
except at a rate or in a periodic amount or within a price range determined by
the board of directors; or
(g) the appointment of any other committees of the board of
directors or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
5.3 of these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such
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period, have such authority, and perform such duties as are provided in these
bylaws or as the board of directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. The chairman of the
board shall also be the chief executive officer of the corporation.
5.7 PRESIDENT
Subject to the supervisory powers given by the board of directors to
the chairman of the board, if there be such an officer, the president shall,
subject to the control of the board of directors and Chief Executive Officer,
have general supervision, direction, and control of the business and the
officers of the corporation; he shall preside at all meetings of the
shareholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the board of directors; and he 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 these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for
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them respectively by the board of directors, these bylaws, the president or the
chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and shareholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money 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 the 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 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 these bylaws.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the Code, indemnify each of its directors and officers against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the Code), arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Article VI, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Article VI, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is or
was an employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required pursuant to Section 6.1 or for
which indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of Directors shall be paid by the corporation
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such amount if
it shall ultimately be determined that the indemnified party is not entitled to
be indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official
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capacity and as to action in another capacity while holding such office, to the
extent that such additional rights to indemnification are authorized in the
Articles of Incorporation.
6.5 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation against any liability asserted against or incurred by such
person in such capacity or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify him against such
liability under the provisions of this Article VI.
6.6 CONFLICTS
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(1) That it would be inconsistent with a provision of the
Articles of Incorporation, these bylaws, a resolution of the shareholders or an
agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep either at its principal executive office or
at the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least
five percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be
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made available to any such shareholder by the transfer agent on or before the
later of five (5) days after the demand is received or five (5) days after the
date specified in the demand as the date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in person
or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California the original or a copy of these bylaws as amended
to date, which bylaws shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
The accounting books and records and the minutes of proceedings of the
shareholders, of the board of directors, and of any committee or committees of
the board of directors shall be kept at such place or places as are designated
by the board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or by
an agent or attorney and shall include the right to copy and make extracts. Such
rights of inspection shall extend to the records of each subsidiary corporation
of the corporation.
7.4 INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
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7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of
the fiscal year, (ii) an income statement, (iii) a statement of changes in
financial position for the fiscal year, and (iv) any report of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that the statements were prepared without audit from
the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so long
as the shares of the corporation are held by fewer than one hundred (100)
holders of record.
7.6 FINANCIAL STATEMENTS
If no annual report for the fiscal year has been sent to shareholders,
then the corporation shall, upon the written request of any shareholder made
more than one hundred twenty (120) days after the close of such fiscal year,
deliver or mail to the person making the request, within thirty (30) days
thereafter, a copy of a balance sheet as of the end of such fiscal year and an
income statement and statement of changes in financial position for such fiscal
year.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, the statements referred to in the first paragraph of
this Section 7.6 shall likewise be delivered or mailed to the shareholder or
shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this
Section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other
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corporation or corporations standing in the name of this corporation. The
authority herein granted may be exercised either by such person directly or by
any other person authorized to do so by proxy or power of attorney duly executed
by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the shareholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided in the Code.
If the board of directors does not so fix a record date, then the
record date for determining shareholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable resolution
or the sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
A certificate or certificates for shares of the corporation shall be
issued to each shareholder when any of such shares are fully paid. The board of
directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total
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amount of the consideration to be paid for them and the amount actually paid.
All certificates shall be signed in the name of the corporation by the chairman
of the board or the vice chairman of the board or the president or a vice
president and by the chief financial officer or an assistant treasurer or the
secretary or an assistant secretary, certifying the number of shares and the
class or series of shares owned by the shareholder. Any or all of the signatures
on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on a certificate ceases to be that
officer, transfer agent or registrar before that certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
8.7 RIGHT OF FIRST REFUSAL
No shareholder shall sell, assign, pledge, or in any other manner
transfer any of the shares of stock of the corporation or any right or interest
therein, whether voluntarily or by operation of law, or by gift or otherwise,
except by a transfer which meets the requirements hereinafter set forth in this
bylaw:
(a) If the shareholder receives from anyone a bona fide offer
acceptable to the shareholder to purchase any of his shares of stock, then the
shareholder shall first give written notice thereof to the corporation. The
notice shall name the proposed transferee and state the number of shares to be
transferred, the price per share and all other terms and conditions of the
offer.
(b) For fifteen (15) days following receipt of such notice,
the corporation shall have the option to purchase all or any lesser part of the
shares specified in the notice at the price and upon the terms set forth in such
bona fide offer. In the event the corporation elects to
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purchase all the shares, it shall give written notice to the selling shareholder
of its election and settlement for said shares be made as provided below in
paragraph (d).
(c) In the event the corporation does not elect to acquire all
of the shares specified in the selling shareholder's notice, the Secretary of
the corporation shall, within fifteen (15) days of receipt of said selling
shareholder's notice, give written notice thereof to the shareholders of the
corporation other than the selling shareholder. Said written notice shall state
the number of shares that the corporation has elected to purchase and the number
of shares that the corporation has elected to purchase and the number of shares
remaining available for purchase (which shall be the same as the number
contained in said selling shareholder's notice, less any such shares that the
corporation has elected to purchase). Each of the other shareholders shall have
the option to purchase that proportion of the shares available for purchase as
the number of shares owned by each of said other shareholders bears to the total
issued and outstanding shares of the corporation, excepting those shares owned
by the selling shareholder. A shareholder electing to exercise such option
shall, within ten (10) days after mailing of the corporation's notice, give
notice to the corporation specifying the number of shares such shareholder will
purchase. Within such ten-day period, each of said other shareholders shall give
written notice stating how many additional shares such shareholder will purchase
if additional shares are made available. Failure to respond in writing within
said ten-day period to the notice given by the Secretary of the corporation
shall be deemed a rejection of such shareholder's right to acquire a
proportionate part of the shares of the selling shareholder. In the event one or
more shareholders do not elect to acquire the shares available to them, said
shares shall be allocated on a pro rata basis to the shareholders who requested
shares in addition to their pro rata allotment.
(d) In the event the corporation and/or shareholders, other
than the selling shareholder, elect to acquire any of the shares of the selling
shareholder as specified in said selling shareholder's notice, the Secretary of
the corporation shall so notify the selling shareholder and settlement thereof
shall be made in cash within thirty (30) days after the Secretary of the
corporation receives said selling shareholder's notice; provided that if the
terms of payment set forth in said selling shareholder's notice were other than
cash against delivery, the corporation and/or its other shareholders shall pay
for said shares on the same terms and conditions set forth in said selling
shareholder's notice.
(e) In the event the corporation and/or its other shareholders
do not elect to acquire all of the shares specified in the selling shareholder's
notice, said selling shareholder may, within the sixty-day period following the
expiration of the option rights granted to the corporation and other
shareholders herein, sell elsewhere the shares specified in said selling
shareholder's notice which were not acquired by the corporation and/or its other
shareholders, in accordance with the provisions of paragraph (d) of this bylaw,
provided, that said sale shall not be on terms and conditions more favorable to
the purchaser than those contained in the bona fide offer set forth in said
selling shareholder's notice. All shares so sold by said selling shareholder
shall continue to be subject to the provisions of this bylaw in the same manner
as before said transfer.
(f) Anything to the contrary contained herein notwithstanding,
the following transactions shall be exempt from the provisions of this bylaw:
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(1) A shareholder's transfer of any or all
shares held either during such shareholder's lifetime or on death by will or
intestacy to such shareholder's immediate family. "Immediate family" as used
herein shall mean spouse, lineal descendant, father, mother, brother, or sister
of the shareholder making such transfer.
(2) A shareholder's bona fide pledge or
mortgage of any shares with a commercial lending institution, provided that
any subsequent transfer of said shares by said institution shall be conducted
in the manner set forth in this Section.
(3) A shareholder's transfer of any or all of
such shareholder's shares to any other shareholder of the corporation.
(4) A shareholder's transfer of any or all of
such shareholder's shares to a person who, at the time of such transfer, is an
officer or director of the corporation.
(5) A corporate shareholder's transfer of any or
all of its shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate shareholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate shareholder.
(6) A corporate shareholder's transfer of any or
all of its shares to any or all of its shareholders.
(7) A transfer by a shareholder which is a
limited or general partnership to any or all of its partners.
In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this bylaw, and there
shall be no further transfer of such stock except in accord with this bylaw.
(g) The provisions of this Section may be waived with respect
to any transfer either by the corporation, upon duly authorized action of its
board of directors, or by the shareholders, upon the express written consent of
the owners of a majority of the voting power of the corporation (excluding the
votes represented by those shares to be sold by the selling shareholder). This
Section may be amended or repealed either by a duly authorized action of the
Board of Directors or by the shareholders, upon the express written consent of
the owners of a majority of the voting power of the corporation.
(h) Any sale or transfer, purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.
(i) That certificates representing shares of stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:
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"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION
AND ITS OTHER SHAREHOLDERS, AS PROVIDED IN THE BYLAWS OF THE
CORPORATION."
ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS
New bylaws may be adopted or these bylaws may be amended or repealed by
the vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
then the authorized number of directors may be changed only by an amendment of
the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 9.1 of
these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the board of directors.
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CERTIFICATE OF INCORPORATION
OF
FINISAR DELAWARE CORPORATION
FIRST: The name of this corporation is Finisar Delaware Corporation
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Incorporating Services, Ltd., 15 East North Street, in
the City of Dover, County of Kent. The name of the registered agent at that
address is Incorporating Services, Ltd.
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: The total number of shares of stock which the Corporation
shall have authority to issue is One Thousand (1,000) shares of Common Stock,
par value $0.001 per share (the "Common Stock").
FIFTH: The name and mailing address of the incorporator is:
Lynn Rooke
c/o Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
SIXTH: The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. 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 Bylaws so provide.
<PAGE>
SEVENTH: The Board of Directors 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.
EIGHTH: This Corporation reserves the right to amend or repeal any of
the provisions contained in this 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.
NINTH: To the fullest extent permitted by the Delaware General
Corporation Law, a director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Any repeal or modification of the foregoing provisions
of this Article NINTH 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.
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this 1st day of September,
1999.
/s/ Lynn Rooke
------------------------------
Lynn Rooke
<PAGE>
BYLAWS
OF
FINISAR DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
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ARTICLE I STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Annual Meeting.. . . . . . . . . . . . . . . . . . . 1
Section 1.2 Special Meetings.. . . . . . . . . . . . . . . . . . 1
Section 1.3 Notice of Meetings.. . . . . . . . . . . . . . . . . 1
Section 1.4 Quorum.. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.5 Conduct of the Stockholders' Meeting.. . . . . . . . 2
Section 1.6 Conduct of Business. . . . . . . . . . . . . . . . . 2
Section 1.7 Notice of Stockholder Business.. . . . . . . . . . . 2
Section 1.8 Proxies and Voting.. . . . . . . . . . . . . . . . . 3
Section 1.9 Stock List.. . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . 4
Section 2.1 Number and Term of Office. . . . . . . . . . . . . . 4
Section 2.2 Vacancies and Newly Created Directorships. . . . . . 4
Section 2.3 Removal. . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.4 Regular Meetings.. . . . . . . . . . . . . . . . . . 4
Section 2.5 Special Meetings.. . . . . . . . . . . . . . . . . . 4
Section 2.6 Quorum.. . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.7 Participation in Meetings by Conference Telephone. . 5
Section 2.8 Conduct of Business. . . . . . . . . . . . . . . . . 5
Section 2.9 Powers.. . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.10 Compensation of Directors. . . . . . . . . . . . . . 6
Section 2.11 Nomination of Director Candidates. . . . . . . . . . 6
ARTICLE III COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1 Committees of the Board of Directors.. . . . . . . . 7
Section 3.2 Conduct of Business. . . . . . . . . . . . . . . . . 7
ARTICLE IV OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.1 Generally. . . . . . . . . . . . . . . . . . . . . . 8
Section 4.2 Chairman of the Board. . . . . . . . . . . . . . . . 8
Section 4.3 President. . . . . . . . . . . . . . . . . . . . . . 8
Section 4.4 Vice President.. . . . . . . . . . . . . . . . . . . 8
Section 4.5 Treasurer. . . . . . . . . . . . . . . . . . . . . . 8
Section 4.6 Secretary. . . . . . . . . . . . . . . . . . . . . . 8
Section 4.7 Delegation of Authority. . . . . . . . . . . . . . . 9
Section 4.8 Removal. . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.9 Action With Respect to Securities of Other
Corporations . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.1 Certificates of Stock. . . . . . . . . . . . . . . . 9
Section 5.2 Transfers of Stock.. . . . . . . . . . . . . . . . . 9
Section 5.3 Record Date. . . . . . . . . . . . . . . . . . . . . 9
i
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TABLE OF CONTENTS
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Section 5.4 Lost, Stolen or Destroyed Certificates . . . . . . . 9
Section 5.5 Regulations. . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VI NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 6.1 Notices. . . . . . . . . . . . . . . . . . . . . . . 10
Section 6.2 Waivers. . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7.1 Facsimile Signatures.. . . . . . . . . . . . . . . . 10
Section 7.2 Corporate Seal.. . . . . . . . . . . . . . . . . . . 10
Section 7.3 Reliance Upon Books, Reports and Records.. . . . . . 10
Section 7.4 Fiscal Year. . . . . . . . . . . . . . . . . . . . . 11
Section 7.5 Time Periods.. . . . . . . . . . . . . . . . . . . . 11
ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . . 11
Section 8.1 Right to Indemnification . . . . . . . . . . . . . . 11
Section 8.2 Right of Claimant to Bring Suit. . . . . . . . . . . 12
Section 8.3 Non-Exclusivity of Rights. . . . . . . . . . . . . . 12
Section 8.4 Indemnification Contracts. . . . . . . . . . . . . . 12
Section 8.5 Insurance. . . . . . . . . . . . . . . . . . . . . . 12
Section 8.6 Effect of Amendment. . . . . . . . . . . . . . . . . 12
ARTICLE IX AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 9.1 Amendment of Bylaws. . . . . . . . . . . . . . . . . 13
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FINISAR DELAWARE CORPORATION
A DELAWARE CORPORATION
BYLAWS
ARTICLE I
STOCKHOLDERS
Section 1.1 ANNUAL MEETING. An annual meeting of the stockholders, for
the election of directors to succeed those whose terms expire 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
only (i) by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exists any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption) or (ii) by the
holders of not less than 10% of all shares entitled to cast votes at the
meeting, voting together as a single class 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.
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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 CONDUCT OF THE STOCKHOLDERS' MEETING. At every meeting of
the stockholders, the Chairman, if there is such an officer, or if not, the
President of the Corporation, or in his absence the Vice President designated by
the President, or in the absence of such designation any Vice President, or in
the absence of the President or any Vice President, a chairman chosen by the
majority of the voting shares represented in person or by proxy, shall act as
Chairman. The Secretary of the Corporation or a person designated by the
Chairman shall act as Secretary of the meeting. Unless otherwise approved by
the Chairman, attendance at the stockholders' meeting is restricted to
stockholders of record, persons authorized in accordance with Section 8 of these
Bylaws to act by proxy, and officers of the Corporation.
Section 1.6 CONDUCT OF BUSINESS. The Chairman shall call the meeting to
order, establish the agenda, and conduct the business of the meeting in
accordance therewith or, at the Chairman's discretion, it may be conducted
otherwise in accordance with the wishes of the stockholders in attendance. The
date and time of the opening and closing of the polls for each matter upon which
the stockholders will vote at the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner, rule on
the precedence of and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 1.6 and
Section 1.7, below. The Chairman of a 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 1.6 and
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 1.7 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
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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 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 the stockholder,
and (d) any material interest of the stockholder in such business.
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 or by a transmission permitted by law filed in
accordance with the procedure established for the meeting. No stockholder may
authorize more than one proxy for his shares.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his or her name on the record date for the meeting,
except as otherwise provided herein or required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or 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, 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.
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The stock list shall also be kept at the place of the meeting during the
whole time 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.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 NUMBER AND TERM OF OFFICE. The number of directors shall
initially be four (4) 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). A vacancy resulting from the
removal of a director by the stockholders as provided in Article II, Section 2.3
below may be filled at special meeting of the stockholders held for that
purpose. All directors shall hold office until the expiration of the term for
which elected and until their respective successors are elected, except in the
case of the death, resignation or removal of any director.
Section 2.2 VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the
rights of the holders of any series of Preferred Stock then outstanding, 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 than 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 rights of holders of any series of
Preferred Stock then outstanding, any directors, 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 capital 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 a majority of the directors then in office, though less than a
quorum, or by the stockholders as provided in Article II, Section 2.1 above.
Directors so chosen shall hold office until the new 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-third of the directors then in office (rounded up
to the nearest whole number) or by the chief executive officer and shall be held
at such place, on such date, and at such time as they
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or he or she 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 fewer than five (5) days before the meeting or by
telegraphing or personally delivering the same not fewer 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 thereof, 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
requited 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:
(a) To declare dividends from time to time in accordance with law;
(b) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(c) 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;
(d) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any officer upon any
other person for the time being;
(e) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(f) 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;
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(g) 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
(h) 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. Subject to the rights of
holders of any class or series of Preferred Stock then outstanding, 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 generally. However, any stockholder entitled
to vote in the election of Directors generally may nominate one or more persons
for election as Directors at a meeting only if timely notice of such
stockholder's intent to make such nomination or nominations has been given in
writing to the Secretary of the Corporation. To be timely, a stockholder
nomination for a director to be elected 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 nomination for
director to be elected at a special meeting, notice by the stockholders 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 special meeting was
mailed or such public disclosure was made. Each such notice shall set forth:
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
for the election of Directors on the date of such notice and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (d) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee been nominated, or intended to be nominated, by the
Board of Directors; and (e) the consent of each nominee to serve as a director
of the Corporation if so elected.
In the event that a person is validly designated as a nominee in accordance
with this Section 2.11 and shall thereafter become unable or unwilling to stand
for election to the Board of Directors, the Board of Directors or the
stockholder who proposed such nominee, as the case may be, may designate a
substitute nominee upon delivery, not fewer than five days prior to the
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date of the meeting for the election of such nominee, of a written notice to
the Secretary setting forth such information regarding such substitute
nominee as would have been required to be delivered to the Secretary pursuant
to this Section 2.11 had such substitute nominee been initially proposed as a
nominee. Such notice shall include a signed consent to serve as a director of
the Corporation, if elected, of each such substitute nominee.
If the chairman of the meeting for the election of Directors determines
that a nomination of any candidate for election as a Director at such meeting
was not made in accordance with the applicable provisions of this Section 2.11,
such nomination shall be void; provided, however, that nothing in this
Section 2.11 shall be deemed to limit any voting rights upon the occurrence
of dividend arrearages provided to holders of Preferred Stock pursuant to the
Preferred Stock designation for any series of Preferred Stock.
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 a
certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law 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 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, one or more Vice Presidents, a Secretary and a Treasurer.
The Corporation may also have, at the discretion of the Board of Directors, a
Chairman of the Board 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. The Chairman of the Board, if there shall be such an
officer, and the President shall each be members of the Board of Directors.
Any number of offices may he 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
prescribed by these bylaws.
Section 4.3 PRESIDENT. The President shall be the chief executive
officer of the Corporation. Subject to the provisions of these bylaws and to
the direction of the Board of Directors, he or she shall have the
responsibility for the general management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the office of chief executive or which are
delegated to him or her by the Board of Directors. He or she shall have
power to sign all stock certificates, contracts and other instruments of the
Corporation which are authorized and shall have general supervision and
direction of all of the other officers, employees and agents of the
Corporation.
Section 4.4 VICE PRESIDENT. Each Vice President shall have such
powers and duties as may be delegated to him or her by the Board of
Directors. One Vice President shall be designated by the Board to perform
the duties and exercise the powers of the President in the event of the
President's absence or disability.
Section 4.5 TREASURER. Unless otherwise designated by the Board of
Directors, the Chief Financial Officer of the Corporation shall be the
Treasurer. The Treasurer shall have the responsibility for maintaining the
financial records of the Corporation and shall have custody of all monies and
securities of the Corporation. He or she shall make such disbursements of
the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions and of the financial condition of
the Corporation. The Treasurer shall also perform such other duties as the
Board of Directors may from time to time prescribe.
Section 4.6 SECRETARY. The Secretary shall issue all authorized
notices for, and shall keep, or cause to be kept, minutes of all meetings of
the stockholders, the Board of Directors, and all committees of the Board of
Directors. He or she shall have charge of the corporate books and shall
perform such other duties as the Board of Directors may from time to time
prescribe.
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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 Treasurer or an Assistant Treasurer, certifying the number
of shares owned by him or her. Any of or all the signatures on the
certificate may be 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 designated to transfer shares of the stock
of the Corporation. Except where a certificate is issued in accordance with
Section 4 of Article V 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.
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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 be telegram 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.
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 Treasurer or by an Assistant Secretary or Assistant Treasurer.
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
selected with reasonable care.
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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 Corporation to the fullest extent
authorized by Delaware 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 bylaw 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 of this Article VIII, 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, unless the
Delaware General Corporation Law then so prohibits, 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 tendered by such person while a director or officer,
including, without limitation. service to an employee benefit plan) in
advance of the
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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 1 of this Article VIII 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. The burden of proving such claim shall be
on the claimant. It shall be a defense to any such action (other then 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. 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 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
claimant has not met the applicable standard of conduct.
Section 8.3 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person in Sections 1 and 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 determinates, greater than, those provided for in this
Article VIII.
Section 8.5 INSURANCE. The Corporation shall 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 the 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 and
the directors of the Corporation shall not
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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
Section 9.1 AMENDMENT OF BYLAWS. The Board of Directors is expressly
empowered to adopt, amend or repeal 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. Any adoption,
amendment or repeal of By-Laws of the Corporation by the stockholders shall
require, in addition to any vote of the holders of any class or series of
stock of the Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of all of the then
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
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CERTIFICATE OF SECRETARY
I hereby certify that I am the duly elected and acting Secretary of Finisar
Delaware Corporation, a Delaware corporation (the "Corporation"), and that
the foregoing Bylaws, comprising thirteen (13) pages, constitute the Bylaws
of the Corporation as duly adopted on September 9, 1999, by the unanimous
written consent of the Board of Directors of the Corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name on September 9,
1999.
/s/ Stephen K. Workman
-----------------------------------
Stephen K. Workman
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
FINISAR CORPORATION
(Pursuant to Section 245 of the General Corporation Law of the State of
Delaware)
Finisar Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware on September 1, 1999 (the
"Corporation") certifies as follows:
1. The Corporation's Restated Certificate of Incorporation was duly
adopted by the Board of Directors by unanimous written consent in accordance
with Section 245 of the General Corporation Law.
2. The Corporation's Restated Certificate of Incorporation only restates
and integrates and does not further amend the provisions of the Corporation's
Certificate of Incorporation as theretofore amended or supplemented, and there
is no discrepancy between those provisions and the provisions of the Restated
Certificate.
3. The Corporation's Certificate of Incorporation is restated to read in
full as follows:
FIRST: The name of the Corporation is Finisar Corporation.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Incorporating Services, Ltd., 15 East North
Street, in the City of Dover, County of Kent. The name of the
registered agent at that address is Incorporating Services, Ltd.
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. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 205,000,000
consisting of 200,000,000 shares of Common Stock, par value
one-tenth of one cent ($.001) per share (the "Common Stock")
and 5,000,000 shares of Preferred Stock, par value one-tenth of
one cent ($.001) per share (the "Preferred Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant
to the applicable law of the State of Delaware, to establish from
time to time the number of shares to be included in each such
series, and to fix the designation, powers,
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preferences, and rights of the shares of each such series and
any qualifications, limitations or restrictions thereon. The
number of authorized shares of Preferred Stock may be increased
or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a
majority of the Common Stock without a vote of the holders of
the Preferred Stock, or of any series thereof, unless a vote of
any such holders is required pursuant to the certificate or
certificates establishing the series of Preferred Stock.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and
for further definition, limitation and regulation of the powers
of the Corporation and of its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. 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.
B. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. On and after the closing date of the first sale of the
Corporation's Common Stock pursuant to a firmly underwritten
registered public offering (the "IPO"), any action required or
permitted to be taken by the stockholders of the Corporation must
be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders. Prior to such sale,
unless otherwise provided by law, any action which may otherwise
be taken at any meeting of the stockholders may be taken without
a meeting and without prior notice, if a written consent
describing such actions is signed by the holders of outstanding
shares having not less than the minimum number of votes which
would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and
voted.
D. Special meetings of stockholders of the Corporation may be called
only (1) 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) or (2) by the holders of not
less than ten percent (10%) of all of the shares entitled to cast
votes at the meeting.
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SIXTH:
A. The number of directors shall initially be set at four (4) 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). Upon the closing of the IPO, the
directors shall be divided into three classes with the term of
office of the first class (Class I) to expire at the first
annual meeting of the stockholders following the IPO; the term
of office of the second class (Class II) to expire at the second
annual meeting of stockholders held following the IPO; the term
of office of the third class (Class III) to expire at the third
annual meeting of stockholders; and thereafter for each such
term to expire at each third succeeding annual meeting of
stockholders after such election. Subject to the rights of the
holders of any series of Preferred Stock then outstanding, a
vacancy resulting from the removal of a director by the
stockholders as provided in Article SIXTH, Section C below may
be filled at a special meeting of the stockholders held for that
purpose. All directors shall hold office until the expiration
of the term for which elected, and until their respective
successors are elected, except in the case of the death,
resignation, or removal of any director.
B. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, 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 or other cause (other than 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 at which the term of office
of the class to which they have been elected expires, and until
their respective successors are elected, except in the case of
the death, resignation, or removal of any director. No decrease
in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director.
C. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any directors, 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 capital 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 a majority of the directors
then in office, though less than a quorum, or by the stockholders
as provided in Article SIXTH, Section A above. Directors so
chosen shall hold office for a term expiring at the next annual
meeting of stockholders at which the term of office of
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the class to which they have been elected expires, and until
their respective successors are elected, except in the case of
the death, resignation, or removal of any director.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal 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. Any adoption, amendment
or repeal of Bylaws of the Corporation by the stockholders shall
require, in addition to any vote of the holders of any class or
series of stock of the Corporation required by law or by this
Certificate of Incorporation, the affirmative vote of the holders
of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then outstanding shares of the capital
stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class.
EIGHTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit.
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.
NINTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the
manner prescribed by the laws of the State of Delaware and all
rights conferred upon stockholders are granted subject to this
reservation; PROVIDED, HOWEVER, that, notwithstanding any other
provision of this Certificate of Incorporation or any provision
of law which might otherwise permit a lesser vote or no vote, but
in addition to any vote of the holders of any
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class or series of the stock of this Corporation required by law
or by this Certificate of Incorporation, the affirmative vote of
the holders of at least 66-2/3% of the voting power of all of
the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required
to amend or repeal this Article NINTH, Article FIFTH, Article
SIXTH, Article SEVENTH or Article EIGHTH.
IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate to
be signed by a duly authorized officer on this ____ day of ___________, 1999.
FINISAR CORPORATION
By:
---------------------------------------
Stephen K. Workman, Vice President of
Finance, Chief Financial Officer and
Secretary
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Exhibit 4.1
FRONT
COMMON STOCK COMMON STOCK
FINISAR CORPORATION
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 31787A
THIS CERTIFIES THAT IS THE RECORD HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE,
OF FINISAR CORPORATION.
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar. WITNESS the facsimile seal of the
Corporation and the facsimile signatures of its duly authorized officers.
Dated:
CHIEF FINANCIAL OFFICER AND SECRETARY
CHIEF EXECUTIVE OFFICER AND PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY ________________________
AUTHORIZED SIGNATURE
Page 1
<PAGE>
BACK
FINISAR CORPORATION
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights as established, from time to time, by the
Certificate of Incorporation of the Corporation and by any certificate of
designation, the number of shares constituting each class and series, and the
designations thereof, may be obtained by the holder hereof upon request and
without charge from the Secretary of the Corporation at the principal office
of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -
......................... Custodian .........................
(Cust) (Minor)
under Uniform Gifts to Minors Act
..............................................................
(State)
UNIF TRF MIN ACT -
................. Custodian (until age ..........)............................
(Cust) (Minor)
under Uniform Transfers to Minors Act
..............................................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
Page 2
<PAGE>
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares of the common stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint
Attorney to transfer the said stock on the books of
the within named Corporation with full power of substitution in the premises.
Dated ______________________
X___________________________
X___________________________
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
Page 3
<PAGE>
By _________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
[GRAY CARY WARE & FREIDENRICH LLP Letterhead]
October 15, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: FINISAR CORPORATION REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
As counsel to Finisar Corporation (the "Company"), we are rendering
this opinion in connection with a proposed sale of those certain shares of the
Company's newly-issued Common Stock as set forth in the Registration Statement
on Form S-1 to which this opinion is being filed as Exhibit 5.1 (the "Shares").
We have examined all instruments, documents and records which we deemed relevant
and necessary for the basis of our opinion hereinafter expressed. In such
examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that the Shares
identified in the above-referenced Registration Statement will be, upon
effectiveness of the Registration Statement and receipt by the Company of
payment therefor, validly authorized, legally issued, fully paid, and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Prospectus constituting a
part thereof, as originally filed or as subsequently amended.
Very truly yours,
/s/ Gray Cary Ware & Freidenrich LLP
GRAY CARY WARE & FREIDENRICH LLP
<PAGE>
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of __________, 1999, is made by and
between Finisar Delaware Corporation, 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 due to 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,
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officers and agents and the directors, officers and agents of its
subsidiaries, and to assume for 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 expenses 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,
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<PAGE>
however, that "expenses" shall not include any judgments, fines, ERISA excise
taxes or penalties, or amounts paid in settlement of a proceeding.
(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 Bylaws 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:
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(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 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)
4
<PAGE>
for which payment is actually made to Indemnitee under a valid and
collectible insurance policy of D&O Insurance, or under a valid and
enforceable indemnity clause, by-law or agreement.
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
5
<PAGE>
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, the fees and expenses of Indemnitee's
counsel shall be at the expense of the Company.
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 Bylaws, 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 Corporation
(including its Board of Directors or its stockholders) to have made a
determination prior to the
6
<PAGE>
commencement of such enforcement action that indemnification of Indemnitee is
proper in the circumstances, nor an actual determination by the Company
(including its Board of Directors or its stockholders) that such
indemnification is improper, shall be a defense to the action or create a
presumption that Indemnitee is not entitled to indemnification under this
Agreement or otherwise.
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.
7
<PAGE>
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.
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.
18. CONSENT TO JURISDICTION. The Company and the Indemnitee each
hereby consent to the jurisdiction of the courts of the State of Delaware with
respect to any action or proceeding which arises out of or relates to this
Agreement.
8
<PAGE>
The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
THE COMPANY:
FINISAR DELAWARE CORPORATION
By
------------------------------------
Its
-----------------------------------
Address: 1308 Moffett Park Drive
Sunnyvale, California 94089
INDEMNITEE:
--------------------------------------
[NAME]
Address:
--------------------------------------
--------------------------------------
9
<PAGE>
FINISAR CORPORATION
1989 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are
to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to the Employees
and Consultants of the Company and to promote the success of the Company's
business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected
in the terms of the written option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Committee, if one has been appointed,
or the Board of Directors of the Company, if no Committee is appointed.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMITTEE" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one
is appointed.
(d) "COMMON STOCK" shall mean the Common Stock of the Company.
(e) "COMPANY" shall mean Finisar Corporation, a California
corporation.
(f) "CONSULTANT" shall mean any person who is engaged by the
Company or any Parent or Subsidiary to render consulting services and is
compensated for such consulting services, and any director of the Company
whether compensated for such services or not; provided that if and in the
event the Company registers any class of any equity security pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the
Company.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean
the absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any
other leave of absence approved by the Board; provided that such leave is for
a period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.
(h) "EMPLOYEE" shall mean any person, including officers and
directors, employed by
<PAGE>
the Company or any Parent or Subsidiary of the Company. The payment of a
director's fee by the Company shall not be sufficient to constitute "employment"
by the Company.
(i) "INCENTIVE STOCK OPTION" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422A of
the Code.
(j) "NONSTATUTORY STOCK OPTION" shall mean an Option not intended
to qualify as an Incentive Stock Option.
(k) "OPTION" shall mean a stock option granted pursuant to the
Plan.
(l) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(m) "OPTIONEE" shall mean an Employee or Consultant who receives
an Option.
(n) "PARENT" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 425(e) of the Code.
(o) "PLAN" shall mean this 1989 Stock Option Plan.
(p) "SHARE" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(q) "SUBSIDIARY" shall mean a "subsidiary corporation", whether
now or hereafter existing, as defined in Section 425(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of shares which may be
optioned and sold under the Plan is 54,600 shares of Common Stock. The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. Notwithstanding any other provision
of the Plan, shares issued under the Plan and later repurchased by the Company
shall not become available for future grant or sale under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board of
Directors of the Company.
(i) Subject to subparagraph (ii), the Board of Directors may
appoint a Committee consisting of not less than two members of the Board of
Directors to administer the Plan on behalf of the Board of Directors, subject to
such terms and conditions as the Board of Directors may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board of Directors. Members of the Board who are either eligible for Options or
have been granted Options may vote on any matters affecting the administration
of the Plan or
<PAGE>
the grant of any Options pursuant to the Plan, except that no such member shall
act upon the granting of an Option to himself, but any such member may be
counted in determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to the granting of Options to him.
(ii) Notwithstanding the foregoing subparagraph (i), if and in
any event the Company registers any class of any equity security pursuant to
Section 12 of the Exchange Act, from the effective date of such registration
until six months after the termination of such registration, any grants of
Options to officers or directors shall only be made by the Board of Directors;
provided, however, that if a majority of the Board of Directors is eligible to
participate in this Plan or any other stock option or other stock plan of the
Company or any of its affiliates, or has been eligible at any time during the
prior one year period (or, if shorter, the period following the initial
registration of the Company's equity securities under Section 12 of the Exchange
Act), any grants of Options to directors must be made by, or only in accordance
with the recommendation of, a Committee consisting of three or more persons, who
may but need not be directors or employees of the Company, appointed by the
Board of Directors and having full authority to act in the matter, none of whom
is eligible to participate in this Plan or any other stock option or other stock
plan of the Company or any of its affiliates, or has been eligible at any time
during the prior one-year period (or, if shorter, the period following the
initial registration of the Company's equity securities under Section 12 of the
Exchange Act). Any Committee administering the Plan with respect to grants to
officers who are not also directors shall conform to the requirements of the
preceding sentence. Once appointed, the Committee shall continue to serve until
otherwise directed by the Board of Directors.
(iii) Subject to the foregoing subparagraphs (i) and (ii),
from time to time the Board of Directors may increase the size of the Committee
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies however caused,
or remove all members of the Committee and thereafter directly administer the
Plan.
(b) POWERS OF THE BOARD. Subject to the provisions of the
Plan, the Board shall have the authority, in its discretion: (i) to grant
Incentive Stock Options or Nonstatutory Stock Options; (ii) to determine, upon
review of relevant information and in accordance with Section 8(b) of the Plan,
the fair market value of the Common Stock; (iii) to determine the exercise price
per share of Options to be granted, which exercise price shall be determined in
accordance with Section 8(a) of the Plan; (iv) to determine the Employees or
Consultants to whom, and the time or times at which, Options shall be granted
and the number of shares to be represented by each Option; (v) to interpret the
Plan; (vi) to prescribe, amend and rescind rules and regulations relating to the
Plan; (vii) to determine the terms and provisions of each Option granted (which
need not be identical) and, with the consent of the holder thereof, modify or
amend each Option; (viii) to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option, consistent with the provisions of
Section 5 of the Plan; (ix) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted by the Board; and (x) to make all other determinations deemed necessary
or advisable for the administration of the Plan.
<PAGE>
(c) EFFECT OF BOARD'S DECISION. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees and
any other holders of any options granted under the Plan.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted only to Employees
and Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
fair market value of the Shares with respect to which options designated as
Incentive Stock options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Options shall be taken into
account in the order in which they were granted, and the fair market value of
the Shares shall be determined as of the time the option with respect to such
Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time, with or
without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated
under Section 13 of the Plan.
7. TERM OF OPTION. The term of each Incentive Stock Option shall be
ten (10) years from the date of grant thereof or such shorter term as may be
provided in the Incentive Stock Option Agreement. The term of each
Nonstatutory Stock Option shall be ten (10) years and one (1) day from the
date of grant thereof or such shorter term as may be provided in the
Nonstatutory Stock Option Agreement. However, in the case of an Option
granted to an Optionee who, at the time the option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes
of stock of the Company or any Parent or Subsidiary, (a) if the Option is an
Incentive Stock Option, the term of the Option shall be five (5) years from
the date of grant thereof or such shorter term as may be provided in the
Incentive Stock Option Agreement, or (b) if the Option is a Nonstatutory
Stock Option, the term of the Option shall be five (5) years and one (1) day
from the date of grant thereof or such shorter term as may be provided in the
Nonstatutory Stock Option Agreement.
8. EXERCISE PRICE AND CONSIDERATION.
<PAGE>
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the fair market value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise
price shall be no less than 100% of the fair market value per Share on the
date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the
grant of such Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
fair market value per Share on the date of the grant.
(B) granted to any person, the per Share exercise
price shall be no less than 85% of the fair market value per Share on the
date of grant.
(b) The fair market value shall be determined by the Board in
its discretion; provided, however, that where there is a public market for
the Common Stock, the fair market value per Share shall be the mean of the
bid and asked prices (or the closing price per share if the Common Stock is
listed on the National Association of Securities Dealers Automated Quotation
("NASDAQ") National Market System) of the Common Stock for the date of grant,
as reported in the Wall Street Journal (or, if not so reported, as otherwise
reported by the NASDAQ System) or, in the event the Common Stock is listed on
a stock exchange, the fair market value per Share shall be the closing price
on such exchange on the date of grant of the Option, as reported in the Wall
Street Journal.
(c) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be
determined by the Board and may consist entirely of cash, check, promissory
note, other Shares of Common Stock which (i) either have been owned by the
Optionee for more than six (6) months on the date of surrender or were not
acquired, directly or indirectly, from the Company, and (ii) have a fair
market value on the date of surrender equal to the aggregate exercise price
of the Shares as to which said Option shall be exercised, or any combination
of such methods of payment, or such other consideration and method of payment
for the issuance of Shares to the extent permitted under Sections 408 and 409
of the California General Corporation Law. In making its determination as to
the type of consideration to accept, the Board shall consider if acceptance
of such consideration may be reasonably expected to benefit the Company
(Section 315(b) of the California General Corporation Law).
<PAGE>
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Board, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible under
the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. In the
event that the exercise of an Option is treated in part as the exercise of an
Incentive Stock Option and in part as the exercise of a Nonstatutory Stock
Option pursuant to Section 5(b), the Company shall issue a separate stock
certificate evidencing the Shares treated as acquired upon exercise of an
Incentive Stock Option and a separate stock certificate evidencing the Shares
treated as acquired upon exercise of a Nonstatutory Stock Option, and shall
identify each such certificate accordingly in its stock transfer records. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant (as the case may be), such Optionee may, but only within thirty (30)
days (or such other period of time, not exceeding three (3) months in the case
of an Incentive Stock Option or six (6) months in the case of a Nonstatutory
Stock Option, as is determined by the Board, with such determination in the case
of an Incentive Stock Option being made at the time of grant of the Option)
after the date of such termination (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement),
exercise his Option to the extent that he was entitled to exercise it at the
date of such termination. To the extent that he was not entitled to exercise the
Option at the date of such termination, or if he does not exercise such Option
(which he was entitled to exercise) within the time specified herein, the Option
shall terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 9(b) above, in
<PAGE>
the event of termination of an Optionee's Continuous Status as an Employee or
Consultant as a result of his total and permanent disability (as defined in
Section 22(e)(3) of the Code), he may, but only within six (6) months (or such
other period of time not exceeding twelve (12) months as is determined by the
Board, with such determination in the case of an Incentive Stock Option being
made at the time of grant of the Option) from the date of such termination (but
in no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), exercise his Option to the extent he was
entitled to exercise it at the date of such termination. To the extent that he
was not entitled to exercise the Option at the date of termination, or if he
does not exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. Notwithstanding the provisions of
Section 9(b) above, in the event of the death of an Optionee:
(i) during the term of the Option who is at the time of
his death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months
following the date of death (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement),
by the Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued living and
remained in Continuous Status as an Employee or Consultant six (6) months
after the date of death; or
(ii) within thirty (30) days (or such other period of
time not exceeding three (3) months as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time
of grant of the Option) after the termination of Continuous Status as an
Employee or Consultant, the Option may be exercised, at any time within six
(6) months following the date of death (but in no event later than the date
of expiration of the term of such option as set forth in the Option
Agreement), by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of termination.
10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock
<PAGE>
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless such
successor corporation does not agree to assume the Option or to substitute an
equivalent option, in which case the Board shall, in lieu of such assumption or
substitution, provide for the Optionee to have the right to exercise the Option
as to all of the Optioned Stock, including Shares as to which the Option would
not otherwise be exercisable. If the Board makes an Option fully exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify the Optionee that the Option shall be fully exercisable
for a period of fifteen (15) days from the date of such notice, and the Option
will terminate upon the expiration of such period.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, the following revisions or amendments shall require
approval of the shareholders of the Company in the manner described in
Section 17 of the Plan:
any increase in the number of Shares subject to the Plan, other than in
connection with an adjustment under Section 11 of the Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options; or
<PAGE>
(iii) if the Company has a class of equity securities
registered under Section 12 of the Exchange Act at the time of such revision or
amendment, any material increase in the benefits accruing to participants under
the Plan.
(b) SHAREHOLDER APPROVAL. If any amendment requiring shareholder
approval under Section 13(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such shareholder approval shall be solicited as described
in Section 17 of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's 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.
16. OPTION AGREEMENT. Options shall be evidenced by written
option agreements in such form as the Board shall approve.
17. SHAREHOLDER APPROVAL.
Continuance of the Plan shall be subject to approval by the shareholders of the
Company within twelve (12) months before or after the date the Plan is adopted.
<PAGE>
(b) If and in the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the Plan
itself or of any amendment thereto is solicited at any time otherwise than in
the manner described in Section 17(b) hereof, then the Company shall, at or
prior to the first annual meeting of shareholders held subsequent to the
later of (1) the first registration of any class of equity securities of the
Company under Section 12 of the Exchange Act or (2) the granting of an Option
hereunder to an officer or director after such registration, do the following:
furnish in writing to the holders entitled to vote for the Plan substantially
the same information which would be required (if proxies to be voted with
respect to approval or disapproval of the Plan or amendment were then being
solicited) by the rules and regulations in effect under Section 14(a) of the
Exchange Act at the time such information is furnished; and
file with, or mail for filing to, the Securities and Exchange Commission four
copies of the written information referred to in subsection (i) hereof not later
than the date on which such information is first sent or given to shareholders.
18. INFORMATION TO OPTIONEES. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company. The Company shall not be required
to provide such information if the issuance of Options under the Plan is limited
to key employees whose duties in connection with the Company assure their access
to equivalent information.
<PAGE>
+SECURITIES PURCHASE AGREEMENT
FINISAR CORPORATION
NOVEMBER 6, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Authorization, Issuance and Sale of the Preferred Shares. . . . . . 1
1.1 Authorization; Amended and Restated Articles of
Incorporation . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Sale of Preferred Shares by the Company. . . . . . . . . . . 1
2. Closing Date; Subsequent Closing and Delivery . . . . . . . . . . . 1
2.1 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Subsequent Sale of Preferred Shares. . . . . . . . . . . . . 1
3. Representations and Warranties of the Company and the Founders. . . 2
3.1 Organization and Standing; Articles and By-Laws. . . . . . . 2
3.2 Corporate Power. . . . . . . . . . . . . . . . . . . . . . . 2
3.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 2
3.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 3
3.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . 3
3.6 Compliance with Other Instruments, None Burdensome, etc. . . 4
3.7 Proprietary Agreements . . . . . . . . . . . . . . . . . . . 4
3.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.9 Governmental Consents, etc . . . . . . . . . . . . . . . . . 5
3.10 Offering . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.12 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.14 Financial Statements . . . . . . . . . . . . . . . . . . . . 8
3.15 Absence of Changes . . . . . . . . . . . . . . . . . . . . . 9
3.16 Financial Plan and Projections . . . . . . . . . . . . . . .10
3.17 Registration Rights. . . . . . . . . . . . . . . . . . . . .10
3.18 Proprietary Rights . . . . . . . . . . . . . . . . . . . . .10
3.19 Certain Transactions . . . . . . . . . . . . . . . . . . . .12
3.20 Corporate Documents, Minute Books. . . . . . . . . . . . . .12
3.21 Compliance With Law. . . . . . . . . . . . . . . . . . . . .12
3.22 Brokers' and Finders' Fees/Contractual Limitations . . . . .13
3.23 Certain Payments . . . . . . . . . . . . . . . . . . . . . .13
3.24 Books and Records. . . . . . . . . . . . . . . . . . . . . .13
3.25 Foreign Corrupt Practices Act. . . . . . . . . . . . . . . .13
3.26 Environmental and Safety Matters . . . . . . . . . . . . . .14
3.27 Manufacturing and Marketing. . . . . . . . . . . . . . . . .15
3.28 Returns and Complaints . . . . . . . . . . . . . . . . . . .15
3.29 Labor Agreements and Actions . . . . . . . . . . . . . . . .15
3.30 Section 83(b) Elections. . . . . . . . . . . . . . . . . . .16
3.31 Employee Benefit Plans . . . . . . . . . . . . . . . . . . .16
3.32 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . .16
3.33 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . .16
3.34 Shareholder Agreements . . . . . . . . . . . . . . . . . . .16
3.35 Products . . . . . . . . . . . . . . . . . . . . . . . . . .16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
4. Representations and Warranties of Purchasers and Restrictions on
Transfer Imposed by the Securities Act. . . . . . . . . . . . . . .18
4.1 Representations and Warranties by the Purchasers . . . . . .18
(a) Authority. . . . . . . . . . . . . . . . . . . . . . .18
(b) Authorization. . . . . . . . . . . . . . . . . . . . .18
(c) Investment Intent. . . . . . . . . . . . . . . . . . .18
(d) Shares Not Registered. . . . . . . . . . . . . . . . .18
(e) Knowledge and Experience . . . . . . . . . . . . . . .18
(f) Not Organized to Purchase. . . . . . . . . . . . . . .19
(g) Holding Requirements . . . . . . . . . . . . . . . . .19
(h) Hart-Scott-Rodino Antitrust Improvements Act of 1976
(as amended) . . . . . . . . . . . . . . . . . . . .19
4.2 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . .19
(a) Federal Legend . . . . . . . . . . . . . . . . . . . .19
(b) Other Legends. . . . . . . . . . . . . . . . . . . . .19
4.3 Removal of Legend and Transfer Restrictions. . . . . . . . .20
4.4 Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . .20
4.5 No Transfer. . . . . . . . . . . . . . . . . . . . . . . . .20
4.6 Permitted Transfers. . . . . . . . . . . . . . . . . . . . .20
5. Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . .20
5.1 Conditions to Purchasers' Obligations. . . . . . . . . . . .20
(a) Representations and Warranties Correct; Performance
of Obligations . . . . . . . . . . . . . . . . . . .21
(b) Consents and Waivers . . . . . . . . . . . . . . . . .21
(c) Election of Directors. . . . . . . . . . . . . . . . .21
(d) Filing of the Articles . . . . . . . . . . . . . . . .21
(e) Ancillary Agreements . . . . . . . . . . . . . . . . .21
(f) Delivery of Financial Statements . . . . . . . . . . .21
(g) Compliance Certificate . . . . . . . . . . . . . . . .21
(h) Opinion of Counsel . . . . . . . . . . . . . . . . . .21
(i) Reservation of Common Stock. . . . . . . . . . . . . .21
(j) Indemnification Agreements . . . . . . . . . . . . . .21
(k) Financing. . . . . . . . . . . . . . . . . . . . . . .22
(l) Due Diligence Review . . . . . . . . . . . . . . . . .22
(m) Hart-Scott-Rodino. . . . . . . . . . . . . . . . . . .22
5.2 Conditions to Obligations of the Company . . . . . . . . . .22
6. Affirmative Covenants of the Company. . . . . . . . . . . . . . . .22
6.1 Financial Information. . . . . . . . . . . . . . . . . . . .22
6.2 Conflicts of Interest. . . . . . . . . . . . . . . . . . . .23
6.3 Key-Man Insurance. . . . . . . . . . . . . . . . . . . . . .23
6.4 Proprietary Agreements . . . . . . . . . . . . . . . . . . .23
6.5 Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . .23
6.6 Actions. . . . . . . . . . . . . . . . . . . . . . . . . . .24
6.7 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . .24
6.8 Offer of Redemption. . . . . . . . . . . . . . . . . . . . .24
7. Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
7. Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
7.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . .24
7.2 Requested Registration . . . . . . . . . . . . . . . . . . .25
(a) Request for Registration . . . . . . . . . . . . . . .25
(c) Underwriting . . . . . . . . . . . . . . . . . . . . .25
7.3 Company Registration . . . . . . . . . . . . . . . . . . . .26
(a) Notice of Registration . . . . . . . . . . . . . . . .26
(b) Underwriting . . . . . . . . . . . . . . . . . . . . .26
7.4 Form S-3 . . . . . . . . . . . . . . . . . . . . . . . . . .27
7.5 Expenses of Registration . . . . . . . . . . . . . . . . . .27
7.6 Registration Procedures. . . . . . . . . . . . . . . . . . .27
7.7 Indemnification. . . . . . . . . . . . . . . . . . . . . . .27
7.8 Information by Holder. . . . . . . . . . . . . . . . . . . .29
7.9 Sale Without Registration. . . . . . . . . . . . . . . . . .29
7.10 Rule 144 Reporting . . . . . . . . . . . . . . . . . . . . .30
7.11 Transfer of Registration Rights. . . . . . . . . . . . . . .30
7.12 Limitations on Subsequent Registration Rights. . . . . . . .30
7.13 "Market Stand-Off" Agreement . . . . . . . . . . . . . . . .31
7.14 Expiration of Rights . . . . . . . . . . . . . . . . . . . .31
8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . .31
8.1 Waivers and Amendments . . . . . . . . . . . . . . . . . . .31
8.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . . .31
8.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . .32
8.4 Successors and Assigns . . . . . . . . . . . . . . . . . . .32
8.5 Entire Agreement . . . . . . . . . . . . . . . . . . . . . .32
8.6 Notices, etc . . . . . . . . . . . . . . . . . . . . . . . .32
8.7 Severabilily . . . . . . . . . . . . . . . . . . . . . . . .32
8.8 Finder's Fees and Other Fees . . . . . . . . . . . . . . . .32
8.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .32
8.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . .33
8.11 Delays or Omissions. . . . . . . . . . . . . . . . . . . . .33
8.12 Certain Representations and Warranties . . . . . . . . . . .33
</TABLE>
iii
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<S> <C> <C>
SCHEDULE 1 - Schedule of Purchasers
SCHEDULE 2 - Capitalization
EXHIBIT A - Amended and Restated Articles of Incorporation
EXHIBIT B - Schedule of Exceptions
EXHIBIT C - Form of Shareholders' Agreement
EXHIBIT D - Redemption Agreement
EXHIBIT E - Voting Agreement
EXHIBIT F - Holders of Outstanding Options, Warrants, Convertible
Securities and Other Purchase Rights of the Company
EXHIBIT G - Form of Proprietary Information and Inventions Agreement
EXHIBIT H - Material Contracts
EXHIBIT I - Form of Opinion of Counsel for the Company
</TABLE>
<PAGE>
FINISAR CORPORATION
SECURITIES PURCHASE AGREEMENT
THIS AGREEMENT is made as of November 6, 1998, by and among Finisar
Corporation, a California corporation (the "Company"), Jerry S. Rawls and Frank
Levinson (each, a "Founder" and collectively, the "Founders") and each of the
persons named in the Schedule of Purchasers attached hereto as SCHEDULE 1
(herein individually, a "Purchaser" and collectively, the "Purchasers"). The
parties hereby agree as follows:
1. AUTHORIZATION, ISSUANCE AND SALE OF THE PREFERRED SHARES.
1.1 AUTHORIZATION; AMENDED AND RESTATED ARTICLES OF
INCORPORATION. The Company has authorized the issuance and sale pursuant to the
terms and conditions contained herein at a purchase price of $2.1932 per share
of up to 12,100,000 shares of its Series A Convertible Preferred Stock (the
"Preferred Shares"). The Preferred Shares have the rights, preferences and
privileges as set forth in the Company's Amended and Restated Articles of
Incorporation (the "Articles") attached hereto as EXHIBIT A.
1.2 SALE OF PREFERRED SHARES BY THE COMPANY. Subject to the
terms and conditions hereof, at the Closing, the Company will issue and sell to
the Purchasers and the Purchasers will purchase from the Company the number of
Preferred Shares specified opposite each such Purchaser's name on SCHEDULE 1, at
a purchase price per Preferred Share as indicated in Section 1.1.
2. CLOSING DATE; SUBSEQUENT CLOSING AND DELIVERY.
2.1 CLOSING DATE.
(a) PURCHASE AND SALE. The closing of the purchase and
sale of up to 12,100,000 Preferred Shares shall be held at the offices of
special counsel to the Purchasers, Brobeck, Phleger & Harrison LLP, 2200 Geng
Road, Palo Alto, California, at 1:00 p.m. on November 6, 1998, or at such time
and place as the Company and the Purchasers may agree in writing.
(b) CLOSING. The closing referred to in subsection (a)
above is hereinafter referred to as the "Closing" and the date of the Closing is
hereinafter referred to as the "Closing Date".
2.2 DELIVERY. Subject to the terms of this Agreement, at the
Closing, the Company will deliver to the Purchasers the certificates
representing the Preferred Shares to be purchased by the Purchasers at such
Closing as indicated on SCHEDULE 1, against payment of the purchase price
therefor by, at the option of the Purchasers, a check or checks or wire transfer
payable to the order of the Company.
2.3 SUBSEQUENT SALE OF PREFERRED SHARES. Provided that (i) the
representations and warranties of the Company and the Founders set forth in this
Agreement are then true and
<PAGE>
accurate, without additional exceptions, (ii) the Company has fulfilled each
of its covenants and agreements that it has undertaken to fulfill, without
additional exceptions and (iii) the Company has not breached any provision or
obligation or other agreement under this Agreement, the Company shall sell up
to the balance of the Preferred Shares not sold to the Purchasers pursuant to
Section 2.1(a) of this Agreement to additional Purchasers set forth on
SCHEDULE 1 as the same may be amended from time to time, with each such
Purchaser to become a "Purchaser" for purposes of this Agreement and a
"Holder" for purposes of the Shareholders' Agreement (as defined herein),
having the rights and obligations hereunder and thereunder. Such sale of
additional Preferred Shares, if any, shall occur at a subsequent closing to
take place at the offices of Brobeck, Phleger & Harrison LLP, 2200 Geng Road,
Palo Alto, California no later than 30 days following the Closing (the
"Second Closing"). At the Second Closing, the Purchasers shall be entitled
to an updated Schedule of Exceptions, a revised compliance certificate and an
updated opinion of Company counsel dated the date of the Second Closing each
in form satisfactory to the Purchasers in their sole discretion.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE FOUNDERS.
The Company represents and warrants to the Purchasers, and in addition, with
respect to the representations and warranties set forth in Sections 3.4, 3.6,
3.7, 3.8, 3.11, 3.14, 3.16, 3.18, 3.19, 3.20 and 3.32 and subject to
Section 8.12 hereof, the Founders represent and warrant to the Purchasers that,
except as set forth on a Schedule of Exceptions attached hereto as EXHIBIT B
(which exceptions shall be deemed to be representations and warranties as if
made hereunder):
3.1 ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of California and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to be
conducted. The Company is qualified or licensed to do business as a foreign
corporation in all jurisdictions where such qualification or licensing is
required, except where the failure to so qualify would not have a material
adverse effect upon the Company's business, financial condition, results of
operations or prospects. Copies of all of the Company's Articles, Bylaws,
minutes and consents of shareholders and of the Board of Directors have been
previously provided to special counsel for the Purchasers.
3.2 CORPORATE POWER. The Company has now, or will have at the
Closing Date, the legal capacity and all requisite corporate power and authority
to enter into this Agreement, the Shareholders' Agreement (the "Shareholders'
Agreement") in the form attached hereto as EXHIBIT C, to enter into the
Redemption Agreements (as defined below) attached hereto as EXHIBIT D, to enter
into the Voting Agreement attached as EXHIBIT E (the "Voting Agreement"), to
adopt the Articles and to sell and issue the Preferred Shares and to issue the
Common Stock issuable upon conversion of the Preferred Shares and to carry out
its obligations and related activities hereunder and thereunder. This
Agreement, the Shareholders' Agreement, the Redemption Agreements and the
Articles are valid and binding obligations of the Company and all other parties
that approved them, enforceable in accordance with their respective terms,
except as the same may be limited by bankruptcy, insolvency, moratorium, and
other laws of general application affecting the enforcement of creditors'
rights.
3.3 SUBSIDIARIES. The Company does not own or control,
directly or indirectly, more than one percent of the stock, capital or equity
interests or profits in any other
2
<PAGE>
corporation, association, or other business entity. Each subsidiary of the
Company (each a "Subsidiary" and collectively the "Subsidiaries") is listed
on the Schedule of Exceptions. Neither the Company nor any of the
Subsidiaries is a participant in any joint venture, partnership, or similar
arrangement. The Company owns all of the shares of capital stock of each
Subsidiary (direct or indirect), free and clear of all liens, encumbrances or
claims at the Closing.
3.4 CAPITALIZATION. The authorized capital stock of the
Company is 75,000,000 shares of Common Stock, no par value, of which 45,752,660
shall be issued and outstanding immediately prior to the Closing, 12,100,000
shares of Series A Convertible Preferred Stock, no par value, of which no shares
shall be issued and outstanding immediately prior to the Closing and up to all
of which may be purchased and sold hereunder and 12,100,000 shares of Redeemable
Preferred Stock, of which no shares shall be issued and outstanding prior to the
Closing. The holders of record of the presently issued and outstanding shares
of capital stock immediately prior to the Closing are as set forth on
SCHEDULE 2. All such issued and outstanding shares have been duly authorized
and validly issued, fully paid and nonassessable, were issued for consideration
not less than their fair market value and were or will be issued in compliance
with all applicable state and federal laws concerning the issuance of
securities. The Company has reserved 6,075,611 shares of Common Stock for
issuance pursuant to its 1989 Stock Option Plan (including options currently
outstanding and exercised pursuant to such stock option plan). The holders of
any and all rights, warrants, convertible securities, or conversion or exercise
rights to purchase or acquire from the Company any of its shares of capital
stock, along with the maximum number of shares of capital stock issuable upon
exercise of such rights are set forth on EXHIBIT F hereto. Except for such
rights, there are no outstanding rights, warrants, convertible securities,
conversion rights or agreements for the purchase or acquisition from the Company
of any shares of its capital stock.
3.5 AUTHORIZATION.
(a) CORPORATE ACTION. All corporate action on the part
of the Company, its officers, directors and shareholders necessary for the sale
and issuance of the Preferred Shares and the issuance of the Common Stock upon
conversion of the Preferred Shares and the performance of the Company's
obligations and activities hereunder and under the Shareholders' Agreement, the
Redemption Agreements and the Articles has been taken. The Company has duly
reserved an aggregate of 12,100,000 shares of Common Stock for issuance upon
conversion of the Preferred Shares.
(b) VALID ISSUANCE. The Preferred Shares to be issued
and sold by the Company to the Purchasers, when issued in compliance with the
provisions of this Agreement, and the shares of Common Stock issuable upon
conversion of the Preferred Shares, when issued in accordance with the
provisions of the Articles and pursuant to the terms thereof, will be duly
authorized, validly issued, fully paid and nonassessable and will be free of any
liens or encumbrances. The rights, preferences, privileges and restrictions of
the Preferred Shares are as set forth in the Articles.
(c) NO PREEMPTIVE RIGHTS. Except as provided in this
Agreement or the Shareholders' Agreement, no person (individual or corporate or
partnership) has any right of first refusal or any preemptive rights in
connection with the issuance and sale of the Preferred
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Shares, the issuance of the Common Stock upon conversion of the Preferred
Shares or any future issuances of securities by the Company.
3.6 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC.
Neither the Company nor any of the Subsidiaries is in violation of any term of
its Articles or Bylaws, nor is the Company or any of the Subsidiaries in
violation of or in default in any respect under the terms of any mortgage,
indenture, contract, agreement, instrument, judgment or decree applicable to it
or its properties and neither the Company nor any Subsidiary is in violation of
any order, statute, law, rule or regulation applicable to it or its properties.
The execution, delivery and performance of and compliance with this Agreement,
the Shareholders' Agreement and the Articles, the issuance and sale of the
Preferred Shares and the consummation of the other transactions set forth in
this Agreement, including the redemption of Common Stock pursuant to the
Redemption Agreements, the Articles, the Voting Agreement, the Redemption
Agreements and the Shareholders' Agreement do not and will not (a) result in any
such violation, (b) be in conflict with or constitute a default under any such
term, statute, including Chapter 5 of the California Corporations Code, rule or
regulation, (c) result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term, statute, rule or regulation, or (d) result in any
liability to the Company, its officers and directors or the Purchasers. There
is no such term or other provision which will cause a material adverse effect in
the business condition, affairs or operations of the Company, any Subsidiary or
any of their respective properties or assets.
3.7 PROPRIETARY AGREEMENTS. All personnel, including
consultants, retained by the Company and any of its Subsidiaries have executed
agreements regarding confidentiality and proprietary information in the form
attached hereto as EXHIBIT G. Each employee-inventor has validly and properly
assigned his or her rights to the Company on all inventions, pending patent
applications and patents issued and other intellectual property rights used or
useful in the business and operations of the Company and any of its
Subsidiaries. To the extent that the Company or any of its Subsidiaries have
ever utilized the services of a person who provides technical services or
business advice and services without becoming an employee of the Company (herein
referred to as a "consultant" or "consultants") each such person has validly and
properly assigned to the Company or any of its Subsidiaries his or her rights in
and to all copyrights and works of authorship relating to the Company's Products
(as defined below) and business. To the Company's knowledge none of the
Company's employees or consultants is in violation thereof and the Company will
use its best efforts to prevent any such violation by any such employee or
consultant. To the Company's knowledge, none of the Company's employees or
consultants is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of it his or her best efforts to promote the interests of the Company or
any of its Subsidiaries or that would conflict with the Company's business as
conducted or as proposed to be conducted or that would prevent any such employee
or consultant from assigning inventions to the Company or any of its
Subsidiaries. The Company does not believe that it is or will be necessary for
the Company or any of its Subsidiaries to utilize any inventions of any of its
employees or consultants (or persons it currently intends to hire) made prior to
their employment by or relationship with the Company or any of its Subsidiaries.
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3.8 LITIGATION. There is no action, proceeding or
investigation pending against the Company, any Subsidiary or any of their
respective officers, directors or, to the Company's knowledge, against any other
employees or consultants of the Company or any of its Subsidiaries (or, to the
Company's knowledge, any basis therefor or threat thereof): (1) which might
result, either individually or in the aggregate, in (a) any material adverse
change in the business, conditions, affairs, operations or prospects of the
Company, any of its Subsidiaries or in any of their respective properties or
assets or of any shareholder, (b) any material adverse impairment of the right
or ability of the Company or any of its Subsidiaries to carry on its business as
now conducted or as proposed to be conducted, or (c) any material liability on
the part of the Company or any of its Subsidiaries or any shareholder; or (2)
which questions the validity of this Agreement the Shareholders' Agreement the
Redemption Agreements, the Voting Agreement or the Articles or any action taken
or to be taken in connection herewith. Neither the Company nor or any of its
Subsidiaries is a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or any of its Subsidiaries currently pending or which the Company or any
Subsidiary currently intends to initiate.
3.9 GOVERNMENTAL CONSENTS, ETC. No consent approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with: (a) the
valid execution and delivery of this Agreement, the Shareholders' Agreement,
the Redemption Agreements, the Voting Agreement or the Articles; (b) the
offer, sale or issuance of the Preferred Shares or the issuance of the shares
of Common Stock issuable upon conversion of the Prefer-red Shares; or (c) the
obtaining of the consents, permits and waivers specified in subsection S. I
(b) hereof, except filings or qualifications under the California Corporate
Securities Law of 1968, as amended (the "Law"), or other applicable blue sky
laws, and for filings required to be made by each of Purchaser and the
Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and all rules and regulations promulgated thereunder (the "HSR Act")
which filings or qualifications, if required, shall be timely filed or
obtained prior to the sale of the Preferred Shares.
3.10 OFFERING. In reliance in part on the representations and
warranties of the Purchasers in Section 4 hereof, the offer, sale and issuance
of the Preferred Shares in conformity with the terms of this Agreement will not
result in a violation of the requirements of Section 5 of the Securities Act of
1933, as amended (the "Securities Act") or the qualification or registration
requirements of the Law or other applicable blue sky laws.
3.11 TAXES.
(a) For purposes of this Agreement, the following terms
have the following meanings: "Tax" (and, with correlative meaning, 'Taxes" and
"Taxable") means any and all taxes or obligations with respect thereto,
including, without limitation, (i) any income, profits, alternative or add-on
minimum tax, gross receipts, sales, use, value-added, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, net worth, premium, property, environmental or
windfall profit tax, custom, duty or other tax, governmental fee or assessment
or charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any governmental entity
responsible for the imposition of any such tax (domestic or foreign) (a "Taxing
Authority"), (ii)
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any liability for the payment of any amounts of the type described in clause
(i) above as a result of being a member of an affiliated, consolidated,
combined or unitary group for any Taxable period or as the result of being a
transferee or successor thereof and (iii) any liability for the payment of
any amounts of the type described in clause (i) or (ii) above as a result of
any express or implied obligation to indemnify any other person. For purpose
of this representation, the term "Company" shall refer to and include any of
the Subsidiaries.
(b) All Tax returns, statements, reports and forms
(including estimated Tax returns and reports and information returns and
reports) required to be filed with any Taxing Authority with respect to any
Taxable period ending on or before the time of Closing, by or on behalf of the
Company (collectively, the "Company's Returns"), have been or will be completed
and filed in correct form when due (including any extensions of such due date),
and all amounts shown to be due thereon on or before the time of Closing have
been or will be paid on or before such date. The Company's financial statements
fully accrue all actual and contingent liabilities required in accordance with
generally accepted accounting principles ("GAAP") for Taxes with respect to all
periods through the dates thereof in accordance with GAAP. The April 30, 1998
balance sheet fully and properly accrues all actual and contingent liabilities
as required in accordance with GAAP for Taxes with respect to all periods
through April 30, 1998 and the Company has not and will not incur any tax
liability in excess of the amount reflected on the April 30, 1998 balance sheet
with respect to such periods less any amount thereof that represents a reserve
for deferred Taxes established to reflect any differences between book and tax
income. Neither the Company nor any member of any affiliated or combined group
of which the Company has been a member have granted any extension or waiver of
the limitation period applicable to any of the Company's Returns except as a
result of obtaining an extension of time to file a Return.
(c) With respect to all amounts in respect of material
Taxes imposed upon the Company or for which the Company is or could be liable,
whether to taxing authorities (as, for example, under law) or to other persons
or entities (as, for example, under tax allocation agreements), with respect to
all taxable periods or portions of periods ending on or before the time of
Closing, all applicable tax laws and agreements have been fully complied with,
and all such amounts required to be paid by the Company to Taxing authorities or
others on or before the Closing have been or will be paid except as would not
have a material adverse effect on the Company, its business or assets. Except
for current periods with respect to which taxes are not yet due, the Company
does not owe any material Taxes on compensation paid to any of its employees.
(d) There is no claim, audit action, suit, proceeding,
or investigation now pending or threatened against or with respect to the
Company in respect of any Tax or assessment. There are no liabilities for Taxes
with respect to any notice of deficiency or similar document of any Tax
Authority received by the Company which has not been satisfied in full
(including liabilities for interest, additions to tax and penalties thereon and
related expenses) except as would not have a material adverse effect on the
Company, its business or assets. Neither the Company nor any person on behalf
of the Company has entered into or will enter into any agreement or consent
pursuant to Section 341(f) of the Code. There are no liens for Taxes upon the
assets of the Company except liens for current Taxes not yet due. The Company
has not been and will not be required to include any adjustment in Taxable
income for any Tax
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period (or portion thereof) pursuant to Section 481 or 263A of the Code or
any comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Closing.
(e) There is no contract, agreement, plan or arrangement
covering any current or former employee or consultant of the Company that,
individually 'or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Section 28OG or Section 162 of the Code (as
determined without regard to Section 28OG(b)(4)). Other than pursuant to this
Agreement, the Company is not a party to or bound by (and will not prior to the
time of Closing become a party to or bound by) any material tax indemnity, tax
sharing or tax allocation agreement (whether written, unwritten or arising under
operation of federal law as a result of being a member of a group filing
consolidated tax returns, under operation of certain state laws as a result of
being a member of a unitary group, or under comparable laws of other states or
foreign jurisdictions) which includes a party other than the Company. None of
the assets of the Company (i) are property that the Company is required to treat
as owned by any other person pursuant to the so-called "safe harbor lease"
provisions of former Section 168(f)(8) of the Code, (ii) directly or indirectly
secures any debt the interest on which is tax exempt under Section 103(a) of the
Code, or (iii) are "tax exempt use property" within the meaning of Section
168(h) of the Code. The ' Company has not participated in (and prior to the
time of Closing the Company will not participate in) an international boycott
within the meaning of Section 999 of the Code. The Company has previously
provided or made available to the Purchaser true and correct copies of all of
the Company's Returns, and, as reasonably requested by the Purchaser prior to or
following the date hereof, will make available promptly presently existing
information statements, reports, work papers, Tax opinions and memoranda and
other Tax data and documents.
(f) The Company is not or has not been, a United States
real property holding corporation (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(g) No shareholders of the Company are other than a
United States person within the meaning of the Code.
(h) The Company does not have and has not had a
permanent establishment in any foreign country, as defined in any applicable Tax
treaty or convention between the United States of America and such foreign
country and the Company has not engaged in a trade or business within any
foreign country.
(i) The Company is not party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes.
(j) All material elections with respect to Taxes
affecting the Company as of the date of this Agreement and as of the Closing are
or will be set forth in the Schedule of Exceptions.
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(k) The Company is not currently and never have been
subject to the reporting requirements of Section 6038A of the Code.
3.12 TITLE. The Company and all of its Subsidiaries own their
respective properties and assets, including the properties and assets reflected
in the Financial Statements (as defined below), free and clear of all liens,
mortgages, loans or encumbrances except liens for current taxes, and such
encumbrances and liens which arise in the ordinary course of business and do not
materially impair the Company's or any of its Subsidiaries' ownership or use of
such property or assets. With respect to the property and assets leased by the
Company and each of its Subsidiaries, the Company and each of its Subsidiaries
are in compliance with such leases and hold valid leasehold interests free and
clear of any liens, claims or encumbrances.
3.13 MATERIAL CONTRACTS AND COMMITMENTS. All of the contracts,
mortgages, indentures, agreements, instruments and transactions to which the
Company or any Subsidiary is a party or by which they are bound (excluding
purchase orders made in the ordinary course of business to the Company or any of
its Subsidiaries or placed by the Company or any of its Subsidiaries) which
involve obligations of, or payments to, the Company or any of its Subsidiaries
in excess of Fifty Thousand Dollars ($50,000) and all agreements between the
Company or any of its Subsidiaries and any of their respective officers,
directors, employees and consultants are either (i) attached as exhibits to this
Agreement or (ii) set forth on the list attached hereto as EXHIBIT H (the
"Contracts"), copies of which have been provided to special counsel to the
Purchasers. All of the Contracts are valid, binding and in full force and
effect in all respects and enforceable by or against the Company or any of its
Subsidiaries in accordance with their respective terms in all respects, subject
to the effect of applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting enforcement of
creditors' rights and rules or laws concerning equitable remedies. The Company
is not in default under any of such Contracts. To the Company's knowledge no
other party to any of the Contracts is in material default thereunder.
3.14 FINANCIAL STATEMENTS.
(a) The Company has delivered to the Purchasers true,
correct and complete copies of (i) its audited consolidated balance sheets,
income statements, statements of shareholders' equity and statements of cash
flows, including notes thereto, at and for the year ended April 30, 1998; and
(ii) its unaudited consolidated balance sheets, income statements, statements of
shareholders' equity and statements of cash flows for the year ended April 30,
1997 (collectively, the "Financials").
(b) The Company has delivered to the Purchasers true,
correct and complete copies of its balance sheet, income statement, statement of
shareholders' equity and statement of cash flows at and for the five months
ended September 30, 1998 which have been prepared internally by the Company's
management (such financial statements, together with the Financials, are
referred to herein as the "Financial Statements").
(c) The Financial Statements fairly and accurately
present the Company's financial position as of those dates and the results of
operations and changes in its
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financial position for such periods ended, and have been prepared in
accordance with GAAP applied on a consistent basis, except for the absence of
footnotes.
(d) There are no debts, liabilities or claims against
the Company or any of its Subsidiaries that are not currently reflected in the
Financial Statements, contingent or otherwise, which are or would be of a nature
required to be reflected in a balance sheet prepared in accordance with GAAP.
Neither the Company nor any of its Subsidiaries have any material liabilities
other than those set forth in the Financial Statements. The Company maintains a
standard system of accounting, including with respect to revenue recognition, in
accordance with GAAP. The Company's financial reserves are adequate to cover
warranty and similar claims incurred and expected to be incurred and expected
tax liability.
(e) All of the accounts receivable and notes receivable
owing to the Company as of the date hereof constitute valid and enforceable
claims arising from bona fide transactions in the ordinary course of business,
and there are no known, contingent or asserted claims, refusals to pay, rights
of return or other rights of set-off against any thereof.
3.15 ABSENCE OF CHANGES. Except as contemplated by this
Agreement, since August 31, 1998, (a) neither the Company nor any of its
Subsidiaries has entered into any transaction which was not in the ordinary
course of business, (b) there has been no material adverse change in the
condition (financial or otherwise) of the business, property, assets,
liabilities or prospects of the Company or any of its Subsidiaries other than
changes in the ordinary course of business, none of which, individually or in
the aggregate, has been materially adverse, (c) there has been no damage to,
destruction of or loss of physical property (whether or not covered by
insurance) affecting in a materially adverse way the assets, financial
condition, operating results, business or operations of the Company or any of
its Subsidiaries, (d) neither the Company nor any of its Subsidiaries has
declared or paid any dividend or made any distribution on its stock, or
redeemed, purchased or otherwise acquired any of its stock, (e) neither the
Company nor any of its Subsidiaries has changed any compensation arrangement or
agreement with any of its key employees or officers, or changed the rate of pay
of its employees as a group, (f) neither the Company nor any of its Subsidiaries
has received notice that there has been a cancellation of an order for the
Company's or any of its Subsidiaries' products or a loss of a customer of the
Company or any of its Subsidiaries, the cancellation or loss of which would
affect in a materially adverse way the business of the Company or any of its
Subsidiaries, (g) neither the Company nor any of its Subsidiaries has changed or
amended any Contract by which the Company or any of its Subsidiaries or any of
their assets are bound or subject, (h) there has been no resignation or
termination of employment of any key officer or consultant of the Company or any
of its Subsidiaries and the Company does not know of any impending resignation
or termination of employment of any such officer or consultant that if
consummated would have a material adverse effect on the business of the Company
or any of its Subsidiaries, (i) there has been no labor dispute involving the
Company or any of its Subsidiaries or any of their employees and none is pending
or threatened, 0) there has been no change in the material contingent
obligations of the Company or any of its Subsidiaries (nor in any contingent
obligation of the Company or any of its Subsidiaries regarding any director,
shareholder or key employee or officer of the Company or any of its
Subsidiaries) by way of guaranty, endorsement, indemnity, warranty or otherwise,
(k) there have been no loans made by the Company or any of its Subsidiaries to
any of their consultants, officers or directors other than travel advances and
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other advances made in the ordinary course of business, (1) there has been no
waiver by the Company or any of its Subsidiaries of a material right or of a
material debt owing to it, (m)there has not been any satisfaction or discharge
of any lien, claims or encumbrance or any payment of any obligation by the
Company or any of its Subsidiaries, except in the ordinary course of business
and which is not material to the assets, properties, financial condition,
prospects, operating results or business of the Company or any of its
Subsidiaries, and (n) there has been no other event or condition of any
character pertainig to and materially adversely affecting the assets or business
prospects of the Company or any of its Subsidiaries.
3.16 FINANCIAL PLAN AND PROJECTIONS. The projections of the
Company previously delivered to the Purchasers were prepared in good faith by
the Company and were made based on assumptions that the Company and the Founders
believed were reasonable under the circumstances at the time made.
3.17 REGISTRATION RIGHTS. Other than as granted pursuant to
this Agreement, the Company has not granted or agreed to grant any rights to
register any security as that term is defined in this Agreement, including
piggyback registration rights, to any person or entity.
3.18 PROPRIETARY RIGHTS.
(a) The Company and each of its Subsidiaries has full,
complete and undisputed right, title and interest in and to all patents, patent
applications, trademarks, trademark applications, license rights, service marks,
trade names, copyrights, trade secrets, information, mask work registrations,
and other proprietary rights and processes (collectively, "Proprietary Rights")
necessary for or used in their businesses as now conducted and as proposed to be
conducted without any conflict with or infringement of the rights of others.
The Schedule of Exceptions contains a list of all patents and patent
applications owned or licensed by the Company and each of its Subsidiaries.
(b) The Schedule of Exceptions sets forth a true and
complete list of all contracts, licenses and other agreements to which the
Company and each of its Subsidiaries is a party, which affect any item of the
Proprietary Rights.
(c) Except as set forth in the Schedule of Exceptions:
(i) The Company and each of its Subsidiaries
either own or have the exclusive right to use, sell, license and dispose of, to
bring actions for the infringement of and otherwise exercise all Proprietary
Rights, including Proprietary Rights which comprise trade secret rights
(hereinafter, "Trade Secrets"), free and clear of all encumbrances.
(ii) The Company and each of its Subsidiaries has
taken all appropriate actions and made all applicable applications and filings
which are necessary and appropriate pursuant to applicable laws to perfect or
protect their interests in all Proprietary Rights.
(iii) The execution, delivery and performance of
this Agreement and the Shareholders' Agreement and the consummation of the
transactions contemplated hereby and thereby will not (A) cause the
forfeiture or termination or give rise to a right of forfeiture or
termination or give rise to a right of forfeiture or
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termination of any Proprietary Right, or (B) in any way impair the right of
the Company or any of its Subsidiaries to use, sell, license or dispose of or
to bring any action for the infringement of, any Proprietary Right or any
products or technology designed, developed, manufactured, sold or serviced by
the business of the Company or any of its Subsidiaries (collectively,
"Products").
(iv) The manufacture, marketing, license, sale or
use of any Products does not or would not (A) violate any license or agreement
with any third party, (B) infringe on any non-patent Proprietary Right of any
third party or (C) to the Company's knowledge, infringe any third party patent
rights. Neither the Company, any of its Subsidiaries nor, to the Company's
knowledge, any of their employees or consultants has misappropriated any third
party Trade Secrets. There is no claim or litigation pending or, to the best of
the Company's knowledge, threatened, contesting the validity, ownership or right
to use, sell, license or dispose of any Proprietary Right, nor is there any
basis for any such claim.
(v) To the best of the Company's knowledge, no
third party is infringing on any Proprietary Right where such infringement could
or would limit the protection afforded by the Proprietary Rights to the use,
sale, license, sublicense or disposition of the Products or prevent the future
enforcement of such Proprietary Right.
(vi) The Company and each of its Subsidiaries has
taken all steps reasonably necessary or appropriate (including, without
limitation, entering into appropriate confidentiality, nondisclosure and
noncompetition agreements, the forms of which have been delivered to the
Purchasers or its special counsel, with all employees and consultants of the
Company and each of its Subsidiaries) to safeguard and maintain the secrecy and
confidentiality of, and the Company's and each of its Subsidiaries' proprietary
rights in, all Proprietary Rights.
(vii) All Trade Secrets will have remained under
the exclusive control of the Company or each of its Subsidiaries, as the case
may be, at all times prior to the Closing Date and have not been used, divulged
or appropriated for the benefit of any person other than the Company or any of
its Subsidiaries or to the detriment of the Company or any of its Subsidiaries.
(d) Except as set forth in the Schedule of Exceptions:
(i) The Company and each of the Subsidiaries has
performed, or are now performing, their obligations, and the Company and each of
its Subsidiaries are not in default in any material respect (or would by the
lapse of time or the giving of notice or both be in default in any material
respect), under any license or agreement listed or required to be listed in the
Schedule of Exceptions. To the Company's knowledge no other party to such
licenses and agreements is in default in any material respect (or would by the
lapse of time or the giving of notice or both, be in default in any material
respect) thereunder or has breached in any material respect any terms or
provisions thereof.
(ii) No third party has raised any claim, dispute
or controversy with respect to any of the licenses or agreements which is listed
or required to be listed in the Schedule of Exceptions. Neither the Company nor
any of its Subsidiaries has received written
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notice or warning or oral notice or warning of alleged nonperformance, delay
in delivery or other noncompliance by the Company or any of its Subsidiaries
with respect to its obligations under any such licenses or agreements.
(e) Neither the Company nor any of its Subsidiaries nor,
to the Company's knowledge, any of their employees or consultants is making
unpermitted use of any confidential information of third parties or any
confidential information in which any of their present or past consultants has
claimed a proprietary interest; and the Company is not aware of any facts that
would give rise to such a claim. To the Company's knowledge no employee or
consultant to the Company or any of its Subsidiaries is in violation or would be
in violation of any agreement with any former employer.
(f) The Company and each its Subsidiaries have satisfied
all material obligations pursuant to any and all consulting agreements, and
neither the Company nor any of its Subsidiaries is using or has developed any
unpermitted derivatives or unpermitted modifications of technology relating to
such consulting agreements without the consent of the other party to such
consulting agreements.
(g) Neither the Company nor any of its Subsidiaries has
any reasonable basis to believe that any one of them has any present or future
liability under any agreement to (a) provide indemnification for infringement or
misappropriation of any third party rights or otherwise; or (b) provide updates,
enhancements, modifications, bug fixes, support, maintenance or the like of any
Products or their technology.
3.19 CERTAIN TRANSACTIONS. Neither the Company nor any of its
Subsidiaries is indebted, directly or indirectly, to any of their officers,
directors or shareholders or to their spouses or children, in any amount
whatsoever; and none of said officers, directors or shareholders, or any member
of their immediate families, are indebted to the Company or any of its
Subsidiaries or own, directly or indirectly, 1% of the outstanding equity of any
firm or corporation with which the Company or any of its Subsidiaries is
affiliated or with which the Company or any of its Subsidiaries has a material
business relationship. No such officer, director or shareholder, or any member
of their immediate families, is, directly or indirectly, interested in any
material contract with the Company or any of its Subsidiaries. Neither the
Company nor any of its Subsidiaries is guarantor or indemnitor of any
indebtedness of any other person, fu-m or corporation.
3.20 CORPORATE DOCUMENTS, MINUTE BOOKS. Except for amendments
necessary to satisfy representations and warranties or conditions contained
herein (the form of which amendments has been approved by the Purchasers), the
Articles of Incorporation and Bylaws of the Company and each of its Subsidiaries
are in the form previously provided to special counsel to the Purchasers. The
minute books of the Company previously provided to special counsel to the
Purchasers contain a complete summary of all meetings of directors and
shareholders since the time of incorporation of the Company.
3.21 COMPLIANCE WITH LAW. The Company and each of its
Subsidiaries has complied and is in compliance with all applicable foreign,
federal, state and, to the best of the Company's knowledge, local laws,
statutes, licensing requirements, rules, and regulations, and
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judicial or administrative or zoning decisions except as would not have a
material adverse effect on the Company's business, assets or properties. The
Company and each of its Subsidiaries has been granted all licenses, permits
(temporary and otherwise), authorizations, and approvals from foreign,
federal, state and local government regulatory or zoning bodies necessary to
carry on its business as now and as proposed to be conducted, all of which
are currently valid and in full force and effect. All such licenses,
permits, authorizations, and approvals shall be valid and in full force and
effect following the Closing. To the Company's knowledge there is no order
issued, investigation, or proceeding pending or threatened, or notice served
with respect to any violation of any law, ordinance, order, writ, decree,
rule, or regulation issued by any federal state, local or foreign court or
governmental agency or instrumentality applicable to the Company. The
Company has valid use permits for its business as now conducted.
3.22 BROKERS' AND FINDERS' FEES/CONTRACTUAL LIMITATIONS. The
Company is not obligated to pay any fees or expenses of any broker or finder in
connection with the origin, negotiation, or execution of this Agreement or in
connection with any transactions contemplated hereby. Neither the Company, any
Founder nor any officer, director, employee, shareholder, agent, or
representative of the Company (collectively 'Agent/Representatives") is or has
been subject to any agreement, letter of intent, or understanding of any kind
which prohibits, limits, or restricts the Company or its Agent/Representatives
from negotiating, entering into and consummating this Agreement and the
transactions contemplated hereby.
3.23 CERTAIN PAYMENTS. Neither the Company nor any person
directly or indirectly on behalf of the Company has, made or received any
payment that was not legal to make or receive which payments have or could be
expected to have a material adverse effect on the business of the Company.
3.24 BOOKS AND RECORDS. The books and records of the Company to
which the Purchasers and their accountants and attorneys have been given access
are the true books and records of the Company and truly and fairly reflect the
underlying facts and transactions in all material respects.
3.25 FOREIGN CORRUPT PRACTICES ACT. None of the activities or
types of conduct below have been or may have been engaged in by the Company,
either directly or indirectly:
(a) Any bribes or kickbacks to government officials or
their relatives, or any other payments to such persons, whether or 'not legal,
to obtain or retain business or to receive favorable treatment with regard to
business; or
(b) Any bribes or kickbacks to persons other than
government officials, or to relatives of such persons, or any other payments to
such persons or their relatives, whether or not legal, to obtain or retain
business or to receive favorable treatment with regard to business; or
(c) Any illegal contributions made to any political
party, political candidate or holder of governmental office; or
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(d) Any bank accounts, funds or pools of funds created
or maintained without being reflected on the corporate books of account, or as
to which the receipts and disbursements therefrom have not been reflected on
such books; or
(e) Any receipts or disbursements, the actual nature of
which has been "disguised" or intentionally misrecorded on the corporate books
of account; or
(f) Fees paid to consultants or commercial agents which
exceeded the reasonable value of the services purported to have been rendered;
or
(g) Any payments or reimbursements made to personnel of
the Company for the purposes of enabling them to expend time or to make
contributions or payments of the kind or for the purpose referred to in
subparagraphs (a)-(f) above. The Company has not violated the United States
Corrupt Foreign Practices Act or any other similar laws, statute, rule or
regulation of any country.
3.26 ENVIRONMENTAL AND SAFETY MATTERS.
(a) Except as disclosed in the Schedule of Exceptions:
(i) To the knowledge of the Company, there has
been no disposal, release or threatened release of any hazardous substance or
hazardous waste on, from or under the property owned or leased currently or in
the past by the Company or any of its Subsidiaries or any predecessor, except as
permitted under federal, state and local laws. For purposes of this Agreement,
the terms "disposal," "release," "hazardous substance" and "hazardous waste"
shall have the definitions assigned thereto under federal, state and local laws
applicable to the Company and each of its Subsidiaries, the assets of the
Company and each of its Subsidiaries and the property owned or leased by the
Company and each of its Subsidiaries, including without limitation the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. _9601 et seq., as amended, and any regulations promulgated thereto,
except that "hazardous substance' and "hazardous waste" shall also include all
varieties of petroleum hydrocarbons, refined or unrefined asbestos,
polychlorinated biphenyls and urea formaldehyde and other materials classified
as hazardous or toxic under any Environmental Laws (as defined below).
(ii) To the knowledge of the Company, the Company
and each of its Subsidiaries, the operation of their businesses, and any real
property that the Company and each of its Subsidiaries presently lease or
otherwise occupy or use (the "Premises") are in compliance with all applicable
Environmental Laws (as defined below) and orders or directives of any
governmental authorities with respect to and under such Environmental Laws
including, without limitation, any Environmental Laws or orders or directives
with respect to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the release, emission or discharge
of any hazardous substance or hazardous waste or any regulations, plans,
judgments, injunctions or notices promulgated or approved thereunder: (a) which
are applicable to the operations of the Company and each of its Subsidiaries or
the Premises, or the assets or the business or operations of the Company and
each of its Subsidiaries, or (b) which may give rise to any liability of the
Company and each of its Subsidiaries or
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otherwise form the basis of any ongoing or threatened claims, actions,
demands, suits, proceedings, hearings, studies or investigations against or
relating to the Company or any of its Subsidiaries.
(iii) Neither the Company nor any of its
Subsidiaries has received any citation, directive, letter or other
communication, written or oral, or any notice of any proceedings, claims or
lawsuits, from any person, entity or governmental authority arising out of any
alleged violations of Environmental Laws by the Company or its Subsidiaries, nor
is the Company aware of any basis therefor.
(iv) The Company and each of its Subsidiaries have
obtained and are maintaining in full force and effect all necessary material
permits, licenses and approvals required by any Environmental Laws applicable to
the Premises and the business operations conducted thereon and are in material
compliance with all such permits, licenses and approvals.
(v) To the knowledge of the Company, no disposal
or release of a hazardous substance or hazardous waste has come to be located on
or beneath the Premises or any of the real property owned or leased in the -past
by the Company or any of its Subsidiaries or any predecessor.
(vi) The Schedule of Exceptions sets forth (a) all
arrangements that the Company and each of its Subsidiaries currently have and
in the past have had in effect for the removal, disposal, release and/or
processing of waste and byproducts, including any hazardous substances or
hazardous waste, and (b) all reports, studies and evaluations conducted by
the Company or any of its Subsidiaries, or received by the Company or any of
its Subsidiaries, with respect to the removal, disposal, release and/or
processing of waste and by-products, including any hazardous substances or
hazardous waste.
(b) The term "Environmental Laws" shall mean any
federal, state or local law, ordinance or regulation pertaining to the
protection of human health or the environment including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Sections 9601, et _M., Emergency Planning and Community Right-To-Know Act, 42
U.S.C. Sections I 1001, et seq., and the Resource Conservation and Recovery Act
42 U.S.C. Sections 6901, et seq.
3.27 MANUFACTURING AND MARKETING. Neither the Company nor any
of its Subsidiaries has granted rights to manufacture, produce, assemble,
license, market, or sell their Products to any other person and is not bound by
any agreement that affects the Company's or any of its Subsidiaries exclusive
right to develop, manufacture, assemble, distribute, market or sell their
Products.
3.28 RETURNS AND COMPLAINTS. Neither the Company nor any of its
Subsidiaries has received any customer complaints concerning their Products
and/or services, nor have they had any of their Products returned by a purchaser
thereof due to the failure to meet specifications, other than minor,
nonrecurring warranty problems, and claims not in excess of $25,000,
individually or $100,000, in the aggregate, for any single customer.
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3.29 LABOR AGREEMENTS AND ACTIONS. Neither the Company nor any
of its Subsidiaries is bound by or subject to (and none of their assets or
properties are bound by or subject to) any written or oral, express or implied,
contract, commitment or arrangement with any labor union, and no labor union has
requested or has sought to represent any of the employees or consultants of the
Company or any of its Subsidiaries. There is no strike or other labor dispute
involving the Company or any of its Subsidiaries pending, or threatened, that
could have an adverse effect on the assets, properties, financial condition,
operating results or business of the Company or any of its Subsidiaries (as such
business is presently conducted and as it is proposed to be conducted), nor is
the Company aware of any labor organization activity involving its employees or
consultants. The employment of each employee or consultant of the Company and
each of its Subsidiaries is terminable at the will of the Company or each of the
its Subsidiaries. The Company and each of its Subsidiaries have complied in all
material respects with all applicable state and federal equal employment
opportunity and other laws related to employment.
3.30 SECTION 83(b) ELECTIONS. To the Company's knowledge, all
individuals who have purchased shares of the Company's Common Stock that are
subject to a risk of forfeiture have timely filed elections under Section 83(b)
of the Code (as defined below) and any analogous provisions of applicable state
tax laws.
3.31 EMPLOYEE BENEFIT PLANS. Neither the Company nor any of its
Subsidiaries has any "employee benefit plan" as defined in the Employee
Retirement Income Security Act of 1974, as amended.
3.32 DISCLOSURE. The copies of all instruments, agreements and
other documents and information delivered by or provided to the Company and each
of its Subsidiaries to the Purchasers or their special counsel are and will be
complete and correct in all respects as of the date of delivery thereof. No
representations or warranties made by the Company or the Founders in this
Agreement, any exhibit or schedule hereto, or any written information furnished
or to be prepared and furnished by the Company or the Founders pursuant hereto
or in connection with the transactions contemplated hereby which is referenced
in or attached to the Schedule of Exceptions contains or will. contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements or facts contained herein or therein, not
misleading in light of the circumstance under which they were made.
3.33 INSURANCE. The Company and each of its Subsidiaries
maintain insurance covering property damage, including environmental, and
liability reasonably prudent under commercially reasonable business practices.
The Company and each of its Subsidiaries have in full force and effect products
liability and errors and omissions insurance in amounts customary for companies
similarly situated.
3.34 SHAREHOLDER AGREEMENTS. Except as otherwise contemplated
by this Agreement, the Shareholders' Agreement, the Redemption Agreements and
the Voting Agreement, (a) there are no agreements or arrangements between the
Company or any of its Subsidiaries and any of the Company's or any of the
Subsidiaries' shareholders or to the Company's knowledge, between any of the
Company's or any of the Subsidiaries' shareholders which adversely affect any
shareholder's ability or right freely to alienate or vote such shares and
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(b) to the Company's knowledge, none of the Company's or any of the
Subsidiaries' shareholders is affiliated with Or has any agreements or
arrangements with any customer of, or supplier to, the Company or any of its
Subsidiaries.
3.35 PRODUCTS.
(a) There are no known defects in the design or
technology embodied in any product which the Company or any of its Subsidiaries
markets or has marketed in the past that impair or are likely to impair the
intended use of the product or injure any consumer of the product or third
party, except that warranty claims may arise in the normal course of business
for products shipped prior to the Closing Date in an aggregate amount of no more
than the warranty reserves established by the Company. The Company and each of
its Subsidiaries have delivered to the Purchasers copies of their warranty
policies and all outstanding warranties or guarantees relating to any of the
Company's or each of the Subsidiaries' products other than warranties or
guarantees implied by law. The Company is not aware of any claim asserting (a)
any damage, loss or injury caused by any product, or (b) any breach of any
express or implied product warranty or any other similar claim with respect to
any product of the Company or any of its Subsidiaries other than standard
warranty obligations (to replace, repair or refund) made by the Company or any
of its Subsidiaries in the ordinary course of business, except for those claims
that, if adversely determined against the Company or any of its Subsidiaries,
would not have a material and adverse effect on the Company's or any of its
Subsidiaries' business.
(b) None of the products and services sold, licensed,
rendered, or otherwise provided by the Company (or by any of its Subsidiaries)
in the conduct of their respective businesses (excluding products and services
sold, licensed, rendered, or otherwise provided by the Company which have been
combined with products of other companies) will malfunction, will cease to
function, will generate materially incorrect data or will produce materially
incorrect results and will not cause any of the above with respect to the
property or business of third parties using such products or services when
processing, providing or receiving (i) date-related data from, into and between
the Twentieth (20th) and Twenty-First (21st) centuries, or (ii) date-related
data in connection with any valid date in the Twentieth (20th) and Twenty-First
(21st) centuries, causing a material adverse effect on the Company, its business
or the property or business of any third parties using such products or
services.
(c) Neither the Company nor any subsidiary has made any
other representations or warranties specifically relating to the ability of any
product or service sold, licensed, rendered, or otherwise provided by the
Company (or by any of its subsidiaries) in the conduct of their respective
businesses to operate without malfunction, to operate without ceasing to
function, to generate correct data or to product correct results when
processing, providing or receiving (i) date-related data from, into and between
the Twentieth (20th) and Twenty-First (21st) centuries, and (ii) date-related
data in connection with any valid date in the Twentieth (20th) and Twenty-First
(21st) centuries.
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4. REPRESENTATIONS AND WARRANTIES OF PURCHASERS AND RESTRICTIONS ON
TRANSFER IMPOSED BY THE SECURITIES ACT.
4.1 REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS. Each
Purchaser represents and warrants to the Company (as to itself only) as follows:
(a) AUTHORITY. It is a corporation or partnership (as
indicated by its signature to this Agreement) and is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization. Each Purchaser has now, and will have at the Closing Date, all
requisite legal and (if applicable) corporate or partnership power to enter into
this Agreement, to purchase the Preferred Shares hereunder and to perform its
obligations under the terms of this Agreement.
(b) AUTHORIZATION. All corporate or partnership action
(if applicable) on the part of such Purchaser necessary for the purchase of the
Preferred Shares and the performance of such Purchaser's obligations hereunder
and thereunder has taken or will be taken prior to the Closing Date. This
Agreement, when executed and delivered by such Purchaser will constitute a valid
and legally binding obligation of such Purchaser, enforceable in accordance with
its terms, except as enforcement may be limited by applicable bankruptcy laws or
other similar laws affecting creditors' rights generally, and except that the
availability of equitable remedies may be limited.
(c) INVESTMENT INTENT. Purchaser is acquiring the
Preferred Shares and the Common Stock issuable upon conversion of the Preferred
Shares (collectively the "Securities") for investment for such Purchaser's own
account, not as nominee or agent, and not with a view to, or for resale in
connection with any distribution or public offering thereof within the meaning
of the Securities Act and the Law. Purchaser has the full right, power and
authority to enter into and perform this Agreement and the Shareholders'
Agreement. Purchaser understands and acknowledges that the Company will rely on
this representation in entering this Agreement.
(d) SHARES NOT REGISTERED. Purchaser understands and
acknowledges that the offering of the Preferred Shares pursuant to this
Agreement will not be registered under the Securities Act or qualified under the
Law on the grounds that the offering and sale of securities contemplated by this
Agreement are exempt from registration under the Securities Act pursuant to
Section 4(2) thereof and exempt from registration pursuant to Section 25102(f)
of the Law, and other applicable state securities or blue sky laws, and that the
Company's reliance upon such exemptions is predicated upon such Purchaser's
representations set forth in this Agreement. Purchaser acknowledges and
understands that the Securities must be held indefinitely unless the Securities
are subsequently registered under the Securities Act and qualified under the Law
or an exemption from such registration and such qualification is available.
(e) KNOWLEDGE AND EXPERIENCE. Purchaser (i) has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of such Purchaser's prospective investment in
the Securities; (ii) has the ability to bear the economic risks of such
Purchaser's prospective investment; (iii) has been furnished with and has had
access to such information as such Purchaser has considered necessary to make a
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determination as to the purchase of the Securities together with such additional
information as is necessary to verify the accuracy of the information supplied;
(iv) has had all questions which have been asked by such Purchaser answered by
the Company; and (v) has not been offered the Securities by any form of
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any such media.
(f) NOT ORGANIZED TO PURCHASE. Purchaser has not been
organized for the purpose of purchasing the Securities.
(g) HOLDING REQUIREMENTS. Purchaser understands that if
the Company does not (i) register its Common Stock with the Securities and
Exchange Commission ("SEC") pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (ii) become subject to Section
15(d) of the Exchange Act, (iii) supply information pursuant to Rule 15c2-11
thereunder, or (iv) have a registration statement covering the Securities (or a
filing pursuant to the exemption from registration under Regulation A of the
Securities Act covering the Securities) under the Securities Act in effect when
it desires to sell the Securities, such Purchaser may be required to hold the
Securities for an indeterminate period. Purchaser also understands that any
sale of the Securities that might be made by such Purchaser in reliance upon
Rule 144 under the Securities Act may be made only in limited amounts in
accordance with the terms and conditions of that rule.
(h) HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976
(AS AMENDED). As a result of this transaction, no Purchaser will hold voting
securities of the Company that either (i) are valued at $15 million or more, or
(ii) based on the representation set forth in Section 3.4, represent 15% or more
of the outstanding voting securities of the Company. As defined in 16 CFR
Section 801.1(a)(3) and (b), each Purchaser (i) is not controlled by any other,
and (ii) does not control any other entity that holds voting securities of the
Company each of which is listed on Schedule 2.
4.2 LEGENDS. Each certificate representing the Securities may
be endorsed with the following legends:
(a) FEDERAL LEGEND. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE
OR OTHERWISE DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT OR (ii) IN COMPLIANCE WITH
RULE 144, OR (iii) PURSUANT TO AN OPINION OF COUNSEL, SATISFACTORY TO THE
CORPORATION, THAT SUCH REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SAID
SALE, OFFER OR DISTRIBUTION.
(b) OTHER LEGENDS. Any other legends required by the Law
or other applicable state blue sky laws. The Company need not register a
transfer of legended Securities,
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and may also instruct its transfer agent not to register the transfer of the
Securities, unless the conditions specified in each of the foregoing legends
are satisfied.
4.3 REMOVAL OF LEGEND AND TRANSFER RESTRICTIONS. Any legend
endorsed on a certificate pursuant to subsection 4.2(a) and the stop transfer
instructions with respect to such legended Securities shall be removed, and the
Company shall issue a certificate without such legend to the holder of such
Securities if such Securities are registered and sold under the Securities Act
and a prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder satisfies the requirements of Rule 144(k) and, where
reasonably deemed necessary by the Company, provides the Company with an opinion
of counsel for such holder of the Securities, reasonably satisfactory to the
Company, to the effect that (i) such holder meets the requirements of Rule
144(k) or (ii) a public sale, transfer or assignment of such Securities may be
made without registration.
4.4 RULE 144. Purchaser is aware of the adoption of the Rule
144 by the SEC promulgated under the Securities Act, which permits limited
public resales of securities acquired in a nonpublic offering, subject to the
satisfaction of certain conditions. The Purchaser understands that under Rule
144, the conditions include, among other things the availability of certain
current public information about the issuer and the resale occurring not fewer
than two years after the party has purchased and paid for the securities to be
sold.
4.5 NO TRANSFER. Purchaser covenants that in no event will
such Purchaser dispose of any of the Securities (other than in conjunction with
an effective registration statement for the Securities under the Securities Act
or in compliance with Rule 144 promulgated under the Securities Act) unless and
until (i) such Purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Purchaser shall have furnished the Company with
an opinion of counsel reasonably satisfactory in form and substance to the
Company to the effect that (x) such disposition will not require registration
under the Securities Act and (y) appropriate action necessary for compliance
with the Securities Act, the Law and any other applicable state, local or
foreign law has been taken. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144.
4.6 PERMITTED TRANSFERS. Notwithstanding the provisions of
this Agreement, no registration statement or opinion of counsel shall be
necessary for a transfer by a Purchaser which is a partnership to a partner of
such partnership or a former partner of such partnership who leaves such
partnership after the date hereof, or to the estate of any such partner or
former partner of the transfer by gift, will or intestate succession of any
partner to his spouse or lineal descendants or ancestors, if the transferee
agrees in writing to be bound by the terms of this Agreement, and the
Shareholders' Agreement to the same extent as if he were an original Purchaser
hereunder.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS. The obligation of
the Purchasers to purchase the Preferred Shares at the Closing is subject to the
fulfillment to its satisfaction, on
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or prior to the Closing Date (unless otherwise specified), of the following
conditions, any, of which may be waived in accordance with the provisions of
this Agreement:
(a) REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE
OF OBLIGATIONS. The representations and warranties made by the Company and the
Founders in Section 3 hereof shall be true and correct when made, and shall be
true and correct on the Closing with the same force and effect as if they had
been made on and as of said date. The Company's business, results of
operations, properties and assets shall not be adversely affected in any way
prior to the Closing Date from April 30, 1998. -The Company and the Founders
shall have performed all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing Date.
(b) CONSENTS AND WAIVERS. The Company shall have
obtained in a timely fashion any and all consents, permits and waivers necessary
or appropriate for consummation of the transactions contemplated by this
Agreement.
(c) ELECTION OF DIRECTORS. Effective upon the Closing,
Michael Child shall have been appointed to the Company's Board of Directors,
which shall consist of not more than seven (7) other members.
(d) FILING OF THE ARTICLES. The Articles shall have
been accepted for filing with the Secretary of State of California.
(e) ANCILLARY AGREEMENTS. The Company, the Founders and
the Purchasers shall have executed and delivered the Shareholders' Agreement in
the form attached as EXHIBIT C hereto and the Voting Agreement attached as
EXHIBIT E hereto.
(f) DELIVERY OF FINANCIAL STATEMENTS. The Company shall
have provided to the Purchasers copies of the Financial Statements in form and
substance reasonably satisfactory to the Purchasers.
(g) COMPLIANCE CERTIFICATE. The Company shall have
delivered a Certificate, executed by the Chief Executive Officer of the Company
and each Founder, dated the Closing Date, certifying to the fulfillment of the
conditions specified in subsections a., b. and c. of this Section 5. 1.
(h) OPINION OF COUNSEL. The Purchasers shall have
received an opinion from the Company's and the Founders' counsel, in
substantially the form attached hereto as EXHIBIT I.
(i) RESERVATION OF COMMON STOCK. The shares of Common
Stock issuable upon conversion of the Preferred Shares shall have been duly
authorized and reserved for issuance upon such conversion and exercise.
(j) INDEMNIFICATION AGREEMENTS. The Company shall have
entered, into indemnification agreements effective at the Closing with its
directors and the persons who will become directors at the Closing, in form
satisfactory to the Purchasers.
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(k) FINANCING. The Company shall have entered into definitive
documentation of commitments for a senior credit facility in the amount of
not less than $10 million, in form satisfactory to the Purchasers in their
sole discretion, effective on the date hereof.
(l) DUE DILIGENCE REVIEW. The Purchasers shall be satisfied,
in their sole discretion, with the due diligence review of the business,
legal, accounting and other investigations undertaken by the Purchasers and
their advisors and agents with respect to the Company and its Subsidiary.
(m) HART-SCOTT-RODINO. Any inquiry required by the Federal
Trade Commission (the "FTC') under the HSR Act shall have been early
terminated or the applicable waiting period under the HSR Act any applicable
law shall have expired.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to sell the Preferred Shares at the Closing is subject to the
condition that (i) the representations and warranties made by the Purchasers in
Section 4.1 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date with the same force and effect as if they had been
made on and as of said date; (ii) any inquiry of the FTC required under the HSR
Act shall have been subject to early termination or shall have expired; (iii)
the Articles shall have been accepted for filing with the Secretary of State of
California; (iv) the Company, the Founders and the Purchasers shall have
executed and delivered the Shareholders' Agreement in the form attached as
EXHIBIT C hereto; (v) the Company, the Founders and the Purchasers shall have
executed and delivered the Voting Agreement in the form attached as EXHIBIT E
hereto; and (vi) the Company shall have entered into definitive documentation
for a senior credit facility in the amount of not less than $10 million, in form
satisfactory to the Purchasers in their sole discretion.
6. AFFIRMATIVE COVENANTS OF THE COMPANY. The Company hereby covenants
and agrees as follows:
6.1 FINANCIAL INFORMATION. The Company agrees to provide the
Purchasers with audited consolidated balance sheets and audited consolidated
statements of income and changes in financial position within 60 days of the
Closing, for the fiscal years ending April 30, 1997 and April 30, 1998. In
addition, until the first to occur of (a) the date on which the Company is
required to file a report with the SEC pursuant to the Exchange Act by reason
of the Company having registered any of its securities pursuant to Section
12(g) of the Exchange Act or (b) quotations for the Common Stock of the
Company are reported by the automated quotations systems operated by the
National Association of Securities Dealers, Inc. or by an equivalent
quotations system or (c) shares of the Common Stock of the Company are listed
- -on a national securities exchange registered under Section 6 of the Exchange
Act, the Company will furnish to each Purchaser:
(i) as soon as practicable after the end of each fiscal
year, and in any event within 90 days thereafter, audited consolidated
balance sheets of the Company and its subsidiaries, as at the end of such
fiscal year, and audited consolidated statements of income and audited
consolidated statements of changes in financial position (or equivalent cash
flow
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statements if required by the Financial Accounting Standards Board) of the
Company and its subsidiaries, for such year, prepared in accordance with
GAAP, all in reasonable detail and, certified by independent public
accountants of recognized national standing selected by the Company, and
(ii) as soon as practicable after the end of each month
(except the last month of the fiscal year), and in any event within 30 days
thereafter, consolidated balance sheets of the Company and its subsidiaries,
as of the end of such month; and consolidated statements of income and
consolidated statements of changes in financial position (or equivalent cash
flow statements if required by the Financial Standards Board), for such month
and for the current fiscal year to date, prepared in accordance with GAAP
(expect for the required footnotes), all in reasonable detail and signed,
subject to changes resulting from year-end audit adjustments, by the
principal financial officer or chief executive officer of the Company, and
(iii) as soon as practicable after its adoption or
approval by the Company's Board of Directors, but not later than the
commencement of such fiscal year, an annual plan for each fiscal year which
shall include quarterly capital and operating expense budgets, cash flow
statements, projected balance sheets and profit and loss projections for each
such quarter and for the end of the year, itemized in such detail as the
Board of Directors may reasonably determine.
6.2 CONFLICTS OF INTEREST. The Company shall use its best efforts
to ensure that the Company's employees, during the term of their employment
with the Company, do not engage in activities which would result in a
conflict of interest with the Company. The Company's obligations hereunder
include, but are not limited to, requiring that the Company's employees
devote their primary productive time, ability and attention to the business
of the Company (provided, however, the Company's employees may engage in
other business activity if such activity does not materially interfere with
their obligations to the Company), requiring that all of the Company's
employees enter into agreements regarding proprietary information and
confidentiality.
6.3 KEY-MAN INSURANCE. The Company shall obtain at commercially
reasonable rates .within thirty (30) days of the Closing and maintain in
force, until canceled or modified with the written consent of Purchasers
holding more than fifty percent (50"/*) of the Securities, an insurance
policy -or., the lives of each of Jerry S. Rawls and Frank Levinson, each in
the amount of $1,000,000 naming the Company as holder and beneficiary. The
obligations of the Company pursuant to this Section 6.3 shall terminate upon
the consummation of an initial public offering.
6.4 PROPRIETARY AGREEMENTS. The Company and each of its
Subsidiaries will use their best efforts to prevent any employee or
consultant from violating the confidentiality and proprietary information
agreement entered into between the Company and each of its employees and
consultants.
6.5 RULE 144. The Company covenants that (i) at all times after
the Company first becomes subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act,
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the Company will use its best efforts to comply with the current public
information requirements of Rule 144(c)(1) under the Securities Act; and (ii)
at all such times as Rule 144 is available for use by the Purchaser, the
Company will furnish the Purchasers upon request with all information within
the possession of the Company required for the preparation and filing of Form
144.
6.6 ACTIONS. The Company covenants and agrees to perform its
obligations and agreements set forth in the Articles.
6.7 USE OF PROCEEDS. Within thirty (30) days of the date of the
Closing, the Company will use a portion of the proceeds of the sale of the
Series A Preferred Stock to repurchase up to 14,237,295 shares of Common
Stock owned beneficially by the Founders and not more than 372,500 shares of
Common Stock owned beneficially (or issuable upon exercise of stock options
held by) employees of the Company other than the Founders at a price of no
greater than $2.1932 per share pursuant to the Redemption Agreements attached
in the form of EXHIBIT D hereto (the "Redemption Agreement").
6.8 OFFER OF REDEMPTION. The Company will offer each eligible
holder of the Company's securities the right to have a pro rata portion of
such securities repurchased by the Company at substantially the same time and
upon the same terms as set forth in the Redemption Agreements pursuant to a
stock repurchase plan to commence on or about the Closing Date.
7. REGISTRATION.
7.1 DEFINITIONS. As used in this Section 7:
(a) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and the declaration or
ordering of the effectiveness of such registration statement;
(b) The term "Registrable Securities" means: (i) any Common
Stock issued or to be issued pursuant to conversion of the Preferred Shares
issued hereunder or at any subsequent closing; and (ii) any other Common
Stock issued as a dividend or other distribution with respect to, or in
exchange for or in replacement of, the Preferred Shares or the shares of
Common Stock issued pursuant to conversion of the Preferred Shares;
(c) The term "Holder" means any Purchaser or other holder of
outstanding Registrable Securities who acquired such securities in accordance
with Section 7.11 hereof,
(d) The term "Initiating Holders" means any Holder or Holders
making a request for registration pursuant to the provisions of Section 7.2;
and
(e) The term "Substantial Amount of Registrable Securities"
means at least twenty percent (20%) of the Registrable Securities which have
not been resold to the public in a registered public offering.
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7.2 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If at any time after the date
that is the earlier of two years after the Closing Date or 180 days after the
effective date of the first registration statement for an initial public
offering of securities of the Company, the Company shall receive from the
Holders of a Substantial Amount of Registrable Securities a written request
that the Company effect any registration, qualification or compliance with
respect to all or part of the Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to
effect all such registrations, qualifications and compliances (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under the applicable state securities
laws and appropriate compliance with exemptive regulations issued under the
Securities Act and any other governmental requirements or regulations) as may
be so requested and as would permit the sale and distribution of such portion
of such Holders' Registrable Securities as are specified in such request
together with such portion of the Registrable Securities of any other Holder
or Holders joining in such request as are specified in a written notice given
within thirty (30) days after receipt of such written notice from the Company.
(b) The Company shall not be obligated to take any action to
effect any such registration, qualification or compliance pursuant to this
Section 7.2 after the Company has effected two registrations under this
Section 7.2.
(c) UNDERWRITING. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as part of their request made
pursuant to Section 7.2(a) and the Company shall include such information in
the written notice referred to 'm Section 7.2(a)(i). The right of any Holder
to registration pursuant to Section 7.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting. The Company shall
(together with all Holders proposing to distribute their securities) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding
any other provision of this Section 7.2, 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
registered and underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders thereof in proportion, as
nearly as practicable, to the respective aggregate amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. In no event, however, shall any Registrable Securities be
eliminated from the registration until any and all shares being sold for the
account of the Company or shareholders who are not Holders are first
eliminated. If any Holder disapproves of the terms of the underwriting, he
may elect to withdraw therefrom by written notice to the Company, the
underwriters and the Initiating Holders. The Registrable Securities so
withdrawn shall also be withdrawn from registration.
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7.3 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time to
time, the Company shall determine to register any of its securities, either
for its own account or the account of a security holder or holders, in
connection with an offering of its securities to the general public for cash
(other than a registration relating solely to employee stock option or
purchase plans or relating solely to an SEC Rule 145 transaction or to debt
securities), the Company will:
(i) promptly give to each Holder written notice
thereof, and
(ii) include in such registration (and any related
qualification under state securities laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made by any Holder or Holders and received by
the Company within twenty (20) days after the written notice from the Company
described in clause 7.3(a)(i) above is mailed or personally delivered by the
Company, except as set forth in Section 7.3(b) below.
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting,
the Company shall so advise the Holders as a part of the written notice given
pursuant to Section 7.2(a)(i). In such event the right of any Holder to
registration pursuant to Section 7.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable
Securities in the underwriting. All Holders proposing to distribute their
Registrable Securities through such underwriting (the "Participating
Holders") shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting by the Company. Notwithstanding any other provision of
this Section 7.3, if the managing underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten, the
total number of shares of Registrable Securities to be included in the
registration and underwriting (the "Total Included Shares") may be limited
(i) in the case of the Company's initial public offering of the sale of the
Company's securities to the general public, to zero and (ii) in the case of
any other registration, to any amount no less than 50% of all shares to be
distributed through such underwriting, provided other holders of registration
rights are similarly cut back or excluded. In case of any such limitation
under this Section 7.3(b), the Company shall so advise all Participating
Holders and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
the Participating Holders and other holders of incidental or "piggyback"
registration rights in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities entitled to inclusion in such
registration held by such Participating Holders at the time of filing the
registration statement, provided, however, that securities of persons other
than Holders shall be reduced before any Registrable Securities are reduced
from such underwriting unless the number of Registrable Securities to be
included in such underwriting has an aggregate value measured by the offering
price to the public of not less than the aggregate purchase price paid by the
Holders under this Agreement. If any Holder disapproves of the terms of any
such underwriting, he or it may elect to withdraw therefrom by written notice
to the Company and the underwriter. Any securities excluded or withdrawn
from such underwriting shall not be transferred prior to 90 days
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after the effective date of the registration statement for such underwriting,
or such shorter period as the underwriter may require.
7.4 FORM S-3. The Company shall uses its best efforts to qualify
for registration of Form S-3 or its successor form. After the Company has
qualified for the use of Form S-3, Holders of a Substantial Amount of
Registrable Securities then outstanding shall have the right to request
registrations on Form S-3 (which request shall be in writing and shall state
the number of shares of Registrable Securities to be disposed of and the
intended method of disposition of Shares by such Holders); provided, however,
the Company shall not be required to effect a registration pursuant to this
Section 7.4 if it has, within any nine month period preceding the date of any
request under this Section 7.4 already effected two registrations pursuant to
this Section 7.4.
The Company shall give written notice to all Holders of Registrable
Securities of the receipt of a request for registration pursuant to this
Section 7.4 and shall provide a reasonable opportunity for other Holders to
participate in &e registration, provided that if the registration is for an
underwritten offering, the terms of subsection 7.2(b) shall apply to all
participants in such offering. Subject to the foregoing, the Company will
use its best efforts to effect promptly the registration of all shares of
Registrable Securities on Form S-3 to the extent requested by the Holder or
Holders thereof for purposes of disposition.
7.5 EXPENSES OF REGISTRATION. All expenses incurred in
connection with any registration, qualification or compliance pursuant to
this Section 7 (exclusive of discounts, commissions and stock transfer fees),
including without limitation, all registration, filing and qualification
fees, printing expenses, fees and disbursements of counsel for the Company,
accounting fees incidental to or required by such registration and the fees
and disbursements of counsel retained by the Holders with respect to such
registration, shall be home by the Company.
7.6 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to Section 7,
the Company will keep each Holder participating therein advised in writing as
to the initiation of each registration, qualification and compliance and as
to the completion thereof. At its expense the Company will:
(a) keep such registration, qualification or compliance
pursuant to Section 7.2, 7.3 or 7.4 effective (i) until the Holder or Holders
have completed the distribution described in the registration statement
relating thereto for shelf offerings; or until the Holder(s) shall have
completed the distribution for all other offerings; and
(b) furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request.
7.7 INDEMNIFICATION.
(a) The Company will indemnify, defend and hold harmless
each Holder of Registrable Securities, each of its officers, directors and
partners, and each person controlling or deemed controlling such Holder, with
respect to which registration, qualification or compliance has been effected
pursuant to this Section 7 and, each underwriter, if any, and
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each person who controls any underwriter of the Registrable Securities held
by or issuable to such Holder, against ail claims, losses, damages, costs,
expenses and liabilities whatsoever (or actions in respect-thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus, offering
circular or other documents (including any related registration, statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of the
Securities Act or any state securities law or of any rule or regulation
promulgated under the Securities Act or any state securities law applicable
to the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers and directors, and each
person controlling or deemed controlling such Holder, each such underwriter
and each person who controls any such underwriter, for any legal and any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, cost, expense, liability or action,
provided that the Company will not be liable in any such case to the extent
that any such claim, loss, damage, cost, expense or liability arises out of
or is based on any untrue statement or omission based upon written
information furnished to the Company by an instrument duly executed by any
Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or
issuable-to such person are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify,
defend and hold harmless the Company, each of its directors and officers who
sign such registration statement, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company within the meaning of the Securities Act, and each other Holder,
each of such other Holder's officers and directors and each person
controlling such other Holder, against all claims, losses, damages, costs,
expenses and liabilities whatsoever (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus,
offering circular or other documents (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the Company,
such other Holders, such directors, officers, persons or underwriters for any
legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, cost, expense,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder and stated to be specifically for use therein; provided, however, that
the foregoing indemnity agreement is subject to the condition that, insofar
as it relates to any such untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in the preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement becomes effective or the amended prospectus
filed with the SEC pursuant to Rule 424(b) (the "Final Prospectus"), such
indemnity agreement shall not inure to the benefit of any underwriter or any
Holder, if there is no underwriter, if a copy of the Final Prospectus was
furnished to the
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person or entity asserting the loss, liability, claim or damage at or prior
to the time such action is required by the Securities Act; and provided
further, the total amount for which any Holder shall be liable under this
Section 7.7 shall not in any event exceed the lesser of (A) aggregate
proceeds received by such Holder from the sale of Registrable Securities held
by such Holder in such registration and (B) that portion of aggregate losses,
claims, damages, liabilities or expenses indemnified against as is equal to
the proportion of the total number of Registrable Securities being sold by
such Holder to the total number of shares of Common Stock being sold by the
Company and all persons for which shares are registered in such offering; and
provided further, however, that no Holder shall be required to enter into an
Underwriting Agreement that provides for any greater potential liability to
it than as set forth herein.
(c) Each party entitled to indemnification under this Section
7.7 (the "Indemnified Party") shall give notice to the party required to
provide the indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnifying party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 7.7. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. If any such Indemnified Party shall have been advised by counsel
chosen by it that there may be one or more legal defenses available to such
Indemnifying Party which are different from or additional to those available
to the Indemnifying Party, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of such Indemnified Party and
will reimburse such Indemnified Party and any person controlling such
Indemnified Party for the reasonable fees and expenses of any counsel
retained by the Indemnified Party, it being understood that the Indemnifying
Party shall not in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses
of more than one separate firm of attorneys for such Indemnified Party or
controlling person, which firm shall be designated in writing by the
Indemnified Party to the Indemnifying Party.
7.8 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such persons and the distribution proposed by such
persons as the Company may request in writing and as such shall be required
in connection with any registration, qualification or compliance referred to
in this Section 7.
7.9 SALE WITHOUT REGISTRATION. If at the time of any transfer
(other than a transfer not involving a change in beneficial ownership) of any
Shares or Registrable Securities, such Shares or Registrable Securities shall
not be registered under the Securities Act, the Company may require, as a
condition of allowing such transfer, that the holder or transferee
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<PAGE>
thereof furnish to the Company (a) such information as is necessary in order
to establish that such transfer may be made without registration under the
Securities Act; and (b) at the expense of such holder or transferee, an
opinion by legal counsel designated by such holder or transferee and
satisfactory to the Company, satisfactory in form and substance to the
Company, to the effect that such transfer may be made without registration
under such Act; provided that nothing contained in this Section 7.9 shall
relieve the Company from complying with any request for registration,
qualification or compliance made pursuant to the other provisions of this
Section 7.
7.10 RULE 144 REPORTING. With a view to making available to
Purchaser the benefits of certain rules and regulations of the SEC which may
permit the sale of the Shares or Registrable Securities to the public without
registration, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety days
after the effective date of the first registration flied by the Company which
involves a sale of securities of the Company to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) furnish to Purchaser so long as Purchaser owns any
Preferred Shares or Registrable Securities forthwith upon request a written
statement by the Company that it has complied with the reporting requirements
of said Rule 144 (at any time after ninety days after the effective date of
said fast registration statement filed by the Company) and of the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed by the Company
as may be reasonably requested in availing Purchaser of any rule or
regulation of the SEC permitting the selling of any such securities without
registration.
7.11 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted by the Company under Sections 7.2, 7.3
and 7.4 may be assigned or transferred by any Purchaser to a transferee or
assignee who acquires any Preferred Shares or Registrable Securities,
provided that such transfers or assignments may otherwise be effected in
accordance with applicable securities laws and provided further that the
Company is given notice of any such assignment or transfer.
7.12 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the Closing Date, the Company shall not, without the prior written consent of
the Holders of securities having more than 50% of the voting power of such
securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under
Sections 7.2, hereof, unless under the terms of such agreement, such holder
or prospective holder may include such securities in any registration only to
the extent that the inclusion of his securities will not reduce the amount of
the Registrable Securities of the Holders which is included or (b) to make a
demand registration which could result in such registration statement being
declared effective prior to the earlier of either of the dates set forth in
Section 7.2.
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7.13 "MARKET STAND-OFF" AGREEMENT. Each Holder and each Founder
hereby agree that during the period of duration 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, which period shall not exceed 180 days, it shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell or offer to sell 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 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) such agreement shall not be required unless all officers
and directors and one percent (I%) or greater shareholders of the Company and
all other persons with registration rights (whether or not pursuant to this
Agreement) or persons purchasing Common Stock from the Company at any time
after the date of this Agreement become bound by 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 shares of securities of every other person subject to the
foregoing restriction) until the end of such period.
7.14 EXPIRATION OF RIGHTS. All registration rights shall expire and
not apply to any Holder upon the date seven years from the closing date of
the Company's first registered sale of securities to the general public.
8. MISCELLANEOUS.
8.1 WAIVERS AND AMENDMENTS. With the written consent of the record
holders of at least a majority of the Preferred Shares, the obligations of
the Company and the rights of the holders of the Preferred Shares under this
Agreement may be waived or amended (either generally or in a particular
instance); provided, however, that no such waiver or amendment shall reduce
the aforesaid proportion of Preferred Shares, the holders of which are
required to consent to any waiver or supplemental agreement, without the
consent of the record holders of all of the Preferred Shares. Upon the
effectuation of each such waiver or amendment the Company shall promptly give
written notice thereof to the record holders of the Preferred Shares who have
not previously consented thereto in writing. Except to the extent provided
in this Section 8. 1, this Agreement or any provision hereof may be amended,
waived, discharged or terminated only by a statement in writing signed by the
party against which enforcement of the amendment, waiver, discharge or
termination is sought. No amendment or waiver of Section 7.13 of this
Agreement shall be binding on any Holder unless each such Holder has
consented in writing to be bound by such amendment or waiver.
8.2 GOVERNING LAW. This Agreement 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.
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8.3 SURVIVAL. Liabilities for and the representations, warranties,
covenants and agreements made herein shall survive the Closing of the
transactions contemplated hereby, notwithstanding any investigation made by
the Purchasers.
8.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
8.5 ENTIRE AGREEMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof
and they supersede, merge and render void every other prior written and/or
oral understanding or agreement among or between the parties hereto.
8.6 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
mailed by first class mail, postage prepaid, or delivered by courier or
overnight delivery, addressed (a) if to a Purchaser, at such Purchaser's
address set forth in the Schedule of Purchasers, or at such other address as
such Purchaser shall have furnished to the Company in writing with a copy to
Warren T. Lazarow, Esq. and David A. Makarechian, Esq., Brobeck, Phleger &
Harrison LLP, 2200 Geng Road, Palo Alto, California 94303 or (b) if to the
Company, at its address set forth at the beginning of this Agreement or at
such other address as the Company shall have furnished to the Purchasers in
writing with a copy to Blair Stewart, Esq., Wilson Sonsini Goodrich & Rosati,
650 Page Mill Road, Palo Alto, CA 94394. Notices that are mailed shall be
deemed received five (5) days after deposit in the United States mail.
Notices sent by courier or overnight delivery shall be deemed received two
(2) days after they have been so sent.
8.7 SEVERABILILY. In case any provision of this Agreement shall be
found by a court of law to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be effected or impaired thereby.
8.8 FINDER'S FEES AND OTHER FEES.
(a) The Company (i) represents and warrants that it has
retained no finder or broker in connection with the transactions contemplated
by this Agreement, and (ii) hereby agrees to indemnify and to hold Purchasers
harmless from and against any liability for commission or compensation in the
nature of a finder's fee to any broker or other person or firm (and the costs
and expenses of defending against such liability or asserted liability) for
which the Company, or any of its employees or representatives, is responsible.
(b) Each Purchaser represents and warrants that it has
retained no finder or broker in connection with the transactions contemplated
by this Agreement.
8.9 EXPENSES. The Company and the Purchasers shall each bear their
own expenses and legal fees in connection with the consummation of this
transaction; provided, however, that the Company will pay the fees and
expenses of special counsel for the Purchasers up to $45,000, together with
disbursements and expenses incurred by special counsel in connection with all
transactions leading up to and including the Closing.
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8.10 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.11 DELAYS OR OMISSIONS. No delay or omission to exercise any
right power or remedy accruing to any holder of any securities issued or to be
issued hereunder shall impair any such right, power or remedy of such holder,
nor shall it be construed to be a waiver of any breach or default under this
Agreement, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any delay or omission to exercise any right,
power or remedy or any waiver of any single breach or default be deemed a waiver
of any other right, power or remedy or breach or default theretofore or
thereafter occurring. All remedies, either under this Agreement, or by law
otherwise afforded to the Purchasers or their affiliates, shall be cumulative
and not alternative.
8.12 CERTAIN REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Founders in Section 3 hereof, shall
be deemed made to the knowledge of the Founders. Notwithstanding anything to
the contrary contained in this Agreement, absent fraud or willful
misrepresentation, the amount of damages recoverable from each Founder for
breaches of representations and warranties hereunder shall be as follows:
(a) the amount of damages recoverable from each Founder
shall be limited to the amount of the aggregate proceeds received by that
Founder upon the redemption of shares under the Redemption Agreement that are
owned or beneficially owned by such Founder (including shares held by any trust
for the benefit of such Founder), net of any income tax liability thereon; and
(b) to the extent that each of Jerry S. Rawls and Frank
Levinson owes damages for a breach of a representation or warranty made under
Section 3 hereunder, then the aggregate damages owed by Jerry S. Rawls, Frank
Levinson, and the Company shall be recoverable one-@d apiece from each of Jerry
S. Rawls, Frank Levinson, and the Company; provided, however, that if any of
Jerry S. Rawls, Frank Levinson, or the Company for any reason is unable to
satisfy its obligations under this subparagraph b., the Purchasers may recover
the amount owed from Jerry S. Rawls and Frank Levinson, up to the maximum amount
that is consistent with subparagraph a. above.
Nothing in the foregoing sentence shall be deemed to increase the liability of
any Founder, or to limit the liability of the Company, or to limit the amount of
damages recoverable from the Company.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
FINISAR CORPORATION
By: /s/ Jerry S. Rawls
------------------------------
Jerry S. Rawls
President
FOUNDERS:
/s/ Jerry S. Rawls
---------------------------------
Jerry S. Rawls
/s/ Frank Levinson
---------------------------------
Frank Levinson
34
<PAGE>
PURCHASERS:
TA INVESTORS LLC
By: TA Associates Inc.
its Manager
---------------------------------------
Michael Child
Managing Director
ADVENT ATLANTIC AND PACIFIC III L.P.
By: TA Associates AAP III Partners, its General Partner
By: TA Associates, Inc., its General Partner
---------------------------------------
Michael C. Child
Managing Director
TA/ADVENT III L.P.
By: TA Associates VIII LLC, its General Partner
By: TA Associates, Inc., its General Partner
---------------------------------------
Michael C. Child
Managing Director
TA EXECUTIVE FUND LLC
By: TA Associates Inc., its General Partner
---------------------------------------
Michael C. Child
Managing Director
SUMMIT VENTURES V, L.P.
By: Summit Partners V, L.P., its General Partner
By: Summit Partners, LLC, its General Partner
/s/ Walter G. Kortschak
---------------------------------------
Member
Name: Walter G. Kortschak
---------------------------------
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 6, 1998
35
<PAGE>
SUMMIT V COMPANION FUND, L.P.
By: Summit Partners V, L.P., its General Partner
By: Summit Partners LLC, its General Partner
/s/ Walter G. Kortschak
---------------------------------------
Member
Name: Walter G. Kortschak
---------------------------------
SUMMIT V ADVISORS FUND, LLP
By: Summit Partners LLC
its General Partner
/s/ Walter G. Kortschak
---------------------------------------
Member
Name: Walter G. Kortschak
---------------------------------
SUMMIT V ADVISORS FUND (Q.P), L.P.
By: Summit Partners, LLC
its General Partner
/s/ Walter G. Kortschak
---------------------------------------
Member
Name: Walter G. Kortschak
---------------------------------
SUMMIT INVESTORS III, L.P.
/s/ Walter G. Kortschak
---------------------------------------
General Partner
Name: Walter G. Kortschak
---------------------------------
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 6, 1998
36
<PAGE>
WS INVESTMENT CO. 98-B
/s/ Blair W. Stewart, Jr.
---------------------------------------
Blair W. Stewart, Jr.
PICKARD FAMILY TRUST
/s/ W. Jeffers Pickard
---------------------------------------
W. Jeffers Pickard
Trustee
STANFORD UNIVERSITY
/s/ Carol Gilmer
---------------------------------------
Carol Gilmer
Gift Administrator, Stanford Management Co.
On behalf of the Board of Trustees
Of the Leland Stanford Junior University
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 6, 1998
37
<PAGE>
JOHN GALLANT
/s/ John Gallant
---------------------------------------
John Gallant
ROBERT CURTIN
/s/ Robert Curtin
---------------------------------------
Robert Curtin
MICHAEL MAICHEN
/s/ Michael Maichen
---------------------------------------
Michael Maichen
STEPHEN DICHIARA
/s/ Stephen Dichiara
---------------------------------------
Stephen Dichiara
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 6, 1998
38
<PAGE>
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT dated as of November 6, 1998 is made by and
among Finisar Corporation, a California corporation (the "Company"), the
undersigned holders of the Company's Common Stock (collectively the "Employee
Holders" and each individually an "Employee Holder") and the undersigned holders
(the "Purchasers") of Series A Preferred Stock of the Company (the "Preferred
Shares").
WITNESSETH:
WHEREAS, the parties desire to set forth certain rights and restrictions
related to the ownership and disposition of their respective shares of capital
stock in the Company (referred to from time to time as "shares");
NOW, THEREFORE, in consideration of the premises and the mutual promises
set forth in this Agreement,
THE PARTIES AGREE AS FOLLOWS:
1. RESTRICTIONS ON TRANSFER OF SHARES BY EMPLOYEE HOLDERS. Except as
otherwise provided in this Agreement, the Employee Holders will not sell,
assign, transfer, pledge, hypothecate, or otherwise encumber or dispose of in
any way, all or any part of or any interest in the shares now or hereafter owned
or held by him. Any sale, assignment, transfer, pledge, hypothecation or other
encumbrance or disposition of shares not made in conformance with this Agreement
shall be null and void, shall not be recorded on the books of the Company and
shall not be recognized by the Company.
2. PREEMPTIVE RIGHT.
2.1 DEFINITIONS.
(a) EQUITY SECURITIES. For purposes of this Agreement,
the term "Equity Securities" shall mean any securities having voting rights in
the election of the Board of Directors or any securities evidencing an ownership
interest in the Company, or any securities convertible into or exercisable for
any shares of the foregoing, or any agreement or commitment to issue any of the
foregoing.
(b) HOLDERS. For purposes of this Agreement, the term
"Holders" shall mean the Purchasers or persons who have acquired shares from any
of such persons or their transferees or assignees in accordance with the
provisions of this Agreement.
2.2 THE RIGHT. If the Company shall issue any Equity
Securities, it shall offer to sell to each Holder a Ratable Portion of such
Equity Securities on the same terms and conditions and at the lowest price as
are issued in such offering as such Equity Securities are issued to any person.
"Ratable Portion" shall mean that portion of such Equity Securities that bears
the same ratio to all such Equity Securities (including for this purpose all
Equity Securities which may be purchased by all Holders pursuant to this Section
2) as the number of shares of Common Stock held by the Holder, from conversion
of the Preferred Shares and the number of
<PAGE>
shares of Common Stock into which the Preferred Shares held by the Holder are
then convertible, bears to the Outstanding Common Shares. "Outstanding
Common Shares" means all shares of Common Stock then outstanding and all
shares of Common Stock issuable upon conversion of all convertible securities
then outstanding (except the Equity Securities so issued and any stock
options and warrants).
2.3 NOTICE. The Company shall give written notice of the
proposed issuance of Equity Securities to each Holder not later than twenty (20)
days prior to issuance. Such notice shall contain all material terms and
conditions of the issuance and of the Equity Securities. Each Holder may elect
to exercise all or any portion of its rights under this Section 2 by giving
written notice to the Company within fifteen (15) days of the Company's notice.
If the consideration paid by others for the Equity Securities is not cash, the
value of the consideration shall be determined in good faith by the Company's
Board of Directors, and any electing Holder which cannot for any reason pay for
the Equity Securities in the form of non-cash consideration may pay the cash
equivalent thereof, as determined by the Board of Directors. All payments shall
be delivered by electing Holders to the Company not later than the date
specified by the Company in its notice, but in no event earlier than twenty (20)
days after the Company's notice. Each Holder shall have a right of
overallotment such that, if any other Holder fails to exercise the right to
purchase its full Ratable Portion of the Equity Securities, the other
participating Holders may, before the date ten (10) days following the
expiration of the fifteen (15) day period, set forth above, exercise an
additional right to purchase, on a pro rata basis, the Equity Securities not
previously purchased by so notifying the Company, in writing, within such ten
(10) day period. Each Holder shall be entitled to apportion Equity Securities
to be purchased among its partners and affiliates, provided that such Holder
notifies the Company of such allocation.
2.4 LIMITATION. The provisions of this Section 2 shall not
apply to (i) issuances after the date of this Agreement of up to 6,075,611
shares of Common Stock (and options to purchase such Common Stock including
options currently outstanding and exercised pursuant to such stock option plan)
to employees, officers, directors and consultants of the Company (adjusted for
any stock splits, stock dividends, recapitalizations and the like after the date
hereof), which number includes all existing options outstanding as of the date
hereof; (ii) issuances pursuant to a firmly underwritten public offering
registered under the Securities Act of 1933, as amended (the "Securities Act");
and (iii) issuances of Common Stock upon conversion of the Preferred Shares.
3. AGREEMENTS AMONG THE COMPANY, THE PURCHASERS AND THE EMPLOYEE
HOLDERS.
3.1 RIGHTS OF REFUSAL.
(a) THE COMPANY'S RIGHT. If at any time an Employee
Holder proposes to sell Equity Securities to one or more third parties pursuant
to an understanding with such third parties in a transaction (the "Transfer"),
then the Employee Holder shall give the Company and each Holder written notice
of his intention (the "Transfer Notice"), describing the offered shares
("Offered Shares"), the identity of the prospective transferee and the
consideration and the material terms and conditions upon which the proposed
Transfer is to be made. The Transfer Notice shall certify that the Employee
Holder believes in good faith he or she has received a firm offer from the
prospective transferee and in good faith believes a binding
2
<PAGE>
agreement for Transfer is obtainable on the terms set forth, and shall also
include a copy of any written proposal or letter of intent or other agreement
relating to the proposed Transfer. The Company shall have an option for a
period of ten (10) days from receipt of the Transfer Notice to purchase the
Offered Shares at the same price and subject to the same material terms and
conditions as described in the Transfer Notice. The Company may only
exercise such purchase option and, thereby, purchase all, and not less than
all, of the Offered Shares, by notifying the Employee Holder in writing,
before expiration of the initial ten (10) day period as to the number of such
shares which it wishes to purchase. If the Company gives the Employee Holder
notice that it desires to purchase such shares, then payment for the Offered
Shares shall be by check or wire transfer, against delivery of the Offered
Shares to be purchased at a place agreed upon between the parties and at the
time of the scheduled closing therefor. If the Company fails to purchase all
of the Offered Shares by exercising the option granted in this Section 3.1(a)
within the period provided, the Employee Holder shall be subject to the
options granted to the Holders pursuant to this Agreement.
(b) THE HOLDERS' RIGHT. Subject only to the Company's
right set forth in Section 3.1(a), if at any time an Employee Holder proposes a
Transfer, then, after the Company has declined its option, the Employee Holder
shall give each Holder an additional Transfer Notice describing the Offered
Shares, the identity of the prospective transferee and the consideration and the
material terms and conditions upon which the proposed Transfer is to be made.
The Transfer Notice shall certify that the Employee Holder has received a firm
offer from the prospective transferee and in good faith believes a binding
agreement for Transfer is obtainable on the terms set forth, and shall also
include a copy of any written proposal or letter of intent or other agreement
relating to the proposed Transfer. The Company, upon request of the Employee
Holder, will provide a list of the addresses of the Holders.
(c) HOLDER OPTION. The Holders shall have an option for
a period of twenty (20) days from the Holder's receipt of the Transfer Notice
from the Employee Holder set forth in Section 3.1(b) to purchase their
respective pro rata shares of the Offered Shares at the same price and subject
to the same material terms and conditions as described in the Transfer Notice.
Each of such persons may exercise such purchase option and, thereby, purchase
all or any portion of his or its pro rata shares (with any reallotments as
provided below) of the Offered Shares, by notifying the Employee Holder and the
Company in writing, before expiration of the initial twenty (20) day period as
to the number of such shares which he or it wishes to purchase. Each Holder's
pro rata share of the Offered Shares shall be a fraction of the Offered Shares,
of which the number of shares of Common Stock which have been issued and are
held by such Holder or issuable upon conversion of the Preferred Shares or
exercise of warrants held by such Holder on the date of the Holder's receipt of
the Transfer Notice from the Employee Holder (the "Notice Date") shall be the
numerator and the total number of shares of Common Stock issued or issuable upon
conversion of all Preferred Shares or exercise of warrants held by all Holders
on the Notice Date shall be the denominator. Each Holder shall have a right of
overallotment such that, if any other Holder fails to exercise the right to
purchase its full pro rata share of the Offered Shares, the other participating
Holders before the date ten (10) days following the expiration of the initial
twenty (20) day period, exercise an additional right to purchase, on a pro rata
basis, the Offered Shares not previously purchased by so notifying the Employee
Holder and the Company, in writing, within such ten (10) day period. Each
Holder shall be entitled to apportion the Offered Shares to be purchased among
its partners and affiliates, provided that
3
<PAGE>
such Holder notifies the Employee Holder of such allocation. If a Holder
gives the Employee Holder notice that it desires to purchase its share and,
as the case may be, its overallotment, then payment for the Offered Shares
shall be by check or wire transfer, against delivery of the Offered Shares to
be purchased at a place agreed upon between the parties and at the time of
the scheduled closing therefor.
(d) FAILURE TO NOTIFY. If the Holders fail to purchase
all of the Offered Shares by exercising the options granted in this Section 3.1
within the periods provided, the Employee Holder shall be entitled for a period
of sixty (60) days thereafter to complete the proposed Transfer of the balance
of such shares not purchased by the Holders upon the terms and conditions
specified in the Transfer Notice. If the Employee Holder has not so transferred
the Offered Shares during such period, the Employee Holders shall not thereafter
make a Transfer of shares without again first offering such shares to the other
parties in the manner provided in this Section 3.1.
3.2 RIGHT OF CO-SALE.
(a) THE RIGHT. If at any time an Employee Holder
proposes to sell any shares of Equity Securities to any third party in a
transaction (the "Transaction") and the Company and the Holders as a group do
not exercise their respective rights of refusal as to the Offered Shares
pursuant to Section 3.1, then each Holder (a "Selling Holder" for purposes of
this subsection 3.2) which notifies the Employee Holder in writing within twenty
(20) days after receipt of the Transfer Notice referred to in Section 3.1(a),
shall have the opportunity to sell a pro rata portion of Equity Securities which
the Employee Holder proposes to sell to such third party in the Transaction. In
such instance, the Employee Holder shall assign so much of his interest in the
proposed agreement of sale as the Selling Holder shall be entitled to and shall
request hereunder, and the Selling Holder shall assume such part of the
obligations of the Employee Holder under such agreement as shall relate to the
sale of the securities by the Selling Holder. For the purposes of this
Section 3.2, the "pro rata portion" which the Selling Holder shall be entitled
to sell shall be an amount of Equity Securities (assuming the exercise and
conversion of all such securities to Common Stock) equal to a fraction of the
total amount of Equity Securities (assuming the exercise and conversion of all
such securities to Common Stock) proposed to be sold. The numerator of such
fraction shall be the number of Equity Securities (assuming the exercise and
conversion of all such securities to Common Stock) owned by a Selling Holder
(exclusive of the options referenced in clause (i) of Section 2(d)) and the
denominator shall be the total number of Equity Securities (assuming the
exercise and conversion of all such securities to Common Stock) owned by all
participating Selling Holders and the Employee Holder. Each Selling Holder
shall notify the Employee Holder whether it elects to sell an amount equal to,
more than or less than its pro rata share of the Equity Securities so offered.
Each Holder shall have a right of overallotment such that if any other Holder
fails to exercise its co-sale right to sell its pro rata portion of the Offered
Shares, the participating Holders may exercise an additional right to sell, on a
pro rata basis, the Offered Shares not previously sold by so notifying the
Employee Holder in writing. Each Selling Holder shall be entitled to apportion
Equity Securities to be sold among its partners and affiliates, provided that
such Selling Holder notifies the Employee Holder of such allocation.
4
<PAGE>
(b) FAILURE TO NOTIFY. If within twenty (20) days after
the Employee Holder gives his aforesaid notice to the Holders, the Holders do
not notify the Employee Holder that they desire to sell all of their pro rata
portions of the Equity Securities described in such notice for the price and on
the terms and conditions set forth therein, then the Employee Holder may,
subject to Section 3.1 hereof and the overallotment right, sell during a period
of sixty (60) days thereafter such Equity Securities as to which the Holders do
not elect to sell. Any such sale shall be made only to persons identified in
the Employee Holder's notice and at the same price and upon the same terms and
conditions as those set forth in the notice. In the event the Employee Holder
has not sold the Equity Securities or entered into an agreement to sell the
Equity Securities within such sixty (60) day period, the Employee Holder shall
not thereafter sell any Equity Securities without first notifying the Holders in
the manner provided above and giving the same sales opportunity.
3.3 LIMITATIONS TO RIGHTS OF LAST REFUSAL AND CO-SALE.
Notwithstanding the provisions of Section 3.1 and 3.2 of this Agreement, each
Employee Holder may sell or otherwise assign, with or without consideration,
(i) up to ten (10) percent of the Employee Holder's Equity Securities held by
him on the date hereof, in any one full year, up to an aggregate of twenty (20)
percent of such Employee Holder's Equity Securities, and (ii) Equity Securities
to any spouse or member of his immediate family, or to a custodian, trustee
(including a trustee of a voting trust), executor, or other fiduciary for the
account of his spouse or members of his immediate family, or to a trust for
himself, or a charitable remainder trust, as to which sales the provisions of
Section 3.2 shall not apply; provided, that each such transferee or assignee,
prior to the completion of the sale, transfer, or assignment shall have executed
documents assuming the obligations of the Employee Holder under this Agreement
with respect to the transferred securities.
4. ASSIGNMENTS AND TRANSFERS. The rights granted pursuant to this
Agreement may be freely assigned or transferred by any Holder.
5. LEGEND. Each existing or replacement certificate for shares now
owned by the Employee Holders shall bear the following legend upon its face:
"THE OWNERSHIP, TRANSFER, ENCUMBRANCE, PLEDGE,
ASSIGNMENT, OR OTHER DISPOSITION OF THIS CERTIFICATE
AND THE SHARES OF STOCK REPRESENTED THEREBY, ARE
SUBJECT TO THE RESTRICTIONS CONTAINED IN A
SHAREHOLDERS' AGREEMENT, A COPY OF WHICH IS ON FILE
AT THE OFFICE OF THE COMPANY."
6. EFFECT OF CHANGE IN COMPANY'S CAPITAL STRUCTURE. Appropriate
adjustments shall be made in the number, exercise price and class of shares in
the event of a stock dividend, stock split, reverse stock split, combination,
reclassification or like change in the capital structure of the Company. If,
from time to time, there is any stock dividend, stock split or other change in
the character or amount of any of the outstanding stock of the Company, then in
such event any and all new, substituted or additional securities to which the
Employee Holders are entitled by reason of the Employee Holders' ownership of
the stock shall be immediately subject to the
5
<PAGE>
rights and obligations set forth in Sections 2 and 3 with the same force and
effect as the stock subject to such rights immediately before such event.
7. NOTICES. Any notice required or permitted by any provision of
this Agreement shall be given in writing, and shall be delivered either
personally or by registered or certified mail, postage prepaid, addressed (i) in
the case of the Employee Holder to his address as is designated in writing from
time to time by such party, (ii) in the case of the Company, to its principal
office, (iii) in the case of any Purchaser which is an original party to this
Agreement at the address of such Purchaser as set forth in the Schedule of
Purchasers attached as EXHIBIT A hereto or such other address for such Purchaser
as shall be designated in writing from time to time by such Purchaser, and,
(iv) in the case of any transferee of a party to this Agreement or its
transferee, to such transferee at its address as designated in writing by such
transferee to the Company from time to time.
8. BINDING EFFECT. This Agreement and each and every term, covenant
and condition thereof, including all restrictions herein contained upon the
sale, transfer, assignment or other disposition or encumbrance of stock, shall
be binding upon and inure to the benefit of the transferees, legatees, donees,
heirs, executors, administrators, personal representatives, successors and
assigns of each of the parties.
9. TERM. The term of this Agreement shall expire upon the earliest
of (i) immediately prior to the closing of the Company's first firmly
underwritten public offering registered under the Securities Act of 1933, as
amended, the terms of which cause an automatic conversion of the Preferred
Shares into Common Stock pursuant to the Company's then existing Articles of
Incorporation, or (ii) 10 years from the date hereof, or (iii) as to any
Purchaser which (with its affiliates) holds less than 25% of the shares
purchased pursuant to the Securities Purchase Agreement, dated November 6, 1998,
by and among the Company, the Founders (as defined therein) and each of the
Purchasers named on SCHEDULE 1 thereto.
10. ENTIRE AGREEMENT. This instrument contains the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all other agreements between or among any of the parties with respect
to the subject matter hereof and cannot be altered or otherwise amended except
pursuant to an instrument in writing signed by each of the parties to this
Agreement. This Agreement shall be interpreted under the laws of the State of
California without reference to its principles of conflicts of law, The Employee
Holders and the Company each represent and warrant to the Purchasers that they
have not entered into any agreements and are not bound by any covenants or other
provisions that would prevent them from complying with each of the provisions of
this Agreement.
11. ATTORNEYS' FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the Securities Purchase
Agreement or the Articles of Incorporation, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
12. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company,
6
<PAGE>
the written consent of the Employee Holders holding more than 50% of the
Common Stock then held by all Employee Holders as a group, and the written
consent of the holders of more than 50% of the Common Stock issued or
issuable upon conversion of the Preferred Shares then outstanding. Any
amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any securities purchased under this Agreement at
the time outstanding (including securities into which such securities have
been converted), each future holder of all such securities, and the Company.
13. RIGHTS; SEPARABILITY. Unless otherwise expressly provided herein,
an Employee Holder's rights hereunder are several rights, not rights jointly
held with any other Employee Holder. In case any provision of the Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
[Remainder of this page intentionally left blank.]
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed effective as of
the date and year first above written.
FINISAR CORPORATION:
By: /s/ Jerry S. Rawls
------------------------------------
Jerry S. Rawls
President
EMPLOYEE HOLDERS:
/s/ Jerry S. Rawls
---------------------------------------
/s/ Frank H. Levinson
---------------------------------------
8
<PAGE>
PURCHASERS:
TA INVESTORS LLC
By: TA Associates, Inc.
its Manager
/s/ Michael Child
----------------------------------------
Michael Child
Managing Director
ADVENT ATLANTIC AND PACIFIC III L.P.
By: TA Associates AAP III Partners
its General Partner
By: TA Associates, Inc.
its General Partner
/s/ Michael Child
----------------------------------------
Michael C. Child
Managing Director
TA/ADVENT VIII L.P.
By: TA Associates VIII LLC
its General Partner
By: TA Associates, Inc.
its Manager
/s/ Michael Child
----------------------------------------
Michael C. Child
Managing Director
TA EXECUTIVES FUND LLC
By: TA Associates, Inc.
its Manager
/s/ Michael Child
----------------------------------------
Michael C. Child
Managing Director
SIGNATURE PAGE TO SHAREHOLDERS' AGREEMENT
9
<PAGE>
SUMMIT VENTURES V, L.P.
By: Summit Partners V, L.P.
its General Partner
By: Summit Partners, LLC
its General Partner
/s/ Walter G. Kortschak
---------------------------------------
Member
Name: Walter G. Kortschak
-------------------------
SUMMIT V COMPANION FUND, L.P.
By: Summit Partners V, L.P.
its General Partner
By: Summit Partners, LLC
its General Partner
/s/ Walter G. Kortschak
---------------------------------------
Member
Name: Walter G. Kortschak
-------------------------
SUMMIT V ADVISORS FUND, L.P.
By: Summit Partners, LLC
its General Partner
/s/ Walter G. Kortschak
---------------------------------------
Member
Name: Walter G. Kortschak
-------------------------
SUMMIT V ADVISORS FUND (QP), L.P.
By: Summit Partners, LLC
its General Partner
/s/ Walter G. Kortschak
---------------------------------------
Member
Name: Walter G. Kortschak
-------------------------
SUMMIT INVESTORS III, L.P.
/s/ Walter G. Kortschak
---------------------------------------
General Partner
Name: Walter G. Kortschak
-------------------------
SIGNATURE PAGE TO SHAREHOLDERS' AGREEMENT
10
<PAGE>
WS INVESTMENT CO. 98-B
/s/ Blair W. Stewart, Jr.
---------------------------------------
Blair W. Stewart, Jr.
PICKARD FAMILY TRUST
/s/ W. Jeffers Pickard
---------------------------------------
W. Jeffers Pickard
Trustee
STANFORD UNIVERSITY
/s/ Carol Gilmer
---------------------------------------
Carol Gilmer
UNIVERSAL TECHNOLOGY, INC.
/s/ John Gallant
---------------------------------------
John Gallant
President
SIGNATURE PAGE TO SHAREHOLDERS' AGREEMENT
11
<PAGE>
JOHN GALLANT
/s/ John Gallant
---------------------------------------
John Gallant
ROBERT CURTIN
/s/ Robert Curtin
---------------------------------------
Robert Curtin
MICHAEL MAICHEN
/s/ Michael Maichen
---------------------------------------
Michael Maichen
STEPHEN DICHIARA
/s/ Stephen Dichiara
---------------------------------------
Stephen Dichiara
SIGNATURE PAGE TO SHAREHOLDERS' AGREEMENT
12
<PAGE>
VOTING AGREEMENT
THIS AGREEMENT is made as of the 6th day of November, 1998, by and among
Finisar Corporation, a California corporation (the "Company), Frank Levinson and
Jerry Rawls (each, a "Founder" and collectively, the "Founders") and each of the
persons named in the Schedule of Purchasers (the "Purchasers") attached to the
Securities Purchase Agreement (the "Purchase Agreement"), dated November 6,
1998, by and among the Company, the Founders and the Purchasers.
WHEREAS, the Purchasers are purchasing up to an aggregate of 12,100,000
shares of Series A Convertible Preferred Stock pursuant to the Purchase
Agreement;
WHEREAS, in order to induce the Purchasers to consummate their purchase
of the Series A Convertible Preferred Stock, the parties have agreed to execute
this Voting Agreement pursuant to the terms and conditions set forth below; and
WHEREAS, the Amended and Restated Articles of Incorporation of the
Company (the "Amended and Restated Articles") provide that at each annual or
special election of the Company's directors, the holders of the then outstanding
shares of Series A Convertible Preferred Stock voting together as a single
class, shall be entitled to elect one (1) director and that at each annual or
special election of the Company's directors, the holders of the then outstanding
shares of Common Stock, voting together as a single class, shall be entitled to
elect all remaining directors;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. AGREEMENT TO VOTE. Each of the Purchasers and the Founders, as
holders of Series A Convertible Preferred Stock, and Common Stock, respectively,
agrees to vote all securities owned by him or it, or act by written consent of
shareholders, as the case may be, in accordance with, the provisions of this
Agreement.
2. BOARD SIZE. Each of the Purchasers and the Founders agree to vote
their securities to ensure that the size of the Company's Board of Directors
shall be set at not more than seven (7) directors; provided, however, that such
Board size may be increased or decreased pursuant to an amendment of this
Agreement in accordance with Section 7 hereof.
3. ELECTION OF SERIES A PREFERRED STOCK DIRECTORS. Each of the
Purchasers and the Founders agree to vote their securities as follows:
(a) To elect (and against the removal of, except for cause)
one (1) and only one (1) designee of TA Associates or one of its affiliates
(the "TA Associates Designee") so long as any Series A Convertible Preferred
Stock remains outstanding. Any vacancy occurring because of the death,
resignation or removal of the TA Associate Designee shall be filled according
to this sub-paragraph 3(a).
(b) The initial TA Associates Designee pursuant to this Section
3 shall be Mike Child.
1
<PAGE>
4. ELECTION OF COMMON STOCK DIRECTORS. Each of the Purchasers agree
to vote their Series A Preferred Stock in proportion and for the same candidates
that is voted by a majority of the outstanding shares of Common Stock.
5. SUCCESSORS IN INTEREST.
(a) The provisions of this Agreement shall be binding upon the
successors in interest to any of the shares of Series A Convertible Preferred
Stock and Common Stock. The Company shall not permit the transfer of any of
such securities on its books or issue new certificates representing any of such
securities unless and until each person to whom such securities are to be
transferred shall have executed a written agreement, substantially in the form
of this Agreement, pursuant to which such person becomes a party to this
Agreement, and agrees to be bound by all the provisions hereof as if such person
was a party hereunder.
(b) Each certificate representing any of such securities shall
bear a legend reading as follows:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO THE TERMS OF A
VOTING AGREEMENT (A COPY OF WHICH MAY BE OBTAINED WITHOUT
CHARGE FROM THE ISSUER), AND BY ACCEPTING ANY INTEREST IN
SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE
DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE
PROVISIONS OF SUCH VOTING AGREEMENT.
6. TERMINATION. This Agreement shall terminate on the date on
which no shares of the Series A Convertible Preferred Stock remains
outstanding.
7. AMENDMENTS AND WAIVERS. Any term hereof may be amended and the
observance of any term hereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of (a) the Company, (b) the Purchasers, or their assigns, holding not
less than a majority of the Series A Convertible Preferred Stock then
outstanding purchased pursuant to the Purchase Agreement and (c) the Founders.
Any amendment or waiver so effected shall be binding upon the Company, all
parties hereto, any assignee of any such party, and any other shareholder of the
Company subject to the terms of this Agreement, whether or not such party,
assignee, or other shareholder entered into or approved such amendment or
waiver.
8. STOCK SPLITS, STOCK DIVIDENDS, ETC. In the event of any stock
split, stock dividend, recapitalization, reorganization, or the like, any
securities issued with respect to the Series A Convertible Preferred Stock shall
become "Series A Convertible Preferred Stock" for purposes of this Agreement and
shall be endorsed with the legend set forth in Section 5(b) hereof.
9. ENFORCEABILITY/SEVERABILITY. The parties hereto agree that each
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law. If any provision of this Agreement
shall nevertheless be held to be prohibited by or invalid under applicable law,
(a) such provision shall be effective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of
2
<PAGE>
this Agreement, and (b) the parties shall, to the extent permissible by
applicable law, amend this Agreement, or enter into a voting agreement under
which the Series A Convertible Preferred Stock shall be transferred, so as to
make effective and enforceable the intent of this Agreement.
10. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to contracts among
California residents entered into and to be performed entirely within
California.
11. 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.
12. SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors and assigns of the parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year herein above first written.
FINISAR CORPORATION
By: /s/ Jerry Rawls
------------------------------------
Jerry Rawls
FOUNDERS:
/s/ Frank Levinson
---------------------------------------
Frank Levinson
/s/ Jerry Rawls
---------------------------------------
Jerry Rawls
3
<PAGE>
SIGNATURE PAGE TO VOTING AGREEMENT
PURCHASERS:
TA INVESTORS LLC
By: TA Associates Inc.
its Manager
/s/ Michael Child
-----------------------------------
Michael Child
Managing Director
ADVENT ATLANTIC AND PACIFIC III L.P.
By: TA Associates AAP III Partners
its General Partner
By: TA Associates Inc.
its General Partner
/s/ Michael Child
-----------------------------------
Michael Child
Managing Director
TA/ADVENT VIII L.P.
By: TA Associates VIII LLC
its General Partner
By: TA Associates Inc.
its Manager
/s/ Michael Child
-----------------------------------
Michael Child
Managing Director
TA EXECUTIVES FUND LLC
By: TA Associates Inc.
its Manager
/s/ Michael Child
-----------------------------------
Michael Child
Managing Director
4
<PAGE>
SIGNATURE PAGE TO VOTING AGREEMENT
SUMMIT VENTURES V, L.P.
By: Summit Partners V, L.P.
its General Partner
By: Summit Partners, LLC
its General Partner
/s/ Walter G. Kortschak
- -------------------------------------------
Member
Name: Walter G. Kortshak
-------------------------------------
SUMMIT V COMPANION FUND, L.P.
By: Summit Partners V, L.P.
its General Partner
By: Summit Partners, LLC
its General Partner
/s/ Walter G. Kortschak
- -------------------------------------------
Member
Name: Walter G. Kortschak
-------------------------------------
SUMMIT V ADVISORS FUND, L.P.
By: Summit Partners, LLC
its General Partner
/s/ Walter G. Kortschak
- -------------------------------------------
Member
Name: Walter G. Kortschak
-------------------------------------
SUMMIT V ADVISORS FUND (QP), L.P.
By: Summit Partners, LLC
its General Partner
/s/ Walter G. Kortschak
- -------------------------------------------
Member
Name: Walter G. Kortschak
-------------------------------------
5
<PAGE>
SIGNATURE PAGE TO VOTING AGREEMENT
SUMMIT INVESTORS III, L.P.
/s/ Walter G. Kortschak
- -------------------------------------------
General Partner
Name: Walter G. Kortschak
-------------------------------------
WS INVESTMENT CO. 98-B
/s/ Blair W. Stewart, Jr.
- -------------------------------------------
Blair W. Stewart, Jr.
PICKARD FAMILY TRUST
/s/ W. Jeffers Pickard
- -------------------------------------------
W. Jeffers Pickard
Trustee
STANFORD UNIVERSITY
/s/ Carol Gilmer
- -------------------------------------------
Carol Gilmer
UNIVERSAL TECHNOLOGY, INC.
/s/ John Gallant
- -------------------------------------------
John Gallant
President
6
<PAGE>
SIGNATURE PAGE TO VOTING AGREEMENT
JOHN GALLANT
/s/ John Gallant
- -------------------------------------------
John Gallant
ROBERT CURTIN
/s/ Robert Curtin
- -------------------------------------------
Robert Curtin
MICHAEL MAICHEN
/s/ Michael Maichen
- -------------------------------------------
Michael Maichen
STEPHEN DICHIARA
/s/ Stephen Dichiara
- -------------------------------------------
Stephen Dichiara
7
<PAGE>
LOAN AGREEMENT
BY AND BETWEEN
FINISAR CORPORATION
AND
FLEET NATIONAL BANK, AS AGENT AND A LENDER
AND
THE OTHER FINANCIAL INSTITUTIONS
HEREAFTER PARTIES HERETO
$11,015,000 SECURED TERM LOAN
AND
$6,500,000 SECURED REVOLVING CREDIT LOAN
November 6, 1998
<PAGE>
LOAN AGREEMENT
FINISAR CORPORATION, a California corporation with a principal place of
business at 274 Ferguson Drive, Mountain View, California 94043 (hereinafter the
"Borrower"), and FLEET NATIONAL BANK, a national banking association organized
under the laws of the United States and having an office at One Federal Street,
Boston, Massachusetts 02110 (hereinafter sometimes the "Agent") as Agent for
itself and each of the other Lenders who now and/or hereafter become parties to
this Agreement pursuant to the terms of SECTION 9.11 hereof, sometimes "Fleet"
and sometimes in its capacity as a lender "Lender" and such Lenders hereby agree
as follows:
ARTICLE 1.
DEFINITIONS AND ACCOUNTING AND OTHER TERMS
Section 1.1. CERTAIN DEFINED TERMS. 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):
"ADJUSTED LIBOR RATE" means, with respect to any Libor Loan to be made
by the Lenders for the Interest Period applicable to such Libor Loan, the
interest rate per annum determined in good faith by the Agent (fixed throughout
such Interest Period (subject to adjustments for the Libor Rate Reserve
Percentage)) and rounded upwards, if necessary, to the next 1/16 of 1%) which is
equal to the quotient of (i) the rate of interest determined by the Agent to be
the average of the interest rates per annum at which Dollar deposits in
immediately available funds are offered to each Reference Lender by first-class
banks in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the Business Day on which such Interest Period
begins, in an amount approximately equal to the principal amount of such Libor
Loan, for a period of time equal to such Interest Period and (ii) a number equal
to the number one minus the Libor Rate Reserve Percentage. The "Libor Rate
Reserve Percentage" applicable to any Interest Period means the average of the
maximum effective rates (expressed as a decimal) of the statutory reserve
requirements (without duplication, but including, without limitation, basic,
supplemental, marginal and emergency reserves) applicable to each Reference
Lender during such Interest Period under regulations of the Board of Governors
of the Federal Reserve System (or any successor), including without limitation
Regulation D or any other regulation dealing with maximum reserve requirements
which are applicable to each Reference Lender with respect to its "Eurocurrency
Liabilities," as that term may be defined from time to time by the Board of
Governors of the Federal Reserve System (or any successor) or are otherwise
imposed by the Board of Governors of the Federal Reserve System (or any
successor) and which in any other respect relate directly to the funding of
loans bearing interest at rates based on the interest rates at which Dollar
deposits in immediately available funds are offered to banks by first-class
banks in the London interbank market. If any Reference Lender fails to provide
its offered quotation to the Agent, the Adjusted Libor Rate shall be determined
in good faith on the basis of the offered quotation of the other Reference
Lender. The Adjusted Libor Rate shall be adjusted automatically on and as of the
effective date of any change in the Libor Rate Reserve Percentage.
<PAGE>
"ADVANCE" and "ADVANCES" means the funding by any Lender of all or a
portion of the Loans in accordance with this Agreement.
"AFFILIATE" means singly and collectively, the TA and Summit Investors
and any Person (other than a Subsidiary) which, directly or indirectly, is in
control of, is controlled by, or is under common control with, the Borrower. For
purposes of this definition, a Person shall be deemed to be "controlled by" the
Borrower if the Borrower possesses, directly or indirectly, power either to (i)
vote 20% or more of the securities having ordinary voting power for the election
of directors of such Person or (ii) direct or cause the direction of the
management and policies of such Person whether by contract or otherwise, and the
legal representative, successor or assign of any such Person.
"AGENT" means Fleet National Bank or any other Person which is at the
time in question serving as the agent under the terms of Article 8 hereof and
the other Financing Documents.
"AGREEMENT" means this loan agreement, as the same may from time to
time be amended.
"A.M." means a time from and including 12 o'clock midnight to and
excluding 12 o'clock noon on any Business Day using Eastern Standard (Daylight
Savings) time.
"APPLICABLE MARGIN" means for each Libor Loan, two and three quarters
percent (2.75%) per annum; provided, however, that if, at any time on or after
the receipt by the Agent of (x) the pro forma quarterly financial statements for
the Borrower's October 31, 1998 fiscal quarter together with pro forma
adjustments reflecting the Related Transactions and the Loans and (y) the
Borrower's quarterly financial statements for each subsequent Borrower fiscal
quarter provided to the Agent by the Borrower pursuant to SECTION 5.3.3 hereof,
the ratio of (a) total Indebtedness for Borrowed Money of the Borrower and its
Subsidiaries on a consolidated basis as of the last day of the most recently
ended fiscal quarter of the Borrower to (b) EBITDA, (i) is less than or equal to
1.5:1.0, but greater than .5:1.0 and if and so long as no Event of Default or
Default exists and is continuing, the Applicable Margin shall, subject to the
last sentence of this definition, be two percent (2.00%), or (ii) is less than
or equal to .5:1.0 and if and so long as no Event of Default or Default exists
and is continuing, the Applicable Margin shall, subject to the last sentence of
this definition, be one and one quarter percent (1.25); provided further,
however, that if on any date the Borrower would be entitled to an Applicable
Margin other than two and three quarters percent (2.75%) except for the fact
that a Default exists, the Applicable Margin shall not change until the first to
occur of (a) such Default becoming an Event of Default and (b) waiver or cure of
such Default, at which time the Applicable Margin shall be adjusted or remain
the same in accordance with the provisions of this definition preceding this
further proviso.
Any change in the Applicable Margin required pursuant to the foregoing
shall become effective on the fifth Business Day after the Agent receives the
Borrower's financial statement for the Borrower's fiscal quarter or year-end, as
the case may be, in question; provided, however, that each of the
above-referenced interest rates shall remain in effect only so long as Borrower
qualifies therefor and provided further, however, that interest rate reductions
shall become final only on the basis of Borrower's annual audited financial
statements and in the event that such annual audited financial statements
establish that the Borrower was not entitled to a rate
3
<PAGE>
reduction which was previously granted, the Borrower shall, upon written
demand by the Agent, repay to the Agent for the account of each Lender an
amount equal to the excess of interest at the rate which should have been
charged based on such annual audited financial statements and the rate
actually charged on the basis of Borrower's quarterly financial statement(s)
(provided that in the event of a dispute as to the appropriate fiscal quarter
as to which any adjustment should be allocated, the decision of the
independent accountants of the Borrower shall be made in accordance with GAAP
and shall be binding upon the Agent, the Lenders and the Borrower absent
manifest error); and provided further, however, that in the event that
Borrower fails to provide any financial statement on a timely basis in
accordance with SECTION 5.3.3, any interest rate increase payable as a result
thereof shall be retroactively effective to the date which is 5 Business Days
after the date on which the financial statement in question should have been
received by the Agent in accordance with SECTION 5.3.3, and the Borrower
shall pay any amount due as a result thereof upon written demand from the
Agent. The Agent shall send the Borrower written acknowledgment of each
change in the Applicable Margin in accordance with the Agent's customary
procedures as in effect from time to time, but the failure to send such
acknowledgment shall have no effect on the effectiveness or applicability of
the foregoing provisions of this definition or Borrowees obligations with
respect to payment and calculation of interest on Libor Loans.
"AUTHORIZED REPRESENTATIVE" means the duly appointed President and the
Controller of the Borrower and such other senior personnel of the Borrower as
shall be duly authorized and designated in writing by the Borrower to execute
documents, instruments and agreements on its behalf and to perform the functions
of Authorized Representative under any of the Financing Documents.
"BORROWED MONEY" means any obligation to repay funded Indebtedness, any
Indebtedness evidenced by notes, bonds, debentures, guaranties or similar
obligations including without limitation the Loans and any obligation to pay
money under a conditional sale agreement, any Capitalized Lease Obligation, any
reimbursement obligation for any standby letter of credit, any other Letter of
Credit and any obligations in respect of banker's and other acceptances or
similar obligations.
"BORROWER" has the meaning assigned in the first paragraph of this
Agreement.
"BUDGET" has the meaning assigned to such term in SECTION 5.3.7.
"BUSINESS CONDITION" means the financial condition, business, and
assets of a Person.
"BUSINESS DAY" means (i) for all purposes other than as covered by
clause (ii) below, any day on which banks in Boston, Massachusetts or San
Francisco, California are not authorized or required by applicable law to close;
and (ii) with respect to all notices and determinations in connection with, and
payments of principal and interest on, Libor Loans, any day which is a Business
Day described in clause (i) and which is also a day for trading by and between
banks in Dollar deposits in the London interbank market.
"CAPITAL EXPENDITURES" means all expenditures paid or incurred by the
Borrower or any Subsidiary in respect of (i) the acquisition, construction,
improvement or replacement of land,
4
<PAGE>
buildings, machinery, equipment, any other fixed assets or leaseholds and
(ii) to the extent related to and not included in (i) above, materials,
contract labor and direct labor, which expenditures have been or should be,
in accordance with GAAP, capitalized on the books of the Borrower or such
Subsidiary. Where a fixed asset is acquired by a lease which is required to
be capitalized pursuant to Statement of Financial Accounting Standards number
13 or any successor thereto, the amount required to be capitalized in
accordance therewith shall be considered to be an expenditure in the year
such asset is first leased.
"CAPITALIZED LEASE OBLIGATIONS" means all lease obligations which have
been or should be, in accordance with GAAP, capitalized on the books of the
lessee.
"CASH EQUIVALENT INVESTMENTS" means any Investment in (i) direct
obligations of the United States or any agency, authority or instrumentality
thereof, or obligations guaranteed by the United States or any agency, authority
or instrumentality thereof, whether or not supported by the full faith and
credit of, a right to borrow from or the ability to be purchased by the United
States; (ii) commercial paper rated in the highest grade by a nationally
recognized statistical rating agency or which, if not rated, is issued or
guaranteed by any issuer with outstanding long-term debt rated A or better by
any nationally recognized statistical rating agency; (iii) demand and time
deposits with, and certificates of deposit and bankers acceptances issued by,
any office of the Agent, any Lender or any other bank or trust company which is
organized under the laws of the United States or any state thereof and has
capital, surplus and undivided profits aggregating at least $500,000,000, the
outstanding long-term debt of which or of the holding company of which it is a
subsidiary is rated A or better by any nationally recognized statistical rating
agency; (iv) any short-term note which has a rating of MIG-2 or better by
Moody's Investors Service Inc. or a comparable rating from any other nationally
recognized statistical rating agency; (v) any municipal bond or other
governmental obligation (including without limitation any industrial revenue
bond or project note) which is rated A or better by any nationally recognized
statistical rating agency; (vi) any other obligation of any issuer, the
outstanding long-term debt of which is rated A or better by any nationally
recognized statistical rating agency; (vii) any repurchase agreement with any
financial institution described in clause (iii) above, relating to any of the
foregoing instruments and fully collateralized by such instruments; (viii)
shares of any open-end diversified investment company that has its assets
invested only in investments of the types described in clause (i) through (vii)
above at the time of purchase and which maintains a constant net asset value per
share; and (ix) shares of any open-end diversified investment company registered
under the Investment Company Act of 1940, as amended, which maintains a constant
net asset value per share in accordance with regulations of the Securities &
Exchange Commission, has aggregate net assets of not less than $50,000,000 on
the date of purchase and either derives at least 95% of its gross income from
interest on or gains from the sale of investments of the type described in
clauses (i) through (vii), above or has at least 85% of the weighted average
value of its assets invested in investments of such types; provided that the
purchase of any shares in any particular investment company shall be limited to
an aggregate amount owned at any one time of $500,000. Each Cash Equivalent
Investment shall have a maturity of less than one year at the time of purchase;
provided that the maturity of any repurchase agreement shall be deemed to be the
repurchase date and not the maturity of the subject security and that the
maturity of any variable or floating rate note subject to prepayment at the
option of the holder shall be the period remaining (including any notice period
remaining) before the holder is entitled to prepayment.
5
<PAGE>
"CHANGE OF CONTROL" means, at any time prior to the completion of a
Qualified Initial Public Offering, any one of the following events: (i) any
change in the ownership of the Borrower such that the TA and Summit Investors in
the aggregate own less than 12.5% or the TA and Summit Investors and Frank
Levinson and Jerry S. Rawls in the aggregate own less than 50.1% of the equity
interests in the Borrower on a fully-diluted basis or (ii) any decrease in any
of the voting rights in the Borrower now held by the TA and Summit Investors
such that they cease to collectively hold 12.5% or more or the TA and Summit
Investors and Frank Levinson and Jerry Rawls in the aggregate cease to
collectively hold 50.1% or more of the voting rights in the Borrower on a
fully-diluted basis.
"CLOSING DATE" means the date on which all of the conditions precedent
set forth in SECTION 3.1 of this Agreement have been satisfied or waived and the
Term Loan is funded in accordance with this Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITMENT" means the Lenders' several commitments to make or maintain
the Loans as set forth in SECTION 2.1 hereof in the maximum outstanding amount
of each Lender's Pro Rata Share of $17,515,000 less the reductions set forth in
SECTION 2.1 and less any reductions and prepayments or repayments of the Term
Loan as set forth in SECTION 2.6.
"COMMONLY CONTROLLED ENTITY" means a Person, whether or not
incorporated, which is under common control with the Borrower within the meaning
of section 414(b) or (c) of the Code.
"CONSOLIDATED NET WORTH" means the excess of the total assets of the
Borrower and the Subsidiaries over Consolidated Total Liabilities, all
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED TOTAL LIABILITIES" means all liabilities of the Borrower
and the Subsidiaries which would, in accordance with GAAP on a consolidated
basis, be classified as liabilities of a corporation conducting a business the
same as or similar to that of the Borrower and any of the Subsidiaries,
including, without limitation, any Capitalized Lease Obligations and fixed
prepayments of, and sinking fund payments and reserves with respect to,
Indebtedness.
"DEFAULT" means an event or condition which with the giving of notice
or lapse of time or both would become an Event of Default.
"DISCHARGED RIGHTS AND OBLIGATIONS" shall have the meaning assigned to
such term in SECTION 9.11.4.
"DOLLARS" and the sign "$" mean lawful money of the United States of
America.
"EBITDA" means, for any fiscal period, Net Income PLUS, to the extent
accounted for in Net Income, Interest Expense, taxes, depreciation,
amortization, other non-cash charges and non-recurring extraordinary costs
incurred by the Borrower and any Subsidiaries prior to December 31, 1998 in
connection with closing of the Loans and the Related Transactions, for such
periods determined on an accrual and consolidated basis in accordance with GAAP;
6
<PAGE>
provided that for the Borrower fiscal quarter ending January 31, 1999, EBITDA
shall be the EBITDA for such fiscal quarter multiplied by four, for the
Borrower fiscal quarter ending April 30, 1999 EBITDA shall be determined by
adding EBITDA for such fiscal quarter and for the Borrower fiscal quarter
ending January 31, 1999 and multiplying such sum times two, for the Borrower
fiscal quarter ending July 31, 1999 EBITDA shall be determined by adding
EBITDA for such fiscal quarter and for the Borrower fiscal quarters ending
January 31, 1999 and April 30, 1999 and multiplying each sum times one and
one-third and thereafter EBITDA shall be determined for the Borrower fiscal
quarter in question and for the immediately preceding three Borrower fiscal
quarters.
"EFFECTIVE PRIME" means the Prime Rate plus one-half of one percent
(.50%) per annum; provided, however, that if, at any time on or after the
receipt by the Agent of (x) the quarterly financial statements for the
Borrower's October 31, 1998 fiscal quarter together with pro forma adjustments
reflecting the Related Transactions and the Loans and (y) the Borrower's
quarterly financial statements for each subsequent Borrower fiscal quarter
provided to the Agent by the Borrower pursuant to SECTION 5.3.3 hereof, the
ratio of (a) total Indebtedness for Borrowed Money of the Borrower and its
Subsidiaries on a consolidated basis as of the last day of the most recently
ended fiscal quarter of the Borrower to (b) EBITDA, is less than or equal to
1.5:1.0, and if and so long as no Event of Default or Default exists and is
continuing, Effective Prime shall, subject to the last sentence of this
definition, be the Prime Rate; provided, further, however, that if on any date
the Borrower would be entitled to an Effective Prime other than the Prime Rate
plus .50% except for the fact that a Default exists, the Effective Prime shall
not change until the first to occur of (a) such Default becoming an Event of
Default and (b) waiver or cure of such Default, at which time the Effective
Prime shall be adjusted or remain the same in accordance with the provisions of
this definition preceding this further proviso.
Any change in Effective Prime required pursuant to the foregoing shall
become effective on the fifth Business Day after the Agent receives the
Borrower's financial statement for the Borrower's fiscal quarter or year-end, as
the case may be, in question; provided, however, that each of the
above-referenced interest rates shall remain in effect only so long as Borrower
qualifies therefor and provided further, however, that interest rate reductions
shall become final only on the basis of Borrower's annual audited financial
statements and in the event that such annual audited financial statements
establish that the Borrower was not entitled to a rate reduction which was
previously granted, the Borrower shall, upon written demand by the Agent repay
to the Agent for the account of each Lender an amount equal to the excess of
interest at the rate which should have been charged based on such annual audited
financial statements and the rate actually charged on the basis of Borrower's
quarterly financial statement(s) (provided that in the event of a dispute as to
the appropriate fiscal quarter as to which any adjustment should be allocated,
the decision of the independent accountants of the Borrower shall be made in
accordance with GAAP and shall be binding upon the Agent, the Lenders and the
Borrower absent manifest error); and provided further, however, that in the
event that Borrower fails to provide any financial statement on a timely basis
in accordance with SECTION 5.3.3, any interest rate increase payable as a result
thereof shall be retroactively effective to the date which is 5 Business Days
after the date on which the financial statement in question should have been
received by the Agent in accordance with SECTION 5.3.3, and the Borrower shall
pay any amount due as a result thereof upon written demand from the Agent. The
Agent shall send the Borrower written acknowledgment of each change in the
Effective Prime in accordance with the Agent's
7
<PAGE>
customary procedures as in effect from time to time, but the failure to send
such acknowledgment shall have no effect on the effectiveness or
applicability of the foregoing provisions of this definition or Borrower's
obligations with respect to payment and calculation of interest on Prime Rate
Loans.
"ELIGIBLE RECEIVABLES" means accounts receivable of the Borrower
evidencing Indebtedness of Persons to the Borrower for goods actually sold and
delivered or services actually performed in the ordinary course of business by
the Borrower to or for such Person, as to which goods or services no notice has
been received by Borrower from such Person to the effect that such goods or
services are not acceptable and which accounts receivable have been outstanding
for less than ninety (90) days since their respective due dates (provided that
such due dates shall in no event be more than 30 days after receipt by such
Person of an invoice for such accounts receivable), but excluding, however, (i)
accounts receivable owing by officers, directors, shareholders or employees of
Borrower, (ii) accounts receivable with respect to which goods are placed on
consignment, guaranteed sale, "bill and hold" or other terms by reason of which
the payment by the account debtor may be conditional, (iii) accounts receivable
owing by the United States or any agency, department or instrumentality thereof
unless such accounts are freely assignable to the Agent under the United States
Assignment of Claims Act and the Borrower has separately assigned each such
account to the Agent in compliance with such Act, (iv) accounts receivable owing
by any Subsidiary or Affiliate of Borrower, (v) accounts receivable with respect
to which Borrower or any Subsidiary or Affiliate is liable to the account debtor
for goods sold or services provided to Borrower or any Subsidiary or Affiliate
by such account debtor to the extent of Borrower's or any Subsidiary's or
Affiliate's liability to such account debtor, (vi) accounts receivable which are
due and payable to the Borrower from an account debtor located outside the
United States of America other than Foreign Receivables, (vii) any accounts
receivable as to which the account debtor has claimed any setoff or dispute to
the extent of the amount in dispute, (viii) any accounts receivable subject to
any Lien other than pursuant to the Security Documents, and other than Permitted
Encumbrances, (ix) any accounts receivable owing by any Person which is
insolvent and/or the subject of any bankruptcy, receivership or other insolvency
proceeding, (x) any accounts receivable deemed by the Agent in the Agent's sole
discretion exercised in good faith uncollectible and (xi) any accounts
receivable arising out of progress billings and/or bills for customer deposits.
"EQUITY" means the Investments in Dollars by the New Stockholders in
the Borrower, made on or prior to the date of this Agreement in the aggregate
amount of not less than $25,000,000 as set forth in EXHIBIT 1.1.
"EQUITY DOCUMENTS" means, collectively, all documents entered into by
the Borrower, the Old Stockholders and/or any of the New Stockholders in
connection with the investment of the Equity.
"ERISA" means the Employee Retirement Income Security Act of 1974 as
amended from time to time.
"EVENTS OF DEFAULT" has the meaning assigned to that term in SECTION
6.1 of this Agreement.
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"EXHIBIT" means, when followed by a letter, the exhibit attached to
this Agreement bearing that letter and by such reference fully incorporated in
this Agreement.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/16th of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York, PROVIDED that (i) if such day is not a
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next succeeding Business Day as so published, and (ii) if no
such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for such day shall be the average rate quoted to the Agent on such
day on such transactions as determined by the Agent in its discretion exercised
in good faith.
"FINANCING DOCUMENTS" means, collectively, this Agreement, each Note,
the Security Documents, the Side Letter, the Post-Closing Letter, any agreement
with any Lender providing any interest rate protection arrangement and each
other agreement, instrument or document now or hereafter executed in connection
herewith or therewith.
"FOREIGN RECEIVABLES" means accounts receivable which are due and
payable to the Borrower from an account debtor located outside the United States
of America and which account debtor is approved in writing by the Agent and/or
which accounts receivable are supported by a letter of credit issued by a
financial institution acceptable to the Agent.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States of America.
"HAZARDOUS MATERIAL" shall mean any substance or material defined or
designated as a hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance, or other similar term, by any United States federal, state
or local environmental statute, regulation or ordinance.
"INDEBTEDNESS" means, without duplication for any Person, (i) all
indebtedness or other obligations of said Person for Borrowed Money or for the
deferred purchase price of property or services, including, without limitation,
all reimbursement obligations of said Person with respect to standby and/or
documentary letters of credit, (ii) all indebtedness or other obligations of any
other Person ("Other Person") for Borrowed Money or for the deferred purchase
price of property or services, the payment or collection of which said Person
has guaranteed (except by reason of endorsement for deposit or collection in the
ordinary course of business) or in respect of which said Person is liable,
contingently or otherwise, including, without limitation, liable by way of
agreement to purchase or lease, to provide funds for payment, to supply funds to
purchase, sell or lease property or services primarily to assure a creditor of
such Other Person against loss or otherwise to invest in or make a loan to the
Other Person, or otherwise to assure a creditor of such Other Person against
loss, (iii) all indebtedness or other obligations of any Person for Borrowed
Money or for the deferred purchase price of property or services secured by (or
for which the holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in any property owned by said
Person, whether or not said Person has assumed or become liable for the payment
of such indebtedness or obligations,
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(iv) Capitalized Lease Obligations of said Person and (v) obligations of such
Person under contracts pursuant to which such Person has agreed to purchase
interest rate protection or swap interest rate obligations. In no event shall
"Indebtedness" include (a) obligations in respect of leases property
classified as operating leases in accordance with GAAP, (b) any obligations
properly classified as trade payables in accordance with GAAP, or (c) any
obligations of any Person that would not appear on such Person's balance
sheet or would not be properly classified as contingent obligations in
accordance with GAAP.
"INTEREST ADJUSTMENT DATE" means (i) as to any Prime Rate Loan to be
converted to a Libor Loan the Business Day elected by the Borrower in its
applicable Interest Rate Election, but being not less than three (3) Business
Days after the receipt by the Agent before 1:00 o'clock P.M. on a Business Day
of an Interest Rate Election electing the Libor Rate as the interest rate on
such Loan; and (ii) as to any Libor Loan, the last Business Day of the Interest
Period pertaining to such Libor Loan.
"INTEREST EXPENSE" means, with respect to any fiscal quarter, the
aggregate amount required to be accrued by the Borrower and any Subsidiaries in
such fiscal quarter for interest, fees, charges and expenses, however
characterized, on its Indebtedness, including, without limitation, all such
interest, fees, charges and expenses required to be accrued with respect to
Indebtedness under the Financing Documents (excluding those fees and expenses
incurred by the Borrower prior to the Closing Date (even if paid subsequent to
the Closing Date) in connection with the negotiation and closing of the
financing transactions contemplated by the Financing Documents, including the
fees of counsel to the Agent and appraisal or audit fees all determined in
accordance with GAAP.
"INTEREST PERIOD" means:
With respect to each Libor Loan:
(i) initially, the period commencing on the date of such Libor
Loan and ending one, three or six or such greater number of months
thereafter as may be acceptable to all of the Lenders and as the
Borrower may elect in the applicable Interest Rate Election and subject
to SECTION 2.9; and
(ii) thereafter, each period commencing on the last day of the
immediately preceding Interest Period applicable to such Libor Loan and
ending one, three or six or such greater number of months thereafter as
may be acceptable to the Majority Lenders and as the Borrower may elect
in the applicable Interest Rate Election and subject to SECTION 2.9;
PROVIDED THAT clauses (i) and (ii) of this definition are subject to
the following:
(A) any Interest Period (other than an Interest Period determined
pursuant to clause (C) below) which would otherwise end on a day which is not a
Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in another calendar month, in which case such Interest Period
shall end on the immediately preceding Business Day;
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(B) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall, subject to
clause (C) below, end on the last Business Day of a calendar month; and
(C) for the Term Loan, no Interest Period shall end after the Term Loan
Repayment Date and for the Revolving Credit Loan, no Interest Period shall end
after the Revolving Credit Repayment Date; and
(D) with respect to all Libor Loans, no more than six (6) Interest
Periods may be in effect at any time.
"INTEREST RATE ELECTION" means the Borrower's irrevocable telecopied or
telephonic notice of election, which shall be promptly confirmed by a written
notice of election that Effective Prime or the Libor Rate shall apply to all or
any portion of the Loans, which shall, subject to this Agreement, be effective
on the next Interest Adjustment Date, such telecopied or telephonic notice and
written confirmation thereof to be in the form of EXHIBIT 1.4 and to be received
by the Agent prior to 1:00 o'clock P.M. on a Business Day and at least three (3)
Business Days prior to an Interest Adjustment Date in the case of a Libor Loan,
and by 1:00 o'clock P.M. on an Interest Adjustment Date in the case of a Prime
Rate Loan (or four (4) Business Days in the case of an Interest Rate Election as
to which the consent of the Lenders is required), each such Interest Rate
Election, subject to the terms of this Agreement to apply to the Advance or the
Loan referred to in such Interest Rate Election or to effect a change in the
interest rate on the applicable portion of the Loans then outstanding, as
applicable, with respect to which such Interest Rate Election was made, such
change to occur on the Interest Adjustment Date next succeeding receipt of such
Interest Rate Election by the Agent. Any Interest Rate Election received by the
Agent after 1:00 o'clock P.M. on a Business Day shall be deemed, for all
purposes of this Agreement to have been received prior to 1:00 o'clock P.M. on
the next succeeding Business Day.
"INVESTMENT" means any investment in any Person whether by means of a
purchase of capital stock, notes, bonds, debentures or other evidences of
Indebtedness and/or by means of a capital or partnership contribution, loan,
deposit, advance or other means, excluding amounts due from customers for
services or products delivered or sold in the ordinary course of business.
"LENDER" means Fleet, or any financial institution which hereafter
becomes a party hereto pursuant to the terms of SECTION 9.11, each in their
individual capacity, and "Lenders" means Fleet, and each of such financial
institutions.
"LETTER OF CREDIT" means an irrevocable stand-by or commercial letter
of credit issued by the Agent for the account of the Borrower pursuant to a
Letter of Credit Agreement subject to and in accordance with this Agreement.
"LETTER OF CREDIT AGREEMENT" means an application and agreement for
stand-by or commercial letter of credit in such form as may at any time be
customarily required by the Agent for its issuance of stand-by or commercial
letters of credit.
"LIBOR LOAN" means any portion of any Loan bearing interest at the
Libor Rate.
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"LIBOR RATE" means, for any Interest Period, the Adjusted Libor Rate in
effect on the first day of such Interest Period (subject to adjustment as
provided in the definition of Adjusted Libor Rate) plus the Applicable Margin
for Libor Loans from time to time in effect.
"LIEN" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other) or other security
agreement or similar arrangement of any kind or nature whatsoever (including
without limitation any conditional sale or other title retention agreement
and any Capitalized Lease Obligation) having substantially the same economic
effect as any of the foregoing.
"LOANS" and "LOAN" means at any time the outstanding principal amount of
Indebtedness owed to the Lenders or to any lender, as the context may require
pursuant to this Agreement.
"MAJORITY LENDERS" means Lenders holding an aggregate Pro Rata Share of
the outstanding principal balance of the Loans in an amount equal to or in
excess of 66.67% of the total outstanding principal balance of the Loans and
if there is no outstanding principal balance of the Loans, Lenders having at
least 66.67% of the Commitment.
"MATERIAL ADVERSE EFFECT" means material adverse effect on (i) the
ability of the Borrower and any Subsidiaries taken as a whole to fulfill
their obligations under any of the Financing Documents or (ii) the Business
Condition of the Borrower and any Subsidiaries taken as a whole.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"NET INCOME" means, for any fiscal period, the net after tax income
(loss) of the Borrower and any Subsidiaries for such period determined on an
accrual and consolidated basis in accordance with GAAP.
"NET OUTSTANDING AMOUNT OF ELIGIBLE RECEIVABLES" means the net amount of
Eligible Receivables outstanding after eliminating from the aggregate amount
of outstanding Eligible Receivables all payments, adjustments and credits
applicable thereto.
"NET OUTSTANDING AMOUNT OF FOREIGN RECEIVABLES" means the net amount of
Foreign Receivables outstanding after eliminating from the aggregate amount
of outstanding Foreign Receivables all payments, adjustments and credits
applicable thereto.
"NEW STOCKHOLDERS" means the TA and Summit Investors, Frank Levinson,
Jerry S. Rawls and the other Persons who exercise their options in common
stock of the Borrower concurrently with the closing of the Related
Transactions and their Affiliates.
"NOTE" means any promissory note of the Borrower payable to the order of
a Lender and substantially in the form of EXHIBIT 1.5 or EXHIBIT 1.6 and
evidencing all or a portion of the Loan and "Notes" means all of the Notes,
collectively.
"OBLIGATIONS" mean any and all Indebtedness, obligations and liabilities
of Borrower and/or any Subsidiaries under any of the Financing Documents to
any one or more of the
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Lenders and/or the Agent of every kind and description, absolute or
contingent, due or to become due, whether for payment or performance, now
existing or hereafter arising, including, without limitation, all Loans,
interest, taxes, fees, charges, and expenses under the Financing Documents
and attorneys' fees chargeable to the Borrower and/or any Subsidiaries or
incurred by any of the Lenders (subject to the terms hereof) and/or the Agent
under any of the Financing Documents.
"OFFICER'S CERTIFICATE" means a certificate signed by an Authorized
Representative and delivered to the Agent on behalf of the Lenders.
"OLD STOCKHOLDERS" means Frank Levinson, Jerry S. Rawls and those Persons
who held options for common stock of the Borrower prior to Closing of the
Related Transactions and their Affiliates.
"OTHER TAXES" has the meaning assigned to such terms in SECTION
2.5.3.2(b).
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to subtitle A of Title IV of ERISA.
"P.M." means a time from and including 12 o'clock noon on any Business
Day to the end of such Business Day using Eastern Standard (Daylight Savings)
time.
"PERMITTED ENCUMBRANCES" means each Lien granted pursuant to any of the
Security Documents, those Liens, security interests and defects in title
permitted under SECTION 5.2.1 and those Liens listed on EXHIBIT 1.8 hereto.
"PERSON" means an individual, corporation, partnership, limited liability
company, joint venture, trust, or unincorporated organization, or a
government or any agency or political subdivision thereof.
"PLAN" means an employee benefit plan as defined in Section 3(3) of ERISA
maintained for employees of the Borrower or any Commonly Controlled Entity.
"POST-CLOSING LETTER" means that certain letter agreement between the
Borrower and the Agent dated the Closing Date and listing certain
post-closing actions to be completed by the Borrower.
"PREMISES" has the meaning assigned to such term in SECTION 4.1.21.1.
"PRIME RATE" means the higher of (i) the floating rate of interest per
annum designated from time to time by the Agent as being its "prime rate" of
interest, such interest rate to be adjusted on the effective date of any
change thereof by the Agent, it being understood that such rate of interest
may not be the lowest rate of interest from time to time charged by the Agent
and (ii) the Federal Funds Rate plus one-half percent (.50%), such interest
rate to be adjusted on the effective date of any change thereof.
"PRIME RATE LOAN(S)" means any portion of the Loans bearing interest at
Effective Prime.
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"PROJECTIONS" means the Borrower's written projections of Borrower's
future performance for the period ending on the Revolving Credit Repayment
Date on a consolidated basis delivered to the Agent prior to the Closing and
attached to this Agreement as EXHIBIT 1.12.
"PRO RATA SHARE" means (i) with respect to the Commitment, each Lender's
percentage share of the Commitment as set forth immediately opposite such
Lender's name on EXHIBIT 1.9, and (ii) with respect to the Loans, each
Lender's percentage share of the aggregate outstanding principal balance of
the Loans and "Pro Rata Shares" means such percentage shares of the Lenders.
"QUALIFIED INITIAL PUBLIC OFFERING" means the Borrower and/or any
Subsidiary filing a Form S-1 or any other form of registration statement then
available for registration with the Securities and Exchange Commission or
otherwise conducting an initial public offering of any class of the
Borrower's or any Subsidiary's securities, which such offering generates
$20,000,000 or more in net proceeds for the account of the Borrower or a
Subsidiary, as the case may be.
"REFERENCE LENDER(S)" means the Agent unless the Agent resigns said
responsibility, at which time and thereafter such term means one or two
Lenders selected in good faith by the Agent in its discretion from time to
time (and not with a view to maximizing rate quotes) as a reference lender
for purposes of determining the Adjusted Libor Rate.
"RELATED TRANSACTIONS" means the Borrower's receipt of the Equity, the
Borrower's repurchase of certain capital stock from certain of the Old
Stockholders on or prior to the Closing Date and the Borrower's issuance of
capital stock to the New Stockholders, the completion (unless waived) of the
conditions precedent to the Borrower's receipt of the Equity as set forth in
the Related Transaction Documents, the repayment of certain outstanding
Indebtedness for Borrowed Money of the Borrower, the repurchase by the
Borrower on or after the Closing Date for up to an aggregate of $1,000,000 of
capital stock of the Borrower from its employee stockholders in accordance
with the Related Transaction Documents and any other transactions described
in the Related Transaction Documents.
"RELATED TRANSACTION DOCUMENTS" means the documents listed on EXHIBIT 1.2.
"REPORTABLE EVENT" shall have the meaning assigned to that term in
Section 4043 of ERISA for which the requirement of 30 days' notice to the
PBGC has not been waived by the PBGC.
"REQUEST" means a written request for the Loans in the form of EXHIBIT
1.10, received by the Agent on behalf of the Lenders from the Borrower in
accordance with this Agreement, specifying the date on which the Borrower
desires such Loans and the disbursement instructions of the Borrower with
respect thereto.
"REVOLVING CREDIT LOAN" means the revolving credit loans to be made by
the Lenders to the Borrower from time to time in the maximum outstanding
principal amount of the Revolving Credit Loan Commitment, all subject and
pursuant to SECTION 2.1.0.
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"REVOLVING CREDIT LOAN COMMITMENT" means the Lenders' several commitments
to make Revolving Credit Loans to the Borrower in accordance with SECTION
2.1.0 and this Agreement and in the maximum outstanding amount of each
Lender's Pro Rata Share of $6,500,000, as such amount may be reduced pursuant
to SECTION 2.6.4.
"REVOLVING CREDIT LOAN FORMULA AMOUNT" an amount equal to the sum of (i)
eighty percent (80%) of the Net Outstanding Amount of Eligible Receivables,
PLUS (ii) fifty percent (50%) of the Net Outstanding Amount of Foreign
Receivables, PLUS (iii) one hundred percent (100%) of the Net Outstanding
Amount of Eligible Receivables supported by a letter of credit from a
financial institution reasonably acceptable to the Agent (without in each
case any duplication such as including amounts in more than one of (i), (ii)
or (iii) above).
"REVOLVING CREDIT NOTE" means each revolving credit note of the Borrower,
payable to the order of a Lender in the form of EXHIBIT 1.5 hereto evidencing
the Indebtedness of the Borrower to such Lender with respect to the Revolving
Credit Loan.
"REVOLVING CREDIT REPAYMENT DATE" means the earlier to occur of (i)
October 31, 2003 and (ii) such earlier date on which the Revolving Credit
Loan becomes due and payable pursuant to the terms hereof
"SECTION" means, when followed by a number, the section or subsection of
this Agreement bearing that number.
"SECURITY DOCUMENTS" means any and all documents, instruments and
agreements now or hereafter providing security for the Loans and any other
Indebtedness of the Borrower or any Subsidiary to any of the Lenders and/or
the Agent, including without limitation the following documents, instruments
and agreements between the Agent and the Borrower or any Subsidiary; any
deeds of trust or mortgages on real property interests (fee, leasehold and
easement) of the Borrower and any Subsidiary granting Liens thereon; landlord
lien waivers and consents as may be reasonably requested by the Agent;
security agreements granting first Liens (subject to Permitted Encumbrances,
as applicable) on all Borrower's and any Subsidiary's fixtures and tangible
and intangible personal property including without limitation patents,
trademarks, copyrights, service marks and applications therefor and notices
thereof; collateral assignments of Borrower's and any Subsidiary's contracts,
licenses, permits, easements and leases; collateral assignments of life
insurance; any guaranty by a Subsidiary; any pledge of the capital stock of
any Subsidiary; casualty and liability insurance policies providing coverage
to the Agent for the benefit of the Lenders, UCC-1 financing statements or
similar filings perfecting the above-referenced security interests, pledges
and assignments, all as executed, delivered to and accepted by the Agent on
or prior to the Closing Date or subsequent to the Closing Date as may be
required by this Agreement, as any of the foregoing may be amended in writing
by the Agent and Borrower and any other party or parties thereto.
"SELLING LENDER" shall have the meaning assigned to such term in SECTION
9.11.1.
"SIDE LETTER" means that certain side letter of even date with this
Agreement between the Borrower and the Agent regarding certain fees payable
by the Borrower as same may hereafter be amended or supplemented.
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"SINGLE EMPLOYER PLAN" means any Plan as defined in Section 4001(a)(15)
of ERISA.
"STOCKHOLDERS" means, collectively, the Old Stockholders and the New
Stockholders.
"SUBSIDIARY" means any corporation or entity other than the Borrower of
which more than 50% of the outstanding capital stock or voting interests or
rights having ordinary voting power to elect a majority of the board of
directors or other managers of such entity (irrespective of whether or not at
the time capital stock or voting interests or rights of any other class or
classes of such Person shall or might have voting power upon the occurrence
of any contingency) is at the time directly or indirectly owned by the
Borrower or by the Borrower and/or one or more Subsidiaries or the management
of which corporation or entity is under control of the Borrower and/or any
other Subsidiary, directly or indirectly through one or more Persons and any
other Person which, under GAAP, should at any time for financial reporting
purposes be consolidated or combined with the Borrower and/or any other
Subsidiary.
"SUBSTITUTED LENDER" has the meaning set forth in SECTION 9.11 hereof.
"SUBSTITUTION AGREEMENT" has the meaning assigned to such term in SECTION
9.11.1.
"TA AND SUMMIT INVESTORS" means any venture capital or other fund or
entity for which TA Associates, Inc., a Delaware corporation, or Summit
Partners LLC and/or one or more general partners of TA Associates, Inc. or
Summit Partners LLC directly or indirectly through one or more intermediaries
serves as general partner, manager or in a like capacity.
"TAXES" has the meaning set forth in SECTION 2.5.3.2(a) hereof.
"TERM LOAN" means the term loan in the aggregate principal amount of
$11,015,000 to be made or maintained by the Lenders pursuant to SECTION 2.1.1
hereof.
"TERM NOTE" means a term note of the Borrower payable to the order of a
Lender in the form of Exhibit 1.6 hereto evidencing the Indebtedness of the
Borrower to such Lender with respect to the Term Loan.
"TERM LOAN REPAYMENT DATE" means the earlier to occur of (i) October 31,
2003 and (ii) such earlier date on which the Term Loan becomes due and
payable pursuant to the terms hereof.
"TOTAL DEBT SERVICE" means, at any date of determination, the sum of (i)
Interest Expense for the Borrower fiscal quarter in question and for the
immediately preceding three Borrower fiscal quarters and (ii) scheduled and
mandatory principal payments on Borrower's Indebtedness for Borrowed Money
for the Borrower fiscal quarter in question and the immediately succeeding
three Borrower fiscal quarters or, if greater, the total amount of Borrower's
Indebtedness for Borrowed Money divided by four (4), but excluding any
mandatory payments of principal required pursuant to SECTIONS 2.6.1.3 and
2.6.1.4.
"UNUSED FEES" has the meaning assigned to such term in SECTION 2.2.2.
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Section 1.2. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, calculations of
amounts for the purposes of calculating any financial covenants or ratios
hereunder shall be made in accordance with GAAP applied on a basis consistent
with those used in the Borrower's financial statements referred to in SECTION
4.1.5 (other than departures therefrom not material in their impact), and all
financial data submitted pursuant to this Agreement shall be prepared in
accordance with GAAP (except, in the case of unaudited financial statements,
the absence of footnotes and that such statements are subject to changes
resulting from year-end adjustments made in accordance with GAAP), unless
otherwise agreed to by the Agent.
Section 1.3. OTHER TERMS. References to "Articles", "Sections",
"subsections" and "Exhibits" shall be to Sections, subsections and Exhibits
of this Agreement unless otherwise specifically provided. In this Agreement,
"hereof," "herein," "hereto," "hereunder" and the like mean and refer to this
Agreement as a whole and not merely to the specific section, paragraph or
clause in which the respective word appears; words importing any gender
include the other genders; references to "writing" include printing, typing,
lithography and other means of reproducing words in a tangible visible form;
the words "including," "includes" and "include" shall be deemed to be
followed by the words "without limitation"; references to agreements and
other contractual instruments shall be deemed to include subsequent
amendments, assignments, and other modifications thereto, but only to the
extent such amendments, assignments and other modifications are not
prohibited by the terms of this Agreement or any other Financing Document;
references to Persons include their respective permitted successors and
assigns or, in the case of governmental Persons, Persons succeeding to the
relevant functions of such Persons; and all references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations.
ARTICLE 2.
AMOUNT AND TERMS OF THE LOANS
Section 2.1. THE LOANS.
Section 2.1.0. THE REVOLVING CREDIT LOANS. Each of the Lenders
severally agrees, subject to the terms and conditions of this Agreement
including without limitation Borrower's compliance with SECTION 3.1.1.20, to
make Advances of Revolving Credit Loans to the Borrower in a minimum
aggregate amount of Advances from the Lenders pursuant to any Request of
$100,000 and an integral multiple of $50,000 thereafter from time to time
after receipt by the Agent from time to time before the Revolving Credit
Repayment Date of, and at the times provided for in, a Request and an
Interest Rate Election from the Borrower in accordance with this Agreement,
during the period commencing on the Closing Date and ending on the Business
Day immediately preceding the Revolving Credit Repayment Date, in an
aggregate principal amount at any one time outstanding not to exceed the
lesser of (i) such Lender's Pro Rata Share of the Revolving Credit Loan
Formula Amount and (ii) such Lender's Pro Rata Share of the Revolving Credit
Loan Commitment less, in each case, such Lender's Pro Rata Share of the
aggregate amount of the outstanding stated amount of any Letter of Credit or
Letter of Credit Agreement, and any unreimbursed amounts thereunder.
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Promptly after receipt of a Request and Interest Rate Election, Agent
shall notify each Lender by telephone, telex or telecopy of the proposed
borrowing. Subject to the immediately preceding paragraph, each Lender agrees
that after its receipt of notification from Agent of Agent's receipt of a
Request and Interest Rate Election, such Lender shall send its Pro Rata Share
(or such portion thereof as may be necessary to provide Agent with such Pro
Rata Share in Dollars and in immediately available funds, without
consideration or use of any contra accounts of any Lender) of the requested
Loan by wire transfer to Agent so that Agent receives such Pro Rata Share in
Dollars and in immediately available funds not later than 12:00 P.M. (Boston,
Massachusetts time) on the first day of the Interest Period for any such
requested Libor Loan and on the Business Day for such Advance set forth in
Borrower's Request for any such requested Prime Rate Loan, and Agent shall
advance funds to the Borrower by depositing such funds in Borrower's account
with the Agent upon Agent's receipt of such Pro Rata Shares in the amount of
the Pro Rata Shares of such Loan in Agent's possession. Unless Agent shall
have been notified by any Lender (which notice may be telephonic if confirmed
promptly in writing) prior to the first day of the Interest Period in respect
of any Loan which such Lender is obligated to make under this Agreement, that
such Lender does not intend to make available to Agent such Lender's Pro Rata
Share of such Loan on such date, Agent may assume that such Lender has made
such amount available to Agent on such date and Agent in its sole discretion
may, but shall not be obligated to, make available to the Borrower a
corresponding amount on such date. If such corresponding amount is not in
fact made available to Agent by such Lender, Agent shall be entitled to
recover such corresponding amount from such Lender promptly upon demand by
Agent together with interest thereon, for each day from such date until the
date such amount is paid to Agent, at the Federal Funds Rate for three (3)
Business Days and thereafter at the interest rate on the Loan in question. If
such Lender does not pay such corresponding amount forthwith upon Agent's
demand therefor, Agent shall promptly notify the Borrower and the Borrower
shall promptly pay such corresponding amount to Agent. Nothing contained in
this Section shall be deemed to relieve any Lender from its obligation to
fulfill its obligations hereunder or to prejudice any rights which the
Borrower may have against any Lender as a result of any default by such
Lender hereunder.
Throughout the term of the Revolving Credit Loans, the Revolving Credit
Loan Commitment and principal amount of the Revolving Credit Loans may, at
the Borrower's option, be made available to the Borrower prior to the
Revolving Credit Repayment Date by issuance of Letters of Credit having an
expiration date prior to the earlier to occur of (a) the first anniversary
date of the date of issuance of any such Letter of Credit or (b) three (3)
Business Days prior to the Revolving Credit Repayment Date, reasonably
promptly after submission by the Borrower to the Agent of a Letter of Credit
Agreement, duly completed and executed by the Borrower and otherwise in form
and substance satisfactory to the Agent. The Borrower shall pay upon demand
by the Agent such fees and costs as the Agent and/or the Lenders may from
time to time establish for issuance, transfer, amendment and negotiation of
each Letter of Credit. In the event that the Borrower shall fail to reimburse
the Agent under any Letter of Credit or Letter of Credit Agreement, and any
outstanding Indebtedness of the Borrower relating thereto, the Agent shall
promptly notify each Lender of the unreimbursed amount together with accrued
interest thereon, and each Lender agrees to purchase, and it shall be deemed
to have purchased, a participation in such Letter of Credit or Letter of
Credit Agreement and such indebtedness in an amount equal to its Pro Rata
Share of the unpaid amount together with unpaid interest thereon. Upon one
(1) Business Day's notice from the Agent, each Lender shall deliver to the
Agent an amount equal to
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<PAGE>
its respective participation in same day funds, at the place and on the date
and by the time notified by the Agent. The obligation of each Lender to
deliver to the Agent an amount equal to its respective participation pursuant
to the foregoing sentence shall be absolute and unconditional and such
remittance shall be made notwithstanding the occurrence or continuation of an
Event of Default or the failure to satisfy any condition set forth in Article
III of this Agreement.
As soon as is practicable following the close of each month after the
Closing Date and in any event within fifteen (15) days thereafter, the
Borrower will submit to the Agent a borrowing base certificate in the form of
EXHIBIT 2.1.0 or on such other form as the Agent may from time to time
prescribe, which certificate shall contain information reasonably adequate to
identify accounts receivable which the Borrower wishes to include in Eligible
Receivables and/or Foreign Receivables. During the continuance of a Default
or Event of Default, the Borrower shall also, if the Agent so requests,
accompany such information with assignments of accounts in form and substance
satisfactory to the Agent which assignments shall give the Agent full power
to collect, compromise or otherwise deal with the assigned accounts as the
sole owner thereof (provided that prior to an Event of Default, the Agent
agrees to take no action with respect to the foregoing assignments).
Concurrently with each of such reports, and immediately if material in
amount, the Borrower shall notify the Agent of each return or adjustment,
rejection, repossession or loss, theft or damage of or to merchandise
represented by Eligible Receivables and/or Foreign Receivables or any other
collateral for any Indebtedness of the Borrower to the Agent and of any
credit, adjustment or dispute arising in connection with the goods or
services represented by Eligible Receivables and/or Foreign Receivables. All
payments on Eligible Receivables and/or Foreign Receivables and all
adjustments and credits with respect thereto, whether unilateral, negotiated
or otherwise, shall be immediately reflected in the Net Outstanding Amount of
Eligible Receivables and/or the Net Outstanding Amount of Foreign Receivables.
Section 2.1.1. TERM LOANS. Each of the Lenders severally agrees,
subject to the terms and conditions of this Agreement, to make a Term Loan to
the Borrower in the amount of its respective Pro Rata Share of $10,800,000.
Borrower shall pay on the last day of each calendar quarter ending on or in
between the dates set forth below the amount of the Term Loans set forth
immediately opposite such dates below:
<TABLE>
<CAPTION>
Quarterly Payments
------------------
Repayment Dates Amount
--------------- ------
<S> <C>
April 30, 2001 $ 275,375
July 31, 2001 $ 275,375
October 31, 2001 $ 275,375
January 31, 2002 $ 275,375
April 30, 2002 $ 826,125
July 31, 2002 $ 826,125
October 31, 2002 $ 826,125
January 31, 2003 $ 826,125
April 30, 2003 $1,652,250
July 31, 2003 $1,652,250
October 31, 2003 $1,652,250
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<PAGE>
Term Loan greater of $1,652,250 and
Repayment Date entire outstanding
principal amount of the
Term Loan
</TABLE>
Section 2.2. INTEREST AND FEES ON THE LOANS.
Section 2.2.1. INTEREST. Interest shall accrue and be paid currently
on the Loans at Effective Prime or the Libor Rate for each of the Loans'
Interest Periods in accordance with the Borrower's Interest Rate Elections
for the Loans subject to and in accordance with the terms and conditions of
this Agreement and the Note(s); provided that if a Default or an Event of
Default exists and is continuing, no Interest Rate Election electing the
Libor Rate shall be effective and any Loan or portion thereof with respect to
which any such Interest Rate Election would otherwise have beer! effective
shall bear interest at Effective Prime or the Libor Rate, as applicable plus,
so long as an Event of Default exists and is continuing, two percent (2.00%);
all of the foregoing being applicable until such Default or Event of Default
is cured or waived and an Interest Rate Election electing the Libor Rate for
such Loan or portion thereof which is effective in accordance with this
Agreement is submitted to the Agent; and provided further that the Borrower
shall submit Interest Rate Elections so that on any date on which under
SECTION 2.1.1 a regularly scheduled payment of principal of the Term Loans is
to be made, at least the amount of the Term Loans to be so repaid is bearing
interest at Effective Prime and/or such payment date is an Interest
Adjustment Date for outstanding Libor Loans in such amount of the Term Loans.
Upon the occurrence and during the continuance of any Event of Default, each
Prime Rate Loan shall bear interest, payable on demand, at a floating
interest rate per annum equal to two percent (2.0%) above Effective Prime and
each Libor Loan shall bear interest at the Libor Rate plus two percent(2.0%)
per annum. The Borrower shall pay such interest to the Agent for the pro rata
account of each Lender in arrears on the Loans (including without limitation
Libor Loans) outstanding from time to time after the Closing Date, such
payments to be made, with respect to Libor Loans with Interest Periods of
three months or less on each Interest Adjustment Date for such Loans, and
with respect to Libor Loans with Interest Periods of more than three months
and with respect to Prime Rate Loans, quarterly on the last Business Day of
each calendar quarter of each year commencing December 31, 1998. In the event
no Interest Rate Election has been made by the Borrower with respect to any
Loan or Advance (or an Interest Rate Election shall have expired without an
effective substitute Interest Rate Election), Effective Prime shall be the
rate applicable to such Loan or Advance. All provisions of each Note and any
other agreements between the Borrower and the Lenders are expressly subject
to the condition that in no event, whether by reason of acceleration of
maturity of the Indebtedness evidenced by any Note or otherwise, shall the
amount paid or agreed to be paid to the Lenders which is deemed interest
under applicable law exceed the maximum permitted rate of interest under
applicable law (the "Maximum Permitted Rate"), which shall mean the law in
effect on the date of this Agreement, except that if there is a change in
such law which results in a higher Maximum Permitted Rate, then each Note
shall be governed by such amended law from and after its effective date. In
the event that fulfillment of any provision of any Note, or this Agreement or
any document, instrument or agreement providing security for any Note results
in the rate of interest charged under any Note being in excess of the Maximum
Permitted Rate, the obligation to be fulfilled shall automatically be reduced
to eliminate such excess. If, notwithstanding the foregoing, any Lender
receives an amount which under applicable law
20
<PAGE>
would cause the interest rate under any Note to exceed the Maximum Permitted
Rate, the portion thereof which would be excessive shall automatically be
deemed a prepayment of and be applied to the unpaid principal balance of such
Note to the extent of then outstanding Prime Rate Loans and not a payment of
interest and to the extent said excessive portion exceeds the outstanding
principal amount of Prime Rate Loans, said excessive portion shall be repaid
to the Borrower.
Section 2.2.2. FEES. On the last Business Day of each April, July,
October and January commencing January 31, 1999 and continuing through the
Revolving Credit Repayment Date, the Borrower shall pay to the Agent for the
pro rata account of each Lender, a fee in an amount equal to .625% per annum
of the amount, if any, by which the average actual daily (on the basis of a
year of 365 or 366 days, as applicable, for the actual number of days
elapsed) amount of the Revolving Credit Loan Commitment for the quarterly
period just ended (or in the case of the first such payment, the period from
the Closing Date to the date such payment is due) exceeds the sum of (x) the
average of the actual daily outstanding principal balances of the Revolving
Credit Loans PLUS (y) the average of the actual daily aggregate amount of the
outstanding stated amount of any Letters of Credit or Letter of Credit
Agreements, and any unreimbursed amounts thereunder; provided, however, that
if at any time after the receipt by the Agent of (x) the quarterly financial
statements for the Borrower's October 31, 1998 fiscal quarter together with
pro forma adjustments reflecting the Related Transactions and the Loans and
(y) the Borrower's quarterly financial statements for each subsequent
Borrower fiscal quarter provided to the Agent by the Borrower pursuant to
SECTION 5.3.3 hereof, the ratio of (a) total Indebtedness for Borrowed Money
of the Borrower and its Subsidiaries on a consolidated basis as of the last
day of the most recently ended fiscal quarter of the Borrower to (b) EBITDA,
(i) is less than or equal to 1.5:1.0 and greater than .5:1.0 and if and so
long as no Event of Default or Default exists and is continuing, the Borrower
shall pay to the Agent for the pro rata account of each Lender a fee in an
amount equal to .50% per annum of the amount, if any, by which the average
actual daily (on the basis of a year of 365 or 366 days, as applicable, for
the actual number of days elapsed) amount of the Revolving Credit Loan
Commitment for the quarterly period just ended (or in the case of the first
such payment, the period from the Closing Date to the date such payment is
due) exceeds the sum of (x) the average of the actual daily outstanding
principal balances of the Revolving Credit Loans PLUS (y) the average of the
actual daily aggregate amount of the outstanding stated amount of any Letters
of Credit or Letter of Credit Agreements, and any unreimbursed amounts
thereunder; or (ii) is less than or equal to .5:1.0 and if and so long as no
Event of Default or Default exists and is continuing, the Borrower shall pay
to the Agent for the pro rata account of each Lender a fee in an amount equal
to .375% per annum of the amount, if any, by which the average actual daily
(on the basis of a year of 365 or 366 days, as applicable, for the actual
number of days elapsed) amount of the Revolving Credit Loan Commitment for
tile quarterly period just ended (or in the case of the first such payment,
the period from the Closing Date to the date such payment is due) exceeds the
sum of (x) the average of the actual daily outstanding principal balances of
the Revolving Credit Loans PLUS (y) the average of the actual daily aggregate
amount of the outstanding stated amount of any Letters of Credit or Letter of
Credit Agreements, and any unreimbursed amounts thereunder (the "Unused
Fees"). In addition, the Borrower shall pay to the Agent for its own account
certain fees as specified in the Side Letter.
Section 2.2.3. INCREASED COSTS - CAPITAL. If, after the date hereof,
any Lender shall have reasonably determined in good faith that the adoption
after the date hereof of any applicable
21
<PAGE>
law, governmental rule, regulation or order regarding capital adequacy of
banks or bank holding companies, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by such Lender or such Lender's holding
company with any policy, guideline, directive or request regarding capital
adequacy (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of
return on the capital of such Lender or such Lender's holding company as a
consequence of the obligations hereunder of such Lender to a level below that
which such Lender could have achieved but for such adoption, change or
compliance (taking into consideration the policies of such Lender or such
Lender's holding company with respect to capital adequacy immediately before
such adoption, change or compliance and assuming that the capital of such
Lender or such Lender's holding company was fully utilized prior to such
adoption, change or compliance) by an amount reasonably deemed in good faith
by such Lender to be material, then such Lender shall notify the Agent and
the Borrower thereof and the Borrower shall pay to the Agent for the account
of such Lender from time to time as specified by such Lender such additional
amounts as shall be sufficient to compensate such Lender for such reduced
return, each such payment to be made by the Borrower within five (5) Business
Days after each demand by such Lender; provided that the liability of the
Borrower to pay such costs shall only accrue with respect to costs accruing
from and after the 180th day prior to the date of each such demand. A
certificate in reasonable detail of one of the officers of such Lender
describing the event giving rise to such reduction and setting forth the
amount to be paid to such Lender hereunder and a computation of such amount
shall accompany any such demand and shall, in the absence of manifest error,
be conclusive. In determining such amount, such Lender shall act reasonably
in good faith and will use any reasonable averaging and attribution methods.
If the Borrower shall, as a result of the requirements of this SECTION 2.2.3,
above, be required to pay any Lender the additional costs referred to above
and the Borrower, in its sole discretion, shall deem such additional amounts
to be material, the Borrower shall have the right to substitute another bank
reasonably satisfactory to the Agent for such Lender which has certified the
additional costs to the Borrower, and the Agent shall use reasonable efforts
at no cost to the Agent to assist the Borrower to locate such substitute
bank. Any such substitution shall take place in accordance with SECTION 9.11
and shall otherwise be on terms and conditions reasonably satisfactory to the
Agent, and until such time as such substitution shall be consummated, the
Borrower shall continue to pay such additional costs. Upon any such
substitution, the Borrower shall pay or cause to be paid to the Lender that
is being replaced, all principal, interest (to the date of such substitution)
and other amounts owing hereunder to such Lender and such Lender will be
released from liability hereunder.
Section 2.3. NOTATIONS. At the time of (i) the making of each Advance
evidenced by any Note, (ii) each change in the interest rate under any Note
effected as a result of an Interest Rate Election, and (iii) each payment or
prepayment of any Note, each Lender may enter upon its records an appropriate
notation evidencing (a) such Lender's Pro Rata Share of the Loans and (b) the
interest rate and Interest Adjustment Date applicable thereto or (c) such
payment or prepayment (voluntary or involuntary) of principal and (d) in the
case of payments or prepayments (voluntary or involuntary) of principal, the
portion of the applicable Loan which was paid or prepaid. No failure to make
any such notation shall affect the Borrower's unconditional obligations to
repay the Loans and all interest, fees and other sums due in
22
<PAGE>
connection with this Agreement and/or any Note in full, nor shall any such
failure, standing alone, constitute grounds for disproving a payment of
principal by the Borrower. However, in the absence of manifest error, such
notations and each Lender's records containing such notations shall
constitute presumptive evidence of the facts stated therein, including,
without limitation, the outstanding amount of such Lender's Pro Rata Share of
the Loans and all amounts due and owing to such Lender at any time. Any such
notations and such Lender's records containing such notations may be
introduced in evidence in any judicial or administrative proceeding relating
to this Agreement, the Loans or any Note.
Section 2.4. COMPUTATION OF INTEREST. Interest due under this Agreement
and any Note shall be computed on the basis of a year of 360 days for the actual
number of days elapsed for Libor Loans and on the basis of a year of 365 or 366
days, as applicable, for the actual number of days elapsed for Prime Rate Loans.
Section 2.5. TIME OF PAYMENTS AND PREPAYMENTS IN IMMEDIATELY AVAILABLE
FUNDS.
Section 2.5.1. TIME. All payments and prepayments of principal,
fees, interest and any other amounts owed from time to time under this Agreement
and/or under each Note shall be made to the Agent for the pro rata account of
each Lender at the address referred to in SECTION 9.6 in Dollars and in
immediately available funds prior to 1:00 o'clock P.M. on the Business Day that
such payment is due, provided that the Borrower hereby authorizes and instructs
the Agent to charge against the Borrower's accounts with the Agent on each date
on which a payment is due hereunder and/or under any Note and on any subsequent
date if and to the extent any such payment is not made when due an amount up to
the principal, interest and fees due and payable to the Lenders, the Agent or
any Lender hereunder and/or under any Note and such charge shall be deemed
payment hereunder and under the Note(s) in question to the extent that
immediately available funds are then in such accounts. The Agent shall use
reasonable efforts in accordance with the Agent's customary procedures to give
subsequent notice of any such charge to the Borrower, but the failure to give
such notice shall not affect the validity of any such charge. To the extent that
immediately available funds are then in such accounts, the failure of the Agent
to charge any such account or the failure of the Agent to charge any such
account prior to 1:00 o'clock P.M. shall not be basis for an Event of Default
under SECTION 6.1.1 and any amount due on the Loans on such date shall be deemed
paid; provided that the Agent shall have the right to charge any such account on
any subsequent date for such unpaid payment and an Event of Default shall exist
if sufficient immediately available funds are not in such accounts on the date
the Agent so charges such account after the expiration of any applicable notice
or cure period. In the event of any charge against the Borrower's accounts by
the Agent pursuant to the immediately preceding sentence, the Agent shall use
reasonable efforts to provide notice to the Borrower of such charge in
accordance with the Agent's customary procedures, but the failure to provide
such notice shall not in any way be a basis for any liability of the Agent nor
shall such failure adversely affect the validity and effectiveness of any such
action by the Agent. Any such payment or prepayment which is received by the
Agent in Dollars and in immediately available funds after 1 o'clock P.M. on a
Business Day shall be deemed received for all purposes of this Agreement on the
next succeeding Business Day unless the failure by Agent to receive such funds
prior to 1 o'clock P.M. is due to Agent's failure to charge the account of
Borrower prior to 1 o'clock P.M., except that solely for the purpose of
determining whether a Default or Event of Default has occurred
23
<PAGE>
under SECTION 6.1.1, any such payment or prepayment, if received by the Agent
prior to the close of the Agent's business on a Business Day, shall be deemed
received on such Business Day. All payments of principal, interest, fees and
any other amounts which are owing to any or all of the Lenders or the Agent
hereunder and/or under any of the Notes that are received by the Agent in
immediately available Dollars prior to 1:00 o'clock P.M. on any Business Day
shall, to the extent owing to the Lenders other than the Agent, be sent by
wire transfer by the Agent to any such other Lenders (in each case, without
deduction for any claim, defense or offset of any type) before 3:00 o'clock
P.M. on the same Business Day. Each such wire transfer shall be addressed to
each Lender in accordance with the wire instructions set forth in EXHIBIT 1.9
hereto. The amount of each payment wired by the Agent to each such Lender
shall be such amount as shall be necessary to provide such Lender with its
Pro Rata Share of such payment (without consideration or use of any contra
accounts of any Lender), or with such other amount as may be owing to such
Lender in accordance with this Agreement (in each case, without deduction for
any claim, defense or offset of any type). Each such wire transfer shall be
sent by the Agent only after the Agent has received immediately available
Dollars from or on behalf of the Borrower and each such wire transfer shall
provide each Lender receiving same with immediately available Dollars on
receipt by such Lender. Any such payments of immediately available Dollars
received by the Agent after 1:00 o'clock P.M. and before 3:00 o'clock P.M. on
any Business Day shall be forwarded in the same manner by the Agent to such
Lender(s) as soon as practicable on said Business Day, and if any such
payments of immediately available Dollars are received by the Agent after
3:00 o'clock P.M. on a Business Day, the Agent shall so forward same to such
Lender(s) before 10:00 o'clock A.M. on the immediately succeeding Business
Day.
Section 2.5.2. SETOFF, ETC. Regardless of the adequacy of any
collateral for any of the Obligations, upon the occurrence and during the
continuance of any Event of Default, each Lender is hereby authorized at any
time and from time to time, without notice to the Borrower (any such notice
being expressly waived by the Borrower), to set off and apply any and all
deposits (general or special, time or demand, provisional or final (other than
employee payroll)) at any time held and any other Indebtedness at any time owing
by such Lender to or for the credit or the account of the Borrower against any
and all of the Obligations of the Borrower irrespective of whether or not such
Lender shall have made any demand under this Agreement or any Note and although
such obligations may be unmatured. Each such Lender agrees to promptly notify
the Borrower and the Agent after any such setoff and application; provided that
the failure to give such notice shall not affect the validity of such setoff and
application. Promptly following any notice of setoff received by the Agent from
a Lender pursuant to the foregoing, the Agent shall notify each other Lender
thereof. The rights of each Lender under this SECTION 2.5.2 are in addition to
all other rights and remedies (including, without limitation, other rights of
setoff) which such Lender may have and are subject to SECTION 9.12.
Section 2.5.3. UNCONDITIONAL OBLIGATIONS AND NO DEDUCTIONS.
Section 2.5.3.1. The Borrower's obligation to make all payments
provided for in this Agreement and the other Financing Documents shall be
unconditional. Each such payment shall be made without deduction for any claim,
defense or offset of any type, including without limitation any withholdings and
other deductions on account of income or other taxes and regardless of whether
any claims, defenses or offsets of any type exist.
24
<PAGE>
Section 2.5.3.2.
(a) Any and all payments by the Borrower to or for the
account of any Lender or the Agent hereunder or under any other Financing
Document shall be made free and clear of and without deduction for any and
all present or future taxes, duties, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in the
case of each Lender and the Agent, taxes imposed on its income, and franchise
taxes imposed on it, by the jurisdiction under the laws of which such Lender
(or its applicable lending office) or the Agent (as the case may be) is
organized or any political subdivision thereof, other than to the extent such
income or franchise tax is imposed solely as a result of the activities of
the Agent or a Lender pursuant to or in respect of this Agreement or any of
the other Financing Documents (all such non-excluded taxes, duties, levies,
imposts, deductions, charges, withholdings, and liabilities being hereinafter
referred to as "Taxes"). If the Borrower shall be required by law to deduct
any Taxes from or in respect of any sum payable under this Agreement or any
other Financing Document to any Lender or the Agent,(i) the sum payable shall
be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
Section 2.5.3.2) such Lender or the Agent receives an amount equal to the sum
it would have received had no such deductions been made, (ii) the Borrower
shall make such deductions, (iii) the Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law, and (iv) the Borrower shall furnish to the Agent, at its
address referred to in Section 9.6 hereof, the original or a certified copy
of a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any and all
present or future stamp or documentary taxes and any other excise or property
taxes or charges or similar levies which arise from any payment made under
this Agreement or any other Financing Document or from the execution or
delivery of, or otherwise with respect to, this Agreement or any other
Financing Document (hereinafter referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Lender and
the Agent for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction
on amounts payable under this Section 2.5.3.2) paid by such Lender or the
Agent (as the case may be) and any liability (including penalties, interest,
and expenses) arising therefrom or with respect thereto.
(d) Each Lender organized under the laws of a
jurisdiction outside the United States, on or prior to the date of its
execution and delivery of this Agreement in the case of each Lender listed on
the signature pages hereof and on or prior to the date on which it becomes a
Lender in the case of each other Lender, and from time to time thereafter if
requested in writing by the Borrower or the Agent (but only so long as such
Lender remains lawfully able to do so), shall provide the Borrower and the
Agent with (i) a properly completed Internal Revenue Service Form 1001 or
4224, as appropriate, or any successor form prescribed by the Internal
Revenue Service, certifying that such Lender is entitled to benefits under an
income tax treaty to which the United States is a party which reduces the
rate of withholding tax on payments of interest or certifying that the income
receivable pursuant to this Agreement is effectively connected with the
conduct of a trade or business in the United States, (ii) a properly
completed Internal Revenue Service Form W-8 or W-9, as appropriate, or any
successor form
25
<PAGE>
prescribed by the Internal Revenue Service, certifying that such Lender is
exempt from United States backup withholding, and (iii) any other form or
certificate required by any taxing authority (including any certificate
required by Sections 871(h) and 881(c) of the Internal Revenue Code),
certifying that such Lender is entitled to an exemption from or a reduced
rate of tax on payments pursuant to this Agreement or any of the other
Financing Documents.
(e) For any period with respect to which a Lender has
failed to provide the Borrower and the Agent with the appropriate form
pursuant to Section 2.5.3.2(d) hereof (unless such failure is due to a change
in treaty, law, or regulation occurring subsequent to the date on which a
form originally was required to be provided), such Lender shall not be
entitled to indemnification under Section 2.5.3.2(a) or 2.5.3.2(b) hereof
with respect to Taxes imposed by the United States-, provided, however, that
should a Lender, which is otherwise exempt from or subject to a reduced rate
of withholding tax, become subject to Taxes because of its failure to deliver
a form required hereunder, the Borrower shall take such steps as such Lender
shall reasonably request and at such Lender's cost to assist such Lender to
recover such Taxes.
(f) If the Borrower is required to pay additional
amounts to or for the account of any Lender pursuant to this Section 2.5.3.2,
then such Lender will agree to use reasonable efforts to change the
jurisdiction of its applicable lending office so as to eliminate or reduce
any such additional payment which may thereafter accrue if such change, in
the judgment of such Lender, is not otherwise disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any
payment of Taxes or Other Taxes, the Borrower shall furnish to the Agent the
original or a certified copy of a receipt evidencing such payment.
(h) Without prejudice to the survival of any other
agreement of the Borrower hereunder, the agreements and obligations of the
Borrower contained in this Section 2.5.3.2 shall survive until the third
anniversary of the later of the Revolving Credit Repayment Date and final
repayment of all amounts due Agent and any Lender in connection with this
Agreement.
(i) If the Borrower makes any additional payment to any
Lender pursuant to this Section 2.5.3.2 in respect of any Taxes, and such
Lender determines that it has received (i) a refund of such Taxes, or (ii) a
credit against, relief or remission for, or a reduction in the amount of, any
tax or other governmental charge as a result of any deduction or credit for
any Taxes with respect to which it has received payments under this Section
2.5.3.2, such Lender shall, to the extent that it can do so without prejudice
to the retention of such refund, credit, relief, remission or reduction, pay
to the Borrower such amount as shall be reasonably determined in good faith
by such Lender to be solely attributable to the deduction or withholding of
such Taxes. If such Lender later determines in good faith that it was not
entitled to such refund, credit, relief, remission or reduction to the full
extent of any payment made pursuant to the first sentence of this Section
2.5.3.2(i), the Borrower shall upon demand of such Lender promptly repay the
amount of such overpayment. Nothing in this Section 2.5.3.2(i) shall be
construed as requiring such Lender to conduct its business or to arrange or
alter in any respect its
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tax or financial affairs so that it is entitled to receive such a refund,
credit or reduction or as allowing any Person to inspect any records,
including tax returns, of such Lender.
Section 2.6. PREPAYMENT AND CERTAIN PAYMENTS.
Section 2.6.1. MANDATORY PAYMENTS.
Section 2.6.1.1. In addition to each other principal
payment required hereunder, the outstanding principal balances of the Term
Loans shall be repaid on the Term Loan Repayment Date and the outstanding
principal balances of the Revolving Credit Loans shall be repaid on the
Revolving Credit Repayment Date.
Section 2.6.1.2. [Intentionally omitted.]
Section 2.6.1.3. In the event that the Borrower or any
Subsidiary is entitled to receive, collectively, proceeds from any casualty
insurance policies maintained by any of them on account of any interest of
the Borrower and/or any Subsidiary in any property, which proceeds are in an
aggregate amount in excess of an amount equal to 10% of Borrower's plant,
property and equipment as reflected on the most recent Borrower financial
statement submitted to the Agent pursuant to SECTION 5.3.2 and 5.3.3 with
respect to any occurrence or related series of occurrences in any 12-month
period, such proceeds shall be received by the Agent and, to the extent that
such proceeds result from a casualty to property of the Borrower and/or any
Subsidiary, so long as no Default or Event of Default exists and is
continuing and the Borrower elects to repair, replace or restore such
property, such proceeds shall be released to the Borrower subject to
reasonable procedures and conditions established by the Agent to the extent
necessary to so repair, replace or restore such property within 5 months (or
as soon as reasonably practicable if such restoration, replacement or repair
is not susceptible to being completed within 5 months) from the date of
receipt of such proceeds by the Agent and to the extent such proceeds are not
so used or do not result from such a casualty, the Borrower shall make a
prepayment of the Term Loans for the accounts of the Lenders in accordance
with their Pro Rata Shares upon written notice from the Agent. All such
payments shall be applied to the principal installments of the Term Loans in
the inverse order of their maturities.
Section 2.6.1.4. In the event that the Borrower
and/or any Subsidiary sells, assigns or otherwise transfers title to any
asset other than in the ordinary course of its business for net cash proceeds
in the aggregate since the Closing Date in excess of an amount equal to 10%
of Borrowees plant, property and equipment as reflected on the most recent
Borrower financial statement submitted to the Agent pursuant to SECTION 5.3.2
and 5.3.3, the Borrower and/or such Subsidiary shall remit 100% of the net
cash proceeds of such sale, assignment or other transfer to the Agent for the
accounts of the Lenders in accordance with their Pro Rata Shares to be
applied to the principal installments of the Term Loans in the inverse order
of their maturities within 10 Business Days of the date of Borrower's or any
Subsidiary's receipt of such net cash proceeds; provided, however, that
Borrower may sell any of its assets which are obsolete, worn-out or no longer
used or useful in Borrower's business and Borrower may use the proceeds of
such sale to purchase other assets which is useful or necessary in the
operation of Borrower's business.
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Section 2.6.1.5. [Intentionally omitted.]
Section 2.6.1.6. If at any time the aggregate
principal amount of the Revolving Credit Loans plus the aggregate stated
amount of outstanding Letters of Credit and Letter of Credit Agreements and
any unreimbursed amounts thereunder shall exceed the Revolving Credit Loan
Formula Amount, the Borrower shall immediately pay to the Agent in
immediately available Dollars the amount of such excess.
Section 2.6.2. VOLUNTARY PREPAYMENTS. All or any portion of
the unpaid principal balance of the Loans (other than portions of any Loans
constituting Libor Loans) may be prepaid at any time, without premium or
penalty, by giving the Agent at least 3 days' prior written notice of such
prepayment and by a payment to the Agent for the accounts of the Lenders in
accordance with their Pro Rata Shares of such prepayment in immediately
available Dollars by the Borrower; provided that each such partial payment or
prepayment of principal of the Loans shall be in a principal amount of at
least $100,000 or an integral multiple of $50,000 in excess thereof and
provided further that each such prepayment of the Term Loans shall be applied
to the principal installments of the Term Loans in the order of their
maturities.
Section 2.6.3. PREPAYMENT OF LIBOR LOANS. Notwithstanding
anything to the contrary contained in any Note or in any other agreement
executed in connection herewith or therewith, the Borrower shall be permitted
to prepay any portion of the Loans constituting Libor Loans only in
accordance with Section 2.9 hereof
Section 2.6.4. PERMANENT REDUCTION OF COMMITMENT. At the
Borrower's option the Commitment and the Revolving Credit Loan Commitment may
be permanently and irrevocably reduced in whole or in part by an amount of at
least $100,000 and to the extent in excess thereof in integral multiples of
$50,000 at any time; provided that (i) the Borrower gives the Agent written
notice of the exercise of such option at least three (3) Business Days prior
to the effective date thereof, (ii) the aggregate outstanding balance of the
Loans, if any, does not exceed the Commitment and the aggregate outstanding
balance of the Revolving Credit Loans together with the aggregate amount of
the outstanding stated amount of any Letters of Credit or Letter of Credit
Agreements, and any unreimbursed amounts thereunder, if any, does not exceed
the Revolving Credit Loan Commitment, both as so reduced in any such case on
the effective date of such reduction and (iii) the Borrower is not, and after
giving effect to such reduction, would not be in violation of SECTION 2.6.3.
Any such reduction shall concurrently reduce the Dollar amount of each
Lender's Pro Rata Share of the Commitment and the Revolving Credit Loan
Commitment.
Section 2.7. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to
be made hereunder or under any Note shall be stated to be due on a day other
than a Business Day, such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of payment of fees, if any, and interest under this Agreement and
under such Note.
Section 2.8. USE OF PROCEEDS. The Borrower shall use the proceeds of
the Loans to repay outstanding Indebtedness, to repurchase a portion of its
capital stock from the Old Stockholders, to pay costs incurred by the Borrower
in connection with the closing of the Loans,
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including without limitation, the Facility Fee and other fees payable
pursuant to the Side Letter and costs incurred in connection with the Related
Transactions, for Borrower's working capital needs, for permitted Capital
Expenditures and for Investments permitted by SECTION 5.2.12.
Section 2.9. SPECIAL LIBOR LOAN PROVISIONS. The Libor Loans shall be
subject to and governed by the following terms and conditions:
Section 2.9.1. REQUESTS. Each Request accompanied by an
Interest Rate Election selecting the Libor Rate must be received by the Agent
in accordance with the definition of Interest Rate Election.
Section 2.9.2. LIBOR LOANS UNAVAILABLE. Notwithstanding any
other provision of this Agreement, if, prior to or on the date on which all
or any portion of the Loans is to be made as or converted into a Libor Loan,
any of the Lenders (or the Agent with respect to (ii) below) shall reasonably
determine in good faith (which determination shall be conclusive and binding
on the Borrower), that
(i) Dollar deposits in the relevant amounts and for the relevant
Interest Period are not offered to such Lender in the London interbank
market,
(ii) by reason of circumstances affecting the London interbank
market, adequate and reasonable means do not exist for ascertaining the
Adjusted Libor Rate, or
(iii) the Adjusted Libor Rate shall no longer represent the
effective cost to such Lender for Dollar deposits in the London
interbank market for reasons other than the fact, standing alone, that
the Adjusted Libor Rate is based on an averaging of rates determined in
good faith by the Agent and that such Lender's rate may exceed such
average,
such Lender may elect not to accept any Interest Rate Election electing a Libor
Loan and such Lender shall notify the Agent by telephone or telex thereof,
stating in reasonable detail the reasons therefor, not later than the close of
business on the second Business Day prior to the date on which such Libor Loan
is to be made. The Agent shall promptly give notice of such determination and
the reason therefor to the Borrower, and all or such portion of the Loans, as
the case may be, which are subject to any of Section 2.9.2 (i), (ii) through
(iii) as a result of such Lender's determination in good faith shaft be made as
or converted into, as the case may be, Prime Rate Loans and such Lender shall
have no further obligation to make Libor Loans, until further written notice to
the contrary is given by the Agent to the Borrower. If such circumstances
subsequently change so that such Lender shall no longer be so affected, such
Lendees obligation to make or maintain its Pro Rata Share of all or any portion
of the Loans as Libor Loans shall be reinstated when such Lender obtains actual
knowledge of such change of circumstances and promptly after obtaining such
actual knowledge such Lender shall forward written notice thereof to the Agent.
After receipt of such notice, the Agent shall promptly forward written notice
thereof to the Borrower. Upon or after receipt by the Borrower of such written
notice, the Borrower may submit an Interest Rate Election in accordance with
this Agreement electing an Interest Period ending no later than the Interest
Adjustment Date for the then current Interest Period for the other Lenders' Pro
Rata Shares of Libor Loans and electing the Libor Rate for such Lenders' or
Lender's Pro Rata Share(s) of the Loans as to which such
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Lender's or Lenders' obligation(s) to make or maintain its or their Pro Rata
Share(s) of the Loans as Libor Loans was suspended and such Pro Rata Share(s)
shall be converted to Libor Loans in accordance with this Agreement. During
any period throughout which any of the Lenders has or have no obligation to
make or maintain its or their Pro Rata Share(s) of the Loans as Libor Loans,
no Interest Rate Elections electing the Libor Rate shall be effective with
regard to the Loans to the extent of the Pro Rata Share(s) of such Lender(s),
but shall be effective as to the other Lenders.
Section 2.9.3. SEE LIBOR LENDING UNLAWFUL. In the event that any
change in applicable laws or regulations (including the introduction of any new
applicable law or regulation) or in the interpretation thereof (whether or not
having the force of law) by any governmental or other regulatory authority
charged with the administration thereof, shall make it unlawful for any of the
Lenders to make or continue to maintain its Pro Rata Share of all or any portion
of the Loans as Libor Loans, each such Lender shall promptly notify the Agent by
telephone or telex thereof, and of the reasons therefor, and the obligation of
such Lender to make or maintain its Pro Rata Share of the Loans or such portion
thereof as Libor Loans shall, upon the happening of such event, terminate and
the Agent shall, by telephonic notice to the Borrower, declare that such
obligation has so terminated with respect to such Lender, and such Pro Rata
Share of the Loans or any portion thereof to the extent then maintained as Libor
Loans, shall, on the last day on which such Lender can lawfully continue to
maintain such Pro Rata Share of the Loans or any portion thereof as Libor Loans,
automatically convert into Prime Rate Loans without additional cost to the
Borrower. If circumstances subsequently change so that such Lender shall no
longer be so affected, such Lender's obligation to make or maintain its Pro Rata
Share of all or any portion of the Loans as Libor Loans shall be reinstated when
such Lender obtains actual knowledge of such change of circumstances, and
promptly after obtaining such actual knowledge such Lender shall forward written
notice thereof to the Agent. After receipt of such notice, the Agent shall
promptly forward written notice thereof to the Borrower. Upon or after receipt
by the Borrower of such written notice, the Borrower may submit an Interest Rate
Election in accordance with this Agreement electing an Interest Period ending no
later than the Interest Adjustment Date for the then current Interest Period for
the other Lenders' Pro Rata Shares of Libor Loans and electing the Libor Rate
for such Lenders' or Lender's Pro Rata Share(s) of the Loans as to which such
Lender's or Lenders' obligation(s) to make or maintain its or their Pro Rata
Share(s) of the Loans as Libor Loans was suspended and such Pro Rata Share(s)
shall be converted to Libor Loans in accordance with this Agreement. During any
period throughout which any of the Lenders has or have no obligation to make )r
maintain its or their Pro Rata Share(s) of the Loans as Libor Loans, no Interest
Rate Elections electing the Libor Rate shall be effective with regard to the
Loans to the extent of the Pro Rata Share(s) of such Lender(s), but shall be
effective as to the other Lenders.
Section 2.9.4. ADDITIONAL COSTS ON LIBOR LOANS. The Borrower
further agrees to pay to the Agent for the account of the applicable Lender or
Lenders such amounts as will compensate any of the Lenders for any increase in
the cost to such Lender of making or maintaining (or of its obligation to make
or maintain) all or any portion of its Pro Rata Share of the Loans as Libor
Loans and for any reduction in the amount of any sum receivable by such Lender
under this Agreement in respect of making or maintaining all or any portion of
such Lender's Pro Rata Share of the Loans as Libor Loans, in either case, from
time to time by reason of:
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(i) any reserve, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by,
such Lender, under or pursuant to any law, treaty, rule, regulation
(including, without limitation, any Regulations of the Board of
Governors of the Federal Reserve System) or requirement in effect on or
after the date hereof, any interpretation thereof by any governmental
authority charged with administration thereof or by any central bank or
other fiscal or monetary authority or other authority, or any
requirement imposed by any central bank or such other authority whether
or not having the force of law; or
(ii) any change in (including the introduction of any new)
applicable law, treaty, rule, regulation or requirement or in the
interpretation thereof by any official authority, or the imposition of
any requirement of any central bank, whether or not having the force of
law, which shall subject such Lender to any tax (other than taxes on
net income imposed on such Lender), levy, impost, charge, fee, duty,
deduction or withholding of any kind whatsoever or change the taxation
of such Lender with respect to making or maintaining all or any portion
of its Pro Rata Share of the Loans as Libor Loans and the interest
thereon (other than any change which affects, and to the extent that it
affects, the taxation of net income of such Lender); provided, that
with respect to any withholding the foregoing shall not apply to any
withholding tax described in sections 1441, 1442 or 3406 of the Code,
or any succeeding provision of any legislation that amends, supplements
or replaces any such section, or to any tax, levy, impost, duty,
charge, fee, deduction or withholding that results from any
noncompliance by a Lender with any federal, state or foreign law or
from any failure by a Lender to file or furnish any report, return,
statement or form the filing or furnishing of which would not have an
adverse effect on such Lender and would eliminate such tax, impost,
duty, deduction or withholding;
In any such event, such Lender shall promptly notify the Agent thereof, and of
the reasons therefore and the Agent shall promptly notify the Borrower thereof
in writing stating in reasonable detail the reasons provided to the Agent by
such Lender therefor and the additional amounts required to fully compensate
such Lender for such increased or new cost or reduced amount as reasonably
determined in good faith by such Lender. Such additional amounts shall be
payable on each date on which interest is to be paid hereunder or, if there is
no outstanding principal amount under any of the Notes, within 10 Business Days
after the Borrower's receipt of said notice. Such Lender's certificate as to any
such increased or new cost or reduced amount (including calculations, in
reasonable detail, showing how such Lender computed such cost or reduction)
shall be submitted by the Agent to the Borrower and shall, in the absence of
manifest error, be conclusive. In determining any such amount, the Lender(s) may
use any reasonable averaging and attribution methods. Notwithstanding anything
to the contrary set forth above, the Borrower shall not be obligated to pay any
amounts pursuant to this SECTION 2.9.4 as a result of any requirement or change
referenced above with respect to any period prior to the one hundred and
eightieth (180th) day prior to the date on which the Borrower is first notified
thereof (other than any amounts which relate to any such requirement or change
which is adopted with retroactive effect in which case the Borrower shall be
obligated to pay all such amounts accrued from the date as of which such
requirement or change is retroactively effective) unless the failure to give
such notice within such one hundred and eighty (180) day period resulted from
reasonable circumstances beyond such Lender's reasonable control.
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Section 2.9.5. Sect LIBOR FUNDING LOSSES. In the event any of the
Lenders shall incur any loss or expense (including, without limitation, any loss
or expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Lender to fund or maintain all or any portion of
the Loans as Libor Loans) as a result of.
(i) payment or prepayment by the Borrower of all or any portion
of any Libor Loan on a date other than the Interest Adjustment Date for
such Libor Loan, for any reason; provided, however that this clause
shall not be deemed to grant the Borrower any right to convert a Libor
Loan to a Prime Rate Loan prior to the end of any Interest Period or to
imply such right;
(ii) conversion of all or any portion of any Libor Loan on a day
other than the last day of an Interest Period applicable to such Loan
to a Prime Rate Loan for any reason including, without limitation,
acceleration of the Loans upon or after an Event of Default, any
Interest Rate Election or any other cause whether voluntary or
involuntary and whether or not referred to or described in this
Agreement, other than any such conversion resulting solely from
application of SECTIONS 2.9.2 or 2.9.3 by any Lender; or
(iii) any failure by the Borrower to borrow the Loans as Libor
Loans on the date specified in any Interest Rate Election selecting the
Libor Rate, other than any such failure resulting solely from
application of SECTIONS 2.9.2 or 2.9.3 by any Lender-,
such Lender shall promptly notify the Agent thereof, and of the reasons
therefor. Upon the request of the Agent, the Borrower shall pay directly to
the Agent for the account of such Lender such amount as will (in the
reasonable determination in good faith of such Lender, which shall be correct
in the absence of manifest error) reimburse such Lender for such loss or
expense. Each Lender shall furnish to the Borrower, upon written request from
the Borrower received by the Agent, a written statement setting forth the
computation of -any such amounts payable to such Lender under this SECTION
2.9.5.
Section 2.9.6. BANKING PRACTICES. Each Lender agrees that upon
the occurrence of any of the events described in SECTIONS 2.2.3 and/or 2.9.2,
2.9.4 or 2.9.5, such Lender will exercise all reasonable efforts to take such
reasonable actions at no expense to such Lender (other than reasonable expenses
which are covered by the Borrower's advance deposit of funds with such Lender
for such purpose, or if such Lender agrees, which the Borrower has agreed to pay
or reimburse to such Lender in full upon demand), in accordance with such
Lender's usual banking practices in such situations and subject to any statutory
or regulatory requirements applicable to such Lender, as such Lender may take
without the consent or participation of any other Person to, in the case of an
event described in SECTIONS 2.2.3 and/or 2.9.4 or 2.9.5, mitigate the cost of
such events to the Borrower and, in the case of an event described in SECTIONS
2.9.2(i), (ii) or (iii), to seek Dollar deposits in any other interbank Libor
market in which such Lender regularly participates and in which the applicable
determination(s) described in SECTIONS 2.9.2(i), (ii) or (iii), as the case may
be, does not apply.
Section 2.9.7. BORROWER'S OPTIONS ON UNAVAILABILITY OR INCREASED
COST OF LIBOR. In the event of any conversion of all or any portion of any
Lender's Pro Rata Share of any Libor Loans to a Prime Rate Loan for reasons
beyond the Borrower's control or in the event that any
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Lender's Pro Rata Share of all or any portion of the Libor Loans becomes
subject, under SECTIONS 2.9.4 or 2.9.5, to additional costs, the Borrower
shall have the option, subject to the other terms and conditions of this
Agreement, to convert such Lender's Pro Rata Share to a Prime Rate Loan by
making Interest Rate Elections for Interest Periods which (i) end on the
Interest Adjustment Date for such Libor Loan or (ii) end on Business Days
occurring prior to such Interest Adjustment Date, in which case, at the end
of the last of such Interest Periods any such Libor Rate Loan shall
automatically convert to a Prime Rate Loan and the Borrower shall have no
further right to make an Interest Rate Election with respect to such Prime
Rate Loan other than an Interest Rate Election which is effective on the
Interest Adjustment Date for such Libor Loan. The Borrower's options set
forth in this SECTION 2.9.7 may be exercised, if and only if the Borrower
pays, concurrently with delivery to the Agent of each such Interest Rate
Election and thereafter in accordance with SECTIONS 2.9.4, 2.9.5 and 2.9.6
all amounts provided for therein to the Agent in accordance with this
Agreement.
If the Borrower shall, as a result of the requirements of SECTION 2.9.4
above, be required to pay any Lender the additional costs referred to therein,
but not be required to pay such additional costs to the other Lender or Lenders
and the Borrower, in its sole discretion, shall deem such additional amounts to
be material or in the event that Libor Loans from a Lender are unavailable to
the Borrower as a result solely of the provisions of Sections 2.9.2, 2.9.3 or
2.9.4, but are available from the other Lender or Lenders, the Borrower shall
have the right to substitute another bank reasonably satisfactory to the Agent
for such Lender which is entitled to such additional costs or which is relieved
from making Libor Loans and the Agent shall use reasonable efforts (with all
reasonable costs of such efforts by the Agent to be borne by the Borrower) to
assist the Borrower to locate such substitute bank. Any such substitution shall
take place in accordance with SECTION 9. 11 and otherwise be on terms and
conditions reasonably satisfactory to the Agent, and until such time as such
substitution shall be consummated, the Borrower shall continue to pay such
additional costs and comply with the above-referenced Sections. Upon any such
substitution, the Borrower shall pay or cause to be paid to the Lender that is
being replaced, all principal, interest (to the date of such substitution) and
other amounts owing hereunder to such Lender and such Lender will be released
from liability hereunder.
Section 2.9.8. ASSUMPTIONS CONCERNING FUNDING OF LIBOR LOANS. The
calculation of all amounts payable to the Lenders under this SECTION 2.9 shall
be made as though each Lender actually funded its relevant Libor Loans through
the purchase of a deposit in the London interbank market bearing interest at the
Libor Rate in an amount equal to that Libor Loan and having a maturity
comparable to the relevant Interest Period and through the transfer of such
deposit from an offshore office of such Lender to a domestic office of such
Lender in the United States of America- provided, however, that each Lender may
fund each of its Libor Loans in any manner it sees fit and the foregoing
assumption shall be utilized solely for the calculation of amounts payable under
this SECTION 2.9.
ARTICLE 3.
CONDITIONS OF LENDING
Section 3.1. CONDITIONS PRECEDENT TO THE COMMITMENT AND TO ALL LOANS.
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Section 3.1.1. THE COMMITMENT AND INITIAL LOANS. The Commitment and
the obligation of the Lenders to make the initial Advances of the Loans
and/or to issue any Letter of Credit or Letter of Credit Agreement are
subject to performance by the Borrower of all of its obligations under this
Agreement and to the satisfaction of the conditions precedent that all legal
matters incident to the transactions contemplated hereby or incidental to the
Loans shall be reasonably satisfactory to counsel for the Agent and that the
Agent shall have received on or before the Closing Date all of the following,
each dated the Closing Date or another date reasonably acceptable to the
Agent and each to be in form and substance reasonably satisfactory to the
Agent or if any of the following is not a deliverable, the satisfaction of
such condition in form and substance reasonably satisfactory to the Agent:
Section 3.1.1.1. The Financing Documents, including,
without limitation, those hereinafter set forth and the Borrower's and any
Subsidiary's certificate of incorporation or other organizational documents.
Section 3.1.1.2. Certificate of the secretary of the
Borrower and each Subsidiary certifying as to the resolutions of the
shareholders or board of directors of the Borrower and each Subsidiary
authorizing and approving each of the Financing Documents to which the
Borrower and each Subsidiary is a party and other matters contemplated hereby
and certifying as to the names and signatures of the Authorized
Representative(s) of the Borrower and each Subsidiary authorized to sign each
Financing Document to be executed and delivered by or on behalf of the
Borrower and each Subsidiary. The Agent and the Lenders may conclusively rely
on each such certificate until the Agent shall receive a further certificate
canceling or amending the prior certificate and submitting the signatures of
the Authorized Representative(s) named in such further certificate.
Section 3.1.1.3. Favorable opinions of Wilson, Sonsini,
Goodrich & Rosati counsel for the Borrower, in form and substance reasonably
satisfactory to the Agent.
Section 3.1.1.4. An Officer's Certificate stating that:
Section 3.1.1.4.1. The representations and warranties
contained in SECTION 4 1 and/or contained in any of the Notes or Security
Documents are correct on and as of the Closing Date as though made on and as
of such date; and
Section 3.1.1.4.2. No Default or Event of Default has
occurred and is continuing, or would result from the making of the Loans.
Section 3.1.1.5. Certificates of good standing or legal
existence of the secretaries of state of the states of organization and
qualification of and covering the Borrower and any Subsidiaries dated
reasonably near the Closing Date.
Section 3.1.1.6. Evidence that (i) the ownership interests
in the Borrower are as set forth in EXHIBIT 1.1, (ii) the New Stockholders
have invested the Equity in the Borrower on or prior to the Closing Date, as
set forth on EXHIBIT 1.1 and (iii) that except for receipt and application of
certain proceeds of the Loans, the Related Transactions have been completed
in accordance with the Related Transaction Documents to the extent required
or contemplated to be. completed on or prior to the Closing Date.
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Section 3.1.1.7. A Request and an Interest Rate Election.
Section 3.1.1.8. All documents, instruments and agreements
necessary to terminate, cancel and discharge the documents, instruments and
agreements evidencing or securing any and all existing Indebtedness of the
Borrower and any Subsidiary and Liens securing such Indebtedness other than
those listed in EXHIBIT 3.1.1.8.
Section 3.1.1.9. Payment to the Agent and the Lenders of the
fees specified in this Agreement or in the Side Letter as being payable on
the Closing Date and all reasonable out-of-pocket costs and expenses incurred
by the Agent and Fleet and billed to the Borrower in connection with the
transactions contemplated hereby, including, but not limited to, reasonable
outside legal expenses and any accounting fees, auditing fees, appraisal
fees, and evidence that all other reasonable fees and costs payable by the
Borrower in connection with the transactions contemplated by this Agreement
and completed on the Closing Date have been paid in full.
Section 3.1.1.10. An Officer's Certificate in the form of
EXHIBIT 3.1.1.10, duly completed and reflecting, INTER ALIA, compliance by
the Borrower as of the opening of business on the first Business Day after
the Closing Date but based on the Borrower's financial information as of the
last day of the Borrower's most recent fiscal quarter, adjusted to give
effect to the Loans made on the Closing Date and completion of the Related
Transactions to be completed on or prior to the Closing Date, with the
financial covenants provided for herein.
Section 3.1.1.11. Such other information about the Borrower
and/or its Business Condition as the Lenders may reasonably request.
Section 3.1.1.12. True copies of, and/or true copies of any
revisions to, the financial statements, the Projections, the pro forma
Closing Date financial statements giving effect to the Loans, the Equity to
be received on or prior to the Closing Date and completion of the other
Related Transactions contemplated or required to be completed on or prior to
the Closing Date, and other information provided pursuant to SECTION 4.1.5.
and certification by the Borrower of the Projections.
Section 3.1.1.13. Certificates of fire, business
interruption, liability and extended coverage insurance policies, each such
policy to name the Agent as mortgagee and loss payee and, on all liability
policies, as additional insured and a commitment for title insurance on
Borrower's owned real estate in amount and on terms and conditions reasonably
satisfactory to the Agent.
Section 3.1.1.14. True descriptions of any pending or, to
the Borrower's best knowledge, threatened litigation against or by Borrower
or any Subsidiary.
Section 3.1.1.15. Evidence that all necessary material third
party consents have been obtained and all required filings with any
governmental authority have been duly completed.
Section 3.1.1.16. The financial statements described in
SECTION 4.1.5 together with Borrower's audited financial statements for
Borrower's fiscal year ending April 30,
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1998 and any accountant's management letter issued in connection therewith
together with the Borrowees pro forma Closing Date balance sheet. Such
financial statements shall be accompanied by an Officer's Certificate of the
chief financial officer of the Borrower to the effect that (i) the
representations of the Borrower set forth in SECTION 4.1.14 are accurate as
of the Closing Date and (ii) that no Material Adverse Effect has occurred
since June 30, 1998 and no significant probability of such a Material Adverse
Effect exists, except as set forth or reflected in the financial statements
described in SECTION 4.1.5, or otherwise disclosed in writing and acceptable
to the Agent.
Section 3.1.1.17. True copies of the Equity Documents and
all documents, instruments and agreements relating to the Borrower's capital
structure and the Related Transaction Documents.
Section 3.1.1.18. The fact that the representations and
warranties of the Borrower contained in Article 4, INFRA and in each of the
other Financing Documents are true and correct in all material respects on
and as of the Closing Date except as altered hereafter by actions not
prohibited hereunder. The Borrower's delivery of each Note to the Lenders and
of each Request to the Agent shall be deemed to be a representation and
warranty by the Borrower as of the date thereof to such effect.
Section 3.1.1.19. That there has been no enactment of any
law by any governmental authority having jurisdiction over the Agent or any
Lender which would make it unlawful in any respect for such Lender to make
the Loans and no Material Adverse Effect has occurred.
Section 3.1.1.20. A completed Year 2000 questionnaire
covering the Borrower and any Subsidiaries.
Section 3.1.2. THE COMMITMENT AND THE LOANS. The Commitment and the
obligation of each Lender to make or maintain its Pro Rata Share of any
Advance or Loan and/or to issue any Letter of Credit or Letter of Credit
Agreement are subject to performance by the Borrower of all its obligations
under this Agreement and to the satisfaction of the following further
conditions precedent:
(a) The fact that, immediately prior to and upon the
making of each Loan, no Event of Default or Default shall have occurred and
be continuing;
(b) The fact that the representations and warranties
of the Borrower contained in Article 4, INFRA and in each of the other
Financing Documents, are true and correct in all material respects on and as
of the date of each Advance or Loan except that any representation or
warranty which speaks as of a specific date shall be true and correct as of
that date, all except as altered hereafter by actions consented to or not
prohibited hereunder. The Borrower's delivery of the Notes to the Lenders and
of each Request to the Agent shall be deemed to be a representation and
warranty by the Borrower as of the date of such Advance or Loan as to the
facts specified in SECTIONS 3.1.2(a) and (b);
(c) Receipt by Agent on or prior to the Business Day
specified in the definition of Interest Rate Election of a written Request
stating the amount requested for the
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Loan or Advance in question and an Interest Rate Election for such Loan or
Advance, all signed by a duly authorized officer of the Borrower on behalf of
the Borrower;
(d) That there exists no law or regulation by any
governmental authority having jurisdiction over the Agent or any of the
Lenders which would make it unlawful in any respect for such Lender to make
its Pro Rata Share of the Loan or Advance, including, without limitation,
Regulations U, T and X of the Board of Governors of the Federal Reserve
System and no Material Adverse Effect has occurred.
ARTICLE 4.
REPRESENTATIONS AND WARRANTEES
Section 4.1. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants to the Agent and the Lenders that, after
giving effect to the Loans and the application of the proceeds thereof (which
representations and warranties shall survive the making of the Loans) as
follows:
Section 4.1.1. ORGANIZATION AND EXISTENCE. The Borrower and any
Subsidiary is a corporation, duly organized, validly existing and in good
standing under the laws of the state of its incorporation or organization and
is duly qualified to do business in all jurisdictions in which such
qualification is required, all as noted on EXHIBIT 4.1.1, except where
failure to so qualify could not be reasonably expected to have a Material
Adverse Effect, and has all requisite power and authority to conduct its
business, to own its properties and to execute and deliver, and to perform
all of its obligations under the Financing Documents.
Section 4.1.2. AUTHORIZATION AND ABSENCE OF DEFAULTS. Except as
described on EXHIBIT 4.1.2, the execution, delivery to the Agent and/or the
Lenders and performance by the Borrower and any Subsidiary of the Financing
Documents and Related Transaction Documents have been duly authorized by all
necessary corporate and governmental action and do not and will not (i)
require any consent or approval of the shareholders or board of directors of
the Borrower or any Subsidiary which has not been obtained, (ii) violate any
provision of any law, rule, regulation (including, without limitation,
Regulations U and X of the board of governors of the federal reserve system),
order, writ, judgment, injunction, decree, determination or award presently
in effect. having applicability to the Borrower and/or any Subsidiary and/or
the articles of organization or by-laws, as applicable, of the Borrower
and/or any Subsidiary, (iii) result in a breach of or constitute a default
under any material indenture or loan or credit agreement or any other
material agreement, lease or instrument to which the Borrower and/or any
Subsidiary is or are a party or parties or by which it or they or a material
portion of its or their properties may be bound or affected; or (iv) result
in, or require, the creation or imposition of any Lien on any of the
Borrower's and/or any Subsidiary's respective properties or revenues other
than Liens granted to the Agent by any of the Financing Documents securing
the Obligations, other than Permitted Encumbrances. The Borrower and any
Subsidiary are in compliance with any such applicable law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award or any such
indenture, other agreement, lease or instrument, except where the failure to
be in compliance could not be reasonably expected to have a Material Adverse
Effect.
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Section 4.1.3. ACQUISITION OF CONSENTS. Except as noted on EXHIBIT
4.1.3, no authorization, consent, approval, license, exemption of or filing
or registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, other than those
which have been obtained, is or will be necessary to the valid execution and
delivery to the Agent and/or the Lenders or performance by the Borrower or
any Subsidiary. of any Financing Documents or any of the Related Transaction
Documents and each of the foregoing which has been, obtained is in full force
and effect.
Section 4.1.4. VALIDITY AND ENFORCEABILITY. Each of the Financing
Documents when delivered hereunder will constitute the legal, valid and
binding obligations of each of the Borrower and any Subsidiary which is or
are a party thereto enforceable against the Borrower, and any Subsidiary
which is or are a party thereto in accordance with their respective terms
except as the enforceability thereof may be limited by the effect of general
principles of equity and bankruptcy and similar laws affecting the rights and
remedies of creditors generally.
Section 4.1.5. FINANCIAL INFORMATION. The following information
with respect to the Borrower has heretofore been furnished to the Agent:
Section 4.1.5.1. Audited annual financial statements of the
Borrower for the period ended April 30, 1998; and
Section 4.1.5.1(A). Unaudited financial statements of the
Borrower for the periods ended April 30, 1997, April 30, 1996 and September
30, 1998
Section 4.1.5.2. The Projections.
Section 4.1.5.3. The pro forma financial statements of the
Borrower as of the Closing Date provided pursuant to SECTION 3.1.1.12.
Each of the financial statements referred to above in SECTIONS 4.1.5.1
and 4 1.5.1(A) was prepared in all material respects in accordance with GAAP
(subject, in the case of interim statements, to the absence of footnotes and
normal year-end adjustments) applied on a consistent basis, except as stated
therein. To the best of the Borrower's knowledge, each of the financial
statements referred to above in SECTIONS 4.1.5.1 and 4.1.5.3 fairly presents
in all material respects the financial condition or pro forma financial
condition, as the case may be, of the Person being reported on at such dates
and is complete and correct in all material respects and no Material Adverse
Effect has occurred since the date thereof The Projections were prepared by
the Borrower in good faith, it being recognized that projections as to future
results are not assertions of fact and that actual results for the periods
cited therein may differ from the results projected therein.
Section 4.1.6. NO LITIGATION. There are no actions, suits or
proceedings pending or, to the knowledge of the Borrower, threatened against
or affecting the Borrower and/or any Subsidiary or any of their properties
before any court or governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which if determined adversely
to the Borrower and/or any Subsidiary would draw into question the legal
existence of the Borrower and/or any such Subsidiary and/or the validity,
authorization and/or enforceability of any of the Financing Documents and/or
any provision thereof and/or could be reasonably
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expected to have a Material Adverse Effect except those matters, if any,
described on EXHIBIT 4.1.6 none of which, in Borrower's good faith opinion,
will (i) have such Material Adverse Effect or (ii) draw into question (a) the
legal existence of the Borrower and/or any such Subsidiary or (b) the
validity, authorization and/or enforceability of any of the Financing
Documents and/or any provision thereof.
Section 4.1.7. REGULATION U. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying
"margin stock" within the meaning of Regulation U of the Board of Governors
of the Federal Reserve System (12 CFR Part 221), does not own and has no
present intention of acquiring any such margin stock or a "margin security"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System (12 CFR, Part 207). None of the proceeds of the Loans will be
used directly or indirectly by the Borrower for the purpose of purchasing or
carrying, or for the purpose of reducing or retiring any Indebtedness which
was originally incurred to purchase or carry, any such margin security or
margin stock or for any other purpose which might constitute the transaction
contemplated hereby a "purpose credit" within the meaning of said Regulation
U, or cause this Agreement to violate any other regulation of the Board of
Governors of the Federal Reserve System or the Securities and Exchange Act of
1934, as amended, or any rules or regulations promulgated under either said
statute.
Section 4.1.8. ABSENCE OF ADVERSE AGREEMENTS. Neither the Borrower
nor any Subsidiary is a party to any indenture, loan or credit agreement or
any lease or other agreement or instrument or subject to any corporate or
partnership restriction which could be reasonably expected to have a Material
Adverse Effect.
Section 4.1.9. TAXES. The Borrower and each Subsidiary has filed
all tax returns (federal, state and local) required to be filed and paid all
taxes shown thereon to be due, including interest and penalties, except for
those taxes, if any, which are being contested in good faith and by
appropriate proceedings, and for which proper reserve or other provision has
been made in accordance with GAAP and except where any failure to file or pay
could not be reasonably expected to have a Material Adverse Effect on the
Borrower or any Subsidiary and except as described in EXHIBIT 4.1.9.
Section 4.1.10. ERISA. Borrower and any Commonly Controlled Entity
do not maintain or contribute to any Plan which is not in substantial
compliance with ERISA, or any Single Employer Plan which has incurred any
accumulated funding deficiency within the meaning of sections 412 and 418 of
the Code, or which has applied for or obtained a waiver from the Internal
Revenue Service of any minimum funding requirement under section 412 of the
Code. Borrower and any Commonly Controlled Entity have not incurred any
liability to the PBGC in connection with any Plan covering any employees of
Borrower or any Commonly Controlled Entity in amount exceeding Fifty Thousand
Dollars ($50,000) in the aggregate or ceased operations at any facility or
withdrawn from any Plan in a manner which could subject any of them to
liability under sections 4062(e), 4063 or 4064 of ERISA in amount exceeding
Fifty Thousand Dollars ($50,000) in the aggregate, and know of no facts or
circumstance which might give rise to any liability of Borrower or any
Commonly Controlled Entity to the PBGC under Title IV of ERISA in amount
exceeding Fifty Thousand Dollars ($50,000) in the aggregate. Borrower and any
Commonly Controlled Entity have not incurred any withdrawal
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liability in amount exceeding Fifty Thousand Dollars ($50,000) in the
aggregate (including but not limited to any contingent or secondary
withdrawal liability) within the meaning of sections 4201 and 4202 of ERISA,
to any Multiemployer Plan, and no event has occurred, and there exists no
condition or set of circumstances known to the Borrower, which presents a
risk- of the occurrence of any withdrawal from or the partition, termination,
reorganization or insolvency of any Multiemployer Plan which could result in
any liability to a Multiemployer Plan in amount exceeding Fifty Thousand
Dollars ($50,000) in the aggregate.
Except for payments for which the minimum funding requirement has
been waived under section 412 of the Code, full payment has been made of all
amounts which Borrower and any Commonly Controlled Entity are required to
have paid as contributions to any Plan under applicable law or under any plan
or any agreement relating to any Plan to which Borrower or any Commonly
controlled Entity is a party. Borrower and each Commonly Controlled Entity
have made adequate provision for reserves to meet contributions that have not
been made because they are not yet due under the terms of any Plan or related
agreements.
Neither Borrower nor any Commonly Controlled Entity has any
knowledge, nor do any of them have any reason to believe, that any Reportable
Event which could result in a liability or liabilities of Fifty Thousand
Dollars ($50,000) or more in the aggregate has occurred with respect to any
Plan.
Section 4.1.11. OWNERSHIP OF PROPERTIES.
Section 4.1.11.1. Except for Permitted Encumbrances,
Borrower and any Subsidiary has good title to all of its properties and
assets free and clear of all restrictions and Liens of any kind other than
those which could not be reasonably expected to have a Material Adverse
Effect or a material adverse effect on the validity, authorization and/or
enforceability of the Financing Documents and/or any provision thereof.
Section 4.1.11.2. EXHIBIT 4.1.11 accurately and completely
lists the location of all real property owned or leased by Borrower or any
Subsidiary. Borrower and each Subsidiary enjoys quiet possession under all
material leases of real property to which it is a party as a lessee, and all
of such leases are valid, subsisting and, to Borrower's knowledge, in full
force and effect.
Section 4.1.11.3. To Borrower's knowledge, except as
specified in Exhibit 4.1.11, none of the real property occupied by Borrower
or any Subsidiary is located within any federal, state or municipal flood
plain zone.
Section 4.1.11.4. Except as set forth in Exhibit 4.1.11,
all of the material properties used in the conduct of the Borrower's and each
Subsidiary's business (i) are in good repair, working order and condition
(reasonable wear and tear excepted) and in Borrower's reasonable business
judgment, reasonably suitable for use in the operation of Borrower's, and
each Subsidiary's business; and (ii) to Borrower's knowledge are currently
operated and maintained, in all material respects, in accordance with the
requirements of applicable governmental authorities.
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Section 4.1.12. ACCURACY OF REPRESENTATIONS AND WARRANTIES. None of
Borrower's representations or warranties set forth in this Agreement or in
any document or certificate furnished pursuant to this Agreement or in
connection with the transactions contemplated hereby taken as a whole
(excepting however for the purposes of this Section 4.1.12, any
representation or warranty as to the Projections or the Budget without
limiting or negating the representation set forth in the last sentence of
Section 4.1.5) contains any untrue statement of a material fact or omits to
state a material fact necessary to make any statement of fact contained
herein or therein, in light of the circumstances under which it was made, not
misleading; except that unless provided otherwise any such document or
certificate which is dated speaks as of the date stated and not the present.
Section 4.1.13. NO INVESTMENT COMPANY. Neither the Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an
`investment company' as such terms are defined in the Investment Company Act
of 1940, as amended, which is required to register thereunder.
Section 4.1.14. SOLVENCY, ETC. After giving effect to the
consummation of each Loan outstanding and to be made under this Agreement as
of the time this representation and warranty is given, the Borrower (a) will
be able to pay its debts as they become due, (b) will have funds and capital
sufficient to carry on its business and all businesses in which it is about
to engage, and (c) will own property in the aggregate having a value both at
fair valuation and at fair saleable value in the ordinary course of the
Borrower's business greater than the amount required to pay its Indebtedness,
including for this purpose unliquidated and disputed claims. The Borrower
will not be rendered insolvent by the execution and delivery of this
Agreement and the consummation of any transactions contemplated herein.
Section 4.1.15. APPROVALS. Except as set forth in Exhibits 4.1.3,
all material approvals required from all Persons including without limitation
all governmental authorities with respect to the Financing Documents and the
Related Transactions have been obtained, but excluding from this
representation and warranty any such approvals required to be obtained by the
Agent or the Lenders.
Section 4.1.16. OWNERSHIP INTERESTS. As of the Closing Date the
schedule of ownership interests in the Borrower and any Subsidiaries set
forth in EXHIBIT 1.1 is true, accurate and complete and the Investments to be
made for all ownership interests disclosed therein have in fact been fully
paid in immediately available Dollars after giving effect to the closing of
the Related Transactions.
Section 4.1.17. LICENSES, REGISTRATIONS, COMPLIANCE WITH LAWS, ETC.
Except as set forth on EXHIBIT 4.1.17, the Borrower maintains in full force
and effect all permits, governmental licenses, registrations and approvals,
material, in Borrower's reasonable business judgment, to carrying out of
Borrowees and each of the Subsidiaries' businesses as presently conducted and
as required by law or the rules and regulations of any federal, foreign
governmental, state, county or local association, corporation or governmental
agency, body, instrumentality or commission having jurisdiction over the
Borrower or any of the Subsidiaries, including but not limited to the United
States Environmental Protection Agency, the United States Department of
Labor, the United States Occupational Safety and Health Administration, the
United States Equal
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Employment Opportunity Commission, the Federal Trade Commission and the
United States Department of Justice and analogous and related state and
foreign agencies. All reasonably necessary existing authorizations, licenses
and permits are in full force and effect, are duly issued in the name of, or
validly assigned to the Borrower or a Subsidiary and the Borrower or a
Subsidiary has full power and authority to operate thereunder, except where
the failure of such power and authority could not be reasonably expected to
have a Material Adverse Effect. There is no material violation or material
failure of compliance or, to Borrower's knowledge, allegation of such
violation or failure of compliance on the part of the Borrower or any
Subsidiary with any of the foregoing permits, licenses, registrations,
approvals, rules or regulations and there is no action, proceeding or
investigation pending or to the knowledge of the Borrower threatened nor has
the Borrower or any Subsidiary received any notice of such which might result
in the termination or suspension of any such permit, license, registration or
approval which in any case could be reasonably expected to have a Material
Adverse Effect.
Section 4.1.18. PRINCIPAL PLACE OF BUSINESS; BOOKS AND RECORDS. The
Borrower's chief executive offices are located at Borrowers addresses set
forth in Section 9.6. All of the Borrower's books and records are kept at one
or more of its addresses set forth in SECTION 9.6.
Section 4.1.19. SUBSIDIARIES. The Borrower has only the
Subsidiaries identified on EXHIBIT 1.1.
Section 4.1.20. COPYRIGHT. To the best of Borrowees knowledge,
except as set forth in EXHIBIT 4.1.20 the Borrower has not violated any of
the provisions of the Copyright Act of 1976, 17 U.S.C. 101, ET SEQ. EXHIBIT
4.1.20 accurately and completely sets forth all registered copyrights and/or
copyright applications held by the Borrower or any of the Subsidiaries and
contains exceptions to the representations contained in this Section 4.1.20.
To the best of Borrower's knowledge, no claim of infringement of a copyright
by the Borrower has been made or threatened by any other Person. To the best
of Borrowees knowledge, the Borrower has not allocated revenues in any manner
inconsistent with the rules and regulations of the Copyright Office.
Section 4.1.21. ENVIRONMENTAL COMPLIANCE. As of the Closing Date
(and thereafter, where any of the following would be reasonably likely to
result in any liability to the Borrower or any Subsidiary in an amount
exceeding $ 100,000 in the aggregate for all such occurrences), neither the
Borrower nor, to the knowledge of the Borrower, any other Person:
Section 4.1.21.1. has ever caused, permitted, or suffered
to exist any Hazardous Material to be spilled, placed, held, located or
disposed of on, under, or about, any of the facilities owned, leased or used
by the Borrower (the "Premises"), or from the Premises into the atmosphere,
any body of water, any wetlands, or on any other real property, nor to
Borrower's knowledge does any Hazardous Material exist on, under or about the
Premises other than as disclosed on EXHIBIT 4.1.21, or in respect of
Hazardous Material used or disposed of in compliance with law;
Section 4.1.21.2. has any knowledge that any of the
Premises has ever been used (whether by the Borrower or, to the knowledge of
the Borrower, by any other Person) as a treatment, storage or disposal
(whether permanent or temporary) site for any Hazardous
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Waste as defined in 42 U. S. C. A. 6901, ET SEQ. (the Resource Conservation
and Recovery Act); and
Section 4.1.21.3. has any knowledge of any notice of
violation, Lien or other notice issued by any governmental agency with
respect to the environmental condition of the Premises or any other property
occupied by the Borrower, or any other property which was included in the
property description of the Premises or such other real property occupied by
the Borrower within the preceding three years except as disclosed to the
Agent.
Section 4.1.22. MATERIAL AGREEMENTS, ETC. EXHIBIT 4.1.22 and 4.1.17
attached hereto accurately and completely lists all material agreements to
which the Borrower or any of the Subsidiaries are a party including without
limitation all software licenses, and all material construction, engineering,
consulting, employment, management, operating and related material
agreements, if any, which art, presently in effect. All of the material
agreements to which Borrower or any Subsidiary is a party, are legally valid,
binding, and, to Borrower's knowledge, in full force and effect and neither
the Borrower, any of the Subsidiaries nor, to Borrowees knowledge, any other
parties thereto are in material default thereunder.
Section 4.1.23. PATENTS, TRADEMARKS AND OTHER PROPERTY RIGHTS.
EXHIBIT 4.1.23 attached hereto contains a complete and accurate schedule of
all registered trademarks, registered copyrights and registered patents of
the Borrower and/or any of the Subsidiaries, and pending applications
therefor. Except as set forth in EXHIBIT 4.1.23, the Borrower and any
Subsidiaries own, possess, or have licenses to use all the patents,
trademarks, service marks, trade names, copyrights and non-governmental
licenses, and all rights with respect to the foregoing, which in the
Borrower's business judgment are necessary for the conduct of their
respective businesses as now conducted, without, to the Borrower's knowledge
any conflict with the rights of others with respect thereto or Borrower could
obtain such intellectual property in a manner which could not be reasonably
expected to have a Material Adverse Effect.
Section 4.1.24. RELATED TRANSACTION DOCUMENTS. The Borrower has, on
or prior to the date hereof, delivered to the Lenders true copies of the
Related Transaction Documents, and each and every amendment or modification
thereto existing as of the Closing Date.
ARTICLE 5.
COVENANTS OF THE BORROWER
Section 5.1. AFFIRMATIVE COVENANTS OF THE BORROWER OTHER THAN
REPORTING REQUIREMENTS. From the date hereof and thereafter for so long as
there is Indebtedness of the Borrower to any Lender and/or the Agent under
any of the Financing Documents or any part of the Commitment is in effect,
the Borrower will, with respect to itself and, unless noted otherwise below,
with respect to each of its Subsidiaries, ensure that each Subsidiary will,
unless the Majority Lenders shall otherwise consent in writing:
Section 5.1.1. PAYMENT OF TAXES, ETC. Pay and discharge all taxes and
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims for the same which, if
unpaid, might become a Lien upon any of its properties, provided
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that (unless and until foreclosure, restraint, sale or any similar proceeding
is pending and is not stayed, discharged or bonded within 60 days after
commencement) the Borrower shall not be required to pay, any such tax,
assessment, charge, levy or claim which is being contested in good faith and
by proper proceedings and for which proper reserve or other provision has
been made in accordance with GAAP, unless failure to pay could not reasonably
be expected to result in a Material Adverse Effect.
Section 5.1.2. MAINTENANCE OF INSURANCE. Maintain on the collateral
under any of the Security Documents insurance against loss by fire, hazards
included within the term "extended coverage", and such other hazards,
casualties and contingencies as the Agent may from time to time reasonably
require, in an amount equal to one hundred percent (100%) of the replacement
cost of the collateral under any of the Security Documents and business
interruption insurance in the amount of at least $4,000,000. All policies of
such insurance and all renewals thereof shall be in form and substance
acceptable to Agent, shall be made payable in case of loss to the Agent as
loss payee as its interest may appear and mortgagee and shall contain an
endorsement requiring thirty (30) days prior written notice to the Agent
prior to cancellation or change in the coverage, scope or amount of any such
policies. Borrower shall also keep in full force and effect a policy of
public liability insurance against claims of bodily injury, death or property
damage occurring in any building in which the limits of liability shall not
be less than One Million Dollars ($1,000,000) per person and Two Million
Dollars ($2,000,000) per accident, together with an excess liability policy
in the amount of Two Million Dollars ($2,000,000) which shall be in addition
to the limits above set forth. Borrower shall increase the limits of such
liability insurance to such higher amounts as the Agent may from time to time
reasonably require. Certificates of all such insurance shall be delivered to
the Agent concurrently with the execution and delivery of this Agreement, and
thereafter all renewal or replacement certificates shall be delivered to the
Agent not less than thirty (30) days prior to the expiration date of the
policy to be renewed or replaced, accompanied by evidence reasonably
satisfactory to the Agent that all premiums payable with respect to such
policies have been paid by Borrower. Borrower shall have the right of free
choice in the selection of the agent or the insurer through or by which the
insurance required hereunder is to be placed; provided, however, said insurer
has at all times a general policyholder's rating of A or A+ in Best's latest
rating guide. Furthermore, from and after the occurrence of an Event of
Default, the Agent shall have the right and is hereby constituted and
appointed the true and lawful attorney irrevocable of Borrower, in the name
and stead of Borrower, but in the uncontrolled discretion of said attorney,
(i) to adjust, sue for, compromise and collect any amounts due under such
insurance policies in the event of loss and (ii) to give releases for any and
all amounts received in settlement of losses under such policies; and the
same shall, subject to Section 2.6.1.3 of this Agreement, at the option of
the Agent, be applied, after first deducting the costs of collection, on
account of any Indebtedness the payment of which is secured by any of the
Financing Documents, whether or not then due, or, notwithstanding the claims
of any subsequent lienor, be used or paid over to Borrower in accordance with
reasonable procedures established by the Agent for use in repairing or
replacing any damaged or destroyed collateral under any of the Security
Documents.
Section 5.1.3. PRESERVATION OF EXISTENCE, ETC. Preserve and
maintain in full force and effect its legal existence, and all material
rights, franchises and privileges in the jurisdiction of its organization,
preserve and maintain all material licenses, governmental approvals,
trademarks, patents, trade secrets, copyrights and trade names owned or
possessed by it and
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which are necessary or, in the reasonable business judgment of the Borrower,
necessary or desirable in view of its business and operations or the
ownership of its properties and qualify or remain qualified as a foreign
corporation in each jurisdiction in which such qualification is necessary or,
in its reasonable business judgment, necessary or desirable in view of its
business and operations and ownership of its properties except where the
failure to so qualify could not be reasonably expected to have a Material
Adverse Effect.
Section 5.1.4. COMPLIANCE WITH LAWS, ETC. Comply with the
requirements of all present and future applicable laws, rules, regulations
and orders of any governmental authority having jurisdiction over it and/or
its business including, without limitation, regulations of the United States
Copyright Office and the Copyright Royalty Tribunal Office, except where the
failure to comply could not be reasonably expected to have a Material Adverse
Effect.
Section 5.1.5. VISITATION RIGHTS. Permit, during normal business
hours and upon the giving of reasonable notice, the Agent, the Lenders and
any agents or representatives thereof, to examine and make copies of (at
Borrower's cost and expense (excluding Agent's travel expense) and abstracts
from the records and books of account of, and visit the properties of the
Borrower and any Subsidiary to discuss the affairs, finances and accounts of
the Borrower or any Subsidiary with any of their partners, officers or
management level employees and/or any independent certified public accountant
of the Borrower and/or any Subsidiary. Prior to the occurrence of a Default
or an Event or Default, Agent agrees to limit any such examinations to no
more than four (4) such examinations in any calendar year.
Section 5.1.6. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep
adequate records and books of account, in which complete entries will be made
so as to allow Borrower to prepare financial statements in accordance with
GAAP and with applicable requirements of any governmental authority having
jurisdiction over the Borrower and/or any Subsidiary in question, reflecting
all material financial transactions.
Section 5.1.7. MAINTENANCE OF PROPERTIES, ETC. Subject to SECTION
5.2.3, maintain and preserve all of its properties necessary or useful in the
proper conduct of its business in its reasonable business judgment, in good
working order and condition, ordinary wear and tear excepted, and in
accordance with each of the Security Documents.
Section 5.1.8. [Post-Closing Items. Complete in a timely fashion all
actions required in the Post-Closing Letter.]
Section 5.1.9. OTHER DOCUMENTS, ETC. Except as otherwise required by
this Agreement, pay, perform and fulfill all of its material obligations and
covenants under each document, instrument or agreement to which it is a party
including, without limitation, the Related Transaction Documents; provided
that so long as the Borrower or any Subsidiary is contesting any claimed
default unless waived or cured by it or them under any of the foregoing by
proper proceedings conducted in good faith and for which any proper reserve
or other provision in accordance with and to the extent required by GAAP has
been made, such default shall not be deemed a violation of this covenant.
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Section 5.1.10. MINIMUM CONSOLIDATED NET WORTH. Maintain a
Consolidated Net Worth in an amount not less than the sum of (i) eighty-five
percent (85%) of Consolidated Net Worth as of the Closing Date plus (ii)
seventy-five percent (75%) of Net Income for the period beginning as of the
Closing Date without any reduction for losses, plus (iii) one hundred (100%)
percent of the net proceeds of any offering or sale of an equity security of
the Borrower or any Subsidiaries or the conversion to equity of any debt
after the Closing Date, to be measured at each Borrower fiscal quarter end on
a cumulative basis from the Closing Date.
Section 5.1.11. MINIMUM DEBT SERVICE COVERAGE RATIO. Maintain a
ratio of (i) EBITDA less, for the fiscal period over which EBITDA is
measured, the sum of cash taxes paid and Capital Expenditures to (ii) the sum
of Total Debt Service for the Borrower fiscal quarters ending January 31,
1999 and April 30, 1999, if Borrower's cash and Cash Equivalent Investments
at such date in question exceed $3,000,000, 1.25: 1.00 and otherwise and
thereafter of not less than 1.5O: 1.00 at each Borrower fiscal quarter end.
Section 5.1.12. MAXIMUM RATIO OF TOTAL INDEBTEDNESS FOR BORROWED
MONEY TO EBITDA. Maintain at the end of each fiscal quarter of the Borrower a
ratio of (i) total Indebtedness for Borrowed Money of the Borrower and its
Subsidiaries on a consolidated basis as of the last day of such fiscal
quarter to (ii) EBITDA of not greater than 2.00: 1.00.
Section 5.12(A). MINIMUM NET INCOME. Maintain Net Income of at
least $1.00 for each period consisting of the most recent Borrower fiscal
quarter and the three immediately preceding Borrower fiscal quarters and in
any such four-quarter period have at least $1.00 of Net Income for at least
two Borrower fiscal quarters.
Section 5.1.13. OFFICER'S CERTIFICATES AND REQUESTS. Provide each
Officer's Certificate required under this Agreement and each Request so that
the statements contained therein are accurate and complete in all material
respects.
Section 5.1.14. DEPOSITORY. Use the Agent as a depository of
Borrower's funds.
Section 5.1.15. CHIEF EXECUTIVE OFFICER. Maintain Jerry S. Rawls as
the president or chief executive officer of the Borrower and as the Person
with principal executive, operating.. and management responsibility for the
Borrower's business and Dr. Frank Levinson as principal technologist of the
Borrower or, in each case, obtain a replacement of comparable experience and
training in the Borrowees industry reasonably satisfactory to the Majority
Lenders within one year of either such Person's ceasing to act in such
capacity.
Section 5.1.16. NOTICE OF PURCHASE OF REAL ESTATE AND LEASES.
Promptly notify the Agent in the event that the Borrower shall purchase any
real estate or enter into any lease of real estate material to the operation
of the Borrower's business, supply the Agent with a copy of the related
purchase agreement or of such lease, as the case may be, and if requested by
the Agent, execute and deliver, or cause to be executed and delivered, to the
Agent for the benefit of the Lenders a deed of trust, mortgage, assignment or
other document, together with landlord consents, in the case of leased
property, reasonably satisfactory in form and substance to the Agent,
granting a valid first Lien (subject to any Liens permitted under SECTION
5.2. 1 hereto on such real property or leasehold as security for the
Financing Documents.
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Section 5.1.17. ADDITIONAL ASSURANCES. From time to time hereafter,
execute and deliver or cause to be executed and delivered, such additional
instruments, certificates and documents, and take all such actions, as the
Agent shall reasonably request for the purpose of implementing or
effectuating the provisions of the Financing Documents, and upon the exercise
by the Agent of any power, right, privilege or remedy pursuant to the
Financing Documents which requires any consent, approval, registration,
qualification or authorization of any governmental authority or
instrumentality, exercise and deliver all applications, certifications,
instruments and other documents and papers that the Agent may be so required
to obtain.
Section 5.1.18. APPRAISALS. Permit the Agent and its agents, at any
time and in the sole discretion of the Agent or at the request of the
Majority Lenders, to conduct appraisals of the Borrower's business, the cost
of which shall be borne by the Borrower, including without limitation a field
audit of Borrower's accounts receivable by the Agent within 60 days after the
Closing Date with results reasonably acceptable to the Agent. Unless a
Default or an Event of Default shall have occurred and be continuing, Agent
agrees to limit any such examinations to no more than the above-referenced
audit of Borrower's accounts receivable and one (1) such examination in any
calendar year at a cost to Borrower not to exceed $2,500 per examination.
Section 5.1.19. ENVIRONMENTAL COMPLIANCE. Comply in all material
respects with the requirements of all applicable federal, state, and local
environmental laws; notify the Agent promptly in the event of any spill of
Hazardous Material affecting the Premises occupied by the Borrower from time
to time, which such spill would be reasonably expected to result in or cause
a Material Adverse Effect; forward to the Agent promptly any written notices
relating to such matters received from any governmental agency; and pay
promptly when due any uncontested fine or assessment against the Premises.
Section 5.1.20. REMEDIATION. In accordance with commercially
reasonable practice in place for the jurisdiction where any such event
occurs, immediately remediate in accordance with applicable law any Hazardous
Material found on the Premises in compliance with applicable laws and at the
Borrower's expense, subject however, to the right of the Agent, at the
Agent's option but at the Borrower's expense, to have an environmental
engineer or other representative review the work being done.
Section 5.1.21. SITE ASSESSMENTS. Promptly upon the request of the
Agent, based upon the Agent's reasonable belief that a material Hazardous
Material or other environmental problem exists with respect to any Premises,
provide the Agent with a Phase I environmental site assessment report and, if
Agent finds a reasonable basis for further assessment in such Phase I
assessment, a Phase II environmental site assessment report, or an update of
any existing report, all in scope, form and content and performed by such
company as may be reasonably satisfactory to the Agent.
Section 5.1.22. KEY-MAN INSURANCE. The Borrower shall obtain at
commercially reasonable rates within thirty (3 0) days of the Closing Date
and maintain in force, until canceled or modified with the written consent of
the Majority Lenders, an insurance policy on the lives of each of Jerry S.
Rawls and Frank Levinson, each in the amount of $1,000,000 naming the
Borrower as holder and beneficiary. The obligations of the Borrower pursuant
to this Section 5.1.22 shall terminate upon the consummation of a Qualified
Initial Public Offering.
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Section 5.1.23. TRADEMARKS, COPYRIGHTS, ETC. Concurrently with the
acquisition of any registered trademark, tradename, copyright, patent or
service mark grant a first priority perfected Lien thereon to the Agent
pursuant to documents in form and substance reasonably satisfactory to the
Agent.
Section 5.2. NEGATIVE COVENANTS OF THE BORROWER. From the date hereof
and thereafter for so long as there is Indebtedness of the Borrower to any
Lender and/or the Agent under any of the Financing Documents or any part of
the Commitment is in effect, the Borrower will not, with respect to itself
and, unless noted otherwise below, with respect to each of the Subsidiaries,
will ensure that each, such Subsidiary will not, without the prior written
consent of the Majority Lenders:
Section 5.2.1. LIENS, ETC. Create, incur, assume or suffer to exist
any Lien of any nature, upon or with respect to any of its properties, now
owned or hereafter acquired, or assign as collateral or otherwise convey as
collateral, any right to receive income, except that the foregoing
restrictions shall not apply to any Liens:
Section 5.2.1.1. For taxes, assessments or governmental charges
or levies on property I if the same shall not at the time be delinquent or
thereafter can be paid without penalty or interest, or (if foreclosure,
distraint, sale or other similar proceedings shall not have been commenced or
if commenced not stayed, bonded or discharged within 60 days after
commencement) are being contested in good faith and by appropriate
proceedings diligently conducted and for which proper reserve or other
provision has been made in accordance with and to the extent required by GAAP;
Section 5.2.1.2. Imposed by law (or pursuant to customary
ordinary course contracts), such as landlords', carriers', warehousemen's and
mechanics' liens, bankers' set off rights and other similar Liens arising in
the ordinary course of business for sums not yet due or being contested in
good faith and by appropriate proceedings diligently conducted and for which
proper reserve or other provision has been made in accordance with and to the
extent required by GAAP;
Section 5.2.1.3. Arising in the ordinary course of business out
of pledges or deposits under worker's compensation laws, unemployment
insurance, old age pensions, or other social security or retirement benefits,
or similar legislation;
Section 5.2.1.4. Arising from or upon any judgment or award,
provided that such judgment or award is being contested in good faith by
proper appeal proceedings and only so long as execution thereon shall be
stayed;
Section 5.2.1.5. Those set forth on EXHIBIT 1.8;
Section 5.2.1.6. Those now or hereafter granted pursuant to the
Security Documents or otherwise now or hereafter granted to the Agent for the
benefit of the Lenders as collateral for the Loans and/or Borrower's other
Obligations arising in connection with or under any of the Financing
Documents;
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Section 5.2.1.7. Deposits to secure the performance of bids,
trade contracts (other than for Indebtedness), leases, statutory obligations,
surety bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of the Borrower's or any Subsidiary's
business;
Section 5.2.1.8. Easements, rights of way, restrictions and
other similar encumbrances incurred in the ordinary course of business which,
in the aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of business by the Borrower or
any Subsidiary;
Section 5.2.1.9. Liens securing Indebtedness permitted to exist
under Section 5.2.8.3; provided that the Lien securing any such Indebtedness
is limited to the item of property purchased or leased in each case and
additions, attachments and accessions thereto and proceeds and replacements
thereof,
Section 5.2.1.10. UCC-I financing statements filed solely for
notice or precautionary purposes by lessors under operating leases which do
not secure Indebtedness and which are limited to the items of equipment
leased pursuant to the lease in question- and
Section 5.2.1.11. Liens on properties in respect of judgments
or awards not constituting an Event of Default under Article VI.
Section 5.2.1.12. Leases or subleases and licenses and
sublicenses granted to others in the ordinary course of Borrower's business
not interfering in any material respect with the business of Borrower and its
Subsidiaries taken as a whole, and any interest or title of a lessor,
licensor or under any lease or license.
Section 5.2.1.13. Liens on assets (including the proceeds
thereof and accessions thereto) that existed at the time such assets were
acquired by Borrower or a Subsidiary (including liens on assets of any
corporation that existed at the time it became or becomes a Subsidiary).
Section 5.2.1.14. Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation or exportation of goods; and
Section 5.2.1.15. Liens on insurance proceeds in favor of
insurance companies solely to secure the payment of financed premiums.
Section 5.2.2. ASSUMPTIONS, GUARANTIES, ETC, OF INDEBTEDNESS OF
OTHER PERSONS. Assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligation or Indebtedness of any
other Person, except:
Section 5.2.2.1. Guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business;
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Section 5.2.2.2. Assumptions, guaranties, endorsements and
contingent liabilities within the definition of Indebtedness and permitted by
SECTION 5.2.8; and
Section 5.2.2.3. Those set forth on EXHIBIT 5.2.2.
Section 5.2.3. ACQUISITIONS, DISSOLUTION, ETC. Except for the
consummation of the Related Transactions and any Qualified Initial Public
Offering, acquire, in one or a series of transactions, all or any substantial
portion of the assets or ownership interests in another Person, or dissolve,
liquidate, wind up, merge or consolidate or combine with another Person or
except as permitted by Section 2.6.1.4 hereof sell, assign, lease or
otherwise dispose of (whether in one transaction or in a series of
transactions) any material assets, whether now owned or hereafter acquired,
except as follows:
(i) the Borrower may merge into a Delaware corporation newly
formed by or on behalf of the Borrower having the same name as the
Borrower and which owns all of and only the Borrower's assets and is
liable only for the Borrower's liabilities, including without
limitation the Obligations all as they exist immediately prior to such
merger; provided, that the Borrower shall provide the Agent with at
least thirty (30) days prior written notice of any such merger
accompanied by such information relating thereto as may be requested by
the Agent, together with the creation of such Liens and the execution
of such UCC- I financing statements and amendments to the Security
Documents as the Agent shall require in its reasonable discretion;
(ii) the Borrower may sell, assign, lease or otherwise dispose
of (whether in one transaction or in a series of transaction) material
assets, whether now owned or hereafter acquired, or any of Borrower's
or any Subsidiary's interest in real property to the extent that (a)
such assets are replaced within ninety (90) days of any asset sale,
assignment, lease or disposition with assets of like kind, usefulness
and value, or (b) such dispositions (w) occur in the ordinary course of
the Borrower's business, (x) consist of dispositions of investments
permitted under Section 5.2.12, (y) consist of dispositions in
connection with sale and leaseback transactions permitted under Section
5.2.6, or (z) consist of dispositions of receivables permitted under
SECTION 5.2.7. and
(iii) the Borrower may acquire the ownership interests or assets
of another business entity (through a merger, consolidation, stock or
asset purchase) engaged in a business permitted by Section 5.2.4 only
if the consideration paid or payable by the Borrower or any Subsidiary
solely consists of Borrowers or such Subsidiary's common stock,
preferred stock or other equity interests and so long as the sum of the
amount of such Indebtedness' in the aggregate outstanding at any time
and the aggregate outstanding amount of Capitalized Lease Obligations
and purchase money Indebtedness, all of the Borrower and any
Subsidiaries, does not exceed $2,500,000, assumption by the Borrower of
Indebtedness of such business entity outstanding prior to any such
acquisition.
Section 5.2.4. CHANGE IN NATURE OF BUSINESS. Engage in any business
other than the business of the Borrower on the date hereof and lines of
business incidental or reasonably related thereto.
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Section 5.2.5. OWNERSHIP. Cause or permit the occurrence of any
Change of Control.
Section 5.2.6. LEASES; SALE AND LEASEBACK. Enter into (a) any sale
and leaseback arrangement with any lender or investor other than (i) a
sale-leaseback entered into within 90 days of the acquisition of the property
if immediately after giving effect thereto, no Default or Event of Default
shall exist, or (ii) if the lease-back is a Capitalized Lease Obligation and
if immediately after giving effect thereto, no Default or Event of Default
exists, (b) any lease treated as an operating lease under GAAP, but treated
as a loan or financing for United States federal income tax purposes, or (c)
any Capitalized Lease Obligations if the aggregate payment obligations of the
Borrower thereunder exceed the remainder of $2,500,000 less the sum of the
amount of Indebtedness assumed pursuant to SECTION 5.2.3 (III) and the
aggregate amount of purchase money Indebtedness permitted under SECTION
5.2.8.3.
Section 5.2.7. SALE OF ACCOUNTS, ETC. Sell, assign, discount or
dispose in any way of any accounts receivable, promissory notes or trade
acceptances held by the Borrower or any Subsidiary, with or without recourse,
except in the ordinary course of the Borrower's or any Subsidiary's business.
Section 5.2.8. INDEBTEDNESS. Incur, create, become or be liable
directly or indirectly, in any manner with respect to or permit to exist any
Indebtedness except:
Section 5.2.8.1. Indebtedness under the Financing Documents;
Section 5.2.8.2. Indebtedness with respect to trade payable
obligations and other normal accruals and customer deposits in the ordinary
course of business not yet due and payable in accordance with customary trade
terms or with respect to which the Borrower or any Subsidiary is contesting
in good faith the amount or validity thereof by appropriate proceedings and
then only to the extent such person has set aside on its books adequate
reserves therefor in accordance with and to the extent required by GAAP;
Section 5.2.8.3. Indebtedness with respect to Capitalized
Lease Obligations permitted under SECTION 5.2.6 and purchase money
Indebtedness with respect to real or personal property in an aggregate amount
outstanding at any time not to exceed the remainder of $2,500,000 less the
sum of the amount of Indebtedness assumed pursuant to SECTION 5.2.3(iii) and
Capitalized Lease Obligations described in SECTION 5.2.6; provided that the
amount of any purchase money Indebtedness does not exceed 100% of the lesser
of the cost or fair market value of the asset purchased with the proceeds of
such Indebtedness;
Section 5.2.8.4. Unsecured Indebtedness in an aggregate amount
outstanding at any time not to exceed $250,000 plus any additional
subordinated Indebtedness pursuant to the terms of subordination agreements
and in an amount reasonably acceptable to Majority Lenders;
Section 5.2.8.5. Indebtedness listed on EXHIBIT 3.1.1.8;
Section 5.2.8.6. Indebtedness owing by the Borrower to any
Subsidiary or by any Subsidiary to the Borrower or any other Subsidiary.
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Section 5.2.8.7. Indebtedness permitted by SECTION 5.2.2.
Section 5.2.8.8. Indebtedness outstanding as a refinancing of
Indebtedness permitted under another clause of this SECTION 5.2.8 other than
SECTIONS 5.2.8.2 or 5.2.8.8; provided that such Indebtedness as refinanced
continues to qualify as permitted Indebtedness under the clause of this
SECTION 5.2.8 under which the refinanced Indebtedness was permitted under
this SECTION 5.2.8.
Section 5.2.8.9. Indebtedness incurred by Borrower or any
Subsidiary constituting interest rate or currency future, forward or swap
contracts entered into for the purpose of hedging interest rate or currency
fluctuation risk.
Section 5.2.9. OTHER AGREEMENTS. Amend any of the terms or
conditions of any of the Related Transaction Documents, its certificate of
incorporation, if any, any subordination agreement or any indenture,
agreement, document, note or other instrument evidencing, securing or
relating to any other Indebtedness permitted under SECTION 5.2.8, in each
case in a manner materially adverse to the Agent or any of the Lenders.
Section 5.2.10. [INTENTIONALLY OMITTED.]
Section 5.2.11. Dividends, Payments and Distributions. Except for
the consummation of the Related Transactions, a Qualified Initial Public
Offering, repurchases of capital stock solely with the proceeds of newly
issued shares of capital stock (but only to the extent no Change of Control
has occurred or occurs immediately thereafter) or any employee stock
redemptions in the ordinary course of the Borrower's business pursuant to
qualified or nonqualified employee stock plans, declare or pay any dividends
or make any other distribution of cash or property or both to any of the
Stockholders on account of such Stockholder's stock or use any of its assets
for payment, purchase, conversion, redemption, defeasance, sinking fund
payment, retention, acquisition or retirement of any beneficial interest in
the Borrower or set aside or reserve assets for sinking or like funds for any
of the foregoing purposes, make any other distribution by reduction of
capital or otherwise in respect of any beneficial interest in the Borrower or
permit any Subsidiary which is not a wholly-owned Subsidiary so to do;
provided that the foregoing shall not apply to (i) any dividend or
distribution payable solely in the common stock, preferred stock or other
equity of the Borrower or (ii) any conversion of the Borrowers preferred
stock or Indebtedness into common stock or other equity of the Borrower so
long as Borrower makes no payment or distribution of cash or other property
other than Borrower common stock, preferred stock or other equity of the
Borrower in connection therewith.
Section 5.2.12. INVESTMENTS IN OR TO OTHER PERSONS. Make or commit
to make any Investment in or to any other Person (including, without
limitation, any Subsidiary) other than (i) advances to employees for business
expenses not to exceed $10,000 in the aggregate outstanding for any one
employee and not to exceed $50,000 in the aggregate outstanding at any one
time to all such employees, (ii) other employee loans extended after the
Closing Date in amounts not to exceed $10,000 in the aggregate outstanding
for any one employee and not to exceed $100,000 in the aggregate outstanding
at any one time to all such employees except that
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the Borrower shall be permitted to make loans of up to $500,000 in the
aggregate outstanding at any time with terms. not to exceed one year to
employees relocating to the Borrower for financing housing on an interim
basis for such employees and their families, (iv) Cash Equivalent
Investments, (v) Investments in accounts, contract rights and chattel paper
(as defined in the Uniform Commercial Code) and notes receivable, arising or
acquired in the ordinary course of business, (vi) Investments described on
EXHIBIT 5.2.2 and (vii) establishment of a wholly-owned "Foreign
International Sales Corporation" as defined in the Code or any other
Subsidiary; provided that any such Subsidiaries' assets or Investment by the
Borrower therein shall not exceed in the aggregate at any time 10% of
Consolidated Net Worth.
Section 5.2.13. TRANSACTIONS WITH AFFILIATES. Except as contemplated
by the Equity Documents and Related Transaction Documents, engage in any
transaction or enter into any agreement with an Affiliate, or in the case of
Affiliates or Subsidiaries, with the Borrower or another Affiliate or
Subsidiary, except, as permitted by any other provision of this Agreement and
then only on an arm's length basis except as set forth on EXHIBIT 5.2.13.
Section 5.2.14. CHANGE OF FISCAL YEAR. Change its fiscal year.
Section 5.2.15. SUBORDINATION OF CLAIMS. Subordinate any
present or future claim against or obligation of another Person, except as
ordered in a bankruptcy or similar creditors, remedy proceeding of such other
Person or pursuant to subordination agreements reasonably acceptable to the
Majority Lenders.
Section 5.2.16. COMPLIANCE WITH ERISA. With respect to
Borrower and any Commonly Controlled Entity (a) withdraw from or cease to
have an obligation to contribute to, any Multiemployer Plan so as to result
in any material liability of the Borrower or any Commonly Controlled Entity
to PBGC or to any Multiemployer Plan, (b) engage in any "prohibited
transaction" (as defined in Section 4975 of the Code) involving any Plan
which would result in a material liability of the Borrower or any Commonly
Controlled Entity for an excise tax or civil penalty in connection therewith,
(c) except for any deficiency caused by a waiver of the minimum funding
requirement under sections 412 and/or 418 of the Code, as described above,
incur or suffer to exist any material "accumulated funding deficiency" (as
defined in section 302 of ERISA and section 412 of the Code) of the Borrower
or any Commonly Controlled Entity, whether or not waived, involving any
Single Employer Plan, (d) incur or suffer to exist any Reportable Event or
the appointment of a trustee or institution of proceedings for appointment of
a trustee for any Single Employer Plan if, in the case of a Reportable Event,
such event continues unremedied for ten (10) days after notice of such
Reportable Event pursuant to sections 4043(a), (c) or (d) of ERISA is given,
if in the reasonable opinion of the Majority Lenders any of the foregoing is
likely to result in a Material Adverse Effect, (e) permit the assets held
under any Plan to be insufficient to protect all accrued benefits, (f) allow
or suffer to exist any event or condition, which presents a material risk of
incurring a material liability of the Borrower or any Commonly Controlled
Entity to PBGC by reason of termination of any such Plan or (g) cause or
permit any Plan maintained by Borrower and/or any Commonly Controlled Entity
to be out of compliance with ERISA. For purposes of this SECTION 5.2.16
"material liability" shall be deemed to mean any liability of Fifty Thousand
Dollars ($50,000) or more in the aggregate.
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Section 5.2.17. [INTENTIONALLY OMITTED.]
Section 5.2.18. HAZARDOUS WASTE. Become involved, or permit,
to the extent reasonably possible after the exercise by the Borrower of
reasonable due diligence and preventive efforts, any tenant of its real
property to become involved, in any unlawful operations at such real property
generating, storing, disposing, or handling Hazardous Material or any other
activity that could lead to the imposition on the Borrower or the Agent or
any Lender, or any such real property of any material liability or Lien under
any environmental laws.
Section 5.2.19. OTHER RESTRICTIONS ON LIENS. Enter into any
agreement or otherwise agree to or grant any restriction substantially
similar to the provisions of SECTION 5.2.1 hereof or which would otherwise
have the effect of prohibiting, restricting, impeding or interfering with the
creation subsequent to the Closing Date of additional Liens to secure the
Obligations; provided that the foregoing shall not apply to (i) customary
provisions in license or similar agreements that restrict the ability of the
Borrower or its Subsidiaries to assign, transfer, license or sublicense any
intellectual property subject to such license or agreement or (ii) negative
pledge provisions in operating leases, capital leases or other equipment
finance agreements; provided such negative pledge agreements restrict only
Liens on the equipment subject to such lease or agreement together with any
extensions, additions, replacements or proceeds of such equipment.
Section 5.3. REPORTING REQUIREMENTS. From the date hereof and thereafter
for so long as the Borrower is indebted to any Lender and/or the Agent under
any of the Financing Documents, the Borrower will, unless the Majority
Lenders shall otherwise consent in writing, furnish or cause to be furnished
to the Agent for distribution to the Lenders:
Section 5.3.1. Promptly upon acquiring knowledge of a Default
or an Event of Default or Default, continuing on the date of such statement,
the written statement of an Authorized Representative setting forth details
of such Event of Default or Default and the actions which the Borrower has
taken and proposes to take with respect thereto,
Section 5.3.2. As soon as practicable after the end of each Borrower
fiscal year and in any event within 90 days after the end of each such fiscal
year, consolidated and consolidating balance sheets of the Borrower and any
Subsidiaries as at the end of such year, and the related statements of income
and cash flows or shareholders' equity of the Borrower and its Subsidiaries
setting forth in each case the corresponding figures for the preceding fiscal
year, such statements to be certified by a firm of independent certified
public accountants selected by Borrower with a recognized national
reputation, to be accompanied by a true copy of said auditors' management
letter, if one was provided to the Borrower, and to contain a statement to
the effect that such accountants have examined SECTIONS 5.1.10 through 5.1.13
and 5.2.17 and that no Default or Event of Default exists on account of
Borrower's failure to have been in compliance therewith on the date of such
statement, said accountants' examination of the financial statements to be
conducted in accordance with GAAP, including but not limited to all such
tests of the accounting records as are considered necessary in the
circumstances by the independent certified public accountants preparing such
statements;
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Section 5.3.3. As soon as is practicable after the end of each
fiscal quarter of each Borrower fiscal year and in any event within 45 days
thereafter, consolidated balance sheets of the Borrower and any Subsidiaries
as of the end of such period and the related statements of income and cash
flows and shareholders' equity of the Borrower and any Subsidiaries, subject
to changes resulting from year-end adjustments, together, subject to SECTION
5.3.7, with a comparison to the Budget for the applicable period, such
balance sheets and statements to be prepared and certified by an Authorized
Representative in an Officer's Certificate as having been prepared in
accordance with GAAP except for footnotes and year-end adjustments, and to be
in form reasonably satisfactory to the Agent;
Section 5.3.4. Simultaneously with the furnishing of each of the
year-end consolidated and consolidating financial statements of the Borrower
and any Subsidiaries to be delivered pursuant to SECTION 5.3.2 and each of
the consolidated quarterly statements of the Borrower and the Subsidiaries to
be delivered pursuant to SECTION 5.3.3 an Officers Certificate of an
Authorized Representative which shall contain a statement in the form of
EXHIBIT 3.1.1.1O to the effect that no Event of Default or Default has
occurred, without having been waived in writing, or if there shall have been
an Event of Default not previously waived in writing pursuant to the
provisions hereof, or a Default, such Officer's Certificate shall disclose
the nature thereof and the actions the Borrower has taken and prepare to take
with respect thereto. Each such Officer's Certificate shall also contain a
calculation of and certify to the accuracy of the amounts required to be
calculated in the financial covenants of the Borrower contained in this
Agreement and described in EXHIBIT 3.1.1.10;
Section 5.3.5. Promptly after the commencement thereof, notice of
all material actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting the Borrower and/or any Subsidiary;
Section 5.3.6. The borrowing base certificates required pursuant to
SECTION 2.1 hereof and, within 15 days after preparation and receipt thereof
by the Borrower, true copies of the Borrower's 1996 and 1997 audited
financial statements;
Section 5.3.7. On or before May 31 of each fiscal year of the
Borrower, an updated proposed budget, prepared on a quarterly basis, and
updated financial projections for the Borrower and any Subsidiaries on a
consolidated basis (together, the "Budget") for such fiscal year, setting
forth in detail reasonably satisfactory to the Agent the projected results of
operations of the Borrower and any Subsidiaries on a consolidated quarterly
basis, detailed Capital Expenditures plan and stating underlying assumptions
and accompanied by a written statement of an Authorized Representative
certifying as to the approval of such Budget by Borrower's board of directors,
Section 5.3.8. Subject to the limitations set forth in SECTION
5.1.5, such other information respecting the Business Condition of the
Borrower or any Subsidiaries as the Agent or any Lender may from time to time
reasonably request;
Section 5.3.9. Written notice of the fact and of the details of any
material sale or transfer of any ownership interest in the Borrower or any
Subsidiary given promptly after the
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Borrower acquires knowledge thereof, provided, however, that this clause
shall not be deemed to constitute or imply any consent to any such sale or
transfer;
Section 5.3.10. Prompt written notice of loss of the President,
Chief Executive Officer, the Principal Technologist, the Treasurer, the Director
of Marketing and/or the Director of Operations or any Material Adverse Effect
and an explanation thereof and of the actions the Borrower and/or such
Subsidiary propose to take with respect thereto; and
Section 5.3.11. Written notice of the following events, as soon
as possible and in any event within 15 days after the Borrower knows or has
reason to know thereof. (i) the occurrence or expected occurrence of any
Reportable Event with respect to any Plan, or (ii) the institution of
proceedings or the taking or expected taking of any other action by PBGC or the
Borrower or any Commonly Controlled Entity to terminate, withdraw or partially
withdraw from any Plan and, with respect to any Multiemployer Plan, the
Reorganization (as defined in Section 4241 of ERISA) or Insolvency (as defined
in Section 4245 of ERISA) of such Multiemployer Plan and in addition to such
notice, deliver to the Agent whichever of the following may be applicable: (a)
an Officer's Certificate setting forth details as to such Reportable Event and
the action that the Borrower or Commonly Controlled Entity proposes to take with
respect thereto, together with a copy of any notice of such Reportable Event
that may be required to be filed with PBGC, or b) any notice delivered by PBGC
evidencing its intent to institute such proceedings or any notice to PBGC that
such Plan is to be terminated, as the case may be.
ARTICLE 6.
EVENTS OF DEFAULT
Section 6.1. EVENTS OF DEFAULT. The Borrower shall be in default under
each of the Financing Documents, upon the occurrence of any one or more of the
following events (`Events of Default"):
Section 6.1.1. If the Borrower shall fail to make due and
punctual payment of any principal, fees, interest and/or other amounts payable
under this Agreement as provided in any Note and/or in this Agreement when the
same is due and payable except that it shall not be an Event of Default if any
interest, fees and/or other amounts (excluding principal) is paid within 5
Business Days in the case of interest and fees or 30 Business Days for all such
other amounts (other than principal), in all such cases after it is due and
payable, whether at the due date thereof or at a date fixed for prepayment or if
the Borrower shall fail to make any such payment of fees, interest, principal
and/or any other amount under this Agreement and/or under any Note on the date
when such payment becomes due and payable by acceleration;
Section 6.1.2. To the extent not described in SECTION 6.1.3, if
the Borrower or any Subsidiary shall make an assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become due, or shall
admit in writing its inability to pay its debts as they become due or shall file
a voluntary petition in bankruptcy, or shall file any petition or answer seeking
any reorganization, arrangement, composition, adjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
laws or other applicable federal, state or
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other statute, law or regulation, or shall seek or consent to or acquiesce in
the appointment of any trustee, receiver or liquidator of it or of all or any
substantial part of its properties, or if partnership or corporate action
shall be taken for the purpose of effecting any of the foregoing; or
Section 6.1.3. If (i) the Borrower or any Subsidiary shall be the
subject of a bankruptcy proceeding, or (ii) any proceeding against any of them
seeking any reorganization, arrangement, composition, adjustment, liquidation,
dissolution, or similar relief under the present or any future federal
bankruptcy law or other applicable federal, foreign state or other statute, law
or regulation shall be commenced, or (iii) any trustee, receiver or liquidator
of any of them or of all or any substantial part of any or all of their
properties shall be appointed without their consent or acquiescence; provided
that in any of the cases described above in this SECTION 6. 1.3, such proceeding
or appointment shall not be an Event of Default if the Borrower or the
Subsidiary in question shall cause such proceeding or appointment to be
discharged, vacated, dismissed or stayed within ninety (90) days after
commencement thereof, or
Section 6.1.4. If final judgment or judgments aggregating more
than $500,000 (after giving effect to the proceeds of any insurance coverage
received by the Borrower, any Subsidiary or the Agent) shall be rendered against
the Borrower or any Subsidiary and shall remain undischarged, unstayed or unpaid
for an aggregate of sixty (60) days (whether or not consecutive) after entry
thereof, or
Section 6.1.5. If the Borrower or any Subsidiary shall default
(after giving effect to any applicable notice or grace period) in the due and
punctual payment of the principal of or interest on any Indebtedness exceeding
in the aggregate $500,000 (other that, the Loans), or if any default shall have
occurred and be continuing after any applicable notice or grace period under any
mortgage, note or other agreement evidencing, securing or providing for the
creation of such Indebtedness, which results in the acceleration of such
Indebtedness or which permits, or with the giving of notice would permit, any
holder or holders of any such Indebtedness to accelerate the stated maturity
thereof, or
Section 6.1.6. If there shall be a default in the performance of
the Borrowees obligations under SECTION 5.1.3 (insofar as such Section requires
the preservation of the corporate existence of the Borrower or any Subsidiary),
any of SECTIONS 5.1.2, 5.1.10 through 5.1.13 or SECTION 5.2 of this Agreement;
or
Section 6.1.7. If there shall be any Default in the performance
of any covenant or condition contained in this Agreement or in any of the other
Financing Documents to be observed or performed pursuant to the terms hereof or
any Financing Document, as the case may be, or to the extent such default would
have a Material Adverse Effect, any failure by the Borrower to pay any amounts
due under any indemnification obligation of the Borrower under any of the
Related Transaction Documents, other than a covenant or condition referred to in
any other subsection of this Section 6.1 and such Default shall continue
unremedied or unwaived, (i) in the case of any covenant or condition contained
in Section 5.3, for thirty (30) Business Days, or (ii) in the case of any other
covenant or condition for which no other grace period is provided, for thirty
(30) days, or (iii) in the case of any other covenant or condition for which
another grace period is provided, for such grace period, or (iv) if any of the
representations and warranties made or deemed made by the Borrower to the Agent
and/or any Lender pursuant to any of the
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Financing Documents proves to have been false or misleading in any material
respect when made and such falseness or misleading representation or warranty
would be reasonable likely to have a material adverse effect on the Agent or
any Lender or their rights and remedies or a Material Adverse Effect; or
Section 6.1.8. If there shall be any attachment of any deposits
or other property of the Borrower and/or any Subsidiary in the possession of any
Lender or any attachment of any other property of the Borrower and/or any
Subsidiary in an amount exceeding in the aggregate $500,000, which shall not be
discharged, vacated or stayed within sixty (60) days of the date of such
attachment; or
Section 6.1.9. Any certification of the financial statements,
furnished to the Agent pursuant to SECTION 5.3.2, shall contain any
qualification; provided, however, that such qualifications will not be deemed an
Event of Default if in each case (i) such certification shall state that the
examination of the financial statements covered thereby was conducted in
accordance with generally accepted auditing standards, including but not limited
to all such tests of the accounting records as are considered necessary in the
circumstances by the independent certified public accountants preparing such
statements, (ii) such financial statements were prepared in accordance with GAAP
and (iii) since qualification does not involve the "going concern" status of the
entity being reported upon.
ARTICLE 7.
REMEDIES OF LENDERS
Upon the occurrence and during the continuance of any one or more of
the Events of Default, the Agent, at the request of the Majority Lenders, shall,
by written notice to the Borrower, declare the obligation of the Lenders to make
or maintain the Loans to be terminated, whereupon the same and the Commitment
shall forthwith terminate, and the Agent, at the request of the Majority
Lenders, shall, by notice to the Borrower, declare the entire unpaid principal
amount of each Note and all fees and interest accrued and unpaid thereon and/or
under this Agreement, and/or any of the other Financing Documents and any and
all other Indebtedness under this Agreement, each Note and/or any of the other
Financing Documents to the Agent and/or any of the Lenders and/or to any holder
of all or any portion of each Note to be forthwith due and payable, whereupon
each Note, and all such accrued fees and interest and other such Indebtedness
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by the Borrower; provided, however, that upon the occurrence of an Event of
Default under SECTIONS 6.1.2 or 6.1.3, all of the unpaid principal amount of
each Note, all fees and interest accrued and unpaid thereon and/or under this
Agreement and/or under any of the other Financing Documents and any and all
other such Indebtedness of the Borrower to any of the Lenders and/or to any such
holder shall thereupon be due and payable in full without any need for the Agent
and/or any Lender to make any such declaration or take any action and the
Lenders' obligations to make the Loans shall simultaneously terminate. The Agent
shall, in accordance with the votes of the Majority Lenders, exercise all
remedies on behalf of and for the account of each Lender and on behalf of its
respective Pro Rata Share of the Loans, its Note and Indebtedness of the
Borrower owing to it or any of the foregoing, including, without limitation, all
remedies available under or
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as a result of this Agreement, the Notes or any of the other Financing
Documents or any other document, instrument or agreement now or hereafter
securing any Note without any such exercise being deemed to modify in any way
the fact that each Lender shall be deemed a separate creditor of the Borrower
to the extent of its Note and Pro Rata Share of the Loans and any other
amounts payable to such Lender under this Agreement and/or any of the other
Financing Documents and the Agent shall be deemed a separate creditor of the
Borrower to the extent of any amounts owed by the Borrower to the Agent.
ARTICLE 8.
AGENT
Section 8.1. APPOINTMENT. The Agent is hereby appointed as Agent,
hereunder and each Lender hereby authorizes the Agent to act under the Financing
Documents as its Agent hereunder and thereunder, respectively. The Agent agrees
to act as such upon the express conditions contained in this Article 8. The
provisions of this Article 8 are solely for the benefit of the Agent, and,
except as expressly provided in SECTION 8.6 neither the Borrower nor any third
party shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement
and the other Financing Documents to which the Agent is a party, the Agent shall
act solely as Agent of the Lenders and does not assume nor shall the Agent be
deemed to have assumed any obligation towards or relationship of agency or trust
with or for the Borrower, any of the Stockholders, any Affiliate or any
Subsidiary.
Section 8.2. POWERS: GENERAL IMMUNITY.
Section 8.2.1. DUTIES SPECIFIED. Each Lender irrevocably
authorizes the Agent to take such action on such Lender's behalf, including,
without limitation, to execute and deliver the Financing Documents to which the
Agent is a party and to exercise such powers hereunder and under the Financing
Documents and other instruments and agreements referred to herein as are
specifically delegated to the Agent by the terms hereof and thereof, together
with such powers as are reasonably incidental thereto. The Agent shall have only
those duties and responsibilities which are expressly specified in this
Agreement or in any of the Financing Documents and may perform such duties by or
through its agents or employees. The duties of the Agent shall be mechanical and
administrative in nature; and the Agent shall not have by reason of this
Agreement or any of the Financing Documents a fiduciary relationship in respect
of any Lender; and nothing in this Agreement or any of the Security Documents,
expressed or implied, is intended to or shall be so construed as to impose upon
the Agent any obligations in respect of this Agreement or any of the Financing
Documents or the other instruments and agreements referred to herein except as
expressly set forth herein or therein.
Section 8.2.2. NO RESPONSIBILITY FOR CERTAIN MATTERS. The Agent
shall not be responsible to any Lender for the execution, effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of any of
the Financing Documents or any other document, instrument or agreement now or
hereafter executed in connection herewith or therewith, or for any
representations, warranties, recitals or statements made herein or therein or
made in any written or oral statement or in any financial or other statements,
instruments, reports, certificates
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or any other documents in connection herewith or therewith by or on behalf of
the Borrower, any of the Stockholders, and/or any Subsidiary to the Agent or
any Lender, or be required to ascertain or inquire as to the performance or
observance of any of the terms, conditions, provisions, covenants or
agreements contained herein or therein or as to the use of the proceeds of
the Loans or of the existence or possible existence of any Default or Event
of Default.
Section 8.2.3. EXCULPATORY PROVISIONS. Neither the Agent nor any
of its officers, directors, employees or agents shall be liable to any Lender
for any action taken or omitted hereunder or under any of the Financing
Documents, or in connection herewith or therewith unless caused by its or their
gross negligence or willful misconduct. If the Agent shall request instructions
from Lenders with respect to any action (including the failure to take an
action) in connection with any of the Financing Documents, the Agent shall be
entitled to refrain from taking such action unless and until the Agent, shall
have received instructions from the Majority Lenders (or all of the Lenders if
the action requires their consent). Without prejudice to the generality of the
foregoing, (i) the Agent shall be entitled to rely, and shall be fully protected
in relying, upon any communication, instrument or document believed by it to be
genuine and correct and to have been signed or sent by the proper person or
persons, and shall be entitled to rely and shall be protected in relying on
opinions and judgments of attorneys (who may be attorneys for the Borrower, any
of the Stockholders, and/or any Subsidiary), accountants, experts and other
professional advisors selected by it; and (ii) no Lender shall have any right of
action whatsoever against the Agent as a result of the Agent acting or (where so
instructed) refraining from acting under any of the Financing Documents or the
other instruments and agreements referred to herein in accordance with the
instructions of the Majority Lenders (or all of the Lenders if the action
requires their consent). The Agent shall be entitled to refrain from exercising
any power, discretion or authority vested in it under any of the Financing
Documents or the other instruments and agreements referred to herein unless and
until it has obtained the instructions of the Majority Lenders (or all of the
Lenders if the action requires their consent).
Section 8.2.4. AGENT ENTITLED TO ACT AS LENDER. The agency hereby
created shall in no way impair or affect any of the rights and powers of, or
impose any duties or obligations upon, Fleet in its individual capacity as a
Lender hereunder. With respect to its participation in the Loans and the
Commitment, Fleet shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not performing the duties and
functions delegated to it hereunder, and the term "Lender" or "Lenders" or any
similar term shall, unless the context clearly otherwise indicates, include
Fleet in its individual capacity. The Agent and its affiliates may accept
deposits from, lend money to and generally engage in any kind of banking, trust,
financial advisory or other business with the Borrower, any of the Stockholders,
or any Affiliate or Subsidiary as if it were not performing the duties specified
herein, and may accept fees and other consideration from the Borrower and/or any
of such other Persons for services in connection with this Agreement and
otherwise without having to account for the same to Lenders.
Section 8.3. REPRESENTATIONS AND WARRANTIES: NO RESPONSIBILITY FOR
APPRAISAL OF CREDITWORTHINESS. Each Lender represents and warrants that it has
made its own independent investigation of the financial condition and affairs of
the Borrower, the Stockholders and any Subsidiaries of any of them in connection
with the making of the Loans hereunder and has made and shall continue to make
its own appraisal of the creditworthiness of the Borrower, the
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Stockholders and the Subsidiaries. The Agent shall not have any duty or
responsibility, either initially or on a continuing basis, to make any such
investigation or any such appraisal on behalf of Lenders or to. provide any
Lender with any credit or other information with respect thereto whether
coming into its possession before the making of any Loan or any time or times
thereafter (except for information received by the Agent under SECTION 5.3
hereof which the Agent will promptly forward to the Lenders), and the Agent
shall further not have any responsibility with respect to the accuracy of or
the completeness of the information provided to any of the Lenders.
Section 8.4. RIGHT TO INDEMNITY. Each Lender severally agrees to
indemnify the Agent proportionately to its Pro Rata Share of the Loans, to the
extent the Agent shall not have been reimbursed by or on behalf of the Borrower,
for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including, without
limitation, counsel fees and disbursements) or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in performing its duties hereunder or in any way relating to or arising
out of this Agreement and/or any of the other Financing Documents; provided that
no Lender shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Agent's gross negligence or willful misconduct.
If any indemnity furnished to the Agent for any purpose shall, in the opinion of
the Agent, be insufficient or become impaired, the Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished.
Section 8.5. PAYEE OF NOTE TREATED AS OWNER. The Agent may deem and
treat the payee of any Note as the owner thereof for all purposes hereof unless
and until a written notice of the assignment or transfer thereof shall have been
filed with the Agent. Any request, authority or consent of any person or entity
who, at the time of making such request or giving such authority or consent, is
the holder of any Note shall be conclusive and binding on any subsequent holder,
transferee or assignee of that Note or of any Note or Notes issued in exchange
for such Note.
Section 8.6. RESIGNATION BY AGENT.
Section 8.6.1. The Agent may resign from the performance of all
its functions and duties under the Financing Documents at any time by giving 30
days' prior written notice to the Borrower and each of the Lenders. Such
resignation shall take effect upon the acceptance by a successor Agent, of
appointment pursuant to SECTIONS 8.6.2 and 8.6.3 below or as otherwise provided
below.
Section 8.6.2. Upon any such notice of resignation, the Majority
Lenders shall appoint a successor Agent, who shall be a Lender and, so long as
no Default or Event of Default exists and is continuing, who shall be reasonably
satisfactory to the Borrower and is generally familiar and has lending
experience with technology based industries and in any event shall be an
incorporated bank or trust company with a combined surplus and undivided capital
of at least Five Hundred Million Dollars ($500,000,000).
Section 8.6.3. If a successor Agent shall not have been so
appointed within said `30 day period, the resigning Agent, with the consent of
the Borrower, which shall not be
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unreasonably withheld or delayed, shall then appoint a successor Agent, who
shall be a Lender and who shall serve as the Agent, until such time, if any,
as the Majority Lenders, and so long as no Default or Event of Default exists
and is continuing, with the consent of the Borrower, which shall not be
unreasonably withheld or delayed, appoint a successor Agent as provided above.
Section 8.6.4. If no successor Agent has been appointed pursuant
to SECTIONS 8 6.2 or 8.6.3 by the 40th day after the date such notice of
resignation was given by the resigning Agent, the resigning Agent's resignation
shall become effective and the Majority Lenders shall thereafter perform all the
duties of the resigning Agent under the Financing Documents including without
limitation directing the Borrower on how to submit Requests and Interest Rate
Elections and otherwise on administration of the Agent's duties under the
Financing Documents and the Borrower shall comply therewith so long as such
directions do not have an adverse effect on the Borrower or any Subsidiary until
such time, if any, as the Majority Lenders, and so long as no Default or Event
of Default exists and is continuing, with the consent of the Borrower, which
shall not be unreasonably withheld or delayed, appoint a successor Agent, as
provided above.
Section 8.7. SUCCESSOR AGENT. Upon the acceptance of any appointment as
the Agent hereunder by a successor Agent, that successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent and the retiring Agent, shall be discharged from its
duties and obligations as the Agent under the Financing Documents. After any
retiring Agent's resignation hereunder as the Agent the provisions of this
Article 8 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was the Agent under the Financing Documents.
ARTICLE 9.
MISCELLANEOUS
Section 9.1. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
Section 9.1.1. Except to the extent prohibited by applicable law,
the Borrower irrevocably:
Section 9.1.1.1. agrees that any suit,
action, or other legal proceeding arising out of any of the Financing
Documents or any of the Loans may be brought in the courts of record of The
Commonwealth of Massachusetts or the State of California or any other
state(s) in which any of the Borrower's assets are located or the courts of
the United States located in The Commonwealth of Massachusetts or the State
of California or any other state(s) in which any of the Borrower's assets are
located;
Section 9.1.1.2. consents to the jurisdiction of
each such court in any such suit, action or proceeding; and
Section 9.1.1.3. waives any objection which it may
have to the laying of venue of such suit, action or proceeding in any of such
courts.
For such time as any of the Indebtedness of the Borrower to any Lender
and/or the Agent shall be unpaid in whole or in part and/or the Commitment is in
effect, the Borrower irrevocably
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designates the registered agent or agent for service of process of the
Borrower as reflected in the records of the Secretary of State of California
as its registered agent, and, in the absence thereof, the Secretary of State
of California as its agent to accept and acknowledge on its behalf service of
any and all process in any such suit, action or proceeding brought in any
such court and agrees and consents that any such service of process upon such
agent and written notice of such service to the Borrower by registered or
certified mail shall be taken and held to be valid personal service upon the
Borrower regardless of where the Borrower shall then be doing business and
that any such service of process shall be of the same force and validity as
if service were made upon it according to the laws governing the validity and
requirements of such service in each such state and waives any claim of lack
of personal service or other error by reason of any such service. Any notice,
process, pleadings or other papers served upon the aforesaid designated agent
shall, within three (3) Business Days after such service, be sent by the
method provided therefor under Section 9 6 to the Borrower at its address set
forth in this Agreement. EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY IN THE EVENT OF ANY DISPUTE BETWEEN THE BORROWER AND THE
AGENT AND/OR THE LENDERS WITH RESPECT TO THE FINANCING DOCUMENTS AND/OR ANY
OF THE TRANSACTIONS CONTEMPLATED THEREBY.
Section 9.2. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy
conferred upon or reserved to the Agent and/or the Lenders in any of the
Financing Documents is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given under any of the Financing
Documents or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy under any of the Financing
Documents, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 9.3. DELAY OR OMISSION NOT WAIVER. No delay in exercising or
failure to exercise by the Agent and/or the Lenders of any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by any of the Financing
Documents or by law to the Agent and/or any of the Lenders may be exercised from
time to time, and as often as may be deemed expedient, by the Agent and/or any
of the Lenders.
Section 9.4. WAIVER OF STAY OR EXTENSION LAWS. The Borrower covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of any of
the Financing Documents; and the Borrower (to the extent that it may lawfully to
do so) hereby expressly waives all benefit and advantage of any such law and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Agent and/or any of the Lenders, but will suffer and
permit the execution of every such power as though no such law had been enacted,
except to the extent the Agent or any Lender is guilty of willful misconduct or
gross negligence.
Section 9.5. AMENDMENTS, ETC. No amendment, modification, termination,
or waiver of any provision of any of the Financing Documents nor consent to any
departure by the Borrower
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therefrom shall in any event be effective unless the same shall be in a
written notice given to the Borrower by the Agent and consented to in writing
by the Majority Lenders (or by the Agent acting alone if any specific
provision of this Agreement provides that the Agent, acting alone, may grant
such amendment, modification, termination, waiver or departure) and the Agent
shall give any such notice if the Majority Lenders so consent or direct the
Agent to do so- provided, however, that any such amendment, modification,
termination, waiver or consent shall require a written notice given to the
Borrower by the Agent and consented to in writing by all of the Lenders if
the effect thereof is to (i) change any of the provisions affecting the
interest rate on the Loans, (ii) extend or modify the Commitment, (iii)
discharge or release the Borrower from its obligation to repay all principal
due under the Loans or release any collateral or guaranty for the Loans, (iv)
change any Lender's Pro Rata Share of the Commitment or the Loans, (v) modify
this SECTION 9.5, (vi) change the definition of Majority Lenders, (vii)
extend any scheduled due date for payment of principal, interest or fees or
(viii) permit the-Borrower to assign any of its rights under or interest in
this Agreement, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. Any
amendment or modification of this Agreement must be signed by the Borrower,
the Agent and at least all of the Lenders consenting thereto who shall then
hold the Pro Rata Shares of the Loans required for such amendment or
modification under this SECTION 9.5 and the Agent shall sign any such
amendment if such Lenders so consent or direct the Agent to do so provided
that any Lender dissenting therefrom shall be given an opportunity to sign
any such amendment or modification. Any amendment of any of the Security
Documents must be signed by each of the parties thereto. No notice to or
demand on the Borrower and no consent, waiver or departure from the terms of
this Agreement granted by the Agent and/or the Lenders in any case shall
entitle the Borrower to any other or further notice or demand in similar or
other circumstances.
Section 9.6. ADDRESSES FOR NOTICES, ETC. All notices, requests, demands
and other communications provided for hereunder (other than those which, under
the terms of this Agreement, may be given by telephone, which shall be effective
when received verbally) shall be in writing (including telecopied communication)
and mailed (provided that in the case of items referred to in the next-to-last
sentence of SECTION 9.1 and the items set forth below as requiring a copy to
legal counsel for the Borrower, the Agent or a Lender, such items shall be
mailed by overnight courier for delivery the next Business Day), telecopied or
delivered to the applicable party at the addresses indicated below:
If to the Borrower:
Finisar Corporation
274 Ferguson Drive
Mountain View, California 94043
Attention: President
Telecopy: (650) 6914010
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With a copy to (if given pursuant to any of SECTIONS 5.3.1, 5.3.5,
5.3.9, and 5.3.10 and 5.3.11) :
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Robert Claassen, Esq.
Telecopy: (650) 493-6811
If to Fleet National Bank as the Agent and/or a Lender:
Fleet National Bank
Mailstop: MA OFD07A
One Federal Street
Boston, Massachusetts 02110
Attention: Mathew M. Glauninger, Senior Relationship Manager and
Vice President
Telecopy: (617) 346-0151
With a copy to (if given pursuant to any of Sections 5.3.1, 5.3.9, 5.3.10
and 5.3.11)
Hinckley, Allen & Snyder
28 State Street
Boston, Massachusetts 02109
Attention: Malcolm Farmer III, Esquire
Telecopy: (617) 345-9020
If to any other Lender, to the address set forth on EXHIBIT 1.9.
or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party complying as to the delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be effective when received. Requests, certificates, other
items provided pursuant to Section 5.3 and other routine mailings or notices
need not be accompanied by a copy to legal counsel for the Lenders or the
Borrower.
Section 9.7. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on
demand the reasonable fees and out-of-pocket expenses of Messrs. Hinckley, Allen
& Snyder, counsel for the Agent and of any local counsel retained by the Agent
in connection with the preparation, execution, delivery, syndication and
administration of the Financing Documents and the Loans and any subsequent
amendments, waivers, or consents with respect thereto. The Borrower agrees to
pay on demand all reasonable costs and expenses (including without limitation
reasonable attorneys' fees) incurred by the Agent and/or any Lender, upon or
after the occurrence and during the continuance of any Default or Event of
Default, if any, in connection with the enforcement of any of the Financing
Documents and any amendments, waivers, or consents with respect thereto. In
addition, the Borrower shall pay on demand any and all stamp and other taxes and
fees payable or determined to be payable in connection with the execution and
delivery of the Financing Documents, and agrees to save the Lenders and the
Agent harmless
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from and against any and all liabilities with respect to or resulting from
any delay in paying or omission to pay such taxes or fees, except those
resulting from the Lenders' or Agent's gross negligence or willful misconduct.
Section 9.8. PARTICIPATIONS. Subject to compliance with the proviso in
the first sentence of SECTION 9.11, any Lender may sell participations in all or
part of the Loans made by it and/or its Pro Rata Share of the Commitment or any
other interest herein to a financial institution having at least $500,000,000 of
assets, in which event the participant shall not have any rights under any of
the Financing Documents (including, without limitation, any rights to vote on
requested waivers of Defaults or Events of Default) (the participant's rights
against such Lender in respect of that participation to be those set forth in
the Agreement executed by such Lender in favor of the participant relating
thereto) and all amounts payable by the Borrower hereunder or thereunder shall
be determined as if such Lender had not sold such participation. Such Lender may
furnish any information concerning the Borrower and any Subsidiary in the
possession of such Lender from time to time to participants (including
prospective participants); provided that such Lender and any participant comply
with the provision in SECTION 9.11.7 as if any such participant was a
Substituted Lender.
Section 9.9. BINDING EFFECT; ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Borrower, the Agent and the Lenders
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights hereunder or any interest herein Without the
prior written consent of the Agent and the Lenders. This Agreement and all
covenants, representations and warranties made herein and/or in any of the other
Financing Documents shall survive the making of the Loans, the execution and
delivery of the Financing Documents and shall continue in effect so long as any
amounts payable under or in connection with any of the Financing Documents or
any other Indebtedness of the Borrower to the Agent and/or any Lender remains
unpaid or the Commitment remains outstanding; provided, however, that SECTIONS
2.2 3 and 9.7 shall, except to the extent agreed to in a pay-off letter by the
Agent and the Lenders in their complete discretion, survive and remain in full
force and effect for 90 days following repayment in full of all amounts payable
under or in connection with all of the Financing Documents and any other such
Indebtedness and SECTION 9.13 shall survive and remain in full force and effect
until expiration of the statute of limitations applicable to any matter on
account of which indemnification is provided thereunder.
Section 9.10. ACTUAL KNOWLEDGE. For purposes of this Agreement, neither
the Agent nor any Lender shall be deemed to have actual knowledge of any fact or
state of facts unless the senior loan officer or any other officer responsible
for the Borrower's account established pursuant to this Agreement at the Agent
or such Lender, shall, in fact, have actual knowledge of such fact or state of
facts or unless written notice of such fact shall have been received by the
Agent or such Lender in accordance with SECTION 9.6.
Section 9.11. SUBSTITUTIONS AND ASSIGNMENTS. Upon the request of any
Lender, the Agent and such Lender may assign all or any portion of its Pro Rata
Share of the Commitment and the Loans to a Federal Reserve Bank or to any
Affiliate of any such Lender and may, subject to the terms and conditions
hereinafter set forth and, so long as no Default or Event of Default has
occurred and is continuing, with the prior written consent of the Borrower,
which consent shall not be unreasonably withheld or delayed, take the actions
set forth below to substitute one
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or more other financial institutions having at least $500,000,000 in assets
(a "Substituted Lender") as a Lender or Lenders hereunder having an amount of
the Loans as specified in the relevant Substitution Agreement executed in
connection therewith; provided that no Lender, Selling Lender or Substituted
Lender shall have a Pro Rata Share of the Commitment and the Loans in the
aggregate of less than 10% and Fleet and/or its Affiliates shall retain for
their own account at least 40% of the Term Loan and 40% of the Revolving Credit
Loan Commitment.
Section 9.11.1. In connection with any such substitution the
Substituted Lender and the Agent shall enter into a Substitution Agreement in
the form of EXHIBIT 9.11.1 hereto (a "Substitution Agreement") pursuant to which
such Substituted Lender shall be substituted for the Lender requesting the
substitution in question (any such Lender being hereinafter referred to as a
"Selling Lender") to the extent of the reduction in the Selling Lender's portion
of the Loans specified therein. In addition, such Substituted Lender shall
assume such of the obligations of each Selling Lender under the Financing
Documents as may be specified in such Substitution Agreement and this Agreement
shall be amended by execution and delivery of each Substitution Agreement to
include such Substituted Lender as a Lender for all purposes under the Financing
Documents and to substitute for the then existing EXHIBIT 1.9 to this Agreement
a new EXHIBIT 1.9 in the form of Schedule A to such Substitution Agreement
setting forth the portion of the Loans belonging to each Lender following
execution thereof Each Lender and the Borrower hereby appoint the Agent as
Agent on its behalf to countersign and accept delivery of each Substitution
Agreement and, to the extent applicable, the provisions of Article 8 hereof
shall apply MUTATIS MUTANDIS with respect to such appointment and anything done
or omitted to be done by the Agent in pursuance thereof
Section 9.11.2. Without prejudice to any other provision of this
Agreement, each Substituted Lender shall, by its execution of a Substitution
Agreement, agree that neither the Agent nor any Lender is any way responsible
for or makes any representation or warranty as to: (a) the accuracy and/or
completeness of any information supplied to such Substituted Lender in
connection therewith, (b) the financial condition, creditworthiness, affairs,
status or nature of the Borrower, any of the Stockholders and/or any of the
Subsidiaries or the observance by the Borrower, or any other party of any of its
obligations under this Agreement or any of the other Financing Documents or (c)
the legality, validity, effectiveness, adequacy or enforceability of any of the
Financing Documents.
Section 9.11.3. The Agent shall be entitled to rely on any
Substitution Agreement delivered to it pursuant to this SECTION 9. 11 which is
complete and regular on its face as to its contents and appears to be signed on
behalf of the Substituted Lender which is a party thereto, and the Agent shall
have no liability or responsibility to any party as a consequence of relying
thereon and acting in accordance with and countersigning any such Substitution
Agreement. The effective date of each Substitution Agreement shall be the date
specified as such therein and each Lender prior to such effective date shall,
for all purposes hereunder, be deemed to have and possess all of their
respective rights and obligations hereunder up to 12:00 o'clock Noon on the
effective date thereof
Section 9.11.4. Upon delivery to the Agent of any Substitution
Agreement pursuant to and in accordance with this SECTION 9.11 and acceptance
thereof by the Agent (which delivery shall be evidenced and accepted exclusively
and conclusively by the Agent's
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countersignature thereon pursuant to the terms hereof without which such
Substitution Agreement shall be ineffective): (i) except as provided hereunder
and in SECTION 9.11.5, the respective rights of each Selling Lender and the
Borrower against each other under the Financing Documents with respect to the
portion of the Loans being assigned or delegated shall be terminated and each
Selling Lender and the Borrower shall each be released from all further
obligations to the other hereunder with respect thereto (all such rights and
obligations to be so terminated or released being referred to in this SECTION
9. 11 as "Discharged Rights and Obligations"); and (ii) the Borrower and the
Substituted Lender shall each acquire rights against each other and assume
obligations towards each other which differ from the Discharged Rights and
Obligations only in so far as the Borrower and the Substituted Lender have
assumed and/or acquired the same in place of the Selling Lender in question;
and (iii) the Agent, the Substituted Lender and the other Lenders shall acquire
the same rights and assume the same obligations between themselves as they
would have acquired and assumed had such Substituted Lender been an original
party to this Agreement as a Lender possessing the Discharged Rights and
Obligations acquired and/or assumed by it in consequence of the delivery of
such Substitution Agreement to the Agent.
Section 9.11.5. Discharged Rights and Obligations shall not
include, and there shall be no termination or release pursuant to this SECTION
9.11 of (i).any rights or obligations arising pursuant to any of the Financing
Documents in respect of the period or in respect of payments hereunder made
during the period prior to the effective date of the relevant Substitution
Agreement or, (ii) any rights or obligations relating to the payment of any
amount which has fallen due and not been paid hereunder prior to such effective
date or rights or obligations for the payment of interest, damages or other
amounts becoming due hereunder as a result of such nonpayment.
Section 9.11.6. With respect to any substitution of a Substituted
Lender taking place after the Closing Date, the Borrower shall issue to such
Substituted Lender and to such Selling Lender, new Notes reflecting the
inclusion of such Substituted Lender as a Lender and the reduction in the
respective Loans of such Selling Lender, such new Notes to be issued against
receipt by the Borrower of the existing Notes of such Lender. The Selling Lender
or the Substituted Lender shall pay to the Agent for its own account an
assignment fee in the amount of $3,000 for each assignment hereunder, which
shall be payable at or before the effective date of the assignment.
Section 9.11.7. Each Lender may furnish to any financial
institution having at least $500,000,000 in assets which such Lender proposes to
make a Substituted Lender or to a Substituted Lender any information concerning
such Lender, the Borrower, Stockholders and any Subsidiary in the possession of
that Lender from time to time; provided that any Lender providing any
confidential information about the Borrower, any of the Stockholders and/or any
Subsidiary to any such financial institution shall first obtain such financial
institutions written agreement to keep confidential any such confidential
information.
Section 9.12. PAYMENTS PRO RATA. The Agent agrees that promptly after
its receipt of each payment from or on behalf of the Borrower in respect of any
obligations of the Borrower hereunder it shall distribute such payment to the
Lenders pro rata based upon their respective Pro Rata Shares, if any, of the
obligations with respect to which such payment was received. Each of
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the Lenders agrees that, if it should receive any amount hereunder (whether by
voluntary payment, by realization upon security, by the exercise of the right
of setoff under SECTION 2.5.2 or otherwise or bankers lien by counterclaim or
cross action, by the enforcement of any right under the Financing Documents, or
otherwise), which is applicable to the payment of the Obligations of a sum
which with respect to the related sum or sums received by other Lenders is in a
greater proportion than the total amount of such Obligation then owed and due
to such Lender bears to the total amount of such Obligation then owed and due
to all of the Lenders immediately prior to such receipt, except for any amounts
received pursuant to SECTION 2.2.3, then such Lender receiving such excess
payment shall purchase for cash without recourse or warranty from the other
Lenders an interest in the Obligations of the Borrower to such Lenders in such
amount as shall result in a proportional participation by all the Lenders in
such amount; provided further, however, that if all or any portion of such
excess amount is thereafter recovered from such Lender, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
Section 9.13. INDEMNIFICATION. The Borrower irrevocably agrees to and
does hereby indemnify and hold harmless Agent and each of the Lenders, their
agents or employees and each Person, if any, who controls any of the Agent and
the Lenders within the meaning of Section 15 of the Securities Act of 1933, as
amended, and each and all and any of them (the "Indemnified Parties"), against
any and all losses, claims, actions, causes of action, damages or liabilities
(including any amount paid in settlement of any action, commenced or threatened
and any amount described in SECTION 8 4 (collectively, the "Damages"), joint or
several, to which they, or any of them, may become subject under statutory law
or at common law, and to reimburse the Indemnified Parties for any legal or
other out-of-pocket expenses reasonably incurred by it or them in connection
with investigating, preparing for or defending against any of the Indemnified
Parties, insofar as such losses, claims, damages, liabilities or actions arise
out of or are related to any act or omission of the Borrower and/or any
Subsidiary with respect to any of the Related Transactions, this Agreement, any
of the Notes, any of Loans and/or any offering of securities by the Borrower
and/or any Subsidiary after the date hereof and/or in connection with the
Securities and Exchange Act of 1933 and/or failure to comply with any applicable
federal, state or foreign governmental law, rule, regulation, order or decree,
including without limitation, any Damages which arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact with
respect to matters relative to any of the foregoing contained in any document
distributed in connection therewith, or the omission or alleged omission to
state in any of the foregoing a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, but excluding any Damages to the extent arising from or due to the
gross negligence or willful misconduct of any of the Indemnified Parties.
Promptly upon receipt of notice of the commencement of any action, or
information as to any threatened action against any of the Indemnified Parties
in respect of which indemnity or reimbursement may be sought from the Borrower
on account of the agreement contained in this SECTION 9.13, notice shall be
given to the Borrower in writing of the commencement or threatening thereof,
together with a copy of all papers served, but the omission so to notify the
Borrower of any such action shall not release the Borrower from-any liability
which it may have to such Indemnified Parties unless, and only to the extent
that, such omission materially prejudiced Borrower's ability to defend against
such action.
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In case any such action shall be brought against any of the
Indemnified Parties, the Borrower shall be entitled to participate in
(and, to the extent that it shall wish, to select counsel and to direct) the
defense thereof at its own expense. Any of the Indemnified Parties shall have'
the right to employ its or their own counsel in any case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
unless the employment of such counsel shall have been authorized in writing by
the Borrower in connection with the defense of such action or the Borrower
shall not have employed counsel to have charge of the defense of such action
or such Indemnified Party shall have received an opinion from an independent
counsel that there may be defenses available to it which are different from or
additional to those available to the Borrower (in which case the Borrower shall
not have the right to direct the defense of such action on behalf of such
Indemnified Party), in any of which events the same shall be borne by the
Borrower. If any Indemnified Party settles any claim or action with respect to
which the Borrower has agreed to indemnify such Indemnified Party pursuant to
the terms hereof, the Borrower shall have no liability pursuant to this SECTION
9.13 to such Indemnified Party with respect to such claim or action unless the
Borrower shall have consented in writing to the terms of such settlement.
The provisions of SECTION 9.13 shall be effective only to the fullest
extent permitted by law.
Section 9.14. GOVERNING LAW. This Agreement and each Note shall be
governed by, and construed in accordance with, the laws of The Commonwealth of
Massachusetts without regard to such state's conflict of laws rules.
Section 9.15. SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 9.16. HEADINGS. Article and Section 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.
Section 9.17. COUNTERPARTS. This Agreement may be executed and
delivered in any number of counterparts each of which shall be deemed an
original, and this Agreement shall be effective when at least one counterpart
hereof has been executed by each of the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument by their respective officers thereunto duly
authorized, as of November ___, 1998.
In the presence of: FINSAR CORPORATION
/s/ Nancy Bouch By: /s/ Jerry S. Rawls
- -------------------------------- ------------------------------
Nancy Bouch Name: Jerry S. Rawls
Title: President
In the presence of: FLEET NATIONAL BANK,
as Agent and a Lender
By: /s/ Matthew M. Glauninger
- -------------------------------- ------------------------------
Name: Matthew M. Glauninger
Title: Senior Relationship
Manager and Vice President
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SECURITY AGREEMENT
THIS AGREEMENT made as of November 4, 1998, by and between FINISAR
CORPORATION, a California corporation with a principal place of business at 274
Ferguson Drive, Mountain View, California 94043 ("Debtor") and FLEET NATIONAL
BANK, a national banking association organized under the laws of the United
States having an office at One Federal Street, Mail Stop: MA OF DO7A, Boston,
Massachusetts 02110, as Agent for itself and each of the other Lenders who are
now or hereafter become parties to the hereinafter defined Loan Agreement
("Secured Party"). Capitalized terms used but not expressly defined herein
shall have the meanings assigned thereto in said Loan Agreement.
SECTION 1. RECITALS.
(a) Secured Party, Debtor and the Lenders have entered into that
certain Loan Agreement dated on or about the date hereof (as the same may be
amended from time to time, the "Loan Agreement") pursuant to the terms of which
Lenders have agreed to make loans to Debtor as set forth therein.
SECTION 2. THE SECURITY INTERESTS.
(a) In order to secure (i) payment and performance of all of the
obligations of Debtor under the Loan Agreement, under the Notes and under the
other Financing Documents, (ii) the performance of all of the obligations of
Debtor to Secured Party contained herein, and (iii) the payment of all other
future advances and other obligations of Debtor to Secured Party and/or the
Lenders, including, without limitations, any future loans and advances made to
Debtor by Secured Party and/or the Lenders prior to, during or following any
(a) application by Debtor for or consent by Debtor to the appointment of a
receiver, trustee or liquidator of Debtor's property, (b) admission by Debtor in
writing of its inability to pay or failure generally to pay its respective debts
as they mature, (c) general assignment by Debtor for the benefit of creditors,
(d) adjudication of Debtor as bankrupt or (e) filing by Debtor of a voluntary
petition in bankruptcy or a petition or an answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debts, dissolution or
liquidation statute, or an answer admitting the material allegations of a
petition filed against it in a proceeding under any such law (any of the
foregoing shall hereinafter be referred to as a "Bankruptcy Event"), any
interest accruing under the Notes and/or the Loan Agreement after the
commencement of a Bankruptcy Event to the extent permitted by applicable law,
and any and all other indebtedness, liabilities and obligations of Debtor to
Secured Party and/or the Lenders of every kind and description, direct, indirect
or contingent, now or hereafter existing, due or to become due (all of the
foregoing being hereinafter called the "Obligations"), Debtor hereby grants to
Secured Party for the benefit of the Lenders a continuing security interest in
the following described fixtures and personal property (hereinafter collectively
called the "Collateral"):
All fixtures and all tangible and intangible personal property of Debtor,
whether now owned or hereafter acquired by Debtor, or in which Debtor may now
have or hereafter acquire an interest, including, without limitations, (a) all
equipment (including all machinery, tools and
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furniture), inventory and goods (each as defined in the Uniform Commercial
Code, if so defined therein); (b) all accounts, accounts receivable, other
receivables, contract rights, chattel paper, and general intangibles
(including, without limitations, trademarks, trademark registrations,
trademark registration applications, servicemarks, servicemark registrations,
servicemark registration applications, goodwill, tradenames, trade secrets,
patents, patent applications, leases, licenses, permits, copyrights,
copyright registrations, copyright registration applications, moral rights,
any other proprietary rights, exclusionary rights or intellectual property
and any renewals and extensions associated with any of the foregoing, as each
of the foregoing may be secured under the laws now or hereafter in force and
effect in the United States of America or any other jurisdiction) of Debtor
(each as defined in the Uniform Commercial Code, if so defined therein); (c)
all instruments, documents of title, policies and certificates of insurance,
securities (whether certificated or uncertificated) and other investment
property (as defined in the Uniform Commercial Code), bank deposits, deposit
accounts, checking accounts and cash of Debtor, (d) all accessions, additions
or improvements to, all replacements, substitutions and parts for, and all
proceeds and products of, all of the foregoing and (e) all books, records and
documents relating to any of the foregoing; provided, however, this
definition of Collateral shall specifically exclude (i) equipment leased from
or financed by third parties and (ii) non-assignable contract and license
rights, all in accordance with the Loan Agreement.
(b) All Collateral consisting of accounts receivable, contract rights,
instruments, chattel paper and general intangibles (each as defined in the
Uniform Commercial Code) of Debtor arising from the sale, delivery or provision
of goods and/or services, including, without limitation, all documents, notes,
drafts and acceptances, now owned by Debtor as well as any and all thereof that
may be hereafter acquired by Debtor and in and to all returned or repossessed
goods arising from or relating to any contract rights, accounts or other
proceeds of any sale or other disposition of inventory, are sometimes
hereinafter collectively called the "Customer Receivables".
(c) The security interests granted pursuant to this SECTION 2 (the
"Security Interests") are granted as security only and shall not subject Secured
Party to, or transfer or in any way affect or modify, any obligation or
liability of Debtor under any of the Collateral or any transaction which gave
rise thereto.
SECTION 3. DELIVERY OF PLEDGED SECURITIES, CHATTEL PAPER AND DATABASE.
All securities including, without limitations, shares of stock and
negotiable promissory notes, of Debtor, whether now owned or hereafter acquired
by Debtor, shall be delivered to Secured Party by Debtor simultaneously with the
delivery hereof or, with respect to after acquired securities, promptly after
the same have been acquired by Debtor (which securities are hereinafter called
the "Pledged Securities") shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed undated instruments of transfer or
assignments in blank all in form and substance satisfactory to Secured Party.
EXHIBIT A attached hereto and made a part hereof sets forth a complete
description of all securities owned by Debtor on the date hereof. Secured Party
may at any time or from time to time, at its sole discretion, require Debtor to
cause any chattel paper included in the Customer Receivables to be delivered to
Secured Party or any successor agent or representative designated by it for the
purpose of causing a legend referring to
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the Security Interests to be placed on such chattel paper and upon any
ledgers or other records concerning the Customer Receivables.
SECTION 4. FILING: FURTHER ASSURANCES.
Debtor will, at its expense, execute, deliver, file and record (in such
manner and form as Secured Party may reasonably require), or permit Secured
Party to file and record, any financing statements, any carbon, photographic or
other reproduction of a financing statement or this Security Agreement (which
shall be sufficient as a financing statement hereunder), any specific
assignments or other paper that may be reasonably necessary or desirable, or
that Secured Party may reasonably request, in order to create, preserve, perfect
or validate any Security Interest or to enable Secured Party to exercise and
enforce its rights hereunder with respect to any of the Collateral. Debtor
hereby irrevocably appoints Secured Party as Debtor's attorney-in-fact to
execute in the name and behalf of Debtor such additional financing statements as
Secured Party may reasonably request.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF DEBTOR.
Debtor hereby represents and warrants to Secured Party that (a) Debtor
is, or to the extent that certain of the Collateral is to be acquired after the
date hereof, will be, the owner of the Collateral free from any adverse Lien
except as permitted under the Loan Agreement; (b) except for financing
statements relating to Liens against Debtor specifically described in and
permitted by the Loan Agreement, no financing statement covering the Collateral
is on file in any public office, other than the financing statements filed
pursuant to this Security Agreement; (c) all information, representations and
warranties contained in the Perfection Certificate attached hereto as EXHIBIT B
and made a part hereof are true, accurate and complete in all material respects
on the date hereof, and (d) there are no restrictions upon the voting rights or
the transfer of all or any of the Pledged Securities (other than as may appear
on the face of any certificate evidencing any of the Pledged Securities or as
may be imposed by any state or local agency or government) and Debtor has the
right to vote, pledge, grant the Security Interest in and otherwise transfer the
Pledged Securities free of any encumbrances (other than applicable restrictions
imposed by any state or local agency or government or Federal or state
securities laws or regulations).
SECTION 6. COVENANTS OF DEBTOR.
Debtor hereby covenants and agrees with Secured Party that Debtor
(a) will defend the Collateral against all claims and demands of all persons at
any time claiming any interest therein other than that of Secured Party, other
than in respect of Permitted Encumbrances; (b) will provide Secured Party with
prompt written notice of (i) any change in the office where Debtor maintains its
books and records pertaining to the Customer Receivables, and (ii) the movement
or location of a material amount of Collateral to or at any address other than
as set forth in EXHIBIT B attached hereto; (c) will immediately notify Secured
Party of any event causing a substantial loss or diminution in the value of all
or any material part of the Collateral and the amount or an estimate of the
amount of such loss or diminution; (d) will have and maintain insurance at all
times in accordance with the provisions of the Loan Agreement; (e) except in the
ordinary course of business or as otherwise permitted under the Loan Agreement,
will not sell or
3
<PAGE>
offer to sell or otherwise assign transfer or dispose of the Collateral or
any interest therein, without the prior written consent of Secured Party; (f)
will keep the Collateral free from any adverse Lien (other than Liens
permitted under the Loan Agreement); and (g) will not use the Collateral in
violation of the Loan Agreement or this Agreement.
SECTION 7. RECORDS RELATING TO COLLATERAL.
Debtor will keep its records concerning the Collateral, including the
Customer Receivables and all chattel paper included in the Customer Receivables,
at the location(s) set forth in EXHIBIT B attached hereto or at such other place
or places of business of which Secured Party shall have been notified in writing
no less than ten (10) days in advance. Debtor will hold and preserve such
records and chattel paper and will, to the extent provided in the Loan
Agreement, (a) permit representatives of Secured Party at any time during normal
business hours to examine and inspect the Collateral and to make abstracts from
such records and chattel paper, and (b) furnish to Secured Party such
information and reports regarding the Collateral as Secured Party may from time
to time reasonably request.
SECTION 8. RECORD OWNERSHIP OF PLEDGED SECURITIES.
Upon the occurrence and during the continuance of an Event of Default,
Secured Party may cause any or all of the Pledged Securities to be transferred
of record into the name of Secured Party (or a designee of Secured Party) in a
manner consistent with applicable law.
SECTION 9. RIGHT TO RECEIVE DISTRIBUTIONS ON PLEDGED SECURITIES.
Unless an Event of Default shall have occurred and be continuing, Debtor
shall be entitled, from time to time, to collect and receive for its own use all
dividends, interest and other payments and distributions made upon or with
respect to the Pledged Securities, except:
(i) dividends of stock;
(ii) dividends payable in securities or other property (except
cash dividends);
(iii) other securities issued with respect to or in lieu of the
Pledged Securities (whether upon conversion of the convertible securities
included therein or through stock split, spin-off, split-off, reclassification,
merger, consolidation, sale of assets, combination of shares or otherwise).
All of the foregoing, together with all new, substituted or additional shares of
capital stock, warrants, options or other rights, or other securities issued in
addition to or in respect of all or any of the Pledged Securities shall be
delivered to Secured Party hereunder as required by SECTION 3 hereof, to be held
as Collateral pursuant to the terms hereof in the same manner as the Pledged
Securities delivered to Secured Party on the date hereof.
SECTION 10. RIGHT TO VOTE PLEDGED SECURITIES.
Unless an Event of Default shall have occurred and be continuing, Debtor
shall have the right, from time to time, to vote and to give consents,
ratifications and waivers with respect to the
4
<PAGE>
Pledged Securities and to exercise conversion rights with respect to the
convertible securities included therein, and Secured Party shall, upon
receiving a written request from Debtor accompanied by a certificate signed
by Debtor's principal financial officer stating that no Event of Default has
occurred, deliver to Debtor or as specified in such request such proxies,
powers of attorney, consents, ratifications and waivers in respect of any
Pledged Securities which are registered in Secured Party's name, and make
such arrangements with respect to the conversion of convertible securities as
shall be specified in Debtor's request, such arrangements to be in form and
substance reasonably satisfactory to Secured Party.
If an Event of Default shall have occurred and be continuing, and
provided Secured Party elects to exercise the rights hereinafter set forth by
notice to Debtor of such election, Secured Party shall have the right, to the
extent permitted by law, and Debtor shall take all such action as may be
necessary or reasonably appropriate to give effect to such right, to vote and to
give consents, ratifications and waivers and take any other action with respect
to all the Pledged Securities with the same force and effect as if Secured Party
were the absolute and sole owner thereof.
SECTION 11. GENERAL AUTHORITY.
Debtor hereby irrevocably appoints Secured Party Debtor's lawful
attorney, with full power of substitution, in the name of Debtor, for the sole
use and benefit of Secured Party, its successors and assigns, but at Debtor's
expense, to exercise, all or any of the following powers with respect to all or
any of the Collateral during the existence and continuance of any Event of
Default:
(i) to demand, sue for, collect, receive and give acquittance
for any and all monies due or to become due;
(ii) to receive, take, endorse, assign and deliver all checks,
notes, drafts, securities, documents and other negotiable and non-negotiable
instruments and chattel paper taken or received by Secured Party;
(iii) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto;
(iv) to sell, transfer, assign or otherwise deal in or with the
same or the proceeds or avails thereof or the related goods securing the
Customer Receivables, as fully and effectually as if Secured Party were the
absolute owner thereof;
(v) to extend the time of payment of any or all thereof and to
make any allowance and other adjustments with reference thereto;
(vi) to discharge any taxes or Liens at any time placed thereon;
and
(vii) to execute any document or form, in the name of Debtor,
which may be necessary or desirable in connection with any sale of Pledged
Securities by Secured Party, including without limitation Form 144 promulgated
by the Securities and Exchange Commission;
5
<PAGE>
provided, that Secured Party shall give Debtor not less than ten (10) days'
prior written notice of the time and place of any sale or other intended
disposition of any of the Collateral.
SECTION 12. EVENTS OF DEFAULT.
Debtor shall be in default under this Security Agreement upon the
occurrence of any Event of Default under the Loan Agreement.
SECTION 13. REMEDIES UPON EVENT OF DEFAULT.
If any Event of Default shall have occurred and be continuing, Secured
Party may exercise all the rights and remedies of a secured party under the
Uniform Commercial Code. Secured Party may require Debtor to assemble all or
any part of the Collateral and make it available to Secured Party at a place to
be designated by Secured Party which is reasonably convenient. Secured Party
shall give Debtor ten (10) days' written notice of its intention to make any
public or private sale or sale at a broker's board or on a securities exchange
of the Collateral. At any such sale the Collateral may be sold in one lot as an
entirety or in separate parcels, as Secured Party may determine. Secured Party
shall not be obligated to make any such sale pursuant to any such notice. To
the extent permitted by law, Secured Party may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and such sale
may be made at any time or place to which the same may be adjourned. Secured
Party, instead of exercising the power of sale herein conferred upon it, may
proceed by a suit or suits at law or in equity to foreclose the Security
Interests and sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction.
SECTION 14. APPLICATION OF COLLATERAL AND PROCEEDS.
The proceeds of any sale of, or other realization upon, all or any part
of the Collateral shall be applied in the following order of priorities:
(a) first, to pay the expenses of such sale or other realization, including
reasonable attorneys' fees, and all expenses, liabilities and advances incurred
or made by Secured Party in connection therewith, and any other unreimbursed
expenses for which Secured Party may be reimbursed pursuant to SECTION 15;
(b) second, to the payment of the Obligations in such order of priority as
Secured Party, in its sole discretion, shall determine and (c) finally, to pay
to Debtor, or its successors or assigns, or as a court of competent jurisdiction
may direct, any surplus then remaining from such proceeds.
SECTION 15. EXPENSES; SECURED PARTY'S LIEN.
Debtor will forthwith upon demand pay to Secured Party: (a) the amount
of any taxes which Secured Party may have been required to pay by reason of the
Security Interests (including any applicable transfer and personal property
taxes but excluding taxes in respect of Secured Party's income and profits) or
to free any of the Collateral from any Lien thereon and (b) the amount of any
and all reasonable costs and expenses, including the reasonable fees and
disbursements of its counsel and of any agents not regularly in its employ,
which Secured Party may incur in connection with (i) the collection or other
disposition of any of the Collateral,
6
<PAGE>
(ii) the exercise by Secured Party of any of the powers conferred upon it
hereunder, (iii) any default on Debtor's part hereunder or (iv) any
Bankruptcy Event.
SECTION 16. TERMINATION OF SECURITY INTERESTS; RELEASE OF COLLATERAL.
Upon the repayment and performance in full of all the Obligations and the
expiration or termination of any obligations of Secured Party to advance funds
to Debtor, or upon the sale of any Collateral which is permitted under the Loan
Agreement or as otherwise consented to in writing by Secured Party, the Security
Interests on such sold Collateral shall terminate and all rights to the
Collateral shall revert to Debtor. Upon any such termination of the Security
Interests or release of Collateral, Secured Party will execute and deliver to
Debtor such documents as Debtor shall reasonably request to evidence the
termination of the Security Interests or the release of such Collateral, as the
case may be. Notwithstanding the foregoing, this Security Agreement shall be
reinstated if at any time any payment made or value received with respect to an
Obligation is rescinded, invalidated, declared to be fraudulent or preferential,
or set aside or is required to be repaid to a trustee, receiver or any other
party under any case or proceeding, voluntary or involuntary, for the
distribution, division or application of all or part of the assets of Debtor or
the proceeds thereof whether such case or proceeding be for the liquidation,
dissolution or winding up of Debtor or their respective businesses, a
receivership, insolvency or bankruptcy case or proceeding, an assignment for the
benefit of creditors or a proceeding by or against Debtor for relief under the
federal Bankruptcy Code or any other bankruptcy, reorganization or insolvency
law or any other law relating to the relief of debtors, readjustment of
indebtedness, reorganization, arrangement, composition or extension or
marshalling of assets or otherwise, all as though such payment had not been made
or value received.
SECTION 17. NOTICES.
All notices, requests, demands and other communications provided for
hereunder shall be in writing and mailed or telefaxed or delivered to the
applicable party in the manner set forth in SECTION 9.6 of the Loan Agreement.
SECTION 18. ADDITIONAL PROVISION REGARDING PLEDGED SECURITIES.
With respect to any Pledged Securities which are delivered to the Secured
Party pursuant to a separate pledge agreement, to the extent any provisions of
that pledge agreement are inconsistent with the terms of this Security
Agreement, the terms of that separate pledge agreement will govern.
SECTION 19. MISCELLANEOUS.
(a) No failure on the part of Secured Party to exercise, and no delay
in exercising, and no course of dealing with respect to, any right, power or
remedy under this Security Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise by Secured Party of any right, power or
remedy under this Security Agreement preclude any other right, power or remedy.
The remedies in this Security Agreement are cumulative and are not exclusive of
any other remedies provided by law. Neither this Security Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally but
only by a statement in
7
<PAGE>
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought;
(b) This Security Agreement shall be construed in accordance with and
governed by the laws of The Commonwealth of Massachusetts, except as otherwise
required by mandatory provisions of law and except to the extent that remedies
provided by the laws of any state other than The Commonwealth of Massachusetts
with respect to Collateral located in any such other state are governed by the
laws of said state; and
(c) This Security Agreement may be executed in several counterparts,
each of which shall be an original and all of which shall constitute but one and
the same Security Agreement.
SECTION 20. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
(a) Except to the extent prohibited by applicable law, Debtor
irrevocably:
(i) agrees that any suit, action, or other legal proceeding
arising out of this Security Agreement or any of the Loans may be brought in the
courts of record of The Commonwealth of Massachusetts or any other state(s) in
which any of the Collateral is located or the courts of the United States
located in The Commonwealth of Massachusetts or any other state(s) in which any
of the Collateral is located;
(ii) consents to the jurisdiction of each such court in any such
suit, action or proceeding; and
(iii) waives any objection which it may have to the laying of
venue of such suit, action or proceeding in any of such courts.
For such time as any of the Obligations of Debtor to Secured Party shall
be unpaid in whole or in part and/or the Commitment is in effect, Debtor
irrevocably designates the registered agent or agent for service of process of
the Debtor as reflected on the records of the Secretary of State of California
as its registered agent, and, in the absence thereof the Secretary of State of
State of California, as its agent to accept and acknowledge on its behalf
service of any and all process in any such suit, action or proceeding brought in
any such court and agrees and consents that any such service of process upon
such agent and written notice of such service to Debtor by registered or
certified mail shall be taken and held to be valid personal service upon Debtor
regardless of where Debtor shall then be doing business and that any such
service of process shall be of the same force and validity as if service were
made upon it according to the laws governing the validity and requirements of
such service in each such state and waives any claim of lack of personal service
or other error by reason of any such service. Any notice, process, pleadings or
other papers served upon the aforesaid designated agent shall, within three (3)
Business Days after such service, be sent by the method provided therefor under
SECTION 9.6 of the Loan Agreement to the Debtor at its address set forth in the
Loan Agreement. EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY IN THE EVENT OF ANY DISPUTE BETWEEN THE DEBTOR AND SECURED PARTY WITH
RESPECT TO THE FINANCING DOCUMENTS AND/OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREBY.
8
<PAGE>
SECTION 21. SEVERABILITY.
If any provision hereof is invalid or unenforceable in any jurisdiction,
the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of Secured Party.
IN WITNESS WHEREOF, this Security Agreement has been executed by the
parties hereto all as of the day and year first above written.
FINISAR CORPORATION
By:
-------------------------------
Jerry S. Rawls, President
FLEET NATIONAL BANK, as Agent for
itself and the other Lenders
By:
-------------------------------
Matthew M. Glauninger
Senior Relationship Manager and
Vice President
9
<PAGE>
EXHIBIT A
SECURITIES OWNED BY DEBTOR
None
10
<PAGE>
EXHIBIT B
PERFECTION CERTIFICATE
The following information is being provided to Fleet National Bank, in
its capacity as Agent and as Lender ("Fleet") in connection with a proposed loan
to Finisar Corporation ("Borrower"). The information provided in this
Perfection Certificate must be completed and forwarded to Fleet and its counsel,
Hinckley, Allen & Snyder prior to the drafting of any loan documentation:
1. The exact legal name of Borrower is: FINISAR CORPORATION; and
Borrower has not conducted business under any other corporate name except for
those listed below:
(a) Flix Op Corporation
(b)
------------------------------
2. Borrower's Tax ID Number is: 94-3038428.
3. Borrower uses in its business, or has used at any time during the
last five years, and owns the following trade names:
(a) Finisar Corporation
(b)
------------------------------
4. Borrower was formed as a corporation on April 16, 1987, under the
laws of State of California and is in good standing under those laws.
5. FOR CORPORATIONS: The senior officers of Borrower are:
(a) Frank Levinson, CEO
(b) Jerry Rawls, President
6. FOR LIMITED PARTNERSHIPS: The general partner and all limited
partners of Borrower are:
(a)
------------------------------
(b)
------------------------------
7. FOR LIMITED LIABILITY COMPANIES: The Managing Member and all of
the other members of Borrower are:
(a)
------------------------------
(b)
------------------------------
11
<PAGE>
8. Borrower is qualified to transact business in the following
states:
(a) California
(b)
------------------------------
9. The General Partner/Managing Member is qualified to transact
business in the following states:
(a)
------------------------------
(b)
------------------------------
10. Borrower has places of business at:
(a) 274 Ferguson Drive, Mountain View, CA
(b) 582 Market Street, San Francisco, CA
11. Borrower maintains its records concerning the Collateral,
including the Customer Receivables and all chattel paper included in Customer
Receivables, at:
(a) 274 Ferguson Drive, Mountain View, CA
(b) 582 Market Street, San Francisco, CA
12. Borrower owns or has an interest in personal property located at:
(a) 274 Ferguson Drive, Mountain View, CA
(b) 582 Market Street, San Francisco, CA
13. Borrower owns or has an interest in real property located at
(please note whether such interest is a fee or leased interest):
(a) 274 Ferguson Drive, Mountain View, CA (leased)
(b) 582 Market Street, San Francisco, CA (leased)
14. Borrower is the owner of the following securities:
(a)
------------------------------
(b)
------------------------------
12
<PAGE>
15. Borrower is the registered owner of the following Copyrights:
REGISTRATION NUMBER TITLE
(a)
(b)
16. Borrower is the registered owner of the following Patents
(please include applications pending):
REGISTRATION OR SERIAL NUMBER PATENT DESCRIPTION
(a) Please see Attachment A
(b)
17. Borrower is the registered owner of the following Trademarks
(please include applications pending):
TRADEMARK/SERVICEMARK REGISTRATION OR SERIAL NUMBER
(a) Please see Attachment B
(b)
18. Borrower is the owner of the following Contracts, Leases,
Licenses and Permits:
(a) Please see Attachment C
(b)
19. EXISTING DEBT:
(a) The Borrower is party to the following existing financing:
(i) Loan from Cupertino National Bank and Trust for
$1,000,000 dated July 16, 1997
(ii) Loan from Cupertino National Bank and Trust for
$500,000 dated July 16, 1997
(b) The following financing statements naming Borrower as
"Debtor" are on file:
13
<PAGE>
LOCATION DATE FILE NUMBER COLLATERAL
(c) The following mortgages/deeds of trust are of record naming
Borrower as "Mortgagor/Grantor":
(i)
------------------------------
(ii)
------------------------------
20. The Borrower will be represented by the following counsel in
connection with the above financing:
GENERAL COUNSEL:
Blair W. Stewart, Jr.
Wilson Sonsini Goodrich & Rosati PC
650 Page Mill Road
Palo Alto, CA 94304
Tel: (650) 493-9300
Fax: (650) 493-6811
21. The Borrower will be using the following Title Insurance Company
and Surveyor:
TITLE COMPANY:
------------------------------
------------------------------
------------------------------
Attn:
-----------------------
Tel:
------------------------
Fax:
------------------------
SURVEYOR:
------------------------------
------------------------------
------------------------------
Attn:
-----------------------
Tel:
------------------------
Fax:
------------------------
REPEAT ABOVE INFORMATION FOR ALL BORROWING SUBSIDIARIES
14
<PAGE>
ATTACHMENT A
The following is a list of patents owned or submitted by the Company.
<TABLE>
<CAPTION>
PATENT PATENT FILING COUNTRY STATUS
------ NO. DATE ------- ------
------ ------
<S> <C> <C> <C> <C>
Integrated Coupler/Connector 4,881,789 05/26/88 USA Issued 11/21/89
2x2 Optical Bypass Switch 4,927,225 05/30/89 USA Issued 05/22/90
Semiconductor Laser Diode Controller and 5,019,769 09/14/90 USA Issued 05/28/91
Laser
"" 654825 Australia Issued 07/31/91
"" Japan-requested exam
07/13/98
"" 54811 European Community -
issued 09/17/97;
validated in
UK, France & Germany
System for Scheduling of Indexed and 5,404,505 11/01/91 USA Issued 04/04/95
Requested Database Information on Demand
"" 654885 Australia Issued 07/31/91
"" Canada Filed
"" European Community -
requested examiner 5-95
Multi-Mode High Speed Network Switch for 5,566,171 03/15/95 USA Issued 01/15/96
Node-to-Node Communication
High Speed Local Area Network 5,604,735 05/12/95 USA Issued 02/18/97
Multi-Protocol Dual Fiber Link Laser Diode Abandoned
Controller
CIP Multi-Protocol Dual Fiber Link Laser 09/05/97 USA Pending
Diode Controller
Light Mixing Device with Fiber Optic Output 5,271,079 USA Issued 12/14/93
Method and Apparatus for Simulating a Laser 5,247,532 09/21/93 USA Issued 09/21/93
Diode in a Fiber Optic Transmitter
</TABLE>
15
<PAGE>
ATTACHMENT B
<TABLE>
<CAPTION>
TRADEMARK REG. NO. FILING DATE COUNTRY STATUS
<S> <C> <C> <C> <C>
Finisar 1,819,741 03/26/93 Intn'l Class 9 Issued 02/08/94
</TABLE>
16
<PAGE>
ATTACHMENT C
(1) The Company is party to the following real property leases and
subleases:
(a) Building Lease for 274 Ferguson Drive, Mountain View, CA,
dated April 30, 1997 between the Company and DM Group VIII
and DM Group VIII-E for a period beginning June 1, 1997 and
ending May 31, 2002.
(b) Individual Grant Deed for 3812 Brittany Lane, Glendale, CA,
dated June 6, 1995 between the Company and Mr. and Mrs. Jan
Lipson.
(2) The following licenses have been granted by the Company for use of
its intellectual property.
The Company is party to a license and supply agreement with Methode
Electronics regarding certain of the Company's products.
Many of the Company's products have imbedded software and by selling such
products, the Company implicitly grants a license to each purchaser to use the
software.
(3) The Company is party to the following contracts, agreements and
transactions which involve obligations of, or payments to, the Company in excess
of Fifty Thousand Dollars ($50,000):
(a) Equipment Lease Agreement with Hewlett-Packard starting
September 22, 1997
(b) Equipment Purchase Order with Hewlett-Packard dated
August 28, 1997
(c) Purchase Order for Hewlett Packard dated June 3, 1998
(d) Purchase Order for Fermi National Accelerator Laboratory
dated June 19, 1998
(e) Evaluation Agreement between Finisar and Anchor
Communications, Inc. dated July 14, 1998
17
<PAGE>
SECURITY AGEEMENT RE: CONTRACTS, LEASES, LICENSES AND PERMITS
THIS SECURITY AGREEMENT RE: CONTRACTS, LEASES, LICENSES AND PERMITS made as
of November 4, 1998, by and between FINISAR CORPORATION, a California
corporation with a principal place of business at 274 Ferguson Drive, Mountain
View, California 94043 ("Assignor") and FLEET NATIONAL BANK, a national banking
association organized under the laws of the United States having an office at
One Federal Street, Mail Stop: MA OF DO7A, Boston, Massachusetts 02110, as Agent
for itself and each of the other Lenders who are now or hereafter become parties
to the hereinafter defined Loan Agreement ("Assignee").
WITNESSETH:
1. DEFINITIONS. Each reference in this Agreement to the following
capitalized terms shall be deemed to have the following meanings and all other
references to a capitalized term shall have the meaning assigned thereto in the
Loan Agreement.
(a) CONTRACTS, LEASES, LICENSES AND PERMITS. All contracts
("Contracts"), leases ("Leases"), licenses ("Licenses") and permits ("Permits")
of Assignor together with all extensions, renewals, replacements and
substitutions therefor.
(b) LOAN AGREEMENT. That certain Loan Agreement dated on or
about the date hereof as the same may be amended or restated from time to time,
by and among Assignor, Assignee and the Lenders pursuant to which the Lenders
have agreed, subject to the terms and conditions thereof, to make loans and
credit facilities available to Assignor as more fully described in the Loan
Agreement and Assignor has agreed, INTER ALIA, to execute and deliver this
Agreement as partial security for such loans.
(c) OBLIGATIONS. Payment and performance of all of the
Obligations of Assignor under the Loan Agreement, under the Notes and under the
other Financing Documents, (ii) the performance of all of the obligations of
Assignor to Assignee contained herein, and (iii) the payment of all other future
advances and other obligations of Assignor to Assignee and/or the other Lenders,
including, without limitation, any future loans and advances made to Assignor by
Assignee and/or the other Lenders prior to, during or following any bankruptcy,
reorganization or insolvency of Assignor (a "Reorganization"), any interest
accruing under the Notes and/or the Loan Agreement after the commencement of a
Reorganization, and any and all other indebtedness, liabilities and obligations
of Assignor to Assignee and/or the other Lenders of every kind and description,
direct, indirect or contingent, now or hereafter existing, due or to become due.
NOW, THEREFORE, in consideration of the Loan Agreement, the Loans pursuant
thereto and other valuable consideration, the receipt of which is hereby
acknowledged and as further security for payment and performance of the
Obligations, Assignor hereby grants to Assignee, for the benefit of the Lenders,
a security interest in all of Assignor's rights, title and benefits (but none of
its obligations or liabilities) under, in and to each Contract, Lease, License
and Permit which may be so granted, conveyed, transferred, assigned or set over
without a violation of the terms thereof.
1
<PAGE>
TO HAVE AND TO HOLD the same with all of the rights, privileges and
appurtenances thereunto belonging unto Assignee (but none of its obligations or
liabilities), its successors and assigns until such time as the Obligations have
been paid and satisfied in full for the purpose of further and collaterally
securing same.
Assignor and Assignee agree that the following terms and conditions shall
govern this Agreement:
2. ASSIGNOR'S REPRESENTATIONS AND COVENANTS. Assignor, for itself and
for its successors and assigns, covenants and warrants as follows:
(a) that each existing Contract, Lease, License and Permit is in
full force and effect and that there is, to the knowledge of Assignor, no
default on the part of any party thereto or grantor thereof;
(b) that Assignor is the sole owner of its rights in the
Contracts, Leases, Licenses and Permits; that each Contract, Lease, License and
Permit is free from all Liens other than those created under the Security
Documents and those permitted under the Loan Agreement; that, Assignor has full
power and authority to grant a security interest in each such Contract, Lease,
License and Permit in accordance herewith; that Assignor will warrant and defend
each such Contract, Lease, License and Permit to Assignee against the lawful
claims and demands of all persons, and that Assignor has not sold, assigned,
transferred, mortgaged or pledged any such Contract, Lease, License or Permit or
any interest therein, to any person, firm or corporation other than Assignee or
otherwise in accordance with the Loan Agreement;
(c) that Assignor will not assign, pledge or otherwise encumber
any such Contract, Lease, License or Permit other than pursuant to the Permitted
Encumbrances without the prior written consent of Assignee in each instance and
then only subject to and in accordance with any conditions set forth in such
written consent;
(d) that Assignor will fulfill or cause to be fulfilled in all
material respects all of the material terms, covenants and conditions on
Assignor's part to be fulfilled under each Contract, Lease, License or Permit;
and
(e) that Assignor will, upon written request by Assignee, while
this Agreement remains in force and effect, execute and deliver all such powers
of attorney, instruments of pledge, and such other instruments or documents as
Assignee may reasonably request at any time for the purpose of further securing
Assignee's rights hereunder.
3. ASSIGNEE'S RIGHTS IN EVENT OF DEFAULT.
3.1 Assignor hereby constitutes and appoints Assignee irrevocably,
and with full power of substitution and revocation, the true and lawful
attorney, for and in the name, place and stead of Assignor, to exercise any and
all rights and remedies of Assignor under each Contract, Lease, License and
Permit and to perform any of the actions and rights provided by any of the
Security Documents upon the occurrence of an Event of Default. Assignor hereby
grants unto said attorney full power and authority following the occurrence and
during the continuance of an Event of Default to do and perform each and every
act whatsoever requisite to be done with
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respect to any Contract, Lease, License or Permit, as fully to all intents
and purposes as Assignor could do if personally present, hereby ratifying and
confirming all that said attorney shall lawfully and reasonably do or cause
to be done by virtue hereof; PROVIDED, HOWEVER, that any acts or omissions by
Assignee after an Event of Default shall be at Assignee's discretion and
shall not be or become the basis for any liability of Assignor to any Person.
3.2 Acceptance of this Agreement shall not constitute a satisfaction
of all or any part of the Obligations except to the extent of funds actually
received and applied by Assignee on account of the same.
3.3 The rights and powers of Assignee hereunder shall continue and
remain in full force and effect until all Obligations, including any deficiency
resulting from exercise of Assignee's remedies under any of the Security
Documents, are paid or satisfied in full. Assignee shall not be liable to
Assignor or anyone claiming under or through Assignor by reason of any act or
omission by Assignee hereunder.
4. INDEMNIFICATION.
4.1 Assignor agrees to indemnify and hold harmless Assignee and each
of the Lenders and their respective directors, officers, employees and agents
(collectively the "Assignee Indemnified Parties") from and against any and all
liability, loss, damage and expense, including reasonable attorneys' fees which
any of the Assignee Indemnified Parties may or shall incur under or in
connection with any Contract, Lease, License or Permit or by reason of any of
the Obligations or actions taken or omitted by Assignee under any of the
Obligations, including, without limitation any action or omission which Assignee
in its discretion may take to protect its interest in any Contract, Lease,
License or Permit and from and against any and all claims and demands whatsoever
which may be asserted against Assignor and/or any of the Assignee Indemnified
Parties by reason of any of the terms and conditions of any Contract, Lease,
License or Permit.
4.2 If any Assignee Indemnified Party incurs any such actual
liability, loss, damage or expense, the amount thereof, shall be paid by
Assignor to Assignee within thirty (30) business days after demand therefor
which demand shall include evidence reasonably establishing the incurrence of
such liability, loss, damage or expense. In the event that Assignor fails to
pay any such sums to Assignee within thirty (30) days after demand therefor,
such sums shall thereafter (i.e. commencing on the 31st day after demand
therefor) bear interest at the rate equal to 20% in excess of Effective Prime.
4.3 Nothing contained herein shall operate or be construed to
obligate any Assignee Indemnified Party to perform any of the terms, covenants
or conditions contained in any Contract, Lease, License or Permit, or to take
any action to collect any payments or to impose any obligation on such party
relating to any Contract, Lease, License or Permit.
5. EXERCISE OF REMEDIES. The rights and remedies of Assignee under this
Agreement are cumulative and in addition to any other rights and remedies which
Assignee shall have under or as a result of any other of the Obligations and may
be exercised as often as Assignee deems such exercise to be desirable. Failure
of Assignee to avail itself of any of the
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terms, covenants and conditions of this Agreement for any period of time, or
at any time or times, shall not constitute a waiver of any of its rights
hereunder.
6. ASSIGNMENT BY ASSIGNEE. Assignee shall have the right to assign
its interest in any Contract, Lease, License or Permit, subject to any
transfer restrictions contained therein, to any subsequent agent with respect
to the Loan Agreement and the Obligations thereunder.
7. TERMINATION. Upon final payment and satisfaction in full of the
Obligations, as evidenced by recorded satisfactions or releases of the
recorded Security Documents or otherwise as satisfactory to each of the
Lenders, and of any sums which may be payable hereunder, or under any present
or future agreement between Assignor and each of the Lenders, this Agreement
shall be of no further force and effect and, in that event, upon Assignor's
request and expense, Assignee agrees to execute and deliver to Assignor
instruments evidencing the termination of this Agreement.
8. APPROVALS. Notwithstanding anything to the contrary contained
herein, Assignee will not take any action pursuant to this Agreement which
would constitute or result in any assignment of any Contract, Lease, License
or Permit if such assignment would require, pursuant to the terms of such
Contract, Lease, License or Permit the prior approval of the other party to
such Contract, Lease, License or Permit, without first obtaining such
approval. During the continuance of an Event of Default, Assignor agrees to
take any action which Assignee may reasonably request in order to obtain and
enjoy the full rights and benefits granted to Assignee and the Lenders by
this Agreement and each other agreement, instrument and document delivered to
Assignee or any of the Lenders in connection herewith or in any document
evidencing or securing the Collateral, including specifically, at Assignee's
own cost and expense, the use of its best efforts to assist in obtaining
approval of the other party to such Contract, Lease, License or Permit for
any action or transaction contemplated by this Agreement which is then
required by such Contract, Lease, License or Permit.
9. NOTICES. All notices, requests, demands and other communications
provided for hereunder shall be in writing and mailed or telefaxed or delivered
to the applicable party in the manner set forth in SECTION 9.6 of the Loan
Agreement.
10. MISCELLANEOUS.
10.1 This Agreement, except as set forth in Section 10.2 below, shall
be construed and enforced in accordance with and governed by the laws of The
Commonwealth of Massachusetts without regard to its conflict of law rules.
10.2 Notwithstanding the foregoing choice of law provision, the
procedures governing the enforcement by Assignee of its foreclosure and other
remedies against Assignor under any of the Contracts, Leases, Licenses and
Permits shall be governed by the laws of the state in which the Contracts,
Leases, Licenses and Permits in question are located.
10.3 The Assignor irrevocably:
(a) agrees that any suit, action, or other legal proceeding
arising out of this Agreement may be brought in the courts of record of The
Commonwealth of Massachusetts
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or any other State(s) in which the Contracts, Leases, Licenses, Permits and
final closings are located or the courts of the United States located in The
Commonwealth of Massachusetts or any other State(s) in which any of the
Contracts, Leases, Licenses, Permits and Franchises are located.
(b) consents to the jurisdiction of each such court in any such
suit, action or proceeding; and
(c) waives any objection which it may have to the laying of
venue of such suit, action or proceeding in any of such courts.
For such time as the Obligations shall be unpaid in whole or in part,
Assignor irrevocably designates the registered agent or agent for service of
process of Assignor as reflected in the records of the Secretary of State of
California as its registered agent, and in the absence thereof, the Secretary of
State of the State of California, as its agent to accept and acknowledge on its
behalf service of any and all process in any such suit, action or proceeding
brought in any such court and agrees and consents that any such service of
process upon such agent and written notice of such service to Assignor by
registered or certified mail shall be taken and held to be valid personal
service upon Assignor regardless of where Assignor shall then be doing business
and that any such service of process shall be of the same force and validity as
if service were made upon it according to the laws governing the validity and
requirements of such service in such state and waives any claim of lack of
personal seizure or other error by reason of any such service. Any notice,
process, pleadings or other papers served upon the aforesaid designated agent
shall, within three (3) Business Days after such service, be sent by the method
provided for in SECTION 9.6 of the Loan Agreement to Assignor at its address set
forth in the Loan Agreement. EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY IN THE EVENT OF ANY DISPUTE BETWEEN ASSIGNOR AND ASSIGNEE WITH
RESPECT TO THE FINANCING DOCUMENTS AND/OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREBY.
10.4 No amendment, cancellation or discharge of this Agreement shall
be valid unless Assignee shall have consented thereto in writing.
10.5 In case any one or more of the provisions contained in this
document shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision hereof, and this document shall be construed as if such
invalid, illegal or unenforceable provision had never been included.
10.6 The terms, covenants, and conditions contained herein shall inure
to the benefit of and shall be binding upon Assignee and Assignor and their
respective successors and assigns.
10.7 The relative rights of Assignee and the Lenders are set forth in
the Loan Agreement.
10.8 This Agreement may be executed in one or more counterparts, each
of which shall be an original and all of which shall constitute but one and the
same Assignment.
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IN WITNESS WHEREOF, Assignor and Assignee have each caused this
Agreement to be duly executed on their behalf by their respective duly
authorized officers on the date first set forth above.
FINISAR CORPORATION
By:
------------------------------------
Jerry S. Rawls, President
FLEET NATIONAL BANK,
as Agent for itself and the other
Lenders
By:
------------------------------------
Mathew M. Glauninger
Senior Relationship Manager
Vice President
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THE HOBART BUILDING
OFFICE LEASE FORM
of the Building Owners and Managers Association of San Francisco
Parties
This Lease, made this 17th day of December, 1996, between Niantic
Corporation, Landlord, and Finisar Corporation, Tenant.
W I T N E S S E T H
1. PREMISES. Landlord hereby leases to Tenant and Tenant hereby
hires from Landlord those certain premises approximately 468 rentable square
feet (hereinafter called "premises") outlined in red on EXHIBIT A attached
hereto commonly known as Suite 609-610 and by this reference made a part
hereof, said premises being situated on the 6th floor of that certain
building (hereinafter called "building") known as 582 Market Street, San
Francisco, California.
Said letting and hiring is upon and subject to the terms, covenants
and conditions herein set forth and Tenant covenants as material part of the
consideration for this Lease to keep and perform each and all of said terms,
covenants and conditions by it to be kept and performed and that this Lease
is made upon the condition of such performance.
2. PURPOSE. The premises shall be used for general office purposes
and for no other use or purpose without the prior written consent of Landlord.
3. TERM. The term of this Lease shall be for one (1) year,
commencing on the 23rd day of December, 1996, and ending on the 22nd day of
December, 1997 (the "Lease Term").
4. POSSESSION. If Landlord, for any reason whatsoever, cannot
deliver possession of the said premises to Tenant at the commencement of the
term hereof, this Lease shall not be void or voidable, nor shall Landlord be
liable to Tenant for any loss or damage resulting therefrom, but in that
event there shall be a proportionate reduction of rent covering the period
between the commencement of the said term and the time when Landlord can
deliver possession. If possession of the premises is not delivered to Tenant
within six months from the scheduled commencement date, this Lease will
terminate. Should Landlord tender possession of the premises to Tenant prior
to the date specified for the commencement of the term, and Tenant accepts
such prior tender, such prior occupancy shall be subject to all terms,
covenants, and conditions of this Lease, including the payment of rent.
5. RENT. On or before the first day of each calendar month during
the term hereof Tenant shall pay to Landlord, as minimum monthly rent for the
premises, the sum of $663.00. The minimum monthly rent for any partial month
shall be prorated at the rate of 1/30 of the minimum monthly rent per day.
Said rent shall be paid by Tenant to Landlord, in advance without deduction
or offset, in lawful money of the United States of America at Cushman &
Wakefield, P.O. Box 45257, San Francisco, CA. 94145-0257, or to such other
person or at such other place as Landlord may from time to time designate in
writing.
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6. RENTAL ADJUSTMENT.
(a) In addition to the monthly rent provided for in Paragraph
5 hereof, Tenant shall pay to Landlord the sums set forth in the following
subparagraphs. Tenant's percentage share as set forth below has been
calculated by dividing the number of square feet of rentable area in the
Premises by the number of square feet of rentable area in the building. In
the event the rentable area of the building is changed, the Tenant's
percentage share shall be appropriately adjusted. Rentable area shall be
based upon the Building Owners and Managers Association International (BOMAI)
standard method of floor measurement for office buildings. Tenant hereby
approves and accepts Landlord's calculation of Tenant's current percentage
share as set forth below.
(b) TAX INCREASES AND ASSESSMENTS. Tenant shall pay to
Landlord an amount equal to .50% of any increase in real property taxes and
assessments or other fees or charges of whatsoever kind or character imposed
by a governmental agency which may be levied on the land and building of
which the premises are a part and personal property taxes levied on personal
property of Landlord used in the operation of said land and building above
the amount of such taxes levied and assessed for the fiscal tax year ending
June 30, 1996, either by way of increase in the rate or in the assessed
valuation of said land and building or by imposition of any such charges by
ordinance or statute of any authority having jurisdiction. For the purposes
of the subparagraph (a) real and personal property taxes shall include,
without limitation, taxes of every kind and nature levied and assessed in
lieu of or in substitution for existing or additional real or personal
property taxes on said land and building as well as any form of assessment,
license, fee, levy, penalty, or tax (other than inheritance or estate taxes),
imposed by any authority having the direct or indirect power to tax,
including any city, county, state, or federal government, or any school,
agricultural, lighting, drainage, or other improvement district, as against
any legal or equitable interest of Landlord in the premises or in the real
property of which the premises are a part, or as against Landlord's right to
rent or other income therefrom, or as against Landlord's business of leasing
the premises, and including any and all charges and fees which may be imposed
by the environmental protection agency or other similar governmental
regulatory agency or authority. In addition, Tenant shall pay one hundred
percent (100%) of any increase in taxes or assessments of whatsoever kind and
nature (including, without limitation, all personal property taxes) caused by
improvements or installations made by Tenant to the premises at any time
during the term hereof. In the event said taxes or assessments are charged to
or paid or payable by Landlord, Tenant forthwith upon demand therefore, shall
reimburse Landlord for all amounts of such taxes or assessments chargeable
against Tenant pursuant to this subparagraph (b) and paid by Landlord.
(c) OPERATING EXPENSE INCREASES
(1.) Tenant shall pay to Landlord, at the times
hereinafter set forth, an amount equal to .50% of any increase in direct
expenses paid or incurred by Landlord on account of the operation or
maintenance of the building above such direct expenses paid or incurred by
Landlord during the Base Year. "Base Year" as used in this subparagraph (b)
shall mean the calendar year 1996. "Direct expenses" as used herein shall
include all direct costs of operation and maintenance as determined by
standard accounting practices as set forth in the Building Owners and
Managers Association International (BOMAI) chart of accounts from time to
time
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and shall include the following by way of illustration but not limitation:
the cost of contesting by appropriate proceeding the amount or the validity
of any of the aforementioned taxes or fees; water and sewer charges;
insurance premiums; license, permit and inspection fees; charges for heat,
light power and steam; janitorial services; labor, supplies; materials,
equipment and tools; and management fees. "Direct expenses" as used herein
shall not include depreciation on the building or equipment therein, interest
or real estate broker's commissions.
(2.) The cost of capital improvements made by Lessor to
the Building that reduce other operating expenses or that are required under
any governmental law or regulation that was not applicable to the Building at
the time of substantial shell completion, such cost or allocable portion
thereof to be amortized over such reasonable period as Lessor shall determine
together with interest on the unamortized balance at the rate that was paid
by Lessor on funds borrowed for the purpose of constructing such capital
improvements, or, if Lessor does not borrow such funds, would have been paid
had Lessor borrowed funds for such purpose but in no event shall such
interest rate exceed the maximum rate permitted by law; provided, however,
that Operating Expenses shall not include costs of tenant improvements, real
estate brokers' commissions, or interest and capital items other than those
referred to in clause (2) above. There shall be deducted from Operating
Expenses paid all amounts that have been included in Operating Expenses paid
by any tenant, including Lessee, during the period for which Operating
Expenses are being determined, on account of cost of repairs or extra
services, for which such Tenant is directly responsible.
Statement of the amount of direct expenses for the preceding
calendar year and the amount of such increase payable by Tenant shall be
determined or estimated by Landlord and shall be given to Tenant on such date
as Landlord shall from time to time determine. All amounts payable by Tenant
as shown on said statement shall be paid by Tenant within the time required
by said statement. It during any such year Landlord shall revise its estimate
of tenant's share of said expenses for said year, Landlord shall advise
Tenant and commencing on the next date payment of additional charges are due,
Tenant shall pay all additional charges based on such revised estimate for
the portion of the year already elapsed and shall commence paying the
additional charges based on such revised estimate for the remainder of such
year.
7. SECURITY. Simultaneously with the execution of the lease,
Tenant shall deposit with Landlord the sum of $1,326.00, of which sum $663.00
shall be payment of the first month's rent and the balance thereof, namely,
$663.00 shall be held by Landlord as security for the faithful performance by
Tenant of all the terms, covenants and conditions of this lease. Provided
that at the end of the term Tenant shall have delivered up the Premises to
Landlord, broom clean, and in the same condition as at the commencement date,
reasonable wear excepted, said sum held as security shall be returned to
Tenant. No interest shall be payable thereon and Landlord shall not be
required to keep said sum in a separate account.
No security or guaranty which may now or hereafter be furnished
Landlord for the payment of the rent herein reserved or for performance by
Tenant of the other covenants or conditions of this Lease shall in any way be
a bar or defense to any action in unlawful detainer, or for the recovery of
the premises, or to any action which Landlord may at any time commence for a
breach of any of the covenants or conditions of this Lease.
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8. USES PROHIBITED. Tenant shall not do or permit anything to be
done in or about the premises nor bring or keep anything therein which will
in any way increase the rate of or affect any fire or other insurance upon
the building or any of its contents or cause a cancellation of any insurance
policy covering said building or contents. Tenant shall not do or permit
anything to be done in or about the premises which will in any way obstruct
or interfere with the rights of other tenants or occupants of the building or
injure or annoy them, or use or allow the premises to be used for any
residential, immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the premises. No
cooking devices or other odor causing devices, loudspeakers or other similar
device, system or apparatus which can be heard or experienced outside the
premises shall, without the prior written approval of Landlord, be used in or
at the premises. Tenant shall not commit or suffer to be committed any waste
in or upon the premises.
9. COMPLIANCE WITH LAW. Tenant shall not use or permit anything to
be done in or about the premises which will in any way conflict with any law,
statute, ordinance or governmental rule, regulation or requirement now in
force or which may hereafter be enacted or promulgated. Tenant, at its sole
cost and expense, shall promptly comply with all laws, statutes, ordinances
and governmental rules, regulations or requirements now in force or which may
hereafter be in force and with the requirements or any board of fire
underwriters or other similar body now or hereafter constituted relating to
or affecting the condition, use of occupancy of the premises, excluding
structural changes not related to or affected by Tenants improvements or
acts. The judgement of any court of competent jurisdiction or the admission
of Tenant in an action against Tenant, whether Landlord be a party thereto or
not, that Tenant has violated any law, statue, ordinance or governmental
rule, regulation or requirement shall be conclusive of that fact as between
Landlord and Tenant.
10. ALTERATIONS. Tenant shall not make or suffer to be made any
alterations, additions or improvements to or of the premises or any part
thereof without the written consent of Landlord first had and obtained. Any
alterations, additions, or improvements to or of said premises, including
without limitation any partitions, movable or otherwise, and all carpeting,
shall at once become a part of the realty and belong to Landlord. Movable
furniture, equipment and trade fixtures shall remain the property of Tenant.
If Landlord consents to the making of any alterations, additions or
improvements to the premises by Tenant, the same shall be made by Tenant at
Tenant's sole cost and expense and any contractor or person selected by
Tenant to make the same must first be approved of in writing by Landlord.
Upon the expiration or sooner termination of the term Tenant, upon demand by
Landlord, at Tenant's sole cost and expense, forthwith and with all due
diligence shall remove any alterations, additions or improvements made by
Tenant designated by Landlord to be removed, and Tenant, forthwith and with
all due diligence, at its sole cost and expense, shall repair any damage to
the premises caused by such removal.
11. REPAIR. By entry hereunder upon the commencement of the term
hereof, Tenant accepts the premises as being in good, sanitary order,
condition and repair. Tenant, at Tenant's sole cost and expense, shall keep
the premises and every part thereof in good condition and repair, damage
thereto by fire, earthquake, act of God or the elements not caused by
Tenant's negligent or willful act excepted, Tenant hereby waiving all rights
to make repairs at the expense of the Landlord as provided by law, statute or
ordinance now or hereafter in effect. Upon the
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expiration or sooner termination of the term hereof, Tenant shall surrender
the premises to Landlord in the same condition as when received ordinary wear
and tear and damage by fire, earthquake, act of God or the elements excepted,
unless caused by Tenants negligent or willful act. It is specifically
understood and agreed that Landlord has no obligation and has made no
promises to alter, remodel, improve, repair, decorate or paint the premises
or any part hereof and that no representations respecting the condition of
the premises or the building have been made by Landlord to Tenant except as
specifically set forth in EXHIBIT C - Construction Exhibit attached hereto.
12. ABANDONMENT. Tenant shall not vacate or abandon the premises at
any time during the term hereof, and if Tenant shall abandon, vacate or
surrender the premises or be dispossessed by process of law, or otherwise,
any personal property belonging to Tenant and left on the premises shall be
deemed to be abandoned, at the option of Landlord.
13. LIENS. Tenant shall keep the premises and the building and the
land upon which the building is situated free from any liens arising out of
any work performed, materials furnished or obligations incurred by Tenant.
Tenant shall in the event of the filing of any such lien, post any bond
required to release the premises therefrom.
14. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not mortgage, pledge, hypothecate or encumber
this Lease or any interest therein. Tenant shall not assign this Lease or
sublet or suffer any other person (the agents and servants of Tenant
excepted) to occupy or use the premises, or any part thereof, or any right or
privilege appurtenant thereto without the prior written consent of Landlord
first had and obtained, which consent shall not be unreasonably withheld.
Landlord's consent to one assignment, subleasing or occupancy shall not be
deemed to be a consent to any subsequent assignment, subleasing or occupancy.
(b) Provided further and notwithstanding anything hereinbefore
set forth: In the event that at any time or from time to time during the term
of this lease, Tenant desires to sublet all or any part of the Premises,
Tenant shall notify the Landlord in writing (the "Sublet Notice") of the
terms of the proposed subletting, and the area so proposed to be sublet and
shall give Landlord the right to sublet from Tenant such space (the "Sublet
Space") on the same terms as those contained in the Sublet Notice. Such
option shall be exercisable by Landlord in writing for a period of 30 days
after receipt of the Sublet Notice.
If Landlord fails to exercise its option and Tenant desires to
complete the proposed sublease, Tenant shall deliver an executed copy of such
sublease to Landlord in order to obtain its consent as required in paragraph
14 (a) above. If Landlord consents to sublease, then such sublease shall be
subject to and made upon the following terms:
(i) any such sublease shall be subject to the terms of
this Lease and the term thereof may not extend beyond the expiration of the
term of this Lease;
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(ii) 50% of the difference between all sums payable by
subtenant and all rent due hereunder for the sublease premises during the
term of the sublease, less Tenant's reasonable costs of subletting, shall be
payable to Landlord as additional rent hereunder.
(iii) no subtenant shall have a right to further sublease
its premises. If Landlord fails to exercise such option, and Tenant fails to
consummate a sublease with a third party within 60 days after the expiration
of Landlord's option period on the same terms and conditions contained in the
Sublet Notice, Tenant shall be required to deliver a new Sublet Notice to
Landlord and comply with the terms and conditions set forth above before any
further subletting shall be permitted.
(c) Regardless of Landlord's consent, no subletting nor
assignment shall release Tenant of Tenant's obligation or alter the primary
liability of Tenant to pay rent and perform other obligations of tenant under
this lease.
(d) In no event shall Tenant assign this Lease or sublet the
premises or any portion thereof to any then existing or prospective tenant of
said building.
(e) Tenant shall pay Landlord's reasonable costs incurred in
connection with Tenant's request to assign this lease or sublet the premises,
regardless whether or not the Landlord consents to the proposed transfer.
15. INDEMNIFICATION OF LANDLORD. Landlord shall not be liable to
Tenant and Tenant hereby waives all claims against Landlord for any injury or
damage to any person or property in or about the premises by or from any
cause whatsoever and, without limiting the generality of the foregoing,
whether caused by water leakage of any character from the roof, walls,
basement or other portion of the premises of said building or any part
thereof.
Tenant shall hold Landlord harmless from and indemnify and defend
Landlord against any and all claims or liability for any injury, or damage to
any person or property whatsoever: (1) occurring in, on or about the premises
or any part thereof, and (2) occurring in, on or about any facilities
(including without prejudice to the generality of the term "facilities",
elevator, stairways, passageways or hallways), the use of which Tenant may
have in common with other tenants of the building, when such injury or damage
shall be caused in part or in whole by the act, neglect, default or omission
of any duty with respect to the same by Tenant, its agent, employees or
invitees.
16. INSURANCE. Tenant agrees to keep in force during the term
hereof, at Tenant's expense, public liability and property damage insurance
with combined single limits in the amount of not less than one million
dollars ($1,000,000.00). Said policy shall name Landlord as a additional
insured, and shall insure Landlord's contingent liability as respects acts,
or omissions of Tenant, shall be issued by an insurance company licensed to
do business in the state where the premises are located; and shall provide
that said insurance shall not be canceled or amended unless thirty (30) days
prior written notice to Landlord is first given. Said policy or a certificate
thereof shall be delivered to Landlord by Tenant prior to the commencement of
the term and each renewal of such insurance. Tenant hereby waives all rights
of subrogation against
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Landlord to which any insurance carrier may at any time become entitled under
any policy of insurance carried by Tenant.
17. UTILITIES. Landlord shall furnish to the premises, during
reasonable hours of generally recognized business days, to be determined by
Landlord, and subject to the rules and regulations of the building, water and
electricity suitable for the use of the premises for general office purposes
and heat required in Landlord's judgement for the comfortable use and
occupation of the premises for such purposes, janitorial service, and
elevator service. Landlord shall not be liable for, and Tenant shall not be
entitled to any abatement or reduction of rent by reason of Landlord's
failure to furnish any of the foregoing when such failure or delay is caused
by accident, breakage, repairs, strikes, lockouts or other labor disturbances
or labor disputes of any character, or is caused directly or indirectly by
the limitation, curtailment, rationing or restrictions on use of water,
electricity, gas or any other form of energy serving the premises or the
building, or by any other cause, similar or dissimilar, beyond the reasonable
control of Landlord. Landlord shall not be liable under any circumstances for
loss of business or injury to property, however occurring, through or in
connection with or incidental to failure to furnish any of the foregoing.
Tenant shall pay and provide for all services and utilities not furnished by
Landlord.
Tenant will not, without the written consent of Landlord, use any
apparatus or device in the premises which will in any way increase the amount
of electricity, cooling capacity or water usually furnished or supplied for
use of the premises for general office purposes or connect with electric
current, except through existing electrical outlet in the premises, or water
pipes, any apparatus or device for the purpose of using electric current or
water. If Tenant shall require water or electric current in excess of that
customarily furnished or supplied to their tenants of the building for use of
their premises for general office purposes, Tenant shall first procure the
consent of landlord, which Landlord may refuse, to the use thereof and
Landlord may cause an electric current or water meter to be installed in the
premises so as to measure the amount of excess electric current consumed, as
shown by said meters, at the rates charged for such services by the local
public utility furnishing the same, plus any additional expense incurred in
keeping account of the excess electric current or water so consumed.
18. PERSONAL PROPERTY AND OTHER TAXES. Tenant shall pay, before
delinquency, any and all taxes levied or assessed and which become payable
during the term hereof upon Tenant's equipment, furniture, fixtures and other
personal property located in the premises, including carpeting installed by
Tenant even though said carpeting has become apart of the lease premises; and
any and all taxes or increases therein levied or assessed on Landlord or
Tenant by virtue of alterations, additions or improvements to the premises
made by Tenant or Landlord at Tenant's request. In the event said taxes are
charged to or paid or payable by Landlord, Tenant, forthwith upon demand
therefore, shall reimburse landlord of all such taxes paid by Landlord.
19. RULES AND REGULATIONS. Tenant shall faithfully observe and
comply with the rules and regulations printed on or annexed to this Lease and
all modifications of and additions thereto applicable to all tenants of the
building from time to time put into effect by Landlord of which Tenant shall
have notice. Landlord shall not be responsible to Tenant for the
nonperformance by any other tenant or occupant of the building of any of said
rules and regulations.
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20. HOLDING OVER. If Tenant holds possession of the premises after
the term of this lease, Tenant shall, (at option of Landlord to be exercised
by Landlord's giving written notice to Tenant and not otherwise) become a
Tenant from month to month upon the terms and conditions herein specified, so
far as applicable, at a monthly rental of one hundred fifty percent (150%) of
the highest amount of minimum monthly rent paid during the lease term payable
in advance, in lawful money, and shall continue to be such Tenant until
thirty (30) days after Tenant shall have given to Landlord or Landlord shall
have given to Tenant a written notice of intent to terminate such monthly
tenancy. Unless landlord shall exercise the option hereby given him, Tenant
shall be Tenant at sufferance only, whether or not Landlord shall accept any
rent from Tenant while Tenant is so holding over.
21. SUBORDINATION. This Lease shall be subject and subordinate at
all times to all ground or underlying leases which may now exist or hereafter
be executed affecting the building and/or the land upon which the building is
situated and to the lien of any mortgages or deeds of trust in any amount or
amounts whatsoever now or hereafter place on or against any ground or
underlying lease without the necessity of having further instruments on the
part of tenant to effectuate such subordination. Notwithstanding the
foregoing, Tenant covenants and agrees to execute and deliver, upon demand,
such further instruments evidencing such subordination of the Lease to such
ground or underlying leases and to the lien of any such mortgages or deeds of
trust as may be required by Landlord. Tenant hereby irrevocably appoints
Landlord the attorney in fact of Tenant to execute and deliver any such
instrument or instruments for or in the name of Tenant. In the event of
termination any ground or underlying lease, or in the event of foreclosure or
exercise of any power of sale under any mortgage or deed of trust superior to
this Lease or to which this Lease is subject or subordinate, upon Tenant's
attornment to the Lessor under such ground or underlying lease or to the
purchaser at any foreclosure sale or sale pursuant to the exercise of any
power of sale under any mortgage or deed of trust, this Lease shall not
terminate and Tenant shall automatically be and become the Tenant of said
Lessor under such ground or underlying lease or to said purchaser, whichever
shall make demand therefore.
22. ENTRY BY LANDLORD. Landlord reserves and shall at any and all
reasonable times have the right to enter the premises to inspect the same, to
supply janitor service and any other service to be provided by Landlord to
Tenant hereunder, to submit the premises to prospective purchasers or
tenants, to post notices of nonresponsibility, and to alter, improve or
repair the premises and any portion of the building without abatement of rent
and may for the purpose erect scaffolding and other necessary structures
where reasonably required by the character of the work to be performed,
always providing the entrance to the premises shall not be blocked thereby
and further providing that the business of tenant shall not be interfered
with unreasonably. Tenant hereby waives any claim for damages for any injury
or inconvenience to or interference with Tenant's business, any loss of
occupancy of quiet enjoyment of the premises, and other loss occasioned by
such entry. For each of the aforesaid purposes, Landlord shall at all times
have and retain a key with which to unlock all of the doors in, upon and
about 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 said doors in an emergency in order to obtain entry to the premises, and
any entry to the premises obtained by Landlord by any of said means, or
otherwise, shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into or a detainer of the premises or an eviction
of tenant from the premises or any portion thereof.
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23. INSOLVENCY OR BANKRUPTCY. Either (a) the appointment of a
receiver to take possession of all of the assets of Tenant, (b) an assignment
by Tenant for the benefit of creditors, or (c) any action taken or suffered
by Tenant under any insolvency, bankruptcy or reorganization act shall
constitute a breach of this Lease by Tenant. Upon the happening of any such
event this Lease shall terminate five (5) days after written notice of
termination from Landlord to Tenant. In no event shall this Lease be assigned
or assignable by reason of any voluntary or involuntary bankruptcy
proceedings nor shall any rights or privileges hereunder be an asset of
Tenant in any bankruptcy, insolvency or reorganization proceedings.
24. DEFAULT. In the event of any breach or default of Lease by
Tenant, then Landlord, besides any other rights and remedies of Landlord at
law or equity, shall have the right either to terminate Tenant's right to
possession of the premises and thereby terminate this Lease or to have this
Lease continue in full force and effect with Tenant at all times having the
right to possession of the premises. Should Landlord elect to terminate
Tenant's right to possession of the premises and terminate this Lease, the
Landlord shall have the immediate right of entry and may remove all persons
and property from the premises. Such property so removed may be stored in a
public warehouse or elsewhere at the cost and for the account of Tenant. Upon
such termination Landlord, in addition to any other rights and remedies
(including rights and remedies under Subparagraphs (1) , (2) and (4) of
Subdivision (a) of Section 1951.2 of the California Civil Code of any
amendment thereto), shall be entitled to recover from Tenant the worth at the
time of award of the amount by which the unpaid rent for the balance of the
term after the time of award exceeds the amount of such rental loss that the
Tenant proves could be reasonably avoided. The worth at the time of award of
the amount referred to in subparagraphs (1) and (2) of Subdivision (a) of
Section 1951.2 of the California Civil Code shall be computed by allowing
interest at the maximum rate allowed by law. The work at the time of the
award of the amount referred to in subparagraph (3) of Subdivision (a)
Section 1951.2 of the California Civil Code shall be computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco
at the time of the award plus 1%.
Any proof by Tenant of the amount of rental loss that could be
reasonably avoided shall be made in the following manner: Landlord and Tenant
shall each select a licensed real estate broker in the business of renting
property of the same type and use as the premises and in the same geographic
vicinity and such two real estate brokers shall select a third licensed real
estate broker and the three licensed real estate brokers so selected shall
determine the amount of rental loss that could be reasonably avoided for the
balance of the term of this Lease after the time of award. The decision of
the majority of said licensed real estate brokers shall be final and binding
upon the parties hereto.
Should Landlord, following any breach or default of this Lease by
Tenant, elect to keep this Lease in full force and effect, with Tenant
retaining the right to possession of the premises (notwithstanding the fact
the Tenant may have abandoned the leased premises), then Landlord, besides
the rights and remedies specified in Section 1951.4 of the California Civil
Code and all other rights and remedies Landlord may have at law or equity,
shall have the right to enforce all of Landlord's rights and remedies under
this Lease, including but not limited to the right to recover the
installments of rent as they become due under this Lease. Notwithstanding any
such election to have this Lease remain in full force and effect, Landlord
may at any time thereafter elect to terminate Tenant's right to possession of
said premises and thereby terminate this Lease
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for any previous breach or default which remains uncured, or for any
subsequent breach or default.
25. DAMAGE BY FIRE, ETC. If the premises are or the building is
damaged by fire or other casualty which is covered by insurance, Landlord
shall forthwith repair the same, provided such repairs can be made within
sixty (60) working days from the date of such damage under the laws and
regulations of the state, federal, county and municipal authorities having
jurisdiction thereof, and this Lease shall remain in full force and effect
during the making of such repairs, except that Tenant shall be entitled to
apportionate reduction of rent while such repairs are being made if the
damage was not attributable to tenant's negligent or willful act, such
proportionate reduction to be based upon the full extent to which the making
of such repairs shall interfere with the business carried on by Tenant in the
premises. If such repairs are not covered by insurance or cannot be made
within sixty (60) working days from the date of such damage, Landlord shall
have the option either (1) to repair or restore such damage, this Lease
continuing in full force and effect, but the rent to be proportionately
reduced or (2) to give notice to Tenant at any time within thirty (30)
working days after the date of such damage terminating this Lease as of a
date to be specified in such notice, which date shall be not less than (30)
nor more than sixty (60) working days after the giving of such notice. In the
event of the giving of such notice of termination by either Landlord or
Tenant, this Lease and all interest of Tenant in the premises shall terminate
on the date so specified in such notice, and the rent, reduced by any
proportionate reduction based upon the extent, if any, to which said damage
interfered with the business carried on by Tenant in the premises, shall be
paid up on date of such termination. Landlord shall not be liable for or be
required to repair any injury or damage by fire or other cause to the
property of Tenant, or to make repairs or replacements of any panelings,
decorations, railings, floor coverings or any equipment or improvements
installed on the premises by Tenant. Tenant hereby waives any provisions of
law automatically terminating this Lease or otherwise contrary to the
provisions of this paragraph in the event of damage to or destruction of the
promises.
26. EMINENT DOMAIN. If all or any part of the premises shall be
taken or appropriated by any public or quasi-public authority under the power
of eminent domain, and such taking will substantially impair Tenant's use of
the premises for more than 90 days, either party hereto shall have the right,
at its option, to terminate this Lease. If all or any part of the building of
which the premises are a part shall be taken or appropriated by any public or
quasi-public authority under the power of eminent domain, Landlord may
terminate this Lease. In either of such events, Landlord shall be entitled to
and Tenant upon demand of Landlord shall assign to Landlord any rights of
Tenant to any and all income, rent award, or any interest therein whatsoever
which may be paid or made in connection with such public or quasi-public use
or purpose, and Tenant shall have no claim against Landlord or the condemnor
for the value of any unexpired term of this Lease. If a part of the premises
shall be so taken or appropriated and neither party hereto shall elect to
terminate this Lease, the rent thereafter to be paid shall be equitably
reduced.
27. CLAUSES, PLATS AND RIDERS. Clauses, plats and riders, if any,
signed by Landlord and Tenant and endorsed on or affixed to this Lease are a
part hereof, and in the event of variation or discrepancy the duplicate
original hereof, including such clauses, plats and riders, if any, held by
Landlord shall control.
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28. SALE BY LANDLORD. In the event of a sale or conveyance by
Landlord of the building, the same shall operate to release Landlord from any
future liability upon any of the covenants or conditions, express or implied,
herein contained in favor of Tenant, and in such event Tenant agrees to look
solely to the responsibility of the successor in interest of Landlord in and
to this Lease. If any security be given by Tenant to secure the faithful
performance of all or any of the covenants of this Lease on the part of
tenant, Landlord may transfer and/or deliver the security to the successor in
interest of Landlord, and thereupon Landlord shall be discharged from any
further liability in reference thereto. Except as set forth in this Paragraph
28, this Lease shall not be affected by any such sale or conveyance.
29. ESTOPPEL CERTIFICATES. At any time and from time to time, upon
not more than ten (10) days prior request by Landlord, Tenant shall execute,
acknowledge and deliver to Landlord a statement certifying the date of
commencement of this Lease, stating that this Lease is unmodified and in full
force and effect (or if there have been modifications, that this Lease is in
full force and effect as modified and the date and nature of such
modifications) and the dates to which the rent has been paid, and setting
forth such other matters as may reasonably be requested by Landlord. Landlord
and Tenant intend that any such statement delivered pursuant to this
paragraph may be relied upon by any mortgagee or the beneficiary of any Deed
of Trust or by any purchaser or prospective purchaser of the building.
30. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements to
be kept or performed by tenant under any of the terms of this Lease shall be
performed by Tenant at Tenant's sole cost and expense and without any
abatement of rent. If Tenant shall fail to pay any sum of money, other than
rent, required to be paid by it hereunder or shall fail to perform any other
act on its part be performed hereunder, and such failure shall continue for
ten (10) days after notice thereof by Landlord, Landlord may, but shall not
be obligated to, and without waiving and default of Tenant or releasing
Tenant from any obligations of Tenant hereunder, make any such payment or
perform any such other act on Tenant's part to be made or performed as in
this Lease provided. All sums so paid by the Landlord and all necessary
incidental costs, together with interest thereon at the rate of ten percent
(10%) per annum from the day of such payment by the Landlord, shall be paid
to Landlord forthwith on demand, and Landlord shall have (in addition to any
other right or remedy of Landlord) the same rights and remedies in the event
of nonpayment thereof by Tenant as in the case of default by Tenant in
payment of rent.
31. ATTORNEY FEES. If either Landlord or Tenant shall obtain legal
counsel or bring an action against the other by reason of the breach of any
covenant or warranty hereof, or otherwise arising out of this Lease, the
unsuccessful party shall pay to the prevailing party reasonable attorney's
fees, which shall be payable whether or not any action is prosecuted to
judgement. The term "prevailing party" shall include, without limitation, a
party who obtains legal counsel or brings an action against the other by
reason of the other's breach or default and obtains substantially the relief
sought, whether by compromise, settlement or judgement.
32. SURRENDER OF PREMISES. The voluntary or other surrender of this
Lease by Tenant or mutual cancellation thereof shall not work a merger and,
at the option of Landlord, shall terminate all or any existing subleases or
subtenancies, or at the option of Landlord, may operate as an assignment to
Landlord of any or all such subleases or subtenancies.
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33. WAIVER. The waiver by Landlord or Tenant of performance of any
term, covenant or condition herein contained shall not be deemed to be a
waiver of such term, covenant or condition or any subsequent breach of the
same or any other term, covenant or condition herein contained. The
subsequent acceptance of rent hereunder by Landlord shall not be deemed to be
a waiver of any preceding breach by Tenant of any term, covenant or condition
of this Lease, other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent.
34. NOTICES. All notices and demands which may or are required to
be given by either party to the other hereunder shall be in writing. All
notices and demands by Landlord to Tenant shall be delivered personally or
sent by United States certified or registered mail, postage prepaid, address
to Tenant at the premises, or to such other place as Tenant may from time to
time by like notice designate. All notices and demands by Tenant to Landlord
shall be sent by United States certified or registered mail, postage prepaid,
address to Landlord at Cushman & Wakefield, Attention: Lita Doctolero, The
Hobart Building, 582 Market Street, Suite 1001, San Francisco, CA. 94104 or
such other place as Landlord may from time to time by like notice designate.
35. NOTICE TO SURRENDER. At least ninety (90) days before the last
day of the term hereof, Tenant shall give to Landlord a written notice of
intention to surrender the premises on that date, but nothing contained
herein or any failure to give such notice shall be construed as an extension
of the term hereof or as consent of Landlord to any holding over by Tenant.
36. DEFINED TERMS AND MARGINAL HEADINGS. The words "Landlord" and
"Tenant", as used herein shall include the plural as well as the singular.
Words used in masculine gender include the feminine and neuter. If there be
more than one Tenant, the obligations hereunder imposed upon Tenant shall be
joint and several. The marginal headings and titles to the paragraphs of the
Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
37. TIME AND APPLICABLE LAW. Time is of the essence of this Lease
and each and all of its provisions. This Lease shall in all respects be
governed by the laws of the state in which the premises are located.
38. SUCCESSORS. Subject to the provisions of Paragraph 14 hereof,
the covenants and conditions herein contained shall be binding upon and inure
to the benefits of the heirs, successors, executors, administrators and
assigns of the parties hereto.
39. ENTIRE AGREEMENT. This Lease constitutes the entire agreement
between Landlord and Tenant and no promises or representations, express or
implied, either written or oral, not herein set forth shall be binding upon
or inure to the benefit of Landlord or Tenant. This Lease shall not be
modified by any oral agreement, either express or implied, and all
modifications hereof shall be in writing and signed by both Landlord and
Tenant.
40. LATE CHARGE. In the event Tenant shall fail to pay any rents or
sums due hereunder on or before the due date herein provided, then and in
that event the amount so due and unpaid shall bear a late charge equal to
five percent (5%) of the amount due together with
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interest accruing from the date due at the maximum interest rate permitted by
law, which late charge and interest shall be payable forthwith upon demand.
(The foregoing shall be in addition to any other right or remedy of Landlord.)
41. ADDITIONAL PROVISIONS. The exhibits and addenda listed below
are incorporated by reference in this lease:
1. The Rules & Regulations for the Building attached to and
made a part of this lease.
2. First Addendum to the Lease Agreement.
3. EXHIBIT A - Location of the Leased Premises.
4. EXHIBIT B - Building Owners and Managers Association
International Chart of Accounts.
5. EXHIBIT C - Landlord's Construction Obligation.
IN WITNESS WHEREOF Landlord and Tenant have executed this Lease the
day and year first above written.
NIANTIC CORPORATION FINISAR CORPORATION
By: /s/ Russell Lyman /s/ Jerry Rawls
- ------------------------------ ------------------------------
Russell Lyman Tenant
Date: Date:
------------------------- -------------------------
See Your Attorney
This Lease should be given to your attorney for review and approval before you
sign it. BOMA makes no representation or recommendation concerning the legal
effect, legal sufficiency, or tax consequences of this Lease. These are
questions for your attorney.
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RULES AND REGULATIONS FOR THE HOBART BUILDING
ATTACHED TO AND MADE A PART OF THIS LEASE
1. Except as provided or required by Landlord in accordance with building
standards, no sign, placard, picture advertisement, name or notice
shall be inscribed, displayed, printed, painted or affixed by Tenant on
or to any part of the building or exterior of the premises leased to
tenants or to the door or doors thereof without the written consent of
Landlord first obtained and Landlord shall have the right to remove any
such sign, placard, picture, advertisement, name or notice to and at
the expense of Tenant. If picture frames, etc are permitted to be hung
in leased premises, Tenant is responsible for hanging or installing
them.
2. Except as provided or required by Landlord in accordance with building
standards, no draperies, curtains, blinds, shades, screens or other
devices shall be hung at or used in connection with any window or
exterior door or doors of the premises.
3. The bulletin board or directory of the building shall be used primarily
for display of the name and location of Tenants and Landlord reserves
the right to exclude any other names therefrom, to limit the number of
names associated with tenants to be placed thereon and to charge for
names associated with tenants to be placed thereon at rates applicable
to all tenants.
4. The sidewalks, halls, passages, exits, entrances, elevators and
stairways of the building shall not be obstructed by tenants or used by
them for any purpose other than for ingress to and egress from their
respective premises. The halls, passages, exits, entrances, elevators,
stairways, balconies and roof of the building are not for the use of
the general public and Landlord in all cases reserves the right to
control the same and prevent access thereto by all persons whose
presence, in the judgement of the Landlord, is or may he prejudicial to
the safety, character, reputation or interest of the building and its
tenants; provided however, that Landlord shall not prevent such access
to persons with whom tenants deal in the ordinary course of business
unless such persons are engaged in illegal activities. No person shall
go upon the roof of the building unless expressly so authorized by
Landlord.
5. Tenants shall not alter any lock nor install any new or additional
locks or any bolts on any interior or exterior door of any premises
leased to tenant.
6. The doors, windows, light fixtures and any lights or skylights that
reflect or admit light into halls or other places of the building shall
not be covered or obstructed. The toilet rooms, toilets, urinals, wash
bowls and other 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 or placed 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, cause
such expense.
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7. Tenants shall not mark, drive nails, screw or drill into the walls,
woodwork or plaster or in any way deface the building or any premises
leased to supporting partitions pictures, paintings and other similar
solely decorative items.
8. Furniture, freight or equipment of every kind shall be moved into or
out of the building only at such times and in such manner as Landlord
shall designate. Landlord may prescribe and limit the weight, size and
position of all equipment to be used by tenants, other than standard
office desks, chairs and tables and portable office machines. Safes and
other heavy equipment shall, if considered necessary by landlord, stand
on wood strips of such thickness as Landlord deems necessary to
distribute properly the weight thereof. All damage to the building or
premises occupied by tenants caused by moving or maintaining any
property of a tenant shall be repaired at the expense of such tenant.
9. No tenant shall employ any person, other than the janitor provided by
Landlord, for the purposes of cleaning the premises occupied by such
tenant unless otherwise agreed to by Landlord. Except with the written
consent of Landlord no person shall be permitted to enter the building
for the purpose of cleaning the same. Tenants shall not cause any
unnecessary labor by carelessness or indifference in the preservation
of good order and cleanliness. Landlord shall not be responsible to any
tenant for loss of property on the premises, however occurring, or for
any damage to the property of any tenant caused by the employees or
independent contractors of Landlord or by any other person. Janitor
service will not be furnished when rooms are occupied during the
regular hours when janitor service is provided. Window cleaning shall
be done only at the regular and customary times determined by Landlord
for such services.
10. No tenant shall sweep or throw or permit to be swept or thrown any dirt
or other substance into any of the corridors halls or elevators or out
of the doors or stairways of the building; use or keep or permit to be
used or kept any foul or noxious gas or substance; permit or suffer the
premises occupied by such tenant to be occupied or used in a manner
offensive or objectionable to Landlord or other tenants by reason of
noise, odors or vibrations, interfere in any way with other tenants or
persons having business in the building; or bring or keep or permit to
be brought or kept in the building any animal life form, other than
human, except seeing-eye dogs when in the company of their masters.
11. No cooking shall be done or permitted by tenants in their respective
premises, nor shall premises occupied by tenants be used for the
storage or merchandise, washing cloths, lodging, or any improper,
objectionable or immoral purposes.
12. No tenant shall use or keep in the building any kerosene, gasoline or
inflammable or combustible fluid or material or use any method of
heating or air-conditioning other than such as is supplied by Landlord.
13. No boring or cutting for telephone or electric wires shall be allowed
without the consent of Landlord and such wires permitted shall be
introduced at the place and in the manner described by Landlord. The
location of telephones, speakers, fire extinguisher and all other
office equipment affixed to premises occupied by tenants shall be
subject to the
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approval of Landlord. Each tenant shall pay all expenses incurred in
connection with the installation of its equipment, including any
telephone and electricity distribution equipment.
14. Upon termination of occupancy of the building, each tenant shall
deliver to Landlord all keys furnished by Landlord, and any
reproductions thereof made by or at the direction of such tenant, and
in the event of loss of any keys so furnished shall pay Landlord
therefore.
15. No tenant shall affix any floor covering in any manner except as
approved by the Landlord. The expense of repairing any damage caused by
removal of any such floor covering shall be borne by the tenant by
whom, or by whose contractors, employees or invitees, the damage shall
have been caused.
16. No mail, furniture, packages, supplies, equipment, merchandise or
deliveries of any kind will be received in the building or carried up
or down in the elevators except between such hours and in such
elevators as shall be designated by Landlord.
17. On Sundays and legal holidays and between the hours of 6:00 pm and 8:00
am access to the building may be refused unless the person seeking
access is known to the person charged with responsibility for the
safety and protection of the building and has a pass or is properly
identified. In no case shall Landlord be liable for any loss or damage
for any error with respect to the admission to or exclusion from the
building of any person. In case of invasion, mob, riot, public
excitement or other commotion and at such times as Landlord deems
necessary for the safety and protection of the building, its tenants
and all property located therein, Landlord may prohibit and prevent
access to the building by all persons by any means Landlord deems
appropriate.
18. Each tenant shall see that the exterior doors of its premises are
closed and securely locked on Sundays and legal holidays and not later
than 6:00 pm of each other day. Each tenant shall exercise
extraordinary care and caution that all water faucets or water
apparatus are entirely shut off each day before its premises are left
unoccupied and that all electricity or gas shall likewise be carefully
shut off so as to prevent waste or damage to Landlord or to other
tenants of the building.
19. Landlord may exclude or expel from the building any person who, in the
judgement of Landlord, is intoxicated or under the influence of liquor
or drugs, or who shall in any manner do any act in violation of any of
the rules and regulations of the building.
20. The requirements of tenants will be attended to only upon application
to Landlord at the office of the building. Employees of Landlord shall
not perform any work outside of their regular duties unless under
special instructions from Landlord, and no employee of Landlord shall
be required to admit any person (Tenant or otherwise) to any premises
in the building.
21. No vending or food or beverage dispensing machine or machines of any
description shall be installed, maintained or operated upon any premise
in the building without the written permission of the Landlord.
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22. Landlord, without notice and without liability to any tenant, at any
time may change the name or the street address of the building.
23. The word "building" as used in these rules and regulations means the
building of which a part of the premises are leased pursuant to the
Lease to which these rules and regulations are attached. Each tenant
shall be liable to Landlord and to each other tenant of the building
for any loss, cost, expense, damage or liability, including attorneys
fees, caused or occasioned by the failure of such first named tenant to
comply with these rules, but Landlord shall have no liability for such
failure or for failing or being unable to enforce compliance therewith
by any tenant and such failure by Landlord or non-compliance by any
other tenant shall not be a ground for termination of the Lease to
which these rules and regulations are attached by the Tenant
thereunder.
24. Carpet protector pads shall be used by all desk stations.
25. Per the San Francisco Fire Code, the use of extension cords and
multiplug adaptors (e.g. cube adaptors, strip plugs or any other device
which is not listed by a qualified nationally recognized electrical
testing laboratory and/or does not comply with the Electrical Code) are
prohibited in highrise buildings. The only type of multiplug device
allowed is an Underwriters Laboratories listed power strip with either
a circuit breaker feature or a surge protection feature. Extension
cords cannot be used in conjunction with these power strips in any
arrangement whatsoever. Failure to abide by this code can result in a
Notice of Violation being issued and a fine being imposed.
26. Smoking is prohibited in the Building including restrooms, lobby area,
hallways, stairwells, leased premises and any other area within the
Building. Smoking is defined as inhaling, exhaling, holding, burning
and/or carrying any lighted tobacco product of any kind.
27. No tools, dollies, ladders, or any other equipment is available to
tenant or tenant's contractors for loan.
28. Landlord or its management agent does not provide services to repair
tenant furniture or any other tenant possessions.
29. Any other furniture, or other large items abandoned in a suite or in
any other part of the building will be disposed of at the expense of
the tenant. If you are discarding furniture, large items, or an
unusually large amount of refuse, notification to the Building Office
is required.
30. No bicycle, motorcycle, or other vehicle, and no animals or birds shall
be allowed in the office, halls, corridors, elevators, sidewalks,
basement or any other part of the Building.
31. All work to be performed in the building must have prior approval from
the Landlord. This includes but is not limited to installing,
repairing, or other work on phones or phone lines, hiring of moving
company to move furniture or other items in and/or out of the building
and any type of construction work.
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THE HOBART BUILDING
582 MARKET STREET
SAN FRANCISCO, CALIFORNIA
FIRST ADDENDUM TO THE LEASE AGREEMENT
The First Addendum to the Lease Agreement made this 17th day of December, 1996
between Niantic Corporation, Landlord, and Finisar Corporation, Tenant, to the
Office Lease Form dated this 17th day of December, 1996, attached hereto.
1. Pursuant to paragraph 6(b) Tax Increases and Assessments, Tenant's
proportionate share of all tax increases and assessments shall be paid
as additional rent. Statements of the amount of tax increases and
assessments for the preceding calendar year on the amount of such
increase payable by tenant shall be determined or estimated by Landlord
and shall be given to Tenant on such date as Landlord shall from time
to time determine. All amounts payable by Tenant as shown on said
statement shall be paid by Tenant within the time required by said
statement. If during any such year Landlord shall revise its estimate
of Tenant's share of said expenses for said year, Landlord shall advise
tenant and commencing on the next date payment of additional rent is
due. Tenant shall pay all additional charges based on such revised
estimate for the portion of the year already elapsed and shall commence
paying the additional rent based on such revised estimate for the
remainder of such year.
2. Pursuant to paragraph 6(c) Operating Expense increases shall
specifically include, but not be limited to, heating, ventilation, air
conditioning (HVAC) repairs and roof repairs.
3. (a) Hazardous Materials: Tenant agrees that during the term of
this Lease, Tenant shall not be in violation of any Federal,
State or Local law, ordinance or regulation relating to
industrial hygiene, soil, water, or environmental conditions
on, under or about the leased premises, but not limited to,
the Environmental laws.
(b) Tenant further agrees that during the term of this Lease,
there shall be no use, presence, disposal, storage,
generation, release, or threatened release of hazardous
material on, from or under the Leased Premises.
4. Waiver of Subrogation. Landlord and Tenant release each other, and
their respective authorized representatives, from any claims for damage
to any person or to the Leased Premises and the Building and other
improvements in which the Leased Premises are located, and to the
fixtures, personal property, tenant improvements and alterations of
either Landlord or Tenant, in or on the Leased premises and the
Building and other improvements in which the Leased Premises are
located, including loss of income, that are caused by or result from
risks insured or required under the terms of this Lease to be insured
against under any property insurance policies carried or to be carried
by either of the parties.
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5. Landlord's Exculpation. In the event of default, breach, or violation
by Landlord (which term includes Landlord's partners, coventurers,
co-tenants, officers, directors, employees, agents or representatives)
of any Landlord obligations under this Lease, Landlord's liability to
Tenant shall be limited to its ownership interest in the Leased
Premises or its interest in the complex, if applicable) or the proceeds
of a public sale of such interest pursuant to foreclosure of a
judgement against Landlord. Landlord may, at its option, and among its
other alternatives, relieve itself of all liability under this Lease by
conveying the Leased Premises to Tenant. Notwithstanding any such
conveyance, Tenant's leasehold and ownership interest shall not merge.
Landlord shall not be personally liable for any deficiency beyond its
interest in the Leased Premises.
6. Waiver of California Code Sections. Tenant waives (for itself and all
persons claiming under Tenant) the provision of Civil Code Sections
1932 (2) and 1933 (4) with respect to the destruction of the Leased
Premises Civil Code Sections 1941 and 1942 with respect to Landlord's
repair duties Tenant's right to repair, Code of Civil Procedure Section
1265.130, allowing either party to petition the Superior Court to
terminate this Lease in the event of a partial taking of the Lease
Premises by condemnation as herein defined, and any right to redemption
or reinstatement of Tenant under any present or future case law or
statutory provision (including Code of Civil Procedure Section 473 and
1179 and Civil Code Section 3275) in the event Tenant is dispossessed
from the Leased Premises for any reason. This waiver applies to future
statutes enacted in addition to or in substitution for the statutes
specified herein.
7. Pursuant to paragraph 29, Estoppel Certificates. Failure to comply with
this provision shall be a material breach of this Lease by tenant
giving Landlord all rights and remedies under paragraph 24 hereof, as
well as a right to damages caused by the loss of a loan or sale, which
may result from such failure by Tenant.
8. Joint and Several Liability. Should Tenant consist of more than one
person or entity, they shall be jointly and severally liable on this
Lease.
9. Light, Air and View. The diminution of light, air or view by any
structure which hereafter be erected whether or not by Landlord) shall
not entitle Tenant to any reduction of rent, result in any liability of
Landlord to Tenant, or in any other way effect this Lease or Tenant's
obligation hereunder.
10. Substituted Premises. In the event the Leased premises consist of less
than five thousand (5,000) square feet, Landlord shall have the right,
at any time during the Term hereof, upon not less than ninety (90) days
prior written notice to Tenant, to substitute for the Leased Premises
such other space in the building as shall be substantially the same
size as the Leased Premises ("the Substituted Premises"), provided that
Landlord shall pay all expenses of tenant incidental to Tenant's
relocation to the Substituted Premises and that Landlord shall improve
the Substituted Premises for Tenant's use and occupancy at least to the
same extent as the Leased Premises occupied by Tenant prior to such
relocation. If tenant does not agree to such relocation then Tenant
shall give notice of termination of
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this Lease to Landlord within fifteen (15) days of the notice of
relocation. Upon receipt of such notice to termination, Landlord shall
have fifteen (15) days to rescind notice of relocation. If landlord
not rescind the notice of relocation in writing to Tenant within such
fifteen (15) day period, then the Lease will terminate on the date
specified in notice of relocation.
11. Landlord shall have no responsibility for providing to Tenant any
telephone equipment, including wiring, within the Premises or for
providing telephone service or connections from the utility to the
Premises, except as required by law.
Tenant shall not alter, modify, add to or disturb any telephone wiring
in the Premises or elsewhere in the Building without the Landlord's
prior written consent. Tenant shall be liable to Landlord for any
damage to the telephone wiring in the Building due to the act,
negligent or otherwise, of Tenant or any employee, contractor or other
agent of Tenant. Tenant shall have no access to the telephone closets
within the Building, except in the manner and under procedures
established by Landlord. Tenant shall promptly notify Landlord of any
actual or suspected failure of telephone service to the Premises.
All costs incurred by Landlord for the installation, maintenance,
repair and replacement of telephone wiring within the Building shall be
an Operating Expense, as otherwise defined in Section six (6) of this
Lease, unless Landlord is reimbursed for such costs by other tenants of
the Building.
Landlord shall not be liable to Tenant and Tenant waives all claims
against Landlord whatsoever, whether for personal injury, property
damage, loss of use of the Premises, or otherwise, due to the
interruption or failure of telephone services to the Premises. Tenant
hereby holds Landlord harmless and agrees to indemnify, protect and
defend Landlord from and against any liability for any damage, loss or
expense due to any failure or interruption of telephone service to the
premises for any reason. Tenant agrees to obtain loss of rental
insurance adequate to cover any damage, loss or expense occasioned by
the interruption of telephone service.
12. All other terms and conditions contained in the Lease shall remain in
full force and effect.
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EXHIBIT B
THE HOBART BUILDING
582 MARKET STREET
SAN FRANCISCO, CALIFORNIA
Lessor's operating costs shall include the operating expenses of the building
and its basement. The expense categories shall include, but are not limited to,
those listed below and are shown only by example.
The wages and salaries of all employees engaged in the operating and
maintenance of the building, including Employer's Social Security taxes
and other taxes which may be levied on such wages and salaries;
All janitorial and office supplies and materials used in the operation
and maintenance of the building;
The cost of water and power, heating and lighting for the building;
The cost of all maintenance and service agreements on equipment,
including security, window cleaning, elevator maintenance and
management contract;
Insurance premiums and;
All taxes and assessments, and governmental charges, either Federal,
State, County or Municipal, which are levied on or charged against real
estate, street lights, personal property or rents, or in the right or
privilege of leasing real estate or collecting rents therefrom, and any
other taxes and assessments attributable to the building or its
operation, excluding, however, Federal & State income taxes.
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EXHIBIT C
THE HOBART BUILDING
582 MARKET STREET
SAN FRANCISCO, CALIFORNIA
Specifications for Tenant Improvements included in the Lease for Suite 609 and
610 at the Hobart Building,
1. Install building standard carpet in Suite 610, to closely match
existing carpet in Suite 609.
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FIRST AMENDMENT TO THE LEASE AGREEMENT
PERTAINING TO OFFICE SPACE
582 MARKET STREET, SAN FRANCISCO, CA
This First Amendment to the Office Lease Form dated December 17, 1996 attached
hereto and made a part hereof, is made by and between Finisar Corporation,
Tenant, and Niantic Corporation, Landlord as of this __ day of October, 1998,
under the following terms sand conditions:
1. PREMISES
Suites 609/610, comprised of 468 Rentable Square Feet (RSF)
2. TERM
The amended Lease Term for the premises shall commence November 1, 1998, and
shall terminate October 31, 1999.
3. RENT
Paragraph 5, Rent, shall be amended to provide for the following rental amounts
due:
November 9, 1998 - October 31, 1999 $858.00
4. OTHER PROVISIONS
All other terms and conditions of the Office Lease Form dated December 17, 1996
between Finisar Corporation, Tenant, and Niantic Corporation, Landlord, are to
remain in full force and effect.
LANDLORD TENANT
NIANTIC CORPORATION FINISAR CORPORATION
By: /s/ Russell Lyman By: /s/ Jerry Rawls
---------------------------- ----------------------------
Russell Lyman, Vice President Jerry Rawls, President
and Assistant Secretary
Date: Date: 10/28/98
---------------------------- ----------------------------
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COMMERCIAL LEASE
FERGUSON OAKS BUSINESS PARK
MOUNTAIN VIEW, CALIFORNIA
1. PARTIES. THIS LEASE is made and entered into as of the 3rd day
of April 1997, by and between DM GROUP VIII, a California limited partnership,
and DM Group VIII-E, a California limited partnership (hereinafter collectively
called "Landlord"), and Finisar Corporation, a California corporation, having a
mailing address of 274 Ferguson Drive, Mountain View, California 94043
(hereinafter called "Tenant").
2. PREMISES. Landlord leases to Tenant and Tenant leases from
Landlord those certain premises consisting of a freestanding, single story
research and development building containing approximately 20,140 square feet of
space, located at 274 Ferguson Drive, Mountain View, California (the
"Premises"), for the term, at the rental rate, and upon all of the terms,
covenants, and conditions set forth in this Lease. The Premises are described
on EXHIBIT A, which Exhibit is attached hereto and is incorporated herein. The
Premises are a portion of, and are incorporated in, a unified planned
development of three (3) research and development buildings and associates
common areas, commonly known as the Ferguson Oaks Business Park (the "Project").
The legal description of the real property comprising the Project is attached
hereto as EXHIBIT B, which Exhibit is attached hereto and incorporated herein.
In addition to the exclusive use of the Premises, Tenant shall also have the
right to non-exclusive use of all Common Areas (as that term is hereinafter
defined in Paragraph 6(e), below) in the Project designated by Landlord for use
by tenants of the Project, in accordance with and subject to the provisions of
this lease.
This Lease is subject to the following:
(a) All those documents and matters of record, known or
recorded as of the Commencement Date (as defined below), including the effect
thereof, including but not limited to any covenants, conditions, restrictions,
easements, mortgages, deeds of trust, and rights of way;
(b) General and special taxes not delinquent; and
(c) The effect of any zoning and building codes of the City of
Mountain View, County of Santa Clara, or State of California.
3. USE.
(a) PERMITTED USE. Tenant shall use the Premises for general
office, engineering, research, and production of Tenant's products and
equipment, for the education and training of Tenant's clients and employees, and
all other uses related or incidental thereto.
(b) USES PROHIBITED. Tenant agrees that no portion of the
Premises shall be used:
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(i) in any manner inconsistent with, contrary to, or in
violation of the requirements of any laws, rules, regulations, or ordinances, of
any local, regional, state or federal governmental authority now in force, or
which may hereafter be in force, or which violates the terms or conditions of
any covenants, easements, or restrictions of record binding on the Project or
the Property;
(ii) in any manner which shall present a danger or hazard
to the premises or the Project, or any other tenant or user thereof-, or which
violate the requirements of any applicable fire insurance underwriter or rating
bureau;
(iii) for any trade, service, activity or purpose which is
excessively obnoxious or offensive, or be a nuisance by reason of unsightliness
or excess emission of odors, dust, fumes, smoke, liquid waste, noise, glare,
vibration, radiation or other similar condition;
(iv) in any manner which will increase the existing rate
of any insurance upon the Premises or the Project, or cause a cancellation of
such insurance, or which will interfere with other tenants at the Project;
(v) for any unlawful purpose.
(c) FLOOR LOADS. Tenant shall not place a load upon the
Premises exceeding the floor load per square foot area which it was designed to
carry. Landlord reserves the right to prescribe the weight and position of all
safes, business machines and mechanical equipment. Such installations shall be
placed and maintained by Tenant, at Tenant's expense, in settings sufficient, in
Landlord's reasonable judgment, to absorb and prevent vibration, noise and
annoyance.
4. TERM.
(a) PRIMARY TERM. The term of this lease ("the Primary Term")
shall begin on the first day of June, 1997 (the "Commencement Date") and, unless
sooner terminated in accordance with the provisions of this Lease, extend until
the 31st day of May, 2002 (the "Termination Date"). The first full monthly
installment of Base Rent shall be due on the Commencement Date.
5. ACCEPTANCE OF PREMISES AND TENANT IMPROVEMENT ALLOWANCE.
(a) PREMISES. Landlord shall deliver the existing improvements
to the Tenant with the current floor plan and finishes.
(b) LANDLORD'S LIMITED WARRANTY. Landlord warrants that the
HVAC for the area defined in EXHIBIT C shall be, as of the Commencement Date,
and shall remain, for a period of sixty (60) days after the Commencement Date
(the "Warranty Period") in a state of good condition, order, and repair. If,
during the Warranty Period, Landlord is notified in writing that any of the
equipment are in a state of disrepair, Landlord, at its sole and exclusive cost
and expense, shall, at its option, replace, restore, or repair said equipment.
The cost of repair, restoration, or replacement shall be Landlord's sole
obligation pursuant to this Warranty, and Landlord shall under no circumstances
be liable, to Tenant or to any third party, for any other
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damages including, without limitation, for any incidental or consequential
damages including, without limitation, damages for loss of use or loss of
profits.
(c) Landlord shall have no obligation with respect to the
construction, improvement, alteration, or modification of the Premises. Tenant
has had the opportunity to fully inspect the Premises and accepts the condition
of the Premises in an "AS-IS" condition as of the date hereof Tenant shall be
responsible for performing any and all tenant improvement work at the Premises
at Tenant's expense in accordance with the provisions of Paragraph 10, below.
Neither Landlord nor Landlord's agents have made any representations, warranties
or promises with respect to the physical condition of the Premises, the land
upon which it is erected, or the Premises, or any matter or thing affecting or
related to the Premises, except as is set forth in this Lease.
6. RENT. Tenant shall pay to Landlord, without offset, deduction
(except as provided herein), notice, or demand, the following items as rent
("Rent") for the Premises:
(a) BASE RENT. Tenant shall pay to Landlord as base rent
("Base Rent") during the Primary Term hereof the sum of One Million, Seven
Hundred Fifty-Four Thousand, One Hundred Dollars ($1,754,100) payable as
follows:
June 1, 1997 - May 31, 1998 $26,998 per month
June 1, 1998 - May 31, 1999 $28,067 per month
June 1, 1999 - May 31, 2000 $29,190 per month
June 1, 2000 - May 31, 2001 $30,358 per month
June 1, 2001 - May 31, 2002 $31,572 per month
All rental payments shall be payable in advance, on or before the first
day of each and every calendar month during the term hereof, in advance, and the
first rental payment shall be due on the Commencement Date. Rent shall be paid
to Landlord in lawful money of the United States of America at the address set
forth in Paragraph 25, below, for the giving of notices.
(b) REAL ESTATE TAXES. Tenant shall pay to Landlord, as
Additional Rent, the real estate taxes and assessments ("Real Estate Taxes")
levied against the Premises paid by Landlord.
Real Estate Taxes shall include all real property taxes and assessments
levied against the Premises by any governmental or quasi-governmental authority,
including any taxes, assessments, surcharges, or service or other fees of a
nature not presently in effect which shall hereafter be levied on the Project as
a result of the use, ownership or operation of the Project or for any other
reason, whether in lieu of or in addition to any current real estate taxes and
assessments; provided, however, that any taxes which shall be levied on the
rentals of the Building shall be determined as if the Building were Landlord's
only property and provided further, that in no event shall the term Real Estate
Taxes include any federal, state or local income taxes levied or assessed on
landlord, unless such taxes are a specific substitute for real property taxes;
such term shall, however, include gross taxes on rental and expenses incurred by
Landlord for tax consultants and in contesting the amount or validity of any
Real Estate Taxes. Assessments shall include any and all so-called special
assessments, license tax, business license
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fee, business license tax, commercial rental tax, levy, charge or tax imposed
by any authority having the direct power to tax, including any city, county,
state or federal government, or any school, agricultural, lighting, water,
drainage other improvement or special district thereof, against the Project,
or any part thereof, or against any legal or equitable interest of Landlord
therein. For the purposes of this Lease, any special assessment shall be
deemed payable in such number of installments as if actually paid.
Landlord shall give Tenant written notice of the amount of Tenant's
liability for payment of taxes and assessments hereunder on or before sixty (60)
days prior to the delinquency date for payment of such taxes and assessments.
Tenant shall pay to Landlord the amount of Tenant's liability hereunder for
taxes and assessments within fifteen (15) days of Tenant's receipt of such
written notice. Landlord shall pay the Real Estate Taxes and assessments levied
against the Premises prior to delinquency and shall, at Tenant's written
request, send Tenant proof that the Real Estate Taxes and assessments have been
paid. Landlord may estimate the annual Real Estate Taxes liability of Tenant
and based on Landlord's written estimate, Tenant shall pay to Landlord in the
same manner as the Common Area Expenses described in Paragraph 6(g), This Real
Estate Tax impound shall be reconciled on an annual basis.
(c) LANDLORD'S INSURANCE. Tenant shall pay to Landlord, as
Additional Rent, any amounts paid by Landlord for insurance premiums under
Paragraph 14(a), below, and Tenant's Pro Rata Share (as hereinafter defined) of
amounts paid by Landlord for insurance premiums under Paragraph 14(b), below.
Tenant shall pay such amounts to Landlord within fifteen (15) days of Landlord's
written request for same, which request shall set forth the kind and amount of
insurance and the premium (or allocated portion of premium) therefor. Based on
Landlord's written estimate of the annual insurance liability of Tenant, Tenant
shall pay to Landlord in the same manner as the Common Area Expenses described
in Paragraph 6(g). This insurance impound shall be reconciled on an annual
basis.
(d) Property Repairs and Reimbursement. Except for those
repairs, restorations, and replacements which are herein stated to be the sole
responsibility of, and to be made at the sole and exclusive expense of, the
Landlord, Tenant shall pay to Landlord, as Additional Rent, any amounts paid or
incurred by Landlord for the repair, maintenance, restoration, or replacement of
any portion of the Premises. Notwithstanding the foregoing, if the useful life
of any such restoration or replacement exceeds the term of this Lease (inclusive
of any options to extend this Lease), such as repairs to the structural portion
of the Premises made by Landlord pursuant to Paragraph 11(a), below, Tenant
shall reimburse Landlord as Additional Rent only for Tenant's proportionate
share of such repairs, restoration or replacement. As used in this Paragraph,
Tenant's proportionate share shall be equal to the total cost of such repairs,
restoration or replacement, multiplied by a fraction, the numerator of which
shall be the number of months remaining in the term of this Lease (inclusive of
any options to extend this Lease) at the time of such repair, restoration or
replacement, and the denominator of which shall be the useful life of the system
repaired, restored or replaced. Tenant shall pay to Landlord monthly, in
advance, as Additional Rent, an amount equal to the cost of such repairs,
restoration or replacement divided by the number of months then remaining under
this Lease (inclusive of any options to extend this Lease).
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(e) COMMON AREAS; COMMON AREA MAINTENANCE EXPENSES. The term
"Common Areas" , as used herein, means all areas or facilities outside the
Premises and within the exterior boundaries of the Project that are provided and
designated by Landlord from time to time for general non-exclusive use and
convenience of Tenant and of other tenants of the Project. Common Areas
include, without limitation, parking areas, pedestrian walkways, landscaped
areas, sidewalks, service corridors, trash enclosures, loading areas, and roads.
Tenant shall have a non-exclusive right to use the Common Areas. Landlord shall
maintain reasonable rules and regulations applicable to all tenants concerning
the maintenance, management, use, and operation of the Common Areas.
Tenant shall pay to Landlord, as Additional Rent, Tenant's Pro Rata Share
(as hereinafter defined) of the Common Area Maintenance Expenses. "Common Area
Maintenance Expenses" shall mean all expenses of any kind or nature which are
necessary, ordinary or customarily incurred with respect to the operation,
repair, maintenance, or replacement of the Common Areas of the Project as
determined in accordance with generally accepted accounting principles and shall
include, but not be limited to, all sums expended in connection within the
Common Areas for all general operation, maintenance, replacement, and repairs,
repainting, restriping or resurfacing of parking areas, cleaning, sweeping and
janitorial services; sidewalks, curbs, and signs in the Project, sprinkler
systems, planting and landscaping; fighting and other utilities; directional
signs and other markers and bumpers; maintenance and repair of any lighting
systems, storm drainage systems, and any other utility systems; costs of
improvements made by Landlord to the Common Areas as mandated by any
governmental authority, the cost of any improvements to bring the Common Areas
into compliance with those requirements of ADA which are required by changes in
existing laws or regulations, and amounts paid to a third party, firm, or
corporation (which may be related to landlord) for the management of the
Project. Landlord may cause any or all of said services to be provided by an
independent contractor or contractors.
(f) TENANT'S PRO RATA SHARE. Tenant's Pro Rata Share, for the
purposes of this Lease, shall be a fraction, the numerator of which is the total
square footage of the Premises and the denominator of which is the total square
footage in all of the buildings at the Project and is equal to 24.1%. Tenant
acknowledges that Landlord has not made any representation that the Common Area
Maintenance Expenses, Taxes, or Insurance will equal any specific amount or will
remain constant during the term.
(g) PAYMENT OF COMMON AREA MAINTENANCE EXPENSES. Tenant shall
pay to Landlord, as Additional Rent, Tenant's Pro Rata Share of Common Area
Maintenance Expenses, Real Estate Taxes and Insurance in the following manner:
(i) Beginning with the Commencement Date, but subject to
adjustment as provided herein, Tenant shall pay to Landlord on the first day of
each calendar month of the term of this Lease an amount estimated by Landlord to
be a monthly installment of Tenant's Pro Rata Share of such Common Area
Maintenance Expenses. At any time, Landlord may adjust the estimated monthly
charge, based on Landlord's experience, costs incurred to the date of such
adjustment, and costs that Landlord reasonably anticipates to be incur-red in
the future.
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(ii) Within one hundred twenty (120) days following the
end of each calendar year, or, at the termination of Lease, within one hundred
twenty (120) days following such termination, Landlord shall furnish Tenant a
statement covering the calendar year just expired (the "Statement"), showing the
total of such charges, the amount of Tenant's Pro Rata Share thereof for such
calendar year, and the payments actually paid by Tenant during such period. If
Tenant's Pro Rata Share of such charges exceeds payments made by Tenant, Tenant
shall pay Landlord the deficiency within thirty (30) days after receipt of such
Statement. If the estimated payments made exceed Tenant's Pro Rata Share
thereof, Landlord shall credit the excess against any amounts then owing or
thereafter becoming due from Tenant to Landlord. In any Lease Year which is not
a full calendar year, a proportionate reduction shall be made in Tenant's Pro
Rata Share of Common Area Maintenance Expenses. Tenant's liability for Common
Area Maintenance Expenses shall survive the expiration or earlier termination of
this Lease for a period of one (1) year.
(iii) Tenant shall have the right, at its own expense and
at a reasonable time (after written notice to Landlord) within thirty (30) days
after receipt of the Statement to audit Landlord's books relevant to the
Tenant's Pro Rata share of Common Area Maintenance Expenses, Real Estate Taxes,
and Insurance due hereunder. In the event Tenant does not audit Landlord's
books and deliver the results thereof to Landlord within said 30-day period, the
terms and amounts set forth in the Statement from Landlord to Tenant shall be
deemed conclusive and final and Tenant shall have no further right to
adjustment. In the event Tenant's examination reveals that an error has been
made in Landlord's determination of Tenant's Pro Rata share of such charges, and
Landlord agrees with such determination, then the amount of such adjustment
shall be payable by Landlord or Tenant, to the other party as the case may be in
accordance with subparagraph (ii) hereof In the event Tenant's examination
reveals an error has been made in Landlord's determination of Tenant's Pro Rata
share, and Landlord disagrees with the results thereof, Landlord shall have
thirty (30) days to obtain an audit from an accountant of its choice to
determine Tenant's Pro Rata share of such charges. In the event Landlord's
accountant and Tenant's accountant are unable to reconcile their audits, both
accountants shall mutually agree upon a third accountant, whose determination of
Tenant's Pro Rata share of the charges shall be conclusive. (However,
regardless of the third accountant's determination, Tenant's Pro Rata share
shall in no event be more than Landlord's accountant's determination or less
than Tenant's accountant's determination). In the event the amount of error by
Landlord is determined by said third accountant to be five percent (5%) more,
the reasonable costs of the third audit made pursuant to this subparagraph shall
be paid by Landlord. In the event the amount of error by Landlord is determined
to be less than five percent (5%), the reasonable costs of the third audit made
pursuant to this subparagraph shall be paid by Tenant.
(h) LATE CHARGE. Tenant hereby acknowledges that late payment
by Tenant to Landlord of Base Rent, Additional Rent, or other sums due hereunder
will cause Landlord to incur costs which will be difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed upon Landlord by terms of any mortgage or
trust deed encumbering the Project. Accordingly, except as expressly stated
hereinafter, if any installment of Base Rent, Additional Rent, or any other sum
due from Tenant shall not be received by Landlord within five (5) business days
after said amount is due, Tenant shall pay to Landlord on demand a late charge
of five percent (5%) of such overdue amount. All such charges shall be deemed
Additional Rent hereunder.
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7. SERVICES.
(a) SERVICES AVAILABLE AT THE PREMISES. The Premises are
currently served by water, sewer, gas, electric, and telephone utilities.
(b) SERVICE INTERRUPTION. Landlord shall not be liable for
failure to provide any required services. Services may be discontinued due to
accident, repairs, strikes, acts of God, or any other event beyond the
reasonable control of Landlord. In such event, Landlord shall not be liable for
such failure or discontinuance, nor shall such failure or discontinuance be
construed as a constructive eviction of Tenant or cause an abatement of Rent.
(c) PAYMENT BY TENANT. Tenant shall pay, prior to delinquency
and directly to the applicable supplier, for all services and utilities supplied
to the Premises and separately metered, together with any taxes thereon. If any
services are not separately metered to Tenant, Tenant shall pay Tenant's Pro
Rata Share of all charges jointly metered with other space in the Project.
Tenant shall arrange and pay for its own telephone service, fire
monitoring systems and other services provided directly to premises.
8. PERSONAL PROPERTY TAXES. Tenant shall pay, as Additional Rent,
before delinquency, any taxes upon Tenant's leasehold improvements, equipment,
furniture, fixtures, and any other personal property located in the Premises.
In the event any such personal property shall be assessed and taxed with the
real property, Tenant shall pay to Landlord its share of such taxes within ten
(10) days after delivery to Tenant of a statement in writing setting forth the
amount of such taxes applicable to Tenant's personal property.
9. COMPLIANCE WITH LAWS. Tenant will comply at all times, and be
responsible for the compliance by its employees, assigns, agents, subcontractors
and any others acting for it, with all applicable federal, state and local laws,
regulations, permits, license, certificates and any approvals of any type
relative to any and all of the operations or activities Tenant or others under
Tenant's control will conduct at or upon the Premises.
Tenant shall immediately notify Landlord of any reports made to any
environmental agency arising in connection with the operations to be performed
at the Premises, as well as any complaints, notices, warnings or asserted
violations which relate to the Premises communicated to Tenant, its employees,
assigns, agents, subcontractors, or any others acting for it, by any
governmental agency. Tenant shall promptly supply Landlord with copies of all
such reports, complaints, notices, warnings or asserted violations. Tenant
further warrants and agrees that no substance regarded as hazardous under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
42 USC Section 9601 et seq., will be stored or treated, nor will any hazardous
substance be released or disposed of, on, under or about the Premises or the
Property, except for such hazardous materials that are used or produced in the
ordinary course of Tenant's business, provided that such hazardous materials
shall be used, stored, handled, and disposed of in strict conformity to the
regulations and requirements governing such activities. At all times during the
Term and upon the earlier of the expiration or
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termination of the Term, Tenant agrees to keep and maintain the Premises and
the Property free of contamination from any substances regarded as hazardous
under CERCLA.
After prior notice to the Landlord, Tenant shall have the right to
contest by appropriate legal proceedings (in the name of Tenant) at Tenant's
sole cost and expense and with counsel of Tenant's own choosing, the validity of
any law, ordinance, order, rule, regulations, or requirement with which, by the
terms of this Lease, Tenant is obligated to comply. If by the terms of any such
law, ordinance, order, rules, regulation, or requirement, compliance therewith
may be legally held in abeyance without incurring any lien or charge or record
against the Premises, and without subjecting Landlord to any fines, penalties,
or any other liability for failure to comply therewith. Tenant may postpone
compliance until the final determination of any such proceedings, provided that
all proceedings shall be prosecuted with due diligence. If upon final
determination Tenant is required to so comply then Tenant will promptly comply
and pay the cost of such compliance even if such determination is made after the
end of the term of this Lease.
10. TENANT'S REPAIRS AND ALTERATIONS.
(a) REPAIRS. Subject to the provisions of Paragraph 5(b)
(relating to Landlord's repairs during Landlord's Warranty Period),
Paragraph 6(e) (relating to compliance with ADA), Paragraph 11 (relating to
Landlord's repair obligations), Paragraph 18 (relating to the partial or total
destruction of the Premises) and Paragraph 19 (relating to the condemnation of
all or a portion of the Premises), Tenant shall, at Tenant's sole cost and
expense, keep and maintain the Premises and every part thereof, as well as all
equipment serving only the Premises, in good order, condition, and repair,
(whether or not the need for any such repairs occurs as a result of Tenant's
use, any prior use, the elements or the age of the Premises), and shall keep and
maintain the Premises in full compliance with all applicable laws, rules,
regulations, ordinances, and directives of all local, regional, state, and
federal governmental authorities. Tenant's repair obligations as set forth
herein shall include, without limiting the generality of the foregoing, all
equipment within or serving only the Premises such as plumbing, heating, air
conditioning, and ventilating equipment, electrical lighting facilities, fire
sprinklers, alarm systems, interior walls, interior ceilings, floors, windows,
doors, plate glass, roof membranes, and skylights. Tenant's obligations
hereunder shall include restorations, replacements, or renewals, if necessary,
in order to keep and maintain the Premises in good order, condition, and state
of repair; provided, however, that Tenant's obligations to repair and to
maintain plumbing, heating, air conditioning, and ventilating equipment,
electrical lighting facilities, roofing membrane, fire sprinklers, and alarm
systems shall extend only to the routine repair and maintenance thereof. In
addition to Tenant's obligation to maintain the Premises, all damage or injury
to any other portion of the Project, including both the Common Area and other
lease spaces, caused by omission, neglect, or improper conduct of Tenant, its
employees, agents, subtenants, assignees or invitees shall be repaired promptly
by Tenant at its sole cost and expense, to the reasonable satisfaction of
Landlord. In connection with Tenant's performance of its obligations under this
Paragraph, Landlord shall make available to Tenant, and if necessary, shall
assign to Tenant, any warranties held by Landlord on any equipment on the
Premises.
(b) In order to discharge its obligations under
Paragraph 10(a), above, Tenant, at its election, may utilize its own personnel
to perform routine maintenance upon the following
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equipment and improvements located on the Premises, if any: (i) heating, air
conditioning, and ventilation equipment; (ii) boiler, fired or unfired
pressure vessels; (iii) fire sprinkler and/or standpipe and hose or other
automatic fire extinguishing systems, including fire alarm and/or smoke
detection; and (iv) roof membrane and drain maintenance. Tenant shall at all
times keep and maintain accurate and complete records of Tenant's maintenance
schedules, procedures, and repairs undertaken by Tenant under this Paragraph,
and shall deliver copies of same to Landlord on an annual basis or upon
Landlord's request.
(c) ALTERATIONS. Tenant shall pay all costs of construction
done by it or caused to be done by it on the Premises as permitted by this
Lease. Tenant shall not make any alterations, in, on, under, or about the
Premises without Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed. Any alterations that Tenant shall desire to
make shall be presented to Landlord in written form with proposed detailed
plans, not less than twenty (20) days prior to the date that work on the
alterations is to commence.
All consents given by Landlord shall be conditioned upon all of the
following:
(i) Prior to commencement of any alteration, Tenant, at
Tenant's sole expense, shall obtain all applicable building and other permits
that may from time to time be required by any government authority having
jurisdiction,
(ii) Tenant shall furnish a copy of all such permits,
together with one (1) copy of the plans, specifications, and contract for such
alteration, and the name of Tenant's general contractor, to Landlord at least
twenty (20) days prior to the commencement of work.
(iii) Tenant shall comply with all conditions of such
permits in a prompt and expeditious manner.
(iv) Prior to the commencement of work Tenant shall
deliver to Landlord insurance certificates evidencing that all contractors and
subcontractors performing the alterations or any part thereof each have adequate
worker's compensation, builder's risk, and comprehensive general liability
insurance, the latter with a combined single limit of not less than One Million
Dollars ($1,000,000). Landlord and Landlord's agent shall be named as an
additional insured on all such policies of comprehensive general liability
insurance.
(v) All alterations shall be completed with due
diligence in compliance with the plans and specifications and working drawings.
All alterations shall comply with all applicable laws, rules, regulations,
ordinances, and directives of all local, regional, state, and federal
governmental authorities.
(vi) The alterations shall be performed in a manner that
will not interfere with the quiet enjoyment of the other tenants in the Project.
(vii) Tenant shall notify Landlord of the names and
addresses of the persons supplying labor and materials in connection with the
alterations so that Landlord may give notice that it shall not be subject for
any lien for Tenant's work, in accordance with California's mechanics' lien
statutes. Landlord shall have the right to keep posted on the Premises notice
to such persons in accordance with such statute.
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(viii) Within forty-five (45) days after completion of the
alterations, Tenant shall furnish Landlord with the as-built plans and
specifications therefor.
(d) OWNERSHIP OF ALTERATIONS AND IMPROVEMENTS. Subject to
Landlord's right to require their removal or to become the owner thereof as
hereinafter provided in this Paragraph 10(d), all alterations and improvements
made to the Premises by Tenant shall be the property of and owned by Tenant, but
considered a part of the Premises. Landlord shall, at the time Tenant requests
the right to make an alteration or improvement, elect in writing to Tenant to be
the owner of all or any specified portion of the Tenant-owned alterations and
improvements. Unless otherwise elected by Landlord as hereinafter set forth,
all alterations and improvements shall, at the expiration or earlier termination
of this Lease, become the property of Landlord and remain upon and be
surrendered by Tenant with the Premises.
(e) MECHANICS' LIENS. Tenant shall pay or cause to be paid
when due all costs for work done by or on behalf of Tenant or caused to be done
by or on behalf of Tenant on the Premises of a character which will or may
result in liens against Landlord's interest in the Premises or the Project.
Tenant will keep the same free and clear of all mechanics' liens and other liens
on account of work done for or on behalf ' of Tenant or persons claiming under
Tenant. Tenant hereby agrees to indemnify, defend and save Landlord harmless of
and from all liability, loss, damages, costs or expenses, including attorneys'
fees, incurred in connection with any claims of any nature whatsoever for work
performed for, or materials or supplies furnished to Tenant, including lien
claims of laborers, materialmen or others. Should any such liens be filed or
recorded against the Premises or the Project with respect to work done for or
materials supplied to or on behalf of Tenant or should any action affecting the
title thereto be commenced, Tenant shall cause such liens to be released of
record within twenty (20) days after notice thereof If Tenant desires to contest
any such claim of line, Tenant shall nonetheless cause such lien to be released
of record by the posting of adequate security with a court of competent
jurisdiction as may be provided by California's mechanics' lien statutes. If
Tenant shall be delinquent in paying any charge for which such a mechanics' lien
or suit to foreclose such a lien has been recorded or filed and shall not have
caused the lien to be released as aforesaid, Landlord may at its discretion pay
such lien or claim and any costs associated therewith, and the amount so paid,
together with interest thereon at the Interest Rate and reasonable attorneys'
fees incurred in connection therewith, shall be immediately due from Tenant to
Landlord as Additional Rent.
11. LANDLORD REPAIRS.
(a) Subject to the provisions of Paragraph 18 and 19, below,
Landlord shall repair and maintain the structural portions of the Premises and
the Common Areas in good order, condition and state of repair. As used herein,
the term "Structural portion of the Premises" shall mean only the roof joists
(excluding skylights and roofing membrane), bearing and exterior walls
(excluding doors and windows), foundations, and subflooring. In addition,
subject to the provisions of Paragraph 12, below, Landlord shall repair the
Premises when such repairs are required due to damage caused by (i) the
omission, neglect, or improper conduct of Landlord, its employees, or its
agents; or (ii) due to Landlord's failure to perform its obligations under this
Paragraph 11.
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(b) In connection with its obligation to repair and maintain
the Common Areas, Landlord shall repair, restripe, and resurface the parking
area when necessary, except that Landlord shall not be obligated to restripe the
parking area more than once each three (3) years, or resurface the parking area
more than once each seven (7) years.
(c) There shall be no abatement of rent and no liability of
Landlord to Tenant or to third parties by reason of any injury to, or
interference with, Tenant's business arising from the making of any repairs,
alterations or improvements required to be made by Landlord under this
Paragraph. Landlord's obligation to make repairs under this Paragraph 11 is a
covenant independent of any other covenant set forth in this Lease.
12. TENANT'S INDEMNITY, WAIVER OF SUBROGATION.
(a) The parties intend to assign the risk of loss whether
resulting from negligence of the parties or otherwise, to the party who is
obligated hereunder to cover the risk of such loss with insurance. Thus, the
indemnity and waiver of subrogation provisions of this Lease have as their
objective, so long as such objective is not in violation of public policy, the
assignment of risk for a particular casualty to the party carrying the insurance
for such risk, without respect to the causation thereof.
(b) Neither party shall be liable to the other party for any
damage to the physical property of the other party caused by fire or other
perils insured against by such other party's fire and/or "all-risk" property
insurance carried and maintained pursuant to the terms of this Lease, only to
the extent that such insurance is valid and collectible. Each party shall cause
each fire and/or "all-risk" property insurance policy obtained by it to provide
that the insurer waives all rights of recovery by way of subrogation against
either party in connection with any damage covered by such policy. If any such
insurance policy cannot be obtained with a waiver of subrogation without payment
of an additional premium charge above that charged by the insurance companies
issuing such policies without waiver of subrogation, the party receiving the
benefit shall elect to either forfeit the benefit or shall pay such additional
premium to the insurance carrier requiring such additional premium.
(c) Tenant, as a material part of the consideration to be
rendered to Landlord, shall indemnify, defend, and save harmless Landlord from
and against any and all liabilities, claims, penalties, forfeitures, and suits,
and the costs and expenses incident thereto, including costs of defense,
settlements, and reasonable attorney's fees, due to injury to any person or
property arising out of or in any way connected with the condition or use of the
Premises or Property, or the improvements or personal property therein or
thereon, including without limitation any liability or injury to the person or
property of Tenant, its agents, officers, employees, guests or invitees. By way
of illustration and not of limitation, Tenant shall indemnify, save harmless,
and defend Landlord from and against any and all liabilities, claims, penalties,
forfeitures, and suits, and the costs and expenses incident thereto, including
costs of defense, settlements, and reasonable attorney's fees, which Landlord
may hereafter incur, become responsible for, or pay out as a result of death or
bodily injury to any person, destruction or damage to any property,
contamination of or adverse effects on the environment, or any violation of
governmental laws, regulations, or orders, caused by (a) Tenant's failure to
comply with any federal, state, or local law, (b) any negligent or willful act
or claim under the
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Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
attributable to Tenant's conduct, or (c) Tenant's breach of any provisions of
this Lease. For purposes of this indemnity, any acts or omission (whether or
not they are negligent, intentional, willful or unlawful) shall be strictly
attributable to Tenant whether performed by it or by employees, agents,
assignees, subcontractors, or others acting for Tenant. Nothing contained
herein shall absolve Landlord from any liability in connection with the
willful or gross negligent acts or omissions of Landlord, its employees,
agents, assignees, subcontractors, or others acting for Landlord. Tenant
shall have no obligation to indemnify Landlord for the willful or gross
negligent acts or omissions of Landlord, its employees, agents, assignees,
subcontractors, or others acting for Landlord. The obligations of Tenant
under this subparagraph arising by reason of any occurrence taking place
during the Term of this Lease shall survive the expiration or earlier
termination of this Lease.
(d) Tenant shall assume all normal risk and liability incident
to the use of the Premises upon the signing of this Lease. Tenant, as a
material part of the consideration to be rendered to Landlord, hereby waives all
claims against Landlord for damages to goods, wares, merchandise and loss of
business in, upon or about the Premises and for injury to Tenant, its agents,
employees, invitees or third persons in or about the Premises from any cause
arising at any time, excluding the negligence or willful misconduct of the
Landlord.
13. LANDLORD'S INDEMNITY. Landlord shall indemnify, defend, and save
harmless Tenant from and against any and all liabilities, claims, penalties,
forfeitures, and suits, and the costs and expenses incident thereto, including
costs of defense, arising out of Landlord's gross negligence or willful
misconduct. In addition, Landlord shall indemnify, protect, and save Tenant
harmless from any and all damages, losses, liabilities, obligations, penalties,
claims, litigation, or demands which may at any time be imposed upon, incurred
by, or asserted against Tenant and which arise out of the failure of the
Premises to comply with applicable environmental laws and regulations as of the
date of this Lease.
14. INSURANCE.
(a) Subject to Paragraph 14(e), at all times during the term of
this Lease and any extensions thereof, Landlord shall obtain and maintain
insurance insuring the Premises and the Property against damage or destruction
of the Premises, the Property, and Project, including without limitation fire,
"all-risk", earthquake, flood, rent loss, boiler and machinery, plate glass
insurance, and change of condition coverage, in an amount not less than the full
replacement value thereof.
(b) Landlord shall obtain and maintain during the term of this
Lease a policy of comprehensive general liability insurance protecting Landlord
and Landlord's agent against claims for bodily injury, personal injury, and
property damage based upon, involving, or arising out of the ownership, use,
occupancy or maintenance of the Premises, the Property, and the Project. Such
insurance shall have a combined single limit of not less than One Million
Dollars ($1,000,000) per occurrence.
(c) Tenant shall procure and maintain at its own cost at all
times during the term of this Lease and any extensions hereof, fire, hazard and
extended coverage insurance on
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Tenant's property and the contents of the Premises in an amount not less than
full replacement value thereof, worker's compensation insurance for all of
Tenant's employees at the Premises, and comprehensive general liability
insurance, including coverage for bodily injury, property damage, personal
injury (employee and contractual liability exclusions deleted), products and
completed operations, contractual liability, owner's protective liability,
and broad form property damage with a combined single limit per occurrence of
not less than One Million Dollars ($1,000,000).
(d) All insurance policies required to be carried by Tenant
hereunder shall conform to the following requirements:
(i) The insurer in each case shall carry a designation in
"Best's Insurance Reports" acceptable to Landlord in its reasonable
discretion;
(ii) The insurer shall be qualified to do business in the
State of California;
(iii) Tenant's policy shaft name Landlord and its agents as an
additional insured on its comprehensive general liability policy and, at
Landlord's request, Tenant's property insurance policy shall carry a lender's
loss payee endorsement in favor of Landlord's lender;
(iv) Certificates thereof evidencing the coverages required
herein shall be delivered to Landlord at the commencement of the Term and
shall remain in effect throughout the Term. At least thirty (30) days prior
to the expiration of such policies, a replacement certificate thereof shall
be deposited with Landlord;
(v) These policies shall require that Landlord be notified
in writing by the insurer at least thirty (30) days prior to any cancellation
or expiration of such policy, or any reduction in the amounts of insurance
carried;
(vi) Each policy shall be primary, not contributing with, and
not in excess of coverage which Landlord may carry;
(vii) All liability insurance required to be carried by Tenant
hereunder shall carry a standard cross-liability endorsement.
(viii) If Tenant obtains any comprehensive general liability
insurance policy on a claims-made basis, Tenant shall provide continuous
liability coverage for claims arising during the entire term of this Lease,
regardless of when such claims are made, either by obtaining an endorsement
providing for an unlimited extended reporting period in the event such policy
is canceled or not renewed for any reason whatsoever or by obtaining new
coverage with a retroactive date the same as or earlier than the expiration
with a retroactive date the same as or earlier than the expiration date of
the canceled or expired policy.
(e) All insurance policies required to be carried by Landlord
hereunder shall conform to the following requirements:
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(i) The insurer in each case shall carry a designation in
"Best's Insurance Reports" acceptable to Tenant in its reasonable discretion;
(ii) The insurer shall be qualified to do business in the
State of California;
(iii) Landlord's policy shall name Tenant as an additional
insured on its comprehensive general liability policy;
(iv) Certificates thereof evidencing the coverages required
herein shall be delivered to Tenant at the commencement of the Term and shall
remain in effect throughout the Term. At least thirty (30) days prior to the
expiration of such policies, a replacement certificate thereof shall be
deposited ,with Tenant;
(v) These policies shall require that Tenant be notified in
writing by the insurer at least thirty (30) days prior to any cancellation or
expiration of such policy, or any reduction in the amounts of insurance
carried;
(vi) Each policy shall be primary, not contributing with, and
not in excess of coverage which Tenant may carry;
(vii) All liability insurance required to be carried by
Landlord hereunder shall carry a standard cross-liability endorsement.
(viii) If Landlord obtains any comprehensive general liability
insurance policy on a claims-made basis, Landlord shall provide continuous
liability coverage for claims arising during the entire term of this Lease,
regardless of when such claims are made, either by obtaining an endorsement
providing for an unlimited extended reporting period in the event such policy
is canceled or not renewed for any reason whatsoever or by obtaining new
coverage with a retroactive date the same as or earlier than the expiration
date of the canceled or expired policy.
15. COMMON AREAS AND PARKING. The Common Areas of the Project shall be
at all times under Landlord's exclusive control. Landlord reserves the right
to change the entrances, exits, traffic lanes and the boundaries and
locations of parking areas, as long as Tenant's business is not materially
disrupted. Landlord shall keep Common Areas in clean and orderly condition.
All vehicles of Tenant, its agents, employees and invitees shall be parked
only in designated parking areas in the Common Areas of the Project.
16. ENTRY BY LANDLORD. Landlord reserves the right to enter the
Premises to inspect the same, to submit the Premises to prospective
purchasers, insurance representatives, Landlord's agents (and associated
parties), or lenders and, within the last nine (9) months of the Lease Term,
to prospective tenants, to post notices of nonresponsibility, to hereby waive
any claim for damages to Tenant's business, any loss of occupancy or quiet
enjoyment of the Premises, and any other loss occasioned thereby. Landlord
shall have the right to use any and all means which Landlord may deem proper
to gain entry to the Premises in the event of an emergency, without any
liability to Tenant. Any entry to the Premises by Landlord in accordance
with the provisions of this Paragraph shall not be construed to be a forcible
or unlawful entry into the Premises, or an eviction of Tenant from the
Premises.
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17. ASSIGNMENT AND SUBLETTING.
(a) Tenant (but not Tenant's assignee) may assign or sublet
this Lease with the consent of Landlord, but only if the following terms and
conditions are met and fulfilled:
(i) Tenant shall give Landlord not less than twenty (20)
days prior written notice of Tenant's intention to assign or to sublet this
Lease. Such notice shall set forth: the name of the assignee or sublessee
(along with a description and recent financial statements of assignee or
sublessee); the date that the assignment or sublease is to be effective; and
the use to which the assignee or sublessee intends to put the Premises, and
shall contain a copy of the proposed instrument of assignment or sublease.
(ii) The instrument of assignment or the sublease shall be in
writing.
(iii) Tenant's assignee shall assume the obligations of Tenant
under this Lease.
(iv) The assignment or sublease, and Landlord's acceptance
thereof, shall not relieve Tenant of its primary obligation for the faithful
performance of all of the covenants, terms, and conditions hereof on Tenant's
part to be performed, including the obligation for payment of rent when due
hereunder.
Tenant's right to assignment or to sublease shall apply solely to Tenant,
and Tenant's assignee or sublessee shall have no right to further assign or
to sublet this lease or any portion thereof without Landlord's prior written
consent, which consent Landlord may grant or withhold at its sole and
absolute discretion.
(b) No interest of Tenant in this Lease shall be assignable by
operation of law. Each of the following acts shall be considered an
involuntary assignment:
(i) The corporate dissolution of Tenant;
(ii) If Tenant becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors, or institutes a proceeding under the
Bankruptcy Act in which Tenant is the bankrupt;
(iii) If a writ of attachment or execution is levied on this
Lease;
(iv) If, in any action or proceeding to which Tenant is a
party, a receive is appointed with authority to take possession of the
Premises; or
(v) The foreclosure by any person holding a security
interest in this Lease.
An involuntary assignment shall be voidable and, at Landlord's election, shall
constitute an Event of Default by Tenant, thereupon giving rise to the remedies
contained in this Paragraph.
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(c) In the event of any subassignment, sub-sublease, or involuntary
assignment without the prior written consent of Landlord, Landlord may either;
(i) immediately terminate this Lease; or
(ii) on ten (10) days written notice to Tenant, elect to
continue this Lease in full force and effect, and accept performance from
such subtenant, involuntary assignee, or subassignee; in such event, such
subtenant, involuntary assignee, or subassignee shall execute documents
setting forth the provisions of Paragraph 17(b) above; and the subtenant,
involuntary assignee, or subassignee shall have no right to exercise any
option in this Lease.
(d) Landlord may accept any rent or performance of Tenant's
obligations from any person other than Tenant. Neither a delay in such
approval or disapproval, nor an acceptance of rent or other performance,
shall constitute a waiver or estoppel of Landlord's right to exercise the
remedies herein set forth.
(e) The Landlord, as consideration in connection with such
transfer, assignment, or subletting, shall be entitled to receive sixty
percent (60%) of all consideration (the excess and/or differential of the
rent payable to Landlord and rent, additional rent, and any other
consideration paid by Sublessee or Assignee to Tenant) payable in connection
therewith, including without limitation, any additional rent or other charges
or any lump sum settlement. In connection with such transfer, Landlord
reserves the right to make modifications to the other provisions of the
Lease, including the cancellation of any options to extend the term of this
Lease, as Landlord deems advisable.
18. DAMAGE BY CASUALTY.
(a) DEFINITIONS:
(i) "Partial Damage to the Premises" shall mean damage or
destruction to the Premises, other than alterations and improvements owned by
Tenant, which can be repaired within one hundred twenty (120) days of the
date of the casualty, and the repair cost of which damage or destruction is
less than sixty percent (60%) of the then Replacement Cost of the Premises
immediately prior to such damage or destruction, excluding from such
calculation the value of the land upon which the Premises are situated.
(ii) "Total Destruction of the Premises" shall mean damage or
destruction to the Premises, other than alterations and improvements owned by
Tenant, the repair cost of which damage or destruction is greater than sixty
percent (60%) of the then Replacement Cost of the Premises immediately prior
to such damage or destruction, excluding from such calculation the value of
the land upon which the Premises are situated.
(iii) "Insured Loss" shall mean damage or destruction to the
Premises, other than alterations and improvements owned by Tenant, which was
caused by an event for which either party maintained insurance, and for which
insurance proceeds are available to Landlord and not retained and otherwise
applied by Landlord's Lender.
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(iv) "Landlord's Lender" shall mean any lender who holds a
mortgage or deed of trust against the Premises as security for a loan made to
Landlord.
(v) "Replacement Cost" shall mean the cost to repair or to
rebuild the Premises at the time of the occurrence to their condition
immediately prior thereto, including demolition, debris removal, and
upgrading required by the operation of applicable building codes, ordinances,
or laws, and without deduction for depreciation.
(b) PARTIAL DAMAGE. If there is a Partial Damage to the Premises
which is an Insured Loss, then Landlord shall utilize the insurance proceeds
therefrom to rebuild the Premises (other than Tenant's alterations and
improvements) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that is Landlord's repairs are not
completed within one hundred twenty (120) days from the date of the damage or
destruction which period shall be extended by the number of days lost in the
event of labor strikes, acts of God, or any other similar causes beyond the
control of Landlord, then Tenant may, by written notice to Landlord,
terminate this Lease.
If there is a Partial Damage to the Premises which is not an Insured
Loss, then Landlord shall either:
(i) rebuild the Premises (other than Tenant's alterations
and improvements) as soon as reasonably possible at Landlord's sole expense
(except if the damage or destruction is caused by the negligence or willful
misconduct of Tenant, in which case, if the loss is not an Insured Loss,
Tenant shall pay to rebuild the Premises in accordance with Paragraph 18(f)
below) and this Lease shall continue in full force and effect; provided,
however, that if Landlord's repairs are not completed within one hundred
twenty (120) days from the date of the damage or destruction, which period
shall be extended by the number of days lost in the event of labor strikes,
acts of God, or any other similar causes beyond the control of Landlord, then
Tenant may, by written notice to Landlord, terminate this Lease; or
(ii) give Tenant written notice not more than thirty (30)
days from the date of the damage or destruction, electing to terminate this
Lease not more than sixty (60) days from the date of such notice.
(c) TOTAL DAMAGE. If there is a Total Destruction of the
Premises, whether or not such Total Destruction is an Insured Loss, then
Landlord , by written notice to Tenant within thirty (30) days of the
casualty, may terminate this Lease, which termination shall be effective not
more than sixty (60) days from the date of such notice.
If this Lease is not terminated, then Landlord shall rebuild the Premises
(other than Tenant's alterations and improvements), using any available
insurance proceeds, as soon as reasonably possible at Landlord's sole expense
(except if the damage or destruction is caused by the negligence or willful
misconduct of Tenant, in which case, if the loss is not an Insured Loss,
Tenant shall pay to rebuild the Premises in accordance with Paragraph 18(f)
below) and this Lease shall continue in full force and effect.
(d) DAMAGE NEAR END OF TERM. Notwithstanding the foregoing
provisions, in the event of a Partial Destruction of the Premises or a Total
Destruction of the Premises during
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the last four (4) months of the term of this Lease, then either party may
elect to terminate this Lease by written notice to the other party given
within seven (7) days of the date of the casualty. If no such written notice
is given, then the foregoing provisions shall apply.
(e) ABATEMENT OF RENT. In the event of a Partial Destruction of
the Premises, from the date of the casualty until repairs are effected or
this Lease is terminated pursuant to the terms hereof, Base Rent and
Additional Rent shall be abated in proportion to the degree to which Tenant's
use of the Premises is impaired; but all of the other terms, covenants, and
conditions of the Lease shall remain in full force and effect. In the event
of a Total Destruction of the Premises, from the date of the casualty until
repairs are effected or this Lease is terminated pursuant to the terms
hereof, Base Rent and Additional Rent shall be totally abated.
(f) DAMAGE DUE TO TENANT'S NEGLIGENCE OR WILLFUL MISCONDUCT. If the
damage to or destruction of the Premises is due to Tenant's gross negligence
or willful misconduct, there shall be no abatement of Base Rent or Additional
Rent, and (i) if the loss is an Insured Loss, Tenant shall, upon demand, pay
to Landlord an amount equal to the applicable deductible under Landlord's
policy of insurance; or (ii) if the loss is not an Insured Loss, then Tenant,
at its sole cost and expense, shall promptly repair and rebuild the Premises.
(g) WAIVE STATUTES. Landlord and Tenant agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises with respect to the termination of the Lease land hereby waive the
provisions of any present or future statute to the extent inconsistent
herewith.
19. EMINENT DOMAIN AND CONDEMNATION.
(a) TOTAL OR SUBSTANTIAL CONDEMNATION. If at any time during the
term of this Lease the whole of the Premises shall be taken for any public or
quasipublic use, under any statute, or by right of eminent domain, except as
provided in subparagraph (c) hereof, this Lease shall terminate on the date
of such taking and the Base Rent and Additional Rent shall be apportioned as
of the date of the taking. If less than all but more than twenty-five
percent (25%) of the Premises shall be so taken, either party may, by written
notice to the other party within sixty (60) consecutive days after such
taking, terminate this Lease. If either party so exercises its option to
terminate, then this Lease and the term hereof shall end on the date
specified in the notice and both Base Rent and Additional Rent shall be
apportioned and paid to the date of such taking.
(b) PARTIAL CONDEMNATION. If less than all of the Premises shall
be taken and unless either party has exercised its option to terminate
pursuant to subparagraph (a) hereof, this lease shall be unaffected, except
the Tenant shall be entitled to a pro rata abatement of Base Rent and
Additional Rent in the proportion that the floor area of the Premises so
taken bears to the area of the Premises demised hereunder immediately prior
to such taking.
(c) TEMPORARY TAKING. If the use or occupancy of the whole or more
than twenty-five percent (25%) of the Premises is temporarily taken for a
public or quasi-public use for a period less than the balance of the term,
the Tenant shall have the option to terminate this Lease on the date of the
taking. If this lease remains in effect the Tenant shall be entitled to an
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abatement of Rent and Additional Rent proportionate to the area of the
Premises taken, or, at its option, receive that portion of the award for such
taking which represents compensation for the value of the Tenant's leasehold
estate for the original term or any exercised extension thereof demised
hereunder in which case Tenant shall continue to pay in full the Rent and
Additional Rent when due.
(d) DAMAGES. The Landlord shall be entitled to receive the entire
award or awards in any condemnation proceeding without deduction therefrom
for any estate vested in the Tenant and the Tenant shall receive no part of
such award or awards from the Landlord or in the proceedings except as
otherwise expressly provided in this Paragraph. Subject to the foregoing,
the Tenant hereby assigns to the Landlord any and all of its right, title,
and interest in or to such award or awards or any part thereof.
(e) TENANT'S IMPROVEMENTS. In the event of a taking of any of
Tenant's improvements or alterations, the Tenant shall be entitled to receive
out of the award, or, if allowed by law, to appear, claim, prove, and receive
in the condemnation proceedings (i) the unamortized value over the term of
this Lease of the Tenant's improvements and alterations to the Premises,
depreciated as allowed by law or otherwise proven from the date of
installation thereof to the date of the taking, minus the amount of
Landlord's allowance, if any, provided the same shall have been installed by
or at the Tenant's expense but regardless of whether the improvements and
alterations might be considered part of the Premises or real property or
shall be or become the property of the Landlord under the terms of this
Lease; (ii) the value of the Tenant's fixtures, minus the amount of
Landlord's allowance, if any; (iii) the cost of moving to new premises; and
(iv) special awards or allowances provided by law to tenants in the event
their premises are taken by eminent domain.
(f) RESTORATION OF PREMISES. If there is a taking hereunder and
this Lease is continued, the Landlord shall, at its expense, and upon receipt
of any award or awards deemed sufficient by an independent architect selected
by Landlord and approved by Tenant for the purpose, proceed with reasonable
diligence to repair, alter, and restore the Premises as a complete
architectural unit of substantially the same proportionate usefulness,
design, and construction existing immediately prior to the date of taking,
except that the Landlord may elect to reconstruct the interior of the
Premises either in accordance with the original specification or in
accordance with single line control drawings and specifications furnished by
Tenant. If Landlord agrees to so rebuild the Premises in accordance with
Tenant's specifications, then no later than thirty (30) days before
commencement of such repair and reconstruction, the Tenant shall pay to the
Landlord a sum equal to the difference between an independent architect of
Landlord's estimate of (i) the cost to be incurred by the Landlord to
complete reconstruction of the Premises in accordance with Tenant's
specifications, and (ii) the cost that the independent architect estimates
would have been incurred had Landlord reconstructed the Premises in
accordance with the original construction drawings and specifications
applicable to the Premises (as such improvements may have been altered by
Landlord during the term prior to the taking) to the extent that such
improvements have been constructed for the Tenant by the Landlord, at the
Landlord's expense, prior to and during the term hereof, provided, however,
that Landlord shall pay the difference between the actual cost incurred by
Landlord to complete reconstruction in accordance with Tenant's
specifications and the sum paid by Tenant pursuant hereto within fifteen (15)
days after completion of such reconstruction and delivery of the Premises to
Tenant.
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(g) TRANSFER IN LIEU. Taking by condemnation or eminent domain
hereunder shall include the exercise of any similar governmental power and
any sale, transfer, or other disposition of the Premises in lieu of or under
threat of condemnation.
20. DEFAULT BY TENANT.
(a) EVENT OF DEFAULT DEFINED. The following events (herein
referred to as an "Event of Default") shall constitute a default by Tenant
hereunder:
(i) Tenant's failure to pay (without notice) when due the
Base Rent, Additional Rent, or any other sums payable hereunder within five
(5) business days of when it is due; or
(ii) Tenant's neglect or failure to perform or observe any of
the other covenants herein contained on Tenant's part to be performed or
observed and Tenant's failure to remedy the same within thirty (30) days
after Landlord shall have mailed to Tenant written notice specifying such
neglect or failure, or such further period as Tenant may reasonably require
so long as Tenant commences to cure such default within such thirty (30) day
cure period and diligently proceeds to effectuate such cure thereafter; or
(iii) Tenant shall violate the provisions of Paragraph 17 with
respect to involuntary assignment, or Tenant's assignee or sublessee shall
violate the provisions of said Paragraph regarding further assignment or
subletting.
(b) REMEDIES. Upon an Event of Default by Tenant, Landlord may at
any time thereafter, in its sole discretion, without limiting Landlord in the
exercise of a right or remedy which Landlord may have by reason of such
default or breach, elect to pursue one or more of the following remedies,
which are cumulative and in addition to any remedies now or later allowed by
law:
(i) Landlord may continue this Lease in full force and
effect, and the Lease will continue in effect as long as Landlord does not
terminate Tenant's right to possession, and Landlord shall have the right to
collect rent when due. During the period Tenant is in default, Landlord can
enter the Premises and relet them, or any part of them, to third parties for
Tenant's account. Tenant shall be liable immediately to Landlord for all
reasonable costs and expenses incurred by Landlord in mitigation of damages
as required by law. Reletting can be for a period shorter or longer than the
remaining term of this Lease. Tenant shall pay to Landlord the rent due
under this Lease on the dates the rent is due, less the rent Landlord
receives from reletting. No act by Landlord allowed by this Paragraph shall
terminate this Lease unless Landlord notifies Tenant that Landlord elects to
terminate this Lease. After Tenant's default and for as long as Landlord
does not terminate Tenant's right to possession of the Premises, Tenant shall
have the right to assign or, with Landlord's consent, sublet the Premises,
but Tenant shall not be released from liability therefrom. Landlord's
consent to a subletting shall not be unreasonably withheld.
If Landlord elects to relet the Premises as provided in this Paragraph,
rent that Landlord receives from reletting shall be applied to the payment
of-.
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(A) First, any indebtedness from Tenant to Landlord other
than rent due from Tenant;
(B) Second, all reasonable costs, including any costs
and expenses incurred in preparing the Premises for reletting, incurred by
Landlord in mitigation of damages as required by law;
(C) Third, rent due and unpaid under this Lease.
After deducting the payments referred to in this Paragraph, any sums remaining
from the rent that Landlord receives from reletting shall be held by Landlord
and applied in payment of future rent as rent becomes due under this Lease. In
no event shall Landlord be entitled to any excess rent received by Landlord.
If, on the date rent is due under this Lease, the rent received from the
reletting is less than the rent due on that date, Tenant shall pay to Landlord,
in addition to the remaining rent due, all costs, including for maintenance,
Landlord incurred in reletting that remain after applying the rent received from
the reletting as provided in this Paragraph.
(ii) Landlord can terminate Tenant's right to possession of
the Premises at any -time. No act by Landlord other than giving notice to
Tenant shall terminate this Lease. Acts of maintenance or efforts to relet
the Premises shall not constitute a termination of Tenant's right to
possession. On termination, Landlord shall have the right to recover from
Tenant:
(A) The worth, at the time of the award, of the unpaid
rent that had been earned at the time of the termination of the Lease-,
(B) The worth, at the time of the award, of the amount by
which the unpaid rent that would have been earned after the date of
termination of this Lease until the time of award exceeds the amount of the
loss of rent that Tenant proves could have been reasonably avoided;
(C) The worth, at the time of the award, of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of the loss of rent that Tenant proves could have been
reasonably avoided; and
(D) Any other amount, and court costs, necessary to
compensate Landlord for all detriment proximately caused by Tenant's default.
As used in subparagraphs (A) and (B) above, the "worth at the time of the
award" is to be computed by allowing interest at the maximum rate an
individual can charge. As used in subparagraph (C) above, the "worth at the
time of the award" is to be computed by discounting the amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of the
award, plus one percent (1%).
(iii) Landlord, at any time after an Event of Default, can
cure the default at Tenant's cost. If Landlord at any time, by reason of a
breach of this Lease by Tenant, pays any sum or does any act that requires
the payment of any sum, the sum paid by Landlord shall be due immediately
from Tenant to Landlord, together with interest thereon at the
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maximum rate an individual can charge from the date the sum is paid by Landlord
until reimbursed by Tenant. The sum, together with interest thereon, shall
be Additional Rent.
(iv) Pursue any other remedy now or hereafter available
to Landlord under the laws or judicial decisions of the State of California.
21. LANDLORD'S BREACH, TENANT'S REMEDIES. Landlord shall be in
default of this Lease if Landlord fails or refuses to perform any provision of
this Lease that it is obligated to perform if the failure to perform is not
cured within thirty (30) days after notice of the default has been given by
Tenant to Landlord. If the default cannot reasonably be cured within thirty
(30) days, Landlord shall not be in default of this Lease if Landlord commences
to cure the default within the thirty (30) day period and diligently and in good
faith continues to cure the default.
Tenant, at any time after the Landlord commits a default, and as its sole
remedy therefor, can cure the default at Landlord's cost. If Tenant at any
time, by reason of Landlord's default, pays any sum or does any act that
requires the payment of any sum, the sum paid by Tenant shall be due immediately
from Landlord to Tenant, together with interest thereon at the maximum rate an
individual can charge from the date the sum is paid by Tenant until reimbursed
by Landlord. If Landlord fails to reimburse Tenant as required by this
Paragraph, Tenant shall have the right to withhold from future rent due the sum
Tenant has paid until Tenant is reimbursed in full for the sum and interest on
it.
22. SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT. This Lease is
subordinate to any mortgage or deed of trust now placed on the Project and to
any renewal, modification, consolidation, replacement or extension of such
mortgage or deed of trust. This clause shall be self-operative, and no further
instrument of subordination shall be required. Within five (5) days after
written request by Landlord, Tenant shall execute any documents which may be
desirable to confirm the subordination of this Lease. Landlord is hereby
irrevocably appointed agent and attorney-in-fact of Tenant to execute all such
subordination instruments in the event Tenant fails to execute said instruments
within fifteen (15) days after notice from Landlord demanding the execution
thereof At the request of Tenant, Landlord shall request a subordination,
attornment, and non-disturbance agreement from the lender, although Landlord
makes no representation that such subordination, attornment, and non-disturbance
agreement can be obtained.
23. SIGNS AND ADVERTISING. Tenant shall have the right, at its sole
cost and expense, to place a sign on the Project monument/directional signage,
as designated by Landlord. Tenant shall place no signs on the roof of the
Premises. Tenant shall place no sign on the exterior of the Premises without
Landlord's prior written consent, which consent shall not be unreasonably
withheld or delayed.
24. BROKERS. Landlord and Tenant represents that they have dealt only
with Pacific Equity Partners, LLC ("Broker") in the negotiation of this Lease.
Tenant and Landlord acknowledge and agree that the Broker acted as a Transaction
Broker, defined as a broker assisting the Landlord or Tenant and/or both
throughout this real estate transaction with communication, advice, negotiation,
contracting and closing without being an agent or advocate for any of the
parties. The parties to a transaction are not legally responsible for the
actions of a Transaction Broker and a Transaction Broker does not owe those
parties the duties of an agent.
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However, a Transaction Broker does owe the parties a number of statutory
obligations and responsibilities, including using reasonable skill and care
in the performance of any oral or written agreement. A Transaction Broker
must also make the same disclosures as agents about adverse material facts
concerning a property or a buyer's financial ability to perform the terms of
a transaction and whether the buyer intends to occupy the property. No
written agreement is required.
25. NOTICES. All notices required or permitted by this Lease shall be
in writing and may be delivered in person (by hand or by messenger or by
overnight courier service), or may be sent by regular, certified, or registered
mail or by United State Postal Service Express Mail, with postage prepaid, or by
facsimile transmission, and shall be deemed sufficiently given if served or
delivered in a manner specified in this Paragraph 25. The addresses for
delivery of notice herein shall be:
To Landlord at: Drever Partners, Inc.
Four Embarcadero Center
Suite 1810
San Francisco, CA 94111
Attn: Richard Kalish
With Copies to: McIntosh Properties
3000 Sand Hill Road
Building 2, Suite 100
Menlo Park, CA 94025
Attn: Chip McIntosh
With Copies to: Pacific Equity Partners, LLC
Two North Cascade Avenue
Suite 760
Colorado Springs, CO 80903-1614
Attn: Gary L. Christensen
To Tenant: Finisar Corporation
274 Ferguson Drive
Mountain View, CA 94043
Attn: Jerry Rawls
Either party may by written notice to the other specify a different address for
notice purposes. Hand-delivered notices shall be deemed given when actually
received by Landlord or Tenant. Any notice sent be registered or certified
mail, return receipt requested, shall be deemed given on the date of delivery
shown on the receipt card, and if no delivery date is shown, the postmark
thereon. If sent by regular mail the notice shall be deemed given forty-eight
(48) hours after the same is addressed as required herein and mailed with
postage prepaid. Notices delivered by United States Express Mail or overnight
courier that guarantees next day delivery shall be deemed given twenty-four (24)
hours after delivery of the same to the United State Postage Service or
representative of the overnight courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered on telephone
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confirmation of receipt of the transmission thereof. If notice is received
on a Sunday or legal holiday, it shall be deemed received on the next
business day.
26. ESTOPPEL STATEMENT. Tenant shall within five (5) days of
Landlord's written request therefor execute, acknowledge and deliver to Landlord
or Landlord's designee a statement in writing including the following
information (but not limited to) (a) certifying that this Lease constitutes the
entire agreement between Landlord and Tenant and is unmodified and in full force
and effect (or if there have been modifications, that the same is in full force
and effect as modified and stating the modification(s); (b) the dates to which
the rent and other charges hereunder have been paid, and the amount of any
security deposited with Landlord; (c) that the Premises have been completed on
or before the date of such letter and that all conditions precedent to this
lease taking effect have been carried out (or specifying in what way they have
not); (d) that Tenant has accepted possession, that the term has commenced, that
the Tenant is occupying the Premises, and that Tenant knows of no default under
this Lease by Landlord and that to the best of Tenant's knowledge there are no
defaults or offsets which Tenant has against enforcement of this Lease by
Landlord; (e) the actual Commencement Date and expiration date of the term of
this Lease; and (f) that the Premises are open for business. Any such Estoppel
Certificate may be conclusively relied upon by Landlord and any prospective
purchaser or encumbrance of the Premises or Project. In the event that such
Estoppel Certificate is not so delivered by Tenant as required herein within ten
(10) days of Landlord's request therefor, Tenant will be conclusively deemed for
all purposes to have signed and to be bound by such Estoppel Certificate in a
form which, inter alia, (i) states that the Lease has not been modified;
(ii) states that all conditions precedent to the Lease taking effect have been
carried out; and (iii) states that Tenant knows of no default under the Lease.
27. ATTORNEY'S FEES.
(a) If either party becomes a party to any litigation
concerning this Lease, the Premises, or the Project, by reason of any act or
omission of the other party or its authorized representatives, the party that
causes the other party to become involved in the litigation shall be liable to
that party for reasonable attorney's fees, court costs, investigation expenses ,
discovery costs and costs of appeal incurred by it in the litigation.
(b) If either party commences an action against the other party
arising out of or in connection with this Lease, the prevailing party shall be
entitled to have and recover from the losing party, reasonable attorney's fees,
costs of suit, investigation costs and discovery costs, including costs of
appeal.
(c) Should it be necessary for either party to employ legal
counsel to enforce any of the provisions herein contained, the non-prevailing
party shall pay all attorney's fees and court costs reasonably incurred thereby.
(d) Each party's obligations under this Paragraph shall survive
the expiration of the term or any earlier termination of this Lease. This
Paragraph is intended to supplement (and not to limit) other provisions of this
Lease pertaining to indemnities and/or attorney's fees.
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28. SURRENDER OF PREMISES; HOLDING OVER.
(a) Upon expiration or earlier termination of this Lease,
Tenant shall surrender to Landlord the Premises and all of Tenant's improvements
and alterations thereon in good operating order, condition, and state of repair,
clean and free of debris (except for ordinary wear and tear occurring after
Tenant's last necessary maintenance, and subject to the provisions of
Paragraph 18, relating to the destruction or partial destruction of the
Premises), except for alterations and improvements that Tenant is required to
remove by written election of the Landlord pursuant to Paragraph 10(e), above.
Tenant shall remove all of its personal property and trade fixtures from the
Premises prior to the expiration or earlier termination of this Lease. Tenant
shall perform at its sole cost and expense all restoration made necessary by its
removal of alterations and improvements, personal property, and trade fixtures.
Landlord may elect to retain or to dispose of in any manner any
alterations or improvements that Tenant is required to remove pursuant to
Paragraph 10(e) above, or Tenant's trade fixtures or personal property that
Tenant does not remove from the Premises on expiration or earlier termination of
this Lease by giving at least ten (10) days written notice to Tenant. Title to
any such alterations, improvements, trade fixtures, or personal property that
Landlord elects to retain or to dispose of on expiration of the aforesaid ten
(10) day period shall vest in Landlord. Tenant waives all claims against
Landlord and Landlord's agents for any damage to Tenant resulting from
Landlord's retention or disposition of any such alterations, improvements, trade
fixtures, and/or personal property, and Tenant shall be liable to Landlord for
Landlord's costs and expenses for storing, removing, and disposing of same, and
for the cost of restoring the Premises thereafter to the condition required by
subparagraph (a), above.
(b) Tenant has no right to retain possession of the Premises
or any part thereof beyond the expiration or earlier termination of this
Lease. If Tenant, with Landlord's written consent, remains in possession of
the Premises after the expiration or earlier termination of this Lease, such
consensual possession shall be deemed to be a month-to-month tenancy
terminable on thirty (30) days written notice given at any time by either
party. During such month-to-month tenancy, all of the terms and conditions
of this Lease shall remain in full force and effect, except (i) the Base Rent
during the holdover period shall be one hundred fifty percent (150%) of the
Base Rent in force during the month immediately preceding the expiration or
earlier termination of the Lease, and (ii) any option or options set forth in
the Lease to extend the term thereof shall not be exercisable during any such
holdover period, but shall lapse upon the expiration date or date of the
earlier termination of the Lease.
29. NO WASTE. Tenant shall commit no waste upon the Premises or the
Project.
30. NO WAIVER. The waiver by Landlord of any breach of any Lease
provision shall not be deemed to be a permanent waiver of such Lease provision
or a waiver of any subsequent breach of the same or any other term, covenant or
condition therein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any provision of this Lease, other than the failure of Tenant to pay the
particular rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such rent. The consent or
approval by either party to or of any act by the
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other party of a nature requiring consent or approval shall not be deemed to
waive or render unnecessary consent to approval of any subsequent similar act.
31. EFFECT OF LANDLORD'S CONVEYANCE. If, during the Term of this
Lease, Landlord shall assign or sell, in whole or in part, its interest in the
Project of which the Premises forms a part, or the Premises, all of which is
hereby permitted and which Landlord shall be allowed to advertise for at any
time, then from and after the effective date of the sale or conveyance, Landlord
shall be released and discharged from any and all obligations and
responsibilities under this Lease or arising out of any act, occurrence or
omission relating to the Project or Premises which occurs after the consummation
of such sale, exchange, or assignment, except those already accrued; provided,
however, that if the purchaser or assignee expressly assumes in writing all of
Landlord's liabilities under this Lease, whensoever accrued, then Landlord shall
be released and discharged from any and all obligations and responsibilities
under this Lease, whensoever accrued. If any security be given by Tenant to
secure the faithful transfer and/or deliver the security, as such, to the
purchaser or assignee and thereupon Landlord shall be discharged from any
further liability in reference thereto. Landlord shall give immediate notice of
such sale and/or assignment of Lease to Tenant upon its occurrence.
32. AUTHORITY TO EXECUTE LEASE. Tenant is a duly formed corporation
in the state of California, and each individual executing this Lease on behalf
of Tenant represents and warrants that he is duly authorized to execute and
deliver this Lease on behalf of Tenant in accordance with a duly adopted
Corporate Resolution of Tenant, in accordance with the bylaws of the Tenant, and
certifying that Tenant is duly organized under the laws of its State of
formation, and that this Lease is binding upon the Tenant in accordance with its
terms. Tenant shall furnish with the executed lease a copy of the Corporate
Resolution.
33. MORTGAGE PROTECTION. Tenant shall give Landlord's lender, by
registered mail, a copy of any notice of default service upon Landlord, provided
that prior to such notice Tenant has been notified, in writing (by way of notice
of assignment of rents and leases, or otherwise), of the identity and address of
Landlord's Lender.
34. TIME OF THE ESSENCE. Time is of the essence of this Lease with
respect to each and every Paragraph thereof
35. COVENANT OF QUIET POSSESSION. Upon Tenant paying the rent
reserved hereunder and observing and performing all of the covenants, conditions
and provisions on Tenant's part to be observed and performed hereunder, Tenant
shall have quiet possession of the Premises for the entire term hereof, subject
to all the provisions of this Lease.
36. GENERAL PROVISIONS.
(a) The captions in the margins and the headings of the several
Paragraphs of this Lease are for convenience only and are not a part of this
Lease and do not in any way limit or amplify the terms and provisions of this
Lease.
(b) Whenever the singular number is used in this Lease and when
required by the context, the same shall include the plural, the plural shall
include the singular, and the masculine gender shall include the feminine and
neuter genders, and the word "person" shall
26
<PAGE>
include corporation, limited liability company, partnership, firm or
association. References in this Lease to terms such as "herein", "hereof',
and "hereunder" shall be construed to reference any applicable provisions
contained within the entire Lease.
(c) This Lease contains all of the agreements of the parties
hereto with respect to any matter, covered or mentioned in this Lease, and no
prior to contemporaneous agreements or understandings, whether written or oral,
pertaining to any such matters shall be effective for any purpose. No
provisions of this Lease may be amended or added to except by an agreement in
writing signed by the parties hereto or their permitted successors in interest.
(d) Except as otherwise expressly stated, each payment required
to be made by Tenant shall be in addition to and not in substitution for other
payments to be made by Tenant.
(e) The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof
(f) The preparation and submission of a draft of this Lease by
either party to the other shall not constitute an offer nor shall either party
be bound to any terms of this Lease or the entirety of the Lease itself until
both parties have fully executed a final document and an original signature
document has been received by both parties. Until such time as described in the
previous sentence, either party is free to terminate negotiations with no
obligations to the other. This Lease may be fully executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(g) Under the terms of this Lease, numerous charges are and may
be due from Tenant to Landlord including, without limitation, Common Area Costs,
Real Estate Taxes, insurance reimbursement and other items of a similar nature
including advances made by Landlord in respect of Tenant's default at Landlord's
option. If, at any time during the Term, there is a bona fide dispute between
the parties as to the amount due for any of such charges claimed by Landlord to
be due, the undisputed amount demanded by Landlord shall be paid by Tenant until
the resolution of the dispute between the parties by litigation, agreement or
otherwise.
(h) It is understood and agreed that the remedies herein given
to either party shall be cumulative, and the exercise of any one remedy by
either party shall not be to the exclusion of any right to exercise any other
remedy.
(i) This Lease shall be construed and enforced in accordance
with the laws of the State of California. Venue and jurisdiction shall be
proper in State Court in Santa Clara County, and/or in Federal Court in the
Northern District of California.
(j) Neither this Lease nor any memorandum or recitation of its
terms shall be recorded without the prior written consent of Landlord.
(k) Nothing contained herein shall be deemed or construed by
anyone as creating the relationship of principal and agent, partnership, or
joint venture between the parties hereto.
27
<PAGE>
(l) Subject to the limitations of Paragraph 17, above, the
covenants, agreements and obligations herein contained shall extend to, bind and
inure to the benefit not only of the parties hereto but their respective
personal representatives, heirs, successors and assigns.
(m) Whenever a period of time is herein provided for either
party to do or perform any act or thing, that party shall not be liable or
responsible for any delays, and applicable periods for performance shall be
extended accordingly, due to strikes, lockouts, riots, acts of God, shortages of
labor or materials, restrictions, laws or regulations, or any other cause or
causes, whether similar or dissimilar to those enumerated, beyond its reasonable
control. The provisions of this Subparagraph shall not operate to excuse Tenant
from prompt payment of Base Rent, Additional Rent or other monetary payments
required by the terms of this Lease.
(n) Landlord shall have the right to grant any easements on,
over, under and above the Premises for such purposes as Landlord determines,
provided that such easements will not materially interfere with Tenant's
then-current or projected use of the Premises.
(o) No provision of this Lease shall be construed against or
interpreted to the disadvantage of any party by any court or other governmental
or judicial authority by reason of such party having or being deemed to have
drafted, devised or imposed such provision.
(p) Unless specifically set forth therein to the contrary, when
reference is made to "Landlord's consent" or "Landlord's prior written consent",
said consent shall be granted or denied in Landlord's sole discretion.
(q) At any time during this Lease, Landlord may require
financial statements of Tenant (and any sub-tenant and/or assignee) for a
designated period of time. Tenant shall furnish Landlord the requested
information within fifteen (15) days of request.
28
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease, to be effective
as of the 30 day of May, 97.
LANDLORD: DM GROUP, VIII, a California limited
partnership, by
/s/ Maxwell Bruce Drever
------------------------------------
Maxwell Bruce Drever
General Partner
/s/ Arthur T. McIntosh
------------------------------------
Arthur T. McIntosh
General Partner
Drever, McIntosh & Company, Inc., a
California corporation, general
partner, by
/s/ Maxwell Bruce Drever
------------------------------------
Maxwell Bruce Drever
President
DM GROUP VIII-E, a California limited
partnership, by
/s/ Maxwell Bruce Drever
------------------------------------
Maxwell Bruce Drever
General Partner
/s/ Arthur T. McIntosh, III
------------------------------------
Arthur T. McIntosh, III
General Partner
Drever, McIntosh & Company, Inc., a
California corporation, general
partner, by
/s/ Maxwell Bruce Drever
------------------------------------
Maxwell Bruce Drever
President
29
<PAGE>
TENANT: FINISAR CORPORATION, a California
corporation, by
/s/ Jerry S. Rawls
---------------------------------
Its: President
----------------------------
---------------------------------
Its:
----------------------------
30
<PAGE>
LEASE AGREEMENT
BY AND BETWEEN
AETNA LIFE INSURANCE COMPANY,
A CONNECTICUT CORPORATION
AS LANDLORD
AND
FINISAR CORPORATION
A CALIFORNIA CORPORATION
AS TENANT
DATED MAY 26, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Demise...................................................................................................1
2. Premises.................................................................................................1
3. Term.....................................................................................................2
4. Rent.....................................................................................................3
5. Utility Expenses.........................................................................................8
6. Late Charge..............................................................................................8
7. Security Deposit.........................................................................................9
8. Possession...............................................................................................9
9. Use Of Premises.........................................................................................10
10. Acceptance Of Premises..................................................................................11
11. Surrender...............................................................................................12
12. Alterations And Additions...............................................................................12
13. Maintenance And Repairs Of Premises.....................................................................14
14. Landlord's Insurance....................................................................................15
15. Tenant's Insurance......................................................................................15
16. Indemnification.........................................................................................17
17. Subrogation.............................................................................................17
18. Signs...................................................................................................17
19. Free From Liens.........................................................................................18
20. Entry By Landlord.......................................................................................18
21. Destruction And Damage..................................................................................18
22. Condemnation............................................................................................21
23. Assignment And Subletting...............................................................................22
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<PAGE>
24. Tenant's Default........................................................................................24
25. Landlord's Remedies.....................................................................................26
26. Landlord's Right To Perform Tenant's Obligations........................................................29
27. Attorney's Fees.........................................................................................29
28. Taxes...................................................................................................30
29. Effect Of Conveyance....................................................................................30
30. Tenant's Estoppel Certificate...........................................................................30
31. Subordination...........................................................................................30
32. Environmental Covenants.................................................................................31
33. Notices.................................................................................................34
34. Waiver..................................................................................................34
35. Holding Over............................................................................................34
36. Successors And Assigns..................................................................................35
37. Time....................................................................................................35
38. Brokers.................................................................................................35
39. Limitation Of Liability.................................................................................35
40. Financial Statements....................................................................................35
41. Rules And Regulations...................................................................................35
42. Mortgagee Protection....................................................................................36
43. Entire Agreement........................................................................................36
44. Interest................................................................................................36
45. Construction............................................................................................36
46. Representations And Warranties Of Tenant................................................................36
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<PAGE>
47. Security................................................................................................37
48. Jury Trial Waiver.......................................................................................37
49. Option To Renew.........................................................................................38
50. Option To Expand Premises...............................................................................39
51. Satellite Dish..........................................................................................40
</TABLE>
iii
<PAGE>
EXHIBIT
A Diagram of the Premises
A-1 Diagram indicating Location of
Exclusive Parking Spaces
B Tenant Improvements
B-1 Preliminary Plans
B-2 Final Plans and Specifications for
Tenant Improvements
C Commencement and Expiration Date Memorandum
D Rules and Regulations
E Sign Criteria
F Hazardous Materials Disclosure Certificate
G Tenant Improvements Loan Amortization Memorandum
H Diagram of the Expansion Space
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LEASE AGREEMENT
This Lease Agreement is made and entered into by and between Landlord
and Tenant on the Lease Date. The defined terms used in this Lease which are
defined in the Basic Lease Information attached to this Lease Agreement ("BASIC
LEASE INFORMATION") shall have the meaning and definition given them in the
Basic Lease Information. The Basic Lease Information, the exhibits, the addendum
or addenda described in the Basic Lease Information, and this Lease Agreement
are and shall be construed as a single instrument and are referred to herein as
the "LEASE".
1. DEMISE. In consideration for the rents and all other
charges and payments payable by Tenant, and for the agreements, terms and
conditions to be performed by Tenant in this Lease, Landlord does hereby
lease to Tenant, and Tenant does hereby hire and take from Landlord, the
Premises described below (the "PREMISES"), upon the agreements, terms and
conditions of this Lease for the Term hereinafter stated.
2. PREMISES.
(a) The Premises demised by this Lease is located in that
certain building (the "Building") specified in the Basic Lease Information,
which Building is located in that certain real estate development (the
"PROJECT") specified in the Basic Lease Information. The Premises has the
address and contains the square footage specified in the Basic Lease
Information. The approximate location and dimensions of the Premises are
depicted on EXHIBIT A, which is attached hereto and incorporated herein by this
reference; provided, however, that any statement of square footage set forth in
this Lease. or that may have been used in calculating any of the economic terms
hereof, is an approximation which Landlord and Tenant agree is reasonable and,
except as expressly set forth in Paragraph 4(c)(3) below, no economic terms
based thereon shall be subject to revision whether or not the actual square
footage is more or less. Tenant shall have the non-exclusive right (in common
with the other tenants, Landlord and any other person granted use by Landlord)
to use the Common Areas (as hereinafter defined), except that, with respect to
parking, Tenant shall have only a license to use the number of exclusive and
designated parking spaces (the "EXCLUSIVE PARKING SPACES") and non-exclusive and
undesignated parking spaces set forth in the Basic Lease Information in the
Project's parking areas (the "PARKING AREAS"); provided, however, that Landlord
shall not be required to enforce Tenant's right to use such parking spaces; and,
provided further, that the number of parking spaces allocated to Tenant
hereunder shall be reduced on a proportionate basis in the event any of the
parking spaces in the Parking Areas are taken or otherwise eliminated as a
result of any Condemnation (as hereinafter defined) or casualty event affecting
such Parking Areas. Tenant's Exclusive Parking Spaces shall be located in the
area shown on EXHIBIT A-1 hereto. No easement for light or air is incorporated
in the Premises. For purposes of this Lease, the term "COMMON AREAS" shall mean
all areas and facilities outside the Premises and within the exterior boundary
line of the Project that are provided and designated by Landlord for the
non-exclusive use of Landlord, Tenant and other tenants of the Project and their
respective employees, guests and invitees.
1
<PAGE>
(b) The Premises demised by this Lease shall include the
Tenant Improvements (as that term is defined in the tenant improvement work
agreement attached hereto as EXHIBIT B) to be constructed by Landlord within the
interior of the Premises. Landlord shall construct the Tenant Improvements on
the terms and conditions set forth in EXHIBIT B. Landlord and Tenant agree to
and shall be bound by the terms and conditions of EXHIBIT B.
(c) Landlord has the right, in its sole discretion, from time
to time, to: (i) make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, ingress, egress, direction of
driveways, entrances, corridors and walkways; provided, however, that the number
of parking spaces allocated to Tenant hereunder shall be subject to reduction
only as provided in Paragraph 2(a) above; (ii) close temporarily any of the
Common Areas for maintenance purposes so long as reasonable access to the
Premises remains available; (iii) add additional buildings and improvements to
the Common Areas or remove existing buildings or improvements therefrom; (iv)
use the Common Areas while engaged in making additional improvements, repairs or
alterations to the Project or any portion thereof; and (v) do and perform any
other acts or make any other changes in, to or with respect to the Common Areas
and the Project as Landlord may, in its sole discretion, deem to be appropriate.
Landlord will use reasonable efforts to minimize interference with the conduct
of Tenant's business in the Premises in performing any of the foregoing actions.
3. TERM. The term of this Lease (the "TERM") shall be for the
period of months specified in the Basic Lease Information, commencing on the
earliest to occur of the following dates (the "COMMENCEMENT DATE"):
(a) The date the Tenant Improvements are approved by the
appropriate governmental agency as being in accordance with its building code
and the building permit issued for such improvements, as evidenced by the
issuance of a final building inspection approval; or
(b) The date Landlord's architect and general contractor have
both certified in writing to Tenant that the Tenant Improvements have been
substantially completed in accordance with the plans and specifications
therefor; or
(c) The date Tenant commences occupancy of the Premises;
provided, however, that Tenant shall not be deemed to have commenced occupancy
of the Premises for purposes of this Paragraph 3(c) if Tenant enters upon the
Premises prior to the Commencement Date solely for the purpose of installing
telephone cabling and furniture in accordance with Paragraph 8(b) below.
In the event the actual Commencement Date, as determined pursuant to
the foregoing, is a date other than the Estimated Commencement Date specified in
the Basic Lease Information, then Landlord and Tenant shall promptly execute a
Commencement and Expiration Date Memorandum in the form attached hereto as
EXHIBIT C, wherein the parties shall specify the Commencement Date, the date on
which the Term expires (the "EXPIRATION DATE") and the date on which Tenant is
to commence paying Rent.
2
<PAGE>
4. RENT.
(a) BASE RENT.
(1) Commencing on the Rent Commencement Date (as
hereinafter defined), Tenant shall pay to Landlord, in advance on the first
day of each month, without further notice or demand and without offset,
rebate, credit (except as specified in Paragraph 4(a)(2) below) or deduction
for any reason whatsoever, the monthly installments of rent specified in the
Basic Lease Information (the "BASE RENT"). As used herein, "RENT COMMENCEMENT
DATE" means the earlier of (i) the Commencement Date, or (ii) the date that
is ninety (90) days after the date of this Lease. Tenant acknowledges and
agrees that Rent shall be payable hereunder commencing on the Rent
Commencement Date, irrespective of whether or not the Tenant Improvements
have been completed and the Term has commenced by such date.
(2) Notwithstanding anything to the contrary
contained in this Lease, Tenant shall be entitled to a credit against the
monthly Base Rent payable pursuant to Paragraph 4(a)(1) above in the amounts
set forth below:
MONTHS BASE RENT CREDIT
1-12 $295.20
13-24 304.43
25-36 313.65
37-48 322.88
49-60 332.10
61-72 341.33
73-84 350.55
(3) Upon execution of this Lease, Tenant shall pay
to Landlord the Prepaid Rent and first monthly installment of estimated
Additional Rent (as hereinafter defined) specified in the Basic Lease
Information to be applied toward Base Rent and Additional Rent for the month
of the Term specified in the Basic Lease Information.
(b) ADDITIONAL RENT. This Lease is intended to be a
triple-net Lease with respect to Landlord; and subject to Paragraph 13(b)
below, the Base Rent owing hereunder is (1) to be paid by Tenant absolutely
net of all costs and expenses relating to Landlord's ownership and operation
of the Project and the Building, and (2) not to be reduced, offset or
diminished, directly or indirectly, by any cost, charge or expense payable
hereunder by Tenant or by others in connection with the Premises, the
Building and/or the Project or any part thereof. The provisions of this
Paragraph 4(b) for the payment of Tenant's Proportionate Share(s) of Expenses
(as hereinafter defined) are intended to pass on to Tenant its share of all
such costs and expenses. In addition to the Base Rent, commencing on the Rent
Commencement Date, Tenant shall pay to Landlord, in accordance with this
Paragraph 4, Tenant's Proportionate Share(s) of all costs and expenses paid
or incurred by Landlord in connection with the ownership, operation,
3
<PAGE>
maintenance, management and repair of the Premises, the Building and/or the
Project or any part thereof (collectively, the "EXPENSES"), including,
without limitation, all the following items (the "ADDITIONAL RENT"):
(1) TAXES AND ASSESSMENTS. All real estate taxes
and assessments, which shall include any form of tax, assessment, fee,
license fee, business license fee, levy, penalty (if a result of Tenant's
delinquency), or tax (other than net income, estate, succession, inheritance,
transfer or franchise taxes), imposed by any authority having the direct or
indirect power to tax, or by any city, county, state or federal government or
any improvement or other district or division thereof, whether such tax is
(i) determined by the area of the Premises, the Building and/or the Project
or any part thereof, or the Rent and other sums payable hereunder by Tenant
or by other tenants, including, but not limited to, any gross income or
excise tax levied by any of the foregoing authorities with respect to receipt
of Rent and/or other sums due under this Lease; (ii) upon any legal or
equitable interest of Landlord in the Premises, the Building and/or the
Project or any part thereof; (iii) upon this transaction or any document to
which Tenant is a party creating or transferring any interest in the
Premises, the Building and/or the Project; (iv) levied or assessed in lieu
of, in substitution for, or in addition to, existing or additional taxes
against the Premises, the Building and/or the Project, whether or not now
customary or within the contemplation of the parties; or (v) surcharged
against the parking area. Tenant and Landlord acknowledge that Proposition 13
was adopted by the voters of the State of California in the June, 1978
election and that assessments, taxes, fees, levies and charges may be imposed
by governmental agencies for such purposes as fire protection, street,
sidewalk, road, utility construction and maintenance, refuse removal and for
other governmental services which may formerly have been provided without
charge to property owners or occupants. It is the intention of the parties
that all new and increased assessments, taxes, fees, levies and charges due
to any cause whatsoever are to be included within the definition of real
property taxes for purposes of this Lease. "TAXES AND ASSESSMENTS" shall also
include legal and consultants' fees, costs and disbursements incurred in
connection with proceedings to contest, determine or reduce taxes, Landlord
specifically reserving the right, but not the obligation, to contest by
appropriate legal proceedings the amount or validity of any taxes.
(2) INSURANCE. All insurance premiums for the
Building and/or the Project or any part thereof, including premiums for "all
risk" fire and extended coverage insurance, commercial general liability
insurance, rent loss or abatement insurance, earthquake insurance, flood or
surface water coverage, and other insurance as Landlord deems necessary in
its sole discretion, and any deductibles paid under policies of any such
insurance (provided, however, that Tenant shall not be responsible for any
deductible under any policy of earthquake insurance in excess of five percent
(5%) of the then replacement cost of the Project, per occurrence).
(3) UTILITIES. The cost of all Utilities (as
hereinafter defined) serving the Premises, the Building and the Project that
are not separately metered to Tenant, any assessments or charges for
Utilities or similar purposes included within any tax bill for the Building
or the Project, including without limitation, entitlement fees, allocation
unit fees, and/or any similar fees or charges and any penalties (if a result
of Tenant's delinquency) related thereto, and any amounts, taxes, charges,
surcharges, assessments or impositions levied, assessed or imposed upon the
Premises, the Building or the Project or any part thereof, or upon Tenant's
use
4
<PAGE>
and occupancy thereof, as a result of any rationing of Utility services or
restriction on Utility use affecting the Premises, the Building and/or the
Project, as contemplated in Paragraph 5 below (collectively, "UTILITY
EXPENSES").
(4) COMMON AREA EXPENSES. All costs to operate,
maintain, repair, replace, supervise, insure and administer the Common Areas,
including supplies, materials, labor and equipment used in or related to the
operation and maintenance of the Common Areas, including parking areas
(including, without limitation, all costs of resurfacing and restriping
parking areas), signs and directories on the Building and/or the Project,
landscaping (including maintenance contracts and fees payable to landscaping
consultants), amenities, sprinkler systems, sidewalks, walkways, driveways,
curbs, lighting systems and security services, if any, provided by Landlord
for the Common Areas, and any charges, assessments, costs or fees levied by
any association or entity of which the Project or any part thereof is a
member or to which the Project or any part thereof is subject.
(5) PARKING CHARGES. Any parking charges or other
costs levied, assessed or imposed by, or at the direction of, or resulting
from statutes or regulations, or interpretations thereof, promulgated by any
governmental authority or insurer in connection with the use or occupancy of
the Building or the Project.
(6) MAINTENANCE AND REPAIR COSTS. Except for costs
which are the responsibility of Landlord pursuant to Paragraph 13(b) below,
all costs to maintain, repair, and replace the Premises, the Building and/or
the Project or any part thereof, including without limitation, (i) all costs
paid under maintenance, management and service agreements such as contracts
for janitorial, security and refuse removal, (ii) all costs to maintain,
repair and replace the roof coverings of the Building or the Project or any
part thereof, (iii) all costs to maintain, repair and replace the heating,
ventilating, air conditioning, plumbing, sewer, drainage, electrical, fire
protection, life safety and security systems and other mechanical and
electrical systems and equipment serving the Premises, the Building and/or
the Project or any part thereof (collectively, the "SYSTEMS").
(7) LIFE SAFETY COSTS. All costs to install,
maintain, repair and replace all life safety systems, including, without
limitation, all fire alarm systems, serving the Premises, the Building and/or
the Project or any part thereof (including all maintenance contracts and fees
payable to life safety consultants) whether such systems are or shall be
required by Landlord's insurance carriers, Laws (as hereinafter defined) or
otherwise.
(8) MANAGEMENT AND ADMINISTRATION. All costs for
management and administration of the Premises, the Building and/or the
Project or any part thereof, including, without limitation, a Property
Management Fee (as hereinafter defined), accounting, auditing, billing,
postage, Salaries and Benefits (as hereinafter defined), payroll taxes and
legal and accounting costs (specifically excluding, however, legal fees
incurred in connection with lease negotiations with tenants, disputes with
tenants, the sale or refinancing of the Building and the construction of
additional improvements on the Project) and fees for licenses and permits
related to the ownership and operation of the Project. For purposes of this
Paragraph 4(b)(8), the following terms shall have the following meanings:
5
<PAGE>
(A) "MANAGEMENT FEE" means the actual property
management fee paid by Landlord to the property manager of the Project;
provided, however, that if the property manager shall at any time hereafter
be an Affiliate (as hereinafter defined) of Landlord, then the Management Fee
shall not exceed the management fees customarily paid by institutional owners
and advisors (collectively, "INSTITUTIONAL OWNERS") to institutional property
managers for properties similar to and in the vicinity of the Project.
(B) "SALARIES AND BENEFITS" means the salaries
and benefits for clerical and supervisory employees involved in the
management of the Project, whether such employees are located on the Project
or off-site; provided, however, that if the property manager shall at any
time hereafter be an Affiliate of Landlord, then the Salaries and Benefits
shall not exceed the salaries and benefits customarily charged by
Institutional Owners to tenants under triple-net leases of buildings similar
to and in the vicinity of the Project; and, provided further, that so long as
Aetna Life Insurance Company is the Landlord hereunder, Tenant shall not be
responsible for the payment of any Salaries and Benefits.
(C) "AFFILIATE" means an entity that controls,
is controlled by or is under common control with, Landlord; and a party shall
be deemed to "control" another party for purposes of the aforesaid definition
only if the first party owns more than fifty percent (50%) of the stock or
other beneficial interests of the second party.
Notwithstanding anything in this Paragraph 4(b) to the contrary, with
respect to all sums payable by Tenant as Additional Rent under this Paragraph
4(b) for the replacement of any item or the construction of any new item in
connection with the physical operation of the Premises, the Building or the
Project (i.e., HVAC, roof membrane or coverings and parking area) which is a
capital item the replacement of which would be capitalized under Landlord's
commercial real estate accounting practices, Tenant shall be required to pay
only the pro rata share of the cost of the item falling due within the Term
(including any Renewal Term) based upon the amortization of the same over the
useful life of such item, as reasonably determined by Landlord.
(c) PAYMENT OF ADDITIONAL RENT.
(1) Upon commencement of this Lease, Landlord shall submit
to Tenant an estimate of monthly Additional Rent for the period between the
Commencement Date and the following December 31 and Tenant shall pay such
estimated Additional Rent on a monthly basis, in advance, on the first day of
each month. Tenant shall continue to make said monthly payments until
notified by Landlord of a change therein. If at any time or times Landlord
determines that the amounts payable under Paragraph 4(b) for the current year
will vary from Landlord's estimate given to Tenant, Landlord, by notice to
Tenant, may revise the estimate for such year, and subsequent payments by
Tenant for such year shall be based upon such revised estimate. By May 1 of
each calendar year, Landlord shall endeavor to provide to Tenant a statement
showing the actual Additional Rent due to Landlord for the prior calendar
year, to be prorated during the first year from the Commencement Date. If the
total of the monthly payments of Additional Rent that Tenant has made for the
prior calendar year is less than the actual Additional Rent chargeable to
Tenant for such prior calendar year, then Tenant shall pay the difference in
a lump sum within ten (10) days after receipt of such statement from
6
<PAGE>
Landlord. Any overpayment by Tenant of Additional Rent for the prior calendar
year shall be credited towards the Additional Rent next due.
(2) Landlord's then-current annual operating and capital
budgets for the Building and the Project or the pertinent part thereof shall
be used for purposes of calculating Tenant's monthly payment of estimated
Additional Rent for the current year, subject to adjustment as provided
above. Landlord shall make the final determination of Additional Rent for the
year in which this Lease terminates as soon as possible after termination of
such year. Even though the Term has expired and Tenant has vacated the
Premises, Tenant shall remain liable for payment of any amount due to
Landlord in excess of the estimated Additional Rent previously paid by
Tenant, and, conversely, Landlord shall promptly return to Tenant any
overpayment. Failure of Landlord to submit statements as called for herein
shall not be deemed a waiver of Tenant's obligation to pay Additional Rent as
herein provided.
(3) With respect to Expenses which Landlord allocates to the
Building, Tenant's "PROPORTIONATE SHARE" shall be the percentage set forth in
the Basic Lease Information as Tenant's Proportionate Share of the Building,
as adjusted by Landlord from time to time for a remeasurement of or changes
in the physical size of the Premises or the Building, whether such changes in
size are due to an addition to or a sale or conveyance of a portion of the
Building or otherwise. With respect to Expenses which Landlord allocates to
the Project as a whole or to only a portion of the Project, Tenant's
"PROPORTIONATE SHARE" shall be, with respect to Expenses which Landlord
allocates to the Project as a whole, the percentage set forth in the Basic
Lease Information as Tenant's Proportionate Share of the Project and, with
respect to Expenses which Landlord allocates to only a portion of the
Project, a percentage calculated by Landlord from time to time in its sole
discretion and furnished to Tenant in writing, in either case as adjusted by
Landlord from time to time for a remeasurement of or changes in the physical
size of the Premises or the Project, whether such changes in size are due to
an addition to or a sale or conveyance of a portion of the Project or
otherwise. Notwithstanding the foregoing, Landlord may equitably adjust
Tenant's Proportionate Share(s) for all or part of any item of expense or
cost reimbursable by Tenant that relates to a repair, replacement, or service
that benefits only the Premises or only a portion of the Building and/or the
Project or that varies with the occupancy of the Building and/or the Project.
Without limiting the generality of the foregoing, Tenant understands and
agrees that Landlord shall have the right to adjust Tenant's Proportionate
Share(s) of any Utility Expenses based upon Tenant's use of the Utilities or
similar services as reasonably estimated and determined by Landlord based
upon factors such as size of the Premises and intensity of use of such
Utilities by Tenant such that Tenant shall pay the portion of such charges
reasonably consistent with Tenant's use of such Utilities and similar
services. If Tenant disputes any such estimate or determination of Utility
Expenses, then Tenant shall either pay the estimated amount or cause the
Premises to be separately metered at Tenant's sole expense.
(d) GENERAL PAYMENT TERMS. The Base Rent, Additional Rent
and all other sums payable by Tenant to Landlord hereunder, including,
without limitation, payments of principal and interest on the Tenant
Improvements Loan (as defined in EXHIBIT B hereto), any late charges assessed
pursuant to Paragraph 6 below and any interest assessed pursuant to Paragraph
45 below, are referred to as the "RENT". All Rent shall be paid without
deduction, offset or abatement in lawful money of the United States of
America. Checks are to be made
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payable to Aetna Life Insurance Company and shall be mailed to: Moffett Park
Properties, Department #66268, El Monte, California 91735-6268 or to such
other person or place as Landlord may, from time to time, designate to Tenant
in writing. The Rent for any fractional part of a calendar month at the
commencement or termination of the Lease term shall be a prorated amount of
the Rent for a full calendar month based upon a thirty (30) day month.
5. UTILITY EXPENSES.
(a) Tenant shall pay the cost of all water, sewer use, sewer
discharge fees and permit costs and sewer connection fees, gas, heat,
electricity, refuse pick-up, janitorial service, telephone and all materials
and services or other utilities (collectively, "UTILITIES") billed or metered
separately to the Premises and/or Tenant, together with all taxes,
assessments, charges and penalties added to or included within such cost.
Tenant acknowledges that the Premises, the Building and/or the Project may
become subject to the rationing of Utility services or restrictions on
Utility use as required by a public utility company, governmental agency or
other similar entity having jurisdiction thereof. Tenant acknowledges and
agrees that its tenancy and occupancy hereunder shall be subject to such
rationing or restrictions as may be imposed upon Landlord, Tenant, the
Premises, the Building and/or the Project, and Tenant shall in no event be
excused or relieved from any covenant or obligation to be kept or performed
by Tenant by reason of any such rationing or restrictions. Tenant agrees to
comply with energy conservation programs implemented by Landlord by reason of
rationing, restrictions or Laws.
(b) Landlord shall not be liable for any loss, injury or
damage to property caused by or resulting from any variation, interruption,
or failure of Utilities due to any cause whatsoever, or from failure to make
any repairs or perform any maintenance. No temporary interruption or failure
of such services incident to the making of repairs, alterations,
improvements, or due to accident, strike, or conditions or other events shall
be deemed an eviction of Tenant or relieve Tenant from any of its obligations
hereunder. In no event shall Landlord be liable to Tenant for any damage to
the Premises or for any loss, damage or injury to any property therein or
thereon occasioned by bursting, rupture, leakage or overflow of any plumbing
or other pipes (including, without limitation, water, steam, and/or
refrigerant lines), sprinklers, tanks, drains, drinking fountains or
washstands, or other similar cause in, above, upon or about the Premises, the
Building, or the Project.
6. LATE CHARGE. Notwithstanding any other provision of this
Lease, Tenant hereby acknowledges that late payment to Landlord of Rent, or
other amounts due hereunder will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. If any Rent or other sums due from Tenant are not
received by Landlord or by Landlord's designated agent within five (5) days
after their due date, then Tenant shall pay to Landlord a late charge equal
to five percent (5%) of such overdue amount, plus any costs and attorneys'
fees incurred by Landlord by reason of Tenant's failure to pay Rent and/or
other charges when due hereunder. Landlord and Tenant hereby agree that such
late charges represent a fair and reasonable estimate of the cost that
Landlord will incur by reason of Tenant's late payment and shall not be
construed as a penalty. Landlord's acceptance of such late charges shall not
constitute a waiver of Tenant's default with respect to such overdue amount
or estop Landlord from exercising any of the other rights and remedies
granted under this Lease.
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INITIALS: LANDLORD _________ TENANT _______
7. SECURITY DEPOSIT. Concurrently with Tenant's execution of
the Lease, Tenant shall deposit with Landlord the Security Deposit specified
in the Basic Lease Information as security for the full and faithful
performance of each and every term, covenant and condition of this Lease.
Landlord may use, apply or retain the whole or any part of the Security
Deposit as may be reasonably necessary (a) to remedy Tenant's default in the
payment of any Rent, (b) to repair damage to the Premises caused by Tenant,
(c) to clean the Premises upon termination of this Lease, (d) to reimburse
Landlord for the payment of any amount which Landlord may reasonably spend or
be required to spend by reason of Tenant's default, or (e) to compensate
Landlord for any other loss or damage which Landlord may suffer by reason of
Tenant's default. Should Tenant faithfully and fully comply with all of the
terms, covenants and conditions of this Lease, within thirty (30) days
following the expiration of the Term, the Security Deposit or any balance
thereof shall be returned to Tenant or, at the option of Landlord, to the
last assignee of Tenant's interest in this Lease. Landlord shall not be
required to keep the Security Deposit separate from its general funds and
Tenant shall not be entitled to any interest on such deposit. If Landlord so
uses or applies all or any portion of said deposit, within five (5) days
after written demand therefor Tenant shall deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to the full extent of the
above amount, and Tenant's failure to do so shall be a default under this
Lease. In the event Landlord transfers its interest in this Lease, Landlord
shall transfer the then remaining amount of the Security Deposit to
Landlord's successor in interest, and thereafter Landlord shall have no
further liability to Tenant with respect to such Security Deposit.
8. POSSESSION.
(a) TENANT'S RIGHT OF POSSESSION. Subject to Paragraphs
8(b) and 8(c), Tenant shall be entitled to possession of the Premises upon
commencement of the Term.
(b) EARLY OCCUPANCY. Notwithstanding anything to the
contrary contained herein, Tenant shall have the right to enter upon the
Premises at times acceptable to Landlord during the fifteen (15) day period
prior to the Commencement Date for the sole purpose of installing Tenant's
telephone cabling and furniture, provided that Tenant shall not interfere
with the construction and installation of the Tenant Improvements nor conduct
its business in the Premises during such period, and provided further, that
such entry shall be subject to all of the terms and conditions of this Lease,
excluding only the obligation to pay Rent.
(c) DELAY IN DELIVERING POSSESSION. If for any reason
whatsoever, Landlord 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, or Landlord's agents, advisors, employees,
partners, shareholders, directors, invitees or independent contractors
(collectively, "LANDLORD'S AGENTS"), be liable to Tenant for any loss or damage
resulting therefrom. Tenant shall not be liable for Rent until Landlord delivers
possession of the Premises to Tenant. The Expiration Date shall be extended by
the same number of days that Tenant's possession of the Premises was delayed
beyond the Estimated Commencement Date.
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9. USE OF PREMISES.
(a) PERMITTED USE. The use of the Premises by Tenant and
Tenant's agents, advisors, employees, partners, shareholders, directors,
invitees and independent contractors (collectively, "TENANT'S AGENTS") shall
be solely for the Permitted Use specified in the Basic Lease Information and
for no other use. Tenant shall not permit any objectionable or unpleasant
odor, smoke, dust, gas, noise or vibration to emanate from or near the
Premises. The Premises shall not be used to create any nuisance or trespass,
for any illegal purpose, for any purpose not permitted by Laws, for any
purpose that would invalidate the insurance or increase the premiums for
insurance on the Premises, the Building or the Project or for any purpose or
in any manner that would interfere with other tenants' use or occupancy of
the Project. If any of Tenant's office machines or equipment disturb any
other tenant in the Building, then Tenant shall provide adequate insulation
or take such other action as may be necessary to eliminate the noise or
disturbance. Tenant agrees to pay to Landlord, as Additional Rent, any
increases in premiums on policies resulting from Tenant's Permitted Use or
any other use or action by Tenant or Tenant's Agents which increases
Landlord's premiums or requires additional coverage by Landlord to insure the
Premises. Tenant agrees not to overload the floor(s) of the Building.
(b) COMPLIANCE WITH GOVERNMENTAL REGULATIONS AND PRIVATE
RESTRICTIONS. Tenant and Tenant's Agents shall, at Tenant's expense, faithfully
observe and comply with (1) all municipal, state and federal laws, statutes,
codes, rules, regulations, ordinances, requirements, and orders (collectively,
"LAWS"), now in force or which may hereafter be in force pertaining to the
Premises or Tenant's use of the Premises, the Building or the Project, including
without limitation, any Laws requiring installation of fire sprinkler systems,
seismic reinforcement and related alterations, and removal of asbestos, whether
substantial in cost or otherwise, provided, however, that except as provided in
Paragraph 9(c) below, Tenant shall not be required to make or, except as
provided in Paragraph 4 above, pay for, structural changes to the Premises or
the Building not related to Tenant's specific use of the Premises unless the
requirement for such changes is imposed as a result of any improvements or
additions made or proposed to be made at Tenant's request; (2) all recorded
covenants, conditions and restrictions affecting the Project ("PRIVATE
RESTRICTIONS") now in force or which may hereafter be in force; and (3) any and
all rules and regulations set forth in EXHIBIT D and any other rules and
regulations now or hereafter promulgated by Landlord related to parking or the
operation of the Premises, the Building and/or the Project (collectively, the
"RULES AND REGULATIONS"). The judgment of any court of competent jurisdiction,
or the admission of Tenant in any action or proceeding against Tenant, whether
Landlord be a party thereto or not, that Tenant has violated any such Laws or
Private Restrictions, shall be conclusive of that fact as between Landlord and
Tenant.
(c) COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Landlord
and Tenant hereby agree and acknowledge that the Premises, the Building and/or
the Project may be subject to, among other Laws, the requirements of the
Americans with Disabilities Act, a federal law codified at 42 U.S.C. 12101 ET
SEQ., including, but not limited to Title III thereof, and all regulations and
guidelines related thereto, together with any and all laws, rules, regulations,
ordinances, codes and statutes now or hereafter enacted by local or state
agencies having jurisdiction thereof, including all requirements of Title 24 of
the State of California, as the same may be in effect on the date of this Lease
and may be hereafter modified, amended or
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supplemented (collectively, the "ADA"). Any Tenant Improvements to be
constructed hereunder shall be in compliance with the requirements of the
ADA, and all costs incurred for purposes of compliance therewith shall be a
part of and included in the costs of the Tenant Improvements. Tenant shall be
solely responsible for conducting its own independent investigation of this
matter and for ensuring that the design of all Tenant Improvements strictly
complies with all requirements of the ADA. Subject to reimbursement pursuant
to Paragraph 4 above, if any barrier removal work or other work is required
to the Building, the Common Areas or the Project under the ADA, then such
work shall be the responsibility of Landlord; provided, if such work is
required under the ADA as a result of Tenant's use of the Premises or any
work or Alteration (as hereinafter defined) made to the Premises by or on
behalf of Tenant, then such work shall be performed by Landlord at the sole
cost and expense of Tenant. Except as otherwise expressly provided in this
provision, Tenant shall be responsible at its sole cost and expense for fully
and faithfully complying with all applicable requirements of the ADA,
including without limitation, not discriminating against any disabled persons
in the operation of Tenant's business in or about the Premises, and offering
or otherwise providing auxiliary aids and services as, and when, required by
the ADA. Within ten (10) days after receipt, Tenant shall advise Landlord in
writing, and provide Landlord with copies of (as applicable), any notices
alleging violation of the ADA relating to any portion of the Premises, the
Building or the Project; any claims made or threatened orally or in writing
regarding noncompliance with the ADA and relating to any portion of the
Premises, the Building, or the Project; or any governmental or regulatory
actions or investigations instituted or threatened regarding noncompliance
with the ADA and relating to any portion of the Premises, the Building or the
Project. Tenant shall and hereby agrees to protect, defend (with counsel
acceptable to Landlord) and hold Landlord and Landlord's Agents harmless and
indemnify Landlord and Landlord's Agents from and against all liabilities,
damages, claims, losses, penalties, judgments, charges and expenses
(including attorneys' fees, costs of court and expenses necessary in the
prosecution or defense of any litigation including the enforcement of this
provision) arising from or in any way related to, directly or indirectly,
Tenant's or Tenant's Agents' violation or alleged violation of the ADA.
Tenant agrees that the obligations of Tenant herein shall survive the
expiration or earlier termination of this Lease.
10. ACCEPTANCE OF PREMISES.
(a) By entry hereunder, Tenant accepts the Premises as suitable for
Tenant's intended use and as being in good and sanitary operating order,
condition and repair, AS IS, and without representation or warranty by
Landlord as to the condition, use or occupancy which may be made thereof. Any
exceptions to the foregoing must be by written agreement executed by Landlord
and Tenant.
(b) Notwithstanding the terms of Paragraph 10(a) above, Landlord
shall cause the mechanical, electrical and plumbing systems serving the
Premises to be in good working order and the roof on the Building to be in
good condition on the Commencement Date. Any claims by Tenant under the
preceding sentence shall be made in writing not later than the thirtieth
(30th) day after the Commencement Date. In the event Tenant fails to deliver
a written claim to Landlord on or before such thirtieth (30th) day, then
Landlord shall be conclusively deemed to have satisfied its obligations under
this Paragraph 10(b).
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11. SURRENDER. Tenant agrees that on the last day of the Term, or on the
sooner termination of this Lease, Tenant shall surrender the Premises to
Landlord (a) in good condition and repair (damage by acts of God, fire, and
normal wear and tear excepted), but with all interior walls painted or
cleaned so they appear painted, any carpets cleaned, all floors cleaned and
waxed, all non-working light bulbs and ballasts replaced and all roll-up
doors and plumbing fixtures in good condition and working order, and (b)
otherwise in accordance with Paragraph 32(h). Normal wear and tear shall not
include any damage or deterioration to the floors of the Premises arising
from the use of forklifts in, on or about the Premises (including, without
limitation, any marks or stains on any portion of the floors), and any damage
or deterioration that would have been prevented by proper maintenance by
Tenant, or Tenant otherwise performing all of its obligations under this
Lease. On or before the expiration or sooner termination of this Lease, (i)
Tenant shall remove all of Tenant's Property (as hereinafter defined) and
Tenant's signage from the Premises, the Building and the Project and repair
any damage caused by such removal, and (ii) Landlord may, by notice to Tenant
given not later than ninety (90) days prior to the Expiration Date (except in
the event of a termination of this Lease prior to the scheduled Expiration
Date, in which event no advance notice shall be required), require Tenant at
Tenant's expense to remove any or all Alterations and to repair any damage
caused by such removal. Any of Tenant's Property not so removed by Tenant as
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; provided, however, that Tenant shall remain
liable to Landlord for all costs incurred in storing and disposing of such
abandoned property of Tenant. All Tenant Improvements and Alterations except
those which Landlord requires Tenant to remove shall remain in the Premises
as the property of Landlord. If the Premises are not surrendered at the end
of the Term or sooner termination of this Lease, and in accordance with the
provisions of this Paragraph 11 and Paragraph 32(h) below, Tenant shall
continue to be responsible for the payment of Rent (as the same may be
increased pursuant to Paragraph 35 below) until the Premises are so
surrendered in accordance with said Paragraphs, and Tenant shall indemnify,
defend and hold Landlord harmless from and against any and all loss or
liability resulting from delay by Tenant in so surrendering the Premises
including, without limitation, any loss or liability resulting from any claim
against Landlord made by any succeeding tenant or prospective tenant founded
on or resulting from such delay and losses to Landlord due to lost
opportunities to lease any portion of the Premises to any such succeeding
tenant or prospective tenant, together with, in each case, actual attorneys'
fees and costs.
12. ALTERATIONS AND ADDITIONS.
(a) Tenant shall not make, or permit to be made, any alteration,
addition or improvement (hereinafter referred to individually as an
"ALTERATION" and collectively as the "ALTERATIONS") to the Premises or any
part thereof without the prior written consent of Landlord, which consent
shall not be unreasonably withheld; provided, however, that Landlord shall
have the right in its sole and absolute discretion to consent or to withhold
its consent to any Alteration which affects the structural portions of the
Premises, the Building or the Project or the Systems serving the Premises,
the Building and/or the Project or any portion thereof (collectively,
"STRUCTURAL ALTERATIONS"). Notwithstanding the foregoing, Tenant shall have
the right to make Alterations (specifically excluding, however, Structural
Alterations) to the Premises with prior notice to but without the consent of
Landlord, provided that such Alterations are constructed and
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performed in full compliance with the terms of Paragraphs 12(b) through (f)
below and do not exceed Ten Thousand Dollars ($10,000) in cost on an
individual basis or Twenty Thousand Dollars ($20,000) in the aggregate over
the Term of this Lease (collectively, "PERMITTED ALTERATIONS").
(b) Any Alteration to the Premises shall be at Tenant's sole cost
and expense, in compliance with all applicable Laws and all requirements
requested by Landlord, including, without limitation, the requirements of any
insurer providing coverage for the Premises or the Project or any part
thereof, and in accordance with plans and specifications approved in writing
by Landlord, and shall be constructed and installed by a contractor approved
in writing by Landlord. As a further condition to giving consent, Landlord
may require Tenant to provide Landlord, at Tenant's sole cost and expense, a
payment and performance bond in form acceptable to Landlord, in a principal
amount not less than one and one-half times the estimated costs of such
Alterations, to ensure Landlord against any liability for mechanic's and
materialmen's liens and to ensure completion of work. Before Alterations may
begin, valid building permits or other permits or licenses required must be
furnished to Landlord, and, once the Alterations begin, Tenant will
diligently and continuously pursue their completion. Landlord may monitor
construction of the Alterations and Tenant shall reimburse Landlord for its
costs (including, without limitation, the costs of any construction manager
retained by Landlord) in reviewing plans and documents and in monitoring
construction. Tenant shall maintain during the course of construction, at its
sole cost and expense, builders' risk insurance for the amount of the
completed value of the Alterations on an all-risk non-reporting form covering
all improvements under construction, including building materials, and other
insurance in amounts and against such risks as Landlord shall reasonably
require in connection with the Alterations. In addition to and without
limitation on the generality of the foregoing, Tenant shall ensure that its
contractor(s) procure and maintain in full force and effect during the course
of construction a "broad form" commercial general liability and property
damage policy of insurance naming Landlord, Landlord's investment advisor and
agent, Allegis Realty Investors LLC, Tenant and Landlord's lenders as
additional insureds. The minimum limit of coverage of the aforesaid policy
shall be in the amount of not less than Three Million Dollars ($3,000,000.00)
for injury or death of one person in any one accident or occurrence and in
the amount of not less than Three Million Dollars ($3,000,000.00) for injury
or death of more than one person in any one accident or occurrence, and shall
contain a Severability of interest clause or a cross liability endorsement.
Such insurance shall further insure Landlord and Tenant against liability for
property damage of at least One Million Dollars ($1,000,000.00).
(c) All Alterations, including, but not limited to, heating,
lighting, electrical, air conditioning, fixed partitioning, drapery, wall
covering and paneling, built-in cabinet work and carpeting installations made
by Tenant, together with all property that has become an integral part of the
Premises or the Building, shall at once be and become the property of
Landlord, and shall not be deemed trade fixtures or Tenant's Property. If
requested by Landlord, Tenant will pay, prior to the commencement of
construction, an amount determined by Landlord necessary to cover the costs
of demolishing such Alterations and/or the cost of returning the Premises and
the Building to its condition prior to such Alterations.
(d) No private telephone systems and/or other related computer or
telecommunications equipment or lines may be installed without Landlord's
prior written
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consent. If Landlord gives such consent, all equipment must be installed
within the Premises and, at the request of Landlord made at any time prior to
the expiration of the Term, removed upon the expiration or sooner termination
of this Lease and the Premises restored to the same condition as before such
installation.
(e) Notwithstanding anything herein to the contrary, before
installing any equipment or lights which generate an undue amount of heat in
the Premises, or if Tenant plans to use any high-power usage equipment in the
Premises, Tenant shall obtain the written permission of Landlord. Landlord
may refuse to grant such permission unless Tenant agrees to pay the costs to
Landlord for installation of supplementary air conditioning capacity or
electrical systems necessitated by such equipment.
(f) Tenant agrees not to proceed to make any Alterations,
notwithstanding consent from Landlord to do so, until Tenant notifies
Landlord in writing of the date Tenant desires to commence construction or
installation of such Alterations and Landlord has approved such date in
writing, in order that Landlord may post appropriate notices to avoid any
liability to contractors or material suppliers for payment for Tenant's
improvements. Tenant will at all times permit such notices to be posted and
to remain posted until the completion of work.
13. MAINTENANCE AND REPAIRS OF PREMISES.
(a) MAINTENANCE BY TENANT. Throughout the Term, Tenant shall, at its
sole expense, (1) keep and maintain in good order and condition the Premises,
and repair and replace every part thereof, including glass, windows, window
frames, window casements, skylights, interior and exterior doors, door frames
and door closers; interior lighting (including, without limitation, light
bulbs and ballasts), the plumbing and electrical systems exclusively serving
the Premises, all communications systems serving the Premises, Tenant's
signage, interior demising walls and partitions, equipment, interior painting
and interior walls and floors, and the roll-up doors, ramps and dock
equipment, including, without limitation, dock bumpers, dock plates, dock
seals, dock levelers and dock lights located in or on the Premises (excepting
only those portions of the Building or the Project to be maintained by
Landlord, as provided in Paragraph 13(b) below), (2) furnish all expendables,
including light bulbs, paper goods and soaps, used in the Premises, and (3)
keep and maintain in good order and condition, repair and replace all of
Tenant's security systems in or about or serving the Premises and, except to
the extent that Landlord notifies Tenant in writing of its intention to
arrange for such monitoring, cause the fire alarm systems serving the
Premises to be monitored by a monitoring or protective services firm approved
by Landlord in writing. Tenant shall not do nor shall Tenant allow Tenant's
Agents to do anything to cause any damage, deterioration or unsightliness to
the Premises, the Building or the Project.
(b) MAINTENANCE BY LANDLORD. Subject to the provisions of Paragraphs
13(a), 21 and 22, and further subject to Tenant's obligation under Paragraph
4 to reimburse Landlord, in the form of Additional Rent, for Tenant's
Proportionate Share(s) of the cost and expense of the following items,
Landlord agrees to repair and maintain the following items: the roof
coverings (provided that Tenant installs no additional air conditioning or
other equipment on the roof that damages the roof coverings, in which event
Tenant shall pay all costs resulting from the presence of such additional
equipment); the Systems serving the Premises and the Building,
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excluding the plumbing and electrical systems exclusively serving the
Premises; and the Parking Areas, pavement, landscaping, sprinkler systems,
sidewalks, driveways, curbs, and lighting systems in the Common Areas.
Subject to the provisions of Paragraphs 13(a), 21 and 22, Landlord, at its
own cost and expense, agrees to repair and maintain the following items: the
structural portions of the roof (specifically excluding the roof coverings),
the foundation, the footings, the floor slab, and the load bearing walls and
exterior walls of the Building (excluding any glass and any routine
maintenance, including, without limitation, any painting, sealing, patching
and waterproofing of such walls). Notwithstanding anything in this Paragraph
13 to the contrary, Landlord shall have the right to either repair or to
require Tenant to repair any damage to any portion of the Premises, the
Building and/or the Project caused by or created due to any act, omission,
negligence or willful misconduct of Tenant or Tenant's Agents and to restore
the Premises, the Building and/or the Project, as applicable, to the
condition existing prior to the occurrence of such damage; provided, however,
that in the event Landlord elects to perform such repair and restoration
work, Tenant shall reimburse Landlord upon demand for all costs and expenses
incurred by Landlord in connection therewith. Landlord's obligation hereunder
to repair and maintain is subject to the condition precedent that Landlord
shall have received written notice of the need for such repairs and
maintenance and a reasonable time to perform such repair and maintenance.
Tenant shall promptly report in writing to Landlord any defective condition
known to it which Landlord is required to repair, and failure to so report
such defects shall make Tenant responsible to Landlord for any liability
incurred by Landlord by reason of such condition.
(c) TENANT'S WAIVER OF RIGHTS. Tenant hereby expressly waives all
rights to make repairs at the expense of Landlord or to terminate this Lease,
as provided for in California Civil Code Sections 1941 and 1942, and 1932(l),
respectively, and any similar or successor statute or law in effect or any
amendment thereof during the Term.
14. LANDLORD'S INSURANCE. Landlord shall purchase and keep in force fire,
extended coverage and "all risk" insurance covering the Building and the
Project. Tenant shall, at its sole cost and expense, comply with any and all
reasonable requirements pertaining to the Premises, the Building and the
Project of any insurer necessary for the maintenance of reasonable fire and
commercial general liability insurance, covering the Building and the
Project. Landlord, at Tenant's cost, may maintain "Loss of Rents" insurance,
insuring that the Rent will be paid in a timely manner to Landlord for a
period of at least twelve (12) months if the Premises, the Building or the
Project or any portion thereof are destroyed or rendered unusable or
inaccessible by any cause insured against under this Lease.
15. TENANT'S INSURANCE.
(a) COMMERCIAL GENERAL LIABILITY INSURANCE. Tenant shall, at
Tenant's expense, secure and keep in force a "broad form" commercial general
liability insurance and property damage policy covering the Premises,
insuring Tenant, and naming Landlord, Landlord's investment advisors and
agents from time to time, including, without limitation, Allegis Realty
Investors LLC, and Landlord's lenders as additional insureds, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises. The minimum limit of coverage of such policy shall be in the amount
of not less than Three Million Dollars ($3,000,000.00) for injury or death of
one person in any one accident or occurrence and in the
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amount of not less than Three Million Dollars ($3,000,000.00) for injury or
death of more than one person in any one accident or occurrence, shall
include an extended liability endorsement providing contractual liability
coverage (which shall include coverage for Tenant's indemnification
obligations in this Lease), and shall contain a severability of interest
clause or a cross liability endorsement. Such insurance shall further insure
Landlord and Tenant against liability for property damage of at least Three
Million Dollars ($3,000,000.00). Landlord may from time to time require
reasonable increases in any such limits if Landlord believes that additional
coverage is necessary or desirable. The limit of any insurance shall not
limit the liability of Tenant hereunder. No policy maintained by Tenant under
this Paragraph 15(a) shall contain a deductible greater than Two Thousand
Five Hundred Dollars ($2,500.00). No policy shall be cancelable or subject to
reduction of coverage without thirty (30) days prior written notice to
Landlord, and loss payable clauses shall be subject to Landlord's approval.
Such policies of insurance shall be issued as primary policies and not
contributing with or in excess of coverage that Landlord may carry, by an
insurance company authorized to do business in the State of California for
the issuance of such type of insurance coverage and rated A:XIII or better in
Best's Key Rating Guide.
(b) PERSONAL PROPERTY INSURANCE. Tenant shall maintain in full force
and effect on all of its personal property, furniture, furnishings, trade or
business fixtures and equipment (collectively, "TENANT'S PROPERTY") on the
Premises, a policy or policies of fire and extended coverage insurance with
standard coverage endorsement to the extent of the full replacement cost
thereof. No such policy shall contain a deductible greater than Two Thousand
Five Hundred Dollars ($2,500.00). During the term of this Lease the proceeds
from any such policy or policies of insurance shall be used for the repair or
replacement of the fixtures and equipment so insured. Landlord shall have no
interest in the insurance upon Tenant's equipment and fixtures and will sign
all documents reasonably necessary in connection with the settlement of any
claim or loss by Tenant. Landlord will not carry insurance on Tenant's
possessions.
(c) WORKER'S COMPENSATION INSURANCE; EMPLOYER'S LIABILITY INSURANCE.
Tenant shall, at Tenant's expense, maintain in full force and effect worker's
compensation insurance with not less than the minimum limits required by law,
and employer's liability insurance with a minimum limit of coverage of One
Million Dollars ($1,000,000).
(d) EVIDENCE OF COVERAGE. Tenant shall deliver to Landlord
certificates of insurance and true and complete copies of any and all
endorsements required herein for all insurance required to be maintained by
Tenant hereunder at the time of execution of this Lease by Tenant. Tenant
shall, at least thirty (30) days prior to expiration of each policy, furnish
Landlord with certificates of renewal or "binders" thereof. Each certificate
shall expressly provide that such policies shall not be cancelable or
otherwise subject to modification except after thirty (30) days prior written
notice to Landlord and the other parties named as additional insureds as
required in this Lease (except for cancellation for nonpayment of premium, in
which event cancellation shall not take effect until at least ten (10) days
notice has been given to Landlord).
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16. INDEMNIFICATION.
(a) OF LANDLORD. Tenant shall indemnify and hold harmless Landlord
and Landlord's Agents against and from any and all claims, liabilities,
judgments, costs, demands, causes of action and expenses (including, without
limitation, reasonable attorneys' fees) arising from (1) the use of the
Premises, the Building or the Project by Tenant or Tenant's Agents, or from
any activity done, permitted or suffered by Tenant or Tenant's Agents in or
about the Premises, the Building or the Project, and (2) any act, neglect,
fault, willful misconduct or omission of Tenant or Tenant's Agents, or from
any breach or default in the terms of this Lease by Tenant or Tenant's
Agents, and (3) any action or proceeding brought on account of any matter in
items (1) or (2). If any action or proceeding is brought against Landlord by
reason of any such claim, upon notice from Landlord, Tenant shall defend the
same at Tenant's expense by counsel reasonably satisfactory to Landlord. As a
material part of the consideration to Landlord, Tenant hereby releases
Landlord and Landlord's Agents from responsibility for, waives its entire
claim of recovery for and assumes all risk of (i) damage to property or
injury to persons in or about the Premises, the Building or the Project from
any cause whatsoever (except that which is caused by the gross negligence or
willful misconduct of Landlord or Landlord's Agents or by the failure of
Landlord to observe any of the terms and conditions of this Lease, if such
failure has persisted for an unreasonable period of time after written notice
of such failure), or (ii) loss resulting from business interruption or loss
of income at the Premises. The obligations of Tenant under this Paragraph 16
shall survive any termination of this Lease.
(b) NO IMPAIRMENT OF INSURANCE. The foregoing indemnity shall not
relieve any insurance carrier of its obligations under any policies required
to be carried by either party pursuant to this Lease, to the extent that such
policies cover the peril or occurrence that results in the claim that is
subject to the foregoing indemnity.
17. SUBROGATION. Landlord and Tenant hereby mutually waive any claim
against the other and its Agents for any loss or damage to any of their
property located on or about the Premises, the Building or the Project that
is caused by or results from perils covered by property insurance carried by
the respective parties, to the extent of the proceeds of such insurance
actually received with respect to such loss or damage, whether or not due to
the negligence of the other party or its Agents. Because the foregoing
waivers will preclude the assignment of any claim by way of subrogation to an
insurance company or any other person, each party now agrees to immediately
give to its insurer written notice of the terms of these mutual waivers and
shall have their insurance policies endorsed to prevent the invalidation of
the insurance coverage because of these waivers. Nothing in this Paragraph 17
shall relieve a party of liability to the other for failure to carry
insurance required by this Lease.
18. SIGNS. Tenant shall not place or permit to be placed in, upon, or
about the Premises, the Building or the Project any exterior lights,
decorations, balloons, flags, pennants, banners, advertisements or notices,
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 the Premises without obtaining Landlord's prior written consent or
without complying with Landlord's signage criteria specified on EXHIBIT E
hereto, as the same may be modified by Landlord from time to time, and with
all applicable Laws, and will not conduct, or permit to be conducted, any
sale by auction on the Premises or otherwise on the Project. Subject to
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complying with the terms of this Paragraph 18, Tenant shall have the right to
place identification signage on the two (2) monument signs existing on the
Project on the date of this Lease. Tenant shall remove any sign,
advertisement or notice placed on the Premises, the Building or the Project
by Tenant upon the expiration of the Term or sooner termination of this
Lease, and Tenant shall repair any damage or injury to the Premises, the
Building or the Project caused thereby, all at Tenant's expense. If any signs
are not removed, or necessary repairs not made, Landlord shall have the right
to remove the signs and repair any damage or injury to the Premises, the
Building or the Project at Tenant's sole cost and expense.
19. FREE FROM LIENS. Tenant shall keep the Premises, the Building and the
Project free from any liens arising out of any work performed, material
furnished or obligations incurred by or for Tenant. In the event that Tenant
shall not, within ten (10) days following the imposition of any such 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 remedies provided herein
and by law the right but not the obligation to cause same to be released by
such means as it shall deem proper, including payment of the claim giving
rise to such lien. All such sums paid by Landlord and all expenses incurred
by it in connection therewith (including, without limitation, attorneys'
fees) shall be payable to Landlord by Tenant upon demand. Landlord shall have
the right at all times to post and keep posted on the Premises any notices
permitted or required by law or that Landlord shall deem proper for the
protection of Landlord, the Premises, the Building and the Project, from
mechanics' and materialmen's liens. Tenant shall give to Landlord at least
five (5) business days' prior written notice of commencement of any repair or
construction on the Premises.
20. ENTRY BY LANDLORD. Tenant shall permit Landlord and Landlord's Agents
to enter into and upon the Premises at all reasonable times, upon reasonable
notice (except in the case of an emergency, for which no notice shall be
required), and subject to Tenant's reasonable security arrangements, for the
purpose of inspecting the same or showing the Premises to prospective
purchasers, lenders or tenants or to alter, improve, maintain and repair the
Premises or the Building as required or permitted of Landlord under the terms
hereof, or for any other business purpose, without any rebate of Rent and
without any liability to Tenant for any loss of occupation or quiet enjoyment
of the Premises thereby occasioned (except for actual damages resulting from
the sole active gross negligence or willful misconduct of Landlord); and
Tenant shall permit Landlord to post notices of non-responsibility and
ordinary "for sale" or "for lease" signs. No such entry shall be construed to
be a forcible or unlawful entry into, or a detainer of, the Premises, or an
eviction of Tenant from the Premises. Landlord may temporarily close
entrances, doors, corridors, elevators or other facilities without liability
to Tenant by reason of such closure in the case of an emergency and when
Landlord otherwise deems such closure necessary.
21. DESTRUCTION AND DAMAGE.
(a) If the Premises are damaged by fire or other perils covered by
extended coverage insurance, Landlord shall, at Landlord's option:
(1) In the event of total destruction (which shall mean
destruction or damage in excess of thirty-three percent (33%) of the full
insurable value thereof) of the
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Premises, elect either to commence promptly to repair and restore the
Premises and prosecute the same diligently to completion, in which event this
Lease shall remain in full force and effect; or not to repair or restore the
Premises, in which event this Lease shall terminate. Landlord shall give
Tenant written notice of its intention within sixty (60) days after the date
(the "CASUALTY DISCOVERY DATE") Landlord obtains actual knowledge of such
destruction. If Landlord elects not to restore the Premises, this Lease shall
be deemed to have terminated as of the date of such total destruction.
(2) In the event of a partial destruction (which shall mean
destruction or damage to an extent not exceeding thirty-three percent (33%)
of the full insurable value thereof) of the Premises for which Landlord will
receive insurance proceeds sufficient to cover the cost to repair and restore
such partial destruction and, if the damage thereto is such that the Premises
may be substantially repaired or restored to its condition existing
immediately prior to such damage or destruction within one hundred eighty
(180) days from the Casualty Discovery Date, Landlord shall commence and
proceed diligently with the work of repair and restoration, in which event
the Lease shall continue in full force and effect. If such repair and
restoration requires longer than one hundred eighty (180) days or if the
insurance proceeds therefor (plus any amounts Tenant may elect or is
obligated to contribute) are not sufficient to cover the cost of such repair
and restoration, Landlord may elect either to so repair and restore, in which
event the Lease shall continue in full force and effect, or not to repair or
restore, in which event the Lease shall terminate. In either case, Landlord
shall give written notice to Tenant of its intention within sixty (60) days
after the Casualty Discovery Date. If Landlord elects not to restore the
Premises, this Lease shall be deemed to have terminated as of the date of
such partial destruction.
(3) Notwithstanding anything to the contrary contained in this
Paragraph, in the event of damage to the Premises occurring during the last
twelve (12) months of the Term, Landlord and Tenant shall each have the right
to terminate this Lease by written notice of such election given to the other
party within thirty (30) days after the Casualty Discovery Date; provided,
however, that Tenant shall have the right to terminate this Lease pursuant to
this Paragraph 21(a)(3) only if Tenant's use and occupancy of the Premises
are materially interfered with as a result of such damage.
(b) If the Premises are damaged by any peril not covered by extended
coverage insurance, and the cost to repair such damage exceeds any amount
Tenant may agree to contribute, Landlord may elect either to commence
promptly to repair and restore the Premises and prosecute the same diligently
to completion, in which event this Lease shall remain in full force and
effect; or not to repair or restore the Premises, in which event this Lease
shall terminate. Landlord shall give Tenant written notice of its intention
within sixty (60) days after the Casualty Discovery Date. If Landlord elects
not to restore the Premises, this Lease shall be deemed to have terminated as
of the date on which Tenant surrenders possession of the Premises to
Landlord, except that if the damage to the Premises materially impairs
Tenant's ability to continue its business operations in the Premises, then
this Lease shall be deemed to have terminated as of the date such damage
occurred.
(c) Notwithstanding anything to the contrary in this Paragraph 22,
Landlord shall have the option to terminate this Lease, exercisable by notice
to Tenant within sixty (60) days after the Casualty Discovery Date, in each
of the following instances:
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(1) If more than thirty-three percent (33%) of the full
insurable value of the Building or the Project is damaged or destroyed,
regardless of whether or not the Premises are destroyed.
(2) If the Building or the Project or any portion thereof is
damaged or destroyed and the repair and restoration of such damage requires
longer than one hundred eighty (180) days from the Casualty Discovery Date.
(3) If the Building or the Project or any portion thereof is
damaged or destroyed and the insurance proceeds therefor are not sufficient
to cover the costs of repair and restoration.
(4) If the Building or the Project or any portion thereof is
damaged or destroyed during the last twelve (12) months of the Term.
(d) If the Premises is damaged or destroyed to the extent that the
Premises cannot be substantially repaired or restored by Landlord within one
hundred eighty (180) days after the Casualty Discovery Date, Tenant may
terminate this Lease immediately upon notice thereof to Landlord, which
notice shall be given, if at all, not later than fifteen (15) days after
Landlord notifies Tenant of Landlord's estimate of the period of time
required to repair such damage or destruction.
(e) In the event of repair and restoration as herein provided, the
monthly installments of Base Rent shall be abated proportionately in the
ratio which Tenant's use of the Premises is impaired during the period of
such repair or restoration, but only to the extent of rental abatement
insurance proceeds received by Landlord; provided, however, that Tenant shall
not be entitled to such abatement to the extent that such damage or
destruction resulted from the acts or inaction of Tenant or Tenant's Agents.
Except as expressly provided in the immediately preceding sentence with
respect to abatement of Base Rent, Tenant shall have no claim against
Landlord for, and hereby releases Landlord and Landlord's Agents from
responsibility for and waives its entire claim of recovery for any cost, loss
or expense suffered or incurred by Tenant as a result of any damage to or
destruction of the Premises, the Building or the Project or the repair or
restoration thereof, including, without limitation, any cost, loss or expense
resulting from any loss of use of the whole or any part of the Premises, the
Building or the Project and/or any inconvenience or annoyance occasioned by
such damage, repair or restoration.
(f) If Landlord is obligated to or elects to repair or restore as
herein provided, Landlord shall repair or restore only the initial tenant
improvements, if any, constructed by Landlord in the Premises pursuant to the
terms of this Lease, substantially to their condition existing immediately
prior to the occurrence of the damage or destruction; and Tenant shall
promptly repair and restore, at Tenant's expense, Tenant's Alterations which
were not constructed by Landlord.
(g) Tenant hereby waives the provisions of California Civil Code
Section 1932(2) and Section 1933(4) which permit termination of a lease upon
destruction of the leased premises, and the provisions of any similar law now
or hereinafter in effect, and the provisions of this Paragraph 22 shall
govern exclusively in case of such destruction.
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22. CONDEMNATION.
(a) If twenty-five percent (25%) or more of either the Premises, the
Building or the Project or the parking areas for the Building or the Project
is taken for any public or quasi-public purpose by any lawful governmental
power or authority, by exercise of the right of appropriation, inverse
condemnation, condemnation or eminent domain, or sold to prevent such taking
(each such event being referred to as a "CONDEMNATION"), Landlord may, at its
option, terminate this Lease as of the date title vests in the condemning
party. If twenty-five percent (25%) or more of the Premises is taken and if
the Premises remaining after such Condemnation and any repairs by Landlord
would be untenantable for the conduct of Tenant's business operations, Tenant
shall have the right to terminate this Lease as of the date title vests in
the condemning party. If either party elects to terminate this Lease as
provided herein, such election shall be made by written notice to the other
party given within thirty (30) days after the nature and extent of such
Condemnation have been finally determined. If neither Landlord nor Tenant
elects to terminate this Lease to the extent permitted above, Landlord shall
promptly proceed to restore the Premises, to the extent of any Condemnation
award received by Landlord, to substantially the same condition as existed
prior to such Condemnation, allowing for the reasonable effects of such
Condemnation, and a proportionate abatement shall be made to the Base Rent
corresponding to the time during which, and to the portion of the floor area
of the Premises (adjusted for any increase thereto resulting from any
reconstruction) of which, Tenant is deprived on account of such Condemnation
and restoration, as reasonably determined by Landlord. Except as expressly
provided in the immediately preceding sentence with respect to abatement of
Base Rent, Tenant shall have no claim against Landlord for, and hereby
releases Landlord and Landlord's Agents from responsibility for and waives
its entire claim of recovery for any cost, loss or expense suffered or
incurred by Tenant as a result of any Condemnation or the repair or
restoration of the Premises, the Building or the Project or the parking areas
for the Building or the Project following such Condemnation, including,
without limitation, any cost, loss or expense resulting from any loss of use
of the whole or any part of the Premises, the Building, the Project or the
parking areas and/or any inconvenience or annoyance occasioned by such
Condemnation, repair or restoration. The provisions of California Code of
Civil Procedure Section 1265.130, which allows either party to petition the
Superior Court to terminate the Lease in the event of a partial taking of the
Premises, the Building or the Project or the parking areas for the Building
or the Project, and any other applicable law now or hereafter enacted, are
hereby waived by Tenant.
(b) Landlord shall be entitled to any and all compensation, damages,
income, rent, awards, or any interest therein whatsoever which may be paid or
made in connection with any Condemnation, and Tenant shall have no claim
against Landlord for the value of any unexpired term of this Lease or
otherwise; provided, however, that Tenant shall be entitled to receive any
award separately allocated by the condemning authority to Tenant for Tenant's
relocation expenses or the value of Tenant's Property (specifically excluding
fixtures, Alterations and other components of the Premises which under this
Lease or by law are or at the expiration of the Term will become the property
of Landlord), provided that such award does not reduce any award otherwise
allocable or payable to Landlord.
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23. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not voluntarily or by operation of law, (1)
mortgage, pledge, hypothecate or encumber this Lease or any interest herein,
(2) assign or transfer this Lease or any interest herein, sublease the
Premises or any part thereof, or any right or privilege appurtenant thereto,
or allow any other person (the employees and invitees of Tenant excepted) to
occupy or use the Premises, or any portion thereof, without first obtaining
the written consent of Landlord, which consent shall not be withheld
unreasonably provided that (i) Tenant is not then in Default under this Lease
nor is any event then occurring which with the giving of notice or the
passage of time, or both, would constitute a Default hereunder, and (ii) the
proposed transfer is not an assignment or a sublease under a previous
assignment or an existing sublease. When Tenant requests Landlord's consent
to such assignment or subletting, it shall notify Landlord in writing of the
name and address of the proposed assignee or subtenant and the nature and
character of the business of the proposed assignee or subtenant and shall
provide (A) a fully completed Hazardous Materials Disclosure Certificate for
such assignee or subtenant in the form of EXHIBIT F hereto, and (B) current
and prior financial statements for the proposed assignee or subtenant, which
financial statements shall be audited to the extent available and shall in
any event be prepared in accordance with generally accepted accounting
principles. Tenant shall also provide Landlord with a copy of the proposed
sublease or assignment agreement, including all material terms and conditions
thereof. Except in the case of an assignment or sublease to a Tenant
Affiliate (as hereinafter defined), Landlord shall have the option, to be
exercised within thirty (30) days of receipt of the foregoing, to (1)
terminate this Lease as of the commencement date stated in the proposed
sublease or assignment, (2) sublease or take an assignment, as the case may
be, from Tenant of the interest, or any portion thereof, in this Lease and/or
the Premises that Tenant proposes to assign or sublease, on the same terms
and conditions as stated in the proposed sublet or assignment agreement, (3)
consent to the proposed assignment or sublease, or (4) refuse its consent to
the proposed assignment or sublease, providing that such consent shall not be
unreasonably withheld so long as Tenant is not then in Default under this
Lease nor is any event then occurring which with the giving of notice or the
passage of time, or both, would constitute a Default hereunder. In the event
Landlord elects to terminate this Lease or sublease or take an assignment
from Tenant of the interest, or portion thereof, in the Lease and/or the
Premises that Tenant proposes to assign or sublease as provided in the
foregoing clauses (1) and (2), respectively, then Landlord shall have the
additional right to negotiate directly with Tenant's proposed assignee or
subtenant and to enter into a direct lease or occupancy agreement with such
party on such terms as shall be acceptable to Landlord in its sole and
absolute discretion, and Tenant hereby waives any claims against Landlord
related thereto, including, without limitation, any claims for any
compensation or profit related to such lease or occupancy agreement.
(b) Notwithstanding anything to the contrary contained in Paragraph
23(a) above, Tenant shall have the right with the consent of Landlord, which
consent shall not be unreasonably withheld, to assign this Lease or to
sublease the Premises or any part thereof to a Tenant Affiliate. In the event
Tenant proposes to enter into an assignment or sublease with a Tenant
Affiliate, then Tenant shall provide Landlord with the information required
to be delivered pursuant to said Paragraph 23 (a). Landlord shall have the
option, to be exercised within thirty (30) days of receipt of the foregoing,
to (1) consent to the proposed assignment or sublease, or (2) refuse its
consent to the proposed assignment or sublease, providing that such
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consent shall not be unreasonably withheld. For purposes of this Paragraph
23, a "Tenant Affiliate" shall mean an entity that controls, is controlled by
or is under common control with, Tenant; and a party shall be deemed to
"control" another party for purposes of the aforesaid definition only if the
first party owns more than fifty percent (50%) of the stock or other
beneficial interests of the second party.
(c) Without otherwise limiting the criteria upon which
Landlord may withhold its consent under Paragraphs 23(a) and (b) above, Landlord
shall be entitled to consider all reasonable criteria including, but not limited
to, the following: (1) whether or not the proposed subtenant or assignee is
engaged in a business which, and the use of the Premises will be in an manner
which, is in keeping with the then character and nature of all other tenancies
in the Project, (2) whether the use to be made of the Premises by the proposed
subtenant or assignee will conflict with any so-called "exclusive" use then in
favor of any other tenant of the Building or the Project, and whether such use
would be prohibited by any other portion of this Lease, including, but not
limited to, any rules and regulations then in effect, or under applicable Laws,
and whether such use imposes a greater load upon the Premises and the Building
and Project services then imposed by Tenant, (3) the business reputation of the
proposed individuals who will be managing and operating the business operations
of the assignee or subtenant, and the long-term financial and competitive
business prospects of the proposed assignee or subtenant, and (4) the
creditworthiness and financial stability of the proposed assignee or subtenant
in light of the responsibilities involved. In any event, Landlord may withhold
its consent to any assignment or sublease, if (i) the actual use proposed to be
conducted in the Premises or portion thereof conflicts with the provisions of
Paragraph 9(a) or (b) above or with any other lease which restricts the use to
which any space in the Building or the Project may be put, or (ii) the proposed
assignment or sublease requires alterations, improvements or additions to the
Premises or portions thereof.
(d) If Landlord approves an assignment or subletting as herein
provided, Tenant shall pay to Landlord, as Additional Rent, seventy-five percent
(75%) of the difference, if any, between (1) the Base Rent plus Additional Rent
allocable to that part of the Premises affected by such assignment or sublease
pursuant to the provisions of this Lease, and (2) the rent and any additional
rent payable by the assignee or sublessee to Tenant, less reasonable and
customary market-based leasing commissions, if any, incurred by Tenant in
connection with such assignment or sublease. The assignment or sublease
agreement, as the case may be, after approval by Landlord, shall not be amended
without Landlord's prior written consent, and shall contain a provision
directing the assignee or subtenant to pay the rent and other sums due
thereunder directly to Landlord upon receiving written notice from Landlord that
Tenant is in default under this Lease with respect to the payment of Rent. In
the event that, notwithstanding the giving of such notice, Tenant collects any
rent or other sums from the assignee or subtenant, then Tenant shall hold such
sums in trust for the benefit of Landlord and shall immediately forward the same
to Landlord. Landlord's collection of such rent and other sums shall not
constitute an acceptance by Landlord of attornment by such assignee or
subtenant. A consent to one assignment, subletting, occupation or use shall not
be deemed to be a consent to any other or subsequent assignment, subletting,
occupation or use, and consent to any assignment or subletting shall in no way
relieve Tenant of any liability under this Lease. Any assignment or subletting
without Landlord's consent shall be void, and shall, at the option of Landlord,
constitute a Default under this Lease.
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(e) 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 assignment or
subletting).
(f) Tenant shall pay Landlord's reasonable fees (including,
without limitation, the fees of Landlord's counsel), incurred in connection with
Landlord's review and processing of documents regarding any proposed assignment
or sublease.
(g) Notwithstanding anything in this Lease to the contrary, in
the event Landlord consents to an assignment or subletting by Tenant in
accordance with the terms of this Paragraph 24, Tenant's assignee or subtenant
shall have no right to further assign this Lease or any interest therein or
thereunder or to further sublease all or any portion of the Premises. In
furtherance of the foregoing, Tenant acknowledges and agrees on behalf of itself
and any assignee or subtenant claiming under it (and any such assignee or
subtenant by accepting such assignment or sublease shall be deemed to
acknowledge and agree) that no sub-subleases or further assignments of this
Lease shall be permitted at any time.
(h) Tenant acknowledges and agrees that the restrictions,
conditions and limitations imposed by this Paragraph 24 on Tenant's ability to
assign or transfer this Lease or any interest herein, to sublet the Premises or
any part thereof, to transfer or assign any right or privilege appurtenant to
the Premises, or to allow any other person to occupy or use the Premises or any
portion thereof, are, for the purposes of California Civil Code Section 1951.4,
as amended from time to time, and for all other purposes, reasonable at the time
that the Lease was entered into, and shall be deemed to be reasonable at the
time that Tenant seeks to assign or transfer this Lease or any interest herein,
to sublet the Premises or any part thereof, to transfer or assign any right or
privilege appurtenant to the Premises, or to allow any other person to occupy or
use the Premises or any portion thereof.
24. TENANT'S DEFAULT. The occurrence of any one of the following events
shall constitute an event of default on the part of Tenant ("DEFAULT"):
(a) The vacation or abandonment of the Premises by Tenant for
a period of ten (10) consecutive days or any vacation or abandonment of the
Premises by Tenant which would cause any insurance policy to be invalidated or
otherwise lapse, or the failure of Tenant to continuously operate Tenant's
business in the Premises, in each of the foregoing cases irrespective of whether
or not Tenant is then in monetary default under this Lease. Tenant agrees to
notice and service of notice as provided for in this Lease and waives any right
to any other or further notice or service of notice which Tenant may have under
any statute or law now or hereafter in effect;
(b) Failure to pay any installment of Rent or any other monies
due and payable hereunder, said failure continuing for a period of five (5) days
after the same is due;
(c) A general assignment by Tenant or any guarantor or surety
of Tenant's obligations hereunder (collectively, "GUARANTOR") for the benefit of
creditors;
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(d) The filing of a voluntary petition in bankruptcy by Tenant
or any Guarantor, the filing by Tenant or any Guarantor of a voluntary petition
for an arrangement, the filing by or against Tenant or any Guarantor of a
petition, voluntary or involuntary, for reorganization, or the filing of an
involuntary petition by the creditors of Tenant or any Guarantor, said
involuntary petition remaining undischarged for a period of sixty (60) days;
(e) Receivership, attachment, or other judicial seizure of
substantially all of Tenant's assets on the Premises, such attachment or other
seizure remaining undismissed or undischarged for a period of sixty (60) days
after the levy thereof;
(f) Death or disability of Tenant or any Guarantor, if Tenant
or such Guarantor is a natural person, or the failure by Tenant or any Guarantor
to maintain its legal existence, if Tenant or such Guarantor is a corporation,
partnership, limited liability company, trust or other legal entity;
(g) Failure of Tenant to execute and deliver to Landlord any
estoppel certificate, subordination agreement, or lease amendment within the
time periods and in the manner required by Paragraphs 30 or 31 or 42, and/or
failure by Tenant to deliver to Landlord any financial statement within the time
period and in the manner required by Paragraph 40;
(h) An assignment or sublease, or attempted assignment or
sublease, of this Lease or the Premises by Tenant contrary to the provision of
Paragraph 24, unless such assignment or sublease is expressly conditioned upon
Tenant having received Landlord's consent thereto;
(i) Failure of Tenant to restore the Security Deposit to the
amount and within the time period provided in Paragraph 7 above;
(j) Failure in the performance of any of Tenant's covenants,
agreements or obligations hereunder (except those failures specified as events
of Default in subparagraphs (b), (l) or (m) above or any other subparagraphs of
this Paragraph 25, which shall be governed by such other Paragraphs), which
failure continues for ten (10) days after written notice thereof from Landlord
to Tenant, provided that, if Tenant has exercised reasonable diligence to cure
such failure and such failure cannot be cured within such ten (10) day period
despite reasonable diligence, Tenant shall not be in default under this
subparagraph so long as Tenant thereafter diligently and continuously prosecutes
the cure to completion and actually completes such cure within thirty (30) days
after the giving of the aforesaid written notice;
(k) Chronic delinquency by Tenant in the payment of Rent, or
any other periodic payments required to be paid by Tenant under this Lease.
"CHRONIC DELINQUENCY" shall mean failure by Tenant to pay Rent, or any other
payments required to be paid by Tenant under this Lease within three (3) days
after written notice thereof for any three months (consecutive or
nonconsecutive) during any period of twelve (12) months. In the event of a
Chronic delinquency, in addition to Landlord's other remedies for Default
provided in this Lease, at Landlord's option, Landlord shall have the right to
require that Rent be paid by Tenant quarterly, in advance;
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(l) Chronic overuse by Tenant or Tenant's Agents of the number
of undesignated parking spaces set forth in the Basic Lease Information.
"CHRONIC OVERUSE" shall mean use by Tenant or Tenant's Agents of a number of
parking spaces greater than the number of parking spaces set forth in the Basic
Lease Information more than three (3) times during the Term after written notice
by Landlord;
(m) Any insurance required to be maintained by Tenant pursuant
to this Lease shall be canceled or terminated or shall expire or be reduced or
materially changed, except as permitted in this Lease; and
(n) Any failure by Tenant to discharge any lien or encumbrance
placed on the Project or any part thereof in violation of this Lease within ten
(10) days after the date such lien or encumbrance is filed or recorded against
the Project or any part thereof.
Tenant agrees that any notice given by Landlord pursuant to Paragraph
25(j), (k) or (1) above shall satisfy the requirements for notice under
California Code of Civil Procedure Section 1161, and Landlord shall not be
required to give any additional notice in order to be entitled to commence an
unlawful detainer proceeding.
25. LANDLORD'S REMEDIES.
(a) TERMINATION. In the event of any Default by Tenant, then
in addition to any other remedies available to Landlord at law or in equity and
under this Lease, Landlord shall have the immediate option to terminate this
Lease and all rights of Tenant hereunder by giving written notice of such
intention to terminate. In the event that Landlord shall elect to so terminate
this Lease then Landlord may recover from Tenant:
(1) the worth at the time of award of any unpaid Rent
and any other sums due and payable which have been earned at the time of such
termination; plus
(2) the worth at the time of award of the amount by
which the unpaid Rent and any other sums due and payable which would have
been earned after termination until the time of award exceeds the amount of
such rental loss Tenant proves could have been reasonably avoided; plus
(3) the worth at the time of award of the amount by
which the unpaid Rent and any other sums due and payable 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 be reasonably avoided; plus
(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 would be likely
to result therefrom, including, without limitation, (A) any costs or expenses
incurred by Landlord (1) in retaking possession of the Premises; (2) in
maintaining, repairing, preserving, restoring, replacing, cleaning, altering,
remodeling or rehabilitating the Premises or any affected portions of the
Building or the Project, including such actions undertaken in connection with
the reletting or attempted reletting of the Premises to a new tenant or
tenants; (3) for leasing commissions, advertising costs and other expenses of
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reletting the Premises; or (4) in carrying the Premises, including taxes,
insurance premiums, utilities and security precautions; (B) any unearned
brokerage commissions paid in connection with this Lease; (C) reimbursement
of any previously waived or abated Base Rent or Additional Rent or any free
rent or reduced rental rate granted hereunder; and (D) any concession made or
paid by Landlord to the benefit of Tenant in consideration of this Lease
including, but not limited to, any moving allowances, contributions, payments
or loans by Landlord for tenant improvements or build-out allowances
(including without limitation, any unamortized portion of the Tenant
Improvement Allowance (such Tenant Improvement Allowance to be amortized over
the Term in the manner reasonably determined by Landlord), if any, and any
outstanding balance (principal and accrued interest) of the Tenant
Improvement Loan, if any), or assumptions by Landlord of any of Tenant's
previous lease obligations; plus
(5) such reasonable attorneys' fees incurred by
Landlord as a result of a Default, and costs in the event suit is filed by
Landlord to enforce such remedy; and plus
(6) at Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time
by applicable law.
As used in subparagraphs (1) and (2) above, the "WORTH AT THE TIME OF
AWARD" is computed by allowing interest at an annual rate equal to twelve
percent (12%) per annum or the maximum rate permitted by law, whichever is less.
As used in subparagraph (3) above, the "WORTH AT THE TIME OF AWARD" 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 (1%). Tenant waives
redemption or relief from forfeiture under California Code of Civil Procedure
Sections 1174 and 1179, or under any other pertinent present or future Law, in
the event Tenant is evicted or Landlord takes possession of the Premises by
reason of any Default of Tenant hereunder.
(b) CONTINUATION OF LEASE. In the event of any Default by
Tenant., then in addition to any other remedies available to Landlord at law or
in equity and under this Lease, Landlord shall have the remedy described in
California Civil Code Section 1951.4 (Landlord may continue this Lease in effect
after Tenant's Default and abandonment and recover Rent as it becomes due,
provided Tenant has the right to sublet or assign, subject only to reasonable
limitations). In addition, Landlord shall not be liable in any way whatsoever
for its failure or refusal to relet the Premises. For purposes of this Paragraph
26(b), the following acts by Landlord will not constitute the termination of
Tenant's right to possession of the Premises:
(1) Acts of maintenance or preservation or efforts to
relet the Premises, including, but not limited to, alterations, remodeling,
redecorating, repairs, replacements and/or painting as Landlord shall
consider advisable for the purpose of reletting the Premises or any part
thereof, or
(2) The appointment of a receiver upon the initiative
of Landlord to protect Landlord's interest under this Lease or in the
Premises.
(c) RE-ENTRY. In the event of any Default by Tenant, Landlord
shall also have the right, with or without terminating this Lease, in compliance
with applicable law, to re-enter
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the Premises and remove all persons and property from the Premises; such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Tenant.
(d) RELETTING. In the event of the abandonment of the Premises
by Tenant or in the event that Landlord shall elect to re-enter as provided in
Paragraph 26(c) or shall take possession of the Premises pursuant to legal
proceeding or pursuant to any notice provided by law, then if Landlord does not
elect to terminate this Lease as provided in Paragraph 26(a), Landlord may from
time to time, without terminating this Lease, relet the Premises or any part
thereof for such term or terms and at such rental or rentals and upon such other
terms and conditions as Landlord in its sole discretion may deem advisable with
the right to make alterations and repairs to the Premises in Landlord's sole
discretion. In the event that Landlord shall elect to so relet, then rentals
received by Landlord from such reletting shall be applied in the following
order: (1) to reasonable attorneys' fees incurred by Landlord as a result of a
Default and costs in the event suit is filed by Landlord to enforce such
remedies; (2) to the payment of any indebtedness other than Rent due hereunder
from Tenant to Landlord; (3) to the payment of any costs of such reletting; (4)
to the payment of the costs of any alterations and repairs to the Premises; (5)
to the payment of Rent due and unpaid hereunder; and (6) the residue, if any,
shall be held by Landlord and applied in payment of future Rent and other sums
payable by Tenant hereunder as the same may become due and payable hereunder.
Should that portion of such rentals received from such reletting during any
month, which is applied to the payment of Rent hereunder, be less than the Rent
payable during the month by Tenant hereunder, then Tenant shall pay such
deficiency to Landlord. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as ascertained, any costs and
expenses incurred by Landlord in such reletting or in making such alterations
and repairs not covered by the rentals received from such reletting.
(e) TERMINATION. No re-entry or taking of possession of the
Premises by Landlord pursuant to this Paragraph 26 shall be construed as an
election to terminate this Lease unless a written notice of such intention is
given to Tenant or unless the termination thereof is decreed by a court of
competent jurisdiction. Notwithstanding any reletting without termination by
Landlord because of any Default by Tenant, Landlord may at any time after such
reletting elect to terminate this Lease for any such Default.
(f) CUMULATIVE REMEDIES. The remedies herein provided are not
exclusive and Landlord shall have any and all other remedies provided herein or
by law or in equity.
(g) NO SURRENDER. No act or conduct of Landlord, whether
consisting of the acceptance of the keys to the Premises, or otherwise, shall be
deemed to be or constitute an acceptance of the surrender of the Premises by
Tenant prior to the expiration of the Term, and such acceptance by Landlord of
surrender by Tenant shall only flow from and must be evidenced by a written
acknowledgment of acceptance of surrender signed by Landlord. The surrender of
this Lease by Tenant, voluntarily or otherwise, shall not work a merger unless
Landlord elects in writing that such merger take place, but shall operate as an
assignment to Landlord of any and all existing subleases, or Landlord may, at
its option, elect in writing to treat such surrender as a merger terminating
Tenant's estate under this Lease, and thereupon Landlord may terminate any
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or all such subleases by notifying the sublessee of its election so to do
within five (5) days after such surrender.
26. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS.
(a) Without limiting the rights and remedies of Landlord
contained in Paragraph 25 above, if Tenant shall be in Default in the
performance of any of the terms, provisions, covenants or conditions to be
performed or complied with by Tenant pursuant to this Lease, then Landlord may
at Landlord's option, without any obligation to do so, and without notice to
Tenant perform any such term, provision, covenant, or condition, or make any
such payment and Landlord by reason of so doing shall not be liable or
responsible for any loss or damage thereby sustained by Tenant or anyone holding
under or through Tenant or any of Tenant's Agents.
(b) Without limiting the rights of Landlord under Paragraph
26(a) above, Landlord shall have the right at Landlord's option, without any
obligation to do so, to perform any of Tenant's covenants or obligations under
this Lease without notice to Tenant in the case of an emergency, as determined
by Landlord in its sole and absolute judgment, or if Landlord otherwise
determines in its sole discretion that such performance is necessary or
desirable for the proper management and operation of the Building or the Project
or for the preservation of the rights and interests or safety of other tenants
of the Building or the Project.
(c) If Landlord performs any of Tenant's obligations hereunder
in accordance with this Paragraph 26, the full amount of the cost and expense
incurred or the payment so made or the amount of the loss so sustained shall
immediately be owing by Tenant to Landlord, and Tenant shall promptly pay to
Landlord upon demand, as Additional Rent, the full amount thereof with interest
thereon from the date of payment by Landlord at the lower of (1) ten percent
(10%) per annum, or (2) the highest rate permitted by applicable law.
27. ATTORNEY'S FEES.
(a) If either party hereto fails to perform any of its
obligations under this Lease or if any dispute arises between the parties hereto
concerning the meaning or interpretation of any provision of this Lease, then
the defaulting party or the party not prevailing in such dispute, as the case
may be, shall pay any and all costs and expenses incurred by the other party on
account of such default and/or in enforcing or establishing its rights
hereunder, including, without limitation, court costs and reasonable attorneys'
fees and disbursements. Any such attorneys' fees and other expenses incurred by
either party in enforcing a judgment in its favor under this Lease shall be
recoverable separately from and in addition to any other amount included in such
judgment, and such attorneys' fees obligation is intended to be severable from
the other provisions of this Lease and to survive and not be merged into any
such judgment.
(b) Without limiting the generality of Paragraph 27(a) above,
if Landlord utilizes the services of an attorney for the purpose of collecting
any Rent due and unpaid by Tenant or in connection with any other breach of this
Lease by Tenant, Tenant agrees to pay Landlord actual attorneys' fees as
determined by Landlord for such services, regardless of the fact that no legal
action may be commenced or filed by Landlord.
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28. TAXES. Tenant shall be liable for and shall pay, prior to
delinquency, all taxes levied against Tenant's Property. If any Alteration
installed by Tenant or any of Tenant's Property is assessed and taxed with the
Project or Building, Tenant shall pay such taxes to Landlord within ten (10)
days after delivery to Tenant of a statement therefor.
29. EFFECT OF CONVEYANCE. The term "LANDLORD" as used in this Lease
means, from time to time, the then current owner of the Building or the Project
containing the Premises, so that, in the event of any sale of the Building or
the Project, Landlord shall be and hereby is entirely freed and relieved of all
covenants and obligations of Landlord hereunder, and it shall be deemed and
construed, without further agreement between the parties and the purchaser at
any such sale, that the purchaser of the Building or the Project has assumed and
agreed to carry out any and all covenants and obligations of Landlord hereunder.
30. TENANT'S ESTOPPEL CERTIFICATE. From time to time, upon written
request of Landlord, Tenant shall execute, acknowledge and deliver to Landlord
or its designee, a written certificate stating (a) the date this Lease was
executed, the Commencement Date of the Term and the date the Term expires; (b)
the date Tenant entered into occupancy of the Premises; (c) the amount of Rent
and the date to which such Rent has been paid; (d) that this Lease is in full
force and effect and has not been assigned, modified, supplemented or amended in
any way (or, if assigned, modified, supplemented or amended, specifying the date
and terms of any agreement so affecting this Lease); (e) that this Lease
represents the entire agreement between the parties with respect to Tenant's
right to use and occupy the Premises (or specifying such other agreements, if
any); (f) that all obligations under this Lease to be performed by Landlord as
of the date of such certificate have been satisfied (or specifying those as to
which Tenant claims that Landlord has yet to perform); (g) that all required
contributions by Landlord to Tenant on account of Tenant's improvements have
been received (or stating exceptions thereto); (h) that on such date there exist
no defenses or offsets that Tenant has against the enforcement of this Lease by
Landlord (or stating exceptions thereto); (i) that no Rent or other sum payable
by Tenant hereunder has been paid more than one (1) month in advance (or stating
exceptions thereto); (j) that security has been deposited with Landlord, stating
the original amount thereof and any increases thereto; and (k) any other matters
evidencing the status of this Lease that may be required either by a lender
making a loan to Landlord to be secured by a deed of trust covering the Building
or the Project or by a purchaser of the Building or the Project. Any such
certificate delivered pursuant to this Paragraph 30 may be relied upon by a
prospective purchaser of Landlord's interest or a mortgagee of Landlord's
interest or assignee of any mortgage upon Landlord's interest in the Premises.
If Tenant shall fail to provide such certificate within ten (10) days of receipt
by Tenant of a written request by Landlord as herein provided, such failure
shall, at Landlord's election, constitute a Default under this Lease, and Tenant
shall be deemed to have given such certificate as above provided without
modification and shall be deemed to have admitted the accuracy of any
information supplied by Landlord to a prospective purchaser or mortgagee.
31. SUBORDINATION. Landlord shall have the right to cause this Lease to
be and remain subject and subordinate to any and all mortgages, deeds of trust
and ground leases, if any ("ENCUMBRANCES") that are now or may hereafter be
executed covering the Premises, or any renewals, modifications, consolidations,
replacements or extensions thereof, for the full amount of all advances made or
to be made thereunder and without regard to the time or character of
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such advances, together with interest thereon and subject to all the terms and
provisions thereof; provided only, that in the event of termination of any such
ground lease or upon the foreclosure of any such mortgage or deed of trust, so
long as Tenant is not in default, the holder thereof ("HOLDER") shall agree to
recognize Tenant's rights under this Lease as long as Tenant shall pay the Rent
and observe and perform all the provisions of this Lease to be observed and
performed by Tenant. Within ten (10) days after Landlord's written request,
Tenant shall execute, acknowledge and deliver any and all reasonable documents
required by Landlord or the Holder to effectuate such subordination. If Tenant
fails to do so, such failure shall constitute a Default by Tenant under this
Lease. Notwithstanding anything to the contrary set forth in this Paragraph 31,
Tenant hereby attorns and agrees to attorn to any person or entity purchasing or
otherwise acquiring the Premises at any sale or other proceeding or pursuant to
the exercise of any other rights, powers or remedies under such Encumbrance.
32. ENVIRONMENTAL COVENANTS.
(a) Prior to executing this Lease, Tenant has completed,
executed and delivered to Landlord a Hazardous Materials Disclosure Certificate
("INITIAL DISCLOSURE CERTIFICATE"), a fully completed copy of which is attached
hereto as EXHIBIT F and incorporated herein by this reference. Tenant covenants,
represents and warrants to Landlord that the information on the Initial
Disclosure Certificate is true and correct and accurately describes the
Hazardous Materials which will be, manufactured, treated, used or stored on or
about the Premises by Tenant or Tenant's Agents. Tenant shall, on each
anniversary of the Commencement Date and at such other times as Tenant desires
to manufacture, treat, use or store on or about the Premises new or additional
Hazardous Materials which were not listed on the Initial Disclosure Certificate,
complete, execute and deliver to Landlord an updated Disclosure Certificate
(each, an "UPDATED DISCLOSURE CERTIFICATE") describing Tenant's then current and
proposed future uses of Hazardous Materials on or about the Premises, which
Updated Disclosure Certificates shall be in the same format as that which is set
forth in EXHIBIT F or in such updated format as Landlord may require from time
to time. Tenant shall deliver an Updated Disclosure Certificate to Landlord not
less than thirty (30) days prior to the date Tenant intends to commence the
manufacture, treatment, use or storage of new or additional Hazardous Materials
on or about the Premises, and Landlord shall have the right to approve or
disapprove such new or additional Hazardous Materials in its sole and absolute
discretion. Tenant shall make no use of Hazardous Materials on or about the
Premises except as described in the Initial Disclosure Certificate or as
otherwise approved by Landlord in writing in accordance with this Paragraph
32(a).
(b) As used in this Lease, the term "HAZARDOUS MATERIALS"
shall mean and include any substance that is or contains (1) any "hazardous
substance" as now or hereafter defined in Section 10l(14) of the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA") (42 U.S.C. Section 9601 ET SEQ.) or any regulations promulgated under
CERCLA; (2) any "hazardous waste" as now or hereafter defined in the Resource
Conservation and Recovery Act, as amended ("RCRA") (42 U.S.C. Section 6901 ET
SEQ.) or any regulations promulgated under RCRA; (3) any substance now or
hereafter regulated by the Toxic Substances Control Act, as amended ("TSCA") (15
U.S.C. Section 2601 ET SEQ.) or any regulations promulgated under TSCA; (4)
petroleum, petroleum by-products, gasoline, diesel fuel, or other petroleum
hydrocarbons; (5) asbestos and asbestos-containing material, in any
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form, whether friable or non-friable; (6) polychlorinated biphenyls; (7) lead
and lead-containing materials; or (8) any additional substance, material or
waste (A) the presence of which on or about the Premises (i) requires
reporting, investigation or remediation under any Environmental Laws (as
hereinafter defined), (ii) causes or threatens to cause a nuisance on the
Premises or any adjacent area or property or poses or threatens to pose a
hazard to the health or safety of persons on the Premises or any adjacent
area or property, or (iii) which, if it emanated or migrated from the
Premises, could constitute a trespass, or (B) which is now or is hereafter
classified or considered to be hazardous or toxic under any Environmental
Laws.
(c) As used in this Lease, the term "ENVIRONMENTAL LAWS" shall
mean and include (1) CERCLA, RCRA and TSCA; and (2) any other federal, state or
local laws, ordinances, statutes, codes, rules, regulations, orders or decrees
now or hereinafter in effect relating to (A) pollution, (B) the protection or
regulation of human health, natural resources or the environment, (C) the
treatment, storage or disposal of Hazardous Materials, or (D) the emission,
discharge, release or threatened release of Hazardous Materials into the
environment.
(d) Tenant agrees that during its use and occupancy of the
Premises it will (1) not (A) permit Hazardous Materials to be present on or
about the Premises except in a manner and quantity necessary for the ordinary
performance of Tenant's business or (B) release, discharge or dispose of any
Hazardous Materials on, in, at, under, or emanating from, the Premises, the
Building or the Project; (2) comply with all Environmental Laws relating to the
Premises and the use of Hazardous Materials on or about the Premises and not
engage in or permit others to engage in any activity at the Premises in
violation of any Environmental Laws; and (3) immediately notify Landlord of (A)
any inquiry, test, investigation or enforcement proceeding by any governmental
agency or authority against Tenant, Landlord or the Premises, Building or
Project relating to any Hazardous Materials or under any Environmental Laws or
(B) the occurrence of any event or existence of any condition that would cause a
breach of any of the covenants set forth in this Paragraph 32.
(e) If Tenant's use of Hazardous Materials on or about the
Premises results in a release, discharge or disposal of Hazardous Materials on,
in, at, under, or emanating from, the Premises, the Building or the Project,
Tenant agrees to investigate, clean up, remove or remediate such Hazardous
Materials in full compliance with (1) the requirements of (A) all Environmental
Laws and (B) any governmental agency or authority responsible for the
enforcement of any Environmental Laws; and (2) any additional requirements of
Landlord that are reasonably necessary to protect the value of the Premises, the
Building or the Project.
(f) Upon reasonable notice to Tenant, Landlord may inspect the
Premises and surrounding areas for the purpose of determining whether there
exists on or about the Premises any Hazardous Material or other condition or
activity that is in violation of the requirements of this Lease or of any
Environmental Laws. Such inspections may include, but are not limited to,
entering the Premises or adjacent property with drill rigs or other machinery
for the purpose of obtaining laboratory samples. Landlord shall not be limited
in the number of such inspections during the Term of this Lease. In the event
(1) such inspections reveal the presence of any such Hazardous Material or other
condition or activity in violation of the requirements of this Lease or of any
Environmental Laws, or (2) Tenant or its Agents contribute or knowingly consent
to the presence of any Hazardous Materials in, on, under, through or about the
Premises, the Building
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or the Project or exacerbate the condition of or the conditions caused by any
Hazardous Materials in, on, under, through or about the Premises, the
Building or the Project, Tenant shall reimburse Landlord for the cost of such
inspections within ten (10) days of receipt of a written statement therefor.
Tenant will supply to Landlord such historical and operational information
regarding the Premises and surrounding areas as may be reasonably requested
to facilitate any such inspection and will make available for meetings
appropriate personnel having knowledge of such matters. Tenant agrees to give
Landlord at least sixty (60) days' prior notice of its intention to vacate
the Premises so that Landlord will have an opportunity to perform such an
inspection prior to such vacation. The right granted to Landlord herein to
perform inspections shall not create a duty on Landlord's part to inspect the
Premises, or liability on the part of Landlord for Tenant's use, storage,
treatment or disposal of Hazardous Materials, it being understood that Tenant
shall be solely responsible for all liability in connection therewith.
(g) Landlord shall have the right, but not the obligation,
prior or subsequent to a Default, without in any way limiting Landlord's other
rights and remedies under this Lease, to enter upon the Premises, or to take
such other actions as it deems necessary or advisable, to investigate, clean up,
remove or remediate any Hazardous Materials or contamination by Hazardous
Materials present on, in, at, under, or emanating from, the Premises, the
Building or the Project in violation of Tenant's obligations under this Lease or
under any Environmental Laws. Notwithstanding any other provision of this Lease,
Landlord shall also have the right, at its election, in its own name or as
Tenant's agent, to negotiate, defend, approve and appeal, at Tenant's expense,
any action taken or order issued by any governmental agency or authority with
regard to any such Hazardous Materials or contamination by Hazardous Materials.
All costs and expenses paid or incurred by Landlord in the exercise of the
rights set forth in this Paragraph 32 shall be payable by Tenant upon demand.
(h) Tenant shall surrender the Premises to Landlord upon the
expiration or earlier termination of this Lease free of debris, waste or
Hazardous Materials placed on, about or near the Premises by Tenant or Tenant's
Agents, and in a condition which complies with all Environmental Laws and any
additional requirements of Landlord that are reasonably necessary to protect the
value of the Premises, the Building or the Project, including, without
limitation, the obtaining of any closure permits or other governmental permits
or approvals related to Tenant's use of Hazardous Materials in or about the
Premises. Tenant's obligations and liabilities pursuant to the provisions of
this Paragraph 32 shall survive the expiration or earlier termination of this
Lease. If it is determined by Landlord that the condition of all or any portion
of the Premises, the Building, and/or the Project is not in compliance with the
provisions of this Lease with respect to Hazardous Materials, including, without
limitation, all Environmental Laws, at the expiration or earlier termination of
this Lease, then at Landlord's sole option, Landlord may require Tenant to hold
over possession of the Premises until Tenant can surrender the Premises to
Landlord in the condition in which the Premises existed as of the Commencement
Date and prior to the appearance of such Hazardous Materials except for normal
wear and tear, including, without limitation, the conduct or performance of any
closures as required by any Environmental Laws. The burden of proof hereunder
shall be upon Tenant. For purposes hereof, the term "NORMAL WEAR AND TEAR" shall
not include any deterioration in the condition or diminution of the value of any
portion of the Premises, the Building, and/or the Project in any manner
whatsoever related to directly, or indirectly, Hazardous Materials. Any such
holdover by Tenant will be with
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Landlord's consent, will not be terminable by Tenant in any event or
circumstance and will otherwise be subject to the provisions of Paragraph 35
of this Lease.
(i) Tenant agrees to indemnify and hold harmless Landlord from
and against any and all claims, losses (including, without limitation, loss in
value of the Premises, the Building or the Project, liabilities and expenses
(including attorney's fees)) sustained by Landlord attributable to (1) any
Hazardous Materials placed on or about the Premises, the Building or the Project
by Tenant or Tenant's Agents, or (2) Tenant's breach of any provision of this
Paragraph 32.
(j) The provisions of this Paragraph 32 shall survive the
expiration or earlier termination of this Lease.
33. NOTICES. All notices and demands which are required or may be
permitted to be given to either party by the other hereunder shall be in writing
and shall be sent by United States mail, postage prepaid, certified, or by
personal delivery or overnight courier, addressed to the addressee at Tenant's
Address or Landlord's Address as specified in the Basic Lease Information, or to
such other place as either party may from time to time designate in a notice to
the other party given as provided herein. Copies of all notices and demands
given to Landlord shall additionally be sent to Landlord's property manager at
the address specified in the Basic Lease Information or at such other address as
Landlord may specify in writing from time to time. Notice shall be deemed given
upon actual receipt (or attempted delivery if delivery is refused ), if
personally delivered, or one (1) business day following deposit with a reputable
overnight courier that provides a receipt, or on the third (3rd) day following
deposit in the United States mail in the manner described above.
34. WAIVER. The waiver of any breach of any term, covenant or
condition of this Lease shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent breach of the same or any other
term, covenant or condition herein contained. The subsequent acceptance of
Rent by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant, other than the failure of Tenant to pay the particular rental so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such Rent. No delay or omission in the exercise of any
right or remedy of Landlord in regard to any Default by Tenant shall impair
such a right or remedy or be construed as a waiver. Any waiver by Landlord of
any Default must be in writing and shall not be a waiver of any other Default
concerning the same or any other provisions of this Lease.
35. HOLDING OVER. Any holding over after the expiration of the Term,
without the express written consent of Landlord, shall constitute a Default and,
without limiting Landlord's remedies provided in this Lease, such holding over
shall be construed to be a tenancy at sufferance, at a rental rate equal to the
greater of one hundred fifty percent (150%) of the fair market rental value for
the Premises as determined by Landlord or two hundred percent (200%) of the Base
Rent last due in this Lease, plus Additional Rent, and shall otherwise be on the
terms and conditions herein specified, so far as applicable; provided, however,
in no event shall any renewal or expansion option or other similar right or
option contained in this Lease be deemed applicable to any such tenancy at
sufferance. If the Premises are not surrendered at the end of the Term or sooner
termination of this Lease, and in accordance with the provisions of
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Paragraphs 11 and 32(h), Tenant shall indemnify, defend and hold Landlord
harmless from and against any and all loss or liability resulting from delay
by Tenant in so surrendering the Premises including, without limitation, any
loss or liability resulting from any claim against Landlord made by any
succeeding tenant or prospective tenant founded on or resulting from such
delay and losses to Landlord due to lost opportunities to lease any portion
of the Premises to any such succeeding tenant or prospective tenant, together
with, in each case, actual attorneys' fees and costs.
36. SUCCESSORS AND ASSIGNS. The terms, covenants and conditions
of this Lease shall, subject to the provisions as to assignment, apply to and
bind the heirs, successors, executors, administrators and assigns of all of
the parties hereto. If Tenant shall consist of more than one entity or
person, the obligations of Tenant under this Lease shall be joint and several.
37. TIME. Time is of the essence of this Lease and each and every
term, condition and provision herein.
38. BROKERS. Landlord and Tenant each represents and warrants to the
other that neither it nor its officers or agents nor anyone acting on its behalf
has dealt with any real estate broker except the Broker(s) specified in the
Basic Lease Information in the negotiating or making of this Lease, and each
party agrees to indemnify and hold harmless the other from any claim or claims,
and costs and expenses, including attorneys' fees, incurred by the indemnified
party in conjunction with any such claim or claims of any other broker or
brokers to a commission in connection with this Lease as a result of the actions
of the indemnifying party.
39. LIMITATION OF LIABILITY. Tenant agrees that, in the event of any
default or breach by Landlord with respect to any of the terms of the Lease to
be observed and performed by Landlord (1) Tenant shall look solely to the
then-current landlord's interest in the Building for the satisfaction of
Tenant's remedies for the collection of a judgment (or other judicial process)
requiring the payment of money by Landlord; (2) no other property or assets of
Landlord, its partners, shareholders, officers, directors, employees, investment
advisors, or any successor in interest of any of them (collectively, the
"LANDLORD PARTIES") shall be subject to levy, execution or other enforcement.
procedure for the satisfaction of Tenant's remedies; (3) no personal liability
shall at any time be asserted or enforceable against the Landlord Parties; and
(4) no judgment will be taken against the Landlord Parties. The provisions of
this section shall apply only to the Landlord and the parties herein described,
and shall not be for the benefit of any insurer nor any other third party.
40. FINANCIAL STATEMENTS. Within ten (10) days after Landlord's
request, Tenant shall deliver to Landlord the then current financial statements
of Tenant (including interim periods following the end of the last fiscal year
for which annual statements are available), prepared or compiled by a certified
public accountant, including a balance sheet and profit and loss statement for
the most recent prior year. all prepared in accordance with generally accepted
accounting principles consistently applied.
41. RULES AND REGULATIONS. Tenant agrees to comply with such
reasonable rules and regulations as Landlord may adopt from time to time for
the orderly and proper operation of the Building and the Project. Such rules
may include but shall not be limited to the following:
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<PAGE>
(a) restriction of employee parking to a limited, designated area or areas;
and (b) regulation of the removal, storage and disposal of Tenant's refuse
and other rubbish at the sole cost and expense of Tenant. The then current
rules and regulations shall be binding upon Tenant upon delivery of a copy of
them to Tenant. Landlord shall not be responsible to Tenant for the failure
of any other person to observe and abide by any of said rules and
regulations. Landlord's current rules and regulations are attached to this
Lease as EXHIBIT D.
42. MORTGAGEE PROTECTION. Tenant agrees to give to any trust deed
or mortgage holder ("HOLDER"), by registered mail, at the same time as it is
given to Landlord, a copy of any notice of default given to Landlord,
provided that prior to such notice Tenant has been notified, in writing (by
way of notice of assignment of rents and leases, or otherwise), of the
address of such Holder. Tenant further agrees that if Landlord shall have
failed to cure such default within the time provided for in this Lease, then
the Holder shall have an additional twenty (20) days after expiration of such
period, or after receipt of such notice from Tenant (if such notice to the
Holder is required by this Paragraph 42), whichever shall last occur within
which to cure such default or if such default cannot be cured within that
time, then such additional time as may be necessary if within such twenty
(20) days, any Holder has commenced and is diligently pursuing the remedies
necessary to cure such default (including but not limited to commencement of
foreclosure proceedings, if necessary to effect such cure), in which event
this Lease shall not be terminated.
43. ENTIRE AGREEMENT. This Lease, including the Exhibits and any
Addenda attached hereto, which are hereby incorporated herein by this reference,
contains the entire agreement of the parties hereto, and no representations,
inducements, promises or agreements, oral or otherwise, between the parties, not
embodied herein or therein, shall be of any force and effect.
44. INTEREST. Any installment of Rent and any other sum due from
Tenant under this Lease which is not received by Landlord within ten (10)
days from when the same is due shall bear interest from the date such payment
was originally due under this Lease until paid at an annual rate equal to the
maximum rate of interest permitted by law. Payment of such interest shall not
excuse or cure any Default by Tenant. In addition, Tenant shall pay all costs
and attorneys' fees incurred by Landlord in collection of such amounts.
45. CONSTRUCTION. This Lease shall be construed and interpreted
in accordance with the laws of the State of California. The parties
acknowledge and agree that no rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall be employed
in the interpretation of this Lease, including the Exhibits and any Addenda
attached hereto. All captions in this Lease are for reference only and shall
not be used in the interpretation of this Lease. Whenever required by the
context of this Lease, the singular shall include the plural, the masculine
shall include the feminine, and vice versa. If any provision of this Lease
shall be determined to be illegal or unenforceable, such determination shall
not affect any other provision of this Lease and all such other provisions
shall remain in full force and effect.
46. REPRESENTATIONS AND WARRANTIES OF TENANT. Tenant hereby makes
the following representations and warranties, each of which is material and
being relied upon by
36
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Landlord, is true in all respects as of the date of this Lease, and shall
survive the expiration or termination of the Lease.
(a) If Tenant is an entity, Tenant is duly organized, validly
existing and in good standing under the laws of the state of its organization
and the persons executing this Lease on behalf of Tenant have the full right and
authority to execute this Lease on behalf of Tenant and to bind Tenant without
the consent or approval of any other person or entity. Tenant has full power,
capacity, authority and legal right to execute and deliver this Lease and to
perform all of its obligations hereunder. This Lease is a legal, valid and
binding obligation of Tenant, enforceable in accordance with its terms.
(b) Tenant has not (1) made a general assignment for the
benefit of creditors, (2) filed any voluntary petition in bankruptcy or suffered
the filing of an involuntary petition by any creditors, (3) suffered the
appointment of a receiver to take possession of all or substantially all of its
assets, (4) suffered the attachment or other judicial seizure of all or
substantially all of its assets, (5) admitted in writing its inability to pay
its debts as they come due, or (6) made an offer of settlement, extension or
composition to its creditors generally.
47. SECURITY.
(a) Tenant acknowledges and agrees that, while Landlord may
engage security personnel to patrol the Building or the Project, Landlord is not
providing any security services with respect to the Premises, the Building or
the Project 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 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, the Building or the Project.
(b) Tenant hereby agrees to the exercise by Landlord and
Landlord's Agents, within their sole discretion, of such security measures as,
but not limited to, the evacuation of the Premises, the Building or the Project
for cause, suspected cause or for drill purposes, the denial of any access to
the Premises, the Building or the Project and other similarly related actions
that it deems necessary to prevent any threat of property damage or bodily
injury. The exercise of such security measures by Landlord and Landlord's
Agents, and the resulting interruption of service and cessation of Tenant's
business, if any, shall not be deemed an eviction or disturbance of Tenant's use
and possession of the Premises, or any part thereof, or render Landlord or
Landlord's Agents liable to Tenant for any resulting damages or relieve Tenant
from Tenant's obligations under this Lease.
48. JURY TRIAL WAIVER. Tenant hereby waives any right to trial by
jury with respect to any action or proceeding (i) brought by Landlord, Tenant
or any other party, relating to (A) this Lease and/or any understandings or
prior dealings between the parties hereto, or (B) the Premises, the Building
or the Project or any part thereof, or (ii) to which Landlord is a party.
Tenant hereby agrees that this Lease constitutes a written consent to waiver
of trial by jury pursuant to the provisions of California Code of Civil
Procedure Section 631, and Tenant does hereby constitute and appoint Landlord
its true and lawful attorney-in-fact, which appointment is coupled with an
interest, and Tenant does hereby authorize and empower Landlord, in the name,
37
<PAGE>
place and stead of Tenant, to file this Lease with the clerk or judge of any
court of competent jurisdiction as a statutory written consent to waiver of
trial by jury.
49. OPTION TO RENEW. Tenant shall have one (1) option (the "RENEWAL
OPTION") to extend the Term for a period of five (5) years beyond the Expiration
Date (the "RENEWAL TERM"). The Renewal Option is personal to Tenant and may not
be exercised by any sublessee or assignee, or by any other successor or assign
of Tenant, excluding only a Tenant Affiliate to whom Tenant's entire right,
title and interest under this Lease is assigned pursuant to Paragraph 23 above.
The Renewal Option shall be effective only if Tenant is not in Default under
this Lease, nor has any event occurred which with the giving of notice or the
passage of time, or both, would constitute a Default hereunder, either at the
time of exercise of the Renewal Option or the time of commencement of the
Renewal Term. The Renewal Option must be exercised, if at all, by written notice
(the "ELECTION NOTICE") from Tenant to Landlord given not more than twelve (12)
months nor less than nine (9) months prior to the expiration of the initial
Term. Except as hereinafter provided in this Paragraph 49, any such notice given
by Tenant to Landlord shall be irrevocable. If Tenant fails to exercise the
Renewal Option in a timely manner as provided for above, the Renewal Option
shall be void. The Renewal Term shall be upon the same terms and conditions as
the initial Term, except that the annual Base Rent during the Renewal Term shall
be equal to the prevailing market rate for space in similarly situated buildings
in the vicinity of the Building comparable to the Premises in location, size,
condition, quality and type at the commencement of the Renewal Term. As used
herein, the term "prevailing market rate" shall mean the base annual rental for
such comparable space, taking into account any additional rental and all other
payments and escalations payable hereunder and by tenants under leases of such
comparable space. Landlord shall endeavor to notify Tenant in writing (such
notice being hereinafter referred to as the "RENEWAL RATE NOTICE") of the
prevailing market rate for the Renewal Term within thirty (30) days after
Landlord's receipt of the Election Notice. Tenant shall have ten (10) days after
receipt of the Renewal Rate Notice (the "RESPONSE PERIOD") to advise Landlord
whether or not Tenant agrees with Landlord's determination of the prevailing
market rate and, if Tenant disagrees with such determination, to discuss and
negotiate such rate with Landlord. If Tenant agrees with Landlord's
determination, or if during the Response Period the parties agree in writing on
a different rental rate, then Landlord and Tenant shall promptly enter into an
amendment to this Lease providing for the lease of the Premises by Tenant during
the Renewal Term upon the terms stated in the Renewal Rate Notice or such other
terms as may be agreed to by the parties during the Response Period, each in the
exercise of its sole and absolute discretion. If Tenant disputes Landlord's
determination of the prevailing market rate and if the parties fail to agree in
writing on a different rental rate prior to the expiration of the Response
Period, Tenant shall have the right to rescind its Election Notice in writing
within the Response Period and neither party shall have any further rights or
obligations under this Paragraph 49. If Tenant fails to provide Landlord with
written notice of rescission prior to the expiration of the Response Period,
then Tenant shall be deemed to have accepted Landlord's determination of the
prevailing market rate (except to the extent that Landlord and Tenant have
agreed in writing on a different rental rate as provided in this Paragraph 49).
38
<PAGE>
50. OPTION TO EXPAND PREMISES.
(a) Tenant shall have a one-time option (the "EXPANSION
OPTION") to lease all, but not less than all, of the remaining space within the
Building consisting of approximately twenty three thousand one hundred
ninety-eight (23,198) square feet and shown on EXHIBIT H hereto (the "EXPANSION
SPACE") upon the expiration or sooner termination of the Prior Expansion Space
Lease (as hereinafter defined). The Expansion Option is personal to Tenant and
may not be exercised by any sublessee or assignee, or by any other successor or
assign of Tenant. excluding only a Tenant Affiliate to whom Tenant's entire
right, title and interest under this Lease is assigned pursuant to Paragraph 23
above. The Expansion Option shall be effective only if Tenant is not in Default
under this Lease, nor has any event occurred which with the giving of notice or
the passage of time, or both, would constitute a Default hereunder, either at
the time of exercise of the Expansion Option or on the Expansion Commencement
Date (as hereinafter defined). Prior to or promptly following the expiration or
sooner termination of the Prior Expansion Space Lease, Landlord shall notify
Tenant in writing of the availability of the Expansion Space (such written
notice being herein referred to as the "EXPANSION SPACE AVAILABILITY NOTICE").
Tenant shall thereafter have the right to exercise the Expansion Option by
written notice (the "EXPANSION NOTICE") to Landlord given not later than ten
(10) days after Tenant's receipt of the Expansion Space Availability Notice.
Except as hereinafter provided in this Paragraph 50, any Expansion Notice given
by Tenant to Landlord shall be irrevocable. As used herein, "PRIOR EXPANSION
SPACE LEASE" means a lease to be hereafter entered into by Landlord with a
third-party tenant covering the Expansion Space, which lease shall have a term
not exceeding three years unless otherwise agreed by Tenant in writing.
(b) In the event Tenant fails to exercise the Expansion
Option in a timely manner as provided herein, the Expansion Option shall be
null and void and of no further force or effect. If Tenant validly exercises
the Expansion Option, then (1) Tenant's lease of the Expansion Space shall
commence on a date (the "EXPANSION COMMENCEMENT DATE") specified by Landlord
in writing, which date shall not be earlier than the expiration or sooner
termination of the Prior Expansion Space Lease, (2) Tenant's lease of the
Expansion Space shall be coterminous with the expiration or sooner
termination of this Lease (including any Renewal Term), and (3) the Expansion
Space shall be leased to Tenant upon the same terms and conditions as
contained in this Lease, except that (A) the annual Base Rent payable with
respect to the Expansion Space shall be determined in accordance with
Paragraph 50(c) below, (B) Tenant's Proportionate Share shall be increased to
one hundred percent (100%), and (C) except to the extent that Landlord agrees
in the Expansion Rate Notice (as hereinafter defined) to provide a tenant
improvement allowance or a tenant improvement loan to Tenant, the Expansion
Space shall be delivered to Tenant in its "AS-IS" condition on the Expansion
Commencement Date, Tenant acknowledging and agreeing that Landlord shall have
no obligation to improve, remodel or otherwise alter the Expansion Space
prior to or after the Expansion Commencement Date.
(c) The annual Base Rent payable with respect to the
Expansion Space shall be equal to an amount specified by Landlord in a
written notice (the "EXPANSION RATE NOTICE") to Tenant given prior to the
Expansion Commencement Date. Tenant shall have ten (10) days after receipt of
the Expansion Rate Notice (the "EXPANSION RESPONSE PERIOD") to advise
Landlord whether or not Tenant agrees to pay the Base Rent specified in the
Expansion Rate
39
<PAGE>
Notice. If Tenant agrees to pay such Base Rent, then Landlord and Tenant
shall promptly enter into an amendment to this Lease providing for the lease
of the Expansion Space by Tenant upon the terms stated in the Expansion Rate
Notice. If Tenant does not agree to pay the Base Rent specified in the
Expansion Rate Notice, Tenant shall have the right to rescind its Expansion
Notice in writing within the Expansion Response Period and neither party
shall have any further rights or obligations under this Paragraph 50. If
Tenant fails to provide Landlord with written notice of rescission prior to
the expiration of the Expansion Response Period, then Tenant shall be deemed
to have agreed to pay the Base Rent specified in the Expansion Rate Notice.
(d) In the event Tenant exercises or is deemed to have
exercised the Expansion Option, then from and after the Expansion Commencement
Date, the term "Premises," whenever used in this Lease, shall mean the original
Premises demised under this Lease and the Expansion Space.
51. SATELLITE DISH. Subject to Landlord's prior written approval
of the plans and specifications therefor (including, without limitation, the
location, size, and color of the equipment), during the Term, Tenant may, at
its sole cost and expense, construct and maintain a satellite dish on the
roof of the Building (the "SATELLITE DISH"); provided, however, Landlord
shall have the right to withhold its approval of the plans and
specifications, in its sole and absolute discretion, if Landlord reasonably
determines that the Satellite Dish will affect the structural integrity of
the roof. Upon receipt of Landlord's prior written approval of the plans and
specifications as set forth herein, Tenant shall erect the Satellite Dish in
accordance with the approved plans and specifications, in a good and
workmanlike manner, in accordance with all applicable Laws now in force or
hereafter enacted and all other requirements of Landlord, and after Tenant
has received all requisite approvals therefor (the "APPLICABLE
REQUIREMENTS"), and in a manner so as not to interfere with the use of the
Building or any adjacent building by any other tenant or occupant. Tenant
shall at all times maintain the Satellite Dish in a good, clean and safe
condition, in accordance with the Applicable Requirements, and in a manner so
as not to interfere with the use of the Building or any adjacent building by
any other tenant or occupant. Tenant shall have access to the roof only when
accompanied by Landlord or the property manager of the Project. Upon the
expiration or sooner termination of this Lease or Tenant's right to
possession of the Premises, Tenant shall, at Tenant's sole cost and expense,
promptly remove the Satellite Dish and repair any damage to the Building
resulting therefrom. If Tenant fails to remove the Satellite Dish within
fifteen (15) days following the expiration or sooner termination of this
Lease or Tenant's right to possession of the Premises, Landlord may, at
Tenant's expense, remove the Satellite Dish and perform the related
restoration and repair work, and use, dispose of or take such other actions
with respect to the Satellite Dish as Landlord may deem appropriate, all
without compensation or payment to Tenant. Tenant shall defend, indemnify and
hold harmless Landlord from all losses, claims, liabilities, judgments,
costs, demands, causes of action and expenses (including, without limitation,
attorneys' fees) arising from or relating to the construction, installation,
maintenance, use or removal of the Satellite Dish. The rights granted to
Tenant pursuant to this paragraph may not be assigned.
40
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Landlord and Tenant have executed and delivered this Lease as of the
Lease Date specified in the Basic Lease Information.
LANDLORD: TENANT:
AETNA LIFE INSURANCE COMPANY, FINISAR CORPORATION,
a Connecticut corporation a California corporation
By: Allegis Realty Investors LLC
Its Investment Advisor and Agent
By: /s/ S.K. Workman
-----------------------
Print Name: S.K. Workman
---------------
Its: CFO
----------------------
By: /s/ Cynthia Stevenin
---------------------------------
Cynthia Stevenin
Vice President By:
-----------------------
Print Name:
---------------
Its:
----------------------
41
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated June 25, 1999 in Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-87017) and related Prospectus of Finisar Corporation
dated October 19, 1999.
Our audits also included the financial statement schedule of Finisar
Corporation listed in Item 16(b). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Palo Alto, California
October 18, 1999
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<PAGE>
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<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 3-MOS
<FISCAL-YEAR-END> APR-30-1998 APR-30-1999 APR-30-2000
<PERIOD-START> MAY-01-1997 MAY-01-1998 MAY-01-1999
<PERIOD-END> APR-30-1998 APR-30-1999 JUL-31-1999
<CASH> 722 5,044 5,404
<SECURITIES> 0 0 0
<RECEIVABLES> 2,804 6,921 7,969
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<INVENTORY> 2,731 5,236 6,959
<CURRENT-ASSETS> 6,628 18,177 21,137
<PP&E> 1,290 3,080 3,630
<DEPRECIATION> (238) (598) (774)
<TOTAL-ASSETS> 7,761 20,955 24,459
<CURRENT-LIABILITIES> 898 5,166 7,130
<BONDS> 0 0 0
0 26,260 26,260
0 0 0
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<OTHER-SE> 6,351 (25,412) (24,023)
<TOTAL-LIABILITY-AND-EQUITY> 7,761 20,955 24,459
<SALES> 22,067 35,471 13,879
<TOTAL-REVENUES> 22,067 35,471 13,879
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<TOTAL-COSTS> 8,705 15,514 6,252
<OTHER-EXPENSES> 6,268 14,704 5,381
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 33 429 188
<INCOME-PRETAX> 7,073 4,951 2,129
<INCOME-TAX> 2,715 1,874 829
<INCOME-CONTINUING> 4,358 3,077 1,300
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
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