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FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PARADYNE CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 3670 52-0891723
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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8545 126TH AVENUE NORTH
LARGO, FLORIDA 33773
(727) 530-2000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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JAMES L. SLATTERY
SENIOR VICE PRESIDENT, CHIEF LEGAL AND INTELLECTUAL PROPERTY OFFICER AND
CORPORATE SECRETARY
PARADYNE CORPORATION
8545 126TH AVENUE NORTH
LARGO, FLORIDA 33773
(727) 530-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
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KENNETH L. GUERNSEY BRYAN E. DAVIS
SUZANNE SAWOCHKA HOOPER ADAM V. BATTANI
LAURA A. BEREZIN ASHLEY E. HUFFT
PAUL D. HUIE ALSTON & BIRD LLP
COOLEY GODWARD LLP ONE ATLANTIC CENTER
FIVE PALO ALTO SQUARE 1201 WEST PEACHTREE STREET
3000 EL CAMINO REAL ATLANTA, GA 30309-3424
PALO ALTO, CA 94306 (404) 881-7000
(650) 843-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ---------------
If 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 statement number of the earlier registration statement for the same
offering. [ ] ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF SECURITIES PROPOSED MAXIMUM AGGREGATE
TO BE REGISTERED OFFERING PRICE(1)(2) AMOUNT OF REGISTRATION FEE
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Common Stock $85,000,000 $23,630
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(1) Includes shares that the Underwriters will have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act.
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION -- APRIL 15, 1999
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PROSPECTUS
, 1999
[LOGO]
SHARES OF COMMON STOCK
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PARADYNE CORPORATION:
- - We are a leading developer, manufacturer and distributor of broadband and
narrowband network access products for network service providers and business
customers.
- - Paradyne Corporation
8545 126th Avenue North
Largo, Florida 33773
(727) 530-2000
PROPOSED TRADING SYMBOL & MARKET:
- - PDYN/Nasdaq
THE OFFERING:
- - We are offering shares.
- - The selling stockholder identified in this prospectus is offering an
additional shares.
- - The underwriters have an option to purchase an additional shares from
the selling stockholder to cover over-allotments.
- - This is our initial public offering, and no public market currently exists for
our shares.
- - We intend to use the proceeds to Paradyne from the offering to repay
indebtedness and for general corporate purposes, including working capital and
capital expenditures. We will not receive any proceeds from the shares sold by
the selling stockholder.
- - Closing: , 1999.
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Per Share Total
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Public offering price: $ $
Underwriting fees:
Proceeds to Company:
Proceeds to selling stockholder:
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This investment involves risk. See "Risk Factors" beginning on page 4.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN
RAUSCHER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY U.S. FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
<PAGE> 3
INSIDE COVER GRAPHICS:
- Diagram depicting customers using Paradyne broadband access solutions to
connect to the Internet and corporate intranets.
- Diagram and photographs depicting Paradyne Hotwire DSL solutions
connecting customers' voice and data to the public switched telephone
network and to the Internet over the copper local loop.
- Diagram and photographs depicting Paradyne FrameSaver customer premise
equipment and service level management network management screens.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Special Note Regarding Forward-Looking Statements........... 15
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Company Information......................................... 16
Capitalization.............................................. 17
Dilution.................................................... 18
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 31
Management.................................................. 47
Certain Transactions........................................ 55
Principal and Selling Stockholders.......................... 62
Description of Capital Stock................................ 63
Shares Eligible for Future Sale............................. 64
Underwriting................................................ 66
Legal Matters............................................... 67
Experts..................................................... 68
Additional Information...................................... 68
Index to Financial Statements............................... F-1
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<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information that you should consider before buying shares in this offering. We
urge you to read the entire prospectus carefully. Unless stated otherwise, the
information contained in this prospectus assumes that the Underwriters'
over-allotment option to purchase shares from the selling
stockholder is not exercised and assumes a split of our common
stock to be effected prior to the closing of this offering.
Unless the context otherwise requires, in this prospectus, "Paradyne,"
"we," "us" and "our" refer to Paradyne Corporation and its subsidiaries. We have
assumed in this prospectus that the merger of Paradyne Acquisition Corporation
with and into Paradyne Corporation, currently a wholly-owned subsidiary of
Paradyne Acquisition Corporation, has been completed. We expect to complete this
reorganization in 1999.
PARADYNE CORPORATION
We are a leading developer, manufacturer and distributor of broadband and
narrowband network access products for network service providers ("NSPs") and
business customers. We offer solutions that enable business class, service level
managed, high-speed connectivity over the existing telephone network
infrastructure and provide for cost-effective access speeds of up to 45 Mbps. We
believe that demand for high-speed, broadband transmission will continue to
increase as more business and residential users find narrowband access
technologies inadequate to meet their high-bandwidth requirements. Our objective
is to maintain and build upon our position as one of the leaders in the
broadband access market by focusing on next generation digital subscriber line,
more commonly known as "DSL," service level management, more commonly known as
"SLM," and other broadband access solutions. We have a long history of
technological innovation, and we hold 163 U.S. patents and have 108 U.S. patent
applications pending. Our equipment is installed in over 50% of the Fortune 500
companies and in businesses in over 125 countries. The Company estimates that
sales to NSPs represented approximately 40% of our total revenues in 1998. With
our reputation and history as a supplier of access solutions to a large customer
base, we believe that we are well-positioned to provide broadband access
solutions to NSPs and business customers as they upgrade their networks.
Over the past several years, data traffic generated by computer users
accessing the Internet or business networks has increased significantly.
Industry analysts believe that the volume of this data traffic, referred to as
wide area network ("WAN") traffic, will continue to expand rapidly due to four
key trends:
- the dramatic growth in the use of the Internet;
- the proliferation of distributed computing applications, such as
electronic mail, electronic transaction processing, enterprise resource
planning and inter-enterprise information transfer based on web
technologies;
- the deregulation of the telecommunications services industry, which has
increased the number of NSPs and intensified competition; and
- the continued deployment of high capacity fiber optic networks and the
emergence of high-volume bandwidth network access technologies that
increase the ability to transfer large volumes of information.
As demand for high-speed transmission continues to increase, we believe
that the telecommunications industry will continue to develop and deploy new
broadband access technologies, which will become increasingly cost competitive
with traditional technologies. As a result of changes in the telecommunications
industry, NSPs are requiring flexible and scalable solutions that meet their
current needs and permit easy, cost-effective enhancements in the future. With
the increasing number of access protocols and enabling equipment options,
customers are placing a higher level of importance on the ability of equipment
providers to deliver integrated system solutions.
1
<PAGE> 6
The Company's current solutions and products include the following:
- Broadband DSL. Our Hotwire solution delivers broadband DSL access across
the existing copper wire infrastructure. The Hotwire products enable
competitive local exchange carriers ("CLECs"), incumbent carriers and
other NSPs to provide broadband access to business customers, teleworkers
and residential customers at substantially reduced rates compared to
conventional service offerings. We believe the Hotwire solution allows
NSPs the ability to deploy the broadest array of DSL technologies of any
commercially available product. The recently introduced SuperLine
solution incorporates Paradyne technology and allows NSPs to offer cost
effective, multiple line voice and high speed data services over a single
traditional telephone line to residential customers, small offices and
home offices. The SuperLine product can be easily installed by customers
to meet their broadband access needs.
- Broadband Service Level Management. Our FrameSaver solution enables the
provisioning of SLM along with broadband DSL, T1/E1 and T3 access to
public Frame Relay and asynchronous transfer mode ("ATM") networks. The
FrameSaver solution enables CLECs, incumbent carriers and other Frame
Relay service providers to offer managed high-speed service from
end-to-end across their networks and across multi-carrier networks.
- Broadband Conventional Access. Our Acculink and NextEdge solutions
deliver broadband T1/E1 access across the existing NSP infrastructure.
These solutions enable CLECs, incumbent carriers and other NSPs to offer
service level managed high speed access to public and private networks.
Business customers choosing to manage their own networks also deploy our
Acculink and NextEdge solutions. Acculink and NextEdge products provide
for the integration of voice and data over the same circuit, reducing the
cost of high speed access for customers.
- Narrowband Solutions. Our Comsphere digital access products provide an
interface between a customer's digital equipment and an NSP's digital
circuit operating at speeds of up to 64 Kbps. Our Comsphere modems enable
communications over switched or leased analog circuits. These products
enable NSPs and business customers to build low-cost, centrally managed
networks. Introduced in the early 1990s, these products are widely
deployed in NSP networks and business networks around the world.
The end-users of our equipment are primarily NSPs and business customers.
NSPs use our broadband products to enable high speed managed connections between
the central office and the customer premise. Moreover, our broadband products
enable NSPs to more efficiently provide network access services by allowing a
high level of management, monitoring and control over network access equipment
and circuits. Business customers use our broadband products for high-speed
connection of voice and data communications to public networks and to connect
their employees to corporate WANs and to the Internet using both public packet
services and private leased line services provided by NSPs. We sell our products
worldwide through a multi-tier distribution system that includes direct sales,
strategic partner sales, NSP sales and traditional distributor or value added
reseller sales. Our NSP and business customers include AT&T, Ameritech, Bank of
America, First Union, Lucent, NTT, Rhythms, SITA, Sprint and Unisys.
Our objective is to maintain and build upon our position as one of the
leaders in the broadband access market utilizing next generation DSL solutions,
conventional copper broadband solutions and SLM solutions. Key elements of our
strategy include:
- continue to develop innovative broadband technology and system
solutions;
- continue to capitalize on buildout of DSL infrastructure;
- increase worldwide deployment of FrameSaver as part of NSP/SLM
solutions;
- focus on product sales to and through NSPs; and
- leverage Fortune 500 customer base as they upgrade their networks to
broadband.
We were originally incorporated in Delaware in 1969 as Paradyne
Corporation, acquired by AT&T in 1989, spun out of AT&T as part of Lucent
Technologies in 1996 and acquired in July 1996 by a limited partnership
controlled by the Texas Pacific Group. Our corporate headquarters are located at
8545 126th Avenue North, Largo, Florida 33773. Our telephone number is (727)
530-2000.
2
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THE OFFERING
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Common stock offered by Paradyne............. shares
Common stock offered by the selling shares
stockholder................................
Over-allotment option........................ shares
Common stock to be outstanding after the shares (1)
offering...................................
Use of proceeds.............................. We intend to use the net proceeds to Paradyne
from the offering to repay indebtedness and
for general corporate purposes, including
working capital and capital expenditures. We
will not receive any proceeds from the shares
sold by the selling stockholder. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... PDYN
</TABLE>
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(1) Assumes no exercise of stock options. Options to purchase 6,934,515 shares
of common stock with a weighted average exercise price of $1.68 per share
were outstanding as of March 31, 1999.
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
You should read the following summary consolidated financial data for the
Company together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and notes thereto included elsewhere in this prospectus. The as adjusted balance
sheet data assumes the sale by us of shares of our common stock
in this offering at an assumed offering price of $ per share after
deducting the underwriting discounts and commissions and estimated offering
expenses and the application of the net proceeds therefrom. See "Capitalization"
and "Use of Proceeds."
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YEARS ENDED QUARTERS ENDED
DECEMBER 31, ---------------------------------------------------
------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1998 1998 1998 1998 1998
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Total revenues................. $181,303 $198,801 $ 43,039 $ 46,218 $ 51,384 $ 58,160
Gross margin................... 89,815 90,260 20,992 22,214 22,471 24,583
Operating income (loss)........ (15,580) (1,825) (972) (1,226) (174) 547
Net income (loss)(1)........... 21,342 (3,645) (1,304) (1,597) (377) (367)
Income (loss) per common share:
Basic........................ $ 0.42 $ (0.07)
Diluted...................... 0.40 (0.07)
Shares used in computing
income (loss) per share:
Basic........................ 51,103 51,246
Diluted...................... 54,001 51,246
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AS OF DECEMBER 31, 1998
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ACTUAL AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,356
Working capital............................................. 8,382
Total assets................................................ 75,063
Total debt.................................................. 16,836
Total stockholders' equity.................................. 27,339
</TABLE>
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(1) Net income for 1997 includes a $51.2 million non-recurring gain in
connection with the renegotiation of a contract with Lucent.
3
<PAGE> 8
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. Please carefully consider the following risk factors and the other
information in this prospectus before deciding to purchase shares of our common
stock. Any of the following risks could seriously harm our business and results
of operations. As a result, the trading price of our common stock could decline,
and you could lose part or all of your investment.
RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR PRODUCTS OBSOLETE
The telecommunications and data communications markets are characterized by
rapid technological change. Our success will depend on our ability to adapt and
to respond to technological changes and other factors, including the following:
Our existing products could become obsolete or unmarketable as a result of
the emergence of new industry standards or customer demands. For example, our
customers could determine that they no longer require service level management
("SLM") with network access products. Furthermore, our products could become
obsolete or unmarketable as a result of any new technology or products which are
superior to ours. We may be unable to compete effectively if we are unable to
adapt to changes in industry standards, meet customer demands or develop new
products or enhancements to existing products.
Our products compete with numerous high-speed access technologies,
including cable modems, satellite technology and other wireless technologies.
These competing technologies may ultimately prove to be superior to our
products. Moreover, substantially all of our products are deployed in networks
that use standard copper telephone wires. The physical properties of copper wire
limit the speed and distance over which data can be transmitted. Other competing
technologies, such as wireless, are not subject to such limitations. The
development of competing technologies that are more reliable, faster and less
expensive than our technology could materially and adversely affect our
business, financial condition and results of operations.
OUR SUCCESS WILL DEPEND ON THE ACCEPTANCE OF NEW TELECOMMUNICATIONS SERVICES
BASED ON DSL
Historically, we focused on providing innovative solutions to the
narrowband access market. We, however, are increasingly focusing on the
broadband access market. Our broadband products are based on DSL, T1/E1, T3 and
fractional T1/E1 technology. Our future success is substantially dependent upon
whether DSL technology gains widespread market acceptance by NSPs and end users
of their services. We have invested substantial resources in the development of
DSL technology, and many of our products are based on DSL technology. Many NSPs
continue to evaluate DSL technology and other alternative high-speed data access
technologies, but they may not continue to pursue the deployment of DSL
technology. Even if NSPs adopt policies favoring full-scale deployment of DSL
technology, they may not choose to purchase our DSL product offerings. In
addition, we have limited ability to influence or control decisions made by
NSPs. NSPs are continuously evaluating alternate high-speed data access
technologies and may, at any time, adopt technologies other than the DSL
technologies offered by us. Our future success depends substantially upon
whether DSL-based technologies gain widespread market acceptance by NSPs and end
users of their services.
WE ARE SUBSTANTIALLY DEPENDENT ON NETWORK SERVICE PROVIDERS
To date, the users of our products have included NSPs, including CLECs and
incumbent carriers. We estimate that sales to NSPs accounted for approximately
40% of our total revenues in 1998. Given the capital requirements, complex
regulatory framework and other barriers to entry in the market, there are a
limited number of NSPs. The market for many of the services provided by NSPs has
only begun to emerge since the passage of the Telecommunications Act of 1996
(the "1996 Act"), and many NSPs are still building their infrastructure and
rolling out their services. Many of these NSPs still need to develop, construct
and expand their networks. The inability of our emerging NSP customers to
complete development of their networks, attract or retain customers, respond to
trends, such as price reductions for their services or diminished demand for
telecommunications services generally, could cause them to reduce their capital
spending programs. If our NSP customers are forced to defer or curtail their
capital spending programs, our business, financial condition and results of
operations could be materially and adversely affected.
4
<PAGE> 9
Generally, our NSP customers do not have an obligation to purchase
additional products or services from us. Termination of purchase arrangements
with these NSP customers or a significant reduction or delay in the amount of
our products they order could materially and adversely affect our business,
financial condition and results of operations. In addition, the
telecommunications industry has recently experienced consolidation, which may
cause us to lose NSP customers. The loss of one or more of our NSP customers
could materially and adversely affect our business, financial condition and
results of operations.
OUR SUCCESS DEPENDS ON NETWORK SERVICE PROVIDERS INCORPORATING OUR PRODUCTS INTO
THEIR INFRASTRUCTURE
We anticipate that a significant portion of our future revenues will be
attributable to sales to NSPs of our DSL, SLM and other broadband products. Our
future performance will therefore be substantially dependent on incorporation of
our products by NSPs into their service offerings to subscribers. The failure of
our products to become an accepted part of NSPs' service offerings or a slower
than expected increase in the volume of sales by us of SLM products could
materially and adversely affect our business, financial condition and results of
operations. Our success in the NSP market will depend on numerous factors, many
of which are outside our control. Some of these factors include:
- NSP and subscriber acceptance of and satisfaction with our products;
- the realization of operating cost efficiencies for NSPs when SLM products
are deployed and our ability to demonstrate these operational benefits;
- subscriber demand for our products and support for our products within
the NSPs' sales force;
- our successful development of systems and products which address the
requirements for products deployed as part of an NSP's infrastructure;
- the timing and successful completion of integration development work by
NSPs to incorporate our SLM functionality into their operational support
system; and
- the absence of new technologies which make our products and systems
obsolete before they can achieve broad acceptance.
VARIOUS FACTORS MAY AFFECT OUR RESULTS OF OPERATIONS AND CAUSE POTENTIAL
FLUCTUATIONS IN OUR RESULTS
Paradyne's quarterly and annual results of operations have fluctuated in
the past and are likely to fluctuate significantly in the future due to a
variety of factors, many of which are outside of our control. Some of these
factors include:
- the timing and amount of, or cancellation or rescheduling of, orders for
our products and services to existing and new customers;
- our ability to develop, introduce, ship and support new products and
product enhancements and manage product transitions on a timely basis;
- announcements, new product introductions and reductions in price of
products offered by our competitors;
- our ability to achieve cost reductions;
- our ability to obtain sufficient supplies of sole or limited source
components for our products;
- competitive pressures on selling prices of our components;
- the ability of our NSP customers to raise financing to purchase our
products;
- the timing and rate of deployment of our products by NSPs;
- preferential pricing arrangements;
- our ability to attain and maintain production volumes and quality levels
for our products;
5
<PAGE> 10
- the mix of products sold and the mix of distribution channels through
which they are sold;
- fluctuations in demand for our products and services, especially by our
major customers;
- expiration of favorable supply or purchase contracts;
- costs relating to possible acquisitions and integration of technologies
or businesses; and
- conditions in the telecommunications market, including consolidation in
the industry, and economic conditions generally.
Due to these and other factors, quarterly and annual revenues, expenses and
results of operations could vary significantly in the future, and
period-to-period comparisons should not be relied upon as indications of future
performance. Additionally, due to all of the foregoing factors, it is possible
that in some future periods, our operating results and/or our growth rate will
be below what public market analysts and investors expect. If that happens, the
market price of our common stock could decline materially.
WE DEPEND ON MAJOR CUSTOMERS FOR A SUBSTANTIAL PORTION OF OUR REVENUES
We depend on a small number of customers for a substantial portion of our
revenues. Direct product sales to Lucent and services performed for Lucent in
1998 accounted for approximately 35% of our total revenues. Lucent purchases
products to include in their data networking solutions products, which it sells
to businesses worldwide. Lucent also purchases our products to package with
their various telephone systems. Sales to Tech Data Corporation, a distributor,
in 1998 accounted for approximately 17% of our total revenues. We estimate that
approximately 63% of our sales to Tech Data represented products that were
resold to Lucent. Collectively, we estimate that direct and indirect sales to
Lucent accounted for approximately 47% of our total revenues in 1998. Sales to
SITA, an NSP, in 1998 accounted for approximately 9% of our total revenues in
1998, and sales to Rhythms, also an NSP, accounted for approximately 6% of our
total revenues in 1998. A loss or a significant reduction or delay in sales to
any of our major customers could materially and adversely affect our business,
financial condition and results of operations. Unless and until we diversify and
expand our customer base, our future success will significantly depend upon
certain factors which are not within our control, including:
- the timing and size of future purchase orders, if any, from our larger
customers;
- the product requirements of our customers;
- the financial and operational success of our customers; and
- the success of our customers' services deployed using our products.
Diversification and expansion of our customer base is particularly critical
because of the highly competitive nature of our business. Our contracts are
generally subject to annual renewal with the exception of our contracts with
Lucent and several other customers, which have two to five year terms, and our
customers generally do not have any obligation to purchase products solely from
Paradyne. Under a supply agreement between Lucent and Paradyne, Paradyne is the
exclusive supplier of Lucent's requirements for certain network access products
for resale through June 2001.
WE HAVE A HISTORY OF LOSSES AND MAY EXPERIENCE FUTURE LOSSES
Excluding a one-time gain in connection with a contract renegotiation with
Lucent in 1997 and the related tax effect, we had an accumulated net deficit of
approximately $37.2 million during the period from August 1, 1996 through
December 31, 1998. We anticipate that we will continue to incur significant
product development and selling, general and administrative expenses and, as a
result, we will need to generate higher revenues to achieve and sustain
profitability on an annual basis. Although our revenues have grown in recent
quarters, we cannot be certain that we will continue to achieve revenue growth
or realize sufficient revenues to achieve profitability. We have not been
profitable in any fiscal year of operations except in 1997 when we were
profitable as a result of a non-recurring gain in connection with the
renegotiation of a contract with Lucent.
6
<PAGE> 11
OUR MARKETS ARE HIGHLY COMPETITIVE AND COMPETITION COULD HARM OUR ABILITY TO
SELL PRODUCTS AND SERVICES
The telecommunications market is highly competitive, and we believe that
competition may increase substantially as the introduction of new technologies,
deployment of broadband networks and potential regulatory changes create new
opportunities for established and emerging companies in the industry. We compete
directly with other providers of broadband and narrowband access equipment,
including ADC Telecommunications, Adtran, Alcatel, Ascend, Cisco, Copper
Mountain, Digital Link, Larscom, Motorola, Nokia, Nortel Networks, Orckit,
PairGain, Sync Research, 3Com, Tut Systems and Visual Networks. We expect that
competition for products that address the broadband access market will grow as
more companies and an increasing number of new companies focus on this market to
develop solutions for higher speed access to public networks.
Many of our current and potential competitors are larger than we are and
have significantly greater financial, sales and marketing, technical,
manufacturing and other resources and more established channels of distribution.
As a result, these competitors may be able to respond more rapidly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products. Our
competitors may enter our existing or future markets with solutions that may be
less costly, provide higher performance or additional features or be introduced
earlier than our solutions. Some of our competitors currently offer financing
alternatives to their customers at levels at which we cannot compete.
Our markets are characterized by increasing consolidation both within the
data communications sector and by companies combining or acquiring data
communications products and technology for delivering voice-related services, as
exemplified by the recently announced acquisitions of Ascend by Lucent, Diamond
Lane by Nokia and Xylan by Alcatel. We cannot be sure of the impact of any of
these acquisitions on the competitive environment for our products. Increased
competition and consolidation could result in price reductions and a decrease in
our market share.
Our future success will depend on our ability to compete successfully on
the basis of the following factors:
- key product features;
- system reliability and performance;
- technological innovation;
- price;
- time to market;
- breadth of product lines;
- conformity to industry standards;
- ease of installation and use;
- brand recognition;
- ability to help customers finance purchases;
- technical support and customer service; and
- size and stability of operations.
WE ARE HIGHLY DEPENDENT ON CERTAIN DEVELOPMENT RELATIONSHIPS
Our success is dependent upon our continued relationship with certain
companies, including AG Communications Systems, Ascend, GlobeSpan, NetScout and
Xylan. If any of these companies breaches or terminates its agreement or fails
to perform its obligations under its agreement, that could materially and
adversely affect our business, financial condition and results of operations. In
particular, if any of these companies, other current corporate partners or
future corporate partners discontinue their support of products that we have
developed in cooperation with them, fail to continue to develop product
enhancements required to meet customer demand, fail
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to appropriately address performance issues related to products that we have
developed in cooperation with them, face claims of infringement of third party
intellectual property rights with respect to the technology included in products
that we have developed in cooperation with them or fail to continue to support
joint marketing programs, our ability to sell products that we have developed in
cooperation with them would be hampered. Additionally, in the event that any of
our significant relationships are terminated, we may not be able to replace them
in a timely manner, if at all.
OUR SUCCESS DEPENDS IN PART ON OUR RELATIONSHIP WITH PREMISYS
We have a relationship with Premisys Communications through which, under a
1992 agreement which has been extended and amended, we have certain exclusive
distribution rights through April 2005 for Premisys' IMACS system, which we
market under the name Acculink Access Controller ("AAC") to Lucent and AT&T. We
have also entered into a supply and exclusivity agreement with Lucent under
which we are the exclusive supplier of Lucent's requirements for certain access
products, including AAC, for resale through June 2001. Sales of AAC accounted
for greater than 10% of our total revenues during each of 1997 and 1998. In
1997, we discontinued selling AAC to customers other than Lucent and AT&T for
various pricing and distribution reasons. If Premisys fails to meet its
obligations under the agreement or if Lucent or AT&T were to substantially
reduce or discontinue their orders of AAC, it would materially and adversely
affect our business, financial condition and results of operations.
WE DEPEND ON SOLE AND SINGLE SOURCE SUPPLIERS WHICH EXPOSES US TO POTENTIAL
SUPPLY INTERRUPTION
We currently purchase certain important parts, such as framers,
semiconductors and embedded communications processors, from sole source vendors
for which alternative sources are not currently available. The purchase of these
components from outside suppliers on a sole source basis subjects us to certain
risks, including the continued availability of supplies, price increases and
potential quality assurance problems. We currently purchase key components for
which there are currently no immediate substitutes available from approximately
45 vendors. All of these components are critical to the production of our
products. Delays or interruptions in the supply of these components could
materially and adversely affect our business, financial condition and results of
operations. While alternative suppliers may be available to us, we must first
identify these suppliers and qualify them. There can be no assurance that any
such suppliers will meet our required qualifications or that we will be able to
identify alternative suppliers in a timely fashion, if at all. We may not be
able to obtain sufficient quantities of these components on the same or
substantially the same terms. Consolidations involving suppliers could further
reduce the number of alternatives for us and affect the cost of such supplies.
An increase in the cost of such supplies could make our products less
competitive with products which do not incorporate such components. Lower
margins or less competitive product pricing could materially and adversely
affect our business, financial condition and results of operation.
OUR SALES CYCLE IS TYPICALLY LONG AND UNPREDICTABLE
Our business is subject to lengthy sales cycles. On average, our sales
cycle ranges from six to nine months. Sales of our products require a
substantial commitment of capital and time from our customers, many of whom have
lengthy internal procedures for approving large capital expenditures and lengthy
testing and decision-making processes. Before our NSP customers purchase
products from us, they must first make a decision to standardize their service
on a particular product, which involves extensive testing. Our sales cycle may
be slowed further, or affected by, budgetary constraints and purchasing
requirements of our customers, all of which are beyond our control. Delays in
product testing or approval, or cancellations of orders by customers, especially
our NSP customers, could materially and adversely affect our business, financial
condition and results of operations. Moreover, sales of our products often
require significant training of both our customers and end users before the
decision to purchase. As a result, we may expend significant resources pursuing
potential sales opportunities that will not be consummated.
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BECAUSE OF OUR LONG PRODUCT DEVELOPMENT PROCESS, WE INCUR SUBSTANTIAL EXPENSES
BEFORE WE EARN ASSOCIATED REVENUES
In order to remain competitive, we invest significant resources toward
research and development of our current and potential products. Development
costs and expenses are incurred before we generate any revenues from sales of
products resulting from these efforts. Further, there can be no assurance that
our current or future customer base will purchase any products resulting from
our current or future development efforts.
PROTECTION OF OUR TECHNOLOGY IS CRITICAL TO OUR SUCCESS
Our success and ability to compete is substantially dependent upon our
technology. We rely on a combination of patent, copyright and trade secret laws
and non-disclosure agreements to protect such technology. Currently, we hold 163
United States patents and have 108 United States patent applications pending. In
addition, we hold certain corresponding foreign patents and have certain
corresponding foreign patent applications pending. However, we cannot be certain
that patents will be issued with respect to any of our pending or future patent
applications. In addition, we do not know whether any of our issued patents will
be upheld as valid or that they will prevent the development of competitive
products.
We seek to protect our intellectual property rights by limiting access to
the distribution of our software, documentation and other proprietary
information. All of our employees execute proprietary information agreements,
and certain of our strategic partners enter into nondisclosure agreements with
us. As with our issued patents, we cannot be certain that the steps we have
taken to protect our intellectual property will adequately prevent the
misappropriation of any of our technology. Our competitors may independently
develop technologies that are substantially equivalent or superior to our
technologies. In addition, the laws of certain foreign countries do not protect
our proprietary rights to the same extent as do the laws of the United States.
Third parties may attempt 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 protect our proprietary rights against unauthorized third-party
copying or use. If any third parties infringe our proprietary rights, such
infringement could materially and adversely affect our business, financial
condition and results of operations.
We are also subject to the risk of adverse claims and litigation alleging
infringement of the intellectual property rights of others. These claims may
require us to enter into license arrangements or may result in protracted and
costly litigation, regardless of the merits of such claims. No assurance can be
given that any necessary licenses will be available or that, if available, such
licenses can be obtained on commercially reasonable terms.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL AND A
SKILLED WORKFORCE
Our success depends to a significant degree upon the continued
contributions of the principal members of our sales, engineering and management
personnel, many of whom would be difficult to replace. The loss of such
personnel could materially and adversely affect our business, financial
condition and results of operations. Specifically, we believe that our future
success is highly dependent on our senior management, and in particular on
Andrew May, President and Chief Executive Officer. Except for agreements with
Messrs. May, Murphy and Slattery, we do not have employment contracts with our
executive officers. In any event, employment contracts would not prevent key
personnel from terminating their employment with us.
We believe that our future success will also depend highly upon our ability
to attract and retain highly-skilled customer support and product development
personnel. The market for qualified personnel in the telecommunications industry
is highly competitive, and we frequently experience difficulty in recruiting
qualified personnel. Recruiting qualified personnel is an intensely competitive
and time-consuming process.
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<PAGE> 14
OUR RELIANCE ON INTERNATIONAL SALES MAY MAKE US SUSCEPTIBLE TO GLOBAL ECONOMIC
FACTORS, FOREIGN TAX LAW ISSUES AND CURRENCY FLUCTUATIONS
We currently have 11 sales offices and subsidiaries in North America,
Europe and Asia through which we market and sell our products. International
sales accounted for approximately 21% of our total revenues in 1998. Our
international operations subject us to risks to which we would not otherwise be
exposed, such as:
- impact of recessions in economies outside of the United States;
- currency exchange rate fluctuations;
- uncertain intellectual property rights protection;
- political and economic instability;
- policy, legal, regulatory or other changes affecting the
telecommunications and data communications markets;
- potential adverse tax consequences;
- change in tariffs;
- difficulties in accounts receivable collection;
- difficulties in managing distributors or representatives;
- difficulties in staffing and managing foreign operations;
- adoption of the Euro by the business and financial community; and
- seasonality.
FAILURE TO COMPLY WITH REGULATIONS AND EVOLVING INDUSTRY STANDARDS COULD AFFECT
OUR PRODUCT OFFERINGS
We are subject to a significant number of communications regulations and
standards, some of which are evolving as new technologies are deployed and due
to ongoing judicial and administrative proceedings. Our products may be required
to comply with various regulations, including those promulgated by the Federal
Communications Commission ("FCC"), state public utilities commissions and
various foreign governments. Our products must comply with the Communications
Act of 1934 and the 1996 Act. Future regulations adopted by the FCC or other
regulatory bodies could materially and adversely affect our business, financial
condition and results of operations. In the United States, in addition to
complying with FCC regulations, our products are required to meet certain safety
requirements. For example, we are required to have certain of our products be
network equipment building standard ("NEBS") certified before they may be
deployed by certain customers. Outside of the United States, our products are
subject to the regulatory requirements of each country in which the products are
manufactured or sold. These requirements vary widely, and we may be unable to
obtain on a timely basis, or if at all, necessary approvals for the manufacture,
marketing and sale of our products.
The FCC currently is considering changes to its regulations, including
those relating to network equipment registration and the deployment of broadband
services. The United States Congress is considering a variety of amendments to
the Communications Act of 1934 and the 1996 Act. If we are required to comply
with new laws, new regulations or new interpretations of existing laws or
regulations, or if we are required to comply with additional existing
regulations due to changes in the nature of our products, the costs associated
with compliance could materially and adversely affect our business, financial
condition and results of operations. Moreover, failure of our products to
comply, or delays in compliance, with the various existing and evolving industry
regulations and standards could delay the introduction of our products.
Enactment by federal, state or foreign governments of new laws or regulations,
changes in the interpretation of existing laws or regulations or a reversal of
the trend toward deregulation in the telecommunication industry could materially
and adversely affect our customers, and thereby materially and adversely affect
our business, financial condition and results of operations.
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<PAGE> 15
WE COULD BE AFFECTED BY OTHER REGULATORY CHANGES IN THE TELECOMMUNICATIONS
INDUSTRY
A large percentage of our customers are NSPs whose voice services, and many
of their other network services, must comply with the Communications Act of
1934, the 1996 Act and regulations prescribed by the FCC. Furthermore, most of
our NSP customers' voice services are subject to regulation by state public
utilities commissions. Some of our NSP customers are subject to foreign
government regulation. Many of these federal, state and foreign regulations
continue to evolve due to ongoing judicial and administrative proceedings,
particularly those federal regulations designed to define rights and obligations
under the 1996 Act. For example, the FCC is considering changes to its
regulations, including those relating to local loop access, collocation and
spectral compatibility requirements. Furthermore, the United States Congress is
considering a variety of amendments to the Communications Act of 1934 and the
1996 Act. If our NSP customers are required to comply with new laws, new
regulations or new interpretations of existing laws or regulations, or if they
are required to comply with additional existing regulations due to changes in
the nature of their services, those changes could materially and adversely
affect the market for our products. Moreover, as a result of those changes, our
distributors or partners could require, or we may otherwise deem it necessary or
advisable, to modify our current or future products. The compliance costs could
materially and adversely affect our business, financial condition and results of
operations.
OUR PRODUCTS ARE SUBJECT TO EQUIPMENT STANDARDS
Many of our products are covered by equipment standards adopted by national
and international standards bodies. Compliance with these standards often
enhances the marketability of our products. Many of those standards are
influenced by industry committees that develop draft standards and technical
reports. These industry committees often include us, our customers, and our
competitors and their customers. If we are required, or deem it otherwise
necessary or advisable, to comply with new standards or with additional existing
standards due to changes in the nature of our products, the costs associated
with compliance could materially and adversely affect our business, financial
condition and results of operations.
OUR SUCCESS DEPENDS ON DISTRIBUTORS AND RESELLERS
A significant number of our sales are made through distributors and
resellers. We often rely on distributors and resellers to provide installation,
training and customer support to the ultimate end users of our products. As a
result, our success depends on the continued sales and customer support efforts
of our network of distributors and resellers. Any reduction, delay or loss of
orders from our significant distributors or resellers could materially and
adversely affect our business, financial condition and results of operations.
Our success will depend upon maintaining relationships with our current and
future distributors and resellers and diversifying our distribution channels.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROVIDE ADEQUATE CUSTOMER SUPPORT
Our ability to continue to grow our company and to retain current and
future customers depends in part upon the quality of our customer support
operations. Our customers generally require significant support and training
prior to the installation and deployment of our products. Providing adequate
levels of support to our customers, requires significant expenditures of
resources and capital. As the market for high speed access devices grows and as
the technology for these devices continues to evolve, we will need to augment
and improve upon our customer support operations. A failure to do so could
materially and adversely affect our business, financial condition and results of
operations.
WE MAY NEED ADDITIONAL CAPITAL TO FINANCE OUR GROWTH AND CAPITAL REQUIREMENTS
Substantial working capital is required in order to fund and continue to
build our business. If we fail to do so, we will not be able to remain
competitive or continue to meet the increasing demands for our products. We
expect to use the net proceeds of this offering to repay indebtedness and for
general corporate purposes, including working capital and capital expenditures.
We may also need to spend significant amounts of cash to fund operating losses
and increases in expenses, take advantage of opportunities or respond to
developments or
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<PAGE> 16
competitive pressures. We believe that the proceeds of this offering, together
with our existing capital resources and our revolving line of credit facility
with BankAmerica NT&SA, will allow us to meet our capital requirements for at
least the next 18 months. However, our capital requirements depend on several
factors, including the rate of market acceptance of our products, the ability to
expand our client base, the growth of our sales and marketing efforts and other
factors. If capital requirements vary materially from those currently planned,
we may require additional financing sooner than anticipated. There can be no
assurance that additional financing will be available to us when needed or that
such financing can be obtained on terms favorable to us. If adequate funds are
not available or are not available on acceptable terms, we may be unable to
develop or enhance our services, take advantage of future opportunities or
respond to competitive pressures, which could materially adversely affect our
business, financial condition or results of operations.
YEAR 2000 RISKS MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As is true for most companies, the Year 2000 problem creates a risk for us.
Some computers, software and other equipment include programming code in which
calendar year data is abbreviated to only two digits (e.g., 99) rather than four
digits (e.g., 1999). As a result, these systems automatically assume that the
first two digits of a calendar year are "1" and "9." Therefore, time-sensitive
functions of these systems may misinterpret dates after January 1, 2000, to
refer to the twentieth century rather than the twenty-first century (i.e., "02"
could be interpreted as "1902" rather than "2002"). The problems associated with
this design decision are commonly referred to as the "Millennium Bug," "Year
2000 problem" or "Y2K problem." If systems do not correctly recognize date
information when the year changes to 2000, there could be an adverse impact on
our operations. The risk exists primarily in four areas:
- potential warranty or other claims from our customers;
- systems we use to run our business;
- systems used by our service providers, distributors and suppliers; and
- the potential for failures of our products, particularly our central
office-based systems, due to Year 2000 problems associated with products
manufactured by other equipment vendors used in conjunction with our
products.
A disruption in the operations of parties with whom we interact could
materially and adversely affect our business, financial condition and results of
operations.
Substantial uncertainty remains in the software industry concerning the
potential effects associated with the Year 2000 problem. We have developed a
comprehensive multi-year plan to ensure that our internal computer software and
hardware systems will be Year 2000 compliant. While we believe that we have
implemented a comprehensive plan for addressing the Year 2000 problem and
anticipate completing our compliance activities in a timely manner, we cannot be
certain that these Year 2000 compliance efforts will be successful. Furthermore,
the financial impact of making the required systems changes cannot be known
precisely at this time.
We are currently developing contingency plans to be implemented as part of
our efforts to identify and correct Year 2000 problems affecting our internal
systems. We expect to complete these contingency plans by the end of the third
quarter of 1999. Depending on the systems affected, these plans could include
accelerated replacement of affected equipment or software, increased work hours
for our personnel or use of contract personnel to correct on an accelerated
schedule any Year 2000 problems which may arise, the provision of manual
workarounds for information systems, and other similar approaches. If we are
required to implement any of these contingency plans, such plans may materially
and adversely affect our business, financial condition and results of
operations. Additionally, we may not complete these contingency plans in a
timely manner, and failure to do so could materially and adversely affect our
business, financial condition and results of operations.
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WE MAY BE SUBJECT TO SIGNIFICANT LIABILITY CLAIMS FOR PRODUCT DEFECTS FROM OUR
CUSTOMERS AND THE END-USERS OF OUR PRODUCTS
Our products are complex and, despite extensive testing, may therefore
contain undetected errors or failures. If this happens, we may experience delay
in or loss of market acceptance and sales, product returns, diversion of
research and development resources, injury to our reputation or increased
service and warranty costs, any of which could materially and adversely affect
our business, financial condition and results of operations. We also have
exposure to significant liability claims with respect to our customers because
our products are designed to provide critical communications services. Although
we attempt to limit such exposure through product liability insurance and
through contractual limitations in our customer agreements, such precautions may
not cover all potential claims resulting from a defect in one of our products.
MANAGEMENT AND OUR SINGLE LARGEST STOCKHOLDER MAY LIMIT YOUR ABILITY TO
INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND CERTAIN TRANSACTIONS
Our executive officers, directors and principal stockholder and their
affiliates will beneficially own shares or approximately
% of our outstanding shares of common stock ( % if
the underwriters' over-allotment option is exercised in full) after the
offering. As a result, these stockholders, if acting together, would be able
effectively to control substantially all matters requiring approval by our
stockholders.
Communication Partners, L.P. will own approximately % of Paradyne
after the offering and will be able to exercise control over Paradyne, subject
to the fiduciary duties of its representatives on the board of directors under
Delaware law. The interests of Communication Partners may not always coincide
with the interests of other stockholders. Communication Partners, through its
representatives on the board of directors, could cause us to enter into
transactions or agreements which we would not otherwise consider absent
Communication Partners' influence. Communication Partners also is currently the
majority owner of GlobeSpan. See "Certain Transactions."
OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL SHARES AT OR
ABOVE THE OFFERING PRICE
There has not been a public market for our common stock prior to this
offering, and there can be no assurance that a liquid trading market for our
shares will develop following this offering. The initial price for the shares of
our common stock to be sold in the offering 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. The trading price of our
common stock could be subject to wide fluctuations in response to various
factors, some of which are beyond our control, such as:
- actual or anticipated variations in quarterly results of operations;
- changes in intellectual property rights of Paradyne or our competitors;
- announcements of technological innovations;
- the introduction of new products or changes in product pricing by
Paradyne or our competitors;
- changes in financial estimates by securities analysts;
- announcements of significant acquisitions, strategic partnerships, joint
ventures or capital commitments by us or our competitors; and
- additions or departures of key personnel.
A FAILURE TO MANAGE OUR GROWTH COULD ADVERSELY AFFECT OUR BUSINESS
We have experienced expansions and contractions of our operations in the
past. Since August 1996, we have restructured our operations consistent with our
strategic plan, which has resulted in significant changes in the composition of
our workforce. We anticipate that expansion of our operations will be required
to address the potential growth in our client base and the opportunities in the
broadband access market. Our current expansion is placing a significant strain
on our managerial, operational and financial resources. If we are unable to
manage our
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growth effectively, our business, financial condition and results of operations
could be materially and adversely affected.
WE MAY BE SUBJECT TO RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
We may pursue acquisitions that could provide new technologies, products or
service offerings. Future acquisitions by us may involve the following:
- use of significant amounts of cash;
- potentially dilutive issuances of equity securities; or
- incurrence of debt or amortization expenses related to goodwill and other
intangible assets.
In addition, acquisitions involve numerous risks, including:
- difficulties in the assimilation of the operations, technologies, product
and personnel of the acquired company;
- the diversion of management's attention from other business concerns;
- risks of entering markets in which we have no or limited prior
experience; and
- the potential loss of key employees of the acquired company.
We have engaged in discussions in the past with third parties concerning
potential acquisitions of product lines, technologies and businesses. However,
we currently have no commitments or agreements with respect to any such
acquisition. In the event that such an acquisition does occur, we cannot be
certain that our business, financial condition and results of operations will
not be materially adversely affected.
SHOULD WE SELL A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK IN THE PUBLIC
MARKET, THE PRICE OF OUR COMMON STOCK COULD FALL
Sales of a substantial number of shares of our common stock in the public
market after this offering could adversely affect the market price of our common
stock and could impair our ability to raise additional capital through the sale
of equity securities. Upon completion of this offering, we will have
approximately shares of common stock outstanding, of which
approximately shares (approximately shares if the
underwriters' over-allotment option is exercised in full) will be freely
transferable without restriction or registration under the Securities Act of
1933 (the "Securities Act"), unless such shares are held by our affiliates, as
that term is defined in Rule 144 under the Securities Act. In addition, we
intend to file a registration statement on Form S-8 with the Securities and
Exchange Commission covering the shares of common stock reserved
for issuance under our 1996 Equity Incentive Plan, 1999 Employee Stock Purchase
Plan and 1999 Non-Employee Directors' Stock Option Plan. On the date 180 days
after the effective date of this offering, at least shares will
be subject to immediately exercisable options (based on options outstanding on
March 31, 1999). Sales of a large number of any of these shares could have an
adverse effect on the market price for our common stock.
OUR CORPORATE CHARTER AND BYLAWS MAY DISCOURAGE TAKE-OVER ATTEMPTS
Provisions in our Restated Certificate of Incorporation and bylaws may have
the effect of delaying or preventing a change of control or changes in our
management. These provisions include:
- the right of the Board of Directors to elect a director to fill a vacancy
created by the expansion of the Board of Directors;
- the ability of the Board of Directors to alter our bylaws without
obtaining stockholder approval;
- the requirement that at least 10% of the outstanding shares of common
stock are needed to call a special meeting of stockholders;
- the division of the board of Directors into three classes, with each
class serving staggered three-year terms; and
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- the requirement that all actions by stockholders must be effected at a
duly called meeting of the stockholders and may not be effected by a
consent in writing.
These provisions could discourage take-over attempts and could adversely
affect the market price of our common stock. In addition, these provisions may
limit the ability of stockholders to remove our current management. See
"Description of Capital Stock" for a further discussion of these provisions.
YOU WILL EXPERIENCE IMMEDIATE DILUTION
Shares of our common stock were sold at prices substantially less than the
initial public offering price in the past. Accordingly, you will incur immediate
and substantial dilution in the net tangible book value per share of the common
stock that you purchase. Furthermore, to the extent that outstanding options and
warrants to purchase shares of our common stock are exercised, additional
dilution may result.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements
regarding future events, our future financial performance and operating results,
our business strategy and our financing plans are forward-looking statements. In
some cases, you can identify forward-looking statements by terminology, such as
"may," "will," "should," "expect," "intend," "plan," "anticipate," "believe,"
"estimate," "predict," "potential" or "continue," the negative of such terms or
other comparable terminology. These statements are only predictions. Known and
unknown risks, uncertainties and other factors could cause actual results to
differ materially from those contemplated by the statements. In evaluating these
statements, you should specifically consider various factors, including the
risks outlined under "Risk Factors." These factors may cause our actual results
to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform such statements to actual results
or to changes in our expectations.
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USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately
$ from the sale of shares of our common stock in this
offering, assuming an initial public offering price of $ and after
deducting estimated underwriting discounts and commissions and offering
expenses. We will not receive any proceeds from the shares sold by the selling
stockholder in this offering.
We intend to use the net proceeds of this offering to repay all outstanding
indebtedness under our $35,000,000 revolving line of credit facility with Bank
of America NT&SA. Our credit facility expires on January 31, 2000 and carries a
variable interest rate which was 7.75% as of March 31, 1999. As of March 31,
1999, the outstanding balance under the credit facility was approximately $10.4
million. We intend to use the remainder of the net proceeds for general
corporate purposes, including working capital and capital expenditures. The
amounts actually expended for working capital purposes may vary significantly
and will depend on a number of factors, including the amount of our future
revenues and the other factors described under "Risk Factors." Accordingly, we
will retain broad discretion in the allocation of the net proceeds of this
offering. Additionally, we may use a portion of the net proceeds to pursue
possible acquisitions of businesses, technologies or products complementary to
our business. We are not currently evaluating any acquisition opportunities and
we cannot assure you that we will identify suitable acquisition candidates or
that we will consummate any acquisitions. Pending our use of the net proceeds,
we intend to invest the funds in short term, interest-bearing, investment-grade
securities. Another primary purpose of this offering is to create a public
market for our common stock and facilitate our future access to public capital
markets.
DIVIDEND POLICY
We currently anticipate that we will retain all of our future earnings for
use in the operation and expansion of our business and do not anticipate paying
cash dividends in the foreseeable future. Our current financing arrangements
place certain restrictions on the payment of dividends.
COMPANY INFORMATION
We are a Delaware corporation. Our principal executive offices are located
at 8545 126th Avenue North, Largo, Florida 33773, and our telephone number is
(727) 530-2000. Our fiscal year ends on December 31. We maintain a worldwide web
site at http://www.paradyne.com. The reference to our worldwide web address does
not constitute incorporation by reference into this prospectus of the
information contained at that site. Our logo and certain titles and logos of our
publications and products mentioned in this prospectus are our service marks and
trademarks. All other brand names or trademarks appearing in this prospectus are
the property of their respective holders.
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CAPITALIZATION
The following table sets forth our total capitalization as of December 31,
1998:
- On an actual basis; and
- On an as adjusted basis to reflect the sale of shares of
common stock by Paradyne in this offering at an assumed initial public
offering price of $ per share and the application of the net
proceeds in the manner described in "Use of Proceeds."
Please read the following information in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the notes thereto beginning on page
F-1 of this prospectus. The following information regarding shares outstanding
is as of December 31, 1998. It excludes 9,000,000 shares of common stock
reserved for issuance under our stock plans, of which 8,049,394 shares were
subject to outstanding options as of December 31, 1998. Options to purchase
6,934,515 shares of common stock were outstanding as of March 31, 1999. See
"Management -- "1996 Equity Incentive Plan."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Current portion of debt..................................... $16,483 $
======= ========
Long-term debt.............................................. $ 353 $
Stockholders' equity:
Common stock, par value $0.001; 60,000,000 shares
authorized and 51,337,445 shares issued and
outstanding............................................ 51
Additional paid-in capital................................ 21,033
Retained earnings......................................... 6,639
Note receivable for common stock.......................... (150)
Cumulative translation adjustment......................... (234)
------- --------
Total stockholders' equity........................ 27,339
------- --------
Total capitalization.............................. $27,692 $
======= ========
</TABLE>
17
<PAGE> 22
DILUTION
Our net tangible book value as of December 31, 1998 was approximately $26.6
million, or approximately $.52 per share. This is calculated as our total
tangible assets less total liabilities, divided by the number of shares
outstanding as of December 31, 1998. "Adjusted net tangible book value" per
share represents our net tangible book value after adjusting for the net
proceeds from the sale of shares of common stock offered hereby
at an assumed initial public offering price of $ per share. The sale of
shares of common stock in this offering and the application of the net proceeds
therefrom will result in an immediate increase in net tangible book value of
$ or $ per share to existing stockholders and an
immediate dilution of $ per share to investors purchasing shares of
common stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share as of December 31,
1998................................................... $
Increase attributable to new investors....................
------
Adjusted net tangible book value as of December 31, 1998....
------
Dilution to new investors................................... $
======
</TABLE>
The following table summarizes, on an as adjusted basis for the offering,
as of December 31, 1998, the number of shares of common stock purchased from
Paradyne, the total consideration paid to Paradyne and the average price per
share paid to Paradyne by existing stockholders and by the investors purchasing
shares of common stock in this offering, before deducting underwriting discounts
and commissions and estimated offering expense payable by Paradyne:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 51,337,445 % $17,401,620 % $0.34
New stockholders......................
---------- --- ----------- ---
Total....................... 100% $ 100%
========== === =========== ===
</TABLE>
In the event that we issue additional shares of common stock in the future,
purchasers of common stock in this offering may experience further dilution.
The foregoing discussion and tables assume no exercise of any stock options
at a weighted average exercise price of $1.68 per share. To the extent these
options are exercised, new investors will experience further dilution. See
"Management -- "1996 Equity Incentive Plan."
18
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is derived from the
consolidated financial statements of Paradyne and from the books and records of
its predecessor business. This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this prospectus. The consolidated statement
of operations for the seven months ended July 31, 1996, the five months ending
December 31, 1996 and for the years ended December 31, 1997 and 1998 and the
consolidated balance sheet as of December 31, 1996, 1997 and 1998 are derived
from audited consolidated financial statements. The selected consolidated
financial data for the years ended December 31, 1994 and 1995 have not been
audited. The predecessor business consists of certain operating activities of
AT&T Paradyne Corporation, a wholly-owned subsidiary of Lucent Technologies
Inc., on a carve-out basis, which were acquired by the Company effective July
31, 1996 (the "Predecessor Business"). In the opinion of our management, the
Predecessor Business operated in a substantially different organizational
structure and manner than we do and, accordingly, we believe that a comparison
of its operating activities and results to ours is not meaningful. See Note 2 of
the Notes to the Consolidated Financial Statements of Paradyne for an
explanation of the method used to calculate earnings per share. Earnings per
share data is not presented for the Predecessor Business since the Predecessor
Business did not have its own capital structure. As a result, this information
would not be meaningful.
<TABLE>
<CAPTION>
PREDECESSOR BUSINESS PARADYNE
----------------------------------- ---------------------------------------
YEARS ENDED YEARS ENDED
DECEMBER 31, SEVEN MONTHS FIVE MONTHS DECEMBER 31,
------------------- ENDED ENDED -------------------
1994 1995 JULY 31, 1996 DECEMBER 31, 1996 1997 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Sales............................. $277,935 $259,654 $128,099 $112,293 $177,850 $195,153
Service........................... 5,334 3,910 1,975 1,413 3,040 2,256
Royalties......................... 120 1,425 464 325 413 1,392
-------- -------- -------- -------- -------- --------
Total revenues............. 283,389 264,989 130,538 114,031 181,303 198,801
Cost of sales:
Equipment......................... 148,711 137,459 73,208 59,634 90,334 107,921
Service........................... 4,862 3,980 1,803 744 1,154 620
-------- -------- -------- -------- -------- --------
Total cost of sales........ 153,573 141,439 75,011 60,378 91,488 108,541
-------- -------- -------- -------- -------- --------
Gross margin...................... 129,816 123,550 55,527 53,653 89,815 90,260
Operating expenses:
Research & development (1)........ 30,510 30,100 28,019 31,174 37,339 35,132
Selling, general &
administrative.................. 119,761 115,155 42,928 29,409 66,278 55,969
Restructuring charges............. -- -- -- -- 1,778 984
-------- -------- -------- -------- -------- --------
Total operating expenses... 150,271 145,255 70,947 60,583 105,395 92,085
-------- -------- -------- -------- -------- --------
Operating loss...................... (20,455) (21,705) (15,420) (6,930) (15,580) (1,825)
Other (income) expenses:
Interest.......................... 1,279 1,437 200 3,502 7,712 1,711
Lucent settlement gain............ -- -- -- -- (51,183) --
Other, net........................ (1,439) (3,708) (2,074) 382 (1,753) 1,191
-------- -------- -------- -------- -------- --------
Income (loss) before provision for
income tax........................ (20,295) (19,434) (13,546) (10,814) 29,644 (4,727)
Provision (benefit) for income
tax............................. 1,565 948 184 -- 8,302 (1,082)
-------- -------- -------- -------- -------- --------
Net income (loss)................... $(21,860) $(20,382) $(13,730) $(10,814) $ 21,342 $ (3,645)
======== ======== ======== ======== ======== ========
Income (loss) per common share:
Basic............................. $ (0.21) $ 0.42 $ (0.07)
Diluted........................... (0.21) 0.40 (0.07)
Shares used in computing
income (loss) per share:
Basic............................. 51,000 51,103 51,246
Diluted........................... 51,000 54,001 51,246
</TABLE>
19
<PAGE> 24
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-------------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,240 $ 2,356
Working capital............................................. 9,606 8,382
Total assets................................................ 83,200 75,063
Total debt.................................................. 18,184 16,836
Total stockholders' equity.................................. 31,402 27,339
</TABLE>
- ---------------
(1) Includes $13,114 of purchased research and development for the five months
ended December 31, 1996.
20
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the related notes contained elsewhere in
this prospectus. The following discussion contains forward-looking statements
that involve risks and uncertainties. All statements regarding future events,
our future financial performance and operating results, our business strategy
and our financing plans are forward-looking statements. In many cases, you can
identify forward-looking statements by terminology, such as "may," "will,"
"should," "expects," "intends," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue," or the negative of such terms and other
comparable terminology. These statements are only predictions. Known and unknown
risks, uncertainties and other factors could cause our actual results to differ
materially from those projected in the forward-looking statements. In evaluating
these statements, you should specifically consider various factors, including,
but not limited to, those set forth under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
We are a leading developer, manufacturer and distributor of broadband and
narrowband network access products for network service providers ("NSPs") and
business customers. We offer solutions that enable business class, service level
managed, high-speed connectivity over the existing telephone network
infrastructure and provide for cost-effective access speeds of up to 45Mbps. We
believe that demand for high-speed, broadband transmission will continue to
increase as more business and residential users find narrowband access
technologies inadequate to meet their high-bandwidth requirements. Our objective
is to maintain and build upon our position as one of the leaders in the
broadband access market by focusing on next generation digital subscriber line
("DSL"), service level management ("SLM") and other broadband access solutions.
We have a long history of technological innovation, and we hold 163 U.S. patents
and have 108 U.S. patent applications pending. Our equipment is installed in
over 50% of the Fortune 500 companies and in businesses in over 125 countries.
The Company estimates that sales to NSPs represented approximately 40% of our
total revenues in 1998. With our reputation and history as a supplier of access
solutions to a large customer base, we believe that we are well-positioned to
provide broadband access solutions to NSPs and business customers as they
upgrade their networks.
In July 1996, as part of a divestiture by Lucent, Communication Partners,
L.P., a limited partnership controlled by the Texas Pacific Group, acquired all
of the outstanding shares of common stock of Paradyne. Our business was created
when certain operations of Paradyne were either retained by Lucent or assigned
to newly created entities in connection with the divestiture. The business that
remained with the Company is referred to as the Predecessor Business. The
Predecessor Business derived most of its revenues through July 1996 from the
sale of narrowband products. The Predecessor Business purchased products and
services from preferred suppliers of AT&T and Lucent and incurred intercompany
charges for services provided by other AT&T operations. Following the 1996
acquisition, we introduced a series of new products, including many new
broadband products, and discontinued sales of certain products, which were
transitioned to Lucent. In addition, we lowered our expenses and restructured
our operations. The cost of the restructuring was accounted for as part of the
purchase accounting associated with the 1996 acquisition. We believe the
revenues and expenses of the Predecessor Business are not representative of our
current business, financial condition or results of operations. Accordingly, we
believe that a period-to-period comparison of operating results prior to 1997 is
not meaningful.
In 1997, the Company recorded a restructuring charge of approximately $1.8
million. Most of this charge related to staff reductions in our U.S. operations
in November 1997. Staff reductions were appropriate as a result of improved
operating efficiencies resulting from an investment in new systems and processes
as well as changing the composition of our workforce to update the availability
of strategic skills. During 1998, we also incurred expenses of $1.0 million, or
0.5% of total revenues, related to a restructuring of our international
operations.
Through 1997, our revenues were derived principally from the sale and
service of narrowband network access products and, to a much lesser extent,
technology licensing. In 1998, our broadband products, including our Hotwire and
FrameSaver products which were introduced in 1997, comprised the majority of our
revenue, and we expect broadband products to represent an increasing portion of
future revenues. Royalty revenues consist
21
<PAGE> 26
principally of licensing of technology and service revenues are derived from
repair of out of warranty products. We do not expect that either royalty or
service revenues will constitute a substantial portion of our revenues in future
periods.
We market and sell our products worldwide to NSPs and business customers
through a multi-tier distribution system that includes direct sales, strategic
partner sales, NSP sales and traditional distributor or value added reseller
("VAR") sales. Direct sales to Lucent in 1998 accounted for approximately 35% of
our total revenues. Sales to Tech Data accounted for approximately 17% of our
total revenues. We estimate that approximately 63% of our sales to Tech Data
represented products that were resold to Lucent. Collectively, we estimate that
direct and indirect sales to Lucent accounted for approximately 47% of our total
revenues in 1998. A majority of our sales to Lucent represented sales to Lucent
as a reseller of our products. A loss or a significant reduction or delay in
sales to any of our major customers could materially and adversely affect our
business, financial condition and results of operations. See "Risk Factors -- We
Depend on Major Customers for a Substantial Portion of Our Revenues."
We generally recognize revenue from product sales upon shipment. No revenue
is recognized on products shipped on a trial basis. Estimated sales returns
based on historical experience by product are recorded at the time the product
revenue is recognized. Charges for warranty work are included in cost of
equipment sales. We believe that our accrued warranty reserve is sufficient to
meet our responsibilities for potential future warranty work on products sold.
Revenue from services, which consists mainly of repair of out-of-warranty
products, is recognized when the services are performed and all substantial
contractual obligations have been satisfied. License and royalty revenues are
recognized when the Company has completed delivery of technical specifications
and performed substantially all required services under the related agreement.
We expect our gross margin to be affected by many factors, including
competitive pricing pressures, fluctuations in manufacturing volumes, costs of
components and sub-assemblies, the mix of products or system configurations
sold, and the volume and timing of sales of follow-on line cards and endpoints
for central office systems shipped in prior periods. Additionally, our gross
margin may fluctuate due to changes in our mix of distribution channels. Sales
prices of some of our products have decreased recently as a result of increased
competition. Further price reductions may be necessary to remain competitive.
Although we have been able to offset most price declines with reductions in our
manufacturing costs, there can be no assurance that we will be able to offset
further price declines with cost reductions.
Research and development expenses primarily consist of: personnel costs
related to engineering and technical support; consultant and outside testing
services fees; research and development facilities expenses; equipment and
supplies expenses associated with enhancing existing products and the
development of new products; an allocation of information systems charges; and
software and software maintenance expenses. We expense all research and
development expenses as incurred. We believe that continued investment in
research and development is critical to attaining our strategic product and
cost-reduction objectives. We will, however, attempt to control and optimize our
research and development expenditures in order to meet our strategic goals while
at the same time allowing us to meet our profitability goals. Over time, as
revenues increase, research and development expenditures are expected to
increase as well.
Selling, general and administrative expenses primarily consist of:
salaries, commissions and related expenses for personnel engaged in marketing,
sales and field service support functions, finance, human resource and
administrative activities; advertising, promotional and trade show expenses,
including the related travel expenses; consultant fees; equipment and facilities
expenses, including intangibles amortization; supplies, software and software
maintenance; and consignments. We intend to continue to invest in selling,
marketing and promotional programs. In addition, we expect to expand our field
sales operations and customer support organizations. We expect general and
administrative expenses to increase moderately as our business grows and we
begin operations as a public company. General and administrative expenses have
been significantly reduced since the 1996 acquisition by improving systems and
processes and eliminating unnecessary expenses, and we expect to continue our
focus on controlling expenses in the future.
Sales to customers outside of the United States accounted for approximately
30% and 21% of revenues in 1997 and 1998, respectively. In 1998, approximately
94% of our sales were denominated in U.S. dollars. While
22
<PAGE> 27
Paradyne is subject to fluctuations in foreign currency exchange rates with
respect to income derived from international sales not denominated in U.S.
dollars, the costs associated with a majority of these sales are in the same
currency, which partially mitigates the effect of such fluctuations.
Historically, currency exchange movements have not had a material effect on our
business, financial condition or results of operations. If our non-U.S.
operations expand, the effect of currency fluctuations may have a more
significant impact on our revenues and costs. At December 31, 1998, we had no
material monetary assets, liabilities or commitments denominated in currencies
other than U.S. dollars. We do not hedge foreign currency transactions. Our
strategy for managing currency risk is to minimize our foreign currency
exposure.
Despite growing revenues, excluding a non-recurring gain recognized in 1997
in connection with a contract renegotiation, we have not been profitable on an
annual basis, and we may continue to incur net losses. In addition to the
customer concentration we have experienced, we also have lengthy development and
sales cycles for our products, and there is often a significant delay between
the time we incur expenses and the time we realize the related revenue. To the
extent that future revenues do not increase significantly in the same periods in
which operating expenses increase, our operating results will be adversely
affected. See "Risk Factors -- Various Factors May Affect our Results of
Operations and Cause Potential Fluctuations in our Results" and "-- We Have A
History of Losses and May Experience Future Losses."
Paradyne's quarterly and annual operating results have fluctuated in the
past and are likely to fluctuate in the future due to a variety of factors, many
of which are outside of our control. Some of these factors include:
- the timing and amount of, or cancellation or rescheduling of, orders for
our products and services to existing and new customers;
- our ability to develop, introduce, ship and support new products and
product enhancements and manage product transitions on a timely basis;
- announcements, new product introductions and reductions in price of
products offered by our competitors;
- our ability to achieve cost reductions;
- our ability to obtain sufficient supplies of sole or limited source
components for our products;
- competitive pressures on selling prices of our components;
- the ability of our NSP customers to raise financing to purchase our
products;
- the timing and rate of deployment of our products by NSPs;
- preferential pricing arrangements;
- our ability to attain and maintain production volumes and quality levels
for our products;
- the mix of products sold and the mix of distribution channels through
which they are sold;
- fluctuations in demand for our products and services, especially by our
major customers;
- expiration of favorable supply or purchase contracts;
- costs relating to possible acquisitions and integration of technologies
or businesses; and
- conditions in the telecommunications market, including consolidation in
the industry, and economic conditions generally.
Due to these and other factors, quarterly and annual revenues, expenses and
results of operations could vary significantly in the future, and
period-to-period comparisons should not be relied upon as indications of future
performance. Additionally, due to all of the foregoing factors, it is possible
that in some future periods, our operating results and/or our growth rate will
be below what public market analysts and investors expect. If that happens, the
market price of our common stock could decline materially.
23
<PAGE> 28
RESULTS OF OPERATIONS
The following table summarizes Paradyne's operating results as a percentage
of revenues for each of the periods shown.
<TABLE>
<CAPTION>
PARADYNE
PREDECESSOR BUSINESS -----------------------------
------------------------------------------ FIVE MONTHS YEAR ENDED
YEAR ENDED DECEMBER 31, SEVEN MONTHS ENDED DECEMBER 31,
------------------------- ENDED JULY 31, DECEMBER 31, --------------
1994 1995 1996 1996 1997 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales......................... 98.1% 98.0% 98.1% 98.5% 98.1% 98.2%
Service....................... 1.9 1.5 1.5 1.2 1.7 1.1
Royalties..................... -- 0.5 0.4 0.3 0.2 0.7
----- ----- ----- ----- ----- -----
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0
Cost of sales:
Equipment..................... 52.5 51.9 56.1 52.3 49.8 54.3
Service....................... 1.7 1.5 1.4 0.7 0.6 0.3
----- ----- ----- ----- ----- -----
Total cost of sales... 54.2 53.4 57.5 52.9 50.5 54.6
----- ----- ----- ----- ----- -----
Gross margin.................... 45.8 46.6 42.5 47.1 49.5 45.4
</TABLE>
<TABLE>
Operating expenses:
<S> <C> <C> <C> <C> <C> <C>
Research & development........ 10.8 11.4 21.5 27.3 20.6 17.7
Selling, general &
administrative............. 42.3 43.5 32.9 25.8 36.6 28.2
Restructuring charges......... -- -- -- -- 1.0 0.5
----- ----- ----- ----- ----- -----
Total operating
expenses............ 53.0 54.8 54.3 53.1 58.1 46.3
----- ----- ----- ----- ----- -----
Operating income (loss)......... (7.2) (8.2) (11.8) (6.1) (8.6) (0.9)
Other (income) expenses:
Interest...................... 0.5 0.5 0.2 3.1 4.3 0.9
Lucent settlement gain........ -- -- -- -- (28.2) --
Other, net.................... (0.5) (1.4) (1.6) 0.3 (1.0) 0.6
----- ----- ----- ----- ----- -----
Income (loss) before provision
for income tax............. (7.2) (7.3) (10.4) (9.5) 16.4 (2.4)
Provision (benefit) for income
tax........................... 0.6 0.4 0.1 -- 4.6 (0.5)
----- ----- ----- ----- ----- -----
Net income (loss)............... (7.7)% (7.7)% (10.5)% (9.5)% 11.8% (1.8)%
===== ===== ===== ===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues. Total revenues increased $17.5 million, or 9.7%, to $198.8
million in 1998 from $181.3 million in 1997. This increase was primarily due to
an increase in the sales of our broadband access products. As a percentage of
total revenues, equipment sales were 98.2% in 1998 compared to 98.1% in 1997. In
1998 and 1997, we also earned relatively small amounts of service revenues
through the repair of out of warranty equipment and royalty revenues from the
licensing of technology.
Gross Margin. Gross margin increased $0.4 million, or 0.5%, to $90.3
million in 1998 from $89.8 million in 1997. Gross margin as a percentage of
total revenues decreased to 45.4% in 1998 from 49.5% in 1997 for the following
reasons:
- we introduced new, competitively priced access products with margins
lower than those reported for the previous year; and
- some of our older products faced competitive price pressures, which
resulted in lower average sales prices.
24
<PAGE> 29
In addition, in 1997 we had a large one-time customer purchase of an
out-of-production product for which we were able to obtain a substantially
higher than average sales price. No similar purchase occurred in 1998.
Research and Development Expenses. Research and development expenses
decreased $2.2 million, or 5.9%, to $35.1 million in 1998 from $37.3 million in
1997. Research and development expenses declined to 17.7% of total revenues in
1998 from 20.6% in 1997 primarily due to a reduction in the number of
contractors and employees as a result of the restructuring in November 1997.
Selling, General and Administrative ("SG&A") Expenses. SG&A expenses
decreased $10.3 million, or 15.6%, to $56.0 million in 1998 from $66.3 million
in 1997. The decrease was primarily attributable to a reduction in amortization
expense related to the Lucent settlement, a reduction in consultants and a
decrease in advertising costs. SG&A expenses as a percentage of total revenues
decreased to 28.2% in 1998 from 36.6% in 1997 primarily due to the increase in
total revenues in 1998 along with expense reductions.
Restructuring Charges. During 1998, we incurred expenses of $1.0 million,
or 0.5% of total revenues, related to restructuring our international
operations.
Interest and Other (Income) Expense, Net. Interest and other (income)
expense, net, decreased $3.1 million, or 51.3%, to $2.9 million in 1998 from
$6.0 million in 1997. Interest and other (income) expense, net, is related to
interest on notes payable and borrowings under lines of credit, gains and losses
on equity investments and foreign exchange gains and losses. The decrease in
1998 was primarily attributable to a reduction in interest expense associated
with the Lucent debt, which was forgiven in 1997.
Income Taxes. Our 1998 income tax benefit was $1.1 million, or 22.9% of
the loss before income tax of $4.7 million. The tax benefit was less than the
statutory federal and state income tax rates principally due to losses incurred
in foreign jurisdictions for which no income tax benefit was available.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE SEVEN MONTH PERIOD ENDED JULY 31,
1996 (PREDECESSOR BUSINESS) AND THE FIVE MONTH PERIOD ENDED DECEMBER 31, 1996.
References to the seven month period ended July 31, 1996 and the five month
period ended December 31, 1996 (the "1996 Periods") reflect the combination of
the Predecessor Business for seven months of 1996 with the operations of the
Company for five months of 1996, and do not include any adjustments related to
the purchase.
Revenues. Total revenues decreased $63.2 million, or 25.9%, to $181.3
million in 1997 from $244.5 million in 1996. This decrease was primarily due to
the following factors:
- sales of our older narrowband products, overall, declined at a rapid
rate;
- in an attempt to meet their 1996 contractual targets, Lucent purchased
products from us at the end of 1996, which resulted in lower Lucent
purchases in 1997 as it sold off its inventory (See "Certain
Transactions"); and
- we discontinued selling certain products through channels other than
Lucent and AT&T and discontinued selling other network access products
which were transitioned to Lucent after the sale of Paradyne.
As a percentage of total revenues, equipment sales were 98.1% in 1997 and
98.3% in the 1996 Periods. We also earned relatively small amounts of service
revenues through the repair of out of warranty equipment and royalty revenues
from the licensing of technology.
Gross Margin. Gross margin decreased $19.4 million, or 17.7%, to $89.8
million in 1997 from $109.2 million in the 1996 Periods. Gross margin as a
percentage of total revenues increased to 49.5% in 1997 from 44.6% in the 1996
Periods for the following reasons:
- we were able to reduce the material costs of some of our products by
obtaining more competitive pricing from our existing and new suppliers,
which resulted in savings in the form of lower product costs in 1997; and
- we were able to obtain a higher average sales price for some of our older
products which translated into higher margins due to: one of our major
customers making a large one-time purchase of an out-of-
25
<PAGE> 30
production product in 1997 for which we were able to obtain a
substantially higher than average sales price; and higher than average
prices resulting from product sales with high margin configurations.
Research and Development Expenses. Research and development expenses
decreased $21.9 million, or 36.9%, to $37.3 million in 1997 from $59.2 million
in the 1996 Periods. Research and development expenses declined to 20.6% of
total revenues in 1997 from 24.2% in the 1996 Periods. This decrease was
primarily attributable to a recognition of purchased research and development
($13.1 million) at the time of the 1996 acquisition and a reduction in the
number of support personnel and contractors as a result of the restructuring in
November 1997.
Selling, General and Administrative Expenses. SG&A expenses decreased $6.1
million, or 8.4%, to $66.3 million in 1997 from $72.3 million in the 1996
Periods. This decrease was primarily due to a reduction in personnel following
the 1996 acquisition and the reduction of SG&A related personnel and contractors
in the fourth quarter of 1997 as a result of the November 1997 restructuring,
which more than offset the increase in the amortization of the Lucent supply
contract. SG&A expenses as a percentage of total revenues increased to 36.6% in
1997 from 29.6% in the 1996 Periods. This increase was primarily attributable to
the reduction of revenues in 1997.
Restructuring Charges. In the fourth quarter of 1997, we incurred a
restructuring charge of $1.8 million, or 1.0% of total revenues. This
restructuring was necessary to reduce redundant headcount and bring operating
expenses in line with revenues.
Interest and Other (Income) Expense, Net. Interest and other (income)
expense, net, increased $3.9 million, or 196.5%, to $6.0 million in 1997 from
$2.0 million in the 1996 Periods. Interest and other (income) expense, net, is
related to interest on notes payable and borrowings under lines of credit, gains
and losses on equity investments and foreign exchange gains and losses. The
increase in 1997 was primarily attributable to interest expense associated with
the Lucent debt.
Lucent Settlement Gain. As a condition to the closing of the 1996
acquisition, Paradyne entered into a volume purchase letter agreement, whereby
Lucent agreed to purchase minimum levels of certain products from us. At
December 31, 1997, Lucent had not satisfied its obligations and, therefore, was
subject to certain take or pay provisions. However, in August 1998, Lucent and
Paradyne entered into an arrangement under which we terminated the volume
purchase letter agreement, received an exclusivity agreement with Lucent
extending through June 2001 and received $8.2 million of cash and the
forgiveness of certain debt in the amount of $63.0 million owed to Lucent by
Paradyne. This resulted in the recording of a $51.2 million non-recurring gain
in 1997. See "Certain Transactions."
Income taxes. In 1997, as a result of the Lucent settlement gain of $51.2
million, we were able to utilize our net operating loss carryforwards reducing
our federal and state income tax provision to $8.3 million or 28.0% of pretax
income.
LIQUIDITY AND CAPITAL RESOURCES
From our inception through December 31, 1998, we financed our operations
through a combination of debt financing and cash generated from operations. In
connection with the 1996 acquisition, Communication Partners, L.P. acquired the
Predecessor Business through an equity investment of $17.1 million. In addition,
we incurred acquisition debt totaling $76.8 million and acquisition costs of
$8.4 million. Additionally, in July 1996 we entered into a $45.0 million
revolving line of credit facility with Bank of America NT&SA. This facility was
voluntarily reduced to $35.0 million in March 1999. Following the closing of
this offering, we will retain our revolving line of credit but expect to pay any
outstanding balance under the revolving line of credit in full.
Availability under this facility is the lesser of $35.0 million or the sum
of: (i) 85% of eligible trade accounts receivable; and (ii) the lesser of: $6.0
million, forty percent (40%) of the value of eligible inventory, or the amount
of the machinery and equipment appraisal. Availability is further reduced by a
$3.0 million borrowing base reserve. The line of credit facility is secured by
substantially all of our assets and contains certain non-financial covenants and
restrictions as to various matters, including our ability to pay dividends or to
effect
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<PAGE> 31
mergers or acquisitions, incur certain other indebtedness or to make certain
investments without the bank's prior approval. As of December 31, 1998, we were
not in breach of any of these restrictive covenants.
This facility, which terminates on January 31, 2000, bears an annual
interest rate of Bank of America NT&SA's reference rate plus 0 - 100 basis
points, depending on our quarterly fixed charge coverage ratio. The facility
also provides for an unused line fee of .375% to .50%. The principal amount
outstanding at December 31, 1998 was $16.1 million. The weighted average
interest rate was 9.2% for the year ended December 31, 1998.
In August 1997, Communication Partners, L.P. agreed to provide a revolving
line of credit facility in the maximum amount of $5.0 million. This agreement
was amended in October 1998 to increase the maximum amount of the facility to
$10.0 million. Amounts outstanding may be repaid and reborrowed at any time
during the term of the note that matures on August 25, 2002. Borrowings under
this agreement are subordinated to debt under the Bank of America NT&SA line of
credit facility and bear interest at 8% per annum. It is our intention to
terminate this facility upon completion of this offering.
Net cash used in operating activities was $4.6 million for the five months
ended December 31, 1996 as compared to $1.1 million for 1997. Net cash provided
by operating activities was $6.5 million for 1998. The reduction in net cash
used in operating activities for the five month period ending December 31, 1996
to 1997 was primarily driven by a reduction in accounts receivable and
inventory, net of a decrease in accounts payable, as a result of lower sales
volume as well as a reduction in the annual run rate of operating expenses after
normalizing for the 1996 non cash related write off of purchased research and
development. Net cash provided by operating activities increased $7.6 million
from 1997 to 1998 primarily as a result of increased sales volume, reduced
operating expenses and improved asset management.
Net cash (used in) provided by investing activities was ($98.4 million),
$11.6 million and ($5.4 million) for the five months ended December 31, 1996 and
1997 and 1998, respectively. Effective July 31, 1996, Communication Partners,
L.P. acquired Paradyne's net assets totaling $93.9 million. Net proceeds from
the sale of the Largo, Florida facility in June 1997 totaled $20.8 million. Net
capital expenditures relating primarily to the support of operations totaled
$4.4 million, $9.2 million, and $5.4 million for the five month period ending
December 31, 1996, 1997 and 1998, respectively.
Net cash provided by financing activities totaled $99.4 million for the
five months ended December 31,1996. Net cash used in financing activities in
1997 totaled $8.7 million, as compared to $1.7 million for 1998. Communication
Partners, L.P.'s 1996 investment in Paradyne totaled $102.3 million. Proceeds
from the 1997 sale of the Largo, Florida facility were used to retire debt of
$20.8 million under various notes and the Bank of America NT & SA revolving
credit facility. Additionally, debt was further reduced by $63.0 million as part
of the Lucent settlement discussed above. Net borrowings under our lines of
credit to fund operations, capital expenditures and payment of other acquisition
costs totaled $12.8 million and $12.4 million for the five month period ending
December 31, 1996 and 1997, respectively. Net borrowings were not required to
fund operations, capital expenditures and payment of other acquisition costs in
1998.
We believe that the proceeds from this offering, together with the cash
flows from operations and borrowings under the Bank of America NT&SA line of
credit facility, will be sufficient to meet our working capital needs for at
least the next 18 months.
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<PAGE> 32
QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly operating
information for each of the eight quarters ending with the quarter ended
December 31, 1998. This data has been prepared on the same basis as the audited
financial statements contained elsewhere in this prospectus and in the opinion
of management, includes all adjustments necessary for the fair presentation of
the information for the periods presented. This information should be read in
conjunction with the financial statements and notes thereto. The operating
results in any quarter are not necessarily indicative of the results that may be
expected for any future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Sales...................... $43,633 $42,469 $45,739 $46,009 $42,655 $45,224 $49,966 $57,308
Service.................... 846 490 947 757 384 644 573 655
Royalties.................. 7 155 251 -- -- 350 845 197
------- ------- ------- ------- ------- ------- ------- -------
Total revenues...... 44,486 43,114 46,937 46,766 43,039 46,218 51,384 58,160
Total cost of
sales............. 21,304 22,710 23,221 24,253 22,047 24,004 28,913 33,577
------- ------- ------- ------- ------- ------- ------- -------
Gross margin............... 23,182 20,404 23,716 22,513 20,992 22,214 22,471 24,583
Operating expenses:
Research and development... 9,605 9,049 9,477 9,208 8,554 8,728 8,866 8,984
Selling, general &
administrative........... 16,623 17,187 17,353 15,115 13,410 14,653 13,612 14,294
Restructuring charges...... -- -- 1,778 -- 59 167 758
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.......... 26,228 26,236 26,830 26,101 21,964 23,440 22,645 24,036
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)...... (3,046) (5,832) (3,114) (3,588) (972) (1,226) (174) 547
Lucent settlement gain..... -- -- -- (51,183) -- -- -- --
Other (income) expenses...... 2,643 1,269 1,876 171 521 586 265 1,530
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
provision for income tax... (5,689) (7,101) (4,990) 47,424 (1,493) (1,812) (439) (983)
Provision (benefit) for
income tax................. -- -- -- 8,302 (342) (415) (100) (225)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ $(5,689) $(7,101) $(4,990) $39,122 $(1,151) $(1,397) $ (339) $ (758)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Our revenues, historically, have tended to be strongest in the fourth
quarter and lowest in the first quarter of the following year. We believe this
is primarily due to the calendar year budgeting of many of our customers and to
compensation policies tending to compensate sales personnel in our distribution
channels for achieving annual quotas. Consequently, if revenue levels are below
expectations for a given quarter, operating results are likely to be
disproportionately affected when viewed by quarter since only a relatively small
portion of our operating expenses vary materially with revenues.
Our quarterly results are likely to vary due to a number of factors, such
as demand for our products, the size and timing of significant orders and their
fulfillment, the length of sales cycles for some of our newer products to our
larger customers, changes in our level of operating expenses, improvements in
operating efficiencies resulting from changes in systems and processes,
customers' budgeting cycles, changes in our sales incentive plans, changes in
the mix of products sold and conditions in foreign markets.
YEAR 2000 ISSUES
Background: Some computers, software and other equipment include
programming code in which calendar year data is abbreviated to only two digits
(e.g., 99) rather than four digits (e.g., 1999). As a result, these systems
automatically assume that the first two digits of a calendar year are "1" and
"9." Therefore, time-sensitive functions of these systems may misinterpret dates
after January 1, 2000, to refer to the twentieth century rather than the
twenty-first century (i.e., "02" could be interpreted as "1902" rather than
"2002"). The problems
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<PAGE> 33
associated with this design decision are commonly referred to as the "Millennium
Bug," "Year 2000 problem" or "Y2K problem."
Assessment: We have identified the Year 2000 problem as a potential risk
to our operations in 1996. As a result, we developed a comprehensive multi-year
plan to make our internal computer software and hardware systems Year 2000
compliant. Our Year 2000 compliance plan is comprised of 3 phases: an assessment
phase; an implementation phase; and a testing phase. This plan, initiated in the
first quarter of fiscal 1997, is in the final stages of implementation. While we
believe that we have implemented a comprehensive plan for addressing the Year
2000 problem and anticipate completing our compliance activities in a timely
manner, we cannot be certain that these Year 2000 compliance efforts will be
successful. The financial impact of making the required systems changes cannot
be known precisely at this time, but we currently expect these expenses to be
less than approximately $4.0 million. The financial impact, could, however,
exceed this estimate. Nonetheless, these costs are not expected to be material
to our business, financial condition, or results of operation. To date, the
Company has incurred expenses of approximately $3.5 million.
Internal Infrastructure: We believe that we have identified all of the
major computer hardware, software applications and other calendar year dependent
equipment used in connection with our internal operations. Our Year 2000
compliance plan addresses items that must be modified, upgraded, or replaced in
order to minimize the possibility of a material disruption of our business. We
have replaced our accounting, sales, distribution and manufacturing systems with
what we believe to be a Year 2000 compliant enterprise resource planning system.
We have replaced our human resource and payroll systems application software
with what we believe to be Year 2000 compliant software, and we have replaced
our PBX and associated equipment with a what we believe to be a Year 2000
compliant system. Currently, we are in the process of modifying, upgrading and
replacing, as appropriate, other computer software applications, hardware, and
equipment that could potentially be adversely affected by the Year 2000 problem.
We expect to complete this implementation phase by the end of the third quarter
of 1999. The fourth quarter of 1999 has been reserved for final testing of all
of our systems for compliance.
Network Service Providers: Our ongoing operations are dependent on the
uninterrupted service provided to us by our voice (landline and wireless), data
and Internet service vendors. We have initiated communications with our various
service providers and have received assurance that they have or will address
Year 2000 compliance issues associated with their ability to provide
uninterrupted service. Any failure of these vendors to resolve any outstanding
Year 2000 issues in a timely manner could materially and adversely affect our
business, financial condition and results of operation.
Distributors and Suppliers: We have initiated communications with our key
distributors, service support providers and suppliers to establish the status of
their Year 2000 compliance. We have communicated with our major suppliers of
minicomputers, servers, computers, software and other equipment used, operated
or maintained by us to identify and, to the extent possible, resolve issues
associated with the Year 2000 problem. We are also gathering Year 2000
compliance information from web sites and other public sources for our second
and third-tier distributors and suppliers. We believe that we have identified
all of the potential Year 2000 problems with respect to these distributors,
service support providers and suppliers and have received their commitment to
resolve any outstanding issues in a timely manner. However, any failure on our
part to identify potential third party Year 2000 problems or any failure of
these parties to resolve any outstanding issues with their systems in a timely
manner could materially and adversely affect our business, financial condition
and results of operations.
Contingency Plans: We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct Year 2000 problems
affecting our internal systems. We expect to complete these contingency plans by
the end of the third quarter of 1999. Depending on the systems affected, these
plans could include (i) accelerated replacement of effected equipment or
software, (ii) increased work hours for our personnel or use of contract
personnel to correct on an accelerated schedule any Year 2000 problems which may
arise, (iii) the provision of manual workarounds for information systems and
(iv) other similar approaches. If we are required to implement any of these
contingency plans, such plans may have a material adverse effect on our
business, financial condition or results of operations. Additionally, we may not
complete these contingency plans
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<PAGE> 34
in a timely manner, and failure to do so could have a material adverse effect on
our business, financial condition or results and operations.
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 with achieving this
compliance could be adversely impacted by, among other things, the availability
and cost of programming and testing resources, the ability of parties with whom
we interact to resolve Year 2000 issues and unanticipated problems identified in
our ongoing compliance review.
MARKET RISK
We are exposed to changes in interest rates primarily from our revolving
line of credit facility with Bank of America NT&SA and, secondarily, from
investments in certain held-to-maturity securities. Under our current policies,
we do not use interest rate derivative instruments to manage exposure to
interest rate changes. Additionally, we do not currently engage in foreign
currency hedging transactions to manage exposure for transactions denominated in
currencies other than U.S. dollars.
INFLATION
Because of the relatively low levels of inflation experienced in 1996, 1997
and 1998, inflation did not have a significant effect on the Company's results
in such years.
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<PAGE> 35
BUSINESS
OVERVIEW
We are a leading developer, manufacturer and distributor of broadband and
narrowband network access products for network service providers ("NSPs") and
business customers. We offer solutions that enable business class, service level
managed, high-speed connectivity over the existing telephone network
infrastructure and provide for cost-effective access speeds of up to 45 Mbps. We
believe that demand for high-speed, broadband transmission will continue to
increase as more business and residential uses find narrowband access
technologies inadequate to meet their high-bandwidth requirements. Our objective
is to maintain and build upon our position as one of the leaders in the
broadband access market by focusing on next generation digital subscriber line,
more commonly known as "DSL," service level management, more commonly known as
"SLM," and other broadband access solutions. We have a long history of
technological innovation, and we hold 163 U.S. patents and have 108 U.S. patent
applications pending. Our equipment is installed in over 50% of the Fortune 500
companies and in businesses in over 125 countries. The Company estimates that
sales to NSPs represented approximately 40% of our total revenues in 1998. With
our reputation and history as a supplier of access solutions to a large customer
base, we believe that we are well-positioned to provide broadband access
solutions to NSPs and business customers as they upgrade their networks.
INDUSTRY BACKGROUND
Over the past several years, data traffic generated by computer users
accessing the Internet or business networks has increased significantly.
Industry analysts believe that the volume of this data traffic, referred to as
WAN traffic, will continue to expand rapidly due to four key trends:
- the dramatic growth in the use of the Internet;
- the proliferation of distributed computing applications, such as
electronic mail, electronic transaction processing, enterprise resource
planning and inter-enterprise information transfer based on Web-
technologies;
- the deregulation of the telecommunications services industry which has
increased the number of service providers and intensified competition;
and
- the continued deployment of high capacity fiber optic networks and the
emergence of high-volume bandwidth network access technologies that
increase the ability to transfer large volumes of information.
In order to accommodate increasingly high volumes of data, NSPs have
invested significant resources to upgrade central office switching centers and
the interconnecting infrastructure, known as the network backbone. While
capacity constraints in the network backbone continue to be addressed through
the use of high speed digital and fiber-optic equipment, the network that
connects end users to central offices, typically known as the "last mile,"
remains a bottleneck that limits high-speed data transmission. The last mile was
originally constructed with copper twisted-pair wiring designed to support
analog voice traffic. Over 140 million businesses and homes in the United States
are served by this copper infrastructure, and the worldwide installed base of
copper lines exceeds 700 million. The limitations on the ability of NSPs to cost
effectively deliver high-speed services, such as telecommuting, branch office
internetworking and Internet access, over the last mile using standard,
narrowband dial-up connections, typically limited to data transmission rates of
28.8 Kbps to 56.0 Kbps, have frustrated end users. We believe that most business
and residential users are finding these types of narrowband access technologies
inadequate to meet their high bandwidth requirements.
Global regulatory changes are increasing the number of competitors in the
access portion of the network and are further accelerating the need for NSPs to
upgrade their networks and increase their service offerings. Internationally, a
number of developed and developing nations have privatized their state-owned
telecommunications monopolies and opened their markets to new NSPs. Competitors
that have emerged and potentially could take customers from incumbent carriers
include CLECs, Internet service providers, satellite operators, cable operators
and electric utilities. For example, cable operators are already beginning to
provide data transmission services to customers by leveraging the high bandwidth
capabilities of their coaxial cable based infrastructure.
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<PAGE> 36
This increase in competition for the access portion of the network is also
helping to facilitate the transition from analog to digital and narrowband to
broadband access over the last mile.
New digital technologies have been introduced to increase the speed and
quality of digital transmission over the copper wire infrastructure in the last
mile and provide alternative means of accessing the network backbone. The
increased speed, lower transmission cost, higher reliability and quality of
digital networks are better suited for transmitting the increased level of
enhanced voice and high-speed data traffic that now must pass over the last
mile. Recently, NSPs have begun to install higher-speed, digital broadband
transmission technologies, such as DSL, in the last mile. Dataquest forecasts
that the market for DSL equipment will grow from approximately $286 million in
1998 to over $1.6 billion by 2002.
NSPs have deployed various narrowband and broadband technologies across
customers' WANs in order to provide cost-effective access solutions for their
customers. Demand for high-speed access services has increased and more
protocols, such as Frame Relay, ATM, integrated service digital network
("ISDN"), DSL and others have emerged to facilitate the connections of business
customers to NSPs' network backbones. The proliferation of protocols makes the
provisioning and management of high-speed access technologies and services
increasingly difficult. As a result, NSPs are required to operate and maintain
hybrid networks comprised of recently adopted new technologies and existing
installed equipment.
The performance, quality and maintainability of network services are highly
dependent on the volume and type of traffic running over these hybrid networks.
As a result, NSPs and business customers need sophisticated diagnostic and
management capabilities to monitor business customer application traffic. The
required tools should analyze the physical transmission characteristics as well
as enable NSPs and business customers to evaluate compliance with service level
agreement parameters such as, data throughput, network latency and service
availability. Business customers also need scalable management solutions that
improve network quality, reduce the number of support personnel managing their
networks and lower the overall costs for bandwidth and maintenance tools.
As demand for high-speed transmission continues to increase, we believe
that the telecommunications industry will continue to develop and deploy new
broadband access technologies, which will become increasingly cost competitive
with traditional technologies. As a result of changes in the telecommunications
industry, NSPs are requiring flexible and scalable solutions that meet their
current needs and also permit easy, cost-effective enhancements in the future.
With the increasing number of access protocols and enabling equipment options,
customers are placing a higher level of importance on the ability of equipment
providers to deliver integrated system solutions.
THE PARADYNE SOLUTION
Paradyne is a leading developer, manufacturer and distributor of network
access products for NSPs and business customers. We offer solutions that enable
business class, service level managed, high-speed connectivity over the existing
telephone network infrastructure and provide for cost-effective access speeds of
up to 45 Mbps. NSPs use our broadband products to enable high-speed managed
connections from the central office to the customer premise. Moreover, our
broadband products enable NSPs to more efficiently provide network access
services by allowing a high level of management, monitoring and control over
network access equipment and circuits. Business customers use our broadband
products for high-speed connection of voice and data communications to public
networks and to connect their employees to corporate WANs and to the Internet
using both public packet services and private leased line services provided by
NSPs. Our products are designed for easy installation by NSPs and end users,
significantly reducing the need for installation by an onsite service
technician, thereby reducing costs for network access. Additionally, our
narrowband products are used by NSPs and business customers to provide
connectivity between an NSP's analog or digital circuit and a customer's digital
equipment.
[GRAPHIC DEPICTING PARADYNE HOTWIRE DSL, SUPERLINE, FRAMESAVER SLM AND
CONVENTIONAL ACCESS
SOLUTIONS CONNECTING TO MULTIPLE NETWORK BACKBONE FACILITIES.]
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<PAGE> 37
BROADBAND SOLUTIONS
- Broadband DSL Access. Our Hotwire solution delivers broadband DSL access
across the existing copper wire infrastructure. The Hotwire products
enable CLECs, incumbent carriers and other NSPs to provide broadband
access to business customers, teleworkers and residential customers at
substantially reduced rates compared to conventional service offerings.
We believe our Hotwire solution allows NSPs the ability to deploy the
broadest array of DSL technologies of any commercially available product
in a single platform. This enables NSPs to match the appropriate DSL
technology to the customer's application requirements and thereby serve a
wider array of customers. This also allows for a more efficient
utilization of expensive central office equipment space and minimizes
operational support requirements, such as training and inventory, by
using a single vendor. The recently introduced SuperLine solution
incorporates our Tripleplay technology and allows NSPs to offer cost
effective, multiple line voice and high speed data services over a single
traditional telephone line to residential customers, small offices and
home offices. The SuperLine product can be easily installed by customers
to meet their broadband access needs.
- Broadband SLM. Our FrameSaver solution enables the provisioning of SLM
along with broadband DSL, T1/E1 and T3 access to public Frame Relay and
ATM networks. The FrameSaver solution enables CLECs, incumbent carriers
and other Frame Relay service providers to offer managed high-speed
service from end-to-end across their networks and across multi-carrier
networks. Using packet technology, Frame Relay and ATM networks allow for
the economical use of the broadband network backbone. However, without
the use of an SLM solution, the NSP and the business customer are unable
to proactively manage and guarantee the level of service across the
network. The FrameSaver solution allows customers the ability to
graphically view real time and historical network performance statistics
and troubleshoot failures end-to-end across the Frame Relay network from
our OpenLane network management system.
- Broadband Conventional Access. Our Acculink and NextEdge solutions
deliver broadband access across the existing NSP infrastructure utilizing
T1/E1 links. The T1/E1 infrastructure is the most commonly deployed
broadband network system today and is widely available in the United
States. Customers often have both voice and data networks that were
installed using multiple broadband and/or narrowband access lines. A
single conventional broadband facility can typically accommodate up to 24
narrowband lines. Acculink and NextEdge act as the required
communications interface to these broadband networks and enable the
elimination of narrowband access lines by consolidating voice and data
over the same broadband circuit. Access consolidation reduces the cost of
high speed access and may also increase performance, particularly when
customers consolidate multiple narrowband access lines onto broadband
facilities. Additionally, NextEdge incorporates FrameSaver SLM functions
to deliver access consolidation and SLM in the same platform. Acculink
and NextEdge solutions are used by CLECs, incumbent carriers and other
NSPs to offer service level managed, high speed access to public and
private networks. Business customers choosing to manage their own
networks also deploy our Acculink and NextEdge solutions.
NARROWBAND SOLUTIONS
- Subrate Digital Access and Analog Modems. Our Comsphere digital access
products provide an interface between a customer's digital equipment and
an NSP's digital circuit operating at speeds of up to 64 Kbps. Our
Comsphere modems enable communications over switched or leased analog
circuits. These products enable NSPs and business customers to build
low-cost, centrally managed networks. Introduced in the early 1990s,
these products are widely deployed in NSP networks and business networks
around the world.
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STRATEGY
Our objective is to maintain and build upon our position as one of the
leaders in the broadband access market utilizing next generation DSL solutions,
conventional copper broadband solutions and SLM solutions. Key elements of our
strategy include:
CONTINUE TO DEVELOP INNOVATIVE BROADBAND TECHNOLOGY AND SYSTEM SOLUTIONS
We will continue to focus on providing innovative, cost-effective broadband
access solutions that improve communications over the traditional copper
telephone wire infrastructure for NSPs and business customers. We believe that
our internally developed technologies play a key role in differentiating our
products from those of our competitors. We have 163 U.S. patents issued and 108
U.S. patent applications pending, and we expect many of these patents and patent
applications will contribute to the development of new technologies and systems.
In addition, we will continue to collaborate with technology partners to
facilitate the development of competitive products, as we have previously done
with NetScout, AGCS and others. Our DSL technological innovations include our
MVL and Tripleplay technologies, which have been implemented in our Hotwire and
SuperLine products. Our SLM technology innovations have been implemented in our
FrameSaver, NextEdge and OpenLane products. We intend to enhance our Hotwire DSL
solutions with higher port densities, additional customer premises equipment
("CPE") capabilities and additional features for our DSL access multiplexer
("DSLAM"). We also intend to enhance our TriplePlay technology to support
additional voice channels and faster data speeds. Further, we intend to
integrate our FrameSaver SLM technology into additional platforms, including
those that support DSL and ATM. As our customers continue to expand their DSL
networks into the application space of conventional broadband networks, we
believe our technological leadership and products provide Paradyne a competitive
advantage.
CONTINUE TO CAPITALIZE ON BUILDOUT OF DSL INFRASTRUCTURE
Revenues from worldwide sales of DSL equipment are projected by industry
sources to increase by approximately 460% from 1998 to 2002. To capitalize on
this projected growth, we intend to continue to pursue "design wins" from NSPs
that are offering or plan to offer DSL services. A "design win" is achieved when
an NSP adopts Paradyne products as one of a limited number of DSL platforms for
its central office. A typical NSP buildout includes DSLAMs in the central
office, resulting in an installed base into which Paradyne will be well
positioned to sell DSL line-cards for the DSLAMs and DSL CPE for the end user.
Through March 31, 1999, Paradyne had shipped over 2,000 DSLAMs. Some of our
current DSL customers include CFW Communications, Guangdong PTA, HarvardNet, NAS
CuNet, Rhythms, TDS Telecom and Tunisia Telecom. We will continue to focus on
increasing our number of design wins with new NSPs as well as maintain our
existing relationships with NSPs who have awarded us design wins in the past. We
also intend to continue to produce a variety of DSL line-cards and DSL CPE to
handle the diverse needs of our NSP customers. We intend to install DSL
interfaces on our FrameSaver and NextEdge products which will allow customers to
deploy those solutions into DSL networks. We further plan to enhance our DSLAMs
so that they may be interoperable with other companies' technologies and DSL CPE
in order to provide a more comprehensive DSL solution.
INCREASE WORLDWIDE DEPLOYMENT OF FRAMESAVER AS PART OF NSP/SLM SOLUTIONS
NSPs are enhancing their service offerings by providing service level
agreements for their Frame Relay and ATM business customers. We believe that as
service level agreements become more widely adopted, NSPs and end user customers
will increasingly require SLM solutions and, therefore, that NSPs will be
required to incorporate these solutions in their networks. We intend to focus on
further integrating FrameSaver as part of our existing NSP customers' service
level agreement solutions and obtaining additional FrameSaver design wins from
new NSPs. Currently, Ameritech, Intermedia, IXC and MCI WorldCom offer
FrameSaver solutions to their customers. In addition, we intend to work with
other Frame Relay and ATM equipment vendors to leverage our FrameSaver products.
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<PAGE> 39
FOCUS ON PRODUCT SALES TO AND THROUGH NSPS
We intend to continue focusing on NSPs that provide managed network access
services to capitalize on the increased demand for such services. Over the past
three years, our sales to NSPs have increased as a result of the efforts of our
worldwide NSP direct sales force. We estimate that over 40% of our revenues in
1998 were generated from sales to NSPs. We intend to focus the efforts of our
direct sales force on maintaining and increasing sales within our current NSP
customer base as well as attracting new NSPs. We plan on focusing primarily on
NSPs deploying DSL, Frame Relay and second and third line voice and data
services.
LEVERAGE FORTUNE 500 CUSTOMER BASE AS THEY UPGRADE THEIR NETWORKS TO BROADBAND
We intend to leverage our installed base of Fortune 500 companies and other
businesses that have purchased our narrowband products and conventional
broadband products. Many of these customers have deployed networks including a
combination of our narrowband and broadband solutions, and we expect that over
the next few years many of these companies will upgrade their networks with
additional broadband solutions. We believe that our existing customers prefer to
buy broadband products from Paradyne as a result of the ability to integrate
Paradyne products into their existing networks more efficiently than the
products of our competitors. In order to capitalize on this potential equipment
upgrade within Fortune 500 companies, we intend to continue to provide
cost-effective solutions for our current customers while increasing our sales
effort with our Fortune 500 customer base.
PRODUCTS AND TECHNOLOGIES
We develop, manufacture and distribute an extensive line of broadband and
narrowband network access products and technologies. Sales of broadband products
represented approximately 38% of our total product sales in 1997 and 53% of our
total product sales in 1998. In addition, we provide advanced network management
systems that allow business customers and NSPs to have a high level of
management, monitoring and control over their network access equipment and
circuits. The table below includes our principal products.
PARADYNE PRODUCT PORTFOLIO
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION APPLICATION
<S> <C> <C>
BROADBAND SOLUTIONS
Hotwire DSLAM DSL access multiplexer Terminates DSL lines and
aggregates them onto
high-speed NSP backbones.
Hotwire RADSL DSLAM line card and CPE based 2 Wire rate-adaptive ADSL
on rate adaptive DSL supporting voice and packet
data networking at speeds up
to 7 Mbps. Also supports 2
Wire SDSL packet data
networking operating at
varying speeds up to 1Mbps.
Hotwire MSDSL DSLAM line card and CPE based 2 Wire SDSL supporting voice
on multirate SDSL and data networking operating
at Nx64 speeds up to 2 Mbps.
Hotwire MHDSL DSLAM line card and CPE based 4 Wire HDSL supporting voice
on multirate high bit rate and data networking operating
symmetric DSL at Nx64 speeds up to 2 Mbps.
Hotwire MVL DSLAM line card and CPE based 2 Wire long-loop splitterless
on MVL DSL DSL supporting voice and
packet data networking
operating up to 768 Kbps.
</TABLE>
35
<PAGE> 40
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION APPLICATION
<S> <C> <C>
SuperLine Integrated access device Dynamically integrates
multiple voice channels and a
packet data connection over a
single phone line for
residence, small office or
home office.
FrameSaver Frame Relay SLM CPE Manages the service levels for
Frame Relay networks.
FrameSaver Network to Network Frame Relay SLM network to Manages the service levels for
Interface network interface interconnected Frame Relay
networks implemented through
multiple NSPs.
FrameSaver/ATM Frame Relay/ATM SLM CPE Manages the service levels for
hybrid ATM/Frame Relay
networks.
Acculink Broadband Digital DSUs, CSUs and integrated Delivers voice and/or data
Access access devices traffic over broadband access
facilities.
NextEdge Integrated access device Integrates voice and/or data
traffic over broadband access
facilities and provides SLM.
NARROWBAND SOLUTIONS
Comsphere Subrate Digital Managed digital service unit Delivers data traffic over
Access narrowband leased digital
access facilities.
Comsphere Modems Managed analog modem Delivers data traffic over
narrowband leased and switched
analog access facilities.
NETWORK MANAGEMENT SOLUTIONS
OpenLane Network Management Network management system Network monitoring, control
System software and SLM.
</TABLE>
BROADBAND SOLUTIONS
Broadband DSL
Hotwire. The Hotwire multiservices system includes DSLAM termination
equipment, which provides aggregation of services in the central office, and an
array of CPE, which extend various broadband access services over the local loop
to the customer premise. The system supports a range of broadband multimedia
access services, such as business and residential Internet access, remote Local
Area Networks ("LAN") access and virtual private network access at symmetric
rates (similar transmission rate for sending and receiving data over the same
line) of up to 1 Mbps and asymmetric rates (varying transmission rates for
sending and receiving data over the same line) of up to 7 Mbps. Hotwire also
supports Frame Relay, ATM and full rate or fractional T1/E1 channelized access
to the public switched telephone networks and other WAN networks for voice and
data services from 64 Kbps to 2 Mbps. In addition to supporting high density
configurations for central office applications, the efficient packaging for
lower density market entry applications allows Hotwire products to be deployed
in a variety of private copper networks, including multi-dwelling-units for both
business and residential access services, universities, hotels, and government
campus private networks.
Our primary customers for Hotwire products are CLECs, incumbent carriers
and other NSPs. Their services are typically focused on meeting the broadband
networking requirements of business customers, teleworkers and
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<PAGE> 41
the small office/home office market -- often with an emphasis on broadband
Internet access. Paradyne CLEC customers, such as Rhythms, are deploying a
nationwide network using our Hotwire systems. Incumbent carriers such as North
Pittsburgh Telephone are deploying Hotwire in their local service areas. NSPs
outside the United States, such as the Guangdong PTA in China, are using Hotwire
products to deliver broadband access to the provinces they serve. The principal
focus of these customers, particularly in the early stages, is to build out
central office installations. Our Hotwire products are easily installed,
scaleable and operate over long loops, which enhance an NSP's ability to deploy
them quickly and service new customers.
We believe that the ability to support multiple access services, with a
choice of symmetric or asymmetric DSL technologies, multiple backbone WAN uplink
service capabilities and the ability to scale from a few lines to over 1,000 DSL
lines per system makes our Hotwire multiservice system one of the most flexible
and scalable DSL systems available. The Hotwire system can be configured,
monitored and controlled through our OpenLane network management system that
provides complete end-to-end management and reporting coverage of the entire
broadband DSL access solution.
Hotwire products consist of two major product family categories, DSLAMs and
CPE.
[DIAGRAM DEPICTING PARADYNE HOTWIRE DSL CPE SUPPORTING RADSL, MSDSL,
MHDSL AND MVL CONNECTING TO THE SUPPORTING DSLAM LINE CARDS OVER THE
COPPER LOCAL LOOP DEMONSTRATING DSLAM AGGREGATION TO MULTIPLE NETWORK
BACKBONE FACILITIES.]
- Hotwire Multiservices DSLAMs: A DSLAM is a DSL access multiplexer
installed in NSPs' central offices and private copper networks that provides
termination and aggregation of multiple DSL lines and associated services
protocol translation. The Hotwire Multiservices DSLAM systems consist of NEBS
certified, high-density chassis and associated DSL line cards, and an
aggregation system with a variety of WAN uplink options and a standards based
network management system. NEBS certification is generally necessary in order
for a product to be installed in the central office of an NSP. Key features of a
Hotwire DSLAM system include:
- the ability to support hot swappable line cards that support between
four and 24 ports per card;
- multiple DSLAM configurations, which include our highly-compact,
stackable DSLAM supporting as few as 4-8 DSL lines which is scalable
to 68 lines and our high-density DSLAM supporting as many as 432 lines
per shelf;
- the ability to support a range of voice and data applications that
operate over packet and/or time division multiplexing ("TDM")
technologies;
- a broad set of available WAN uplink interfaces, including: 10base-T,
100base-T, Channelized T1 and E1, Frame Relay T1 and E1 and ATM (DS-3,
E3, OC-3, OC-12, STM-1 and STS-1); and
- a simple network management protocol ("SNMP") compliant distributed
network management architecture that supports efficient network
management required for large NSP network deployments.
- Hotwire DSL CPE: Hotwire CPE terminates DSL access services at the
customer premise for connectivity to LANs, PCs, PBXs, routers and other voice
and data equipment. Hotwire CPE operates at a variety of transmission speeds and
loop lengths to meet the needs of our customers. Hotwire CPE and associated
DSLAM line cards support multiple DSL technologies, including RADSL/SDSL, MSDSL,
MHDSL and MVL.
We expect to continue to implement these multiple DSL technologies in our
Hotwire products, and, consistent with market requirements, to implement
additional DSL technologies, such as G.lite. Additionally, Hotwire CPE will be
enhanced to include new features required by our customers and the general
market. While we purchase some of the DSL technologies implemented in the
Hotwire DSLAM and CPE, our MVL product represents a new DSL technology developed
and implemented by Paradyne for splitterless implementation and extended loop
reach applications. The primary advantages of MVL technology are:
- simultaneous voice and data capability over copper loops up to 24,000
feet that may also have bridged taps;
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<PAGE> 42
- splitterless operation and "plug and play" installation at the
customer premise; and
- operates using low power, which allows higher density DSLAMs which
lowers the cost for our NSP customers.
In March 1999, we received approval from the FCC to register Hotwire MVL
under Part 68 of the FCC's Rules for the Registration of Telephone Equipment
code. This approval is based on the FCC's decision that Hotwire MVL benefits the
public's interest by providing enhanced customer choice and improved service
quality for data transmission over the public switched telephone network and
does not pose a risk of harm to the public switched telephone network. We
believe that MVL is the only DSL technology to receive such approval to date,
and that the approval should allow more customers to deploy MVL while meeting
the network requirements of incumbent carriers.
SuperLine. SuperLine is an integrated access system that provides
integrated voice and data broadband access services to the residential and small
office/home office markets.
[DIAGRAM DEPICTING THE SUPERLINE INTEGRATED ACCESS SYSTEM CONNECTING A
RESIDENTIAL CUSTOMER'S DATA AND MULTI-LINE VOICE APPLICATIONS OVER A
SINGLE COPPER PAIR TO THE CENTRAL OFFICE.]
SuperLine offers several advantages over other currently available
solutions through its support of as many as three telephone lines and a
high-speed Internet access connection over a single existing phone line. We
believe SuperLine is currently the only product to offer such a solution.
SuperLine provides access at rates up to 10 times faster than current narrowband
products. SuperLine can be installed by the end user simply by plugging the
integrated access device ("IAD") into a standard telephone jack. SuperLine
allows carriers to increase service offerings without installing additional
copper lines. The primary customers for our SuperLine integrated access system
are incumbent carriers, many of which are facing a shortage of available copper
wire lines and are seeking alternatives to physically installing new lines or
deriving lines with existing technologies. The SuperLine system is also
compatible with all major switching systems currently sold in North America.
Developed through a partnership with AGCS, SuperLine integrates Tripleplay, a
technology developed by Paradyne that enables multi-line voice and data service
over a single telephone line. We also designed and manufacture the associated
SuperLine IAD that is distributed as part of the SuperLine system. The NSP
central office equipment included in the SuperLine system was developed and is
manufactured by AGCS. See "Corporate Development Relationships." The SuperLine
system was introduced in January 1999 and is distributed by Lucent and AGCS.
Broadband Service Level Management
[DIAGRAM DEPICTING THE FRAMESAVER SLM PRODUCTS INTERCONNECTING OVER A
FRAME RELAY NETWORK AND AN NSP'S OPENLANE NETWORK MANAGEMENT SYSTEM
CONNECTING TO MONITOR AND ANALYZE THE PERFORMANCE OF THE NETWORK BY
COLLECTING THE DATA FROM THE FRAMESAVER CPE.]
FrameSaver. Our FrameSaver system is an innovative SLM system for Frame
Relay and Frame Relay/ATM networks. The FrameSaver system consists of CPE, NSP
equipment and network management software to monitor and measure network
performance across public Frame Relay systems. The FrameSaver system measures
performance and stores the results for retrieval by our OpenLane network
management system. The storage and data retrieval mechanisms have been
implemented according to recognized industry standards, which makes the
FrameSaver system compatible and interoperable with many other systems that
business customers or NSPs may have installed. The FrameSaver network access
units also provide extensive non-disruptive diagnostic and testing capabilities
along with standard access functionality, to give enterprise customers or
service providers a complete managed solution. The remote monitoring MIB-2
("RMON-2") standard technology included in the FrameSaver system was developed
by NetScout and is included in the FrameSaver system pursuant to a collaboration
between Paradyne and NetScout. See "Corporate Development Relationships."
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<PAGE> 43
Key features of our FrameSaver system include:
- extensive performance management with non disruptive diagnostic and
control capabilities to identify and resolve problems quickly;
- standards based TruePut measurements that allow customers to measure data
throughput both within and above their committed information rates;
- available in a range of network access speeds, from 64 Kbps up to T3;
- inband, non disruptive management over the Frame Relay network and out of
band management with an integrated dial modem;
- router independent for ease of installation and diagnostics;
- ISDN dial backup to protect against network failures;
- network to network interface for SLM across multiple Frame Relay
networks;
- auto configuration of CPE for ease of installation; and
- the ability to scale from small single customer networks to very large
service provider networks.
FrameSaver allows companies to build and manage data networks based on
public network services, while maintaining the same operational efficiency and
confidence used in the management of private networks. By deploying FrameSaver,
business customers can move applications from costly leased lines to shared
public networks and benefit from reduced network services costs, while
maintaining a high degree of control of the network. The FrameSaver system
enables NSPs and business customers to accurately monitor the performance of
individual customer connections across a public or private Frame Relay or Frame
Relay/ATM network and to report details of that performance at varying time
intervals.
While competing products may offer some of the features of the FrameSaver
product, we believe that no other product on the market today offers as wide of
a variety of features. With our FrameSaver product's router independence, NSPs
are able to manage the network end-to-end without relying on the customer's
router. Router independence is a key differentiating feature because during
installation of the circuit, the router might not be installed and when
diagnosing an operational circuit, it may be the router that is actually causing
the problem. FrameSaver offers NSPs the ability to perform non-disruptive
circuit loopback testing from their network operations center. This FrameSaver
feature allows an NSP to respond to a trouble call within a few minutes instead
of hours, saving time and personnel expense while increasing customer
satisfaction. For these reasons, management believes that due to its
comprehensive feature set, FrameSaver offers NSPs and business customers cost
savings not found in competing solutions.
Broadband Conventional Access
[DIAGRAM DEPICTING THE PARADYNE NEXTEDGE SOLUTION AGGREGATING MULTIPLE
VOICE AND DATA APPLICATIONS OVER A SINGLE BROADBAND ACCESS FACILITY CONNECTING
TO THE PUBLIC SWITCHED TELEPHONE NETWORK AND A FRAME RELAY NETWORK AND PROVIDING
SLM.]
Acculink and NextEdge T1/E1 digital access products consist of a range of
products that provide an interface between a T1 or E1 circuit and a customer's
high-speed digital equipment, such as a computer, router, multiplexer, WAN
switch or PBX. The Acculink and NextEdge products are managed by our OpenLane
network management system, which provides centralized management of large,
geographically disbursed networks for NSPs and businesses. Businesses, service
providers, government entities and other organizations use these products to
build low-cost, centrally managed networks for high-speed, digital applications.
Our T1/E1 digital access products provide a broad range of features, including
centralized, standards-based network management multiple voice and data
interface ports and multiplexing.
Acculink. Acculink products provide integrated voice and data network
access to business customers who want to take full advantage of their T1/E1
bandwidth capacity. The products are used primarily in applications where voice
and data integration over a T1 or E1 line is required. The Acculink T1/E1
products were introduced
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<PAGE> 44
as a standard part of AT&T's High-Speed Accunet digital services in the early
1990s, and have been deployed widely in large business networks ever since.
NextEdge. The NextEdge products add the SLM capabilities of FrameSaver to
the functionality provided by the Acculink products. NextEdge products are used
by NSPs and business customers to deploy integrated voice and data services plus
managed Frame Relay services over a common T1 infrastructure. Business customers
are seeking to maintain the SLM capabilities they have come to view as essential
for their public Frame Relay services as they integrate other network services
onto available bandwidth in their T1 access lines.
NARROWBAND SOLUTIONS
Our Comsphere digital access products consist of a family of managed
digital service units that provide a network interface for a digital circuit
operating at up to 64 Kbps and a customer's digital equipment, such as a
computer, terminal controller, router or other narrowband digital communications
equipment. We introduced the Comsphere DSUs in the early 1990s, when they were
offered as a standard part of AT&T's DDS services. Our Comsphere analog modems
enable communications over switched or leased analog circuits. These analog
modems are approved for use around the world and are widely deployed in business
and NSP networks. These highly managed modems operate on both dial circuits and
analog private line circuits where network applications demand an extremely high
degree of network uptime and manageability. All of the Comsphere products are
managed by our OpenLane network management system, which provides centralized
management of large, geographically disbursed networks for NSPs and businesses.
Businesses, service providers, government entities and other organizations
use these products to build low-cost, centrally managed networks for their
digital applications. Many of these customers have also begun installing our
Acculink, NextEdge and FrameSaver products for their broadband network access
applications. We estimate that we have shipped more than 875,000 narrowband
access products over the past five years.
NETWORK MANAGEMENT SOLUTIONS
OpenLane. The OpenLane network management system, a centralized management
platform, integrates OpenLane into all of our product families and provides NSPs
and business customers with the ability to manage their network access products
located at the edge of the WAN. The OpenLane software is purchased separately
with each of our products in order to utilize OpenLane's management
capabilities. OpenLane consists of a suite of network management tools that
provide SLM and visibility into the pertinent details of network circuits and
network access unit performance. The management tools work together to provide
business customers and NSPs with detailed, accurate performance metrics needed
to understand precisely how their network is performing and where performance
problems or potential problems may reside. The OpenLane network management
system offers a user-friendly graphical user interface and graphical reporting.
OpenLane is designed to work with Hewlett-Packard's OpenView network management
platform and is based extensively on standards, such as SNMP, which enable it to
interface with many third-party network management applications that our
business and NSP customers may be using. OpenLane can provide reports and access
to screens either directly or by using the Internet for web-based delivery.
Recent releases of our OpenLane software modules are based on Java programming
to permit a platform independent system. Our NSP and business customers depend
on the OpenLane network management system as the central management system they
use to monitor and control the network access products that they have deployed
in their networks.
CORPORATE DEVELOPMENT RELATIONSHIPS
Our success is dependent upon our continued development relationships with
certain companies. We expect to continue to collaborate with technology partners
to facilitate the development of competitive products. Currently, our
development relationships include the following:
AG Communication Systems. In June 1998, we entered into a joint
development and distribution agreement with AGCS. Paradyne granted a
non-exclusive license to AGCS to incorporate Paradyne's Tripleplay technology
into AGCS's central office switch, digital loop carrier and/or DSLAM equipment
and distribute to sellers of telecommunications systems the products that
incorporate the Tripleplay technology. AGCS agreed to
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<PAGE> 45
pay a license fee to Paradyne for the Tripleplay technology. Paradyne granted
AGCS a non-exclusive right to purchase certain Tripleplay hardware and software
for distribution, and AGCS granted Paradyne a non-exclusive right to purchase
certain switch products for distribution. The agreement will expire in June
2003, unless renewed.
NetScout. In January 1998, we entered into a marketing and license
agreement with NetScout under which Paradyne agreed to utilize exclusively
NetScout's RMON-2 network management software with our FrameSaver Frame Relay
access unit products, to market and sell NetScout Manager Plus software with our
FrameSaver system and not to compete against NetScout with respect to RMON-based
technology. NetScout agreed to reference Paradyne as a strategic partner for
DSUs, DSLs and multiplexers and agreed to give preference to Paradyne when
sourcing or integrating DSUs. NetScout granted a non-exclusive license to
promote, market, sell, license and distribute any NetScout software or product
embedded into Paradyne's FrameSaver products in exchange for royalty fees to
NetScout. The agreement will expire in January 2003, unless renewed.
Xylan. Effective March 1999, we entered into a joint development and
supply arrangement with Xylan under which Xylan granted us a non-exclusive,
worldwide right to market, distribute and sell its OmniSwitch product and
related products with our DSL products. The agreement further provides that
through at least March 2001, we are Xylan's primary reseller of these products
for connections to our DSLAMs. Paradyne and Xylan have agreed upon feature
enhancements to these products to meet specific customer requirements. The
agreement continues for two years, after which it may be automatically renewed
for successive one-year periods.
Ascend Communications. In November 1998, we entered into a joint
development and marketing agreement with Ascend in connection with our OpenLane
SLM software and Ascend's Navis, a network management system. Under the
agreement, we agreed to develop interface software which integrates OpenLane
with Navis, creating a single integrated solution for CLECs, incumbent carriers
and other NSPs. Ascend and Paradyne jointly market Navis, together with OpenLane
SLM software, to NSPs. The agreement will continue unless terminated upon 60
days written notice.
GlobeSpan. Effective March 1999, we entered into a supply agreement with
GlobeSpan which provides for preferential pricing to Paradyne and other terms in
connection with the purchase of GlobeSpan products by Paradyne. Under the terms
of this agreement, GlobeSpan is required to honor Paradyne's orders for
GlobeSpan products in quantities at least consistent with Paradyne's past
ordering practices and agreed to afford Paradyne at least the same priority for
its orders as GlobeSpan affords other similarly situated customers. Paradyne was
also granted immunity under GlobeSpan's intellectual property rights for all
Paradyne customers that purchase Paradyne products that incorporate GlobeSpan
products. GlobeSpan has been selling products to Paradyne pursuant to these
terms since July 1998. The agreement will expire in March 2003, unless
terminated upon one year's notice. In addition to the supply agreement, Paradyne
and GlobeSpan work very closely together to develop capabilities that are
jointly defined by the two companies. Our marketing and research and development
organizations meet on a regular basis to review the status of projects.
SALES, MARKETING AND DISTRIBUTION
We sell our products worldwide through a multi-tier distribution system
that includes direct sales, strategic partner sales, NSP sales and traditional
distributor or VAR sales. Our sales teams are supported with marketing programs,
educational programs, field technical support and telephone technical support.
Our Internet and intranet sites are used extensively to communicate with our
sales teams, our customers and our resellers.
Our direct sales teams are organized to sell directly to NSP, VAR and
distributor customers. Our NSP and VAR customers purchase our products and then
sell them or provide them in a service offering to business customers. We
support our resellers' sales activity with a demand generation sales force. This
team markets to business customers in support of our VAR and NSP partners. Our
resellers add value by providing order processing, credit and significant sales
and technical support. Our field sales teams are comprised of sales and systems
engineering personnel that are experienced and knowledgeable about the products
and technologies we provide and support. Our field sales teams are further
supported by Paradyne's telesales team. This inside sales
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<PAGE> 46
team answers all incoming emails and telephone calls, makes outbound telephone
calls, follows up on leads generated through advertising and provides telephone
support to our resellers.
Our resellers are responsible for identifying potential business customers,
selling our products as part of complete solutions and, in some cases,
customizing and integrating our products at end users' sites. We establish
relationships with resellers through written agreements that provide prices,
discounts and other material terms and conditions under which the distributor is
eligible to purchase our products for resale. Such agreements generally do not
grant exclusivity to the resellers, prevent the resellers from carrying
competing product lines or require the resellers to sell any particular dollar
amount of our products, although the contracts may be terminated at our election
if specified sales targets and end user satisfaction goals are not attained. We
nurture these relationships with resellers with incentive and training programs.
This multi-channel sales strategy encourages broad market coverage by allowing
our sales personnel to create demand for our products while giving customers the
flexibility to choose the most appropriate delivery channels.
We participate in trade shows and seminars and make extensive use of the
Internet and our web presence at www.paradyne.com to promote and generate demand
for our products. (The reference to our worldwide web address does not
constitute incorporation by reference into this prospectus of the information
contained at this web site.) Since most of our customers utilize the Internet,
we believe that our Internet presence is a low cost and highly effective method
for educating our customers about our products and creating demand for our
products. As a result, we place Internet advertising and conduct targeted email
marketing. Our web site includes product information, multimedia presentations
and customer testimonials. We also host Internet based interactive seminars for
promotional seminars, training events and press conferences.
Channel marketing programs allow us to attract and support our resellers,
including NSPs. Our "Connect to Success" reseller program markets and sells
products directly to large resellers and through national distributors, such as
Ingram Micro and Tech Data, to hundreds of VARs and NSPs. Our relationships with
these distributors provide significant value to our reseller partners by giving
them immediate availability to product without the cost of stocking. These well
known distributors also extend credit to resellers, increasing their buying
power, and providing them with direct shipments to end customers further
reducing costs. Our reseller programs provide advertising support, volume
incentive rebates, exclusive access to technical support via 800 numbers and
through our web site. Special programs encourage VAR loyalty, focus on strategic
products, and focus on winning new accounts. Specialized product training
programs are provided to our resellers at our headquarters, in the field and
over the web.
In addition to the marketing and sale of our products, we resell the AAC,
our private label for the IMACS system of Premisys Corporation, through a small,
focused sales team. Paradyne and Premisys entered into a distribution agreement
in 1992, which has been amended and extended, under which we have certain
exclusive distribution rights through April 2005 for Premisys' IMACS system,
which we market to Lucent and AT&T. In 1995 and 1996, we sold the AAC to Lucent,
AT&T and many other companies. In 1997, we discontinued selling the product to
customers other than Lucent and AT&T for various pricing and distribution
reasons. Currently, we sell the AAC to Lucent and AT&T for a variety of wireless
and wireline applications. We have also developed and sell certain hardware and
software enhancements for the AAC.
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CUSTOMERS
The end-users of our equipment are primarily businesses and NSPs.
BUSINESS CUSTOMERS
Business customers include businesses around the world that purchase
equipment for their company's WAN from Paradyne's resellers or, for certain
international customers, directly from Paradyne. Set forth below is a
representative list of businesses who purchased over $100,000 of our products in
1998:
<TABLE>
<S> <C> <C>
Aon Fifth Third Bank Norwest
Bank of America First Union Paine Webber
Bank One Freddie MAC Progressive
Boise Cascade General Electric Prudential
Chase Manhattan Hartford Roadway Express
Cigna Hertz The Associates
Citigroup JC Penney Toyota
CSX Liberty Mutual Unisys
Delta Airlines Litton Utilicorp
Everen Securities Lucent VISA
Farmers Insurance Merrill Lynch Xerox
</TABLE>
NETWORK SERVICE PROVIDERS
NSPs purchase equipment for their network or for resale into their
customers' networks. Set forth below is a representative list of NSPs who
purchased over $100,000 of our products in 1998:
<TABLE>
<S> <C> <C>
AT&T Guangdong PTA RAM Mobile Data
Ameritech HarvardNet Rhythms
Bell Canada Henan PTA Saudi Telecom
Bell South IBM Global Network Shandong PTA
Cable & Wireless Panama Metronet Shenzhen PTT
Cadvision MGC Communications SITA
CFW Communications MT&T Sprint
Egypt Telecom North Pittsburg Telephone TDS Telecom
Fonorola NTT Telus Communications
Guangzhou PTT PLDT Tunisia Telecom
</TABLE>
In the year ended December 31, 1998, two of our customers accounted for
greater than 10% of revenues. Direct sales to Lucent in 1998 accounted for
approximately 35% of our total revenues. Sales to Tech Data accounted for
approximately 17% of our total revenues. We estimate that approximately 63% of
our sales to Tech Data represented products that were resold to Lucent.
Collectively, we estimate that direct and indirect sales to Lucent accounted for
approximately 47% of our total revenues in 1998. Lucent purchases products to
include in their data networking solutions products, which it sells to
businesses worldwide. Lucent also purchases our products to package with their
various telephone systems. Tech Data purchases products from us as a
distributor.
CUSTOMER SUPPORT
We maintain a strong focus on customer service and support for our
resellers and end user customers. We accomplish this at our customers' sites
through systems engineers who work with customers in a pre-sales role, and
through the support teams of our resellers. The Paradyne Technical Support
Center provides telephone based pre- and post-sales support to resellers and
customers on a seven day, 24 hour basis and also provides proposal support to
the sales organization. Our training organization provides technical training to
end users, maintenance service providers, NSPs and sales channels. Training is
included as a part of our channel programs or is provided on a fee basis.
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We provide maintenance support offerings that utilize a variety of service
organizations based on geography and skills required. Our authorized service
providers include Lucent, NCR, Myriad and TechForce. These service providers
provide service offerings that include various maintenance packages,
installation, remote management, project management and other professional
service options.
Warranties on most of our hardware products extend for 24 months. A number
of products carry a 12 month warranty and others carry a 60 month warranty.
Software products carry a 90 day warranty. Factory repair or replacement is
provided by us.
COMPETITION
The telecommunications market is highly competitive, and we believe that
competition may increase substantially as the introduction of new technologies,
deployment of broadband networks and potential regulatory changes create new
opportunities for established and emerging companies in the industry. We compete
directly with other providers of broadband and narrowband access equipment,
including ADC Telecommunications, Adtran, Alcatel, Ascend, Cisco, Copper
Mountain, Digital Link, Larscom, Motorola, Nokia, Nortel Networks, Orckit,
PairGain, Sync Research, 3Com, Tut Systems and Visual Networks. We expect that
competition for products that address the broadband access market will grow as
more companies and an increasing number of new companies focus on this market to
develop solutions for higher speed access to public networks. We expect that
competition for products that address the narrowband market will not
dramatically change over the course of the next few years.
Many of our current and potential competitors are larger than we are and
have significantly greater financial, sales and marketing, technical,
manufacturing and other resources and more established channels of distribution.
As a result, these competitors may be able to respond more rapidly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products. Our
competitors may enter our existing or future markets with solutions that may be
less costly, provide higher performance or additional features or be introduced
earlier than our solutions. Some of our competitors currently offer financing
alternatives to their customers at levels at which we cannot compete.
Our markets are characterized by increasing consolidation both within the
data communications sector and by companies combining or acquiring data
communications products and technology for delivering voice-related services, as
exemplified by the recently announced acquisitions of Ascend by Lucent, Diamond
Lane by Nokia and Xylan by Alcatel. Increased competition and consolidation
could result in price reductions and loss of market share by Paradyne. We cannot
be sure of the impact of any of these acquisitions on the competitive
environment for our products. Increased competition and consolidation could
result in price reductions and a decrease in our market share. Our future
success will depend on our ability to compete successfully against our
competitors based on the following factors:
- key product features;
- system reliability and performance;
- technological innovation;
- price;
- time to market;
- breadth of product lines;
- conformity to industry standards;
- ease of installation and use;
- brand recognition;
- ability to help customers finance purchases;
- technical support and customer service; and
- size and stability of operations.
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<PAGE> 49
RESEARCH AND DEVELOPMENT
Since 1969, we have been developing technologies and solutions for the
communications market. We believe that our future success is dependent on our
ability to continue to rapidly deliver innovative broadband access solutions.
Time to market is critical in order to meet the requirements of our extensive
customer base and to be able to quickly adapt to the constantly emerging needs
in the market. Innovation is critical in order to provide the capabilities that
differentiate the products and solutions that we offer from those of our
competitors. We intend to maintain an ongoing investment in research and
development that will support technological innovation.
Our research and development efforts are focused on sustaining and
enhancing our existing products and developing innovative new solutions in the
emerging broadband market. We emphasize early and frequent interaction between
our research and development systems engineers, key technologists and customers
to arrive at unique solutions to meet specific product requirements. Customer
feedback is also obtained from resellers and through participation in industry
events, organizations, and standards bodies.
We have developed core competencies in SLM, broadband systems
internetworking, network management, and broadband access technologies. We will
continue to rely on the use of industry and technology partnerships to further
enhance the capability to quickly introduce new solutions into the broadband
market, and we expect to continue to employ a strategy that uses a combination
of internally developed solutions and external partnering.
We maintain research and development sites in Largo, Florida and Red Bank,
New Jersey. In addition, engineering work is completed in Mexico and India
through technology partnering arrangements. In order to maintain our rapid pace
of product introduction, we will need to continue to attract talented engineers
and invest in state-of-the-art research and development tools and processes. We
will continue to invest resources in key skill areas, such as Java programming,
system software, digital signal processing, internetworking, data communication
protocols (ATM, Frame Relay, IP), test automation, central office solutions,
RISC processing, transmission technologies, and telephony.
Currently, we are developing enhancements for all of our broadband and SLM
product families. We expect this work to result in feature improvements to these
products, reduce our costs associated with their manufacture or reduce the cost
to deploy them. We are focused on increasing the density of our DSL systems and
expect to introduce 12 and 24 line cards for our Hotwire DSLAM. We are also
adding SLM to products that did not previously include SLM capability, enhancing
the SLM features for those products that already support SLM and adding DSL
function to products that currently have only conventional broadband
capabilities.
INTELLECTUAL PROPERTY
Our success and ability to compete is dependent in part upon our
proprietary technology. We rely on a combination of patent, copyright and trade
secret laws and non-disclosure agreements to protect our proprietary technology.
We currently hold 163 U.S. patents and have 108 U.S. patent applications
pending. In addition, we hold certain corresponding foreign patents and have
certain corresponding foreign patent applications pending. There can be no
assurance that patents will be issued with respect to pending or future patent
applications or that our patents will be upheld as valid or will prevent the
development of competitive products. We seek to protect our intellectual
property rights by limiting access to the distribution of our software,
documentation and other proprietary information. In addition, our employees
execute proprietary information agreements and we enter into nondisclosure
agreements with certain of our strategic partners. There can be no assurance
that the steps taken by us in this regard will be adequate to prevent
misappropriation of our technology or that our competitors will not
independently develop technologies that are substantially equivalent or
independently developed technologies that are substantially equivalent or
superior to our technologies. We also are subject to the risk of adverse claims
and litigation alleging infringement of the intellectual property rights of
others. In this regard, there can be no assurance that third parties will not
assert infringement claims in the future with respect to our current or future
products or that any such claims will not require the us to enter into license
arrangements or result in protracted and costly litigation, regardless of the
merits of such claims. No assurance can be given that any necessary licenses
will be available or that, if available, such licenses can be obtained on
commercially reasonable terms.
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<PAGE> 50
MANUFACTURING AND FACILITIES
Our principal administrative, engineering and manufacturing facilities are
located in two leased buildings totaling approximately 333,000 square feet in
Largo, Florida. In addition, we maintain a research and development facility of
approximately 29,000 square feet in Red Bank, New Jersey. The leases for the
Largo, Florida facility and the Red Bank, New Jersey facility expire in 2007 and
2003, respectively, and there are two five-year renewal options on the Largo,
Florida facility. Additionally, there is an automatic extension of the lease
term of the Largo, Florida lease if the current landlord sells this property
within the first three years of the lease. The Red Bank lease is not renewable
but we retain the right to renegotiate with the landlord. We also lease offices
for branch sales and administration in Virginia, as well as in Canada, France,
Egypt, Japan, Hong Kong, Singapore and the People's Republic of China.
Collectively, these offices occupy approximately 27,000 square feet. Leases for
these facilities expire at various times during 1999 and 2002. We believe that
the current facilities will be able to accommodate anticipated expansion of
operations in these locations over the next 24 months.
We manufacture substantially all of our products. All of our major
operations are ISO-9001 registered. Many of our parts are procured from a
variety of qualified suppliers per our specification. Certain strategic
suppliers are electronically linked, and given 26 week visibility of demand. We
believe that this is critical in maintaining high delivery volumes and
minimizing inventory. We use a combination of standard parts and components,
which are generally available from more than one vendor and some parts that are
obtained from a single source. We have generally been able to obtain adequate
supplies in a timely manner from our current vendors or, when necessary, to meet
production needs from alternative vendors. We believe that, in most cases,
alternate vendors can be identified if current vendors are unable to fulfill our
needs. However, if we are unable to obtain sufficient quantities of necessary
supplies, or if there is a significant increase in the price of key components
or materials, delays or reductions in manufacturing or product shipments could
occur, which would have a material adverse effect on our business, financial
condition and results of operations.
We believe that we have sufficient production capacity to meet current
demand for our product offerings and anticipate meeting future demand through a
combination of the use of additional employees and increased outsourcing of
products or components. In addition, we have the right of first refusal on the
construction of any building on certain land adjacent to our Largo, Florida
facilities if more space is needed to expand our manufacturing operations.
EMPLOYEES
As of March 31, 1999, we employed approximately 855 full time employees. We
retain a number of contract employees, primarily in manufacturing and research
and development, during peak demand periods. We anticipate the number of
contract employees to decline in the future. None of our employees is covered by
collective bargaining agreements, and we believe that our relations with our
employees are good.
GOVERNMENT REGULATION
In the U.S., the 1996 Act changed the regulatory environment for all NSPs,
including the CLECs and incumbent carriers among our customer base. The 1996 Act
removed federal, state and local barriers to entry into the local telephone
market by CLECs. The 1996 Act also imposed significant obligations on incumbent
carriers, including obligations to interconnect their networks with competitors'
networks and to unbundle their networks and provide competitors with access to
unbundled network elements. The 1996 Act also directs the Federal Communications
Commission to adopt local loop access rules to enable competitive providers of
advanced services, such as high-speed Internet access, to deploy new
technologies on a faster, more cost-effective basis to consumers.
Companies selling terminal equipment to be connected to the public switched
telephone network ("PSTN") must register certain of their products with the FCC
and conform them to technical standards promulgated by the FCC in its
regulations. These regulations are designed to protect the PSTN from harm,
including interference and service degradation.
LEGAL PROCEEDINGS
We are not a party to any pending material litigation.
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<PAGE> 51
MANAGEMENT
OFFICERS AND DIRECTORS
Our officers and directors, the positions held by them, and their ages as
of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Andrew S. May............................. 38 President, Chief Executive Officer and Director
Sean E. Belanger.......................... 43 Senior Vice President, Worldwide Sales
Patrick M. Murphy......................... 42 Senior Vice President, Chief Financial Officer and
Treasurer
James L. Slattery......................... 59 Senior Vice President, Chief Legal and Intellectual
Property Officer and Corporate Secretary
J. Scott Eudy............................. 41 Vice President, Network Access Products
Paul H. Floyd............................. 41 Vice President, Research and Development
John M. Guest............................. 54 Vice President, Chief Information Officer
Mark Housman.............................. 46 Vice President, Marketing
Sherril A. Claus Melio.................... 47 Vice President, Human Resources and Administration
H. Edward Thompson........................ 52 Vice President, Manufacturing
Frank J. Wiener........................... 38 Vice President, DSL Products
Thomas E. Epley........................... 58 Chairman, Board of Directors
David M. Stanton.......................... 36 Director
William R. Stensrud....................... 48 Director
</TABLE>
Andrew S. May has served as President since December 1996, Director since
January 1997, and Chief Executive Officer since May 1997. From October 1995 to
November 1996, he served as Vice President and General Manager of 3Com
Corporation's Network Service Provider division. From April 1992 to October
1995, Mr. May served as Vice President of Marketing for Primary Access
Corporation, which was acquired by 3Com in 1995. Mr. May holds a B.A. in
economics from the University of New Hampshire.
Sean E. Belanger has served as Senior Vice President of Worldwide Sales
since June 1997. From November 1996 to May 1997, he served as Vice President and
General Manager of 3Com Corporation's Network Service Provider division. From
September 1992 to November 1996, he was Vice President of Sales for Primary
Access Corporation. Mr. Belanger holds a B.S. in business management from
Virginia Polytechnic Institute and State University.
Patrick M. Murphy has served as Senior Vice President, Chief Financial
Officer and Treasurer since August 1996. He also has served as a director and
Vice President, Chief Financial Officer, and Treasurer of Paradyne Credit Corp.,
an affiliated entity, since August 1996. From August 1996 to July 1998 he served
as Vice-President, Treasurer, Chief Financial Officer of GlobeSpan, an
affiliated entity. From January 1987 to August 1996, he served as Chief
Financial Officer of Continental Broadcasting, Ltd., a television and radio
broadcast company. Mr. Murphy holds a B.S./B.A. in finance from John Carroll
University and is a certified public accountant.
James L. Slattery has served as Senior Vice President, Chief Legal and
Intellectual Property Officer and Corporate Secretary since August 1996 and held
various executive positions at Paradyne since April 1985. He has also served as
a director and Vice President and Corporate Secretary for Paradyne Credit Corp.,
an affiliated entity, since August 1996. From August 1996 to March 1999 he
served as Vice President and Secretary of GlobeSpan, an affiliated entity. Mr.
Slattery holds a B.S. from New York University in international relations and
commerce and a J.D. from Washington & Lee School of Law.
J. Scott Eudy has served as Vice President of Network Access products since
December 1997. From February 1981 to September 1996, he held various sales,
engineering and marketing positions with AT&T. Mr. Eudy holds a B.S. in
mechanical engineering and an M.B.A. from Texas Tech University.
Paul H. Floyd has served as Vice President of Research and Development
since July 1996. From October 1992 to June 1996, he was Director of Research and
Development for AT&T Paradyne's digital products
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<PAGE> 52
development group. Mr. Floyd holds a B.S. and M.S. in electrical engineering
from Stevens Institute of Technology and an M.B.A. from the University of South
Florida.
John M. Guest has served as Vice President and Chief Information Officer
since October 1996. From April 1990 to October 1996 he served in numerous
management capacities with Paradyne. Prior to joining Paradyne in 1990, he was a
senior manager at AT&T responsible for its data communications product line. Mr.
Guest attended Rutgers University.
Mark Housman has served as Vice President of Marketing since May 1997.
Previously, Mr. Housman was a Vice President of Sales from October 1994 to May
1997. Mr. Housman holds a B.S. in mechanical engineering from the New York
Institute of Technology and an M.B.A. in marketing from New York University.
Sherril A. Claus Melio has served as Vice President of Human Resources and
Administration since May 1997. From July 1993 to May 1997, she was Vice
President of Human Resources. Ms. Melio holds a B.S. in behavioral science from
San Jose State University.
H. Edward Thompson has served as Vice President of Manufacturing since
August 1993. Mr. Thompson holds a B.S. in mechanical engineering from Georgia
Institute of Technology and a Masters of Engineering Administration from the
University of South Florida.
Frank J. Wiener has served as Vice President of Paradyne's DSL Products
since August 1996. From February 1989 to August 1996, he served as a director
and manager of various marketing, sales and business development departments at
Paradyne. Mr. Wiener holds a B.S. in electrical engineering from the University
of South Florida.
Thomas E. Epley has served as the Chairman of the Board of Directors since
August 1996. He also served as President from August 1996 to December 1996 and
Chief Executive Officer from August 1996 to May 1997. From August 1996 to April
1997, Mr. Epley was Chief Executive Officer and President of GlobeSpan, an
affiliated entity. He has served as a director of GlobeSpan since August 1996
and was Chairman of the Board of Directors from August 1996 to March 1999. He
has served as a director and President and Chief Executive Officer of Paradyne
Credit Corp., an affiliated entity, since August 1996. From 1993 to 1996, he was
a director of Carlton Communications. From 1991 to 1996, he served as Chairman
and Chief Executive Officer of Technicolor, a provider of services and products
to the entertainment industry. Mr. Epley holds a B.S. degree in mechanical
engineering from the University of Cincinnati and an M.B.A. from the Kellogg
School of Northwestern University.
David M. Stanton has served as a director of Paradyne since August 1996.
Mr. Stanton is a partner of Texas Pacific Group, where he has been employed
since 1994. Prior to joining Texas Pacific Group, Mr. Stanton was a venture
capitalist with Trinity Ventures, where he specialized in information
technology, software and telecommunications investing. Mr. Stanton currently
serves as a director of Denbury Resources, Inc., and several private companies,
including GlobeSpan Semiconductor Inc., and Paradyne Credit Corp., affiliated
entities of Paradyne. Mr. Stanton holds a B.S. in chemical engineering from
Stanford University and an M.B.A. from the Stanford Graduate School of Business.
William R. Stensrud has served as a director of Paradyne since January
1997. Mr. Stensrud has been a general partner at the venture capital investment
firm of Enterprise Partners since January 1997. Previously, from February 1992
to March 1996, Mr. Stensrud served as President and Chief Executive Officer of
Primary Access Corporation. Mr. Stensrud is a director of several public and
privately held companies, including Rhythms. Mr. Stensrud holds a B.S. in
electrical engineering and computer science from the Massachusetts Institute of
Technology.
COMMITTEES OF THE BOARD OF DIRECTORS
Following this offering, the Board of Directors will be divided into three
classes, with each class serving three-year terms.
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<PAGE> 53
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee consists of and
. The Audit Committee makes recommendations to the Board of
Directors regarding the selection of independent auditors, reviews the results
and scope of the audit and other services provided by our independent auditors
and reviews and evaluates our audit and control functions.
The Compensation Committee consists of , and
. The Compensation Committee makes recommendations regarding our
1996 Amended and Restated Equity Incentive Plan and makes decisions concerning
salaries and incentive compensation for our employees and consultants.
DIRECTOR COMPENSATION
During 1998, our outside directors were not compensated for serving as
members of the Board of Directors. Following the closing of this offering,
outside directors will receive $ for participation in meetings of the
Board of Directors and $ for participation in committee meetings held
on days other than those on which meetings of the Board of Directors are held.
In addition, outside directors will receive option grants under the 1996 Amended
and Restated Equity Incentive Plan and will be eligible for automatic option
grants under our 1999 Non-Employee Directors' Stock Option Plan as described
below.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Epley has served as Chairman of our Board of Directors since August
1996. He is also a current director of GlobeSpan, was Chairman of their Board of
Directors from August 1996 to March 1999 and was their Chief Executive Officer
and President from August 1996 to April 1997.
Mr. Epley, Mr. Stanton and Mr. Stensrud also have a pecuniary interest in
the Paradyne and GlobeSpan shares held by Communication Partners.
For a further description of interlocking transactions, see "Certain
Transactions."
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services rendered during the fiscal year ended December 31, 1998 by our Chief
Executive Officer and our four other most highly compensated executive officers
whose salary and bonus for the last fiscal year exceeded $100,000, collectively
referred to as the Named Executive Officers. There were no options granted to
the Named Executive Officers during fiscal 1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
------------------------ ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
<S> <C> <C> <C>
Thomas E. Epley.......................................... $586,541 -- $18,102(2)
Chairman, Board of Directors
Andrew S. May............................................ 323,094 $ 88,750 536(3)
President, Chief Executive Officer and Director
Patrick M. Murphy........................................ 220,055 35,000 479(4)
Senior Vice President and Chief Financial Officer
Sean E. Belanger......................................... 200,018 58,669 492(5)
Senior Vice President, Worldwide Sales
James L. Slattery........................................ 197,002 104,125(6) 2,155(7)
Senior Vice President, Chief Legal and Intellectual
Property Officer and Corporate Secretary
</TABLE>
- ------------------------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance or other benefits which are available
generally to all salaried employees of Paradyne and certain perquisites and
other personal benefits received which do not exceed the lesser of $50,000
or 10% of any officer's salary and bonus disclosed in this table.
(2) Mr. Epley received life insurance benefits and payments for living expenses
during 1998.
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<PAGE> 54
(3) Mr. May received life insurance benefits during 1998.
(4) Mr. Murphy received life insurance benefits during 1998.
(5) Mr. Belanger received life insurance benefits during 1998.
(6) Includes a bonus in the amount of $53,280 for which the Company was
reimbursed by Lucent pursuant to an arrangement entered in connection with
the sale of Paradyne by Lucent in 1996.
(7) Mr. Slattery received life insurance benefits during 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information regarding options exercised
during fiscal 1998 by the Named Executive Officers and the number and value of
securities underlying unexercised options held on December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
NUMBER OF UNEXERCISED OPTIONS AT MONEY OPTIONS AT
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998 (1)
ACQUIRED ON VALUE -------------------------------- ------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Epley...... -- -- -- -- -- --
Andrew S. May........ -- -- 1,275,000 1,275,000 $2,097,000 $2,097,000
Patrick M. Murphy.... -- -- 168,750 131,250 393,188 305,813
Sean E. Belanger..... -- -- 225,000 375,000 524,250 873,750
James L. Slattery.... -- -- -- 90,000 -- 209,700
</TABLE>
- ------------------------------
(1) The calculations of the value realized and of the unexercised in-the-money
options are based on fair market value of our common stock of $3.33 per
share as of December 31, 1998, less the exercise price payable for such
shares.
EMPLOYMENT AGREEMENTS
Paradyne has a Key Employee Agreement with Thomas E. Epley dated as of
August 1, 1997 and continuing until July 31, 1999. During the first 12 months of
the agreement, Mr. Epley was entitled to a base salary of not less than
$650,000. During the second 12 months of the agreement, he was entitled to a
base salary of not less than $500,000. Mr. Epley is neither eligible to
participate in our 1996 Equity Incentive Plan nor is he eligible for a
discretionary or incentive bonus. During the term of the agreement, Mr. Epley is
serving as Chairman of the Board of Directors. Either Paradyne or Mr. Epley has
the right to terminate Mr. Epley's employment at any time for any reason. If we
terminate Mr. Epley's employment without cause or he resigns for a material
breach by us of his employment agreement, he will continue to receive his base
salary through July 31, 1999.
Paradyne has an Employment Agreement with Andrew S. May dated as of October
31, 1996 and continuing indefinitely. Under the agreement, Mr. May is entitled
to receive an annualized base salary of not less than $300,000. He received a
commencement bonus in the amount of $35,000 and is eligible to receive an annual
cash bonus of up to 50% of his base salary. He is also eligible to participate
in the 1996 Equity Incentive Plan. During the term of the agreement, Mr. May is
serving as President and Chief Executive Officer. Either Paradyne or Mr. May has
the right to terminate Mr. May's employment at any time for any reason. If we
terminate Mr. May's employment without cause or he resigns for a material breach
by us of his employment agreement, he will receive a severance payment equal to
one year's salary.
Paradyne has a Key Employee Agreement with Patrick M. Murphy dated as of
August 1, 1996 and continuing indefinitely. Under the agreement, Mr. Murphy is
entitled to receive an annualized base salary of not less than $215,000. He is
eligible for a discretionary bonus in an annualized amount of up to $70,000. He
is also eligible to participate in the 1996 Equity Incentive Plan. During the
term of the agreement, Mr. Murphy is serving as Senior Vice President, Chief
Financial Officer and Treasurer. Either Paradyne or Mr. Murphy has the right to
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<PAGE> 55
terminate Mr. Murphy's employment at any time for any reason. If we terminate
Mr. Murphy's employment without cause, he will receive a severance payment equal
to one year's salary.
Paradyne has a Key Employee Agreement with James L. Slattery dated as of
August 1, 1996 and continuing indefinitely. Under the agreement, Mr. Slattery is
entitled to receive an annualized base salary of not less than $189,410. He is
eligible for a discretionary bonus in an annualized amount of up to $85,000. He
is also eligible to participate in the 1996 Equity Incentive Plan. During the
term of the agreement, Mr. Slattery is serving as Senior Vice President, Chief
Legal and Intellectual Property Officer and Corporate Secretary. Either Paradyne
or Mr. Slattery has the right to terminate Mr. Slattery's employment at any time
for any reason. If we terminate Mr. Slattery's employment without cause, he will
receive a severance payment equal to one year's salary.
CHANGE OF CONTROL PROVISIONS
We have an arrangement with Andrew S. May governing the vesting of stock
options upon a change in control. The agreement provides that all of Mr. May's
options shall become exercisable upon a change in control. We have arrangements
with Patrick M. Murphy and James L. Slattery governing the vesting of stock
options upon a change of control. Each agreement provides that in the event of a
change in control, 50% of the unvested options held by the officer shall become
immediately exercisable and the remaining unvested shares shall become
exercisable if the officer does not receive comparable employment following the
change of control. Furthermore, if the officer receives comparable employment,
the remaining unvested shares shall become exercisable for a minimum stated
value upon the earlier of the one year anniversary of the change in control or
the officer's termination without cause. We have an arrangement with Sean E.
Belanger governing the vesting of stock options upon a change in control. The
agreement provides that all of Mr. Belanger's options shall become exercisable
in the event Mr. Belanger is not offered comparable employment following a
change of control, and his stock options are not either assumed or replaced with
similar stock options.
1996 EQUITY INCENTIVE PLAN
The 1996 Equity Incentive Plan (the "1996 Plan") was adopted by Paradyne
Acquisition Corp.'s Board of Directors in January 1997 and approved by its
stockholders in April 1997. An amendment and restatement of the 1996 Plan was
adopted by our Board of Directors in 1999 and approved by our
stockholders in 1999 which added the provision described below
that increases the share reserve under the 1996 Plan automatically each year and
made other minor amendments to the 1996 Plan in preparation for this offering.
A total of shares has been reserved for issuance under the 1996
Plan. Each year, the number of shares reserved for issuance under the 1996 Plan
will automatically be increased by 5.0% of the total number of shares of common
stock then outstanding or, if less, shares. The 1996 Plan provides for
grants of incentive stock options that qualify under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), to our employees (including
officers and employee directors) or the employees of any of our affiliates.
Nonstatutory stock options, rights to acquire restricted stock, and stock
bonuses may be granted to employees (including officers), directors of and
consultants to Paradyne or any of our affiliates. The 1996 Plan may be
administered by the Board of Directors or a committee appointed by the Board of
Directors; references herein to the Board of Directors shall include any such
committee. After this offering, it is intended that the 1996 Plan will be
administered by the Compensation Committee, currently consisting of
, and , all of whom are
"non-employee directors" under applicable securities laws and "outside
directors," as defined under the Code. The Board of Directors has the authority
to determine to whom awards are granted, the terms of such awards, including the
type of awards to be granted, the exercise price, the number of shares subject
to the awards and the vesting and exercisability of the awards.
The term of a stock option granted under the 1996 Plan generally may not
exceed 10 years. The exercise price of options granted under the 1996 Plan is
determined by the Board of Directors, but, in the case of an incentive stock
option, cannot be less than the fair market value of the common stock on the
date of grant. Options granted under the 1996 Plan vest at the rate specified in
the option agreement. Except as expressly provided by the terms of a
nonstatutory stock option agreement, no option may be transferred by the
optionee other than by will or the laws of descent or distribution or, in
certain limited instances, pursuant to a qualified
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<PAGE> 56
domestic relations order, provided that an optionee may designate a beneficiary
who may exercise the option following the optionee's death. An optionee whose
relationship with Paradyne or any of our affiliates ceases for any reason (other
than due to death or permanent and total disability) may generally exercise
vested options in the three month period following such cessation (unless such
options terminate or expire sooner by their terms) or in such longer or shorter
period as may be determined by the Board and set forth in the option agreement.
Vested options may generally be exercised during the twelve month period after
an optionee's relationship with Paradyne or any of our affiliates ceases due to
death or disability.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of Paradyne or any of our affiliates, unless the
option exercise price is at least 110% of the fair market value of the stock
subject to the option on the date of grant and the term of the option does not
exceed five years from the date of grant. In addition, the aggregate fair market
value, determined at the time of grant, of the shares of common stock with
respect to incentive stock options granted under any plan, which become
exercisable by an optionee during any calendar year, may not exceed $100,000.
Any incentive stock options, or portions thereof, which exceed this limit are
treated as nonstatutory options.
If we become subject to Section 162(m) of the Code, which denies a
deduction to publicly held corporations for certain compensation paid to
specific employees in a taxable year to the extent that the compensation exceeds
$1,000,000, no person may be granted options under the 1996 Plan covering more
than 1,000,000 shares of common stock in any calendar year. Shares subject to
stock awards that have lapsed or terminated, without having been exercised in
full, and any shares repurchased by Paradyne pursuant to a repurchase option
provided under the 1996 Plan may again become available for the grant of awards
under the 1996 Plan.
Rights to acquire restricted stock granted under the 1996 Plan may be
granted subject to a repurchase option in favor of Paradyne that will expire
pursuant to a vesting schedule. The purchase price of such awards will be at
least 85% of the fair market value of the common stock on the date of grant.
Stock bonuses may be awarded in consideration for past services without the
payment of a purchase price. Rights under a stock bonus or restricted stock
bonus agreement may not be transferred other than by will, the laws of descent
and distribution or a qualified domestic relations order while the stock awarded
pursuant to such an agreement remains subject to the agreement, provided that a
holder of such rights may designate a beneficiary who may exercise the right
following the holder's death.
Upon certain changes in control of Paradyne, all outstanding stock awards
under the 1996 Plan may be assumed by the surviving entity or replaced with
similar stock awards granted by the surviving entity. If the surviving entity
does not assume such awards or provide substitute awards, then with respect to
persons whose service with Paradyne or an affiliate has not terminated prior to
such change in control, the awards shall become fully vested and will terminate
if not exercised prior to such change in control.
As of March 31, 1999, there were options to acquire 6,934,515 shares of
common stock outstanding under the 1996 Plan. The 1996 Plan will terminate in
2009, unless terminated sooner by the Board of Directors.
1999 EMPLOYEE STOCK PURCHASE PLAN
In 1999, our Board of Directors adopted and the stockholders
approved the 1999 Employee Stock Purchase Plan (the "Purchase Plan"). A total of
shares of common stock have been reserved for issuance under the Purchase
Plan. Each year, the number of shares reserved for issuance under the Purchase
Plan will automatically be increased by 2.0% of the total number of shares of
common stock then outstanding or, if less, by 1,000,000 shares. The Purchase
Plan is intended to qualify as an employee stock purchase plan within the
meaning of Section 423 of the Code. Under the Purchase Plan, the Board of
Directors or a committee comprised of at least two members of the Board of
Directors may authorize participation by eligible employees, including officers,
in periodic offerings following the commencement of the Purchase Plan. The
initial offering under the Purchase Plan will commence on the effective date of
this offering and terminate on April 30, 2001.
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Unless otherwise determined by the Board of Directors, employees are
eligible to participate in the Purchase Plan only if they are customarily
employed by us or one of our subsidiaries designated by the Board of Directors
for at least 20 hours per week and five months per calendar year. Employees who
participate in an offering may have up to 15% of their earnings withheld
pursuant to the Purchase Plan. The amount withheld is then used to purchase
shares of the common stock on specified dates determined by the Board of
Directors. The price of common stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the common stock at the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in an offering at any time during such
offering, and their participation will end automatically on termination of their
employment with us or one of our subsidiaries.
In the event of a merger, reorganization, consolidation or liquidation
involving Paradyne, the Board of Directors has discretion to provide that each
right to purchase common stock will be assumed or an equivalent right
substituted by the successor corporation or the Board of Directors may provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Board of Directors
has the authority to amend or terminate the Purchase Plan, provided, however,
that no such action may adversely affect any outstanding rights to purchase
common stock.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In 1999, the Board of Directors adopted and the stockholders
approved the 1999 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan") to provide for the automatic grant of options to purchase shares of
common stock to non-employee directors of Paradyne. The Directors' Plan is
administered by the Board of Directors.
The aggregate number of shares of common stock that may be issued pursuant
to options granted under the Directors' Plan is . Pursuant to the terms
of the Directors' Plan, each of our directors who is not an employee of Paradyne
(a "Non-Employee Director") was automatically granted an option to purchase
shares of common stock upon the approval of the Directors' Plan by the
Board of Directors (an "Initial Grant"). Each person who is elected or appointed
to be a Non-Employee Director after the closing of this offering will be granted
an Initial Grant upon such election or appointment. In addition, each
Non-Employee Director who continues to serve as a Non-Employee Director of
Paradyne and who attends at least seventy-five percent (75%) of the regularly
scheduled meetings of the Board and the committees of the Board of which he or
she is a member during the year preceding each annual meeting of our
stockholders will automatically be granted an option to purchase shares of
common stock on the day following each such annual meeting (an "Annual Grant").
The number of shares subject to the Annual Grant will be pro-rated for any
Non-Employee Director who has not continuously served as a director for the
entire 12-month period prior to the date of grant. Each Annual Grant shall be
fully vested on the date it is granted. Initial Grants may, at the discretion of
the Board of Directors, be fully vested on the day they are granted or be vested
as to 50% of the shares subject to such Initial Grants on the date they are
granted and as to the remaining 50% of the shares subject to the Initial Grant
on the first anniversary of the date they are granted. No option granted under
the Directors' Plan may be exercised after the expiration of ten years from the
date on which it was granted. The exercise price of options under the Directors'
Plan will equal the fair market value of the common stock on the date of grant.
A Non-Employee Director whose service as a Non-Employee Director or employee of
or consultant to Paradyne or any of our affiliates ceases for any reason other
than death or permanent and total disability may generally exercise vested
options in the three-month period following such cessation (unless such options
terminate or expire sooner by their terms). Vested options may be exercised
during the 12-month period after a Non-Employee Director's service ceases due to
disability and during the 18-month period after such service ceases due to
death. The Directors' Plan will terminate in 2009, unless earlier
terminated by the Board of Directors.
As of March 31, 1999, no options to purchase common stock had been granted
pursuant to the Directors' Plan.
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KEY EMPLOYEE STOCK OPTION PLAN
The Key Employee Stock Option Plan (the "Key Employee Plan") was adopted by
our Board of Directors on December 29, 1997. The Key Employee Plan is
administered by the Plan Committee (the "Benefits Committee"), which committee
consists of John M. Guest, Patrick M. Murphy and H. Edward Thompson. Employees
of Paradyne holding the position of Vice President or above are eligible to
participate in the Key Employee Plan. Under the Key Employee Plan, participants
may elect to defer a portion of their total annual compensation in exchange for
options to purchase shares of common or preferred stock of any publicly-traded
corporation, shares of our common stock or shares in investment funds.
Currently, participants in the Key Employee Plan may only receive options to
purchase shares of certain investment funds administered by Fidelity
Investments. The Key Employee Plan allows the Benefits Committee, after
consultation with an employee holding an option under the Key Employee Plan, to
change the shares subject to purchase by the optionee upon exercise of such
option. The options granted under the Key Employee Plan are not intended to
qualify as "incentive stock options" under Section 422 of the Code.
Upon the grant of an option under the Key Employee Plan, Paradyne is
required to acquire shares of the stock or investment fund subject to the option
in a number equal to 75% of the shares subject to such option. These shares will
be held by Paradyne under a trust arrangement.
The exercise price of an option granted under the Key Employee Plan will be
equal to the greater of 25% of the fair market value of the shares subject to
the option on the date of issuance of the option or 25% of the fair market value
of the shares subject to the option on the date of exercise of the option.
Options granted under the Key Employee Plan are fully vested upon grant and may
be exercised at any time after the date that is six months after the date they
are granted. The term of an option granted under the Key Employee Plan may not
exceed ten years. An optionee whose service with Paradyne terminates may
exercise options granted under the Key Employee Plan within twelve months
following such termination.
Unless the terms of an option granted under the Key Employee Plan provide
otherwise, such options may be transferred to an optionee's spouse or lineal
descendants or the trustee of a trust established for the optionee's spouse or
lineal descendants.
As of March 31, 1999, four employees were participants in the Key Employee
Plan.
401(K) PLAN
We have established the Paradyne Corporation Retirement Savings Plan
effective August 1, 1996 (the "401(k) Plan"). The 401(k) Plan is intended to
qualify under Section 401 of the Code so that contributions by employees or by
Paradyne, and income earned thereon, are not taxable until withdrawn and so that
contributions by Paradyne will be deductible by Paradyne when made. The 401(k)
Plan provides that each participant may reduce his or her pre-tax gross
compensation by up to 16% (up to a statutorily prescribed annual limit of
$10,000 in 1999) and have that amount contributed to the 401(k) Plan. Employees
become eligible to participate in the 401(k) Plan upon commencement of their
employment with Paradyne. Participants are fully vested in all amounts they
contribute under the 401(k) Plan and in the earnings on such amounts.
In addition to the employee salary deferrals described above, the 401(k)
Plan requires Paradyne to make contributions under the 401(k) Plan on behalf of
the participants. These contributions include a matching contribution of 66 2/3%
of the first 6% of salary deferral contributions made by each participant. The
401(k) Plan also permits Paradyne to make an employer contribution in an amount
to be determined by the Board of Directors or, if no such amount is determined,
in an amount of between 1% and 4.5% of the annual compensation of each
participant. The amount of such employer contributions to be received by each
participant will be determined based on the age of the participant. Participants
become vested in matching contributions and employer contributions according to
a graded vesting schedule under which they become fully vested after four years
of service with Paradyne.
Employee participants may elect to invest their accounts under the 401(k)
Plan in various established funds.
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LIMITATIONS ON DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND INDEMNIFICATION
Our Bylaws provide that Paradyne shall indemnify its directors and
executive officers to the fullest extent permitted by Delaware law, except with
respect to certain proceedings initiated by such persons. Paradyne is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and executive officers and to purchase insurance on behalf of any
person it is required or permitted to indemnify.
In addition, our Restated Certificate provides that a director of Paradyne
will not be personally liable to Paradyne or its stockholders for monetary
damages for any breach of fiduciary duty as a director, except for:
- any breach of the director's duty of loyalty to Paradyne or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
- any transaction from which the director derives an improper personal
benefit.
The Restated Certificate also provides that if the Delaware General
Corporation Law is amended after the approval by our stockholders of the
Restated Certificate to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of Paradyne's
directors shall be eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law, as so amended. The provision does not affect a
director's responsibilities under any other law, such as the federal securities
laws or state or federal environmental laws.
We entered into an indemnification agreement with William Stensrud, one of
our directors, on November 6, 1996. Under the agreement, we agreed to reimburse
and indemnify Mr. Stensrud for civil or criminal proceedings or governmental
investigations relating to Mr. Stensrud's actions as a director, except if such
conduct was committed in bad faith or was a breach of Mr. Stensrud's duty of
loyalty to us.
CERTAIN TRANSACTIONS
The following is a description of transactions since January 1, 1996, to
which Paradyne has been a party, in which the amount involved in the transaction
exceeds $60,000, and in which any of our directors, executive officers or
holders of more than 5% of the capital stock had or will have a direct or
indirect material interest other than compensation arrangements which are
otherwise required to be described under "Management:"
DIVESTITURE BY LUCENT
In the 1996 acquisition, Communication Partners, L.P. formed a subsidiary,
Paradyne Acquisition Corp., to acquire the Predecessor Business and concurrently
formed (i) a subsidiary, GlobeSpan Semiconductor Inc., (ii) a subsidiary,
Paradyne Credit Corp. and (iii) a subsidiary of Paradyne Acquisition Corp.,
Lease Acquisition Corp., each of which acquired certain assets from Paradyne and
Lucent.
Communication Partners currently owns approximately 97% of our outstanding
common stock and after this offering will own approximately %.
Our current board of directors consists of Messrs. Epley, May, Stensrud and
Stanton. Of the current members of the board of directors, Messrs. Epley and
Stanton are directors of both GlobeSpan and Paradyne. Mr. Stensrud was a member
of the board of directors of both GlobeSpan and Paradyne until his resignation
from GlobeSpan's board of directors in March 1999. Mr. Stensrud will continue as
a board member of Paradyne and currently serves as a director of Rhythms, a
Paradyne customer of whose purchases represented approximately 6% of our total
revenues in 1998. Messrs. Epley, Murphy, Slattery and Stanton are directors of
Paradyne Credit Corp. In addition, Messrs. Epley and Stanton have a pecuniary
interest in the shares held by Communication Partners. Mr. Stanton is the sole
director and President of Communication GenPar, Inc., the general partner of
Communication Partners.
Interim Promissory Note. In connection with the divestiture, we issued an
interim promissory note payable to Lucent in the amount of $7.5 million. This
note carried an interest rate of 8.5% per annum for the period
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July 31, 1996 through December 31, 1996 and 11.5% per annum thereafter. The
remaining balance of the note was repaid in June 1997 in connection with our
sale of certain land and buildings in Largo, Florida.
Promissory Note. In connection with the divestiture, we issued a
promissory note payable to Lucent in the amount of $61.8 million. This note
carried an interest rate of 8.5% per annum for the period July 31, 1996 through
December 31, 1997, 11.5% per annum for the period January 1, 1998 through
December 31, 1998 and 14.5% per annum thereafter. The remaining balance of the
note was forgiven in 1997 in connection with a settlement with Lucent as
described under "Subsequent Transactions -- Lucent -- Lucent Settlement" below.
LUCENT
Intellectual Property Agreement. As part of the divestiture, we entered
into an intellectual property agreement with Lucent and GlobeSpan. Under this
agreement, Lucent irrevocably assigned to us and our successors all rights in
particular patents related to our proprietary technology. In exchange, we
granted to Lucent a non-exclusive license to develop, manufacture, test or
repair products using the assigned patents.
Non-Competition Agreement. As part of the divestiture, Lucent entered into
a non-competition agreement with GlobeSpan and us. Under this agreement, Lucent
agreed not to compete with us (with a separate agreement not to compete with
GlobeSpan) in strictly limited circumstances subject to several exemptions and
exclusions.
AT&T Trademark and Patent Agreement. As part of the divestiture, AT&T
(Lucent's principal stockholder at the time) entered into a trademark and patent
agreement with us and GlobeSpan. Under this agreement, AT&T granted us a
non-exclusive, non-transferable, irrevocable, worldwide, royalty-free license
under particular listed AT&T patents to develop, manufacture, test or repair our
products existing at the time of the divestiture.
Supply Agreement. As part of the divestiture, we entered into a supply
agreement with Lucent and GlobeSpan. Under the terms of this agreement, we
agreed to sell a variety of listed products to Lucent at prices at least as low
as those prices offered to other customers and Lucent agreed to purchase minimum
amounts of products from Paradyne. We also entered into a volume purchase letter
agreement, whereby Lucent agreed to purchase minimum levels of certain products
from us for a period of four years. The volume purchase letter agreement was
subsequently terminated in 1997 in connection with a settlement with Lucent. In
1997, we amended the supply agreement in connection with a settlement with
Lucent and became the exclusive supplier to Lucent of Lucent's requirements for
certain network access products for resale through June 2001, provided that
these products remain "competitive," as defined in the supply agreement. See
"Subsequent Transactions -- Lucent -- Lucent Settlement" below.
GLOBESPAN
Cross-License. As part of the divestiture, we entered into a cross-license
agreement with GlobeSpan. Under this agreement, each party granted to the other
party a non-exclusive, non-transferable, irrevocable, world-wide, royalty-free
license to the patents Lucent assigned to the granting party in the divestiture,
for use in the other party's products that existed as of the date of the
divestiture, and subsequent modifications to those products. Each party also
granted to the other party a non-exclusive, non-transferable, irrevocable,
world-wide, royalty-free license to the granting party's other technical
information and intellectual property existing at the time of the divestiture.
These licenses give us the right to make, have made, use, sell and import our
products within the scope of the license grants as well as the tools used to
develop, manufacture, test or repair such products. We were also given the right
to convey to any of our customers the right to use and resell such products.
Each party also granted to the other party a non-exclusive, non-transferable,
irrevocable, world wide, royalty-free license to use certain listed trademarks.
All of these licenses have an indefinite duration, subject to the expiration of
patent and copyright terms.
Royalty Payments to GlobeSpan. In conjunction with the license to
reproduce GlobeSpan software, we paid GlobeSpan a total of $235,000 in royalty
payments in 1996. This payment reflected the cost of a chip set reference design
guide and a right-to-use fee. The rates were determined in accordance with a
September 1995 license agreement.
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Services Agreement. As part of the divestiture, we entered into an
intercompany services agreement under which we agreed, for a period of time, to
provide GlobeSpan with the following services:
- human resources, staffing and legal services;
- administrative services, including risk management, patent management,
tax management and accounting support; and
- operational services, including office communications and
telecommunications systems management, facilities management, rent and
other services.
Though certain of these services are now provided directly by GlobeSpan, we
still provide other services, such as insurance and 401(k) administration. This
agreement can be terminated by GlobeSpan on 60 days notice and by us on 180 days
notice. GlobeSpan paid us a total of $155,000 and $231,000 for the years ended
December 31, 1997 and 1998 under the services agreement. In 1998, we subleased
additional office space to GlobeSpan. In connection with the relocation of our
offices, GlobeSpan reimbursed us approximately $392,000 of our moving expenses.
Various Insurance Policies. The directors and officers of Communication
Partners, Communication GenPar, Inc., Paradyne, Paradyne Acquisition Corp.,
Paradyne Credit Corp. and GlobeSpan are covered under one umbrella insurance
policy providing up to $10.0 million of liability coverage. Additionally,
Paradyne, Paradyne Credit Corp. and GlobeSpan are jointly covered under various
general liability, property, casualty and workers' compensation policies. The
term of these policies is from August 31, 1998 to August 31, 1999. We expect
that we will not share insurance policies with GlobeSpan after this offering. We
expect to have our own directors and officers' insurance policy in effect prior
to the closing of this offering.
401(k) Plan. We maintain a 401(k) plan, which substantially all of
GlobeSpan's employees currently participate in. Effective May 1, 1999, GlobeSpan
expects to adopt its own 401(k) plan for its employees. Contributions for the
five months ended December 31, 1996 and for the years 1997 and 1998, including
discretionary matches, paid by Paradyne on behalf of GlobeSpan amounted to
approximately $60,110, $321,000 and $382,000. All payments made on behalf of
GlobeSpan have been or will be reimbursed.
LEASE ACQUISITION CORP.
Services Agreement. As part of the divestiture, we entered into an
intercompany services agreement with Lease Acquisition Corp. under which we
agreed to provide:
- general management consulting and services administration, including
lease contract servicing and remarketing services;
- administrative services, including risk management, financial and cash
management, tax management and accounting services;
- human resources, staffing and legal services; and
- operational services, including facilities management, office
communications, telecommunication systems, systems management and other
services.
In exchange for these services, Lease Acquisition Corp. agreed to pay us a
monthly service fee of $5,000 per month. This agreement was terminated by mutual
consent in August 1997. Payments received for these services were $25,000 for
the five months ended December 31, 1996 and $35,000 for the period January 1,
1997 through August 1, 1997.
PARADYNE CREDIT CORP.
Services Agreement. As part of the divestiture, we entered into an
intercompany services agreement with Paradyne Credit Corp. under which we agreed
to provide:
- general management consulting and services administration, including
rental contract servicing administration and remarketing services;
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- administrative services, including risk management, financial and cash
management, tax management and accounting services;
- human resources, staffing and legal services; and
- operational services, including facilities management, office
communications, telecommunication systems, systems management and other
services.
In exchange for these services, Paradyne Credit Corp. agreed to pay us a
monthly service fee equal to 5% of their net revenue. This agreement may be
terminated by Paradyne Credit Corp. upon 60 days notice and by us upon 180 days
notice. Payments received for these services were $407,000 and $521,000 for the
five months ending December 31, 1996 and the seven month period ending July 31,
1997, respectively. See "Subsequent Transactions -- Paradyne Credit Corp."
below.
In addition, Paradyne Credit Corp. received an option to purchase certain
of our used equipment. The option allowed Paradyne Credit Corp. to purchase
certain of our used equipment that had been returned from expired or terminated
leases, sales to customers or consignment activities. Payments received for the
purchase of the equipment totaled $115,000 and $81,000 for the five months ended
December 31, 1996 and the year ended December 31, 1997. This option terminated
in August 1997 as described under "Subsequent Transactions -- Paradyne Credit
Corp. -- Sale of Lease Receivables and Related Equipment" below.
COMMUNICATION PARTNERS
Interim Promissory Note. In connection with the divestiture, we issued a
promissory note payable to Communication Partners in the amount of $7.5 million.
This note matured on December 31, 1997 and carried an interest rate of 8.5% per
annum for the period July 31, 1996 through December 31, 1996 and 11.5% per annum
thereafter. This note was secured by the land and buildings in Largo, Florida
owned by us at the time of the divestiture. On June 27, 1997, the land and
buildings in Largo, Florida were sold, and this indebtedness was repaid. We
recognized interest expense of approximately $267,000 and $421,000 for the five
months ended December 31, 1996 and the year ended December 31, 1997,
respectively.
SUBSEQUENT TRANSACTIONS
LUCENT
Lucent Settlement. As at December 31, 1997, Lucent had not satisfied its
obligations under the volume purchase letter agreement and, therefore, was
subject to certain take or pay provisions. In 1997, we entered into a settlement
with Lucent, whereby we agreed to terminate the volume purchase letter
agreement, amended our supply agreement with Lucent to become the exclusive
supplier to Lucent of Lucent's requirements for certain network access products
for resale through June 2001 and received $8.2 million of cash and the
forgiveness of the promissory note to Lucent in the amount of $63.0 million. In
addition, GlobeSpan amended a warrant that it originally granted to Lucent at
the time of the 1996 acquisition. The amendment extended the warrant terms by
three years. Because both GlobeSpan and Paradyne are subsidiaries of
Communication Partners, we recognized a contribution of capital by Communication
Partners of $3.6 million, reflecting the estimated fair market value of the
extension of the GlobeSpan warrant.
GLOBESPAN
Reimbursement for Chip Set Purchases. In 1996, GlobeSpan purchased chip
sets from Lucent through us for sale to GlobeSpan customers. We paid Lucent for
these chip sets on GlobeSpan's behalf, and GlobeSpan reimbursed us for their
cost. These reimbursements totaled $194,000.
Cooperative Development Agreement/Termination Agreement/Supply
Agreement. In November 1996, we entered into a cooperative development
agreement and a related rider agreement with GlobeSpan. Under the terms of these
agreements and in consideration for a contribution of $6.0 million by
Communication Partners to GlobeSpan, we were provided with a broad,
royalty-free, unrestricted license to use GlobeSpan's technical information and
patents for any purpose related to our products. We were also granted the right
to acquire
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GlobeSpan's chip sets at prices not to exceed cost plus 15%. The term of the
cooperative development agreement was 5 years. The term of rider agreement was
10 years and we had the right to extend it for an additional 10-year term. In
addition, we leased certain assets and equipment to GlobeSpan for an annual
lease fee of $1.00. Effective December 1998, GlobeSpan and we terminated these
agreements pursuant to a termination agreement. The termination agreement
provided that GlobeSpan agreed, effective July 1998, to pay us a total of $1.5
million in royalties. GlobeSpan and we agreed that approximately $300,000 of
these royalties had been paid as of the effective date of the termination
agreement and that GlobeSpan would pay to us the approximately $1.2 million
balance of royalties within 30 days of the effective date of GlobeSpan's initial
public offering.
In conjunction with the signing of the termination agreement, we entered
into a four-year supply agreement with GlobeSpan, which gives us preferential
pricing and other terms in connection with the purchase of GlobeSpan products.
Under the terms of this agreement, GlobeSpan is required to honor our orders for
GlobeSpan products in quantities at least consistent with our past ordering
practices and must afford us at least the same priority for its orders as
GlobeSpan affords other similarly situated highly preferred customers. We were
also granted immunity under GlobeSpan's intellectual property rights for all our
customers that purchase our products that incorporate GlobeSpan products.
GlobeSpan has been selling products to us pursuant to these terms since July
1998. In 1997 and 1998, we paid to GlobeSpan a total of $373,000 and $962,000,
respectively, for products purchased under the cooperative development
agreement, the related rider agreement and the termination agreement.
Inventory Repurchases by GlobeSpan. In December 1997 and September 1998,
GlobeSpan repurchased certain of its chip sets, which we held in our inventory
in the amounts of $98,000 and $29,000, respectively.
Purchase of Fixed Assets. In 1997, GlobeSpan purchased fixed assets from
us approximating $350,000. In 1998, GlobeSpan agreed to purchase certain fixed
assets from us related to a subleased facility for $1.4 million, which included
costs to remodel offices previously used by us.
Real Property Agreements. Under a sublease dated August 1997, and
subsequently amended in August 1998, between GlobeSpan and us, GlobeSpan
subleases property at 100 Schulz Drive, Red Bank, New Jersey. GlobeSpan
currently pays us approximately $68,000 a month for approximately 50,000
rentable square feet, plus approximately $10,000 per month for rent operating
costs. After October 2001, the rent will increase to approximately $79,000 a
month for a period of six months. The sublease expires in April 2002.
LEASE ACQUISITION CORP.
Merger of Lease Acquisition Corp. into Paradyne Acquisition Corp. In
August 1997, Lease Acquisition Corp. merged with and into Paradyne Acquisition
Corp. As a result of this merger, Paradyne Acquisition Corp. acquired a
promissory note in the total amount of approximately $4.8 million from Paradyne
Credit Corp.
PARADYNE CREDIT CORP.
Sale of Lease Receivables and Related Equipment. In August 1997, we sold
all equipment under lease, as well as the related future lease payments, to
Paradyne Credit Corp. for approximately $3.5 million, the approximate book value
of the equipment and related future lease payments. We, however, are allowed to
purchase from Paradyne Credit Corp. equipment that has been returned to Paradyne
Credit Corp. after the termination of the lease. These purchases are on terms no
more favorable to us than would be obtained in a comparable arm's length
transaction and totaled $0 and $141,000 for the year ended December 31, 1997 and
1998, respectively. Paradyne Credit Corp. may purchase equipment manufactured or
sold by us at prices substantially equal to those received by us through normal
selling channels. Payments received from the sales of such equipment totaled
$181,000 and $317,000 for the year ended December 31, 1997 and 1998,
respectively.
In connection with this sale, the Paradyne Credit Corp. services agreement
was amended to change the monthly service fee to equal the sum of: (i) all
direct costs incurred by us to provide services to Paradyne Credit Corp. and
(ii) up to five percent (5%) of the net revenues of Paradyne Credit Corp. for
any indirect costs. Payments received for these services were $344,000 and
approximately $1.2 million for the five months ended December 31, 1997 and for
the year ended December 31, 1998, respectively.
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In April 1999, this agreement was again modified to adjust the monthly
service fee to equal to the sum of: (i) all direct costs incurred by us to
provide services to Paradyne Credit Corp., (ii) all indirect costs incurred by
us to provide services to Paradyne Credit Corp. and (iii) a 15% profit margin on
all charges.
In connection with a sale of lease receivables to AT&T Capital Corp., we
guaranteed collection of certain receivables to AT&T Capital Corp. As of
December 31, 1998, lease receivables for which we were contingently liable, but
for which we have recourse, were outstanding in the amount of $886,000. The
ultimate responsibility for the collection of these receivables is with Paradyne
Credit Corp.
COMMUNICATION PARTNERS
Subordinated Revolving Promissory Note. In August 1997, Communication
Partners agreed to provide to us a revolving line of credit facility in the
maximum amount of $5.0 million. This agreement was amended in October 1998 to
increase the maximum principal amount of the facility to $10.0 million. Interest
paid under this note totaled $0 and $304,000 for the year ended December 31,
1997 and 1998, respectively. As of March 31, 1999, there is no outstanding
balance on the credit facility. Borrowings under this agreement are subordinated
to debt under our Bank of America NT&SA revolving credit facility.
Continuing Limited Guaranty. In October 1998, Communication Partners
entered into a continuing guaranty for the benefit of Bank of America NT&SA in
connection with our revolving credit facility. The maximum liability under this
guaranty was $10.0 million, reduced by any principal amount outstanding under
the subordinated revolving promissory note discussed above. This guaranty was
canceled in March 1999.
PROMISSORY NOTES FROM EXECUTIVE OFFICERS
On May 5, 1997, James L. Slattery, Senior Vice President, Chief Legal and
Intellectual Property Officer and Corporate Secretary, issued to us a promissory
note in the amount of $149,850 in connection with his purchase of 150,000 shares
of our common stock. The full recourse note accrues interest at a rate of 6.65%
per annum. The principal balance of this note and accrued interest are payable
at the earlier of termination of employment or five years from the date of the
note. The note is secured by the shares of common stock acquired with the note,
which shares are held in escrow by us. As of March 31, 1999, the balance
outstanding was $149,850, plus accrued interest.
On March 29, 1999, Sean E. Belanger, Senior Vice President of Worldwide
Sales, issued to us a promissory note in the amount of $199,800 in connection
with his purchase of 200,000 shares of our common stock. The full recourse note
accrues interest at a rate of 4.72% per annum. The principal balance of this
note and accrued interest are payable at the earlier of termination of
employment or five years from the date of the note. The note is secured by the
shares of common stock acquired with the note, which shares are held in escrow
by us. The balance outstanding as of March 31, 1999 was $199,800, plus accrued
interest.
On March 26, 1999, Paul H. Floyd, Vice President Research and Development,
issued to us a promissory note in the amount of $74,925 in connection with his
purchase of 75,000 shares of our common stock. The full recourse note accrues
interest at a rate of 4.72% per annum. The principal balance of this note and
the accrued interest are payable at either the earlier of termination of
employment or five years from the date of the note. The note is secured by the
shares of common stock acquired with the note, which shares are held in escrow
by us. All unvested shares purchased with the note are subject to repurchase by
us if Mr. Floyd terminates his employment prior to becoming fully vested in
these shares. The shares vest on a quarterly basis and will be fully vested
after August 1, 2000. The balance outstanding as of March 31, 1999 was $74,925,
plus accrued interest. On March 26, 1999, Mr. Floyd issued to us a promissory
note in the amount of $62,475 in connection with his purchase of 25,000 shares
of our common stock. The full recourse note accrues interest at a rate of 4.72%
per annum. The principal balance of this note and accrued interest are payable
at the earlier of termination of employment or five years from the date of the
note. The note is secured by the shares of common stock acquired with the note,
which shares are held in escrow by us. All unvested shares purchased with the
note are subject to repurchase by us if Mr. Weiner terminates his employment
prior to becoming fully vested in those shares. A quarter of the shares vest on
the first anniversary of the note and the remainder vest in equal quarterly
installments thereafter. The balance outstanding as of March 31, 1999 was
$62,475, plus accrued interest.
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<PAGE> 65
On March 26, 1999, Frank J. Wiener, Vice President, DSL Products, issued to
us a promissory note in the amount of $159,915 in connection with his purchase
of 85,000 shares of our common stock. The full recourse note accrues interest at
a rate of 4.72% per annum. The principal balance of this note and the accrued
interest are payable at either the earlier of termination of employment or five
years from the date of the note. The note is secured by the shares of common
stock acquired with the note, which shares are held in escrow by us. All
unvested shares purchased with the note are subject to repurchase by us if Mr.
Wiener terminates his employment prior to becoming fully vested in these shares.
The shares vest on a quarterly basis and will be fully vested after January 1,
2001. The balance outstanding as of March 31, 1999 was $159,915, plus accrued
interest. On April 2, 1999, Mr. Weiner issued to us a promissory note in the
amount of $24,990 in connection with his purchase of 10,000 shares of our common
stock. The full recourse note accrues interest at a rate of 5.15% per annum. The
principal balance of this note and accrued interest are payable at the earlier
of termination of employment or five years from the date of the note. The note
is secured by the shares of common stock acquired with the note, which shares
are held in escrow by us. All shares purchased with the note are subject to
repurchase by us if Mr. Weiner terminates his employment prior to becoming fully
vested in those shares. A quarter of the shares vest on the first anniversary of
the loan and the remainder vest in equal quarterly installments thereafter. The
balance outstanding as of April 2, 1999 was $24,990.
On March 27, 1999, Mark Housman, Vice President of Marketing, issued a
promissory note to us in the amount of $64,935 in connection with his purchase
of 65,000 shares of our common stock. The full recourse note accrues interest at
a rate of 4.72% per annum. The principal balance of this note and the accrued
interest are payable at either the earlier of termination of employment or five
years from the date of the note. The note is secured by the shares of common
stock acquired with the note, which shares are held in escrow by us. All
unvested shares purchased with the note are subject to repurchase by us if Mr.
Housman terminates his employment prior to becoming fully vested in these
shares. The shares vest on a quarterly basis and will be fully vested after
January 31, 2000. The balance outstanding as of March 31, 1999 was $64,935, plus
accrued interest.
On March 31, 1999, Andrew S. May, President, Chief Executive Officer, and
Director, issued to us a promissory note in the amount of $99,900 in connection
with his purchase of 100,000 shares of our common stock. The full recourse note
accrues interest at a rate of 4.72% per annum. The principal balance of this
note and the accrued interest are payable at either the earlier of termination
of employment or five years from the date of the note. The note is secured by
the shares of common stock acquired with the note, and those shares are held in
escrow by us. The balance as of March 31, 1999 was $99,900, plus accrued
interest.
On March 31, 1999, Patrick M. Murphy, Senior Vice President and Chief
Financial Officer, issued to us a promissory note in the amount of $74,925 in
connection with his purchase of 75,000 shares of our common stock. The full
recourse note accrues interest at a rate of 4.72% per annum. The principal
balance of this note and the accrued interest are payable at either the earlier
of termination of employment or five years from the date of the note. The note
is secured by the shares of common stock acquired with the note, and those
shares are held in escrow by us. The balance outstanding as of March 31, 1999
was $74,925 plus accrued interest. On April 2, 1999, Mr. Murphy issued to us a
promissory note in the amount of $37,485 in connection with his purchase of
15,000 shares of our common stock. The full recourse note accrues interest at a
rate of 5.15% per annum. The principal balance of this note and accrued interest
are payable at the earlier of termination of employment or five years from the
date of the note. The note is secured by the shares of common stock acquired
with the note, which shares are held in escrow by us. All shares purchased with
the note are subject to repurchase by us if Mr. Murphy terminates his employment
prior to becoming fully vested in those shares. A quarter of the shares vest on
the first anniversary of the loan and the remainder vest in equal quarterly
installments thereafter. The balance outstanding as of April 2, 1999 was
$37,485.
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<PAGE> 66
PRINCIPAL AND SELLING STOCKHOLDERS
This table sets forth certain information regarding the beneficial
ownership of our outstanding common stock as of March 31, 1999, by the
following:
- each person known by us to own beneficially more than five percent of the
outstanding common stock;
- each director of Paradyne;
- each Named Executive Officer;
- each stockholder of Paradyne who is selling shares of common stock in
this offering; and
- all directors and executive officers of Paradyne as a group.
The following calculations of the percentage of outstanding shares are
based on 52,516,463 shares of our common stock outstanding as of March 31, 1999
and shares outstanding immediately following the completion of
this offering and assumes no exercise of the underwriters' over-allotment
option. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities, subject to community property laws, where
applicable. Shares of our common stock subject to options that are presently
exercisable or exercisable within 60 days of March 31, 1999 are deemed to be
outstanding and beneficially owned by the person holding such options for the
purpose of computing the percentage of ownership of such person but are not
treated as outstanding for the purpose of computing the percentage of any other
person.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
------------------------ NUMBER OF ------------------------
NUMBER OF SHARES BEING NUMBER OF
SHARES PERCENT OFFERED SHARES PERCENT
<S> <C> <C> <C> <C> <C>
FIVE PERCENT STOCKHOLDERS:
Communication Partners, L.P. (1)..... 51,000,000 97.11% %
DIRECTORS AND OFFICERS:
Andrew S May (2)..................... 1,434,375 2.66% 1,434,375
Sean E. Belanger (3)................. 262,500 * 262,500
Patrick M. Murphy (4)................ 206,250 * 206,250
James L. Slattery (5)................ 165,000 * 165,000
Thomas E. Epley...................... 0 * 0
David M. Stanton..................... 0 * 0
William R. Stensrud.................. 90,000 * 90,000
All directors and executive officers
as a group (14 persons) (6)........ 2,641,503 4.85% 2,641,503 %
</TABLE>
- ------------------------------
* Represents beneficial ownership of less than 1.0%.
(1) Communication GenPar, Inc., the general partner of Communication Partners,
L.P., has beneficial ownership of the shares held by Communication Partners,
L.P. David Stanton, a director of Paradyne, is the sole director and
President of Communication GenPar, Inc. and disclaims beneficial ownership
of shares held by Communication Partners, L.P. except to the extent of his
pecuniary interest therein. The address of Communication Partners, L.P. is
201 Main Street, Suite 2420, Fort Worth, TX 76102.
(2) Includes 1,334,375 shares subject to options which are exercisable within 60
days of March 31, 1999.
(3) Includes 62,500 shares subject to options which are exercisable within 60
days of March 31, 1999.
(4) Includes 131,250 shares subject to options which are exercisable within 60
days of March 31, 1999.
(5) Includes 15,000 shares subject to options which are exercisable within 60
days of March 31, 1999.
(6) Includes 1,938,376 shares subject to options which are exercisable within 60
days of March 31, 1999.
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<PAGE> 67
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering, our authorized capital stock
will consist of shares of common stock, $.001 par value. There
were 52,516,463 shares of Paradyne common stock outstanding as of March 31,
1999, held of record by 109 stockholders, and there are no outstanding shares of
preferred stock.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of common stock
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor. In the event we liquidate,
dissolve or wind up, holders of common stock are entitled to share ratably in
all assets remaining after payment of liabilities and the liquidation
preferences of any outstanding shares of preferred stock. Holders of common
stock have no preemptive, conversion, subscription or other rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and all shares of common stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
WARRANTS
There are no outstanding warrants for the purchase or acquisition of stock
of Paradyne.
REGISTRATION RIGHTS
Paradyne has not entered into any agreements which grant registration
rights related to the stock of Paradyne or which would otherwise allow a
security holder to compel the registration of his or her securities.
DELAWARE ANTI-TAKEOVER LAW
Paradyne is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sale or other transactions resulting in a
financial benefit to the stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of the corporation's voting stock. The statute could have the
effect of delaying, deferring or preventing a change in control of Paradyne.
Our Restated Certificate, to be effective upon completion of the merger of
Paradyne Acquisition Corp. with and into Paradyne, provides that any action
required or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of stockholders and may not be effected by any
consent in writing. In addition, our Bylaws provide that special meetings of our
stockholders may be called only by the Chairman of the Board of Directors, the
Chief Executive Officer or the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors, or by the
holders of 10% of the outstanding voting stock of Paradyne. Our Restated
Certificate also specifies that our Board of Directors will be classified into
three classes of directors. Under Delaware law, directors of a corporation with
a classified board may be removed only for cause unless the corporation's
certificate of incorporation provides otherwise. The Restated Certificate does
not provide otherwise. In addition, the Restated Certificate specifies that the
authorized number of directors may be changed only by resolution of the Board of
Directors and does not include a provision for cumulative voting for directors.
Under cumulative voting, a minority stockholder holding a sufficient percentage
of a class of shares may be able to ensure the election of one or more
directors. These and other provisions contained in the Restated Certificate and
our Bylaws could delay or discourage certain types of transactions involving an
actual or potential change in control of Paradyne or its management, which
includes transactions in which stockholders might
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<PAGE> 68
otherwise receive a premium for their shares over then current prices, and may
limit the ability of stockholders to remove our current management or approve
transactions that stockholders may deem to be in their best interests and,
therefore, could adversely affect the price of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the market price of the common stock.
Upon completion of this offering, we will have outstanding
shares of common stock, assuming the issuance of shares of common
stock offered hereby and no exercise of options after March 31, 1999. Of these
shares, the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
such shares are purchased by "affiliates" as that term is defined in Rule 144
under the Securities Act (whose sales would be subject to certain limitations
and restrictions described below).
The remaining 52,516,463 shares of common stock held by existing
stockholders as of March 31, 1999 will be "restricted securities" as that term
is defined in Rule 144 (the "Restricted Securities"). Certain of these shares
will be subject to "lock-up" agreements described below on the effective date of
this offering. Upon expiration of the lock-up agreements 180 days after the
effective date of this offering, all of these shares will become eligible for
sale, subject in most cases to the limitations of Rule 144 and Rule 701. In
addition, holders of stock options could exercise such options and sell certain
of the shares issued upon exercise as described below.
As of March 31, 1999, there were a total of 6,934,515 shares of common
stock subject to outstanding options under our 1996 Equity Incentive Plan,
3,179,383 of which were vested. However, all of these shares are subject to
lock-up agreements. Immediately after the completion of this offering, we intend
to file registration statements on Form S-8 under the Securities Act to register
all of the shares of common stock issued or reserved for future issuance under
our 1996 Equity Incentive Plan. On the date 180 days after the effective date of
this offering, a total of shares of common stock subject to
outstanding options will be vested. After the effective date of the registration
statement on Form S-8, shares purchased upon exercise of options granted
pursuant to the 1996 Equity Incentive Plan generally would be available for
resale in the public market.
Our officers, directors and certain stockholders have agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the date
of this offering. Donaldson, Lufkin & Jenrette, however, may in its sole
discretion, at any time without notice, release all or any portion of the shares
subject to lock-up agreements.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year, including any affiliates of ours, would be
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which
will equal approximately shares immediately after this
offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain other requirements
regarding the manner of sale, notice filing and the availability of current
public information about Paradyne.
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<PAGE> 69
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of
Paradyne's "affiliates," as defined in Rule 144, 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, including the holding period of any prior owner other
than an "affiliate," is entitled to sell such shares without complying with the
manner of sale, notice filing, volume limitation or notice provisions of Rule
144. Therefore, unless otherwise restricted, "144(k) shares" may be sold
immediately upon the completion of this offering.
RULE 701
In general, under Rule 701, any Paradyne employee, director, officer,
consultant or advisor who purchases shares from Paradyne in connection with a
compensatory stock or option plan or other written agreement before the
effective date of the offering is entitled to resell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with certain restrictions, including the holding period, contained in
Rule 144.
The SEC has indicated that Rule 701 will apply to stock options granted by
an issuer before it becomes subject to the reporting requirements of the
Securities Exchange Act of 1934, along with the shares acquired upon exercise of
such options, including exercises after the date of this prospectus. Securities
issued in reliance on Rule 701 are restricted securities and, subject to the
contractual restrictions described above, beginning 90 days after the date of
this prospectus, may be sold by persons other than "affiliates," as defined in
Rule 144, subject only to the manner of sale provisions of Rule 144 and by
"affiliates" under Rule 144 without compliance with its one-year minimum holding
period requirement.
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<PAGE> 70
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement,
dated , 1999, the underwriters named below, who are
represented by Donaldson, Lufkin & Jenrette Securities Corporation, BancBoston
Robertson Stephens Inc., Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated, and Raymond James & Associates, Inc., have severally agreed to
purchase from Paradyne the respective number of shares of common stock set forth
opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
BancBoston Robertson Stephens Inc...........................
Dain Rauscher Wessels.......................................
Raymond James & Associates, Inc.............................
----
Total.............................................
====
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The underwriters are obligated to purchase and
accept delivery of all the shares of common stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to certain dealers (including the
underwriters) at such price less a concession not in excess of $ per
share. The underwriters may allow, and such dealers may re-allow, to certain
other dealers a concession not in excess of $ per share. After the
initial offering of the common stock, the public offering price and other
selling terms may be changed by the representatives of the underwriters at any
time without notice. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in the offering over the Internet. The underwriters have
agreed to allocate a limited number of shares to DLJdirect Inc. for sale to
brokerage account holders.
The selling stockholder has granted to the underwriters an option,
exercisable within 30 days after the date of this prospectus, to purchase, from
time to time, in whole or in part, up to an aggregate of
additional shares of common stock at the initial public offering price less
underwriting discounts and commissions. The underwriters may exercise such
option solely to cover overallotments, if any, made in connection with the
offering. To the extent that the underwriters exercise such option, each
underwriter will become obligated, subject to certain conditions, to purchase
its pro rata portion of such additional shares based on such underwriter's
percentage underwriting commitment as indicated in the preceding table.
Paradyne and the selling stockholder have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments that the
underwriters may be required to make in respect thereof.
Each of Paradyne, its executive officers and directors and certain
stockholders of Paradyne, including the selling stockholder, have agreed,
subject to certain exceptions, not to
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock
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<PAGE> 71
for a period of 180 days after the date of this prospectus without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation. In
addition, during such 180-day period, Paradyne has also agreed not to file any
registration statement with respect to, and each of its executive officers,
directors and certain stockholders of Paradyne, including the selling
stockholder, has agreed not to make any demand for, or exercise any right with
respect to, the registration of any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
Prior to the offering, there has been no established trading market for
Paradyne's common stock. The initial public offering price for the shares of
Paradyne's common stock offered hereby will be determined by negotiation among
Paradyne, representatives of the selling stockholder and the representatives of
the underwriters. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which Paradyne competes, the past and present operations of Paradyne, the
historical results of operations of Paradyne, the prospects for future earnings
of Paradyne, the recent market prices of securities of generally comparable
companies and the general condition of the securities markets at the time of the
offering.
Application has been made to have the common stock approved for quotation
on the Nasdaq National Market under the symbol "PDYN."
Other than in the United States, no action has been taken by Paradyne, the
selling stockholder, or the underwriters that would permit a public offering of
the shares of common stock offered hereby in any jurisdiction where action for
that purpose is required. The shares of common stock offered hereby may not be
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of common stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons with this prospectus should
inform themselves about and observe any restrictions relating to the offering
and the distribution of this prospectus. This prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any shares of common stock
offered hereby in any jurisdiction in which such an offer or a solicitation is
unlawful.
Under Rule 2720 of the Conduct Rules of the National Association of
Securities Dealers, Inc., Paradyne is considered an affiliate of Donaldson,
Lufkin & Jenrette Securities Corporation. This offering is being conducted in
accordance with Rule 2720, which provides that, among other things, when an NASD
member participates in the underwriting of an affiliate's equity securities, the
offering price can be no higher than that recommended by a "qualified
independent underwriter" ("QIU") meeting certain standards. In accordance with
this requirement, has assumed the responsibilities of acting as
QIU and will recommend a price in compliance with the requirements of Rule 2720.
In connection with this offering, is performing due diligence
investigations and reviewing and participating in the preparation of this
prospectus and the registration statement of which this prospectus forms a part.
In connection with the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of
Paradyne's common stock. Specifically, the underwriters may overallot the
offering, creating a syndicate short position. The underwriters may bid for and
purchase shares of common stock in the open market to cover such syndicate short
position or to stabilize the price of the common stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members
and selected dealers if they repurchase previously distributed common stock in
syndicate covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
The legality of the shares of common stock offered hereby will be passed
upon for us by Cooley Godward LLP, Palo Alto, California. Certain legal matters
will be passed upon for the underwriters by Alston & Bird LLP, Atlanta, Georgia.
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<PAGE> 72
EXPERTS
The financial statements of Paradyne Corporation as of December 31, 1998
and 1997 and for each of the two years in the period ended December 31, 1998 and
for the five months ended December 31, 1996 and the financial statements of AT&T
Paradyne for the seven months ended July 31, 1996, included in this Prospectus,
have been so included in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
giving said reports.
ADDITIONAL INFORMATION
We have filed with the Commission a Registration Statement on Form S-1
under the Securities Act, with respect to the common stock offered hereby. As
permitted by the rules and regulations of the Commission, this prospectus, which
is a part of the Registration Statement, omits certain information, exhibits,
schedules and undertakings set forth in the Registration Statement. For further
information pertaining to Paradyne and the common stock offered hereby,
reference is made to such Registration Statement and the exhibits and schedules
thereto. Statements contained in this prospectus as to the contents or
provisions of any contract or other document referred to herein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. A copy of
the Registration Statement may be inspected without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of all or any part of the
Registration Statement may be obtained from such offices upon the payment of the
fees prescribed by the Commission. In addition, registration statements and
certain other filings made with the Commission through its Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system are publicly available
through the Commission's web site on the Internet's World Wide Web, located at
http://www.sec.gov. The Registration Statement, including all exhibits thereto
and amendments thereof, was filed with the Commission through EDGAR.
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<PAGE> 73
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PARADYNE CORPORATION
Report of Independent Certified Public Accountants........ F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-3
Consolidated Statements of Operations for the Period from
Inception through December 31, 1996 and for each of the
two years ended December 31, 1998...................... F-4
Consolidated Statements of Stockholders' Equity for the
Period from Inception through December 31, 1996 and for
each of the two years ended December 31, 1998.......... F-5
Consolidated Statements of Cash Flows for the Period from
Inception through December 31, 1996 and for each of the
two years ended December 31, 1998...................... F-6
Notes to Consolidated Financial Statements................ F-7
PARADYNE PREDECESSOR BUSINESS (A CARVE-OUT BUSINESS OF AT&T
PARADYNE CORPORATION)
Report of Independent Certified Public Accountants........ F-19
Consolidated Statement of Operations for the Seven Months
ended July 31, 1996.................................... F-20
Consolidated Statement of Cash Flows for the Seven Months
ended July 31, 1996.................................... F-21
Notes to Consolidated Financial Statements................ F-22
</TABLE>
F-1
<PAGE> 74
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Paradyne Corporation
The recapitalization described in Note 16 to the financial statements has not
been consummated at April 12, 1999. When it has been consummated, we will be in
a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Paradyne
Corporation and its subsidiaries at December 31, 1997 and 1998, and the results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1998 and for the period from inception (August 1, 1996)
through December 31, 1996 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above."
PricewaterhouseCoopers LLP
Tampa, Florida
April 12, 1999
F-2
<PAGE> 75
PARADYNE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,240 $ 2,356
Accounts receivable, less allowance for doubtful accounts
of $2,966 and $3,007................................... 28,852 29,641
Accounts receivable from affiliates....................... 1,519 721
Other receivables (Note 4)................................ 8,214 --
Income tax receivable..................................... 536 4,230
Inventories............................................... 14,821 16,997
Prepaid expenses and other current assets................. 3,820 1,808
------- -------
Total current assets.............................. 61,002 55,753
Property, plant and equipment, net.......................... 15,552 16,103
Deferred tax assets......................................... 2,783 1,143
Other assets................................................ 3,863 2,064
------- -------
Total assets...................................... $83,200 $75,063
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $10,201 $17,205
Current portion of debt................................... 17,782 16,483
Deferred tax liability.................................... 11,975 2,357
Payroll and benefit related liabilities................... 5,131 6,263
Other current liabilities................................. 6,307 5,063
------- -------
Total current liabilities......................... 51,396 47,371
Long-term debt.............................................. 402 353
------- -------
Total liabilities................................. 51,798 47,724
------- -------
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock, par value $0.001; 60,000,000 shares
authorized, 51,184,363 and 51,337,445 shares issued and
outstanding as of December 31, 1997 and 1998,
respectively........................................... 51 51
Additional paid-in capital................................ 20,792 21,033
Retained earnings......................................... 10,284 6,639
Note receivable for common stock (Note 14)................ (150) (150)
Unrealized gain on available-for-sale securities.......... 409 --
Cumulative translation adjustment......................... 16 (234)
------- -------
Total stockholders' equity........................ 31,402 27,339
------- -------
Total liabilities and stockholders' equity........ $83,200 $75,063
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-3
<PAGE> 76
PARADYNE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIVE MONTHS YEARS ENDED
ENDED DECEMBER 31,
DECEMBER 31, -------------------
1996 1997 1998
<S> <C> <C> <C>
Revenues:
Sales..................................................... $112,293 $177,850 $195,153
Service................................................... 1,413 3,040 2,256
Royalty................................................... 325 413 1,392
-------- -------- --------
Total revenues.................................... 114,031 181,303 198,801
-------- -------- --------
Cost of sales:
Equipment................................................. 59,634 90,334 107,921
Service................................................... 744 1,154 620
-------- -------- --------
Total cost of sales............................... 60,378 91,488 108,541
-------- -------- --------
Gross margin................................................ 53,653 89,815 90,260
Operating expenses:
Research and development (includes $13,114 of purchased
R&D in 1996)........................................... 31,174 37,339 35,132
Selling, general and administrative expenses.............. 29,409 66,278 55,969
Restructuring charges..................................... -- 1,778 984
-------- -------- --------
Total operating expenses.......................... 60,583 105,395 92,085
-------- -------- --------
Operating loss.............................................. (6,930) (15,580) (1,825)
Other (income) expenses:
Interest.................................................. 3,502 7,712 1,711
Lucent settlement gain.................................... -- (51,183) --
Other, net................................................ 382 (1,753) 1,191
-------- -------- --------
Income (loss) before provision for income taxes............. (10,814) 29,644 (4,727)
Provision (benefit) for income tax........................ -- 8,302 (1,082)
-------- -------- --------
Net income (loss)........................................... $(10,814) $ 21,342 $ (3,645)
======== ======== ========
Basic income (loss) per common share........................ $ (0.21) $ 0.42 $ (0.07)
======== ======== ========
Weighted average number of common shares outstanding........ 51,000 51,103 51,246
======== ======== ========
Diluted income (loss) per common share...................... $ (0.21) $ 0.40 $ (0.07)
======== ======== ========
Weighted average number of common shares outstanding........ 51,000 54,001 51,246
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-4
<PAGE> 77
PARADYNE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMPREHENSIVE COMMON STOCK ADDITIONAL RETAINED TOTAL
INCOME -------------------- PAID-IN EARNINGS STOCKHOLDERS'
(LOSS) SHARES AMOUNT CAPITAL (DEFICIT) OTHER EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
August 1, 1996.......................... $ -- -- $-- $ -- $ -- $ -- $ --
Equity investment in the Company...... 51,000,000 51 17,011 17,062
Net loss.............................. (10,814) (10,814) (10,814)
Cumulative translation adjustment..... (163) (163) (163)
Asset allocation to related party
(Note 14)........................... (106) (106)
-------- ---------- --- ------- -------- ----- --------
Balance, December 31, 1996.............. $(10,977) 51,000,000 51 16,905 (10,814) (163) 5,979
========
Contribution from Paradyne Partners
(Note 4)............................ 3,600 3,600
Proceeds from exercise of stock
options and related tax benefit..... 184,363 287 (150) 137
Net income............................ $ 21,342 21,342 21,342
Cumulative translation adjustment..... 179 179 179
Unrealized investment gain............ 409 409 409
Asset allocation to related party
(Note 14)........................... (244) (244)
-------- ---------- --- ------- -------- ----- --------
Balance, December 31, 1997.............. $ 21,930 51,184,363 51 20,792 10,284 275 31,402
========
Proceeds from exercise of stock
options and related tax benefit..... 153,082 241 241
Net loss.............................. $ (3,645) (3,645) (3,645)
Cumulative translation adjustment..... (250) (250) (250)
Unrealized investment loss............ (409) (409) (409)
-------- ---------- --- ------- -------- ----- --------
Balance, December 31, 1998.............. $ (4,304) 51,337,445 $51 $21,033 $ 6,639 $(384) $ 27,339
======== ========== === ======= ======== ===== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-5
<PAGE> 78
PARADYNE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIVE MONTHS YEARS ENDED
ENDED DECEMBER 31,
DECEMBER 31, ------------------
1996 1997 1998
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss)......................................... $(10,814) $ 21,342 $(3,645)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Lucent settlement gain.................................. -- (51,183) --
Loss on sale of assets.................................. -- 22 232
Increase in allowance for bad debts..................... -- 181 41
Depreciation and amortization........................... 5,571 10,558 5,243
Purchased in-process research and development........... 13,114 -- --
Deferred income taxes................................... (625) 9,817 (7,978)
(Increase) decrease in assets:
Receivables............................................. (16,313) 15,061 7,384
Accounts receivable from affiliates..................... (2,230) 711 798
Income tax receivable................................... -- (536) (3,694)
Inventories............................................. (79) 5,266 (2,176)
Prepaid expenses and other current assets............... (180) (2,211) 1,603
Other long term assets.................................. -- 2,564 1,186
Increase (decrease) in liabilities:
Accounts payable........................................ 5,643 (7,484) 7,629
Payroll and related liabilities......................... -- (258) 1,132
Other current liabilities............................... (1,358) (4,987) (1,244)
-------- -------- -------
Net cash provided by (used in) operating
activities....................................... (4,555) (1,137) 6,511
-------- -------- -------
Cash flows provided by (used in) investing activities:
Net asset acquired........................................ (93,912) -- --
Capital expenditures...................................... (4,497) (9,636) (6,945)
Proceeds from sale of property, plant and equipment....... 51 21,218 1,532
-------- -------- -------
Net cash provided by (used in) investing
activities....................................... (98,358) 11,582 (5,413)
-------- -------- -------
Cash flows provided by (used in) financing activities:
Debt investment in the Company............................ 76,850 (18,479) --
Equity investment in the Company.......................... 17,062 -- --
(Payments of) acquisition costs........................... (7,314) (377) (625)
Proceeds from stock options exercised..................... -- 137 241
Repayment of borrowings under debt obligations, net....... 12,832 9,981 (1,348)
-------- -------- -------
Net cash provided by (used in) financing
activities....................................... 99,430 (8,738) (1,732)
-------- -------- -------
Effect of foreign exchange rate changes on cash............. (163) 179 (250)
-------- -------- -------
Net increase (decrease) in cash and cash equivalents........ (3,646) 1,886 (884)
Cash and cash equivalents at beginning of period............ 5,000 1,354 3,240
-------- -------- -------
Cash and cash equivalents at end of period.................. $ 1,354 $ 3,240 $ 2,356
======== ======== =======
Supplemental disclosures of cash flow information:
Cash paid for:
Interest................................................ $ 798 $ 2,658 $ 1,711
======== ======== =======
Income taxes............................................ $ -- $ 471 $10,041
======== ======== =======
Non-cash transaction:
Acquisition of installment and affiliate receivables in
consideration for related party note (Note 14).......... $ 13,735 $(13,735) $ --
======== ======== =======
Debt forgiveness (Note 4)................................. $ -- $ 63,000 $ --
======== ======== =======
Contribution from Paradyne Partners (Note 4).............. $ -- $ 3,600 $ --
======== ======== =======
Asset allocation to related party (Note 14)............... $ 106 $ 244 $ --
======== ======== =======
Stock issued for note..................................... $ -- $ 150 $ --
======== ======== =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-6
<PAGE> 79
PARADYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. BASIS OF PRESENTATION:
Pursuant to a Purchase Agreement dated June 18, 1996 (the "Purchase
Agreement"), Paradyne Partners, L.P. ("Paradyne Partners") acquired certain
assets and operations of AT&T Paradyne Corporation from Lucent Technologies Inc.
("Lucent") for cash and seller notes totaling $146 million. This transaction was
consummated through five direct and indirect subsidiaries of Paradyne Partners
which included Paradyne Acquisition Corp. ("PAC") and its wholly-owned
subsidiary, Paradyne Corporation and its subsidiaries (the "Company"). The
acquisition was accounted for as a purchase. The purchase price was allocated to
the assets acquired and liabilities assumed based on fair values including
long-lived tangible and intangible assets. Property, plant and equipment,
purchased research and development and the Lucent supply agreement values were
based on independent appraised values.
That portion of the acquired assets and operations of AT&T Paradyne
Corporation that remained with the Company were purchased for $102.3 million,
consisting of a $17.1 million equity investment, $69.3 million in seller notes
to Lucent, debt to the Paradyne Partners of $7.5 million and $8.4 million of
other acquisition costs.
As further discussed in Note 16, subsequent to December 31, 1998, PAC was
merged into Paradyne Corporation. This transaction among entities under common
control was accounted for in a manner similar to a pooling of interest and,
accordingly, the accompanying financial statements reflect the consolidated
historical financial position, results of operations and cash flows of PAC,
Paradyne and its wholly-owned subsidiaries from inception. Also, see Note 14 for
discussion of related party transactions.
The Company is a leading developer, manufacturer and distributor of
broadband and narrowband network access products for network service providers
and business customers. The Company offers solutions that enable business class,
service level managed, high-speed connectivity over the existing telephone
network infrastructure.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The significant accounting principles and practices used in the preparation
of the accompanying consolidated financial statements are summarized below:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the results of
the Company and its wholly-owned subsidiaries: Paradyne Canada Ltd.; Paradyne
Japan Corporation; Paradyne International Ltd.; Paradyne Worldwide Corp.
(formerly Paradyne Far East Corporation); Ark Electronic Products Inc.; Paradyne
GmbH; and Paradyne International Sales Ltd. Intercompany accounts and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue from equipment sales is generally recognized at the date of
shipment. Revenue from services, which consists mainly of repair of
out-of-warranty products, is recognized when the services are performed and all
substantial contractual obligations have been satisfied. Provision is made
currently for estimated product returns. Royalty revenue is recognized when the
Company has completed delivery of technical specifications and performed
substantially all required services under the related agreement. See discussion
of product warranty below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of
F-7
<PAGE> 80
PARADYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
revenues and expenses during the reporting periods presented. Actual results
could differ from those estimates. The markets for the Company's products are
characterized by intense competition, rapid technological development and
frequent new product introductions, all of which could impact the future value
of the Company's inventory and certain other assets.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVESTMENTS
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the Company
has classified its equity securities as available-for-sale. These securities, of
which $2,109 and $0 are included in prepaid expenses and other current assets
and $180 and $0 are included in other assets at December 31, 1997 and 1998,
respectively, are stated at fair value, with the unrealized gain or loss, net of
taxes, reported in stockholders' equity until realized.
CONCENTRATION OF CREDIT RISK
The Company sells products to value added distributors and other customers
and extends credit based on an evaluation of the customer's financial condition,
generally without requiring collateral. Exposure to losses on receivables is
principally dependent on each customer's financial condition. The Company
monitors its exposure for credit losses and maintains allowances for anticipated
losses. Sales to one customer were approximately 42% of total revenues for the
five months ended December 31, 1996. Sales to two customers were approximately
34% and 12% of total revenues for the year ended December 31, 1997 and 35% and
17% of total revenues for the year ended December 31, 1998.
Purchases from one vendor were approximately 37% of total purchases for the
five months ended December 31, 1996. Purchases from two vendors were
approximately 23% and 18% of total purchases for the year ended December 31,
1997 and purchases from one vendor were approximately 15% of total purchases for
the year ended December 31, 1998.
International sales accounted for 24% of total revenue during the five
months ended December 31, 1996, and 30% and 21% of total revenue during the
years ended 1997 and 1998, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, which includes
cash, receivables and variable-rate debt, approximates fair value due to the
short maturities of those instruments.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost includes
material, labor and manufacturing overhead. Cost is determined on a first in,
first out basis.
INTANGIBLE ASSET
Intangible asset, which consists of a purchase contract, is included in
other assets. This contract is amortized on a straight-line basis over the term
of the agreement of approximately four years. See Note 4 related to favorable
supply contract with Lucent, which was renegotiated.
F-8
<PAGE> 81
PARADYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Leasehold improvements
are amortized on a straight-line method over the period of the lease or the
estimated service lives of the improvements, whichever is shorter. Depreciation
expense includes the amortization of capital lease assets.
Expenditures for renewals and improvements that significantly add to
productive capacity or extend the useful life of an asset are capitalized.
Expenditures for maintenance and repairs are charged to operations when
incurred. When assets are sold or retired, the cost of the asset and the related
accumulated depreciation are eliminated from the accounts and any gain or loss
is recognized at such time.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets whenever
adverse events or changes in business climate indicate that the expected
undiscounted future cash flows from the related asset may be less than
previously anticipated. If the net book value of the related asset exceeds the
undiscounted future cash flows of the asset, the carrying amount would be
reduced to the present value of its expected future cash flows and an impairment
loss would be recognized. As of December 31, 1997 and 1998, management does not
believe that an impairment reserve is required.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. The Company
purchased in process research and development valued at $13,114 which was
expensed during the period ended December 31, 1996.
PRODUCT WARRANTY
The Company generally provides a return to factory warranty for a period of
two years from the date of sale. A current charge to income is recorded at the
time of sale to reflect the amount the Company estimates will be needed to cover
future warranty obligations for products sold during the year. The accrued
liability for warranty costs is included in the caption "other current
liabilities" in the accompanying consolidated balance sheet.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires use of the asset and liability method of accounting for deferred income
taxes.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the year. Diluted earnings per share assume the exercise of stock options
for which market price exceeds exercise price, less shares assumed purchased by
the Company with related proceeds.
Options are not included in the 1998 calculation of diluted loss per share
due to their antidilutive effect.
FOREIGN CURRENCY
The local currency is the functional currency of each of the foreign
subsidiaries. Assets and liabilities of the Company's foreign subsidiaries are
translated using fiscal year-end exchange rates, and revenue and expenses are
translated using average exchange rates prevailing during the year. The effects
of translating foreign subsidiaries' financial statements are recorded as a
separate component of stockholders' equity.
F-9
<PAGE> 82
PARADYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
In addition, included in other (income) expense are realized foreign
currency exchange losses of $323 for the five months ended December 31, 1996 and
$596 for the year ended December 31, 1997. A foreign currency gain of $181 is
included for the year ended December 31, 1998.
3. RESTRUCTURING CHARGES:
The Company recorded a restructuring charge of $1,778 related to staff
reductions in the U.S. operations in November 1997. Termination charges related
to approximately 93 employees spread throughout all major functions within the
Company. Staff reductions were necessary because the Company had significantly
improved operating efficiencies with its investment in new systems and
processes, as well as changing the composition of our workforce to update the
availability of strategic skills.
In 1998, the Company recorded a restructuring charge of $984. This charge
related to the change in the Company's model for operating within certain
international operations. The Company now operates through a system of
distributors with branch operation support in most foreign locations. In this
restructuring approximately 25 employees were terminated from employment. In
addition, charges were incurred to exit from leased facilities in international
locations.
During 1997 and 1998, the Company paid approximately $957 and $1,417
related to restructurings. The remaining $388 accrued as of year end related to
the international restructuring.
4. AMENDMENT TO LUCENT SUPPLY AGREEMENT:
At July 31, 1996, Lucent delivered, as a condition to the closing specified
in Note 1, a four year Volume Purchase Letter ("VPL") whereby Lucent agreed to
purchase a baseline level of certain products or pay a penalty. At December 31,
1997 Lucent had not achieved the baseline commitment under the VPL and,
therefore, was subject to certain take-or-pay provisions. In August, 1998 the
Company, GlobeSpan Semiconductor Inc., a subsidiary of Paradyne Partners
("GlobeSpan"), and Lucent terminated the VPL including the elimination of all
existing and future minimum purchase requirements under a revised Exclusivity
and Amendment Agreement.
As a result of the Exclusivity and Amendment Agreement, the Company
received $8.2 million in cash and $63.0 million of the outstanding note payable
to Lucent was forgiven. The Company also paid Lucent the remaining $2.7 million
outstanding under the existing terms of the note payable. In addition, GlobeSpan
agreed to amend the warrant originally granted to Lucent at the time of Paradyne
Partners' acquisition of GlobeSpan to acquire 1,500,000 shares of GlobeSpan by
extending the warrant term by three years, which would have expired upon
repayment of the seller notes. Additionally, Lucent and the Company agreed that
the Company will be Lucent's exclusive provider for certain access products for
resale through June 30, 2001.
The contract renegotiation and resolution has been reflected in the
accompanying consolidated financial statements at December 31, 1997 and resulted
in a pretax gain of approximately $51.2 million and a contribution of capital by
Paradyne Partners of $3.6 million reflecting the estimated fair value of the
extension of the GlobeSpan warrant.
F-10
<PAGE> 83
PARADYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
5. INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
<S> <C> <C>
Raw materials............................................... $12,691 $11,064
Work-in-process............................................. 569 1,970
Finished goods.............................................. 1,561 3,963
------- -------
$14,821 $16,997
======= =======
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
<S> <C> <C>
Leasehold improvements...................................... $ 2,252 $ 1,375
Office furniture and fixtures............................... 1,733 2,556
Machinery and equipment..................................... 18,166 22,922
------- --------
22,151 26,853
Less accumulated depreciation............................... (6,599) (10,750)
------- --------
$15,552 $ 16,103
======= ========
</TABLE>
Depreciation expense amounted to $2,665, $3,584 and $4,630 for the five
months ended December 31, 1996 and the years ending December 31, 1997 and 1998,
respectively.
7. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1998
<S> <C> <C>
Intangible asset, net of accumulated amortization of $872
and $1,484, respectively.................................. $1,379 $ 766
Notes receivable, interest ranging from 8% to 9.25%......... 1,250 429
Security deposits........................................... 905 831
Other....................................................... 329 38
------ ------
$3,863 $2,064
====== ======
</TABLE>
8. OTHER CURRENT LIABILITIES:
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1998
<S> <C> <C>
Accrued professional fees................................... $2,548 $1,013
Accrued product warranty.................................... 1,319 1,682
Accrued taxes............................................... 637 611
Accounts payable to affiliates.............................. 354 7
Other....................................................... 1,449 1,750
------ ------
$6,307 $5,063
====== ======
</TABLE>
F-11
<PAGE> 84
PARADYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
9. INDEBTEDNESS:
Indebtedness consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
<S> <C> <C>
Revolving credit facility interest at the bank's stated
reference rate plus 0% to 1% (9.50% and 7.75%,
respectively at December 31, 1997 and 1998) collateralized
by certain assets of the Company, payable monthly,
maturing January 2000..................................... $14,943 $16,082
Note payable, interest ranging from 8.5% to 14.5%
collateralized by the capital stock of the Company,
interest payable quarterly from March 31, 1998 through
June 30, 2000, principal payment due August 28, 1998 (Note
4)........................................................ 2,712 --
Capitalized lease obligations, interest ranging from 8.8% to
9.5%, maturing various dates through July 2000............ 529 754
------- -------
18,184 16,836
Less current portion........................................ (17,782) (16,483)
------- -------
$ 402 $ 353
======= =======
</TABLE>
Scheduled principal repayments on debt for the next five years are as
follows: 1999 -- $16,483, 2000 -- $306; 2001 -- $47; 2002 and thereafter -- $0.
REVOLVING CREDIT FACILITIES
On July 31, 1996, the Company entered into an agreement (the "Agreement")
with a commercial lending institution to provide a revolving credit facility in
the amount of $45 million with availability subject to a borrowing base formula.
The facility provides for a sub-limit of $5 million for letters of credit, of
which none were outstanding at December 31, 1997 or 1998. The Agreement includes
a fee ranging from .375% to .50% of the unused line. Certain assets of the
Company, including accounts receivable, inventories, equipment and intellectual
property rights, are pledged as collateral. The Company is subject to various
non-financial covenants under the terms of the Agreement. Effective December 31,
1997 and 1998, the Company was in compliance with or had obtained waivers to the
Agreement for such covenants.
Additionally, the Agreement restricts the Company with respect to making
dividends.
On August 25, 1997, the Company entered into a subordinated revolving
credit agreement (the "Credit Agreement") with Paradyne Partners. The Credit
Agreement made available $5 million through August 25, 2002. This agreement was
amended in October 1998 to make available $10 million. In connection therewith,
Paradyne Partners provided a limited continuing guarantee of the Agreement.
Borrowings under the Credit Agreement are subordinated to debt under the
Agreement and bears interest at 8% per annum. There were no borrowings under
this Credit Agreement as of December 31, 1998.
CAPITAL LEASES
The Company executed several long-term lease agreements for computer and
other equipment. For financial reporting purposes, the leases have been
classified as capital leases; accordingly, assets of approximately $1,155
(included in machinery and equipment) and accumulated depreciation of $283 have
been recorded at December 31, 1998.
F-12
<PAGE> 85
PARADYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Future minimum lease payments for assets under capital leases at December
31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 480
2000........................................................ 294
2001........................................................ 48
-----
Total minimum lease payments................................ 822
Less amount representing interest........................... (68)
-----
Present value of net minimum lease payments................. 754
Less current portion........................................ (401)
-----
Long-term capital lease obligations......................... $ 353
=====
</TABLE>
10. INCOME TAXES:
The Company files a consolidated federal income tax return. The provision
(benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------ ------- -------
<S> <C> <C> <C>
Current:
Foreign............................................ $ -- $ 37 $ 38
Federal............................................ 545 (1,429) 6,316
State.............................................. 80 (123) 542
----- ------- -------
625 (1,515) 6,896
----- ------- -------
Deferred:
Foreign............................................ -- -- --
Federal............................................ (545) 9,041 (7,348)
State.............................................. (80) 776 (630)
----- ------- -------
(625) 9,817 (7,978)
----- ------- -------
Income tax provision................................. $ -- $ 8,302 $(1,082)
===== ======= =======
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
<S> <C> <C>
Payable for cancellation of indebtedness.................... $(18,658) $ --
US net operating loss carryforward.......................... 6,683 --
Property, plant and equipment............................... (2,573) (1,951)
Intangibles................................................. 5,644 117
Foreign net operating loss carryforwards.................... 3,352 1,350
Other....................................................... (288) 620
-------- -------
(5,840) 136
Valuation allowance......................................... (3,352) (1,350)
-------- -------
Net deferred tax liability.................................. $ (9,192) $(1,214)
======== =======
</TABLE>
The Company recorded a valuation allowance at December 31, 1997 and 1998
with respect to the foreign net operating losses due to the uncertainty of their
ultimate realization.
F-13
<PAGE> 86
PARADYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
At December 31, 1998, Paradyne Canada had net operating loss carryforwards
of approximately $3 million expiring 2003. In the U.K. and Japan, management has
decided that operations will no longer be conducted through Paradyne
International Ltd. and Paradyne Japan Corporation, and thus, there will be no
future benefit related to the NOL carryforwards of Paradyne International Ltd.
and Paradyne Japan Corporation. The foreign net operating losses as of December
31, 1998 have been adjusted to reflect the elimination of loss carryforwards
related to the exit of these foreign subsidiaries.
The provision for income taxes differed from the statutory rate as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Statutory Rate.............. $(3,676) -34.0% $10,375 35.0% $(1,654) -35.0%
Foreign loss..................... -- 0.0 -- 0.0 523 11.0
State taxes...................... (540) -5.0 746 2.5 (95) -2.0
Basis adjustments................ -- 0.0 1,561 5.3 -- 0.0
Other............................ 113 1.4 (277) -1.0 144 3.1
Valuation allowance.............. 4,103 37.6 (4,103) -13.8 -- 0.0
------- ----- ------- ----- ------- -----
Provision for income taxes....... $ -- 0.0% $ 8,302 28.0% $(1,082) -22.9%
======= ===== ======= ===== ======= =====
</TABLE>
11. STOCK OPTION PLAN:
The Company has a stock option plan whereby the Board of Directors may
discretionarily reserve common shares for the purpose of granting to employees,
directors and consultants options to purchase common stock. Under the plan,
9,000,000 shares have been reserved related to options available for grant to
employees, directors and consultants through December 31, 1998. The options are
generally fully vested in four years, and they have a maximum contractual life
of 10 years. The Company has granted 9,455,050 options to the Company's
employees, directors and consultants of which 8,049,394 options are outstanding
as of December 31, 1998.
In December 1998, the Company issued options to acquire 10,000 shares of
the Company's common stock at $2.50 per share with a fair market value of $3.33
per share. Resulting compensation expense of $8 is being amortized ratably over
the vesting period.
Information on stock options is summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year......................... -- -- $ -- 7,767,732 $1.44
Granted........................ -- 8,518,250 1.40 936,800 2.50
Exercised...................... -- (184,363) 1.00 (153,082) 1.01
Canceled....................... -- (566,155) 1.04 (502,056) 1.15
--------- ---------
Outstanding at end of year..... -- 7,767,732 1.44 8,049,394 1.59
--------- ---------
Exercisable at end of year..... -- 1,899,272 1.40 3,796,620 1.43
========= =========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS WEIGHTED AVERAGE NUMBER OF OPTIONS
WEIGHTED AVERAGE OUTSTANDING AT REMAINING CONTRACTUAL EXERCISABLE AT
EXERCISE PRICES DECEMBER 31, 1998 LIFE OF OPTIONS (YEARS) DECEMBER 31, 1998
<S> <C> <C> <C>
$ 1.00............................ 6,159,657 8.13 3,335,472
2.50............................ 1,139,737 9.61 86,148
5.00............................ 750,000 8.04 375,000
--------- ---------
8,049,394 3,796,620
========= =========
</TABLE>
F-14
<PAGE> 87
PARADYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The Company applies APB Opinion No. 25 and related interpretations for
accounting for stock options. Accordingly, no compensation costs at the grant
dates are recorded for options granted at fair market value. Had compensation
cost for the Company's option plans been determined based on the fair value at
the grant dates as prescribed by Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation" ("FAS 123"), the Company's net
income and net income per share on a pro forma basis would have been (in
thousands, except per share data):
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Net income (loss):
As reported............................................... $21,342 $(3,645)
======= =======
Pro forma................................................. $20,971 $(4,035)
======= =======
Net income (loss) per share:
As reported............................................... $ 0.42 $ (0.07)
======= =======
Pro forma basic........................................... $ 0.41 $ (0.08)
======= =======
Pro forma diluted......................................... $ 0.39 $ (0.08)
======= =======
</TABLE>
The preceding pro forma results were calculated with the use of the Black
Scholes option pricing model. The following assumptions were used for the years
ended December 31, 1997 and 1998: (1) risk-free interest rate of 6.60%; (2)
dividend yield of 0.0%; (3) expected life of 5.0 years; and (4) volatility of
0.0001%.
12. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company is obligated under noncancelable operating leases for office
and warehouse equipment and facilities. The leases expire at various dates
through 2007. Rent expense for the years ended December 31, 1997 and 1998
approximated $2,961 and $3,942, respectively. Minimum required future lease
payments under noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 4,182
2000........................................................ 3,921
2001........................................................ 3,817
2002........................................................ 3,968
2003 and thereafter......................................... 16,370
</TABLE>
The Company leases facilities in Red Bank, NJ and subleases this space to
GlobeSpan under a non-cancelable operating lease. Future minimum lease payment
receivables under the leasing agreement as of December 31, 1999 are as follows:
1999 -- $934; 2000 -- $934; 2001 -- $955; 2002 -- $352; 2003 and $0 thereafter
(see Note 14).
SALE/LEASEBACK
In June 1997, the Company sold all of its land and the improvements thereon
at its Largo, Florida facility at approximately net book value, and at the same
time leased back two of the buildings. The primary term of the lease is for 10
years with annual rents approximating $1,796 for the first five years and $2,145
for the remaining five years. If the buildings are sold within three years of
acquisition, the primary lease term will be 12 years. The Company has the option
to renew the lease for two additional five year terms on the same conditions as
the current lease. The Company is responsible for paying for any necessary
improvements to the property and is responsible for its proportionate share of
most operating costs and taxes on the property.
F-15
<PAGE> 88
PARADYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
SALE OF INSTALLMENT RECEIVABLES
At December 31, 1998, sales-type lease receivables sold to AT&T Capital
Corporation with recourse were $886. The ultimate responsibility for the
collection of these receivables is with Paradyne Credit Corp., a related party.
13. EMPLOYEE BENEFITS:
The Company has a 401(k) plan covering substantially all employees of the
Company. Benefits vest based on number of years of service. The Company's policy
is to match two-thirds of an employee's contributions, up to six percent of an
employee's annual salary. Additionally, the Board of Directors may grant
discretionary contributions. Contributions to the plan were approximately
$1,063, $2,415 and $2,429 for the five months ended December 31, 1996 and the
years ended December 31, 1997 and 1998, respectively.
14. RELATED PARTY TRANSACTIONS:
On December 30, 1996, the Company purchased certain installment and
affiliate receivables in the amount of $14,026 from Paradyne Credit Corp.
("PCC"), a subsidiary of Paradyne Partners, in exchange for a note payable of
$13,735. A deferred gain of $291 is included in other current liabilities at
December 31, 1997. The note bore an interest rate of 9.25% and matured December
30, 1997. The Accounts Receivable Purchase and Servicing Agreement allowed the
Company to require PCC to repurchase the receivables prior to the due date of
the note. On January 3, 1997, the Company sold the receivables back to PCC in
exchange for cancellation of the note payable.
Notes payable to affiliate were owed to Paradyne Partners. As further
discussed in Note 9, the Company executed a revolving subordinated credit
agreement with Paradyne Partners in fiscal 1997. The Company recorded interest
expense of approximately $267, $421 and $305 related to these notes during the
five months ended December 31, 1996 and the years ended December 31, 1997 and
1998, respectively.
The Company provides operating, management and other administrative
services for certain subsidiaries of Paradyne Partners. Total charges to these
entities were approximately $432 for the five months ended December 31, 1996 and
$1,055 and $1,411 for the years ended December 31, 1997 and 1998, respectively.
This amount is recorded as a reduction of general and administrative expenses.
PCC had an option to acquire all used equipment owned by the Company and
its subsidiaries for which the original lease had expired or terminated.
Additionally, the option allowed PCC to purchase all used equipment which had
been returned from sales to customers or consignment activities. The exercise
price of the option was equivalent to one month's rental revenue from the
related equipment. Purchases of such equipment totaled $115, $81 and $0 for the
five months ended December 31, 1996 and the years ended December 31, 1997 and
1998, respectively. In 1997, the Company sold all equipment under leases, as
well as the related lease streams, to PCC in exchange for approximately $3,500.
As a result of this sale, the option is no longer valid.
In connection with this sale of equipment and related lease streams to PCC
in 1997, the Company entered into an agreement to allow PCC to purchase
equipment manufactured or sold by the Company at prices substantially equal to
those received by the Company through normal selling channels. Purchases under
this agreement totaled $181 and $317 for the years ended December 31, 1997 and
1998, respectively. Additionally, this agreement provides for the Company to
purchase from PCC equipment that has been returned to PCC at the end of the
lease. These purchases are on terms no more favorable to the Company than would
be obtained in a comparable arm's length transaction. Payments made for
purchases of such equipment totaled $0 and $141 for and the years ended December
31, 1997 and 1998, respectively.
The Company entered into a license agreement with GlobeSpan for the use of
certain technologies. Total royalty expense related to the use of these
technologies was approximately $235 for the five months ended
F-16
<PAGE> 89
PARADYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
December 31, 1996 and $0 for each of the years ended December 31, 1997 and 1998.
This amount has been included in equipment cost of sales. In November 1996, the
Company entered into a Cooperative Development Agreement with GlobeSpan. Under
this agreement, the Company was granted an unrestricted license to use
GlobeSpan's technical information and patents. Additionally, the agreement
provided for the Company to purchase GlobeSpan chip sets at prices not to exceed
cost plus 15%. The Company purchased goods approximating $0, $373 and $962
during the period ended December 31, 1996 and the years ended December 31 1997
and 1998, respectively, under this agreement. Effective July 1998, the Company
revised its pricing arrangement with GlobeSpan such that GlobeSpan sold products
to the Company at preferential prices. In exchange, GlobeSpan agreed to pay a
1.25% royalty based on net revenues up to an aggregate amount of $1.5 million.
The Company recorded $381 of royalty revenue related to the agreement during the
year ended December 31, 1998 (see Note 15).
Beginning in August 1996, GlobeSpan participates in a 401K plan which is
maintained by the Company. Contributions paid by the Company on behalf of
GlobeSpan approximated $45, $242 and $348 for the five months ended December 31,
1996 and the years ended December 31, 1997 and 1998, respectively. GlobeSpan has
reimbursed the Company for all payments made on their behalf.
In 1996 and 1997, the Company provided the use of certain assets to
Globespan related to their research activities without material fee.
Depreciation of $106 in 1996 and $244 in 1997 related to those assets has been
excluded from the results of operations and reflected as a distribution of
equity to a related party. Those assets were subsequently sold to Globespan. The
Company sold fixed assets to GlobeSpan for approximately $350 in fiscal year
1997 and $1,442 in fiscal 1998. These assets were transferred at their
approximate net book values since the transaction involved entities under common
control.
In 1997, the Company received $194 from GlobeSpan as reimbursement for
purchases of product from a supplier on behalf of GlobeSpan. In December 1997
and September 1998, the Company sold to GlobeSpan certain chip sets which it
held in its inventory in the amounts of $98 and $29, respectively. GlobeSpan
purchased these chip sets for resale to other customers.
In December 1998, the Company subleased additional office space to
GlobeSpan (see Note 12). In connection therewith, GlobeSpan reimbursed
approximately $392 of the Company's moving expenses.
15. SUBSEQUENT EVENTS:
In March 1999, the Company and GlobeSpan agreed to terminate the
Cooperative Development Agreement ("Termination Agreement") effective December
31, 1998 (see Note 14). In connection with such termination agreement, GlobeSpan
agreed to pay the Company an aggregate of $1.5 million. Of this amount,
approximately $300 was received in 1998 and is included in other income. The
remaining $1.2 million is expected to be received in 1999. In addition,
GlobeSpan and the Company as part of the Termination Agreement affirmed that the
earlier technology license provisions of the Cooperative Development Agreement
were never implemented. In conjunction with the signing of the Termination
Agreement, GlobeSpan and the Company also entered into a four-year Supply
Agreement which gave the Company preferential pricing and other terms in
connection with the sale by GlobeSpan of products to the Company. In addition,
under the terms of the Supply Agreement, GlobeSpan is required to honor the
Company's orders for GlobeSpan's products in quantities at least consistent with
the Company's past ordering practices and must afford the Company at least the
same priority for the Company's orders as GlobeSpan affords its other similarly
situated customers. GlobeSpan also granted the Company a standard customer
immunity under GlobeSpan's intellectual property rights with respect to any of
the Company's products which incorporate GlobeSpan's products.
In March 1999, the Company voluntarily reduced the revolving credit
facility to $35 million.
F-17
<PAGE> 90
PARADYNE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Paradyne Partners' continuing guaranty under the Credit Agreement was
canceled in March 1999 (see Note 9).
Effective February 25, 1999, Paradyne Partners was renamed Communication
Partners, L.P.
16. SUBSEQUENT EVENT (UNAUDITED):
On May , 1999, the Company and PAC effected a merger of the Company with
and into PAC in which each outstanding share of PAC was converted into one share
of the Company, and each outstanding option to acquire common stock of PAC was
converted into an option to acquire common stock of the Company and the
outstanding capital stock of the Company immediately prior to the merger was
canceled.
F-18
<PAGE> 91
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Paradyne Corporation
In our opinion, the accompanying consolidated statements of operations and of
cash flows present fairly, in all material respects, the results of its
operations and its cash flows for the period from January 1, 1996 through July
31, 1996 of Paradyne Predecessor Business and its subsidiaries (a carve-out
business of AT&T Paradyne Corporation which was a wholly-owned subsidiary of
Lucent Technologies Inc. and predecessor entity to Paradyne Corporation), in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of AT&T Paradyne's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. Our audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Tampa, Florida
November 23, 1998
F-19
<PAGE> 92
PARADYNE PREDECESSOR BUSINESS
(A CARVE-OUT BUSINESS OF AT&T PARADYNE CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN
MONTHS
ENDED
JULY 31,
1996
<S> <C>
Revenues:
Equipment sales........................................... $128,099
Service revenues.......................................... 1,975
Royalty revenues.......................................... 464
--------
Total revenues.................................... 130,538
Cost of sales:
Equipment costs........................................... 73,208
Service costs............................................. 1,803
--------
Gross margin................................................ 55,527
--------
Operating expenses:
Research and development expenses......................... 28,019
Selling, general and administrative expenses.............. 42,928
--------
Total operating expenses.......................... 70,947
--------
Operating loss.............................................. (15,420)
Other (income) expenses:
Interest.................................................. 200
Other, net................................................ (2,074)
--------
Loss before interest and income taxes....................... (13,546)
Income tax provision........................................ 184
--------
Net loss.................................................... $(13,730)
========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-20
<PAGE> 93
PARADYNE PREDECESSOR BUSINESS
(A CARVE-OUT BUSINESS OF AT&T PARADYNE CORPORATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN
MONTHS
ENDED
JULY 31,
1996
------------
<S> <C>
Cash flows provided by (used in) operating activities:
Net loss.................................................. $(13,730)
Adjustments to reconcile net loss to cash used in
operating activities:
Amortization and depreciation.......................... 6,108
Decrease in assets:
Accounts receivable.................................... 24,735
Inventories............................................ 202
Prepaid expenses and other............................. 495
Other long-term assets................................. 1,057
Increase (decrease) in liabilities:
Accounts payable....................................... 6,641
Accrued expenses....................................... (13,922)
Other current liabilities.............................. (11,069)
Income taxes........................................... 2,267
Other long-term liabilities............................ (250)
--------
Net cash provided by operating activities......... 2,534
--------
Cash flows used in investing activities:
Capital expenditures...................................... (6,596)
--------
Cash flows provided by financing activities:
Advances from parent...................................... 6,454
--------
Effect of foreign exchange rate changes on cash............. 231
--------
Net increase in cash and cash equivalents................... 2,623
Cash and cash equivalents at beginning period............... 3,094
--------
Cash and cash equivalents at end of period.................. $ 5,717
========
</TABLE>
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
F-21
<PAGE> 94
PARADYNE PREDECESSOR BUSINESS
(A CARVE-OUT BUSINESS OF AT&T PARADYNE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BASIS OF PRESENTATION:
Pursuant to a Purchase Agreement dated June 18, 1996 (the "Purchase
Agreement"), Paradyne Partners, L.P. ("Paradyne Partners") acquired certain
assets and operations of AT&T Paradyne Corporation from Lucent Technologies Inc.
("Lucent") for cash and seller notes totaling $146 million. This transaction was
consummated through five direct and indirect subsidiaries of Paradyne Partners
which included Paradyne Acquisition Corp. ("PAC") and its wholly-owned
subsidiary, Paradyne Corporation and its subsidiaries (the "Company"). The
Company acquired certain net assets of AT&T Paradyne Corporation relating to the
manufacturing, marketing and research activities for data communications and
networking products for commercial end users and network service providers and
also entered into a product distribution agreement with Lucent.
The accompanying financial statements include the accounts of Paradyne
Predecessor Business (a carve-out business of AT&T Paradyne Corporation), which
were acquired by the Company, on a carved-out basis as if it had been an
independent reporting entity for the period presented. See discussion of related
party transactions in Note 4.
The Company designs, manufactures and markets data communications and
networking products for commercial end users and network service providers. The
Company's products enable commercial end users to efficiently access wide area
network services and allow network service providers to provide customers with
high-speed services for data, voice, video and multimedia applications.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The significant accounting principles and practices used in the preparation
of the accompanying financial statements are summarized below:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the net assets
and the results of operations acquired from AT&T Paradyne Corporation and its
wholly-owned subsidiaries: Paradyne Canada Ltd.; Paradyne Japan Corporation;
Paradyne International Ltd.; Paradyne Worldwide Corp. (formerly Paradyne Far
East Corporation); Ark Electronic Products Inc.; and Paradyne GmbH. Intercompany
accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods presented. Actual results could differ from those estimates.
The markets for Paradyne Predecessor Business' products are characterized by
intense competition, rapid technological development and frequent new product
introductions, all of which could impact the future value of Paradyne
Predecessor Business' inventory and certain other assets.
REVENUE RECOGNITION
Revenue from equipment sales is generally recognized at the date of
shipment and revenue from services is recognized when the services are performed
and all substantial contractual obligations have been satisfied. See discussion
of product warranty below.
F-22
<PAGE> 95
PARADYNE PREDECESSOR BUSINESS
(A CARVE-OUT BUSINESS OF AT&T PARADYNE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
CASH AND CASH EQUIVALENTS
Paradyne Predecessor Business considers all highly liquid instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Expenditures for renewals and improvements that significantly add to
productive capacity or extend the useful life of an asset are capitalized.
Expenditures for maintenance and repairs are charged to operations when
incurred. When assets are sold or retired, the cost of the asset and the related
accumulated depreciation are eliminated from the accounts and any gain or loss
is recognized at such time.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
PRODUCT WARRANTY
Paradyne Predecessor Business generally provided a return to factory
warranty for a period of two years from the date of sale. A current charge to
income is recorded at the time of sale to reflect the amount it estimates will
be needed to cover future warranty obligations for products sold during the
year.
INCOME TAXES
Paradyne Predecessor Business joined with AT&T Paradyne Corporation in
filing state income tax returns (and with Lucent in cases where consolidated
state income tax returns were filed), and with Lucent, AT&T Paradyne
Corporation's parent, in filing consolidated Federal income tax returns.
The tax provision of $184 reflected in the accompanying statement of
operations relates to the foreign tax obligations of AT&T Paradyne's foreign
subsidiaries.
CONCENTRATION OF CREDIT RISK
Paradyne Predecessor Business sells products to value added distributors
and other customers and extends credit based on an evaluation of the customer's
financial condition, generally without requiring collateral. Exposure to losses
on receivables is principally dependent on each customer's financial condition.
Paradyne Predecessor Business monitors its exposure for credit losses and
maintains allowances for anticipated losses. Accounts receivable from one
customer was approximately $3,842 (15%) of total accounts receivable at July 31,
1996. Sales to two customers were approximately $35,290 (25%) and $16,580 (12%)
of total revenues for the seven months ended July 31, 1996.
Purchases from two vendors were approximately $15,009 (25%) and $7,836
(13%) of total inventory purchases for the seven months ended July 31, 1996.
FOREIGN CURRENCY
The local currency is the functional currency of each of the foreign
subsidiaries. Assets and liabilities of Paradyne Predecessor Business' foreign
subsidiaries are translated using fiscal year-end exchange rates, and revenue
and expenses are translated using average exchange rate prevailing during the
year. Included in other income are realized foreign currency exchange losses of
$656 for the seven months ended July 31, 1996.
F-23
<PAGE> 96
PARADYNE PREDECESSOR BUSINESS
(A CARVE-OUT BUSINESS OF AT&T PARADYNE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
3. COMMITMENTS AND CONTINGENCIES:
Paradyne Predecessor Business is obligated under non-cancelable operating
leases for office and warehouse equipment and facilities. The leases expire at
various dates through 2002. Rent expense for the seven months ended July 31,
1996 approximated $1,519. Minimum required future lease payments under
non-cancelable operating leases are as follows:
<TABLE>
<S> <C>
1997........................................................ $908
1998........................................................ 763
1999........................................................ 768
2000........................................................ 760
2001 and thereafter......................................... 987
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Sales to Lucent Technologies and AT&T Paradyne Corporation were $16,580 and
$35,290, respectively. Inventory purchases from Lucent Technologies totaled
$5,547.
Paradyne Predecessor Business made payments to Lucent to participate in
Lucent's pension, 401(k), and other post employment benefit (mainly health) and
retirement plans in the amounts of $2,933, $1,146, and $910, respectively.
Contract services for various administrative and sales support functions
were provided by Lucent to Paradyne Predecessor Business. The total contract
expenses charged to AT&T Paradyne for the period were $2,696, which was included
in operating expenses. Management believes that such amounts are reasonable and
include all significant costs incurred to support this company.
During the seven months ended July 31, 1996, AT&T Paradyne recorded
approximately $146 in interest expense related to outstanding intercompany
advances from Lucent Technologies.
F-24
<PAGE> 97
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[LOGO]
SHARES OF COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
-------------------------
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
maters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made pursuant to this prospectus after the date of this prospectus shall
create an implication that the information contained in this prospectus or the
affairs of Paradyne have not changed since the date of this prospectus.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock may be required
to deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as an underwriter and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All of the
amounts shown are estimates, except for the SEC registration fee, the NASD
filing fee and the Nasdaq National Market application fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE
PAID
<S> <C>
Registration fee............................................
NASD filing fee.............................................
Nasdaq Stock Market Listing Application fee.................
Blue sky qualification fees and expenses....................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Transfer agent and registrar fees...........................
Miscellaneous...............................................
Total.............................................
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its Directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act.
The Registrant's Certificate of Incorporation and Bylaws include provisions
to (i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by
Section 102(b)(7) of the General Corporation Law of Delaware (the "Delaware
Law") and (ii) require the Registrant to indemnify its Directors and officers to
the fullest extent permitted by Section 145 of the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. Pursuant to
Section 145 of the Delaware Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are,
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as Directors and officers.
These provisions do not eliminate the Directors' duty of care, and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each Director will continue to be subject to liability for breach of the
Director's duty of loyalty to the Registrant, for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
acts or omissions that the Director believes to be contrary to the best
interests of the Registrant or its stockholders, for any transaction from which
the Director derived an improper personal benefit, for acts or omissions
involving a reckless disregard for the Director's duty to the Registrant or its
stockholders when the Director was aware or should have been aware of a risk of
serious injury to the Registrant or its stockholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the Director's duty to the Registrant or its stockholders, for improper
transactions between the Director and the Registrant and for improper
distributions to stockholders and loans to Directors and officers. The provision
also does not affect a Director's responsibilities under any other law, such as
the federal securities law or state or federal environmental laws.
II-1
<PAGE> 99
At present, there is no pending litigation or proceeding involving a
Director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or Director.
The Registrant has an insurance policy covering the officers and Directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 14, 1996, Registrant has issued and sold the following
securities, which numbers do not reflect the split to be effected
prior to this offering:
(1) On June 14, 1996, Registrant issued 1,000 shares (not accounting
for the 17,000 for 1 split effected on January 7, 1997 or the 3 for 1 split
effected on April 24, 1997) in a private placement of its common stock at a
purchase price of $1.00 per share, for cash in the aggregate amount of
$1,000, to Communication Partners, L.P. pursuant to the divestiture of
Paradyne.
(2) As of March 31, 1999, Registrant has sold and issued 1,516,463
shares of its common stock to employees, officers and directors pursuant to
direct issuances and exercises of options under its 1996 Equity Incentive
Plan.
The sale of the above securities was deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by
an issuer not involving any public offering or transactions pursuant to
compensation benefit plans and contracts relating to compensation as provided
under such Rule 701. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access, through their relationships
with the Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <C> <S>
1.1* -- Form of Underwriting Agreement.
3.1* -- Certificate of Incorporation.
3.2* -- Bylaws.
3.3* -- Merger Agreement.
4.1 -- Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2* -- Specimen Stock Certificate.
5.1* -- Opinion of Cooley Godward LLP.
10.1* -- 1996 Equity Incentive Plan.
10.2* -- Form of Stock Option Agreement pursuant to the 1996 Equity
Incentive Plan.
10.3* -- Form of Early Exercise Stock Purchase Agreement.
10.4* -- 1999 Employee Stock Purchase Plan and related offering
documents.
10.5* -- 1999 Non-Employee Director's Stock Option Plan.
10.6 -- Loan and Security Agreement between Paradyne and Bank of
America NT&SA, dated July 31, 1996.
10.7 -- Amended and Restated Subordinated Revolving Promissory Note
between Paradyne and Paradyne Partners, L.P., dated October
16, 1998.
10.8 -- Lease Agreement between Paradyne and Shav Associates, dated
October 8, 1996.
10.9* -- Sublease Agreement between Paradyne and GlobeSpan, dated
December 10, 1997.
10.10* -- Amendment to Sublease Agreement between Paradyne and
GlobeSpan, dated January 1, 1999.
10.11 -- Lease Agreement between Paradyne and Townsend Property Trust
Lease, dated June 27, 1997.
</TABLE>
II-2
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <C> <S>
10.12 -- Key Employee Agreement between Paradyne and Thomas Epley,
dated August 1, 1997.
10.13 -- Employment Agreement between Paradyne and Andrew May, dated
December 3, 1996.
10.14 -- Key Employee Agreement between Paradyne and Patrick Murphy,
dated August 1, 1996.
10.15 -- Key Employee Agreement between Paradyne and James Slattery,
dated August 1, 1996.
10.16* -- Indemnification Agreement between Paradyne and William
Stensrud, dated November 6, 1996.
10.17* -- Supply Agreement between Paradyne and Lucent, dated July 31,
1996.
10.18* -- Exclusivity and Amendment Agreement between Paradyne,
Lucent, and GlobeSpan, dated August 8, 1998.
10.19* -- Noncompetition Agreement between Paradyne, Lucent, and
GlobeSpan, dated July 31, 1996.
10.20* -- Trademark and Patent Agreement between Paradyne, Lucent, and
GlobeSpan, dated July 31, 1996.
10.21* -- Amended and Restated Intercompany Services Agreement between
Paradyne and RentalCo., dated August 29, 1997.
10.22* -- Tax Matters Agreement between Paradyne, Lucent, and
GlobeSpan, dated July 31, 1996.
10.23* -- Intellectual Property Agreement between Paradyne, Lucent,
and GlobeSpan, dated July 31, 1996.
10.24* -- Purchase Agreement between Paradyne, Lucent, GlobeSpan,
RentCo. And LeaseCo. Dated June 18, 1996.
10.25* -- Supply Agreement between Paradyne and GlobeSpan, dated March
16, 1999.
10.26* -- Termination Agreement between Paradyne and GlobeSpan, dated
March 16, 1999.
10.27* -- OEM Agreement between Paradyne and Xylan, dated March 16,
1999.
10.28* -- Distribution Agreement between Paradyne and Tech Data, dated
September 21, 1993.
10.29* -- OEM Agreement between Paradyne and Premisys, dated December
4, 1992.
23.1 -- Consent of Independent Accountants.
23.2* -- Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 -- Power of Attorney (see page II-5).
27.1 -- Financial Data Schedule for EDGAR Filing.
</TABLE>
- ------------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
II-3
<PAGE> 101
(2) That, for purposes of determining any liability under the Act each
post-effective amendment that contains a form prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
County of Fulton, State of Georgia, on April 14, 1999.
By: ANDREW S. MAY
------------------------------------
Andrew S. May
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Andrew S. May, Patrick M. Murphy and
James L. Slattery and each of them, as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place, and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments, exhibits thereto and other
documents in connection therewith) to this Registration Statement and any
subsequent registration statement filed by the registrant pursuant to Rule
462(b) of the Securities Act of 1933, as amended, which relates to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
ANDREW S. MAY President, Chief April 14, 1999
- ----------------------------------------------------- Executive Officer, and
Andrew S. May Director (Principal
Executive Officer)
PATRICK M. MURPHY Senior Vice President, April 14, 1999
- ----------------------------------------------------- Chief Financial
Patrick M. Murphy Officer, and Treasurer
(Principal Financial
and Accounting
Officer)
THOMAS E. EPLEY Chairman of the Board April 14, 1999
- -----------------------------------------------------
Thomas E. Epley
DAVID M. STANTON Director April 14, 1999
- -----------------------------------------------------
David M. Stanton
WILLIAM R. STENSRUD Director April 14, 1999
- -----------------------------------------------------
William R. Stensrud
</TABLE>
II-5
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <C> <S>
1.1* -- Form of Underwriting Agreement.
3.1* -- Certificate of Incorporation.
3.2* -- Bylaws.
3.3* -- Merger Agreement.
4.1 -- Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2* -- Specimen Stock Certificate.
5.1* -- Opinion of Cooley Godward LLP.
10.1* -- 1996 Amended and Restated Equity Incentive Plan.
10.2* -- Form of Stock Option Agreement pursuant to the 1996 Amended
& Restated Equity Incentive Plan.
10.3* -- Form of Early Exercise Stock Purchase Agreement.
10.4* -- 1999 Employee Stock Purchase Plan and related offering
documents.
10.5* -- 1999 Non-Employee Director's Stock Option Plan.
10.6 -- Loan and Security Agreement between Paradyne and Bank of
America NT&SA, dated July 31, 1996.
10.7 -- Amended and Restated Subordinated Revolving Promissory Note
between Paradyne and Paradyne Partners, L.P., dated October
16, 1998.
10.8 -- Lease Agreement between Paradyne and Shav Associates, dated
October 8, 1996.
10.9* -- Sublease Agreement between Paradyne and GlobeSpan, dated
December 10, 1997.
10.10* -- Amendment to Sublease Agreement between Paradyne and
GlobeSpan, dated January 1, 1999.
10.11 -- Lease Agreement between Paradyne and Townsend Property Trust
Lease, dated June 27, 1997.
10.12 -- Key Employee Agreement between Paradyne and Thomas Epley,
dated August 1, 1997.
10.13 -- Employment Agreement between Paradyne and Andrew May, dated
December 3, 1996.
10.14 -- Key Employee Agreement between Paradyne and Patrick Murphy,
dated August 1, 1996.
10.15 -- Key Employee Agreement between Paradyne and James Slattery,
dated August 1, 1996.
10.16* -- Indemnification Agreement between Paradyne and William
Stensrud, dated November 6, 1996.
10.17* -- Supply Agreement between Paradyne and Lucent, dated July 31,
1996.
10.18* -- Exclusivity and Amendment Agreement between Paradyne,
Lucent, and GlobeSpan, dated August 8, 1998.
10.19* -- Noncompetition Agreement between Paradyne, Lucent, and
GlobeSpan, dated July 31, 1996.
10.20* -- Trademark and Patent Agreement between Paradyne, Lucent, and
GlobeSpan, dated July 31, 1996.
10.21* -- Amended and Restated Intercompany Services Agreement between
Paradyne and RentalCo., dated August 29, 1997.
10.22* -- Tax Matters Agreement between Paradyne, Lucent, and
GlobeSpan, dated July 31, 1996.
10.23* -- Intellectual Property Agreement between Paradyne, Lucent,
and GlobeSpan, dated July 31, 1996.
10.24* -- Purchase Agreement between Paradyne, Lucent, GlobeSpan,
RentCo. And LeaseCo. Dated June 18, 1996.
10.25* -- Supply Agreement between Paradyne and GlobeSpan, dated March
16, 1999.
10.26* -- Termination Agreement between Paradyne and GlobeSpan, dated
March 16, 1999.
10.27* -- OEM Agreement between Paradyne and Xylan, dated March 16,
1999.
10.28* -- Distribution Agreement between Paradyne and Tech Data, dated
September 21, 1993.
10.29* -- OEM Agreement between Paradyne and Premisys, dated December
4, 1992.
23.1 -- Consent of Independent Accountants.
23.2* -- Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 -- Power of Attorney (see page II-5).
27.1 -- Financial Data Schedule for EDGAR Filing.
</TABLE>
- ------------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 10.6
LOAN AND SECURITY AGREEMENT
Dated as of July 31, 1996
Among
BANKAMERICA BUSINESS CREDIT, INC.
as the Lender
and
AT & T PARADYNE CORPORATION
as the Borrower
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1.1 DEFINITIONS 1
1.2 ACCOUNTING TERMS 19
1.3 OTHER TERMS 19
1.4 OTHER INTERPRETIVE PROVISIONS 20
2. LOANS AND LETTERS OF CREDIT 20
2.1 Total Facility 20
2.2 Revolving Loans 21
2.3 Letters of Credit 22
2.4 Automated Clearing House Transfers and Overdrafts 26
2.5 Purpose 26
3. INTEREST AND OTHER CHARGES 26
3.1 Interest 26
3.2 Maximum Interest Rate 27
3.3 Unused Line Fee 28
3.4 Closing Fee 28
3.5 Letter of Credit Fee 28
4. PAYMENTS AND PREPAYMENTS 28
4.1 Revolving Loans 28
4.2 Place and Form of Payments; Extension of Time Extension of Time 28
4.3 Application and Reversal of Payments 29
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.4 Indemnity for Returned Payments 29
5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS 29
6. TAXES, YIELD PROTECTION 29
6.1 Taxes 29
6.2 Increased Costs and Reduction of Return 30
6.3 Survival 31
7. COLLATERAL 31
7.1 Grant of Security Interest 31
7.2 Perfection and Protection of Security Interest 31
7.3 Location of Collateral 32
7.4 Title to, Liens on, and Sale and Use of Collateral 33
7.5 Appraisals 33
7.6 Access and Examination 33
7.7 Insurance 34
7.8 Collateral Reporting 34
7.9 Accounts 35
7.10 Collection of Accounts; Payments 36
7.11 Inventory 37
7.12 Equipment 38
7.13 Assigned Contracts 38
7.14 Documents, Instruments, and Chattel Paper 39
7.15 Right to Cure 39
7.16 Power of Attorney 40
7.17 Lender's Rights, Duties, and Liabilities 40
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
7.18 Agreement Concerning Certain Property 41
8. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES 41
8.1 Books and Records 41
8.2 Financial Information 41
8.3 Notices to Lender 43
9. GENERAL WARRANTIES AND REPRESENTATIONS 44
9.1 Authorization, Validity, and Enforceability of this Agreement
and the Loan Documents 44
9.2 Validity and Priority of Security Interest 45
9.3 Organization and Qualification 45
9.4 Corporate Name; Prior Transactions 45
9.5 Subsidiaries and Affiliates 45
9.6 Financial Statements and Projections 45
9.7 Capitalization 46
9.8 Solvency 46
9.9 Debt 46
9.10 Distributions 46
9.11 Title to Property 46
9.12 Adequate Assets 47
9.13 Real Property; Leases 47
9.14 Proprietary Rights 47
9.15 Trade Names and Terms of Sale 47
9.16 Litigation 47
9.17 Restrictive Agreements 47
9.18 Labor Disputes 47
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
9.19 Environmental Laws 48
9.20 No violation of Law 49
9.21 No Default 49
9.22 ERISA Compliance 49
9.23 Taxes 50
9.24 Use of Proceeds 50
9.25 Private Offerings 50
9.26 Broker's Fees 50
9.27 No Material Adverse Change 50
9.28 Disclosure 51
10. AFFIRMATIVE AND NEGATIVE COVENANTS 51
10.1 Taxes and Other Obligations 51
10.2 Corporate Existence and Good Standing 51
10.3 Compliance with Law and Agreements 51
10.4 Maintenance of Property and Insurance 51
10.5 Environmental Laws 52
10.6 ERISA 52
10.7 Mergers, Consolidations, Acquisitions, or Sales 52
10.8 Distributions; Capital Changes 52
10.9 Transactions Affecting Collateral or Obligations 52
10.10 Guaranties 52
10.12 Prepayment; Payment Terms 53
10.13 Transactions with Affiliates 53
10.14 Business Conducted 54
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C>
10.15 Liens 54
10.16 Sale and Leaseback Transactions 54
10.17 New Subsidiaries 54
10.18 Restricted Investments 54
10.19 Further Assurances 54
11. CLOSING; CONDITIONS TO CLOSING CONDITIONS TO CLOSING 54
11.1 Conditions Precedent to Making of Revolving Loans on the Closing Date 55
11.2 Conditions Precedent to Each Loan 57
12. DEFAULT; REMEDIES 57
12.1 Events of Default 57
13. REMEDIES 59
14. TERM AND TERMINATION 60
15. MISCELLANEOUS 61
15.1 Cumulative Remedies; No Prior Recourse to Collateral No Prior Recourse to Collateral 61
15.2 No Implied Waivers 61
15.3 Severability 62
15.4 Governing Law 62
15.5 Consent to Jurisdiction and Venue; Service of Process Service of Process 62
15.6 Waiver of Jury Trial 62
15.7 Arbitration; Reference Proceeding 62
15.8 Survival of Representations and Warranties 64
15.9 Other Security and Guaranties 64
15.10 Fees and Expenses 64
</TABLE>
v
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C>
15.11 Notices 65
15.12 Indemnification 65
15.13 Waiver of Notices 66
15.14 Binding Effect; Assignment 66
15.15 Modification 66
15.16 Counterparts 67
15.17 Right of Set-Off 67
15.18 Participating Lender's Security Interests 67
</TABLE>
vi
<PAGE> 8
LOAN AND SECURITY AGREEMENT
LOAN AND SECURITY AGREEMENT, dated as of July 31, 1996, by and between
BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation, with offices at Two
North Lake Avenue, Suite 400, Pasadena, California (the "Lender") and AT&T
PARADYNE CORPORATION, a Delaware corporation, with offices at 8545 126th
Avenue North, Largo, Florida (the "Borrower").
WITNESSETH
WHEREAS, the Borrower has requested the Lender to make available to the
Borrower a revolving line of credit for loans and letters of credit in an
amount not to exceed $45,000,000, which extensions of credit the Borrower will
use for its working capital needs and general business purposes;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth in this Agreement, and for good and valuable consideration, the
receipt of which is hereby acknowledged, the Borrower and the Lender hereby
agree as follows:
INTERPRETATION OF THIS AGREEMENT
1.1 Definitions. As used herein:
"Accounts" means all of the Borrower's and Paradyne Canada's now
owned or hereafter acquired or arising accounts, and any other rights to
payment for the sale or lease of goods or rendition of services (except those
evidenced by instruments or chattel paper), whether or not they have been
earned by performance.
"Account debtor" means each Person obligated in any way on or in
connection way an Account.
"ACH Settlement Risk Reserve" means any and all reserves which the
Lender from time to time establishes, in its sole discretion, with respect to
ACH Transactions.
"ACH Transactions" means all debts, liabilities, and obligations now
or hereafter owing from the Borrower to the Bank arising from or related to the
automatic clearing house transfer of funds by the Bank for the account of the
Borrower pursuant to agreement or overdrafts.
"Acquisition Agreement" means that certain Purchase Agreement dated
June 18, 1996 among the Borrower, the Parent, the Seller and the other parties
thereto, in the form as amended at the closing on July 31, 1996, without regard
to any subsequent amendment or modification of such Acquisition Agreement,
providing for, among other things, the sale of the stock of the Borrower to the
Parent.
1
<PAGE> 9
"Adjusted Net Earnings From Operations" means, with respect to any
fiscal period, the Borrower's and Paradyne Canada's net income after provision
for income taxes for such fiscal period, as determined in accordance with GAAP
and reported on the Financial Statements for such period, less any and all of
the following included in such net income: (a) gain or loss arising from the
sale of capital asset; (b) gain arising from any write-up in the book value of
any asset; (c) earnings or losses of any corporation, substantially all the
assets of which have been acquired by the Borrower or Paradyne Canada in any
manner, to the extent realized by such other corporation prior to the date of
acquisition; (d) earnings of any business entity in which the Borrower or
Paradyne Canada has an ownership interest unless (and only to the extent) such
earnings shall actually have been received by the Borrower or Paradyne Canada in
the form of cash distributions; (e) earnings of any Person to which assets of
the Borrower or Paradyne Canada shall have been sold, transferred or disposed
of, or into which the Borrower or Paradyne Canada shall have been merged, or
which has been a party with the Borrower or Paradyne Canada to any consolidation
or other form of reorganization, prior to the date of such transaction; (f) gain
arising from the acquisition of debt or equity securities of the Borrower or
Paradyne Canada or from cancellation or forgiveness of Debt; and (g) gain or
loss arising from extraordinary items, as determined in accordance with GAAP.
"Affiliate" means: (a) a Person which, directly or indirectly,
controls, is controlled by or is under common control with, the Borrower; (b) a
Person which beneficially owns or holds, directly or indirectly, five percent or
more of any class of voting stock of the Borrower; or (c) a Person in which five
percent of any class of the voting stock is beneficially owned or held, directly
or indirectly, by the Borrower. The term "control" (including the terms
"controlled by" and "under common control with"), means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of the Person in question.
"Agreement" means this Loan and Security Agreement.
"Anniversary Date" means each anniversary of the Closing Date.
"Assigned Contracts" means, collectively, all of the Borrower's rights
and remedies under, and all moneys and claims for money due or to become due to
the Borrower under, the Acquisition Agreement, any other material contracts
(including, without limitation, those contracts set forth on Schedule 7.13) and
any and all amendments, supplements, extensions, and renewals thereof,
including, without limitation, all rights and claims of the Borrower now or
hereafter existing: (a) under any insurance, indemnities, warranties, and
guarantees provided for or arising out of or in connection with the foregoing
agreements; (b) for any damages arising out of or for breach default under or in
connection with the foregoing agreements; (c) to all other amounts from time to
time paid or payable under or in connection with the foregoing agreements; or
(d) to exercise or enforce any and all covenants, remedies, powers and
privileges thereunder.
"Availability" means at any time the lesser of:
(a) The amount of Forty-Five Million Dollars ($45,000,000) or
2
<PAGE> 10
(b) The sum of:
(i) eighty percent (80%) of the Net Amount of Eligible
Accounts, and
(ii) the least of:
a) $6,000,000;
b) forty percent (40%) of the value of
Eligible Inventory; and
c) the amount of the M&E Appraisal;
provided, however, that at all times Availability shall be reduced by
the sum of:
(a) the unpaid balance of Revolving Loans at that time;
(b) the aggregate undrawn face amount of all outstanding
Letters of Credit which the Lender has caused to be issued or obtained for the
Borrower's account;
(c) reserves for accrued interest on the Revolving Loans and
the Environmental Compliance Reserve;
(d) the Base Reserve Amount;
(e) the amount, if any, by which the Reserve Calculation
Amount exceeds eighty percent (80%) of the M&E Appraisal;
(f) The ACH Settlement Risk Reserve; and
(g) all other reserves which the Lender in its reasonable
discretion deems necessary or desirable to maintain with respect to the
Borrower's account, including, without limitation, any amounts which the Lender
may be obligated to pay in the future for the account of the Borrower, and any
tax or other reserve relating to the Canadian Guaranty or any Canadian
Collateral.
"Bank" means Bank of America National Trust and Savings
Association in San Francisco, California.
"Base Reserve Amount" means $3,000,000.
"Borrowing" means a borrowing hereunder consisting of Revolving
Loans made by the Lender to the Borrower.
"Borrowing Base Certificate" means a certificate of the Borrower,
substantially in the form of Exhibit A setting forth the calculation of the
Availability, including a calculation
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of each component thereof, as of the close of business no more than two (2)
Business Days prior to the date of such certificate, all in such detail as
shall be satisfactory to the Lender. All calculations of Availability in
connection with the preparation of any Borrowing Base Certificate shall
originally be made by the Borrower and certified to the Lender; provided, that
the Lender shall have the right to review and adjust, in the exercise of its
reasonable credit judgment, any such calculation (1) to reflect its reasonable
estimate of declines in value of any of the Collateral described therein, and
(2) to the extent that such calculation is not in accordance with this
Agreement.
"Business Day" means any day that is not a Saturday, Sunday, or a day
on which banks in San Francisco, California, are required or permitted to be
closed.
"Canadian Patent and Trademark Assignments" means any Supplemental
Security Agreement (Patents) or any Supplemental Security Agreement
(Trademarks), which may be executed and delivered by Paradyne Canada to the
Lender pursuant to Section 7.2.
"Canadian Collateral" has the meaning given such term in the Canadian
Security Agreement.
"Canadian Documents" means the Canadian Guaranty, the Canadian
Security Agreement, the Canadian Patent and Trademark Assignments, and all
other agreements, instruments, and documents heretofore, now or hereafter
evidencing, securing, guaranteeing or otherwise relating to the obligations
guaranteed under the Canadian Guaranty, the Canadian Collateral, the Canadian
Security Interest, or any other aspect of the transactions contemplated by the
Guaranty.
"Canadian Guaranty" means the Guaranty of the Obligations made by
Paradyne Canada in favor of the Lender and delivered to the Lender pursuant to
Section 11.1.
"Canadian Security Agreement" means the Security Agreement executed by
Paradyne Canada in favor of the Lender and delivered to the Lender pursuant to
Section 11.1.
"Canadian Security Interest" means collectively the Liens granted to
the Lender in the Canadian Collateral pursuant to the Canadian Security
Agreement, the other Loan Documents, or any other agreement or instrument.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Public Authority, or any other law, rule
or regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"Capital Expenditures" means all payments due (whether or not paid)
during a fiscal period in respect of the cost of any fixed asset or
improvement, or replacement, substitution, or addition thereto, which has a
useful life of more than one year, including, without limitation, those arising
in connection with the direct or indirect acquisition of such assets by way of
increased product or service charges or offset items or in connection with
Capital Leases.
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<PAGE> 12
"CapCo" means CAP Acquisition Corp., a Delaware corporation and a
wholly-owned Subsidiary of the Partnership.
"Capital Lease" means any lease of Property by the Borrower that, in
accordance with GAAP, should be reflected as a liability on the balance sheet
of the Borrower.
"Closing Date" means the date of this Agreement, being the date first
above written.
"Closing Fee" has the meaning specified in Section 3.5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning given to such item in Section 7.1.
"Contaminant" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated
biphenyls ("PCBs"), or other substance or material, the handling, release or
possession of which is regulated to protect health, safety, or environment, or
any constituent of any such substance or waste.
"Debt" means all liabilities, obligations and indebtedness of the
Borrower to any Person, of any kind or nature, now or hereafter owing,
arising, due or payable, howsoever evidenced, created, incurred, acquired or
owing, whether primary, secondary, direct, contingent, fixed or otherwise, and
including, without in any way limiting the generality of the foregoing: (a) the
Borrower's liabilities and obligations to trade creditors; (b) all Obligations;
(c) all obligations and liabilities of any Person secured by any Lien on the
Borrower's Property, even though the Borrower shall not have assumed or become
liable for the payment thereof; provided, however, that all such obligations and
liabilities which are limited in recourse to such Property shall be included in
Debt only to the extent of the book value of such Property as would be shown on
a balance sheet of the Borrower prepared in accordance with GAAP; (d) all
obligations or liabilities created or arising under any Capital Lease or
conditional sale or other title retention agreement with respect to Property
used or acquired by the Borrower, even if the rights and remedies of the
lessor, seller or lender thereunder are limited to repossession of such
Property; provided, however, that all such obligations and liabilities which
are limited in recourse to such property shall be included in Debt only to the
extent of the book value of such Property as would be shown on a balance sheet
of the Borrower prepared in accordance with GAAP; (e) all accrued pension fund
and other employee benefit plan obligations and liabilities; (f) all
obligations and capabilities under Guaranties; and (g) deferred taxes.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"Distribution" means, in respect of any corporation: (a) the payment
or making of any dividend or other distribution of Property in respect of
capital stock (or any options or
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<PAGE> 13
warrants for such stock) of such corporation, other than distributions in
capital stock (or any options or warrants for such stock) of the same class; or
(b) the redemption or other acquisition of any capital stock (or any options or
warrants for such stock) of such corporation.
"DOL" means the United States Department of Labor or any successor
department or agency.
"Eligible Accounts" means those Accounts which are not ineligible as
the basis of Revolving Loans, based on the following criteria and on such other
criteria as the Lender may from time to time establish in its reasonable
commercial discretion taking into account customary lending and commercial
finance practices. Without intending to limit the Lender's discretion to
establish other criteria of eligibility, Eligible Accounts shall not include
any Account:
(a) with respect to which more than 90 days have elapsed since
the date of the original invoice therefor;
(b) with respect to which any of the representations,
warranties, covenants, and agreements contained in this Agreement are not or
have ceased to be complete and correct or have been breached;
(c) with respect to which, in whole or in part, a check,
promissory note, draft, trade acceptance or other instrument for the payment of
money has been received, presented for payment and returned uncollected for any
reason;
(d) which represents a progress billing (as hereinafter defined)
or as to which the Borrower or Paradyne Canada, as applicable, has extended the
time for payment without the consent of the Lender; for the purposes hereof,
"progress billing" means any invoice for goods sold or leased or services
rendered under a contract or agreement pursuant to which the Account Debtor's
obligation to pay such invoice is conditioned upon the Borrower's or Paradyne
Canada's, as applicable, completion of any further performance under the
contract or agreement;
(e) as to which any one or more of the following events has
occurred with respect to the Account Debtor on such Account: death or judicial
declaration of incompetency of an Account Debtor who is an individual; the
filing by or against the Account Debtor of a request or petition for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as
a bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or
similar laws of the United States, any state or territory thereof, or any
foreign jurisdiction, now or hereafter in effect; the making of any general
assignment by the Account Debtor for the benefit of creditors; the appointment
of a receiver or trustee for the Account Debtor or for any of the assets of the
Account Debtor, including, without limitation, the appointment of or taking
possession by a "custodian," as defined in the Federal Bankruptcy Code; the
institution by or against the Account Debtor of any other type of insolvency
proceeding (under the bankruptcy laws of the United States or otherwise) or of
any formal or informal proceeding for the dissolution or liquidation of,
settlement of claims against, or winding up of affairs of, the Account Debtor;
the sale, assignment, or transfer of all or any material part of the assets of
the
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<PAGE> 14
Account Debtor; the nonpayment generally by the Account Debtor of its debts as
they become due; or the cessation of the business of the Account Debtor as a
going concern;
(f) owned by an Account Debtor (other than the Seller) if the
aggregate dollar amount of all Accounts owed by such Account Debtor exceeds an
amount equal to twenty five percent (25%) (or such greater amount as the Lender
in its sole discretion may permit) of all Accounts (other than Accounts owed
by the Seller), but only to the extent such Accounts exceed such amount;
(g) owed by an Account Debtor which is the government of any
foreign country or sovereign state, or of any state, province, municipality, or
other political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof; except to the extent that such
Account is secured or payable by a letter of credit acceptable to Lender in its
sole discretion;
(h) which is a Non-Standard Foreign Account to the extent that
the aggregate amount of all Non-Standard Foreign Accounts exceeds the lesser
of: (i) $7,000,000, and (ii) fifteen percent (15%) of the Net Amount of
Eligible Accounts (calculated without regard to Non-Standard Foreign Accounts)
as of any date;
(i) owed by an Account Debtor which is an Affiliate or employee
of the Borrower or Paradyne Canada;
(j) except as provided in (1) below and except as to Accounts
owed to Paradyne Canada by Account Debtors located in Canada, as to which
either the perfection, enforceability, or validity of the Security Interest in
such Account, or the Lender's right or ability to obtain direct payment to the
Lender of the Proceeds of such Account, is governed by any federal, state, or
local statutory requirements other than those of the UCC;
(k) which is owed by an Account Debtor to which the Borrower or
Paradyne Canada is indebted in any way, or which is subject to any right of
setoff or recoupment by the Account Debtor, unless the Account Debtor has
entered into an agreement acceptable to the Lender to waive setoff and
recoupment rights; or if the Account Debtor thereon has disputed liability or
made any claim with respect to any other Account due from such Account Debtor;
but in each such case only to the extent of such indebtedness, setoff,
recoupment, dispute, or claim;
(l) which is owed by the government of the United States of
America, or any department, agency, public corporation, or other
instrumentality thereof, unless the Federal Assignment of Claims Act of 1940,
as amended, and any other steps necessary to perfect the Security Interest and
protect the Lender's rights therein, have been complied with to the Lender's
satisfaction with respect to such Account;
(m) which is owed by any state, municipality, or other political
subdivision of the United States of America, or any department, agency, public
corporation, or other instrumentality thereof and as to which the Lender
determines that its Security Interest therein is not or cannot be perfected;
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<PAGE> 15
(n) which arises out of a sale to an Account Debtor on a
bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment,
or other repurchase or return basis (other than ordinary course of business
returns permitted in the "stock balancing programs" provided for in the
Borrower's usual and customary agreements with its distributors and resellers);
(o) which is evidenced by a promissory note or other instrument
or by chattel paper;
(p) if fifty percent (50%) or more of the aggregate dollar
amount of outstanding Accounts owed at such time by the Account Debtor thereon
is classified as ineligible under the other criteria set forth herein;
(q) with respect to which the Account Debtor is located in any
state requiring the filing of a Notice of Business Activities Report or similar
report in order to permit the Borrower or Paradyne Canada to seek judicial
enforcement in such state of payment of such Account, unless such Borrower or
Paradyne Canada has qualified to do business in such state or has filed a
Notice of Business Activities Report or equivalent report for the then current
year; or
(r) arising out of a sale not made in the ordinary course of
the Borrower's or Paradyne Canada's business;
(s) with respect to which the goods giving rise to such Account
have not been shipped and delivered to and accepted by the Account Debtor or
the services giving rise to such Account have not been performed by the
Borrower or Paradyne Canada, and, if applicable, accepted by the Account
Debtor, or the Account Debtor revokes its acceptance of such goods or services
(under the Borrower's present practices invoices are rendered upon shipment and
Accounts relating thereto will be included as Eligible Accounts on Borrowing
Base Certificates, but any such Accounts as to which delivery or acceptance
fails to occur, or as to which acceptance is revoked, shall promptly be
excluded from the calculation of Eligible Accounts);
(t) which is not subject to a first priority and perfected
security interest in favor of the Lender;
(u) if Lender believes in its reasonable credit judgment that
the prospect of collection of such Account is impaired or that the Account may
not be paid by reason of the Account Debtor's financial inability to pay; or
(v) which is owed by an Account Debtor which the Lender, in its
reasonable credit judgment, otherwise deems to be uncreditworthy.
If any Account at any time ceases to be an Eligible Account by
reason of any of the foregoing exclusions or any failure to meet any other
eligibility criteria established by the Lender in the exercise of its
reasonable discretion then such Account shall promptly be excluded from the
calculation of Eligible Accounts.
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<PAGE> 16
"Eligible Inventory" means Inventory, valued at the lower of cost (on
a first-in, first-out basis) or market, that constitutes raw materials or first
quality finished goods and that: (a) is not, in the Lender's reasonable opinion,
slow moving, obsolete or unmerchantable; (b) is located at Premises owned or
leased by the Borrower or Paradyne Canada, or on Premises otherwise reasonably
acceptable to the Lender, provided, however, that Inventory located on Premises
leased to the Borrower or Paradyne Canada, shall not be Eligible Inventory
unless the Borrower or Paradyne Canada, as applicable, shall have delivered to
the Lender a written waiver, duly executed on behalf of the appropriate landlord
and in form and substance acceptable to the Lender, of all Liens which the
landlord for such Premises may be entitled to assert against such Eligible
Inventory; (c) is subject to the Lender's first priority perfected security
interest; (d) is not work-in-process (other than floor stock raw materials
staged for production), spare parts, packaging and shipping materials, printed
wireboards, supplies, bill-and-hold Inventory, returned or defective Inventory,
or Inventory delivered to the Borrower or Paradyne Canada, as applicable, on
consignment; and (e) the Lender, in the exercise of its reasonable discretion,
taking into account customary lending and commercial finance practices, deems
eligible as the basis for Revolving Loans based on such collateral and credit
criteria as the Lender may from time to time establish. If any Inventory at any
time ceases to be Eligible Inventory, such Inventory shall promptly be excluded
from the calculation of Eligible Inventory.
"Environmental Compliance Reserve" means all reserves which the Lender
from time to time establishes for amounts that are reasonably required (taking
into account inter alia the extent to which the Lender in its reasonable
judgment deems Borrower to have the benefit of certain environmental
indemnification provisions contained in the Acquisition Agreement) to be
expended in order for the Borrower or Paradyne Canada and the Borrower's or
Paradyne Canada's operations and Property to comply with Environmental Laws or
in order to correct any violation by the Borrower or Paradyne Canada or the
Borrower's or Paradyne Canada's operations or Property of Environmental Laws.
"Environmental Laws" means all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidance, orders and consent decrees
relating to health, safety, hazardous substances, and environmental matters
applicable to the Borrower's or Paradyne Canada's business and facilities
(whether or not owned by it). Such laws and regulations include but are not
limited to the Resource Conservation and Recovery Act, 42 U.S.C. ss 6901 et.
seq., as amended; the Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. ss 9601 et. seq., as amended; the Toxic Substances
Control Act, 15 U.S.C. ss 2601 et. seq., as amended; the Clean Water Act, 33
U.S.C. ss 466 et. seq., as amended; the Clean Air Act, 42 U.S.C. ss 7401 et
seq., as amended; state and federal lien and environmental cleanup programs; and
U.S. Department of Transportation regulations.
"Environmental Lien" means a Lien in favor of any Public Authority
for (a) any liability under any Environmental Laws, or (b) damages arising
from, or costs incurred by such Public Authority in response to, a Release or
threatened Release of a Contaminant into the environment.
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<PAGE> 17
"Equipment" means all of the Borrower's now owned and hereafter
acquired machinery, equipment, furniture, furnishings, fixtures, and other
tangible personal property (except inventory), including, without limitation,
data processing hardware and software, motor vehicles, aircraft, dies, tools,
jigs, and office equipment, as well as all of such types of property leased by
the Borrower and all of the Borrower's rights and interests with respect
thereto under such leases (including, without limitation, options to purchase);
together with all present and future additions and accessions thereto,
replacements therefor, component and auxiliary parts and supplies used or to
be used in connection therewith, and all substitutes for any of the foregoing,
and all manuals, drawings, instructions, warranties and rights with respect
thereto; wherever any of the foregoing is located.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Borrower within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means, with respect to the Borrower, any ERISA Affiliate
or any Pension Plan, the occurrence of any of the following: (a) a Reportable
Event; (b) a withdrawal by a substantial employer (as defined in Section
4001(a)(12) of ERISA) subject to Section 4063 of ERISA; (c) a cessation of
operations which is treated as a withdrawal under Section 4062(e) of ERISA; (d)
a complete or partial withdrawal under Section 4203 or 4205 of ERISA from a
Multiemployer Plan; (e) a notification that a Multiemployer Plan is in
reorganization under Section 4242 of ERISA; (f) the filing of a notice of
intent to terminate a Pension Plan under 4041 of ERISA; (g) the treatment of an
amendment of a Pension Plan as a termination under 4041 of ERISA; (h) the
termination of a Multiemployer Plan under Section 4041A of ERISA; (i) the
commencement of proceedings by the PBGC to terminate a Pension Plan under 4042
of ERISA; (j) an event or condition which could reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, a Pension Plan; or (k) the imposition
of any liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 or ERISA.
"Event of Default" has the meaning specified in Section 12.1.
"Excluded Property" means the Premises and the Premisys
Communications Contract, except that the Borrower's rights to 40% of all moneys
received on account of the Borrower's agreement to modify, amend or terminate
the Premisys Communications Contract, and any Receivables relating thereto,
shall be included as Collateral.
"Financial Statements" means, according to the context in which it is
used, the financial statements attached hereto as Exhibit B-1, and the pro
forma balance sheet attached hereto as Exhibit B-2 or any financial statements
required to be given to the Lender pursuant to Section 8.2(a), (b) and (c), or
any combination thereof.
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"Fiscal Year" means the Borrower's fiscal year for financial
accounting purposes. The current Fiscal Year of the Borrower will end on
December 31, 1996.
"Fixed Charge Coverage Ratio" means, for any fiscal period, the ratio
of (a) Adjusted Net Earnings from Operations plus interest expense, taxes,
depreciation expense, amortization expense and other non-cash items deducted in
calculating net income during such period, less capital expenditures made by
the Borrower or Paradyne Canada during such period (to the extent such capital
expenditures have not been expensed) and plus any additions to Debt
attributable to such capital expenditures, to (b) the sum of (i) interest and
scheduled principal payments which the Borrower was required to make on Debt
from borrowed money during such period, (ii) Distributions made by the Borrower
during such period, and (iii) Federal, state, local and foreign income taxes
deducted in calculating net income.
"Foreign Account" means an Account with an Account Debtor which does
not maintain its chief executive office in the United States or Canada or
which is not organized under the laws of the United States or any state thereof
or Canada.
"Funding Date" means the date on which a Borrowing occurs.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S.
accounting profession).
"Guaranty" means, with respect to any Person, all obligations of such
Person which in any manner directly or indirectly guarantee or assure, or in
effect guarantee or assure, the payment or performance of any indebtedness,
dividend or other obligation of any other Person (the "guaranteed
obligations"), or to assure or in effect assure the holder of the guaranteed
obligations against loss in respect thereof, including, without limitation, any
such obligations incurred through an agreement, contingent or otherwise: (a) to
purchase the guaranteed obligations or any Property constituting security
therefor; (b) to advance or supply funds for the purchase or payment of the
guaranteed obligations or to maintain a working capital or other balance sheet
condition; (c) to lease Property or to purchase any debt or equity securities
or other Property or services.
"Intercompany Accounts" means all assets and liabilities, however
arising, which are due to the Borrower from, which are due from the Borrower
to, or which otherwise arise from any transaction by the Borrower with, any
Affiliate.
"Intercreditor Agreement" means that certain Intercreditor Agreement
of even date herewith among the Lender, the Seller and the Partnership.
"Interim Notes" means, collectively, (a) that certain Interim Core
Business Note dated as of July 31, 1996 in the amount of $7,500,000, in the
form executed by the Borrower in favor of the Seller on July 31, 1996, without
regard to any subsequent amendment or
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modification of such note, and (b) that certain Interim Promissory Note dated
as of July 31, 1996 in the amount of $7,500,000, in the form executed by the
Borrower in favor of the Partnership on July 31, 1996, without regard to any
subsequent amendment or modification of such note.
"Inventory" means all of the Borrower's and Paradyne Canada's now
owned and hereafter acquired inventory, goods, merchandise, and other personal
property, wherever located, to be furnished under any contract of service or
held for sale or lease, all raw materials, work-in-process, finished goods,
returned goods, and materials and supplies of any kind, nature or description
which are or might be used or consumed in the Borrower's or Paradyne Canada's
business or used in connection with the manufacture, packaging, shipping,
advertising, selling or finishing of such goods, merchandise and such other
personal property, and all documents of title or other documents representing
them.
"IRS" means the Internal Revenue Service or any successor agency.
"LeaseCo" means Lease Acquisition Corp., a Delaware corporation and a
wholly-owned Subsidiary of the Parent.
"Letter of Credit" has the meaning specified in Section 2.3.
"Letter of Credit Fee" has the meaning specified in Section 3.5.
"Lien" means: (a) any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on the common law, statute, or contract, and including
without limitation, a security interest, charge, claim, or lien arising from a
mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment,
deposit arrangement, agreement, security agreement, conditional sale or trust
receipt or a lease, consignment or bailment for security purposes; and (b) to
the extent not included under clause (a), any reservation, exception,
encroachment, easement, right-of-way, covenant, condition, restriction, lease
or other title exception or encumbrance affecting Property.
"Loan Documents" means this Agreement, the Intercreditor Agreement,
the Patent and Trademark Assignments, the Canadian Documents, the Post-Closing
Letter and all other agreements, instruments, and documents heretofore, now or
hereafter evidencing, securing, guaranteeing or otherwise relating to the
Obligations, the Collateral, the Security Interest, or any other aspect of the
transactions contemplated by this Agreement.
"Lucent Core Business Note" means that certain Core Business Note
dated as of July 31, 1996 in the amount of $76,250,000, in the form executed by
the Borrower in favor of the Seller on July 31, 1996, without regard to any
subsequent amendment or modification of such note.
"Maximum Rate" has the meaning specified in Section 3.2.
"M&E Appraisal" means the most recent annual appraisal of the orderly
liquidation value of the Borrower's machinery and equipment, as prepared by The
Rabin
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<PAGE> 20
Brothers or such other appraiser as the Lender in its sole discretion may
choose. As of the Closing Date based on the M&E Appraisal dated July 18, 1996,
the orderly liquidation value is $10,628,065.
"Multiemployer Plan" means a multiemployer as defined in Section
4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate makes, is
making, made, or was at any time during the current year or the immediately
preceding six (6) years obligated to make contributions.
"Net Amount of Eligible Accounts" means, at any time, the gross
amount of Eligible Accounts less sales, excise or similar taxes, and less
returns, discounts, claims, credits and allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed in respect of such
Eligible Accounts.
"Notice of Borrowing" has the meaning specified in Section 2.2(b).
"Non-Standard Foreign Accounts" means all Foreign Accounts other than
those which are (a) Eligible Accounts (determined without regard to paragraph
(h) of the defined term "Eligible Accounts"), and (b) either backed by letters
of credit acceptable to the Lender in its sole discretion or have Account
Debtors deemed creditworthy by the Lender in its sole discretion.
"Obligations" means all present and future loans, advances,
liabilities, obligations, covenants, duties, and Debt owning by the Borrower to
the Lender, whether or not arising under this Agreement, whether or not
evidenced by any note, or other instrument or document, whether arising from an
extension of credit, opening of a letter of credit, acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment from others, and any participation by
the Lender in the Borrower's debts owing to others), absolute or contingent,
due or to become due, primary or secondary, as principal or guarantor, and
including, without limitation, all interest, charges, expenses, fees, attorneys
fees, filing fees and any other sums chargeable to the Borrower hereunder,
under another Loan Document, or under any other agreement or instrument with
the Lender. "Obligations" includes, without limitation, (a) all debts,
liabilities, and obligations now or hereafter owing from Borrower to Lender
under or in connection with the Letters of Credit and (b) all debts,
liabilities and obligations now or hereafter owing from the Borrower to the
Lender arising from or related to ACH Transactions.
"Other Taxes" means any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement or any other Loan Documents,
excluding, in the case of the Lender, such taxes (including income or franchise
taxes) as are imposed on or measured by the Lender's net income by the
jurisdiction (or any political subdivision thereof) under the laws of which the
Lender is organized or maintains a lending office.
"Paradyne Canada" means AT&T Paradyne Canada, Ltd., a wholly-owned
subsidiary of the Borrower.
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"Paradyne Canada Security Agreement" means that certain Security
Agreement of even date herewith between Paradyne Canada and the Lender.
"Parent" means Paradyne Acquisition Corp., a Delaware corporation,
the sole shareholder of the Borrower.
"Participating Lender" means any Person who shall have been granted
the right by the Lender to participate in the Revolving Loans and who shall
have entered into a participation agreement in form and substance satisfactory
to the Lender.
"Partnership" means Paradyne Partners, L.P., a Delaware limited
partnership and the sole shareholder of the Parent.
"Patent and Trademark Assignment" means the Supplemental Security
Agreement (Patents) and the Supplemental Security Agreement (Trademarks), each
dated as of the date hereof, executed and delivered by the Borrower to the
Lender to evidence and perfect the Lender's Security Interest in the Borrower's
present and future patents, trademarks, and related licenses and rights.
"Payment Account" means each blocked bank account or bank account
associated with a lock box, established pursuant to Section 7.10, to which the
funds of the Borrower or Paradyne Canada (including, without limitation,
Proceeds of Accounts and other Collateral) are deposited or credited, and which
is maintained in the name of the Lender, the Borrower or Paradyne Canada, as
the Lender may determine, on terms acceptable to the Lender.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding the functions thereof.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Borrower or an ERISA Affiliate
sponsors, maintains, or to which it makes, is making, or is obligated to make
contributions or, in the case of a Multiemployer Plan, has made contributions
at any time during the current year or the immediately preceeding six (6) plan
years.
"Permitted Liens" means:
(a) Liens for taxes not yet delinquent or Liens for taxes in an
amount not to exceed $500,000 being contested in good faith by appropriate
proceedings diligently pursued, provided that a reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made therefor
on the applicable Financial Statements and that a stay of enforcement of any
such Lien is in effect;
(b) Liens in favor of the Lender;
(c) Liens arising by operation of law in favor of warehouseman,
landlords, carriers, mechanics, materialmen, laborers, employees or suppliers,
incurred in the ordinary
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course of business of the Borrower or Paradyne Canada and not in connection
with the borrowing of money, for sums not yet delinquent or which are being
contested in good faith and by proper proceedings diligently pursued, provided
that a reserve or other appropriate provision, if any, required by GAAP shall
have been made therefor on the applicable Financial Statements and a stay of
enforcement of any such Lien is in effect;
(d) Liens in connection with worker's compensation or other
unemployment insurance incurred in the ordinary course of the Borrower's or
Paradyne Canada's business;
(e) Liens created by deposits of cash to secure performance of
bids, tenders, leases (to the extent permitted under this Agreement), or trade
contracts, incurred in the ordinary course of business of the Borrower or
Paradyne Canada and not in connection with the borrowing of money;
(f) Liens arising by reason of cash deposit for surety or appeal
bonds in the ordinary course of business of the Borrower or Paradyne Canada;
(g) Liens of or resulting from any judgment or award, the time
for the appeal or petition for rehearing of which has not yet expired, or in
respect of which the Borrower or Paradyne Canada is in good faith prosecuting
an appeal or preceeding for a review, and in respect of which a stay of
execution pending such appeal or proceeding for review has been secured;
(h) Liens on the Premises: (i) in favor of the Seller and the
Partnership; or (ii) which are exceptions to the commitments for title
insurance issued in connection with the Liens allowed under clause (i); or
(iii) which are easements, rights of way, zoning and similar covenants and
restrictions and similar encumbrances which customarily exist on properties of
corporations engaged in similar activities and similarly situated and which in
any event do not materially interfere with or impair the use or operation of
the Premises by the Borrower or materially interfere with the ordinary conduct
of the business of the Borrower; and,
(j) purchase money security interests and liens of lessors
under capital leases to the extent that the security interest or lien only
encumbers the asset purchased or leased, and so long as the security interest
or lien only secures the purchase price of the asset.
"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, limited liability company
association, corporation, Public Authority, or any other entity.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Borrower or an ERISA Affiliate sponsors or maintains or to
which the Borrower or an ERISA Affiliate makes, is making, or is obligated to
make contributions and includes any Pension Plan.
"Post-Closing Letter" has the meaning specified in Section 11.1(j).
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"Proceeds" means all products and proceeds of any Collateral, and all
proceeds of such proceeds and products, including, without limitation, all cash
and credit balances, all payments under any indemnity, warranty, or guaranty
payable with respect to any Collateral, all awards for taking by eminent
domain, all proceeds of fire or other insurance, and all money and other
Property obtained as a result of any claims against third parties or any legal
action or proceeding with respect to Collateral.
"Projections" means the projections delivered to the Lender (i) of
the annual financial condition, results of operations, and cash flow of the
Borrower and its Subsidiaries on a consolidated basis for the three and
one-half (3.5) year period ending December 31, 1999, and (ii) of the quarterly
financial condition, results of operations, and cash flow of the Borrower and
its Subsidiaries on a consolidated basis for the twelve (12) month period
ending June 30, 1997.
"Premises" means the land identified by addresses on Schedule 9.13
together with all buildings, improvements, and fixtures thereon and all
tenements, hereditament, and appurtenances belonging or in any way appertaining
thereto, and which constitutes all of the real property in which the Borrower
or Paradyne Canada has any interests on the Closing Date.
"Premisys Communications Contract" means that certain OEM Agreement
#LGSC103DS among the Borrower, Premisys Communications, Inc. and Premisys
Communications Holding, Inc., dated as of December 4, 1992, as amended from
time to time, as permitted under Section 7.13.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Proprietary Rights" means all of the Borrower's now owned and
hereafter arising or acquired: licenses, franchises, permits, patents, patent
rights, copyrights, works which are the subject matter of copyrights,
trademarks, trade names, trade styles, patent and trademark applications and
licenses and rights thereunder, including without limitation those patents,
trademarks and copyrights set forth on Schedule 9.14, and all other rights
under any of the foregoing, all extensions, renewals, reissues, divisions,
continuations, and continuations-in-part of any of the foregoing, and all
rights to sue for past, present, and future infringement of any of the
foregoing; inventions, trade secrets, formulae, processes, compounds, drawings,
designs, blueprints, surveys, reports, manuals, and operating standards;
goodwill; customer and other lists in whatever form maintained; and trade
secret rights, copyright rights, rights in works of authorship, and contract
rights relating to computer software programs, in whatever form created or
maintained.
"Public Authority" means the government of any country or sovereign
state, or of any state, province, municipality, or other political subdivision
thereof, or any department, agency, public corporation or other instrumentality
of any of the foregoing.
"Receivables" means all of the Borrower's now owned and hereafter
arising or acquired: Accounts (whether or not earned by performance), including
Accounts owed to the Borrower by any of its Subsidiaries or Affiliates,
together with all interest, late charges,
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penalties, collection fees, and other sums which shall be due and payable in
connection with any Account; proceeds of any letters of credit naming the
Borrower as beneficiary; contract rights, chattel paper, instruments,
documents, general intangibles (including without limitation choses in action,
causes of action, tax refunds, tax refund claims, and Reversions and other
amounts payable to the Borrower from or with respect to any Plan) and all forms
of obligations owing to the Borrower (including, without limitation, in respect
of loans, advances, and extensions of credit by the Borrower to its
Subsidiaries and Affiliates); guarantees and other security for any of the
foregoing; goods represented by or the sale, lease or delivery of which gave
rise to any of the foregoing; merchandise returned to or repossessed by the
Borrower and rights of stoppage in transit, replevin, and reclamation; and
other rights or remedies of an unpaid vendor, lienor, or secured party.
"Reference Rate" means the rate of interest publicly announced from
time to time by the Bank as its reference rate. It is a rate set by the Bank
based upon various factors including the Bank's costs and desired return,
general economic conditions, and other factors, and is used as a reference
point for pricing some loans. However, the Bank may price loans at, above, or
below such announced rate. Any changes in the Reference Rate shall take effect
on the day specified in the public announcement of such change.
"Release" means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any real
estate or other property, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or real estate or other property.
"RentalCo" means Rental Acquisition Corp., a Delaware corporation and
a wholly-owned Subsidiary of the Partnership.
"RentalCo Guaranty" means that certain Guaranty (RentalCo Note) dated
as of July 31, 1996 between the Borrower and the Seller, without regard to any
subsequent amendment or modification of such Guaranty.
"Reportable Event" means, any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than any such event for
which the 30-day notice requirement under ERISA has been waived in regulations
issued by the PBGC.
"Requirement of Law" means any law (statutory or common), treaty,
rule or regulation or determination of an arbitrator or of a Public Authority.
"Reserve Calculation Amount" means, as of the end of each month, an
amount equal to the sum of:
(a) the Net Amount of Eligible Accounts as of such date
multiplied by the percentage, if any, by which the actual dilution of all
Accounts over the previous twelve (12) month period exceeds ten percent (10%);
and
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(b) an amount equal to eighty percent (80%) of the Non-Standard
Foreign Accounts as of such date; and
(c) an amount equal to twenty percent (20%) of the value of
Eligible Inventory as of such date.
"Restricted Investment" means any acquisition of Property by the
Borrower or Paradyne Canada in exchange for cash or other Property, whether in
the form of an acquisition of stock, debt security, or other indebtedness or
obligation, or the purchase or acquisition of any other Property, or a loan,
advance, capital contribution, or subscription, except acquisitions of the
following: (a) fixed assets to be used in the business of the Borrower or
Paradyne Canada; (b) current assets arising from the sale or lease of goods or
rendition of services in the ordinary course of business of the Borrower or
Paradyne Canada; (c) direct obligations of the United States of America, or any
agency thereof, or obligations guaranteed by the United States of America,
provided that such obligations mature within one year from the date of
acquisition, bankers acceptances, Eurodollar bank deposits, or overnight bank
deposits, in each case issued by, created by, or with a bank or trust company
organized under the laws of the United States or any state thereof having
capital and surplus aggregating at least $100,000,000; (e) commercial paper
rated at least A-1 by Standard & Poor's Corporation or at least P-1 by Moody's
Investment Service, Inc. and maturing not more than 90 days from the date of
creation thereof; (f) transactions with Affiliates permitted by Section 10.13;
(g) the Borrower's ownership of any Subsidiary as of the date hereof or as
permitted under Section 10.17; (h) any transfers of Property by Paradyne Canada
to the borrower; and (i) the Borrower's capital outlays with respect to vendor
lease contracts (x) from the Closing Date to the end of the Fiscal Year ending
December 31, 1996 not to exceed $3,000,000, and (y) for each of the following
Fiscal Years not to exceed $5,000,000.
"Reversions" means any funds which may become due to the Borrower in
connection with the termination of any Plan or other employee benefit plan.
"Revolving Loans" has the meaning specified in Section 2.2.
"Security Interest" means collectively the Liens granted to the
Lender in the Collateral pursuant to this Agreement, the other Loan Documents,
or any other agreement or instrument.
"Seller" means Lucent Technologies Inc., a Delaware corporation.
"Solvent" shall mean when used with respect to any Person that: (a)
the fair value of all its Property is in excess of the total amount of its
debts (including contingent liabilities); (b) it is able to pay its debts as
they mature; (c) it does not have unreasonably small capital for the business
in which it is engaged or for any business or transaction in which it is about
to engage, and (d) it is not "insolvent" as such term is defined in Section
101(32) of the Bankruptcy Code.
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"Stated Termination Date" means January 31, 2000.
"Subsidiary" of a Person means any corporation, partnership, joint
venture or other business entity of which more than 50% of the voting stock or
other equity interests (in the case of Person other than corporations), is
owned or controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of the Borrower.
"Supply Agreement" means that certain Supply Agreement dated as of
July 31, 1996 among the Borrower, the Seller, and CapCo.
"Taxes" means any and all present or future taxes, assessments,
levies, imposts, impositions, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of the Lender, such
taxes, (including income taxes or franchise taxes) as are imposed on or
measured by the Lender's net income by the jurisdiction (or any political
subdivision thereof) under the laws of which the Lender is organized or
maintains a lending office.
"Total Facility" has the meaning specified in Section 2.1.
"TPG" means TPG Partners, L.P., a Delaware limited partnership.
"UCC" means the Uniform Commercial Code (or any successor statue) of
the State of California or of any other state the laws of which are required by
Section 9-103 thereof to be applied in connection with the issue of perfection
of security interests.
"Unused Line Fee" has the meaning specified in Section 3.3.
"Voting Pricing Letter" means that certain letter agreement for the
benefit of the Borrower dated as of July 31, 1996 between Borrower and the
Seller.
1.1 Accounting Terms. Any accounting term used in this Agreement shall
have, unless otherwise specifically provided herein, the meaning customarily
given in accordance with GAAP, and all financial computations hereunder shall
be computed, unless otherwise specifically provided herein, in accordance with
GAAP as consistently applied and using the same method for inventory valuation
as used in the preparation of the Financial Statements.
1.3 Other Terms. All other undefined terms contained in this Agreement
shall, unless the context indicates otherwise, have the meanings provided for by
the UCC to the extent the same are used or defined therein. Wherever appropriate
in the context, terms used herein in the singular also include the plural, and
vice versa, and each masculine, feminine, or neuter pronoun shall also include
the other genders.
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1.4 Other Interpretive Provisions.
(a) The words "hereof," "herein," "hereunder" and similar words
refer to this Agreement as a whole and not to any particular provision of this
Agreement; and Subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(b) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including," the
words "to" and "until" each mean "to but excluding" and the word "through"
means "to and including."
(c) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications thereto,
but only to the extent such amendments and other modifications are not
prohibited by the terms of any Loan Document, and (ii) references to any
statute or regulation are to be construed as including all statutory and
regulatory provisions consolidating, amending, replacing, supplementing or
interpreting the statute or regulation.
(d) The captions contained in this Agrement are for convenience
only, are without substantive meaning and should not be construed to modify,
enlarge, or restrict any provision.
(e) This Agrement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms.
(f) This Agrement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Borrower and the
Lender, and are the products of all parties. Accordingly, they shall not be
construed against the Lender merely because of the Lender's involvement in
their preparation.
(g) This Agreement is subject to the terms of the Intercreditor
Agreement, which agreement is incorporated herein by reference.
2. LOANS AND LETTERS OF CREDIT.
2.1 Total Facility. Subject to all of the terms and conditions of
this Agrement, the Lender shall make available a total credit facility of up to
$45,000,000 (the "Total Facility") for Borrower's use from time to time during
the term of this Agreement. The
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Total Facility shall be comprised of a revolving line of credit up to the
limits of the Availability, consisting of revolving loans and letters of credit
as described in Sections 2.2 and 2.3.
2.2 Revolving Loans.
(a) The Lender shall, upon the Borrower's request from time
to time, make revolving loans (the "Revolving Loans") to the Borrower up to the
limits of the Availability. The Lender, in its discretion, may elect to exceed
the limits of the Availability on one or more occasions, but if it does so, the
Lender shall not be deemed thereby to have changed the limits of the
Availability or to be obligated to exceed the limits of the Availability on any
other occasion. If the unpaid balance of the Revolving Loans exceeds the
Availability (determined for this purpose as if the amount of the Revolving
Loans were zero), then the Lender may refuse to make or otherwise restrict
Revolving Loans on such terms as the Lender determines until such excess has
been eliminated. The Borrower may request Revolving Loans either telephonically
or in writing. Each oral request for a Revolving Loan shall be conclusively
presumed to be made by a person authorized by the Borrower to do so and the
crediting of a Revolving Loan to the Borrower's deposit account, or transmittal
to such Person as the Borrower shall direct, shall conclusively establish the
obligation of the Borrower to repay such Revolving Loan as provided herein. The
Lender will charge all Revolving Loans and other Obligations to a loan account
of the Borrower maintained with the Lender. All fees, commissions, costs,
expenses, and other charges under or pursuant to the Loan Documents, and all
payments made and out-of-pocket expenses incurred by the Lender pursuant to the
Loan Documents, will be charged as Revolving Loans to the Borrower's loan
account as of the date due from the Borrower or the date paid or incurred by
the Lender, as the case may be.
(b) Procedure for Borrowing.
(i) Each Borrowing shall be made upon the Borrowers'
irrevocable written notice delivered to the Lender in the form of a Notice of
Borrowing together with a Borrowing Base Certificate reflecting sufficient
Availability (which must be received by the Lender no later than 11:00 a.m. on
the requested Funding Date or on such other periodic basis as Lender may
agree), specifying:
(A) the amount of the Borrowing; and
(B) the requested Funding Date, which shall be
a Business Day.
(ii) In lieu of delivering the above-described Notice
of Borrowing and Borrowing Base Certificate the Borrower may give the Lender
telephonic notice of such request and of sufficient Availability by the
required time, with such telephonic notice to be confirmed in writing within 24
hours of the giving of such notice but Lender shall be entitled to rely on the
telephonic notice in making the requested Revolving Loans.
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(c) Reliance upon Authority. On or prior to the Closing Date
and thereafter prior to any change with respect to any of the information
contained therein, the Borrower shall deliver to the Lender a writing setting
forth the names of the officers authorized to request Revolving Loans on behalf
of the Borrower, and shall provide the Lender with a specimen signature of each
such officer. The Lender shall be entitled to rely conclusively on such
officer's authority to request Revolving Loans on behalf of the Borrower, until
the Lender receives written notice to the contrary. The Lender shall have no
duty to verify the identity of any individual representing him or herself as one
of the officers authorized by the Borrower to make such requests on its behalf.
(d) No Liability. The Lender shall not incur any liability to
the Borrower as a result of acting upon any notice referred to in Section 2.2(b)
and (c), which notice the Lender believes in good faith to have been given by an
officer duly authorized by the Borrower to request Revolving Loans on its behalf
or for otherwise acting in good faith under this Section 2, and the crediting of
Revolving Loans to the Borrower's deposit account, or transmittal to such Person
as the Borrower shall direct, shall conclusively establish the obligation of the
Borrower to repay such Revolving Loans as provided herein.
(e) Notice Irrevocable. Any Notice of Borrowing (or telephonic
notice in lieu thereof) made pursuant to Section 2.2(b) shall be irrevocable
and the Borrower shall be bound to borrow the funds requested therein in
accordance therewith.
2.3 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, the
Lender shall, upon the Borrower's request from time to time, cause merchandise
or standby letters of credit to be issued for the Borrower's account (the
"Letters of Credit"). The Lender shall not have any obligation to take steps to
cause to be issued any Letter of Credit if: (i) the maximum face amount of the
requested Letter of Credit, plus the aggregate undrawn face amount of all
outstanding Letters of Credit, would exceed $5,000,000; (ii) the maximum face
amount of the requested Letter of Credit, and all commissions, fees, and charges
due from Borrower to Lender in connection with the opening thereof, would cause
the Availability to be exceeded at such time; or (iii) the expiration date of
the Letter of Credit would be later than thirty (30) days prior to the Stated
Termination Date or any renewal term or be more than twelve (12) months from the
date of issuance. All payments made and expenses incurred by the Lender pursuant
to or in connection with the Letters of Credit will be charged to the Borrower's
loan account as Revolving Loans.
(b) Other Conditions. In addition to being subject to the
satisfaction of the applicable conditions precedent contained in Section 11,
the obligation of the Lender to cause to be issued any Letter of Credit is
subject to the following conditions precedent having been satisfied in a manner
satisfactory to the Lender:
(1) The Borrower shall have delivered to the proposed
issuer of such Letter of Credit, at such times and in such manner as such
proposed issuer may prescribe, an application in form and substance
satisfactory to such proposed issuer and the Lender for the
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<PAGE> 30
issuance of the Letter of Credit and such other documents as may be required
pursuant to the terms thereof, and the form and terms of the proposed Letter of
Credit shall be satisfactory to the Lender and such proposed issuer; and
(2) As of the date of issuance, no order or any court,
arbitrator or Public Authority shall purport by its terms to enjoin or restrain
money center banks generally from issuing letters of credit of the type and in
the amount of the proposed Letter of Credit, and no law, rule or regulation
applicable to money center banks generally and no request or directive (whether
or not having the force of law) from any Public Authority with jurisdiction
over money center banks generally shall prohibit, or request that the proposed
issuer of such Letter of Credit refrain from, the issuance of letters of credit
generally or the issuance of such Letters of Credit.
(c) Issuance of Letters of Credit
(1) Request for Issuance. The Borrower shall give the
Lender three (3) Business Days' prior written notice of the Borrower's request
for the issuance of a Letter of Credit. Such notice shall be irrevocable and
shall specify the original face amount of the Letter of Credit requested, the
effective date (which date shall be a Business Day) of issuance of such
requested Letter of Credit, whether such Letter of Credit may be drawn in a
single or in partial draws, the date on which such requested Letter of Credit
is to expire (which date shall be a Business Day), the purpose for which such
Letter of Credit is to be issued, and the beneficiary of the requested Letter
of Credit. The Borrower shall attach to such notice the proposed form of the
Letter of Credit that the Lender is requested to cause to be issued.
(2) No Extensions or Amendment. The Lender shall not be
obligated to cause any Letter of Credit to be extended or amended unless the
requirements of this Section 2.3 are met as though a new Letter of Credit were
being requested and issued.
(d) Payments Pursuant to Letters of Credit.
(1) Payment of Letter of Credit Obligations. The Borrower
agrees to reimburse the issuer for any draw under any Letter of Credit
immediately upon demand, and to pay the issuer of the Letter of Credit the
amount of all other obligations and other amounts payable to such issuer under
or in connection with any Letter of Credit immediately when due, irrespective
of any claim, setoff, defense or other right which the Borrower may have at any
time against such issuer or any other Person.
(2) Revolving Loans to Satisfy Reimbursement Obligations.
In the event that the issuer of any Letter of Credit honors a draw under such
Letter of Credit and the Borrower shall not have repaid such amount to the
issuer of such Letter of Credit pursuant to Section 2.3(d)(1), the Lender shall
pay the issuer and such amount when paid shall constitute a Revolving Loan
which shall be deemed to have been requested by the Borrower.
(e) Compensation for Letters of Credit.
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(1) Letter of Credit Fee. The Borrower agrees to pay to
the Lender with respect to each Letter of Credit, the Letter of Credit Fee
specified in, and in accordance with the terms of, Section 3.5.
(2) Issuer Fees and Charges. The Borrower shall pay to the
issuer of any Letter of Credit, or to the Lender, for the account of the issuer
of any such Letter of Credit, solely for such issuer's account, such fees and
other charges as are charged by such issuer for letters of credit issued by it,
including, without limitation, its standard fees for issuing, administering,
amending, renewing, paying and canceling letters of credit and all other fees
associated with issuing or servicing letters of credit, as and when assessed.
(f) Indemnification: Exoneration: Power of Attorney
(1) Indemnification. In addition to amounts payable as
elsewhere provided in this Section 2.3, the Borrower hereby agrees to protect,
indemnify, pay and save the Lender harmless from and against any and all
claims, demands, liabilities, damages, losses, costs, charges and expenses
(including reasonable attorneys' fees) which the Lender may incur or be subject
to as a consequence, direct or indirect, of the issuance of any Letter of
Credit or the provision of any credit support or enhancement in connection
therewith. The agreement in this Section 2.3(f)(1) shall survive payments of
all Obligations.
(2) Assumption of Risk by the Borrower. As among the
Borrower and the Lender, the Borrower assumes all risks of the acts and
omissions of, or misuse of any of the Letters of Credit by, the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation
of the foregoing, the Lender shall not be responsible for: (A) the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any Person in connection with the application for and issuance of
and presentation of drafts with respect to any of the Letters of Credit, even
if it should prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (B) the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
(C) the failure of the beneficiary of any Letter of Credit to comply duly with
conditions required in order to draw upon such Letter of Credit; (D) errors,
omissions, interruptions, or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not they be
in cipher; (E) errors in interpretation of technical terms; (F) any loss or
delay in the transmission or otherwise of any document required in order make a
drawing under any Letter of Credit or of the proceeds thereof; (G) the
misapplication by the beneficiary of any Letter of Credit of the proceeds of
any drawing under such Letter of Credit; or (H) any consequences arising from
causes beyond the control of the Lender, including, without limitation, any act
or omission, whether rightful or wrongful, of any present or future de jure or
de facto Public Authority. None of the foregoing shall affect, impair or
prevent the vesting of any rights or powers of the Lender under this Section
2.3.
(3) Exoneration. In furtherance and extension, and not in
limitation, of the specific provisions set forth above, any action taken or
omitted by the Lender
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<PAGE> 32
under or in connection with any of the Letters of Credit or any related
certificates, if taken or omitted in the absence of gross negligence or willful
misconduct, shall not put the Lender under any resulting liability to the
Borrower or relieve the Borrower of any of its obligations hereunder to any
such Person.
(4) Power of Attorney. In connection with all Inventory
financed by Letters of Credit, the Borrower hereby appoints the Lender, or the
Lender's designee, as its attorney, with full power and authority: (a) to sign
and/or endorse the Borrower's name upon any warehouse or other receipts; (b) to
sign the Borrower's name on bills of lading and other negotiable and
non-negotiable documents; (c) to clear Inventory through customs in the Lender's
or the Borrower's name, and to sign and deliver to customs officials powers of
attorney in the Borrower's name for such purpose; (d) to complete in the
Borrower's or the Lender's name, any order, sale, or transaction, obtain the
necessary documents in connection therewith, and collect the proceeds thereof;
and (e) to do such other acts and things as are necessary in order to enable the
Lender to obtain possession of the Inventory and to obtain payment of the
Obligations. Neither the Lender nor its designee, as the Borrower's attorney,
will be liable for any acts or omissions, nor for any error of judgment or
mistakes of fact or law. This power, being coupled with an interest, is
irrevocable until all Obligations have been paid and satisfied.
(5) Account Party. The Borrower hereby authorizes and
directs any issuer of a Letter of Credit to name the Borrower as the "Account
Party" therein and to deliver to the Lender all instruments, documents and
other writings and property received by the issuer pursuant to the Letter of
Credit, and to accept and rely upon the Lender's instructions and agreements
with respect to all matters arising in connection with the Letter of Credit or
the application therefor.
(6) Control of Inventory. In connection with all Inventory
financed by Letters of Credit, the Borrower will, at the Lender's request,
instruct all suppliers, carriers, forwarders, warehouses or others receiving or
holding cash, checks, Inventory, documents or instruments in which the Lender
holds a security interest to deliver them to the Lender and/or subject to the
Lender's order, and if they shall come into the Borrower's possession, to
deliver them, upon request, to the Lender in their original form. The Borrower
shall also, at the Lender's request, designate the Lender as the consignee on
all bills of lading and other negotiable and non-negotiable documents.
(g) Supporting Letter of Credit: Cash Collateral. If,
notwithstanding the provisions of this Section 2.3 and Section 14 any Letter of
Credit is outstanding upon the termination of this Agreement, then upon such
termination the Borrower shall deposit with the Lender, at its discretion, with
respect to each Letter of Credit then outstanding, either (A) a standby letter
of credit (a "Supporting Letter of Credit") in form and substance satisfactory
to the Lender, issued by an issuer satisfactory to the lender in an amount equal
to the greatest amount for which such Letter of Credit may be drawn, under which
Supporting Letter of Credit the Lender is entitled to draw amounts necessary to
reimburse the Lender for payments made by the Lender under such Letter of Credit
or under any credit support or enhancement provided through the Lender with
respect thereto, or (B) cash in amounts necessary to reimburse the lender for
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payments made by the Lender under such Letter of Credit or under any credit
support or enhancement provided through the Lender. Such Supporting Letter of
Credit or deposit of cash shall be held by the Lender, as security for, and to
provide for the payment of, the aggregate undrawn amount of such Letters of
Credit remaining outstanding.
2.4 Automated Clearing House Transfers and Overdrafts. The Borrower
may request and the Lender may, in its sole and absolute discretion, arrange
for the Borrower to obtain from the Bank ACH Transactions. The Borrower agrees
to indemnify and hold the Lender harmless from all losses, liabilities, costs,
expenses and claims incurred by the Lender arising from or related to such ACH
Transactions. The Borrower acknowledges and agrees that the obtaining of ACH
Transactions from the Bank (a) is in the sole and absolute discretion of the
Bank, (b) is subject to all rules and regulations of the Bank; and (c) is due
to the Bank relying on the indemnity of the Lender to the Bank with respect to
all risks of loss associated with the ACH Transactions.
2.5 Purpose. The proceeds of all Revolving Loans shall be utilized by
the Borrower solely for the purposes of funding the Borrower's or Paradyne
Canada's working capital and general corporate needs and paying expenses in
connection with the closing of the Acquisition Agreement. Proceeds of Revolving
Loans shall not under any circumstances be utilized by the Borrower to finance
the acquisition under the Acquisition Agreement.
3. INTEREST AND OTHER CHARGES
3.1 Interest
(a) All Obligations shall bear interest on the unpaid principal
amount thereof from the date made until paid in full in cash at a rate
determined by reference to the Reference Rate, but not to exceed the Maximum
Rate. Except as otherwise provided herein, the Obligations shall bear interest
as follows:
(i) From the Closing Date through and including the first
Anniversary Date, at a fluctuating per annum rate equal to the Reference
Rate plus one percent (1.0%); and
(ii) Following the first Anniversary Date:
a) during any Quarterly Interest Period (as defined
below) where the Borrower's Fixed Charge Coverage Ratio for the
previous fiscal quarter was equal to or less than 1.25:1.00, at
fluctuating per annum rate equal to the Reference Rate plus one
percent (1.0%); or
b) during Quarterly Interest Period where the Borrower's
Fixed Charge Coverage Ratio for the previous fiscal quarter exceeded
1.25:1.00 but was less than or equal to 1.50:1.00, at a fluctuating
per annum rate equal to the Reference Rate plus one-half percent
(0.50%); or
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c) during any Quarterly Interest Period where the
Borrower's Fixed Charge Coverage Ratio for the previous fiscal
quarter exceeded 1.50:1.00, at a fluctuating per annum rate equal to
the Reference Rate.
Any change to the interest rate in accordance with this Section 3.1(a) shall be
effective on the first day of the month immediately following delivery to the
Lender pursuant to Section 8.2(b) of the financial statements and certificate
setting forth the calculation of the Borrower's Fixed Charge Coverage Ratio for
the previous fiscal quarter and shall continue until the last day of the month
immediately following the end of the fiscal quarter in which such financial
statements and certificate are delivered to the Lender (a "Quarterly Interest
Period"). Notwithstanding the foregoing, in the event that the Borrower fails
to deliver the financial statements and certificate in a timely fashion in
accordance with Section 8.2(b), then the interest rate for the Quarterly
Interest Period following such failure shall be equal to the Reference Rate
plus one percent (1.0%) until such rate shall be changed for future Quarterly
Interest Periods as set forth in the previous sentence. Each change in the
Reference Rate shall be reflected in the interest rate described above as of
the effective date of such change. All interest charges shall be computed on
the basis of a year of three hundred sixty (360) days and actual days elapsed.
All interest shall be payable to Lender on the first day of each month
hereafter.
(b) Upon the declaration of an Event of Default, then, from the
date of such declaration until such Event of Default is cured, or if not cured
until all Obligations are paid and performed in full, the Borrower will pay
interest on the unpaid principal balances of the Revolving Loans at a per annum
rate two percent (2.0%) greater than the rate of interest otherwise specified
herein, and the Letter of Credit Fee shall be two percent (2.0%) per annum
greater than the otherwise payable Letter of Credit Fee.
3.2 Maximum Interest Rate. In no event shall any interest rate
provided for hereunder exceed the maximum rate permissible for corporate
borrowers under applicable law for loans of the type provided for hereunder
(the "Maximum Rate"). If, in any month, any interest rate, absent such
limitation, would have exceeded the Maximum Rate, then the interest rate for
that month shall be the Maximum Rate, and, if in future months, that interest
rate would otherwise be less than the Maximum Rate, then that interest rate
shall remain at the Maximum Rate until such time as the amount of interest paid
hereunder equals the amount of interest which would have been paid if the same
had not been limited by the Maximum Rate. In the event that, upon payment in
full of the Obligations under this Agreement, the total amount of interest paid
or accrued under the terms of this Agreement is less than the total amount of
interest which would, but for this Section 3.2, have been paid or accrued if
the interest rates otherwise set forth in this Agreement had at all times been
in effect, then the Borrower shall, to the extent permitted by applicable law,
pay the Lender, an amount equal to the difference between (a) the lesser of (i)
the amount of interest which would have been charged if the Maximum Rate had,
at all times, been in effect or (ii) the amount of interest which would have
accrued had the interest rates otherwise set forth in this Agreement, at all
times, been in effect and (b) the amount of interest actually paid or accrued
under this Agreement. In the event that a court determines that the Lender has
received interest and other charges hereunder in excess of the Maximum Rate,
such excess shall be deemed received on account of, and shall automatically be
applied to reduce, the
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Obligations other than interest, in the inverse order of maturity, and if there
are no Obligations outstanding, the Lender shall refund to the Borrower such
excess.
3.3 Unused Line Fee. For every month during the term of this
Agreement, the Borrower shall pay the Lender a fee (the "Unused Line Fee") in an
amount equal to: (i) during any month that the amount determined under (y) below
is equal to or greater than $15,000,000, three-eights percent (0.375%) per
annum, or (ii) during any month that the amount determined under (y) below is
less than $15,000,000, one-half percent (0.50%) per annum, multiplied by the
average daily amount by which (x) $45,000,000 exceeded (y) the sum of (a) the
average daily outstanding amount of Revolving Loans and (b) the average daily
undrawn face amount of all outstanding Letters of Credit during such month, with
the unpaid balance of Revolving Loans calculated for this purpose by applying
payments immediately upon receipt. The Unused Line Fee, if any, shall be
calculated on the basis of a year of three hundred sixty (360) days and actual
days elapsed, and shall be payable to the Lender on the first day of each month
with respect to the prior month.
3.4 Closing Fee. The Borrower shall pay the Lender on the Closing
Date a closing fee in the amount of $487,500 (the "Closing Fee"). The Lender
and the Borrower agree that the Closing Fee shall be financed by the Lender as
a Revolving Loan.
3.5 Letter of Credit Fee. The Borrower shall pay the Lender a fee
(the "Letter of Credit Fee") equal to (a) one and one-half percent (1.50%) per
annum of the face amount of each standby Letter of Credit issued for the
account of Borrower, or (b) three-quarter percent (0.75%) per annum of the face
amount of each merchandise Letter of Credit issued for the account of Borrower,
plus all out-of-pocket costs, fees and expenses incurred by the Lender in
connection with the application for, issuance of, or amendment to any Letter of
Credit, which costs, fees and expenses could include a "fronting fee" required
to be paid by the Lenders to such issuer for the assumption of the settlement
risk in connection with the issuance of such Letter of Credit. The Letter of
Credit Fee shall be payable monthly in arrears on the first day of each month
following any month in which a Letter of Credit was issued and/or in which a
Letter of Credit remains outstanding, shall be computed on the basis of a
360-day year for the actual number of days elapsed, and shall be increased as
provided in Section 3.1(b).
4. PAYMENTS AND PREPAYMENTS.
4.1 Revolving Loans. The Borrower shall repay the outstanding
principal balance of the Revolving Loans, plus all accrued but unpaid interest
thereon, upon the termination of this Agreement for any reason. In addition,
and without limiting the generality of the foregoing, the Borrower shall pay to
the Lender, on demand, the amount by which the unpaid principal balance of the
Revolving Loans at any time exceeds the Availability at such time (determined
for this purpose as if the amount of the Revolving Loans were zero).
4.2 Place and Form of Payments; Extension of Time Extension of Time.
All payments of principal, interest, premium, and other sums due to the Lender
shall be made at the Lender's address set forth in Section 15.11. Except for
Proceeds received directly by the Lender, all such payments shall be made in
immediately available funds. If any payment of principal,
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interest, premium, or other sum to be made hereunder becomes due and payable on
a day other than a Business Day, the due date of such payment shall be extended
to the next succeeding Business Day and interest thereon shall be payable at
the applicable interest rate during such extension.
4.3 Application and Reversal of Payments. The Lender shall determine
in its sole discretion the order and manner in which Proceeds of Collateral and
other payments that the Lender receives are applied to the Revolving Loans,
interest thereon, and the other Obligations, and the Borrower hereby
irrevocably waives the right to direct the application of any payment or
Proceeds. The Lender shall have the continuing and exclusive right to apply and
reverse and reapply any and all such Proceeds and payments to any portion of
the Obligations.
4.4 Indemnity for Returned Payments. If after receipt of any payment
which is applied to the payment of all or any part of the Obligations, the
Lender is for any reason compelled to surrender such payment to any Person
because such payment is invalidated, declared fraudulent, set aside, determined
to be void or voidable as a preference, impermissible setoff, or a diversion of
trust funds, or for any other reason, then: the Obligations or part thereof
intended to be satisfied shall be revived and continue and this Agreement shall
continue in full force as if such payment had not been received by the Lender
and the Borrower shall be liable to pay to the Lender and hereby does indemnify
the Lender and hold the Lender harmless for the amount of such payment
surrendered. The provisions of this Section 4.4 shall be and remain effective
notwithstanding any contrary action which may have been taken by the Lender in
reliance upon such payment, and any such contrary action so taken shall be
without prejudice to the Lender's rights under this Agreement and shall be
deemed to have been conditioned upon such payment having become final and
irrevocable. The provisions of this Section 4.4 shall survive the termination of
this Agreement.
5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS.
The Borrower agrees that the Lender's books and records showing the
Obligations and the transactions pursuant to this Agreement and the other Loan
Documents shall be admissible in any action or proceeding arising therefrom,
and shall constitute prima facie proof thereof, irrespective of whether any
Obligation is also evidenced by a promissory note or other instrument. The
Lender will provide to the Borrower a monthly statement of Revolving Loans,
payments, and other transactions pursuant to this Agreement. Such statement
shall be deemed correct, accurate, and binding on the Borrower and as an
account stated (except for reversals and reapplications of payments made as
provided in Section 4.3 and corrections of errors discovered by the Lender),
unless the Borrower notifies the Lender in writing to the contrary within
thirty (30) days after such statement is rendered. In the event a timely written
notice of objections is given by the Borrower, only the items to which exception
is expressly made will be considered to be disputed by the Borrower.
6. TAXES; YIELD PROTECTION.
6.1 Taxes.
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(a) Any and all payments by the Borrower to the Lender under
this Agreement and any other Loan Document shall be made free and clear of, and
without deduction or withholding for any Taxes. In addition, the Borrower shall
pay all Other Taxes.
(b) The Borrower agrees to indemnify and hold harmless the
Lender for the full amount of Taxes or Other Taxes (including any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this Section)
paid by the Lender and any liability (including penalties, interest, additions
to tax and expenses) arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted. Payment under
this indemnification shall be made within 30 days after the date the Lender
makes written demand therefor.
(c) If the Borrower shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to Lender, then:
(i) the sum payable shall be increased as necessary so
that after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable under this
Section) the Lender receives an amount equal to the sum it would have received
had no such deductions or withholdings been made;
(ii) the Borrower shall make such deductions and
withholdings;
(iii) the Borrower shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance with
applicable law; and
(iv) the Borrower shall also pay to the Lender at the time
interest is paid, all additional amounts which the Lender specifies as
necessary to preserve the after-tax yield the Lender would have received if
such Taxes or Other Taxes had not been imposed.
(d) Within 30 days after the date of any payment by the
Borrower of Taxes or Other Taxes, the Borrower shall furnish the Lender the
original or a certified copy of a receipt evidencing payment thereof, or other
evidence of payment satisfactory to the Lender.
6.2 INCREASED COSTS AND REDUCTION OF RETURN. If the Lender shall
have determined that (i) the introduction of any new Capital Adequacy
Regulation, (ii) any change in any existing Capital Adequacy Regulation, (iii)
any change in the interpretation or administration of any existing Capital
Adequacy Regulation by Public Authority charged with the interpretation or
administration thereof, or (iv) compliance by the Lender or any corporation
controlling the Lender with any Capital Adequacy Regulation, affects or would
affect the amount of capital, reserves, or special deposits required to
expected to be maintained by the Lender or any corporation controlling the
Lender and (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy and such Lender's desired return on
capital) determines that the amount of such capital, reserves, or special
deposits is increased as a
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consequence of its loans, credits or obligations under this Agreement, then,
upon demand of the Lender of the Borrower shall pay to the Lender, from time to
time as specified by the Lender, additional amounts sufficient to compensate
the Lender for such increase. Notwithstanding the foregoing, all such amounts
shall be subject to the provisions of Section 3.2.
6.3 Survival. The agreements and obligations of the Borrower in this
Section 6 shall survive the payment of all other Obligations.
7. COLLATERAL.
7.1 Grant of Security Interest.
(a) As security for the Obligations, the Borrower hereby grants
to the Lender a continuing security interest in, lien on, and assignment of all
Property (other than the Excluded Property) in which the Borrower now or
hereafter has rights, including, without limitation: (i) all Receivables,
Inventory, Equipment, Assigned Contracts, Proprietary Rights and Proceeds,
wherever located and whether now existing or hereafter arising or acquired;
(ii) all moneys, securities and other property and the Proceeds thereof, now or
hereafter held or received by, or in transit to, the Lender from or for the
Borrower, whether for safekeeping, pledge, custody, transmission, collection or
otherwise, including, without limitation, all of the Borrower's deposit
accounts, credits, and balances with the Lender and all claims of the Borrower
against the Lender at any time existing; (iii) all of Borrower's deposit
accounts with any financial institutions with which Borrower maintains
deposits; and (iv) all books, records and other Property relating to or
referring to any of the foregoing, including, without limitation, all books,
records, ledger cards, data processing records, computer software and other
property and general intangibles at any time evidencing or relating to the
Receivables, Inventory, Equipment, Assigned Contracts, Proprietary Rights,
Proceeds, and other property referred to above (all of the foregoing, together
with all other Property in which the Lender may at any time be granted a Lien
being herein collectively referred to as the "Collateral"). The Lender shall
have all of the rights of a secured party with respect to the Collateral under
the UCC and other applicable laws.
(b) All Obligations shall constitute a single loan secured by
the Collateral. The Lender may, in its sole discretion, (i) exchange, waive, or
release any of the Collateral, (ii) apply Collateral and direct the order or
manner of sale thereof as the Lender may determine, and (iii) settle,
compromise, collect, or otherwise liquidate and Collateral in any manner, all
without affecting the Obligations of the Lender's right to take any other
action with respect to any other Collateral.
7.2 Perfection and Protection of Security Interest. The Borrower
shall, at its expense, and shall cause Paradyne Canada to, at the Borrower's
expense, perform all steps requested by the Lender at any time to perfect,
maintain, protect, and enforce the Security Interest and the Canadian Security
Interest, including, without limitation: (a) executing and recording of the
Patent and Trademark Assignments and, upon any acquisition by Paradyne Canada
of any patents, trademarks or copyrights, the Canadian Patent and Trademark
Assignments, and executing and filing financing or continuation statements, and
amendments thereof, in form and substance satisfactory to the Lender; (b)
delivering to the Lender the
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originals of all instruments, documents, and chattel paper, and all other
Collateral of which the Lender determines it should have physical possession in
order to perfect and protect the Security Interest therein, duly endorsed or
assigned to the Lender without restriction; (c) delivering to the Lender
warehouse receipts covering any portion of the Collateral located in warehouses
and for which warehouse receipts are issued; (d) following the occurrence of an
Event of Default, transferring Inventory to warehouses designated by the
Lender; (e) placing notations on the Borrower's and Paradyne Canada's books of
account to disclose the Security Interest and the Canadian Security Interest;
(f) executing and delivering to the Lender a security agreement relating to the
Reversions in form and substance satisfactory to the Lender; (g) delivering to
the Lender all letters of credit on which the Borrower or Paradyne Canada is
named beneficiary; and (h) taking such other steps as are deemed necessary by
the Lender to maintain the Security Interest and the Canadian Security
Interest. To the extent permitted by applicable law, the Lender may file,
without the Borrower's signature, one or more financing statements disclosing
the Security Interest. The Borrower agrees that a carbon, photographic,
photostatic, or other reproduction of this Agreement or of a financing
statement is sufficient as a financing statement. If any Collateral is at any
time in the possession or control of any warehouseman, bailee or any of the
Borrower's or Paradyne Canada's agents or processors, then the Borrower shall
notify the Lender thereof and shall notify such Person of the Security Interest
in such Collateral and, upon the Lender's request, instruct such Person to hold
all such Collateral for the Lender's account subject to the Lender's
instructions. If at any time any Collateral having a value in excess of
$100,000 in the aggregate is located on any Premises that are not owned by the
Borrower, then the Borrower shall obtain written waivers, in form and substance
satisfactory to the Lender, of all present and future Liens to which the owner
or lessor or any mortgagee of such Premises may be entitled to assert against
the Collateral. From time to time, the Borrower shall, upon Lender's request,
execute and deliver confirmatory written instruments pledging to the Lender the
Collateral, but the Borrower's failure to do so shall not affect or limit the
Security Interest or the Lender's other rights in and to the Collateral. So
long as this Agreement is in effect and until all Obligations have been fully
satisfied, the Security Interest shall continue in full force and effect in all
Collateral (whether or not deemed eligible for the purpose of calculating the
Availability or as the basis for any advance, loan, extension of credit, or
other financial accommodation).
7.3 Location of Collateral. The Borrower represents and warrants to
the Lender that:
(a) Schedule 7.3 hereto is a correct and complete list of each
of the Borrower's and Paradyne Canada's chief executive offices, the location
of the Borrower's and Paradyne Canada's respective books and records, the
locations of the Collateral and the Canadian Collateral, and the locations of
all of its other places of business, and
(b) Schedule 7.3 correctly identifies any of such facilities
and locations that are not owned by the Borrower or Paradyne Canada and sets
forth the names of the owners and lessors or sub-lessors of, and, to the best
of the Borrower's knowledge, the holders of any mortgages on, such facilities
and locations. The Borrower covenants and agrees that neither it nor Paradyne
Canada will maintain any Collateral having a value in excess of $100,000 in the
aggregate or Canadian Collateral having a value in excess of $100,000 in the
aggregate at any
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location other than those listed on Schedule 7.3, and neither it nor Paradyne
Canada will otherwise change or add to any of such locations, unless the
Borrower gives the Lender at least 30 days' prior written notice thereof and
the Borrower or Paradyne Canada executes any and all financing statements and
other documents that the Lender requests in connection therewith.
7.4 Title to, Liens on, and Sale and Use of Collateral. The Borrower
represents and warrants to the Lender that: (a) all Collateral and Canadian
Collateral are and will continue to be owned by the Borrower or Paradyne Canada
(as the case may be) free and clear of all Liens whatsoever, except for the
Security Interest, the Canadian Security Interest and other Permitted Liens;
(b) neither the Security Interest nor the Canadian Security Interest will be
subject to any prior Lien except for the Liens described in (b), (c), (e), (f)
and (j) of the definition of Permitted Liens; (c) the Borrower will, and will
cause Paradyne Canada to, use, store, and maintain the Collateral and the
Canadian Collateral (as the case may be) with all reasonable care and will use
the Collateral and the Canadian Collateral (as the case may be) for lawful
purposes only; and (d) the Borrower will not, and will not allow Paradyne
Canada to, without the Lender's prior written approval, sell, lease, or dispose
of or permit the sale or disposition of the Collateral or the Canadian
Collateral (as the case may be) or any portion thereof, except for sales of
Inventory in the ordinary course of business and as permitted by Section 7.12
or applicable provisions of the Canadian Security Agreement, and except for the
granting of licenses with respect to patents, trademarks and copyrights (or
amendments thereto) in the ordinary course of business on customary industry
terms. The inclusion of Proceeds in the Collateral (or similar term as to the
Canadian Collateral) shall not be deemed the Lender's consent to any sale or
other disposition of the Collateral (or the Canadian Collateral) except as
expressly permitted herein.
7.5 Appraisals. Whenever a Default or Event of Default exists, and
at such other times not more frequently than once a year as the Lender requests,
the Borrower shall, and shall cause Paradyne Canada to, at the Borrower's
expense and upon the Lender's request, provide the Lender with appraisals or
updates thereof, including, without limitation, M&E Appraisals, of any or all of
the Collateral and the Canadian Collateral from an appraiser acceptable to the
Lender in its sole discretion.
7.6 Access and Examination. The Lender may at all reasonable times
and upon reasonable notice have access to, examine, audit, make extracts from
and inspect the Borrower's and Paradyne Canada's records, files, and books of
account and the Collateral and may discuss the Borrower's and Paradyne Canada's
affairs with the Borrower's or Paradyne Canada's officers and management. The
Borrower will deliver, and will cause Paradyne Canada to deliver, to the Lender
any instrument necessary for the Lender to obtain records from any service
bureau maintaining records for the Borrower or Paradyne Canada. The Lender may,
at any time when an Event of Default exists and at the Borrower's expense, make
copies of all of the Borrower's and Paradyne Canada's books and records, or
require the Borrower or Paradyne Canada to deliver such copies to the Lender.
The Lender may, without expense to the Lender, use such of the Borrower's or
Paradyne Canada's personnel, supplies, and Premises as may be reasonably
necessary for maintaining or enforcing the Security Interest and the Canadian
Security Interest. The Lender shall have the right, at any time, in the
Lender's name or in the
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name of a nominee of the Lender, to verify the validity, amount or any other
matter relating to the Accounts, by mail, telephone, or otherwise.
7.7 Insurance. The Borrower shall insure, and shall cause Paradyne
Canada to insure, the Collateral and the Canadian Collateral (as the case may
be) against loss or damage by fire with extended coverage, theft, burglary,
pilferage, loss in transit, and such other hazards as the Lender shall specify,
in amounts, under policies and by insurers acceptable to the Lender. Borrower
shall also maintain flood insurance for its real estate and for any Equipment
and Inventory located on its real estate, in the event of a designation of the
area in which real estate is located as a "flood prone" or a "flood risk area,"
(hereinafter "SFHA") as defined by the Flood Disaster Protection Act of 1973, in
an amount to be reasonably determined by the Lender, and shall comply with the
additional requirements of the National Flood Insurance Program as set forth
therein. Upon the Lender's request, the Borrower shall also maintain flood
insurance for its Inventory and Equipment which is located at any time in an
SFHA. The Borrow shall cause the Lender to be named in each such policy as
secured party or mortgagee and loss payee or additional insured, in a manner
acceptable to the Lender. Each policy of insurance shall contain a clause or
endorsement requiring the insurer to give not less than thirty (30) days prior
written notice to the Lender in the event of cancellation of the policy for any
reason whatsoever and a clause or endorsement stating that the interest of the
Lender shall not be impaired or invalidated by any act or neglect of the
Borrower or the owner of any premises where Collateral is located nor by the
occupation of such premises for purposes more hazardous than are permitted by
such policy. The Borrower shall pay, upon Lender's request, all fees incurred by
the Lender to determine whether any of the real estate and any Collateral is
located in a SFHA. The Borrower shall also pay all premiums for such insurance
when due, and shall deliver to the Lender certificates of insurance and, if
requested, photocopies of the policies. If the Borrower fails to pay such fees
or to procure such insurance or the premiums therefor when due, the Lender may
(but shall not be required to) do so and charge the costs thereof to the
Borrower's loan account as a Revolving Loan. The Borrower shall promptly notify
the Lender of any loss, damage, or destruction to the Collateral or arising from
its use, whether or not covered by insurance. The Lender is hereby authorized to
collect all insurance proceeds directly. After deducting from such proceeds the
expenses, if any, incurred by Lender in the collection or handling thereof, the
Lender may apply such proceeds to the reduction of the Obligations in such order
as Lender determines, or at the Lender's option may permit or require the
Borrower to use such money, or any part thereof, to replace, repair, restore or
rebuild the Collateral in a diligent and expeditious manner with materials and
workmanship of substantially the same quality as existed before the loss, damage
or destruction.
7.8 Collateral Reporting. The Borrower will provide the Lender with,
and will cause Paradyne Canada to provide the Lender with, the following
documents at the following times in form satisfactory to the Lender: (a) at
least three (3) times per week, a schedule of credit memos and reports, a
schedule of collections of accounts receivable, a schedule of Accounts created
since the last such schedule and a report of the inventory balance (by location
and major categories) based on the perpetual inventory reports as of the latest
fiscal month end; (b) upon request, copies of invoices, credit memos, shipping
and delivery documents; (c) monthly agings of accounts receivable no later than
the 10th business day of the following month; (d) monthly
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inventory reports by category no later than the 10th business day of the
following month; (e) monthly ageings of accounts payable no later than the 10th
business day of the following month; (f) upon request, copies of purchase
orders, invoices, and delivery documents for Inventory and Equipment acquired
by the Borrower; (g) such other reports as to the Collateral and the Canadian
Collateral as the Lender shall request from time to time; and (h) certificates
of an officer of the Borrower or Paradyne Canada certifying as to the
foregoing. If any of the Borrower's or Paradyne Canada's records or reports of
the Collateral are prepared by an accounting service or other agent, the
Borrower hereby authorizes, or shall cause Paradyne Canada to authorize, such
service or agent to deliver such records, reports, and related documents to the
Lender.
7.9 Accounts.
(a) The Borrower hereby represents and warrants to the Lender and
agrees with the Lender that: (i) each existing Account represents, and each
future Account will represent, a bona fide sale or lease and delivery of goods
by the Borrower of Paradyne Canada, or rendition of services by the Borrower or
Paradyne Canada, in the ordinary course of the Borrower's or Paradyne Canada's
business; (ii) each existing Account is, and each future Account will be, for a
liquidated amount payable by the Account Debtor thereon on the terms set forth
in the invoice therefor or in the schedule thereof delivered to the Lender,
without offset, deduction, defense, or counterclaim; (iii) no payment will be
received with respect to any Account, and no credit, discount, or extension, or
agreement therefor will be granted on any Account, except as reported to the
Lender in accordance with this Agreement; (iv) each copy of an invoice delivered
to the Lender by the Borrower or Paradyne Canada will be a genuine copy of the
original invoice sent to the Account Debtor named therein; and (v) all goods
described in each invoice will have been delivered to the Account Debtor and all
services of the Borrower or Paradyne Canada described in each invoice will have
been performed.
(b) Neither the Borrower nor Paradyne Canada shall re-date any
invoice or sale or make sales on extended dating beyond that customary in the
Borrower's or Paradyne Canada's business or extend or modify any Account. If
the Borrower or Paradyne Canada becomes aware of any matter materially
adversely affecting any Account in excess of $100,000, including information
regarding the Account Debtor's creditworthiness, the Borrower will, and will
cause Paradyne Canada to, promptly so advise the Lender.
(c) Neither the Borrower nor Paradyne Canada shall accept any
note or other instrument (except a check or other instrument for the immediate
payment of money) with respect to any Account without the Lender's written
consent. If the Lender consents to the acceptance of any such note or other
instrument, it shall be considered as evidence of the Account and not payment
thereof, and the Borrower or Paradyne Canada will promptly deliver such note or
instrument to the Lender appropriately endorsed. Regardless of the form of
presentment, demand, notice of dishonor, protest, and notice of protest with
respect thereto, the Borrower or Paradyne Canada, as applicable, will remain
liable thereon until such note or instrument is paid in full.
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(d) The Borrower shall notify, and shall cause Paradyne Canada
to notify, the Lender promptly of all disputes and claims in excess of $100,000
with Account Debtors and settle or adjust them at no expense to the Lender, but
no discount, credit or allowance shall be granted to any Account Debtor without
the Lender's consent, except for discounts, credits and allowances made or
given in the ordinary course of the Borrower's or Paradyne Canada's business
when no Event of Default exists hereunder. The borrower shall send, and shall
cause Paradyne Canada to send, the Lender a copy of each credit memoranda in
excess of $100,000 as soon as issued. The Lender may at all times when an Event
of Default exists hereunder settle or adjust disputes and claims directly with
customers or Account Debtors for amounts and upon terms which the Lender
considers advisable and, in all cases, the Lender will credit the Borrower's
loan account with only the net amounts received by the Lender in payment of any
Accounts.
(e) If an Account Debtor returns any Inventory to the Borrower
or Paradyne Canada when no Event of Default exists, then the Borrower or
Paradyne Canada, as the case may be, shall promptly determine the reason for
such return and shall issue a credit memorandum to the Account Debtor in the
appropriate amount. The Borrower shall immediately report to the Lender, and
shall cause Paradyne Canada to immediately report to the Lender, any return
involving an amount in excess of $100,000. Each such report shall indicate the
reasons for the returns and the locations and condition of the returned
Inventory. In the event any Account Debtor returns Inventory to the Borrower or
Paradyne Canada when an Event of Default exists, the Borrower shall, and shall
cause Paradyne Canada to: (i) hold the returned Inventory in trust for the
Lender; (ii) segregate all returned Inventory from all of its other Property;
(iii) dispose of the returned Inventory solely according to the Lender's
written instructions; and (iv) not issue any credits or allowances with respect
thereto without the Lender's prior written consent. All returned Inventory
shall remain subject to the Security Interest or the Canadian Security
Interest, as the case may be. Whenever any Inventory is returned, the related
Account shall be deemed ineligible, and Availability shall be adjusted
accordingly.
7.10 Collection of Accounts; Payments:
(a) Until the Lender notifies the Borrower to the contrary, the
Borrower shall, and at the request of the Lender at any time Availability is
less than $2,000,000 or any other time as the Lender in its sole discretion
shall determine, shall cause Paradyne Canada to: (i) make collection of all
Accounts and other Collateral or Canadian Collateral for the Lender, (ii)
receive all payments as the Lender's trustee, and (iii) immediately deliver all
payments to the Lender in their original form duly endorsed in blank or deposit
them into a Payment Account established at the Lender's request, as the Lender
may direct. If the Lender requests, the Borrower shall, and shall cause
Paradyne Canada to, establish a lock-box service for collections of Accounts at
a bank or banks mutually acceptable to the Lender and the Borrower and pursuant
to documentation satisfactory to the Lender. If such lock-box service is
established, the Borrower shall instruct, and to the extent provided for in the
documentation relating to Paradyne Canada Accounts shall cause Paradyne Canada
to instruct, all Account Debtors to make all payments directly to the address
established for such service. If, notwithstanding such instructions, the
Borrower or Paradyne Canada receives any Proceeds of Accounts, it shall
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receive such payments as the Lender's trustee, and shall immediately deliver
such payments to the Lender in their original form duly endorsed in blank or
deposit them into a Payment Account, as and to the extent that the Lender may
direct. All collections of Accounts and other Collateral or Canadian Collateral
received in any such lock box or Payment Account or directly by the Borrower or
Paradyne Canada (as the case may be) or the Lender, and all funds in any
Payment Account or other account to which such collections are deposited, shall
be the sole property to the Lender and subject to the Lender's sole control. The
Lender or the Lender's designee may, at any time, notify obligors that the
Accounts have been assigned to the Lender and of the Security Interest or the
Canadian Security Interest therein, and may collect them directly and charge
the collection costs and expenses to the Borrower's loan account as a Revolving
Loan. At the Lender's request, the Borrower shall execute and deliver, and
shall cause Paradyne Canada to execute and deliver, to the Lender such
documents as the lender shall require to grant the Lender access to any post
office box in which collections of Accounts are received.
(b) If sales of Inventory are made for cash, the Borrower
shall, and at the request of the Lender shall cause Paradyne Canada to,
immediately deliver to the Lender the identical checks, cash, or other forms of
payment which the Borrower or Paradyne Canada receives.
(c) All payments received by the Lender on account of Accounts
or as Proceeds of other Collateral or Canadian Collateral will be the Lender's
sole property and will be credited to the Borrower's loan account (conditional
upon final collection) after allowing two (2) Business Days for collection.
(d) In the event the Borrower repays all of the Obligations
upon the termination of this Agreement, other than through the Lender's receipt
of payments on account of Accounts or Proceeds of other Collateral or Canadian
Collateral, such payment will be credited (conditional upon final collection)
to the Borrower's loan account two (2) Business Days after the Lender's receipt
thereof.
7.11 Inventory. The Borrower represents and warrants to the lender
that all of the Inventory is and will be held for sale or lease, or to be
furnished in connection with the rendition of services in the ordinary course
of the Borrower's or Paradyne Canada's business and is and will be fit for such
purposes. The Borrower will, and will cause Paradyne Canada to, keep the
Inventory in good and marketable condition, at its own expense. The Borrower
will not, and will not allow Paradyne Canada to, without prior written notice to
the Lender, acquire or accept any Inventory on consignment or approval. The
Borrower agrees that all Inventory will be produced in accordance with the
Federal Fair Labor Standards Act of 1938, as amended, and all rules,
regulations, and orders thereunder. The Borrower will maintain, and will cause
Paradyne Canada to maintain, a perpetual inventory reporting system at all
times. The Borrower will conduct, and will cause Paradyne Canada to conduct, a
physical count of the Inventory at least once per Fiscal Year, and shall
promptly supply the Lender with a copy of such count accompanied by a report of
the value of such Inventory (valued at the lower of cost, on a first-in,
first-out basis, or market value). The Borrower will not, and will not allow
Paradyne Canada to, without prior written notice to Lender, sell any Inventory
on a bill-and-hold, guaranteed sale, sale
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and return, sale on approval, consignment, or other repurchase or return basis
(other than ordinary course of business returns permitted in the "stock
balancing programs" provided for in the Borrower's usual and customary
agreements with its distributors and resellers).
7.12 Equipment. The Borrower represents and warrants to the Lender
that all of the Equipment is and will be used or held for use in the Borrower's
business and is and will be fit for such purposes (except Equipment which is
obsolete or not material to the Borrower's business operations). The Borrower
shall keep and maintain the Equipment in good operating condition and repair
(ordinary wear and tear excepted) and shall make all necessary replacements
thereof. The Borrower shall promptly inform the Lender of any material
additions to or deletions from the Equipment. The Borrower shall not permit any
Equipment to become a fixture to real property or an accession to other
personal property, unless the Lender has a valid, perfected, and first priority
Security Interest in such real or personal property. The Borrower will not,
without the Lender's prior written consent, alter or remove any identifying
symbol or number on the Equipment. The Borrower shall not, without the Lender's
prior written consent, sell, lease as a lessor, or otherwise dispose of any of
the Equipment (except as permitted under Section 10.13), provided, however,
that the Borrower may dispose of obsolete or unusable Equipment having an
orderly liquidation value no greater than $250,000 individually and $1,000,000
in the aggregate in any Fiscal Year, without the Lender's consent, subject to
the conditions set forth below. In the event any of the Equipment is sold,
transferred or otherwise disposed of with the Lender's prior written consent or
as otherwise permitted hereby and: (a) such sale, transfer or disposition is
effected without replacement of such Equipment, or such Equipment is replaced
by Equipment leased by the Borrower, or by Equipment purchased by the Borrower
subject to a lien or other right constituting a Permitted Lien, then the
Borrower shall deliver all of the cash proceeds of any such sale, transfer or
disposition to the Lender, which proceeds shall be applied to the repayment of
the Obligations; or (b) such sale, transfer or disposition is made in
connection with the purchase by the Borrower of replacement Equipment (other
than subject to a Permitted Lien), then the Borrower shall use the proceeds of
such sale, transfer or disposition to finance the purchase by the Borrower of
replacement Equipment and shall deliver to the Lender written evidence of the
use of the proceeds for such purchase. All replacement Equipment purchased by
the Borrower shall be free and clear of all liens, claims and encumbrances,
except for the Security Interest and other Permitted Liens.
7.13 Assigned Contracts. The Borrower shall fully perform all of
its obligations under each of the Assigned Contracts, and shall enforce all of
its rights and remedies thereunder as it deems appropriate in its business
judgment, provided, however, the Borrower shall not take any action or fail to
take any action with respect to the Assigned Contracts that would result in a
waiver or other loss of any material right or remedy of the Borrower
thereunder. Without limiting the generality of the foregoing, the Borrower
shall take all action necessary or appropriate to permit, and shall not take
any action which would have any adverse effect upon, the full enforcement of
all indemnification rights under the Assigned Contracts. The Borrower shall
not, without the Lender's prior written consent, modify, amend, supplement,
compromise, satisfy, release, or discharge any of the Assigned Contracts
(including, without limitation, the Premisys Communications Contract, the
Supply Agreement and the Volume Pricing Letter), any collateral securing the
same, any Person liable directly or indirectly with respect thereto, or any
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agreement relating to any of the Assigned Contracts or the collateral therefor
if any such modification or other action would materially adversely affect the
business, operations or financial condition of the Borrower; provided, however,
that any net cash proceeds received by the Borrower on account of any permitted
amendment, modification or termination of the Premisys Communications Contract
will be applied sixty percent (60%) to repayment of the Lucent Core Business
Note and forty percent (40%) to the Borrower, with such forty percent (40%) to
be deposited into the Payment Account. The Borrower shall notify the Lender in
writing, promptly after it becomes aware thereof, of any event or fact which
could give rise to a claim by it for indemnification under any of the Assigned
Contracts and shall diligently pursue such right and report to the Lender on
all further developments with respect thereto. The Borrower shall remit
directly to the Lender, for application to the Obligations in such order as the
Lender may directly enforce such right in its own or the Borrower's name and
may enter into such settlements or other agreements with respect thereto as the
Lender determines. All amounts thereby recovered by the Lender, after deducting
Lender's costs and expenses in connection therewith, shall be applied to the
Obligations in such order as the Lender determines. In any suit, proceeding or
action brought by the Lender under any Assigned Contract for any sum owing
thereunder or to enforce any provision thereof, the Borrower shall indemnify
and hold the Lender harmless from and against all expense, loss or damage
suffered by reason of any defense, setoff, counterclaim, recoupment, or
reduction of liability whatsoever of the obligor thereunder arising
out of a breach by the Borrower of any obligation thereunder or arising out of
any other agreement, indebtedness or liability at any time owing from the
Borrower to or in favor of such obligor or its successors. All such obligations
of the Borrower shall be and remain enforceable only against the Borrower and
shall not be enforceable against the Lender. Notwithstanding any provision
hereof to the contrary, the Borrower shall at all times remain liable to
observe and perform all of its duties and obligations under the Assigned
Contracts and the Lender's exercise of any of its rights with respect to the
Collateral shall not release the Borrower from any of such duties and
obligations. The Lender shall not be obligated to perform or fulfill any of the
Borrower's duties or obligations under the Assigned Contracts or to make any
payment thereunder or to make any inquiry as to the nature or sufficiency of
any payment or Property received by it thereunder or the sufficiency of
performance by any party thereunder, or to present or file any claim, or to
take any action to collect or enforce any performance or payment of any amounts
due.
7.14 Documents, Instruments, and Chattel Paper. The Borrower
represents and warrants to the Lender that: (a) all documents, instruments, and
chattel paper describing, evidencing, or constituting Collateral or Canadian
Collateral, and all signatures and endorsements thereon, are and will be
complete, valid, and genuine; and (b) all goods evidenced by such documents,
instruments, and chattel paper are and will be owned by the Borrower or
Paradyne Canada (as the case may be) free and clear of all Liens other than
Permitted Liens.
7.15 Right to Cure. The Lender may, in its sole discretion and at
any time, pay any amount or do any act required of the Borrower hereunder to
preserve, protect, maintain or
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enforce the Obligations, the Collateral, the Canadian Collateral, the Security
Interest or the Canadian Security Interest, and which the Borrower or Paradyne
Canada (as the case may be) fails to pay or do, including, without limitation,
payment of any judgment against the Borrower or Paradyne Canada, any insurance
premium, any warehouse charge, any finishing or processing charge, any
landlord's claim, and any other Lien upon or with respect to the Collateral or
the Canadian Collateral. All payments that the Lender makes under this ss 7.15
and all out-of-pocket costs and expenses that the Lender pays or incurs in
connection with any action taken by it hereunder shall be charged to the
Borrower's loan account as a Revolving Loan. Any payment made or other action
taken by the Lender under this Section 7.15 shall be without prejudice to any
right to assert an Event of Default hereunder and to proceed thereafter as
herein provided.
7.16 Power of Attorney. The Borrower hereby appoints the Lender and
the Lender's designees as the Borrower's attorney in fact, and the Borrower
shall cause Paradyne Canada to appoint the Lender and the Lender's designees as
Paradyne Canada's attorney in fact, with power: (a) to endorse the Borrower's or
Paradyne Canada's name on any checks, notes, acceptances, money orders, or other
forms of payment or security that come into the Lender's possession ; (b) to
sign the Borrower's or Paradyne Canada's name on any invoice, bill of lading, or
other document of title relating to any Collateral or Canadian Collateral (as
the case may be), on drafts against customers, on assignments of Accounts, on
notices of assignment, financing statements and other public records, on
verifications of Accounts and on notices to Account Debtors; (c) to notify the
post office authorities, when an Event of Default exists, to change the address
for delivery of the Borrower's or Paradyne Canada's mail to an address
designated by the Lender and to receive, open and dispose of all mail addressed
to the Borrower of Paradyne Canada; (d) to send requests for verification of
Accounts to Account Debtors; and (e) to do all things necessary to carry out
this Agreement on the Canadian Security Agreement. The Borrower ratifies and
approves all acts of such attorney. Neither the Lender nor the attorney will be
liable for any acts or omissions or for any error of judgment or mistake of fact
or law. This power, being coupled with an interest, is irrevocable until this
Agreement has been terminated and the Obligations have been fully satisfied.
7.17 Lender's Rights, Duties, and Liabilities. The Borrower assumes
all responsibility and liability arising from or relating to the use, sale, or
other disposition of the Collateral. Neither the Lender nor any of its
officers, directors, employees, and agents shall be liable or responsible in
any way for the safekeeping of any of the Collateral, or for any act or failure
to act with respect to the Collateral, or for any loss or damage thereto, or
for any diminution in the value thereof, or for any act of default or any
warehouseman, carrier, forwarding agency or other person whomsoever, all of
which shall be at the Borrower's sole risk. The Obligations shall not be
affected by any failure of the Lender to take any steps to perfect the Security
Interest or to collect or realize upon the Collateral, nor shall loss of or
damage to the Collateral release the Borrower from any of the Obligations. Upon
the occurrence of an Event of Default the Lender may (but shall not be required
to), without notice to or consent from the Borrower or Paradyne Canada, sue
upon or otherwise collect, extend the time for payment of, modify or amend the
terms of, compromise or settle for cash, credit, or otherwise upon any terms,
grant other indulgences, extensions, renewals, compositions, or releases, and
take or omit to take any other action with respect to the Collateral, any
security therefor, any agreement
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relating thereto, any insurance applicable thereto, or any Person liable
directly or indirectly in connection with any of the foregoing, without
discharging or otherwise affecting the liability of the Borrower for the
Obligations or under this Agreement or any other agreement now or hereafter
existing between the Lender and the Borrower.
7.18 Agreement Concerning Certain Property. The Borrower and the
Lender agree that any net proceeds received by the Borrower on account of a sale
of the Premises permitted under Section 10.16 shall be allocated as follows: (a)
the first $15,000,000 of such net proceeds shall be utilized to repay the
Interim Notes (in accordance with the terms of such Interim Notes) until such
Interim Notes have been paid in full and thereafter to the Lucent Core Business
Note (in accordance with the terms of such Lucent Core Business Note), (b) any
and all amounts in excess of $15,000,000 shall be allocated sixty percent (60%)
to repayment of the Lucent Core Business Note and forty percent (40%) to the
Borrower with such forty percent (40%) amount deposited in the Payment Account;
and that any net proceeds received by the Borrower on account of any disposition
of the Premisys Communications Contract permitted under Section 10.7 shall be
allocated according to the formula set forth in the second provision of Section
7.13.
8. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.
8.1 Books and Records. The Borrower shall maintain, and shall cause
Paradyne Canada to maintain, at all times, correct and complete books, records
and accounts in which complete, correct and timely entries are made of its
transactions in accordance with GAAP consistent with those applied inn the
preparation of the Financial Statements. The Borrower shall, and shall cause
Paradyne Canada to, by means of appropriate entries, reflect in such accounts
and in all Financial Statements proper liabilities and reserves for all taxes
and proper provision for depreciation and amortization of Property and bad
debts, all in accordance with GAAP. The Borrower shall maintain, and shall
cause Paradyne Canada to maintain, at all times books and records pertaining to
the Collateral and the Canadian Collateral (as the case may be) in such detail,
form, and scope as the Lender shall reasonably require, including without
limitation records of: (a) all payments received and all credits and extensions
granted with respect to the Accounts; (b) the return, rejections, repossession,
stoppage in transit, loss, damage, or destruction of any Inventory; and (c) all
other dealings affecting the Collateral or the Canadian Collateral.
8.2 Financial Information. The Borrower shall promptly furnish, and
shall cause Paradyne Canada to promptly furnish, to the Lender or its agents
all such financial information as the Lender shall reasonably request, and
notify its auditors and accountants that the Lender is authorized to obtain
such information directly from them. Without limiting the foregoing, ,the
Borrower and its Subsidiaries will furnish to the Lender, in such detail as the
Lender shall request, the following:
(a) As soon as available, but in any event not later than 90
days after the closing of each Fiscal Year, consolidated and consolidating
audited balance sheets and statements of income and expense, and consolidated
statements of retained earnings, cash flow and stockholders equity for the
Borrower and its consolidated Subsidiaries for such Fiscal Year,
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and the accompanying notes thereto, setting forth in the case of the balance
sheet and statement of income and expense for the Borrower alone and on a
consolidated basis, in comparative form figures for the previous Fiscal Year
(but no comparative form figures shall be required until the end of Fiscal Year
1997), the financial position and the results of operations of the Borrower and
its consolidated Subsidiaries as at the date thereof and for the Fiscal Year
then ended, prepared in accordance with GAAP. Such statements shall be
examined in accordance with generally accepted auditing standards by and
accompanied by a report thereon unqualified as to scope of independent
certified public accountants selected by the Borrower and reasonably
satisfactory to the Lender.
(b) As soon as available, but in any event not later than 9:00
a.m. (Los Angeles time) on the last Business Day of the month succeeding the
close of each fiscal month, consolidated and consolidating unaudited balance
sheets of the Borrower and its consolidated Subsidiaries as at the end of such
month, and consolidated and consolidating unaudited statements of income and
expense and other financial information as the Lender may reasonably request for
the Borrower and its consolidated Subsidiaries for such month and for the period
from the beginning of the Fiscal Year to the end of such month, presenting the
financial position and results of operation of the Borrower and its consolidated
Subsidiaries as at the date thereof and for such periods, in accordance with
GAAP and consistent with the audited Financial Statements required pursuant to
Section 8.2(a), except for footnotes and statements of cash flow.
(c) with each of the annual audited Financial Statements
delivered pursuant to Section 8.2(a) and each of the unaudited Financial
Statements delivered pursuant to Section 8.2(b) at the end of the month
succeeding the close of each fiscal quarter, a certificate of the chief
executive or chief financial officer of the Borrower (i) stating that, except as
explained in reasonable detail in such certificate, (A) all of the
representations and warranties of the Borrower contained in this Agreement and
the other Loan Documents are correct and complete as at the date of such
certificate as if made at such time, (B) no Default or Event of Default then
exists or existed during the period covered by such Financial Statements and
(ii) if such certificate relates to annual audited Financial Statements,
describing and analyzing in reasonable detail all material trends, changes and
developments in such Financial Statements, and (iii) if such certificate relates
to a fiscal month which is the last month of a fiscal quarter, setting forth in
reasonable detail the calculations required to establish the Borrower's Fixed
Charge Coverage Ratio during such fiscal quarter. If such certificate discloses
that a representation or warranty is not correct or complete, or that a covenant
has not been complied with, or that an Default or Event of Default existed or
exists, such certificate shall set forth what action the Borrower has taken or
proposes to take with respect thereto.
(d) No sooner than 90 days and no later than 30 days prior to
the beginning of each Fiscal Year, projected balance sheets, statements of
income and expense, projected cash flows and projected Availability for the
Borrower as at the end of and for each month of such Fiscal Year.
(e) Within 30 days after the end of each Fiscal Year, a report
of the Capital Expenditures of the Borrower and its Subsidiaries for such
Fiscal year, prepared in
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accordance with GAAP consistent with the audited Financial Statements required
pursuant to section 8.2(a).
(f) Promptly upon the request of the Lender, a copy of each
annual report or other filing or notice filed with the PBGC.DOL, or IRS with
respect to each Plan of the Borrower or any ERISA Affiliate
(g) Such additional information as the Lender may from time to
time reasonably request regarding the financial and business affairs of the
Borrower or any Subsidiary, including, without limitation, projections of
future operations on both a consolidated and consolidating basis.
8.3 Notices To Lender. The Borrower shall notify the Lender in
writing of the following matters at the following times:
(a) Immediately after becoming aware of the existence of any
Default or Event of Default.
(b) Immediately after becoming aware that the holder of any
capital stock of the Borrower or of any Debt has given notice or taken any
action with respect to a claimed default.
(c) Immediately after becoming aware of any material adverse
change in the Borrower's Property, business, operations, or condition
(financial or otherwise).
(d) Immediately after becoming aware of any pending or
threatened action, suit, proceeding, or counterclaim by any Person, or any
pending or threatened investigation by a Public Authority, which may materially
and adversely affect the Collateral, the repayment of the Obligations, the
Lender's rights under the Loan Documents, or the Borrower's Property, business,
operations, or condition (financial or otherwise).
(e) Immediately after becoming aware of any pending or
threatened strike, work stoppage, material unfair labor practice claim, or
other material labor dispute affecting the Borrower or any of its Subsidiaries.
(f) Immediately after becoming aware of any violation of any
law, statute, regulation, or ordinance of a Public Authority applicable to
Borrower, any Subsidiary, or their respective Properties which may materially
and adversely affect the Collateral, the repayment of the Obligations, the
Lender's rights under the Loan Documents, or the Borrower's property, business,
operations, or condition (financial or otherwise).
(g) Immediately after becoming aware of any violation by the
Borrower of Environmental Laws or immediately upon receipt of and any notice
that a Public Authority has asserted that the Borrower is not in compliance
with Environmental Laws or that such compliance is being investigated.
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(h) At least one (1) day prior to the Borrower changing its name
to "Paradyne Corporation" at least one (1) day prior to Paradyne Canada
changing its name to "Paradyne Canada, Ltd.," and at least thirty (30) days
prior to any other name change of the Borrower or Paradyne Canada.
(i) Immediately after becoming aware of any ERISA Event,
accompanied by any materials required to be filed with the PBGC with respect
thereto; immediately after the Borrower's receipt of any notice concerning the
imposition of any withdrawal liability under ss 4042 of ERISA with respect
to a Plan; immediately upon the establishment of any Pension Plan not existing
at the Closing Date or the commencement of contributions by the Borrower to any
Pension Plan to which the Borrower was not contributing at the Closing Date; and
immediately upon becoming aware of any other event or condition regarding a
Plan or the Borrower's or an ERISA Affiliate's compliance with ERISA, which
amy materially and adversely affect the Borrower's Property, business,
operation, or condition (financial or otherwise).
Each notice given under this ss 8.3 shall be described in the
subject matter thereof in reasonable detail and shall set forth the action that
the Borrower has taken or proposes to take with respect thereto.
9. GENERAL WARRANTIES AND REPRESENTATIONS.
The Borrower continuously warrants and respects to the Lender, at all
times during the term of this Agreement and until all Obligations have been
satisfied, that, except as hereafter disclosed to and accepted by the Lender in
writing:
9.1 Authorization, Validity, and Enforceability of this Agreement
and the Loan Documents. The Borrower has the corporate power and authority to
execute, deliver and perform this Agreement and the other Loan Documents, to
incur the Obligations, and to grant the Security Interest. Paradyne Canada has
the corporate power and authority to execute, delivery and perform the Canadian
Documents and to grant the Canadian Security Interest. Each of the Borrower and
Paradyne Canada has taken all necessary corporate action (including, without
limitation, obtaining approval of its stockholders) to authorize its execution,
delivery, and performance of this Agreement, the Canadian Documents and the
other Loan Documents, as applicable. No consent, approval, or authorization of,
or declaration or filing with, any Public Authority, and no consent of any
other Person, is required in connection with the Borrower's or Paradyne
Canada's execution, delivery, and performance of this Agreement, the Canadian
Documents and the other Loan Documents, except for those already duly obtained.
This Agreement, the Canadian Documents and the other Loan Documents have been
duly executed and delivered by the Borrower or Paradyne Canada (as the case may
be) and constitutes the legal, valid and binding obligation of the Borrower or
Paradyne Canada (as the case may be), enforceable against it in accordance with
its terms without defense, setoff, or counterclaim. Neither the Borrower's nor
Paradyne Canada's execution, delivery, and performance of this Agreement, the
Canadian Documents and the other Loan Documents do not and will not conflict
with, or constitute a violation or breach of, or constitute a default under, or
result in the creation
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or imposition of any Lien upon the Property of the Borrower or any of its
Subsidiaries (except as contemplated by this Agreement and the other Loan
Documents) by reason of the terms of (a) any mortgage, lease, agreement, or
instrument to which the Borrower or any of its Subsidiaries is a party or which
is binding upon it, (b) any judgment, law, statute, rule or governmental
regulation applicable to the Borrower or any of its Subsidiaries, or (c) the
Certificate or Articles of Incorporation or By-Laws of the Borrower or any of
its Subsidiaries.
9.2 Validity and Priority of Security Interest. The provisions of this
Agreement, the Canadian Documents and the other Loan Documents create legal and
valid Liens on all the Collateral and the Canadian Collateral in the Lender's
favor, and when all proper filings, recordings, and other actions necessary to
perfect such Liens have been made or taken, such Liens will constitute
perfected and continuing Liens on all the Collateral and the Canadian
Collateral, having priority over all other Liens on the Collateral except for
the Permitted Liens identified in Section 7.4 and enforceable against the
Borrower and all third parties.
9.3 Organization and Qualification. The Borrower: (a) is duly
incorporated and organized and validly existing in good standing under the laws
of the State of Delaware; (b) is qualified to do business as a foreign
corporation and is in good standing in the States set forth on Schedule 9.3,
which are the only states in which failure to qualify could have a material
adverse effect on the Borrower; and (c) has all requisite power and authority
to conduct its business and to own its Property. Paradyne Canada is duly
organized and validly existing in good standing under the laws of the Province
of Ontario, Canada, and maintains its chief executive office and principal
place of business in Ontario.
9.4 Corporate Name: Prior Transactions. The Borrower has not, during
the past five years, been known by or used any other corporate of fictitious
name, or been a party to any merger or consolidation, or acquired all or
substantially all of the assets of any Person, or required any of its Property
out of the ordinary course of business, except as set forth on Schedule 9.4.
9.5 Subsidiaries and Affiliates. Schedule 9.5 is a correct and complete
list of its name and relationship to the Borrower of each and all of the
Borrower's Subsidiaries and their Affiliates. Each Subsidiary is (a) duly
incorporated and organized and validly existing in good standing under the laws
of its state of incorporation set forth on Schedule 9.5, and (b) qualified to
do business as a foreign corporation and in good standing in the states set
forth opposite its name on Schedule 9.5, which are the only states in which
failure to qualify could have a material adverse effect on such Subsidiary.
9.6 Financial Statements and Projections.
(a) The Borrower has delivered to the Lender the audited balance
sheet and related statements of income, retained earnings, cash flow, and
changes in stockholders equity for the Borrower and its Subsidiaries on a
consolidated basis as of December 31, 1995 and for the Fiscal Year then ended,
accompanied by the report thereon of the Borrower's independent certified
public accountants, Coopers & Lybrand LLP. The Borrower has also delivered to
the lender the unaudited balance sheet and related statements of income and
cash flow for the
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Borrower and its Subsidiaries on a consolidated basis, as at May 30, 1996 and
for the five (5) months then ended. Such financial statements are attached
hereto as Exhibit B-1. All such financial statements have been prepared in
accordance with GAAP, except for footnotes and statements of cash flow, and
present accurately and fairly the Borrower's financial position as at the dates
thereof and its results of operations for the periods then ended.
(b) The Projections represent the Borrower's best estimate of the
Borrower's future financial performance for the periods set forth therein
excluding any anticipated development or other costs associated with the XDSL
modem and associated product business referred to in section 10.17. The
Projections have been prepared on the basis of assumptions which the Borrower
believes are fair and reasonable in light of current and reasonably foreseeable
business conditions.
(c) The pro forma balance sheet of the Borrower as at June 30,
1996 attached hereto as Exhibit B-2, presents fairly and accurately the
Borrower's financial condition as at such date as if the transactions
contemplated by the Acquisition Agreement had occurred on such date and the
Closing Date had been such date, and has been prepared in accordance with GAAP,
except for footnotes and statements of cash flow.
9.7 Capitalization. The Borrower's authorized capital stock consists
of 1,000 shares of common stock, par value $1.00 per share, of which all shares
are validly issued and outstanding, fully paid and non-assessable, and are
owned beneficially and of record by the Parent.
9.8 Solvency. The Borrower is Solvent prior to and after giving
effect to the transactions contemplated by the Acquisition Agreement and the
making of each Revolving Loan.
9.9 Debt. Neither the Borrower nor Paradyne Canada has any Debt,
except (a) the Obligations, (b) Debt set forth in the most recent Financial
Statements delivered to the Lender, or the notes thereto, (c) trade payables
and other contractual obligations arising in the ordinary course of business
since the date of such Financial Statements, (d) Debt incurred since the date
of such Financial Statements to finance Capital Expenditures permitted hereby,
(e) permitted other Debt as set forth on Schedule 9.9, and (f) Debt permitted
under sections 10.10 and 10.11.
9.10 Distributions. As of the Closing Date, no Distribution has been
declared, paid, or made upon or in respect of any capital stock or other
securities of the Borrower, other than those provided for in the Acquisition
Agreement.
9.11 Title to Property. Except for Property which the Borrower
leases, the Borrower has good and marketable title in fee simple to the
Premises and good, indefeasible, and merchantable title to all of its other
Property including, without limitation, the assets reflected on the most recent
Financial Statements delivered to the Lender, except as disposed of since the
date thereof in the ordinary course of business.
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9.12 Adequate Assets. Each of the Borrower and its Subsidiaries
possesses assets which in the good faith judgment of Borrower's senior
management is adequate for the conduct of its business.
9.13 Real Property; Leases. Schedule 9.13 is a correct and
complete list of all real property owned by the Borrower or any of its
Subsidiaries, all leases and subleases of real property and of all material
items of personal property by the Borrower or any of its Subsidiaries as lessee
or sublessee, and all leases and subleases of real property and of all material
items of personal property by the Borrower or any of its Subsidiaries as lessor
or sublessor. Each of such leases and subleases is valid and enforceable in
accordance with its terms and is in full force and effect and no default by any
party to any such lease or sublease exists.
9.14 Proprietary Rights. Schedule 9.14 is a correct and complete
list of all patents and trademarks of the Borrower. The Borrower does not own
any registered copyrights. None of the Proprietary Rights are subject to any
licensing agreement or similar arrangement the existence of which could have a
material adverse effect on the business, operations or financial condition of
the Borrower, except as set forth on Schedule 9.14. None of the Proprietary
Rights infringe on or conflict with any other Person's Property and no other
Person's Property infringes on or conflicts with the Proprietary Rights to the
extent that such infringement could have a material adverse effect on the
business, operations or financial condition of the Borrower. The Proprietary
Rights described on Schedule 9.14 constitute all of the Property of such type
necessary to the current and anticipated future conduct of the business of the
Borrower and its Subsidiaries. Paradyne Canada does not own any patents,
trademarks or registered copyrights.
9.15 Trade Names and Terms of Sale. All trade names or styles
under which the Borrower or Paradyne Canada will sell Inventory or create
Accounts, or to which instruments in payment of Accounts may be made payable,
are listed on Schedule 9.15.
9.16. Litigation. Except as set forth on Schedule 9.16, there is no
pending or, to the best of the Borrower's knowledge, threatened action, suit,
proceeding, or counterclaim by any Person, or investigation by any Public
Authority, or any basis for any of the foregoing, which may materially and
adversely affect the Collateral, the Canadian Collateral, the repayment of the
Obligations, the Lender's rights under the Loan Documents, or the Borrower's or
Paradyne Canada's Property, business, operations, or condition (financial or
otherwise).
9.17 Restrictive Agreements. Neither the Borrower not Paradyne
Canada is a party to any contract or agreement, or subject to any charter or
other corporate restriction, which affects its ability to execute, deliver, and
perform the Loan Documents and repay the Obligations or which materially and
adversely affects their respective Property, business, operations, or
condition (financial or otherwise).
9.18 Labor Disputes. Except as set forth on Schedule 9.18: (a)
there is no collective bargaining agreement or other labor contract covering
employees of the Borrower or any of its Subsidiaries; (b) no such collective
bargaining agreement or other labor contract is scheduled to expire during the
term of this Agreement; (c) no union of other labor organization is seeking to
organize, or to be recognized as, a collective bargaining unit of employees of
the
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Borrower or any of its Subsidiaries or for any similar purpose; and (d) there
is no pending or, to the best of the Borrower's knowledge, threatened strike,
work stoppage, material unfair labor practice claims, or other material labor
dispute against or affecting the Borrower, or any of its Subsidiaries or their
respective employees.
9.19 Environmental Laws. Except as otherwise disclosed on Schedule
9.19:
(a) The Borrower and its Subsidiaries have complied in all
material respects with all Environmental Laws applicable to its Premises and
business, and neither the Borrower nor any subsidiary nor any of its present
Premises or operations, nor its past property or operations, is subject to any
enforcement order from or liability agreement with any Public Authority or
private Person respecting (i) compliance with any Environmental Law or (ii) any
potential liabilities and costs or remedial action arising from the Release or
threatened Release of a Contaminant.
(b) The Borrower and its Subsidiaries have obtained all permits
necessary for their current operations under Environmental Laws, and all such
permits are in good standing and the Borrower and its Subsidiaries are in
compliance with all terms and conditions of such permits.
(c) Neither the Borrower nor any of its Subsidiaries, nor, to
the best of the Borrower's knowledge, any of its predecessors in interest, has
stored, treated or disposed of any hazardous waste on any Premises, as defined
pursuant to 40 CFR Part 261 or any equivalent Environmental Law.
(d) Neither the Borrower nor any of its Subsidiaries has
received any summons, complaint, order or similar written notice that it is not
currently in compliance with, or that any Public Authority is investigating its
compliance with, any Environmental Laws or that it is or may be liable to any
other Person as a result of a Release or threatened Release of a Contaminant.
(e) None of the present or past operations of the Borrower and
its Subsidiaries is the subject of any investigation by any Public Authority
evaluating whether any remedial action is needed to respond to a Release or
threatened Release of a Contaminant.
(f) There is not now, nor to the best of the Borrower's
knowledge has there ever been on or in the Premises:
(i) any underground storage tanks or surface impoundments,
(ii) any asbestos containing materials, or
(iii) any polychlorinated biphenyls (PCB's) used in
hydraulic oils, electrical transformers or other equipment.
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(g) Neither the Borrower nor any of its Subsidiaries has filed
any notice under any requirement of Environmental Law reporting a spill or
accidental and unpermitted release or discharge of a Contaminant into the
environment.
(h) Neither the Borrower nor any of its Subsidiaries has
entered into any negotiations or settlement agreements with any Person
(including, without limitation, the prior owner of its property) imposing
material obligations or liabilities on the borrower or any of its Subsidiaries
with respect to any remedial action in response to the Release of a Contaminant
or environmentally related claim.
(i) None of the products manufactured, distributed or sold by
the Borrower or any of its Subsidiaries contain asbestos material.
(j) No Environmental Lien has attached to any Premises of the
Borrower or any of its Subsidiaries.
9.20 No Violation of Law. Neither the borrower nor Paradyne Canada
is in violation of any law, statute, regulation, ordinance, judgment, order, or
decree applicable to it which violation would in any respect materially and
adversely affect the Collateral, the Canadian Collateral, the repayment of the
Obligations, the Lender's rights under the Loan Documents, or their respective
businesses, operations, or financial condition.
9.21 No Default. Neither the Borrower nor Paradyne Canada is in
default with respect to any note, indenture, loan agreement, mortgage, lease,
deed, or other agreement to which it is a party or bound, which default could
reasonably be expected to materially and adversely affect the Collateral, the
Canadian Collateral, the repayment of the Obligations, the Lender's rights
under the Loan Documents, or their respective Property, business, operations,
or condition (financial or otherwise).
9.22 ERISA Compliance. Except as specifically disclosed in Schedule
9.22:
(a) Each Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other federal or state law.
Each Plan which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS and to the best
knowledge of the Borrower, nothing has occurred which would cause the loss of
such qualification. The Borrower and each ERISA Affiliate has made all required
contributions to any Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Borrower,
threatened claims, actions or lawsuits, or action by any Public Authority, with
respect to any Plan which has resulted or could reasonably be expected to
result in a material adverse effect on the Borrower's business or operations.
There has been no prohibited transaction or violation of the fiduciary
responsibility rules with respect to any Plan which has resulted or could
reasonably be expected to result in a material adverse effect on the Borrower's
business or operations.
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(c) (i) No ERISA Event has occurred or is reasonable expected
to occur; (ii) no Pension Plan has any unfunded pension liability; (iii)
neither the Borrower nor any ERISA Affiliate has incurred, or reasonably
expects to incur, any liability under Title IV of ERISA with respect to any
Pension Plan (other than premiums due and not delinquent under Section 4007 of
ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a
transaction that could subject any Person to Section 4069 or 4212(c) of ERISA.
9.23 Taxes. The Borrower and Paradyne Canada have filed all tax
returns and other reports required to be filed and have paid all Taxes,
assessments, fees and other governmental charges levied or imposed upon them or
their properties, income or assets that are otherwise due and payable, except to
the extent that any failure by the Borrower or Paradyne Canada to file or pay
such Taxes, assessments, fees and other governmental changes does not result in
any Liens attaching to Property of the Borrower or Paradyne Canada or does not
have a material adverse effect on the business, operations or financial
condition of the Borrower or Paradyne Canada.
9.24 Use of Proceeds. None of the transactions contemplated in this
Agreement (including, without limitation, the use of proceeds from the
Revolving Loans) will violate or result in the violation of Section 7 of the
Securities Exchange Act of 1934, as amended, or any regulations issued pursuant
thereto, including without limitation, Regulations G, T, U and X of the Board
of Governors of the Federal Reserve System ("Federal Reserve Board"), 12 CFR,
Chapter II. Borrower does not own or intend to carry or purchase any "margin
stock" within the meaning of said Regulation U or G. None of the proceed of the
loans will be used, directly or indirectly, to purchase or carry (or refinance
any borrowing, the proceeds of which were used to purchase or carry) any
"security" within the meaning of the Securities Exchange Act of 1934, as
amended.
9.25 Private Offerings. Borrower has not, directly or indirectly,
offered the Revolving Loans for sale to, or solicited offers to buy part
thereof from, or otherwise approached or negotiated with respect thereto with
any prospective purchaser other than Lender. Borrower hereby agrees that
neither it nor anyone acting on its behalf has offered or will offer the
Revolving Loans or any part thereof or any similar securities for issue or sale
to or solicit any offer to acquire any of the same from anyone so as to bring
the issuance thereof within the provisions of Section 5 of the Securities Act
of 1933, as amended.
9.26 Broker's Fees. No Person is entitled to any brokerage or
finder's fee with respect to the transactions described in this Agreement.
9.27 No Material Adverse Change. As of the Closing Date no material
adverse change has occurred in the Borrower's or Paradyne Canada's Property,
business, operations, or financial condition since the date of the Financial
Statements delivered to the Lender.
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9.28 Disclosure. Neither this Agreement nor any document or statement
furnished to the Lender by or on behalf of the Borrower hereunder contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein or therein not
misleading.
10. AFFIRMATIVE AND NEGATIVE COVENANTS. The Borrower covenants that, so
long as any of the Obligations remain outstanding or this Agreement is in
effect:
10.1 Taxes and Other Obligations. The Borrower and Paradyne Canada
shall: (a) file when due all tax returns and other reports which it is required
to file, pay, or provide for the payment, when due, of all Taxes, fees,
assessments and other governmental charges against it or upon its Property,
income, and franchises, make all required withholding and other tax deposits,
and establish adequate reserves for the payment of all such items, and shall
provide to the Lender, upon request, satisfactory evidence of its timely
compliance with the foregoing; and (b) pay when due and before the expiration of
any applicable grace period, all material Debt owed by it and perform and
discharge in a timely manner all other material obligations undertaken by it;
provided, however that the Borrower and Paradyne Canada need not pay any tax,
fee, assessment, governmental charge, or Debt, or perform or discharge any other
obligation, that it is contesting in good faith by appropriate proceedings
diligently pursued. For purposes of this Section 10.1(b), "material Debt" shall
mean Debt in an aggregate amount in excess of $500,000 and "material
obligations" shall mean obligations the breach of which could reasonably be
expected to result in damages in an aggregate amount in excess of $500,000.
10.2 Corporate Existence and Good Standing. The Borrower and Paradyne
Canada shall maintain its corporate existence and its qualification and good
standing in all states in which failure to qualify could have a material adverse
effect on Borrower or Paradyne Canada, and shall obtain and maintain all
licenses, permits, franchises and governmental authorizations necessary to
conduct its business and own its Property.
10.3 Compliance with Law and Agreements. The Borrower and Paradyne
Canada shall comply with the terms and provisions of each judgment, law,
statute, rule, and governmental regulation applicable to it and each contract,
mortgage, lien, lease, indenture, order, instrument, agreement, or document to
which it is a party or by which it is bound.
10.4 Maintenance of Property and Insurance. The Borrower and each of
its Subsidiaries shall: (a) maintain all of its Property necessary and useful in
its business in good operating condition and repair, ordinary wear and tear
excepted; and (b) in addition to the insurance required by Section 7.7, maintain
with financially sound and reputable insurers such other insurance with respect
to its Property and business against casualties and contingencies of such types
(including, without limitation, business interruption, environmental liability,
public liability, product, liability, and larceny, embezzlement or other
criminal misappropriation) and in such amounts as is customary for Persons of
established reputation engaged in the same or a similar business and similarly
situated, naming the Lender, at its request, as additional insured under each
such policy.
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10.5 ENVIRONMENTAL LAWS. The Borrower and each of its Subsidiaries
shall conduct their respective businesses in compliance in all material
respects with all Environmental Laws applicable to it, including, without
limitation, those relating to the Borrower's generation, handling, use,
storage, and disposal of hazardous and toxic wastes and substances. The
Borrower shall take prompt and appropriate action to respond to any
non-compliance with Environmental Laws and shall regularly report to the Lender
on such response. Without limiting the generality of the foregoing, whenever
the Borrower gives notice to the lender pursuant to Section 8.3(g) the Borrower
shall, at the Lender's request and the Borrower's expense: (a) cause an
independent environmental engineer acceptable to the Lender to conduct such
tests of the site where the Borrower's noncompliance or alleged non-compliance
with Environmental Laws has occurred and prepare and deliver to the Lender a
report setting forth the results of such tests, a proposed plan for responding
to any environmental problems described therein, and an estimate of the costs
thereof; and (b) provide to the Lender a supplemental report of such engineer
whenever the scope of the environmental problems, or the Borrower's response
thereto or the estimated costs thereof, shall change.
10.6 ERISA. The Borrower shall cause each Plan, which has been
designated to be so, to be qualified within the meaning of Section 401(a) of
the Code and to be administered in all respects in compliance with Section
401(a) of the Code. The Borrower shall cause each Plan to be administered in
all material respects in compliance with ERISA.
10.7 MERGERS, CONSOLIDATIONS, ACQUISITIONS, OR SALES. Neither the
Borrower nor Paradyne Canada shall enter into any transaction of merger,
reorganization, or consolidation, or transfer, sell, assign, lease, or
otherwise dispose of all or any part of its Property, or wind up, liquidate or
dissolve, or agree to do any of the foregoing, except dispositions of Property
permitted under Sections 7.4, 10.13 and 10.16 and any disposition of the
Premisys Communications Contract which would not materially adversely affect
the business, operations or financial condition of the Borrower.
10.8 DISTRIBUTIONS; CAPITAL CHANGES. Neither the Borrower nor
Paradyne Canada shall: (a) directly or indirectly declare or make, or incur any
liability to make, any Distribution, except (i) Distributions to the Borrower
by Paradyne Canada and (ii) Distributions that are permitted pursuant to the
tests set forth in Section 4(d) of the Lucent Core Business Note, and that are
expressly approved by the Lender at any time that Revolving Loans are
outstanding under this Agreement, or if at the time of such Distribution no
Revolving Loans will be outstanding under this Agreement, the Borrower shall
give the Lender five (5) Business Days prior notice of any such Distribution;
or (b) make any change in its capital structure which could adversely affect
the repayment of the Obligations.
10.9 TRANSACTIONS AFFECTING COLLATERAL OR OBLIGATIONS. Neither the
Borrower nor Paradyne Canada shall enter into any transaction which materially
and adversely affects the Collateral or the Borrower's ability to repay the
Obligations.
10.10 GUARANTIES. Other than any Guaranty set forth on Schedule
10.10, neither the Borrower nor Paradyne Canada shall make, issue, or become
liable on any Guaranty, except a
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Guaranty in favor of the Lender and endorsements of instruments for deposit,
and a Guaranty by the Borrower of any obligations of a Subsidiary of the
Borrower in the ordinary course of business in an aggregate amount for all
Subsidiaries not exceeding $500,000.
10.11 Debt. Neither the Borrower nor Paradyne Canada shall
incur or maintain any Debt, other than: (a) the Obligations; (b) trade payables
and contractual obligations arising in the ordinary course of business; (c)
other Debt existing on the Closing Date and reflected in the Financial
Statements attached as Exhibit B-1, (d) permitted other Debt as set forth on
Schedule 9.9; (e) Capital Leases or other purchase money Debt incurred in
connection with Capital Expenditures: (f) Debt which by its terms is expressly
subordinated to the Obligations pursuant to a subordination agreement in form
and substance satisfactory to the Lender; (g) any Guaranties permitted under
Section 10.10; (h) other Debt not exceeding in the aggregate $500,000 at any one
time outstanding; (i) intercompany Debt between Paradyne Canada and the Borrower
as permitted under Section 10.13; and (j) the sale and leaseback of the Premises
as permitted under Section 10.16.
10.12 Prepayment; Payment Terms. Neither the Borrower nor
Paradyne Canada shall voluntarily prepay any Debt, except the Obligations in
accordance with their terms, and liabilities and obligations to trade creditors
and taxing authorities, and the Borrower shall not agree to modify the payment
terms of or the interest rate under any of the Lucent Core Business xxx, the
Interim Notes or any notes issued under the RentalCo Guaranty.
10.13 Transactions with Affiliates. Other than
transactions between the Borrower and Paradyne Canada contemplated by this
Agreement and the Canadian Documents, and except as set forth below, neither
the Borrower nor any of its Subsidiaries shall: sell, transfer, distribute, or
pay any money or Property to any Affiliate, or lend or advance money or
Property to any Affiliate, or invest in (by capital contribution or otherwise)
or purchase or repurchase any stock or indebtedness or any Property of any
Affiliate, or become liable on any Guaranty of the indebtedness, dividends, or
other obligations of any Affiliate. Notwithstanding the foregoing the Borrower
and its Subsidiaries may engage in transactions with Affiliates: (a) in order
to pay reasonable compensation and benefits to officers and directors of the
Borrower and its Subsidiaries commensurate with compensation and benefits
levels of companies engaged in a similar business in similar circumstances; (b)
in order to provide management, administrative and other services to RentalCo,
LeaseCo and CapCo so long as (i) the Borrower receives prompt payment for such
services and (ii) following an Event of Default the Borrower continues to
provide such services consistent with such services provided prior to an Event
of Default; (c) in order to lend money to its Subsidiaries in an aggregate
amount (including Debt of Subsidiaries arising on the Closing Date) not to
exceed at any time $10,500,000 for all Subsidiaries; (d) in order to consummate
the transfer of the license agreements set forth on Schedule 10.13 from the
Borrower to CapCo in accordance with the terms of the Paradyne/CapCo Assignment
Agreement dated as of July 31, 1996 among CapCo, the Seller and the Borrower
(the "Paradyne/CapCo Assignment Agreement), at or as soon as practicable
following the closing of the Acquisition Agreement and the cash payments to be
made by the Borrower to CapCo pursuant to the Paradyne/CapCo Assignment
Agreement; (e) the sale of equipment to RentalCo pursuant to Section 5 of the
Intercompany Services Agreement between the Borrower and RentalCo dated as
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of July 31, 1996; (f) the license of rights pursuant to the Cross License
Agreement between the Borrower and CapCo dated as of July 31, 1996; (g) in the
ordinary course of business in amounts and upon terms fully disclosed to the
Lender and no less favorable to the Borrower or such Subsidiary than would
obtain in a comparable arm's length transaction with a third party who is not
an Affiliate; (h) in order to pay closing fees and expenses in connection with
the transactions contemplated by the Acquisition Agreement; and (i) in order to
pay an annual consulting/management fee to TPG in an amount not to exceed
$200,000 in the aggregate in any Fiscal Year; provided however, that the
Borrower and its Subsidiaries may only engage in the transactions described in
subparagraph (i) above if no Event of Default has occurred and is continuing;
and provided, further, that the agreements referred to in subparagraphs (d),(e)
and (f) are those in effect on the Closing Date without regard to any subsequent
amendment or modification.
10.14 Business Conducted. The Borrower and Paradyne Canada shall not
engage, directly or indirectly, in any line of business other than the business
in which the Borrower and Paradyne Canada are engaged on the Closing Date.
10.15 Liens. Neither the Borrower nor Paradyne Canada shall create,
incur, assume, or permit to exist any Lien on any Property now owned or
hereafter acquired by any of them, except Permitted Liens.
10.16 Sale and Leaseback Transactions. Neither the Borrower nor
Paradyne Canada shall, directly or indirectly, enter into any arrangement with
any Person providing for the commercially reasonable terms) that the Borrower or
Paradyne Canada has or will sell or otherwise transfer to such Person.
10.17 New Subsidiaries. The Borrower shall not, directly or
indirectly, organize or acquire any Subsidiary other than a Subsidiary to engage
in the XDSL modem and associated product business (the "Broadband Subsidiary");
provided, however, that upon the formation of the Broadband Subsidiary this
Agreement shall be amended to include the Broadband Subsidiary as a co-borrower
hereunder or as a guarantor of the Obligations as the Lender may elect, all on
terms and conditions (including, without limitation, Liens on its assets in
favor of the Lender) and pursuant to documentation in form and substance
satisfactory to the Lender.
10.18 Restricted Investments. Neither the Borrower nor any of its
Subsidiaries shall make any Restricted Investment.
10.19 Further Assurances. The Borrower shall execute and deliver, or
cause to be executed and delivered, to the Lender such documents and agreements,
and shall take or cause to be taken such actions, as the Lender may, from time
to time, request to carry out the terms and conditions of this Agreement and the
other Loan Documents.
11. CLOSING: CONDITIONS TO CLOSING CONDITIONS TO CLOSING. The Lender will
not be obligated to make the initial Revolving Loans or to obtain any Letters of
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Credit on the Closing Date, unless the following conditions precedent have been
satisfied in a manner satisfactory to Lender:
11.1 Conditions Precedent to Making of Revolving Loans on the Closing
Date.
(a) Representations and Warranties; Covenants. The Borrower's
representations and warranties contained in this Agreement and the other Loan
Documents shall be correct and complete; the Borrower shall have performed and
complied with all covenants, agreements, and conditions contained herein and in
the other Loan Documents which are required to have been performed or complied
with.
(b) Delivery of Documents. The Borrower shall have delivered,
or caused to be delivered, to the Lender such documents, instruments and
agreements as the Lender shall request in connection herewith, duly executed by
all parties thereto other than the Lender, and in form and substance
satisfactory to the Lender and its counsel, including, without limitation the
following:
(i) This Agreement;
(ii) The Intercreditor Agreement;
(iii) The Patent and Trademark Assignments;
(iv) The Canadian Guaranty;
(v) The Canadian Security Agreement;
(vi) The Payment Account agreements required to be
delivered by the Lender pursuant to Section 7.10 and the side letter from
Affiliates of the Borrower concerning such agreements;
(vii) The Acquisition Agreement and all such other
related documents, instruments and agreements as the Lender shall request in
connection therewith;
(viii) Duly executed copies of all financing statements
and other documents, instruments and agreements, properly executed, deemed
necessary or appropriate by the Lender to create in favor of the Lender a first
priority perfected security interest in and lien upon the Collateral and the
Canadian Collateral;
(ix) Certified copies of resolutions of the Board of
Directors of each of the Borrower and Paradyne Canada approving the execution
and delivery of the Loan Documents, the performance of the Obligations and the
consummation of the transactions contemplated thereby;
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(x) A certificate of the Secretary or an Assistant
Secretary of each of the Borrower and Paradyne Canada certifying the names and
true signatures of the officers of the Borrower and Paradyne Canada, as
applicable, authorized to sign the Loan Documents;
(ix) An opinion of counsel for the Borrower, which counsel
shall be satisfactory to the Lender and its counsel, in form and substance
acceptable to the Lender and its counsel;
(xii) A copy of the Certificate of Incorporation of the
Borrower certified by the Secretary of State of Delaware as of a recent date;
(xiii) A copy of the Bylaws of each of the Borrower and
Paradyne Canada, certified by the Secretary or an Assistant Secretary of the
Borrower Paradyne Canada, as applicable, as of the date of this Agreement as
being accurate and complete; and
(xiv) A Certificate of the Secretary of State of the State
of Delaware certifying that the Borrower is in good standing as of a recent
date.
(c) Termination of Liens. The Lender shall have received duly
executed UCC-3 Termination Statements and other instruments, in form and
substance satisfactory to the Lender, as shall be necessary to terminate and
satisfy all Liens on the Property of the Borrower and its Subsidiaries except
Permitted Liens.
(d) Closing Fee. The Borrower shall have paid in full the Closing
Fee.
(e) Payment of Fees and Expenses. The Borrower shall have paid
all fees and expenses of the Lender's outside counsel, Morrison & Foerster LLP,
and all other fees and expenses of the Lender incurred in connection with any
of the Loan Documents and the transactions contemplated thereby.
(f) Required Approvals. The Lender shall have received certified
copies of all consents or approvals of any Public Authority or other Person
which the Lender determines is required in connection with the transactions
contemplated by this Agreement.
(g) No Material Adverse Change. There shall have occurred no
material adverse change in the Borrower's business or financial condition or
in the Collateral since July 1, 1996.
(h) Proceedings. All proceedings to be taken, and all
transactions to be consummated, as contemplated by the Acquisition Agreement and
this Agreement, and all documents contemplated in connection therewith and
herewith, shall be satisfactory in form and substance to the Lender and its
counsel.
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(i) Unused Availability. Following the initial disbursements
and advances hereunder the Availability shall be greater than $10,000,000.
(j) Post Closing Letter. The Borrower and the Lender shall have
entered into that certain letter agreement of even date herewith concerning
actions to be taken post-closing (the "Post-Closing Letter").
11.2 Conditions Precedent to Each Loan. The obligation of the Lender
to make each Revolving Loan or to provide for the issuance of any Letter of
Credit shall be subject to the conditions precedent that on the date of any
such extension of credit the following statements shall be true, and the
acceptance by the Borrower of any extension of credit shall be deemed to be a
statement to the effect set forth in clauses (a) and (b), with the same effect
as the delivery to the Lender of a certificate signed by the chief executive
officer and chief financial officer of the Borrower, dated the date of such
extension of credit, stating that:
(a) The representations and warranties contained in this
Agreement and the other Loan Documents are correct in all material respects on
and as of the date of such extension of credit as though made on and as of such
date, except to the extent the Lender has been notified by the Borrower that
any representation or warranty is not correct and the Lender has explicitly
waived in writing compliance with such representation or warranty; and
(b) No Default or Event of Default has occurred and is
continuing, or would result from such extension of credit.
12. DEFAULT; REMEDIES.
12.1 Events of Default. It shall constitute an event of default
("Event of Default") if any one or more of the following shall occur for any
reason:
(a) failure to make payment of principal, interest, fees or
premium on any of the Obligations when due;
(b) any representation or warranty made or deemed made by the
Borrower in this Agreement, any of the other Loan Documents, any Financial
Statement, or any certificate furnished by the Borrower or any Subsidiary at
any time to the Lender shall prove to be untrue in any material respect as of
the date when made, deemed made, or furnished;
(c) default shall occur in the observance or performance of any
of the covenants and agreements contained in this Agreement (and in the case of
any default under Sections 7.8, 8.2, 10.1(a) and 10.4, such default shall
continue for a period of 30 days), the other Loan Documents, or any other
agreement entered into at any time to which the Borrower and the Lender are
party, or if any such agreement or document shall terminate (other than in
accordance with its terms or with the written consent of the Lender) or become
void or unenforceable without the written consent of the Lender;
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(d) any default shall occur under any of the Lucent Core
Business Note, the Interim Notes or any notes issued pursuant to the RentalCo
Guaranty, beyond any grace period;
(e) default shall occur in the payment of any principal or
interest on any indebtedness for borrowed money (other than the Obligations or
Debt described in Section 12.1(d)) beyond any period of grace provided with
respect thereto;
(f) the Borrower or any Subsidiary shall: (i) file a voluntary
petition in bankruptcy or file a voluntary petition or an answer or otherwise
commence any action or proceeding seeking reorganization, arrangement or
readjustment of its debts or for any other relief under the Federal Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency act or law, state
or federal, now or hereafter existing, or consent to, approve of, or acquiesce
in, any such petition, action or proceeding; (ii) apply for or acquiesce in the
appointment of a receiver, assignee, liquidator, sequestrator, custodian,
trustee or similar officer for it or for all or any part of its Property; (iii)
make an assignment for the benefit of creditors; or (iv) be unable generally to
pay its debts as they become due;
(g) an involuntary petition shall be filed or an action or
proceeding otherwise commenced seeking reorganization, arrangement or
readjustment of the Borrower's or any Subsidiary's debts or for any other
relief under the Federal Bankruptcy Code, as amended, or under any other
bankruptcy or insolvency act or law, state or federal, now or hereafter
existing, and such petition or action or proceeding shall remain undismissed or
undischarged for a period of forty five (45) days;
(h) a receiver, assignee, liquidator, sequestrator, custodian,
trustee or similar officer for the Borrower or any Subsidiary or for all or any
part of their Property shall be appointed involuntarily and shall remain in
place for a period of forty five (45) days; or a warrant of attachment,
execution or similar process shall be issued against any part of the Property
of the Borrower or any Subsidiary and such warrant, execution or similar
process shall not have been vacated, discharged, stayed, satisfied or bonded
pending appeal within forty five (45) days from the entry thereof;
(i) the Borrower or any Subsidiary shall file a certificate of
dissolution under applicable state law or shall be liquidated, dissolved or
wound-up or shall commence or have commenced against it any action or
proceeding for dissolution, winding-up or liquidation, or shall take any
corporate action in furtherance thereof;
(j) all or any material part of the Property of the Borrower
shall be nationalized, expropriated or condemned, seized or otherwise
appropriated, or custody or control of such Property or of the Borrower shall
be assumed by any Public Authority or any court of competent jurisdiction at
the instance of any Public Authority, except where contested in good faith by
proper proceedings diligently pursued where a stay of enforcement is in effect;
(k) the Canadian Guaranty or any other guaranty of the
Obligations shall be terminated, revoked or declared void or invalid;
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(l) any default occurs under the RentalCo Guaranty which is not
cured by the issuance of notes by the Borrower pursuant thereto;
(m) one or more final judgments for the payment of money
aggregating in excess of $1,000,000 (whether or not covered by insurance) shall
be rendered against the Borrower or any Subsidiary and the Borrower or such
Subsidiary shall fail to discharge the same within thirty (30) days from the
date of notice of entry thereof or to appeal therefrom;
(n) any loss, theft, damage or destruction of any item or items
of Collateral occurs which: (i) materially and adversely affects the operation
of the Borrower's business or (ii) is material in amount and is not adequately
covered by insurance;
(o) (i) TPG ceases to own a majority of the limited partnership
interest in the Partnership, (ii) TPG ceases to own and control a majority of
the outstanding capital stock of the general partner of the Partnership (the
"General Partner"), (iii) the General partner ceases to be the sole General
Partner of the Partnership; (iv) TPG shall cease to have the ability to elect a
majority of the Board of Directors (or other equivalent governing body) of the
General Partner and, if applicable, the Partnership, (v) the Parent shall cease
to be a Subsidiary of the Partnership or (vi) the Parent shall cease to own and
control one hundred percent (100%) of the outstanding stock of the Borrower;
(p) any event or condition shall occur or exist with respect to
a Plan that could, in the Lender's reasonable judgment, subject the Borrower or
any Subsidiary to any tax, penalty or liability under ERISA, the Code or
otherwise which in the aggregate is material in relation to the business,
operations, Property or financial or other condition of the Borrower; or
(q) there occurs any material adverse change in the Borrower's
business, operations, or financial condition.
13. REMEDIES.
(a) If an Event of Default exists, the Lender may, without
notice to or demand on the Borrower, do one or more of the following at any
time or times and in any order: (i) reduce the Availability or one or more of
the elements thereof; (ii) restrict the amount of or refuse to make Revolving
Loans and restrict or refuse to arrange for Letters of Credit; (iii) terminate
this Agreement; (iv) declare any or all Obligations to be immediately due and
payable (provided however that upon the occurrence of any Event of Default
described in Sections 12.1(e), 12.1(f), 12.1(g), or 12.1(h), all Obligations
shall automatically become immediately due and payable); and (v) pursue its
other rights and remedies under the Loan Documents and applicable law.
(b) If an Event of Default exists: (i) the Lender shall have,
in addition to all other rights, the rights and remedies of a secured party
under the UCC; (ii) the Lender may, at any time, take possession of the
Collateral and keep it on the Borrower's premises, at no cost to the Lender, or
remove any part of it to such other place or places as the Lender may desire,
or the Borrower shall, upon the Lender's demand, at the Borrower's cost,
assemble the Collateral
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and make it available to the Lender at a place reasonably convenient to the
Lender; and (iii) the Lender may sell and deliver any Collateral at public or
private sales, for cash, upon credit or otherwise, at such prices and upon such
terms as the Lender deems advisable, in its sole discretion, and may, if the
Lender deems it reasonable, postpone or adjourn any sale of the Collateral by
an announcement at the time and place of sale or of such postponed or adjourned
sale without giving a new notice of sale. Without in any way requiring notice
to be given in the following manner, the Borrower agrees that any notice by the
Lender of sale, disposition or other intended action hereunder or in connection
herewith, whether required by the UCC or otherwise, shall constitute reasonable
notice to the Borrower if such notice is mailed by registered or certified
mail, return receipt requested, postage prepaid, or is delivered personally
against receipt, at least five (5) days prior to such action to the Borrower's
address specified in or pursuant to Section 15.11. If any Collateral is sold on
terms other than payment in full at the time of sale, no credit shall be given
against the Obligations until the Lender receives payment, and if the buyer
defaults in payment, the Lender may resell the Collateral without further
notice to the Borrower. In the event the Lender seeks to take possession of all
or any portion of the Collateral by judicial process, the Borrower irrevocably
waives: (a) the posting of any bond, surety or security with respect thereto
which might otherwise be required; (b) any demand for possession prior to the
commencement of any suit or action to recover the Collateral; and (c) any
requirement that the Lender retain possession and not dispose of any Collateral
until after trial or final judgment. The Borrower agrees that the Lender has no
obligation to preserve rights to the Collateral or marshal any Collateral for
the benefit of any Person. The Lender is hereby granted a license or other
right to use, without charge, the Borrower's labels, patents, copyrights, name,
trade secrets, trade names, trademarks, and advertising matters, or any similar
property, in completing production of, advertising or selling any Collateral,
and the Borrower's rights under all licenses and all franchise agreements shall
inure to the Lender's benefit. The proceeds of sale shall be applied first to
all expenses of sale, including attorneys' fees, and second, in whatever order
the Lender elects, to all Obligations. The Lender will return any excess to
the Borrower or such other Person as shall be legally entitled thereto and the
Borrower shall remain liable for any deficiency.
(c) If an Event of Default occurs, the Borrower hereby waives
(i) all rights to notice and hearing prior to the exercise by the Lender of the
Lender's rights to repossess the Collateral without judicial process or to
replevy, attach or levy upon the Collateral without notice or hearing, and (ii)
all rights of set-off and counterclaim against Lender.
(d) If the Lender terminates this Agreement upon an Event of
Default, the Borrower shall pay the Lender, immediately upon termination, an
early termination penalty equal to the early termination fee that would have
been payable under Section 14 if this Agreement had been terminated on that
date pursuant to the Borrowers election.
14. TERM AND TERMINATION. This Agreement shall expire on the Stated
Termination Date unless terminated or automatically extended as provided in
this Section. This Agreement shall automatically be renewed thereafter for
successive one-year terms, unless this Agreement is terminated as provided
below. The Lender and the Borrower shall have the right to terminate this
Agreement, without premium or penalty, at the end of the initial term or at
the end
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of any renewal term by giving the other written notice not less than sixty (60)
days prior to the end of such term by registered or certified mail. The
Borrower may also terminate this Agreement at any time during its initial term
or any successive renewal term if: (a) it gives the Lender sixty (60) days
prior written notice of termination by registered or certified mail; (b) it
pays and performs all Obligations on or prior to the effective date of
termination; and (c) it pays the Lender, on or prior to the effective date of
termination, (i) three percent (3.0%) of the average amount of the Revolving
Loans and Letters of Credit outstanding during the prior 180 day period (or
lesser period if within 180 days of the Closing Date) if such termination is
made on or prior to the first Anniversary Date; (ii) two percent (2.0%) of the
average amount of the Revolving Loans and Letters of Credit outstanding during
the prior 180 day period if such termination is after the first Anniversary
Date but prior to the second Anniversary Date; (iii) one percent (1.0%) of the
average amount of the Revolving Loans and Letters of Credit outstanding during
the prior 180 day period if such termination is after the second Anniversary
Date but prior to the third Anniversary Date; and (iv) one-half percent (0.5%)
of the average amount of the Revolving Loans and Letters of Credit outstanding
during the prior 180 day period if such termination is after the third
Anniversary Date, including during any renewal term. The Lender may also
terminate this Agreement without notice upon an Event of Default. Upon the
effective date of termination of this Agreement for any reason whatsoever, all
Obligations shall become immediately due and payable and Borrower shall
immediately arrange for the cancellation of Letters of Credit then outstanding.
notwithstanding the termination of this Agreement, until all Obligations
(including, without limitation, all unpaid principal of and accrued interest on
the Term Loan) are paid and performed in full, the Lender shall retain all its
rights and remedies hereunder (including, without limitation, in all then
existing and after-arising Collateral). After the first Anniversary Date, the
Lender shall waive any otherwise payable early termination fee in the event
that either (a) all Obligations under this Agreement are refinanced pursuant to
a credit facility agented by the Bank, or (b) the Bank will receive up-front
fees in connection with such a refinancing in an amount equal to or greater
than the otherwise payable early termination fee set forth above.
15. MISCELLANEOUS.
15.1 Cumulative Remedies; No Prior Recourse to Collateral No Prior
Recourse to Collateral. The enumeration herein of the Lender's rights and
remedies is not intended to be exclusive, and such rights and remedies are in
addition to and not by way of limitation of any other rights or remedies that
the Lender may have under the UCC or other applicable law. The Lender shall have
the right, in its sole discretion, to determine which rights and remedies are to
be exercised and in which order. The exercise of one right or remedy shall not
preclude the exercise of any others, all of which shall be cumulative. The
Lender may, without limitation, proceed directly against the Borrower to collect
the Obligations without any prior recourse to the Collateral.
15.2 No Implied Waivers. No act, failure or delay by the Lender
shall constitute a waiver of any of its rights and remedies. No single or
partial waiver by the Lender of any provision of this Agreement or any other
Loan Document, or of breach or default hereunder or thereunder, or of any right
or remedy which the Lender may have, shall operate as a waiver of
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any other provision, breach, default, right or remedy or of the same provision,
breach, default, right or remedy on a future occasion. No waiver by the Lender
shall affect its rights to require strict performance of this Agreement.
15.3 Severability. If any provision of this Agreement shall be
prohibited or invalid, under applicable law, it shall be is effective only to
such extent, without invalidating the remainder of this Agreement.
15.4 Governing Law. This Agreement shall be deemed to have been
made in the State of California and shall be governed by and interpreted in
accordance with the laws of such state, except that no doctrine of choice of
law shall be used to apply the laws of any other state or jurisdiction.
15.5 Consent to Jurisdiction and Venue; Service of Process Service
of Process. The Borrower agrees that, in addition to any other courts that may
have jurisdiction under applicable laws, any action or proceeding to enforce
or arising out of this Agreement or any of the other Loan Documents may be
commenced in the Superior Court of the State of California for the County of
Los Angeles, or in the United States District Court for the Central District of
California, and the Borrower consents and submits in advance to such
jurisdiction and agrees that venue will be proper in such courts on any such
matter. The Borrower hereby waives personal service of process and agrees that
a summons and complaint commencing an action or proceeding in any such court
shall be properly served and shall confer personal jurisdiction if served by
registered or certified mail to the Borrower. Should the Borrower fail to appear
or answer any summons, complaint, process or papers so served within thirty (30)
days after the mailing or other service thereof, it shall be deemed in default
and an order or judgement may be entered against it as demanded or prayed for
in such summons, complaint, process or papers. The choice of forum set forth in
this section shall not be deemed to preclude the enforcement of any judgement
obtained in such forum, or the taking of any action under this Agreement to
enforce the same, in any appropriate jurisdiction.
15.6 Waiver of Jury Trial. THE BORROWER HEREBY WAIVES TRIAL BY JURY,
RIGHTS OF SETOFF, AND THE RIGHT TO IMPOSE COUNTERCLAIMS IN ANY LITIGATION IN
ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT,
THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL, OR ANY INSTRUMENT
OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM OR
DISPUTE HOWSOEVER ARISING, BETWEEN THE BORROWER AND THE LENDER. THE BORROWER
CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED AND FREELY MADE.
15.7 Arbitration; Reference Proceeding.
(a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES,
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY AGREEMENTS OR INSTRUMENTS RELATING HERETO OR DELIVERED IN CONNECTION
HEREWITH AND ANY
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CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL AT THE REQUEST OF ANY
PARTY BE DETERMINED BY ARBITRATION. THE ARBITRATION SHALL BE CONDUCTED IN
ACCORDANCE WITH THE UNITED STATES ARBITRATION ACT (TITLE 9, U.S. CODE),
NOTWITHSTANDING ANY CHOICE OF LAW PROVISION IN THIS AGREEMENT, AND UNDER THE
COMMERCIAL RULES OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). THE
ARBITRATION SHALL BE CONDUCTED WITHIN LOS ANGELES COUNTY, CALIFORNIA. THE
ARBITRATOR(S) SHALL GIVE EFFECT TO STATUTES OF LIMITATION IN DETERMINING ANY
CLAIM. ANY CONTROVERSY CONCERNING WHETHER AN ISSUE IS ARBITRABLE SHALL BE
DETERMINED BY THE ARBITRATOR(S). JUDGMENT UPON THE ARBITRATION AWARD MAY BE
ENTERED IN ANY COURT HAVING JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN
ACTION FOR JUDICIAL RELIEF OR PURSUIT OF A PROVISIONAL OR ANCILLARY REMEDY
SHALL NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE
PLAINTIFF, TO SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION IF ANY OTHER PARTY
CONTESTS SUCH ACTION FOR JUDICIAL RELIEF.
(b) Notwithstanding the provisions of subparagraph (a), no
controversy or claim shall be submitted to arbitration without the consent of
all parties if, at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation to the Lender which is secured by
real property collateral located in California. If all parties do not consent
to submission of such a controversy or claim to arbitration, the controversy or
claim shall be determined as provided in subparagraph (c).
(c) A controversy or claim which is not submitted to
arbitration as provided and limited in subparagraphs (a) and (b) shall, at the
request of any party, be determined by a reference in accordance with California
Code of Civil Procedure Section 638 et al. If such an election is made, the
parties shall designate to the court a referee or referees selected under the
auspices of the AAA in the same manner as arbitrators are selected in
AAA- sponsored proceedings. The presiding referee of the panel, or the referee
if there is a single referee, shall be an active attorney or retired judge.
Judgment upon the award rendered by such referee or referees shall be entered
in the court in which such proceeding was commenced in accordance with
California Code of Civil Procedure Sections 644 and 645.
(d) No provision of this paragraph shall limit the right of
any party to this Agreement to exercise self-help remedied such as setoff, to
foreclose against or sell any real or personal property collateral or security,
or to obtain provisional or ancillary remedies from a ________ of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party to
resort to arbitration or reference. At the Lender's option, foreclosure under a
deed of trust or mortgage may be accomplished either by exercise of power of
sale under the deed of trust or mortgage or a judicial foreclosure.
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15.8 Survival of Representations and Warranties. All of the
Borrower's representations and warranties contained in this Agreement shall
survive the execution, delivery, and acceptance thereof by the parties,
notwithstanding any investigation by the Lender or its agents.
15.9 Other Security and Guaranties. The Lender may, without notice
or demand and without affecting the Borrower's obligations hereunder, from time
to time: (a) take from any Person and hold collateral (other than the
Collateral) for the payment of all or any part of the Obligations and exchange,
enforce or release such collateral or any part thereof; and (b) accept and hold
any endorsement or guaranty of payment of all or any part of the Obligations
and release or substitute any such endorser or guarantor, or any Person who has
given any Lien in any other collateral as security for the payment of all or
any part of the Obligations, or any other Person in any way obligated to pay
all or any part of the Obligations.
15.10 Fees and Expenses. The Borrower shall pay to the Lender on
demand all costs and expenses that the Lender pays or incurs in connection with
the negotiation, preparation, consummation, administration, enforcement, and
termination of this Agreement and the other Loan Documents, including, without
limitation: (a) attorneys' and paralegal's fees and disbursements of counsel to
the Lender (including, without limitation, a reasonable estimate of the
allocable cost of in-house counsel and staff); (b) costs and expenses including
attorneys' and paralegals' fees and disbursements (including, without
limitation, a reasonable estimate of the allocable cost of in-house counsel and
staff) for any amendment, supplement, waiver, consent, or subsequent closing in
connection with the Loan Documents and the transactions contemplated thereby;
(c) costs and expenses of lien and title searches and title insurance; (d)
Taxes, fees and other charges for recording the mortgages, filing financing
statements and continuations, and other actions to perfect, protect, and
continue the Security Interest or the Canadian Security Interest; (e) sums paid
or incurred to pay any amount or take any action required of the Borrower or
Paradyne Canada under the Loan Documents that the Borrower or Paradyne Canada
(as the case may be) fails to pay or take; (f) costs of appraisals, inspections,
and verifications of the Collateral or the Canadian Collateral, including,
without limitation, travel, lodging, and meals together with an allocated charge
of $500 per day for each auditor employed by the Lender for inspections of the
Collateral or the Canadian Collateral and the Borrower's or Paradyne Canada's
operations; (g) costs and expenses of forwarding loan proceeds, collecting
checks and other items of payment, and establishing and maintaining Payment
Accounts and lock boxes; (h) all amounts that the Borrower is required to pay
under the Letter of Credit Agreement; (i) costs and expenses of preserving and
protecting the Collateral or the Canadian Collateral; and (j) costs and expenses
including attorneys' and paralegals' fees and disbursements (including, without
limitation, a reasonable estimate of the allocable cost of in-house counsel and
staff) paid or incurred to obtain payment of the Obligations, enforce the
Security Interest or the Canadian Security Interest, sell or otherwise realize
upon the Collateral or the Canadian Collateral, and otherwise enforce the
provisions of the Loan Documents, or to defend any claims made or threatened
against the Lender arising out of the transactions contemplated hereby
(including without limitation, preparations for and consultations concerning any
such matters). The foregoing shall not be construed to limit any other
provisions of the Loan Documents regarding costs and expenses to
64
<PAGE> 72
be paid by the Borrower. All of the foregoing costs and expenses shall be
charged to the Borrower's loan account as Revolving Loans.
15.11 Notices. Except as otherwise provided herein, all notices,
demands, and requests that either party is required or elects to give to the
other shall be in writing, shall be delivered personally against receipt, or
sent by recognized overnight courier services, or mailed by registered or
certified mail, return receipt requested, postage prepaid, and shall be
addressed to the party to be notified as follows:
If to the Lender: BankAmerica Business Credit, Inc.
Two N. Lake Avenue, Suite 400
Pasadena, California 91101
Attention: Randy Bowman
with a copy to: Bank of America NT&SA, Legal Department
10124 Old Grove Road
San Diego, California 92131
If to the Borrower: Paradyne Corporation
8545 126th Avenue North
Largo, Florida 34649
with a copy to: Richard Ekleberry
201 Main Street, Suite 2420
Fort Worth, Texas 76102
or to such other address as each party may designate for itself by like
notice. Any such notice, demand, or request shall be deemed given when received
if personally delivered or sent by overnight courier, or when deposited in the
United States mails, postage paid, if sent by registered or certified mail.
15.12 Indemnification. BORROWER HEREBY INDEMNIFIES, DEFENDS AND HOLDS
LENDER, AND ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL, HARMLESS
FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES, DEFICIENCIES,
JUDGMENTS, PENALTIES OR EXPENSES IMPOSED ON, INCURRED BY OR ASSERTED AGAINST
ANY OF THEM, WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL ARISING OUT OF OR BY
REASON OF ANY LITIGATION, INVESTIGATIONS, CLAIMS, OR PROCEEDINGS (WHETHER BASED
ON ANY FEDERAL, STATE OR LOCAL LAWS OR OTHER STATUTES OR REGULATIONS, INCLUDING,
WITHOUT LIMITATION, SECURITIES, ENVIRONMENTAL, OR COMMERCIAL LAWS AND
REGULATIONS, UNDER COMMON LAW OR AT EQUITY, OR ON CONTRACT OR OTHERWISE)
COMMENCED OR THREATENED, WHICH ARISE OUT OF OR ARE IN ANY WAY EASED UPON THE
NEGOTIATION, PREPARATION, EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE OR
ADMINISTRATION OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY UNDERTAKING OR
PROCEEDING
65
<PAGE> 73
RELATED TO ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACT, OMISSION TO
ACT, EVENT OR TRANSACTION RELATED OR ATTENDANT THERETO, INCLUDING, WITHOUT
LIMITATION, AMOUNTS PAID IN SETTLEMENT, COURT COSTS, AND THE FEES AND EXPENSES
OF COUNSEL REASONABLY INCURRED IN CONNECTION WITH ANY SUCH LITIGATION,
INVESTIGATION, CLAIM OR PROCEEDING AND FURTHER INCLUDING, WITHOUT LIMITATIONS,
ALL LOSSES, DAMAGES (INCLUDING CONSEQUENTIAL DAMAGES), EXPENSES OR LIABILITIES
SUSTAINED BY THE LENDER IN CONNECTION WITH ANY ENVIRONMENTAL INSPECTION,
MONITORING, SAMPLING, OR CLEANUP OF THE ENCUMBERED REAL ESTATE REQUIRED OR
MANDATED BY ANY ENVIRONMENTAL LAW; PROVIDED, HOWEVER, THAT BORROWER SHALL NOT
INDEMNIFY LENDER, ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL FROM
SUCH DAMAGES RESULTING FROM THEIR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
Without limiting the foregoing, if, by reason of any suit of proceeding of any
kind, nature, or description against Borrower, or by Borrower or any other
party against Lender, which in Lender's sole discretion makes it advisable
for Lender to seek counsel for protection and preservation of its liens and
security assets, or to defend its own interest, such expenses and counsel
fees shall be allowed to Lender. To the extent that the undertaking
to indemnify, pay and hold harmless set forth in this section 15.12 may be
unenforceable because it is violative of any law or public policy, Borrower
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all indemnified
matters incurred by Lender. The foregoing indemnity shall survive the payment
of the Obligations and the termination of this Agreement. All of the foregoing
costs and expenses shall be part of the Obligations and secured by the
Collateral.
15.13 Waiver of Notices. Unless otherwise expressly provided herein,
the Borrower waives presentment, protest and notice of demand or dishonor and
protest as to any instrument, as well as any and all other notices to which it
might otherwise be entitled. No notice to or demand on the Borrower which the
Lender may elect to give shall entitle the Borrower to any or further notice or
demand in the same, similar or other circumstances.
15.14 Binding Effect: Assignment. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective
representatives, successors and assigns of the parties hereto; provided,
however, that no interest herein may be assigned by the Borrower without the
prior written consent of the Lender. The rights and benefits of the Lender
hereunder shall, if the Lender so agrees, inure to any party acquiring any
interest in the Obligations or any part thereof
15.15 Modification. This Agreement is intended by the Borrower and
the Lender to be the final, complete, and exclusive expression of the agreement
between them. This Agreement supersedes any and all prior oral or written
agreements relating to the subject matter hereof and may not be contradicted by
evidence of prior, contemporaneous or subsequent oral agreements of the
parties. There are no oral agreements between the parties. No modification,
rescission, waiver, release, or amendment of any provision of this Agreement
shall be made,
66
<PAGE> 74
except by a written agreement signed by the Borrower and a duly authorized
officer of the Lender.
15.16 Counterparts. This Agreement may be executed in any number
of counterparts, and by the Lender and the Borrower in separate counterparts,
each of which shall be an original, but all of which shall together constitute
one and the same agreement.
15.17 Right of Set-Off. Whenever an Event of Default exists, the
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Lender or any affiliate of the Lender to
or for the credit or the account of the Borrower against any and all of the
Obligations, whether or not then due and payable. Lender agrees promptly to
notify Borrower after any such set-off and application made by Lender, provided
that the failure to give such notice shall not affect the validity of such
set-off and application.
15.18 Participating Lender's Security Interests. The Lender may,
without notice to or consent by the Borrower, grant one or more participations
in the Revolving Loans to Participating Lenders. If a Participating Lender shall
at any time with the Borrower's knowledge participate with the Lender in the
Revolving Loans, the Borrower hereby grants to such Participating Lender, and
the Lender and such Participating Lender shall have and are hereby given, a
continuing lien on and security interest in any money, securities and other
property of the Borrower in the custody or possession of the Participating
Lender, including the right of setoff, to the extent of the Participating
Lender's participation in the Obligations, and such Participating Lender shall
be deemed to have the same right of setoff to the extent of Participating
Lender's participation in the Obligations under this Agreement as it would have
it were a direct lender.
IN WITNESS WHEREOF, the parties have entered into this Agreement on
the date first above written.
AT&T PARADYNE CORPORATION,a
Delaware corporation
By: /s/
----------------------------------
Title:
-------------------------------
BANKAMERICA BUSINESS CREDIT INC.
By: /s/
----------------------------------
Title:
-------------------------------
67
<PAGE> 75
List of Exhibits/Schedules
<TABLE>
<S> <C>
Exhibit A Forming of Borrowing Base Certificate
Exhibit B-1 Financial Statements
Exhibit B-2 Proforma Balance Sheet
Schedule 7.3 Locations of Borrower
Schedule 7.13 List of Material Contracts
Schedule 9.3 List of Qualification States
Schedule 9.4 Names of Borrower and Trade Styles
Schedule 9.5 Subsidiaries and Affiliates and states of
incorporation and qualification
Schedule 9.9 Permitted Other Debt
Schedule 9.13 Real Estate - Owned and Leased
Schedule 9.14 Proprietary Rights Collateral (patents, trademarks,
and copyrights)
Schedule 9.15 Trade Names
Schedule 9.16 Litigation
Schedule 9.18 Labor Disputes
Schedule 9.19 Environmental Laws
Schedule 9.22 ERISA Compliance
Schedule 10.10 Permitted Guaranties
</TABLE>
68
<PAGE> 1
EXHIBIT 10.7
AMENDED AND RESTATED
SUBORDINATED REVOLVING PROMISSORY NOTE
$10,000,000 Dated: October 16, 1998
FOR VALUE RECEIVED, the undersigned, PARADYNE CORPORATION, a Delaware
corporation (the "Company"), hereby promises to pay to the order of PARADYNE
PARTNERS, L.P., a Delaware limited partnership ("Partnership"), or to any other
holder of this Note (Partnership or such other holder being the "Payee"), the
principal amount of TEN MILLION UNITED STATES DOLLARS (U.S. $10,000,000) on
August 25, 2002 (the "Maturity Date"). Subject to the terms and conditions of
this Note, amounts borrowed pursuant to this Note may be repaid and reborrowed
at any time during the term of this Note. Both principal and interest hereunder
are payable in lawful money of the United States of America to the Payee at its
principal place of business at 201 Main Street, Suite 2420, Fort Worth, Texas
76102, or at such other place as the Payee may designate from time to time in
writing (such principal place of business or other place being the "Payment
Place"), in cash or other immediately available funds. Unless otherwise defined
in the text of this Note, capitalized terms used herein shall have the meaning
ascribed to such terms in Section 10.
SECTION 1. INTEREST. The Company hereby promises to pay interest on the
unpaid principal amount of this Note from the date hereof until this Note shall
be paid in full in cash or other immediately available funds at the Applicable
Rate, payable on the last calendar day of each month during the term hereof (the
"Payment Date"), and computed on the basis of a year of 365/6 days for the
actual number of days elapsed. Interest accruing pursuant to this Section 1 on
the unpaid principal amount of this Note from and after the date hereof shall be
payable in lawful money of the United States of America, in cash or other
immediately available funds, to the Payee at the Payment Place. If the Payment
Date or other date fixed for payment hereunder is not a Business Day, such
payment date shall be extended to the next succeeding Business Day, and during
any such extension, interest on the unpaid principal amount of this Note shall
accrue and be payable at the Applicable Rate as set forth in this Section 1.
SECTION 2. PAYMENT OF PRINCIPAL.
(a) Scheduled Payment. On the Maturity Date, the Company shall pay to
the Payee, in cash or other immediately available funds, the entire unpaid
principal amount of this Note plus all accrued and unpaid interest thereon.
(b) Optional Prepayment. Provided that no "Event of Default" (as
defined in that certain Loan and Security Agreement by and among BankAmerica
Business Credit, Inc. ("BABC") and the Company dated as of July 31, 1996, the
"Loan Agreement") had occurred and is continuing or will result from such
action, the Company may, at any time and from time to time, without premium or
penalty, prepay all or a portion of the unpaid principal amount of this Note,
together with unpaid accrued interest on the amount so prepaid to the date
chosen for prepayment, payable in cash or other immediately available funds.
<PAGE> 2
SECTION 3. EVENTS OF DEFAULT.
(a) For purposes of this Note, an "Event of Default" shall be deemed to
have occurred upon:
(i) any failure by the Company to pay all or any portion of principal
or interest under this Note when the same shall be due and payable in accordance
with the terms hereof, whether on the Maturity Date, by acceleration or
otherwise, which failure continues unremedied for a period of 30 Business Days;
or
(ii) (A) the filing by the Company or any of its Significant
Subsidiaries of a voluntary petition seeking liquidation, reorganization,
arrangement or readjustment, in any form, of its debts under Title 11 of the
United States Code (or corresponding provisions of future laws) or any other
applicable bankruptcy, insolvency or similar law, or the filing by the Company
or any of its Significant Subsidiaries of an answer consenting to or acquiescing
in any such petition, (B) the making by the Company or any of its Significant
Subsidiaries of any assignment for the benefit of its creditors, or the
admission by the Company or any of its Significant Subsidiaries in writing of
its inability to pay its debts as they become due, (C) the filing of (x) an
involuntary petition against the Company or any of its Significant Subsidiaries
under Title 11 of the United States Code, or any other applicable bankruptcy,
insolvency or similar law (or corresponding provisions of future laws), (y) an
application for the appointment of a custodian, receiver, trustee or other
similar official for the Company or any of its Significant Subsidiaries for all
or a substantial part of the assets of the Company or any of its Significant
Subsidiaries or (z) an involuntary petition against the Company or any of its
Significant Subsidiaries seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of the Company or any
of its Significant Subsidiaries or any of the Company's or any such Significant
Subsidiary's debts under any other federal or state insolvency law, provided
that any such filing shall not have been vacated, set aside or stayed within a
45 day period from the date thereof, or (D) the entry against the Company or any
of its Significant Subsidiaries of a final and nonappealable order for relief
under any bankruptcy, insolvency or similar law now or hereafter in effect.
(b) Upon the occurrence and during the continuance of any Event of Default
described in Section 3(a)(i) or (ii), the Payee may, by written notice to the
Company, declare all or any portion of the unpaid principal amount of this Note
and all interest accrued thereon to be immediately due and payable. Demand,
presentment, protest and notice of non-payment are hereby waived by the
Company.
SECTION 4. REMEDIES CUMULATIVE. No failure to exercise or delay in
exercising any right, remedy, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges provided herein are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
2
<PAGE> 3
SECTION 5. NOTICES. Any notices or other communications required or
permitted hereunder shall be given in writing and personally delivered with
receipt acknowledged or mailed, postage prepaid, via registered mail, return
receipt requested, if to the Payee, at its address first set forth above or any
other address notified in writing by the Payee to the Company, and if to the
Company, at its address at 8545 126th Avenue North, Largo, Florida 33773,
Attention: Chief Financial Officer, with a copy to Texas Pacific Group, 201
Main Street, Suite 2420, Fort Worth, Texas 76102, Attention: Richard A.
Eckleberry, or any other address notified in writing by the Company to the
Payee. Any notice given in conformity with the foregoing shall be deemed given
when personally delivered or upon the date of delivery specified in the
registered mail receipt.
SECTION 6. GOVERNING LAW. This Note shall be governed by, and construed
and enforced in accordance with the law of the State of Florida as in effect
from time to time, without giving effect to any choice of laws or conflict of
laws principles thereof.
SECTION 7. SEVERABILITY. If any provision of this Note is invalid or
unenforceable in any jurisdiction, the other provisions hereof shall remain
in full force and effect in such jurisdiction and the remaining provisions
hereof shall be liberally construed in favor to the holder hereof in order to
effectuate the provisions hereof and the invalidity of any provision hereof
in any jurisdiction shall not affect the validity or enforceability of any other
provision in any other jurisdiction, including the State of Florida.
SECTION 8. SUCCESSORS AND ASSIGNS; TRANSFERABILITY. This Note shall be
binding upon and inure to the benefit of the Payee and the Company and their
respective transferees, successors and assigns.
SECTION 9. REPLACEMENT OF NOTE. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note, and the Company's receipt of an indemnity agreement of the Payee
reasonably satisfactory to the Company, the Company will, at the expense of the
Payee, execute and deliver, in lieu thereof, a new Note of like terms.
SECTION 10. DEFINITIONS.
(a) For purposes of this Note, the following terms have the following
meanings:
"Applicable Rate" means 8% per annum.
"Business Day" shall mean a day other than a Saturday, Sunday or
other day on which commercial banks in Florida are authorized or required by law
to close.
"Company" shall have the meaning ascribed to such term in the
first paragraph of this Note.
3
<PAGE> 4
"Holders" shall mean the Payee and each other holder of all or any
portion of this Note.
"Indebtedness" shall mean any indebtedness, whether or not contingent,
for or in respect of borrowed money or evidenced by bonds, notes, debentures or
similar instruments or letters of credit (or reimbursement agreements in respect
thereof) or representing the balance deferred and unpaid of the purchase price
of any property, including pursuant to capital leases (except any such balance
that constitutes an accrued expense or a trade payable), if and to the extent
any of the foregoing indebtedness would appear as a liability upon a balance
sheet of such person or entity prepared on a consolidated basis in accordance
with generally accepted accounting principles, and including, to the extent not
otherwise included, the guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of the
foregoing indebtedness.
"Maturity Date" shall have the meaning ascribed to such term in the
first paragraph of this Note.
"Partnership" shall mean Paradyne Partners, L.P., a Delaware limited
partnership.
"Payee" shall have the meaning ascribed to such term in the first
paragraph of this Note.
"Payment Place" shall have the meaning ascribed to such term in the
first paragraph of this Note.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Significant Subsidiary" shall mean a "significant subsidiary"
of the Company as defined in Rule 1-02(v) of Regulation S-X under the Securities
Exchange Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, as said Regulation may be amended from time to time, or any other
Subsidiary of the Company that has guaranteed or assumed by obligations of the
Company under this Note.
"Subsidiary" shall mean any person or entity of which at least a
majority of the capital stock or other equity interests (including partnership
interests) having ordinary voting power for the election of directors or other
governing body of such person or entity is owned or controlled by the Company,
directly or indirectly through one or more subsidiaries.
(b) Unless otherwise provided herein, (i) the word "from" shall mean from
and including and (ii) the words "to" or "until" shall mean to and until but
excluding.
4
<PAGE> 5
(c) All references to "Sections" of this Note shall be to Sections of this
Note unless otherwise specifically provided.
SECTION 11. SUBORDINATION TO CREDIT AGREEMENT. This Note is issued as
subordinate to the "Obligations" of the Company under the Loan Agreement in the
manner and to the extent set forth in the Subordination Agreement dated of even
date herewith among the Partnership, the Company, and BABC.
SECTION 12. DESCRIPTIVE HEADINGS. The descriptive headings of this Note
are inserted for convenience only and do not constitute a part of this Note.
SECTION l3. AMENDMENT AND RESTATEMENT. This Note is given in amendment
and restatement of that certain Subordinated Revolving Promissory Note in the
original principal amount of $5,000,000, dated August 25, 1997, executed by the
Company and payable to the order of Payee (the "Prior Note") in order to
increase the face amount of the Prior Note from $5,000,000 to $10,000,000.
Except for such increase in the face amount of the Prior Note, and the addition
of this new Section 13, all of the terms and provisions of this Note are the
same as the terms and provisions of the Prior Note. Payee agrees to mark the
Prior Note with the following legend: "This Note has been amended and restated
in order to increase the face amount of this Note from $5,000,000 to
$10,000,000. This Note will no longer be in force or effect."
IN WITNESS WHEREOF, each of the Company and the Payee has caused this Note to be
executed by its duly authorized officer as of the day and year first written
above.
PARADYNE CORPORATION
By: /s/ James L. Slattery
---------------------------------------
Name: James L. Slattery
-------------------------------------
Title: Senior Vice President
------------------------------------
PARADYNE PARTNERS, L.P.
By: Paradyne GenPar, Inc.,
its sole general partner
By: /s/ James J. O'Brien
-----------------------------------
Name: James J. O'Brien
---------------------------------
Title: V.P.
--------------------------------
5
<PAGE> 1
EXHIBIT 10.8
LEASE AGREEMENT
BETWEEN
SHAV ASSOCIATES
AS LANDLORD
AND
PARADYNE CORPORATION,
AS TENANT
PREMISES:
100 SCHULZ DRIVE
RED BANK, NEW JERSEY
1ST FLOOR
2ND FLOOR
DATED: OCTOBER 8, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
1 Demised Premises, Term, Rent.............................................. 1
2 Use....................................................................... 2
3 Preparation Of The Demised Premises....................................... 3
4 Occupancy Upon Completion Of Tenant's Work................................ 4
5 Additional Rent........................................................... 5
6 Subordination, Notice To Mortgagees ...................................... 10
7 Quiet Enjoyment .......................................................... 11
8 Assignment, Mortgaging, Subletting ....................................... 11
9 Compliance With Laws And Requirements Of Public Authorities .............. 13
10 Insurance ................................................................ 14
11 Rules And Regulation ..................................................... 16
12 Tenant's Changes ......................................................... 17
13 Tenants Property ......................................................... 19
14 Repairs And Maintenance .................................................. 21
15 Electricity .............................................................. 22
16 Heating, Ventilation And Air-Conditioning ................................ 24
17 Landlord's Other Services ................................................ 24
18 Access, Changes In Building Facilities, Name ............................. 27
19 Notice Of Accidents ...................................................... 28
20 Non-Liability And Indemnification ........................................ 28
21 Destruction Or Damage .................................................... 29
22 Eminent Domain ........................................................... 30
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
23 Surrender ................................................................ 32
24 Conditions Of Ligation ................................................... 33
25 Re-Entry By Landlord ..................................................... 34
26 Damages .................................................................. 35
27 Waivers .................................................................. 37
28 No Other Waivers Or Modifications ........................................ 38
29 Curing Tenant's Defaults ................................................. 38
30 Broker ................................................................... 39
31 Notices .................................................................. 39
32 Estoppel Certificate ..................................................... 40
33 Arbitration .............................................................. 40
34 No Other Representations, Construction, Governing Law .................... 40
35 Security ................................................................. 41
36 Parties Bound ............................................................ 42
37 Consents ................................................................. 42
38 Mortgage Financing Tenant Cooperation .................................... 43
39 Environmental Compliance ................................................. 43
40 Holding Over ............................................................. 44
41 Certain Definitions And Constructions .................................... 45
42 Relocation Of Tenant ..................................................... 45
43 Option To Renew .......................................................... 45
44 Right Of First Refusal ................................................... 46
45 Satellite Dish ........................................................... 47
46 Waiver Of Distraint ...................................................... 49
</TABLE>
ii
<PAGE> 4
EXHIBIT A - Description of Land
EXHIBIT B - Floor Plan
EXHIBIT C - HVAC Specifications
EXHIBIT D - Cleaning and Maintenance Specifications
EXHIBIT E - Rules and Regulations
EXHIBIT F - Definitions
EXHIBIT G - Non-Disturbance Agreement
EXHIBIT H - Reserved Parking
iii
<PAGE> 5
LEASE, dated October 8, 1996, between SHAV ASSOCIATES, a New Jersey General
Partnership, c/o Alfieri Property Management, having its principal office
located at 399 Thornall Street, P.O. Box 2911, Edison, New Jersey 08818-2911,
("Landlord"), and PARADYNE CORPORATION, a Delaware corporation, having its
principal office located at 8545 126th Avenue North, P.O. Box 2826, Largo,
Florida 33779, ("Tenant").
WITNESSETH:
ARTICLE 1
DEMISED PREMISES, TERM, RENT
1.1 Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord,
the premises hereinafter described, in the building located at 100 Schulz
Drive, Red Bank, New Jersey, ("Building") on the parcel of land more
particularly described in Exhibit A ("Land"), for the term hereinafter stated,
for the rents hereinafter reserved and upon and subject to the conditions
(including limitations, restrictions and reservations) and covenants
hereinafter provided. Each party hereby expressly covenants and agrees to
observe and perform all of the conditions and covenants herein contained on its
part to be observed and performed.
1.2 The premises hereby leased to Tenant is the 1st and 2nd floors of the
Building, as shown on the floor plans annexed hereto as Exhibit B, having a
rentable area of 50,000 square feet measured outside wall to outside wall,
together with Tenant's share of the common area. Said premises, together with
all fixtures and equipment which at the commencement, or during the term of
this Lease are thereto attached (except items not deemed to be included therein
and removable by Tenant as provided in Article 13) constitute the "Demised
Premises." The Demised Premises shall be limited to the space that is located
from the ceiling tiles to the top of the floor slab except that any Tenant
supplied equipment placed above the ceiling tiles shall be considered part of
the Demised Premises.
1.3 The term of this Lease, for which the Demised Premises are hereby leased,
shall be sixty six (66) months and shall commence on November 1, 1996
("Commencement Date") and shall end at noon on April 30, 2002.
1.4 The rents reserved under this Lease, for the term thereof, shall be and
consist of:
<TABLE>
<CAPTION>
PERIOD FIXED RENT ANNUAL RENT MONTHLY RENT
---------- ----------- ------------
<S> <C> <C> <C>
Months 1 through 60 $ 16.25 $ 812,500.00 $ 67,708.33
Months 61 through 66 $ 19.00 $ 475,000.00 (6 mos.) $ 79,166.67
</TABLE>
Fixed rent is calculated on 50,000 sq. ft. of rentable area and shall be
payable in equal monthly installments in advance on the first day of each and
every calendar month during the term of this Lease, (except Tenant shall pay,
upon execution and delivery of this Lease by Tenant, the sum of
<PAGE> 6
$67,708.33 to be applied against the first monthly installment or installments
of fixed rent becoming due under this Lease) and
(b) Additional rent consisting of all such other sums of money as
shall become due from and payable by Tenant to Landlord hereunder (for
default in payment of which Landlord shall have the same remedies as
for a default in payment of fixed rent),
all to be paid to Landlord at its office, or such other place, or to such agent
at such place, as Landlord may designate by written notice to Tenant, in lawful
money of the United States of America.
1.5 Tenant shall pay the fixed rent and additional rent herein reserved
promptly as and when the same shall become due and payable, without demand
therefor and without any abatement, deduction or setoff whatsoever except as
expressly provided in this Lease.
1.6 If the Commencement Date occurs on a day other than the first day of a
calendar month, the fixed rent for such calendar month shall be prorated and
the balance of the first month's fixed rent theretofore paid shall be credited
against the next monthly installment of fixed rent.
1.7 Late payments of any payment of rent, including monthly rent, which is not
received within five (5) days after it is due, will be subject to a late charge
equal to three percent (3%) of the unpaid payment. This amount is in
compensation of Landlord's additional cost of processing late payments. In
addition, any rent which is not paid when due, including monthly rent, will
accrue interest at a late rate charge of First Union Prime Rate plus two
percent (2%) per annum, as said rate is reasonably determined by Landlord from
published reports, (but in no event in an amount in excess of the maximum rate
allowed by applicable law) from the date on which it was due until the date on
which it is paid in full with accrued interest. If Tenant is deemed to be in
default beyond the lapse of any applicable cure or grace periods of the Lease
for failure to pay rent and Landlord has commenced any legal action, in
addition to the late charges and interest set forth above, Tenant shall be
charged with all attorney fees in connection with the collection of all sums
due Landlord. Notwithstanding the foregoing, provided Tenant is not in default
of this Lease, Tenant shall have one (1) grace period for each year of the
Lease term where Tenant will not be subject to late charge or interest for any
late payment of rent as set forth above.
ARTICLE 2
USE
2.1 Tenant shall use and occupy the Demised Premises for executive and general
offices for the transaction of Tenant's business and for no other purpose.
Notwithstanding the foregoing, Tenant may use the Demised Premises as lab space
provided Tenant's use as lab space does not put undue stress on the Building's
service systems. Any additional portion of the Demised Premises used for lab
space beyond that lab space provided for
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in the initial build-out shall be considered a Tenant Changes and must be
approved by Landlord in writing pursuant to Article 12.
2.2 The use of the Demised Premises for the purposes specified in Section 2.1
shall not include, and Tenant shall not use or permit the use of the Demised
Premises or any part thereof, for:
(a) A school of any kind other than for the training of Tenant's
employees or customers, incidental to Tenant's normal business
operations;
(b) An employment agency, or
(c) An office for any governmental or quasi governmental bureau,
department, agency, foreign or domestic, including any autonomous
governmental corporation or diplomatic or trade mission.
(d) Any telemarketing activities or other direct selling activities; or
(e) Any use, including executive and general office use, which results
in a density of a population of more than one person for every 250
square feet.
2.3 If any governmental license or permit, other than a Certificate of
Occupancy, shall be required for the proper and lawful conduct of Tenant's
business in the Demised Premises, or any part thereof, and if failure to secure
such license or permit would in any way affect Landlord, Tenant, at its
expense, shall submit the same to inspection by Landlord. Tenant shall at all
times comply with the terms and conditions of each such license or permit.
2.4 Tenant shall not at any time use or occupy, or do or permit anything to be
done in the Demised Premises, in violation of the Certificate of Occupancy (or
other similar municipal ordinance) governing the use and occupation of the
Demised Premises or for the Building.
ARTICLE 3
PREPARATION OF THE DEMISED PREMISES
3.1 Tenant accepts the Demised Premises "AS IS" subject, however, to
latent defects. Landlord represents that as of the Commencement Date of this
Lease, the Building shall be in compliance with governmental requirements with
the exception of any Tenant's Work as defined below. The Demised Premises shall
be completed and prepared for Tenant's occupancy pursuant to a turn-key
installation in accordance with and under the terms and conditions of plans and
specifications prepared by Tenant as reasonably approved by Landlord ("Tenant's
Work"). The cost of all Tenant's Work subject to Section 3.2 hereof, shall be
borne by Tenant. Tenant represents that all plans and specifications in
connection with Tenant's Work shall be prepared by Tenant's architect which
shall comply with all applicable laws, rules and regulations. Landlord and its
affiliate, Alfieri Co., Inc. ("Alfieri") shall serve as general contractor and
shall competitively bid the subcontractor portion of Tenant's Work using three
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bona fide bids whenever possible to arrive at a fixed price lump sum contact
(the "Contract") between Tenant and Alfieri. Landlord and Tenant acknowledge
that as of the date hereof, Alfieri and Tenant have not entered into the
Contract. Until Alfieri and Tenant enter into the Contract, Alfieri shall
proceed with the construction of Tenant's Work on a time and material basis
with ten percent (10%) overhead and ten percent (10%) profit. Landlord
represents that Alfieri is in the bidding process and shall present Tenant with
the proposed Contract on September 17, 1996. Landlord represents that Alfieri
and Tenant represents that Tenant shall diligently proceed to agree upon the
terms and conditions and shall execute the Contract as soon as practicable. In
the event Alfieri and Tenant are unable to agree upon all or some of the terms
and conditions and execute the Contract by September 21, 1996, Alfieri shall
proceed with the completion of Tenant's Work on a time and material basis with
ten percent (10%) overhead and ten percent (10%) profit for all or any portion
of the Tenant's Work not agreed upon in the Contract.
3.2 Notwithstanding the terms and conditions of Section 3.1, Landlord agrees
at its sole cost to modify the first floor lobby and elevator cabs to a first
class condition using Landlord's building standards for Tri-Parkway Corporate
Park, such work to be completed immediately following AT&T Corp.'s occupancy of
the third and fourth floors of the Building. Landlord shall also remove the
existing improvements in the cafeteria area so as to return the space to office
shell condition. Landlord shall contribute up to $30,000.00 of the cost thereof
and Tenant shall pay the balance if any.
3.3 Alfieri shall not be deemed Tenant's contractor pursuant to any provision
of this Lease which makes reference to Tenant or any of its employees, agents
or contractors.
ARTICLE 4
OCCUPANCY UPON COMPLETION OF TENANT'S WORK
4.1 The Demised Premises shall be ready for Tenant's occupancy on the earliest
date on which all of the following conditions have been met:
(a) A Certificate of Occupancy (temporary or final) has been issued by
the applicable governmental authorities, permitting Tenant's use of
the Demised Premises for the purposes for which the same have been
leased.
(b) The work contemplated in Section 3.1 shall have been substantially
completed, and same shall be so deemed notwithstanding the fact that
minor or insubstantial details of construction, mechanical adjustment,
or decoration or special finish work requested by Tenant, such as
cabinetry remain to be performed, the non-completion of which does not
materially interfere with Tenant's use of the Demised Premises.
(c) Reasonable means of access and facilities necessary to Tenant's
use and occupancy of the Demised Premises, including corridors,
elevators and stairways, and heating, ventilating, air conditioning,
sanitary, water, and electrical facilities, have been installed and
are in reasonably good operating order and available to Tenant.
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4.2 If and when Tenant shall take actual possession of the Demised Premises, it
shall be conclusively presumed that the same were in satisfactory condition
(accept for latent defects) as of the date of such taking of possession, unless
within ninety (90) days after such date Tenant shall give Landlord notice
specifying the respects in which the Demised Premises were not in satisfactory
condition.
4.3 Landlord agrees that Tenant shall be entitled to install furniture and
equipment up to one week prior to the day the Demised Premises are ready for
Tenant's Occupancy and Landlord shall so advise Tenant when it shall be
entitled to commence such installation. Tenant agrees that it shall not
interfere with the work of Landlord or Alfieri, Inc. in readying the Demised
Premises for occupancy.
4.4 Notwithstanding anything contained in the foregoing, and in furtherance of
Article 1, Landlord and Tenant agree that the Commencement Date for the Demised
Premises shall be November 1, 1996 regardless of whether the Demised Premises
are ready for Tenant's occupancy.
ARTICLE 5
ADDITIONAL RENT
5.1 For the purpose of Sections 5.1 through 5.3.
(a) "Taxes" shall mean real estate taxes, special and extraordinary
assessments and governmental levies against the Land and Building of
which the Demised Premises (but excluding therefrom that portion of
the real estate taxes directly attributable to improvements made by
other tenants in the Building beyond Landlord's allowances) are a part
provided, however, if at any time during the term of this Lease the
method of taxation prevailing at the date of this Lease shall be
altered so that in lieu of, or as an addition to, or as a substitute
for any or all of the above there shall be assessed, levied or imposed
(i) a tax, assessment, levy, imposition or charge based on the income
or rents received therefrom whether or not wholly or partially as a
capital levy or otherwise; or (ii) a tax, assessment, levy, imposition
or charge measured by or based in whole or in part upon all or any
part of the Land and/or Building and imposed upon Landlord; or (iii) a
license fee measured by the rents; or (iv) any other tax, assessment,
levy, imposition, charge or license fee however described or imposed,
then all such taxes, assessments, levies, impositions, charges or
license fees or the part thereof so measured or based shall be
included in the definition of "Taxes." Tenant shall pay to Landlord
directly that portion of any real estate taxes directly attributable
to improvements made by Tenant beyond Landlord's allowances
(hereinafter referred to as "Tenant's Direct Tax Payments").
(b) "Base Taxes" shall mean the assessed valuation of the Land and
Building as finally determined following completion of construction
and issuance of an initial Certificate of Occupancy for any portion of
the Building (or such equivalent certification if Certificates of
Occupancy are not to be used), multiplied by the tax rate for the Tax
Year 1997. Base Taxes shall be calculated as if the Building were 100%
assessed and 95% occupied.
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(c) "Tax Year" shall mean each calendar year for which Taxes are
levied by any governmental authority.
(d) "Operational Year" shall mean each calendar year commencing with
calendar year 1998.
(e) "Tenant's Proportionate Share of Increase" shall mean 50%
multiplied by the increase in Taxes in any Operational Year in excess
of the Base Taxes. Tenant's Proportionate Share of Increase for the
first Operational Year shall be prorated to reflect the actual
occupancy by Tenant for said Operational Year.
(f) "Tenant's Projected Share of Increase" shall mean Tenant's
Proportionate Share of Increase in Taxes for the projected Operational
Year divided by twelve (12) and payable monthly by Tenant to Landlord
as additional rent.
5.2 Commencing with the first Operational Year and thereafter, Tenant shall pay
to Landlord as additional rent for the then Operational Year, Tenant's
Projected Share of Increase in Taxes in equal monthly instruments.
5.3 After the expiration of each Operational Year, Landlord shall furnish to
Tenant a written statement of the Taxes incurred for such Operational Year as
well as Tenant's Proportionate Share of Increase, if any. If the statement
furnished by Landlord to Tenant pursuant to this Section at the end of the then
Operational Year shall indicate that Tenant's Projected Share of Increase
exceeded Tenant's Proportionate Share of Increase, Landlord shall either
forthwith pay the amount of excess directly to Tenant concurrently with the
statement or credit same against Tenant's next monthly installment of rent. If
such statement furnished by Landlord to Tenant shall indicate that the Tenant's
Proportionate Share of Increase exceeded Tenant's Projected Share of Increase
for the then Operational Year, Tenant shall forthwith pay the amount of such
excess to Landlord.
Commencing with the first Operational Year, Tenant shall pay to Landlord in
equal monthly installments together with its payment of fixed rent one-twelfth
(1/12) of Tenant's Direct Tax Payment.
5.4 As used in Sections 5.4 through 5.6:
(a) "Operating Expenses" shall mean any or all expenses incurred by
Landlord in connection with the operation of the Land and Building of
which the Demised Premises are a part, including all expenses incurred
as a result of Landlord's compliance with any of its obligations
hereunder other than Landlord's Work and such expenses shall include:
(i) salaries, wages, medical, surgical and general welfare benefits,
(including group life insurance) and pension payments of employees of
Landlord engaged in the operation and maintenance of the Building;
(ii) social security, unemployment, and payroll taxes, workers'
compensation, disability coverage, uniforms, and dry cleaning for the
employees referred to in Subsection (i); (iii) the cost for the
Building and common areas of all charges for oil, gas, electricity
(including, but not limited to, fuel cost adjustments), steam, heat,
ventilation, air-conditioning, heating, and water including any taxes
on any such utilities, but excluding from Operating Expenses the
Landlord's cost, including taxes thereon, of electric energy other
than
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for heating and air-conditioning furnished to the Demised Premises (which
electric energy so furnished shall be paid for by Tenant pursuant to the
provisions of Article 15 hereof); (iv) the cost of all premiums and charges for
the following insurances rent, casualty, liability, fidelity and war risk (if
obtainable from the United States Government); (v) the cost of all building and
cleaning supplies for the common areas of the Building and charges for
telephone for the Building; (vi) the cost of all charges for management, (which
shall not exceed in any year four percent (4%) of gross revenues) window
cleaning, securing services, if any, and janitorial services, and any
independent contractor performing work included within the definition of
operating expenses; (vii) legal and accounting services and other professional
fees and disbursements incurred in connection with the operation and management
of the Land and Building (other than as related to new leases, enforcing
Landlord's rights under existing leases, or sales of the Building); (viii)
general maintenance of the Building and the cost of maintaining and replacing
the landscaping, (ix) maintenance of the common area; and (x) the cost of
capital expenditures, including the purchase of any item of capital equipment
or the leasing of capital equipment which have the effect of reducing the
expenses which would otherwise be included in Operating Expenses, which costs
shall be included in Operating Expenses for the Operational Year in which the
costs are incurred and subsequent Operational Years on a straight-line basis,
to the extent that such items are amortized over such period of time as
Landlord reasonably estimates, with an interest factor equal to the interest
rate at the time of Landlord's having made said expenditure.
If during all or part of the Base Year or any Operational Year, Landlord shall
not furnish any particular item(s) of work or service (which would otherwise
constitute an Operating Expense hereunder) to portions of the Building due to
the fact that (i) such portions are not occupied or leased; (ii) such items of
work or service is not required or desired by the tenant of such portion; (iii)
such tenant is itself obtaining and providing such item of work or service; or
(iv) for other reasons, then, for the purposes of computing Operating Expenses,
the amount for such item and for such period shall be deemed to be increased by
an amount equal to the additional costs and expenses which would reasonably
have been incurred during such period by Landlord if it had at its own expense
furnished such item of work or services to such portion of the Building or such
tenant.
Notwithstanding the foregoing, the following costs and expenses shall not be
included in Operating Expenses:
(1) Salaries or benefits for Landlord's executives above the
grade of building manager, and of any employee to the extent
the employee's time is not devoted to the Building;
(2) Amounts received by Landlord through proceeds of
insurance except to the extent they are compensation for sums
previously included in Operating Expenses hereunder;
(3) Cost of repairs or replacements incurred by reason of
fire or other casualty or condemnation to the extent Landlord
is compared therefor;
(4) Advertising and promotional expenditures;
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(5) Costs incurred in performing work or furnishing services for any
tenant (including Tenant), whether at such tenant's or Landlord's
expense, to the extent that such work or service is in excess of any
work or service that Landlord is obligated to furnish to tenant at
Landlord's expense;
(6) Depreciation, except as provided above;
(7) Brokerage commissions;
(8) Taxes (as hereinbefore defined);
(9) The cost of electricity (for other than heating and
air-conditioning) furnished to the Demised Premises or any other space
leased to tenants as reasonably estimated by Landlord;
(10) Refinancing costs and mortgage interest and amortization payments;
(11) Costs of improving, altering, constructing or redecorating any
space leased by tenants of the Building;
(12) Costs, expenses or expenditures relating to the duties,
liabilities or obligations of other tenants in the Building;
(13) Principle and interest payments on mortgage or deed of trust;
(14) Legal and auditing expenses incurred in connection with disputes
or negotiations with tenants or potential tenants;
(15) Expenses or charges under warranties or guarantees to the extent
actually recovered by Landlord;
(16) Rent under a ground or prime lease;
(17) Costs, expenses or expenditures relating to the duties,
liabilities or obligations of other tenants in the Building;
(18) Costs incurred by Landlord arising out of its failure to perform
or breach of any of its covenants, agreements, representations,
warranties, guarantees or indemnities made under this Lease;
(19) Any amounts paid to a person, firm, corporation, or other entity
row to Landlord which is in excess of the amount charged by
unaffiliated parties for goods or services in comparable office space
in the market;
(20) Any compensation paid to clerks, attendants or other persons in
commercial concessions or parking facility operated by Landlord; and
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(21) Landlord's general corporate overhead and general
administrative expenses.
(b) "Operational Year" shall mean each calendar year commencing with
calendar year 1998.
(c) "Base Year" shall mean calendar year 1997 and for purposes of Base
Year expenses it shall be assumed that the Building is 100% occupied.
(d) "Tenant's Proportionate Share of Increase" shall mean 50%
multiplied by the increase in Operating Expenses for the Operational
Year over Operating Expenses for the Base Year. For purposes hereof,
the Tenant's Proportionate Share of Increase has been computed based
upon a total square footage of the Building equal to 100,000 square
feet, and a total square footage of the Demised Premises equal to
50,000 square feet. Landlord agrees that it shall not include as part
of Operating Expenses in any Operational Year any line item that was
not included in the Base Year Operating Expenses.
(e) "Tenant's Projected Share of Increase" shall mean Tenant's
Proportionate Share of Increase for the projected Operational Year
divided by twelve (12) and payable monthly by Tenant to Landlord as
additional rent.
5.5 Commencing with the first Operational Year after Landlord shall be entitled
to receive Tenant's Proportionate Share of Increase, Tenant shall pay to
Landlord as additional rent for the then Operational Year, Tenant's Projected
Share of Increase.
5.6 After the expiration of the first Operational Year and for each Operational
Year thereafter, Landlord shall furnish to Tenant a written detailed statement
of the Operating Expenses (certified to be true and correct by Landlord)
incurred for such Operational Year which statement shall set forth Tenant's
Proportionate Share of Increase, if any. If the statement furnished by Landlord
to Tenant, pursuant to this Section, at the end of the then Operational Year
shall indicate that Tenant's Projected Share of Increase exceeded Tenant's
Proportionate Share of Increase, Landlord shall either forthwith pay the amount
of excess directly to Tenant concurrently with the statement or credit same
against Tenant's next monthly installment of rent. If such statement furnished
by Landlord to Tenant hereunder shall indicate that the Tenant's Proportionate
Share of Increase exceeded Tenant's Projected Share of Increase for the then
Operational Year, Tenant shall forthwith pay the amount of such excess to
Landlord.
5.7 Every statement given by Landlord pursuant to Sections 5.3 and 5.6 shall be
conclusive and binding upon Tenant unless (i) within ninety (90) days after the
receipt of such statement Tenant shall notify Landlord that it disputes the
correctness of the statement, specifying the particular respects in which the
statement is claimed to be incorrect; and (ii) if such dispute shall not have
been settled by agreement, shall submit the dispute to judicial proceedings
within one hundred and twenty (120) days after receipt of the statement. Within
such 90 day period Tenant shall have the right to review, examine and audit
Landlord's books and records for the applicable calendar year. Tenant agrees
that it and its representatives shall conduct a review with complete
confidentiality and shall enter into a reasonable confidentiality agreement with
landlord respecting the review, examination and audit. Pending the
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determination of such dispute by agreement or judicial proceedings as aforesaid,
Tenant shall, within thirty (30) days after receipt of such statement, pay
additional rent in accordance with Landlord's statement and such payment shall
be without prejudice to Tenant's position. If the dispute shall be determined in
Tenant's favor, Landlord shall forthwith pay Tenant the amount of Tenant's
overpayment of rents resulting from compliance with Landlord's statement. If
after judicial proceeding, it is determined that Landlord's Operating Statements
vary by more than 5%, then Landlord shall reimburse Tenant for Tenant's
reasonable costs for payment of an auditor or accountant. If the variance proves
less than 3% greater than Landlord's records, Tenant shall reimburse Landlord
for Landlord's reasonable costs for payment of an auditor or accountant.
Otherwise each party shall pay their respective costs.
ARTICLE 6
SUBORDINATION, NOTICE TO MORTGAGEES
6.1 So long as a satisfactory Nondisturbance Agreement has been obtained on
Tenant's behalf, this Lease, and all rights of Tenant hereunder are and shall be
subject and subordinate in all respects to all mortgages which may now or
hereafter affect the Land and/or the Building and/or any of such leases, whether
or not such mortgages shall also cover other lands and/or buildings, to each and
every advance made or hereafter to be made under such mortgages, and to all
renewals, modifications, replacements, and extensions of such mortgages and
spreaders and consolidations of such mortgages. This Section shall be
self-operative and no further instrument of subordination shall be required. In
confirmation of such subordination, Tenant shall promptly execute and deliver an
instrument that Landlord, or the holder of any such mortgage or any of their
respective successors in interest may reasonably request to evidence such
subordination. The mortgages to which this Lease is, at the time referred to,
subject and subordinate are hereinafter sometimes called "superior mortgages,"
and the holder of a superior mortgage or its successor in interest at the time
referred to is sometimes hereinafter called a "superior mortgagee."
6.2 Landlord shall make a good faith effort to obtain from the existing or
future Mortgagee, a Subordination, Non-Disturbance and Attornment Agreement (the
"Non-Disturbance Agreement") in favor of Tenant utilizing Mortgagee's standard
form. A sample Non-Disturbance Agreement form is attached as Exhibit G. Landlord
agrees, upon execution of this Lease, to promptly obtain Mortgagee's approval to
execute a Non-Disturbance Agreement. If within thirty (30) days or agreed upon
extended period from the execution of this Lease, Landlord is unable to obtain
such approval, then Tenant may, upon written notice to Landlord: (i) waive its
right to a Non-Disturbance Agreement or (ii) cancel this Lease. If Tenant takes
no action, Tenant shall be deemed to have waived its right to such
Non-Disturbance Agreement. If Tenant fails to accept the Non-Disturbance
Agreement as descried in Exhibit G attached, it shall be considered that
Landlord has satisfied its requirement. As to any future mortgagee, Tenant's
agreement to subordinate under Section 6.1 is conditioned upon its receipt of a
non-disturbance agreement in accordance who Section 6.2. Such future
non-disturbance agreement shall contain such terms and conditions as are
generally required by an institutional lender and as reasonably requested by a
tenant occupying 50,000 rentable square feet in a 100,000 rentable square foot
office building.
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ARTICLE 7
QUIET ENJOYMENT
7.1 So long as Tenant pays all of the fixed rent and additional rent due
hereunder and performs all of Tenant's other obligations hereunder, Tenant shall
peaceably and quietly have, hold, and enjoy the Demised Premises subject,
nevertheless, to the obligations of this Lease and, as provided in Article 6, to
the superior mortgages.
ARTICLE 8
ASSIGNMENT, MORTGAGING, SUBLETTING
8.1 Neither this Lease, nor the term and estate hereby granted, nor any part
hereof or thereof, nor the interest of Tenant in any sublease, or the rentals
thereunder, shall be assigned, mortgaged, pledged, encumbered or otherwise
transferred by Tenant, and neither the Demised Premises, nor any part thereof
shall be encumbered in any manner by reason of any act or omission on the part
of Tenant or anyone claiming under or through Tenant or shall be sublet, or
offered or advertised for subletting, or be used or occupied or permitted to be
used or occupied or utilized for desk space or for mailing privileges, by anyone
other than Tenant or for any purpose other than as permitted by this Lease,
without the prior written consent of Landlord in every case, except as expressly
otherwise provided in this Article. Landlord agrees that its consent shall not
be unreasonably withheld or delayed.
8.2 If this Lease be assigned, whether or not in violation of the provisions of
this Lease, Landlord may collect rent from the assignee. If the Demised Premises
or any part thereof be sublet or be used or occupied by anybody other than
Tenant, whether or not in violation of this Lease, Landlord may, after default
by Tenant and expiration of Tenant's time to cure such default, collect rent
from the undertenant or occupant. In either event, Landlord may apply the net
amount collected to the rents herein reserved, but no such assignment,
underletting, occupancy or collection shall be deemed a waiver of any of the
provisions of Section 8.1, or the acceptance of the assignee, undertenant or
occupants as Tenant, or a release of Tenant from the further performance by
Tenant of Tenant's obligations under this Lease. The consent by Landlord to
assignment, mortgaging, underletting or use or occupancy by others shall not in
any wise be considered to relieve Tenant from obtaining the express written
consent of Landlord to any other or further assignment, mortgaging or
underletting or use or occupancy by others not expressly permitted by this
Article.
8.3 The following provisions shall govern in connection with the subletting of
all or a portion of the Demised Premises:
(a) Tenant shall submit in writing to Landlord (i) the name of the
proposed subtenant; (ii) the nature and character of the proposed
subtenant's business, and the intended use to be made of the Demised
Premises by the proposed subtenant; (iii) the terms and conditions of
the proposed sublease; and (iv) such reasonable financial information
as Landlord may request regarding the proposed subtenant.
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(b) Within ten (10) business days of Landlord's receipt of the
information described in (a) above, Landlord shall inform Tenant
whether it gives or withholds its consent to such subletting. If
Landlord takes no action within such ten business day period, Tenant
shall give Landlord written notice and if Landlord takes no action
within two (2) business days of such notice from Tenant, Landlord shall
be deemed to have approved the sublease.
(c) In connection with any subletting, Tenant shall not openly offer or
advertise the Demised Premises, or any part thereof, to any other
tenant in the Building at a rental rate less than the current rental
rate for office buildings in the surrounding area.
8.4 Tenant shall remain fully liable for the performance of all Tenant's
obligations hereunder notwithstanding any subletting provided for herein (except
to Landlord), and without limiting the generality of the foregoing, shall remain
fully responsible and liable to Landlord for all acts and omissions of any
subtenant or anyone claiming under or through any subtenant which shall be in
violation of any of the obligations of this Lease and any such violation shall
be deemed to be a violation by Tenant.
8.5 Tenant shall not, without the prior written consent of Landlord, assign this
Lease, and the provisions of Section 8.3 with respect to subletting shall
equally apply to any assignment of this Lease. Tenant herein named, or any
immediate or remote successor in interest of Tenant herein named, shall remain
liable jointly and severally (as a primary obligor) with its assignee and all
subsequent assignees for the performance of Tenants obligations hereunder.
8.6 Notwithstanding anything to the contrary contained in this Article with
respect to assignment or subletting, Landlord's consent to any assignment and/or
subletting (i) to any parent, affiliate or wholly-owned subsidiary of Tenant (as
defined in Rule 240.12b-2 under the Securities Exchange Act of 1934) shall not
be required or (ii) to any corporation or other entity which succeeds to all or
substantially all of the assets and business of Tenant shall not be required,
but Tenant shall give located Landlord written notice thereof.
8.7 Tenant further agrees that it shall not place any signs on the windows bed
in the Demised Premises indicating that all or any portion of the demised
Premises are available for subleasing or assignment.
8.8 If the consideration payable by any assignee or the rents payable under any
sublease are greater than the Fixed Rent, Additional Rent and other charges
payable by Tenant hereunder, after Tenant has recovered its reasonable costs
associated with such subletting or assignment including brokerage fees, the cost
of any leasehold improvements paid by Tenant (other than the initial fit-out)
and any other actual reasonable and necessary costs incurred by Tenant in
connection with such subletting or assignment, Tenant shall pay fifty percent
(50%) of such excess to Landlord.
8.9 Landlord acknowledges that the Demised Premises may be occupied by a parent,
subsidiary or affiliate of Tenant ("Tenant Affiliate") and their employees
and that such occupancy of the Demised Premises shall not be considered an
assignment or sublease. Any of Landlord's representations, warranties,
covenants, agreements, guarantees and indemnities made
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for the benefit of Tenant or any rights or privileges granted by Landlord to
Tenant shall also inure to the benefit of such Tenant Affiliate.
ARTICLE 9
COMPLIANCE WITH LAWS AND REQUIREMENTS
OF PUBLIC AUTHORITIES
9.1 Tenant shall give prompt notice to Landlord of any notice it receives of the
violation of any law or requirement of public authority, and at its expense
shall comply with all laws and requirements of public authorities which shall
with respect to the Demised Premises or the use and occupation thereof, or the
abatement of any nuisance, impose any violation, order or duty on Landlord or
Tenant, arising from (i) Tenant's use of the Demised Premises; (ii) the manner
of conduct of Tenant's business or operation of its installation, equipment or
other property therein; (ii) any cause or condition created by or at the
instance of Tenant, other than by Landlord's performance of any work for or on
behalf of Tenant; or (iv) the breach of any of Tenant's obligations hereunder.
Furthermore, Tenant need not comply with any such law or requirement of public
authority so long as Tenant shall be contesting the validity thereof, or the
applicability thereof to the Demised Premises, in accordance with Section 9.2.
Nothing contained herein shall be construed to require Tenant to make structural
alterations to the Building except to the extent that same are required by
reason of Tenant's specific use (other than general office).
9.2 Tenant may, at its expense (and if necessary, in the name of but without
expense to Landlord) contest, by appropriate proceedings prosecuted diligently
and in good faith, the validity, or applicability to the Demised Premises, of
any law or requirement of public authority, and Landlord shall cooperate with
Tenant in such proceedings provided that:
(a) Tenant shall defend, indemnify, and hold harmless Landlord against
all liability, loss or damage which Landlord shall suffer by reason of
such non-compliance or contest, including reasonable attorney's fees
and other expenses reasonably incurred by Landlord;
(b) Such non-compliance or contest shall not constitute or result in
any violation of any superior mortgage, or, if such superior mortgage
shall permit such non-compliance or contest on condition of the taking
of action or furnishing of security by Landlord, such action shall be
taken and such security shall be furnished at the expense of Tenant;
and
(c) Tenant shall keep Landlord advised as to the status of such
proceedings.
9.3 After Tenant takes occupancy of the Demised Premises, Landlord agrees that
in the event there is an occurrence of governmental non-compliance regarding the
Building (excluding the Demised Premises) or the common areas throughout the
term of the Lease, Landlord shall be responsible, at its sole expense, to remedy
any such defect or non-compliance
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unless such non-compliance is a result of actions of Tenant as described in
Section 9.1. After Tenant takes occupancy of the Demised Premises, Tenant shall
be responsible for governmental compliance in the Demised Premises.
9.4 As of the day Tenant takes occupancy of the Demised Premises, Landlord
states that the Land, the Building and the Demised Premises shall comply with
all laws, rules and regulations and requirements of public authorities including
Title III of the Americans with Disabilities Act (collectively "Laws"), as the
Laws apply to existing structures constituting commercial facilities. If
Landlord's affiliate, M. Alfieri Co., Inc. is performing Tenant's Work or any
other work in the Building, Landlord shall ensure Tenant's Work and any other
work performed by Landlord complies with any applicable Laws as it relates to
Tenant's Work in making the Demised Premises ready for occupancy. The foregoing
is expressly conditioned upon Tenant's representation that all Tenant's Plans
shall comply with the all applicable Laws as set forth in Article 3.1. If M.
Alfieri Co., Inc. is not performing any portion of Tenant's Work or any other
work performed in the Building by or on behalf of Tenant, Tenant shall ensure
Tenant's Work or any other work performed by or on behalf of Tenant complies
with any applicable Laws. If, after Tenant takes occupancy of the Demised
Premises, further changes to the Building or the Demised Premises are required
under the Laws by virtue of the Lease and/or Tenant's specific use and
occupancy, such changes shall be Tenant's responsibility. If, after the Demised
Premises are ready for occupancy in accordance with Article 4, the Laws require
further changes to the Building or the Demised Premises when occasioned by
Landlord or any other tenant, then such changes shall not be Tenant's
responsibility. Landlord and Tenant shall indemnify each other for actual
damages suffered out of any non-compliance with the Laws by the other party as
aforesaid.
ARTICLE 10
INSURANCE
10.1 Tenant shall not violate, or permit the violation of, any condition imposed
by the all-risk casualty policy issued for the Building and shall not do
anything, or permit anything to be kept, in the Demised Premises which would
increase the fire or other casualty insurance rate on the Building or the
property therein over the rate which would otherwise then be in effect, (unless
Tenant pays the resulting increased amount of premium as provided in Section
10.2) or which would result in insurance companies of good standing refusing to
insure the Building or any of such property in amounts and at normal rates
reasonably satisfactory to Landlord. However, Tenant shall not be subject to any
liability or obligation under this Article by reason of the proper use of the
Demised Premises for the purposes permitted by Article 2.
10.2 If, by reason of any act or omission on the part of Tenant, the rate of
fire insurance with extended all-risk coverage on the Building or equipment or
other property of Landlord or other tenants shall be higher than it otherwise
would be, Tenant shall reimburse Landlord, on demand, for that part of the
premiums for fire insurance and extended all-risk coverage paid by Landlord
because of such act or omission on the part of Tenant, which sum shall be deemed
to be additional rent and collectible as such.
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10.3 In the event that any dispute should arise between Landlord and Tenant
concerning insurance rates, a schedule or "make up" of rates for the Building or
the Demised Premises, as the case may be, issued by the Fire Insurance Rating
Organization of New Jersey or other similar body making rates for fire insurance
and extended coverage for the premises concerned, shall be presumptive evidence
of the facts therein stated and of the several items and charges in the fire
insurance rates with extended coverage then applicable to such premises.
10.4 Tenant shall obtain and keep in full force and effect during the term of
this Lease, at its own cost and expense, Comprehensive General Liability
Insurance, such insurance to afford protection in an amount of not less than
$1,000,000 for injury or death to any one person, $3,000,000 for injury or death
arising out of any one occurrence, and $1,000,000 for damage to property,
protecting and naming the Landlord and the Tenant as insured against any and all
claims for personal injury, death or property damage occurring in, upon,
adjacent, or connected with the Demised Premises and any part thereof. Tenant
shall pay all premiums and charges therefor and upon failure to do so Landlord
may, but shall not be obligated to, make payments, and in such latter event the
Tenant agrees to pay the amount thereof to Landlord on demand and such sum shall
be deemed to be additional rent, and in each instance collectible on the first
day of any month following the date of notice to Tenant in the same manner as
though it were rent originally reserved hereunder, together with interest
thereon at the rate of three points in excess of Prime Rate of the First Union.
Tenant will use its best efforts to include in such Comprehensive General
Liability policy a provision to the effect that same will be non-cancelable,
except upon reasonable advance written notice to Landlord. The original
insurance policies or appropriate certificates shall be deposited with Landlord
together with any renewals, replacements or endorsements to the end that said
insurance shall be in full force and effect for the benefit of the Landlord
during the term of this Lease. In the event Tenant shall fail to procure and
place such insurance, the Landlord may, but shall not be obligated to, procure
and place same, in which event the amount of the premium paid shall be refunded
by Tenant to Landlord upon demand and shall in each instance be collectible on
the first day of the month or any subsequent month following the date of payment
by Landlord, in the same manner as though said sums were additional rent
reserved hereunder together with interest thereon at the rate of three points in
excess of the Prime Rate of the First Union.
10.5 Landlord and Tenant agree to use their best efforts to include in each of
its insurance policies a waiver of the insurer's right of subrogation against
the other party or if such waiver shall be unobtainable or unenforceable (a) an
express agreement that such policy shall not be invalidated if the insured
waives or has waived before the casualty, the right of recovery against any
party responsible for a casualty covered by the policy or (b) any other form of
permission for the release of the other party. If such waiver, agreement, or
permission shall not be or shall cease to be obtainable without additional
charge, or at all, the insured party shall so notify the other party after
learning thereof. In such a case, if the other party shall agree in writing to
pay the insurer's additional charge therefor, such waiver agreement or
permission shall, if obtainable, be included in the policy.
10.6 Each party hereby releases the other party with respect to any claim
(including a claim for negligence) which it might otherwise have against the
other party for loss, damage, or destruction with respect to its property
(including rental value or business interruption) occurring during the term of
this Lease to the extent to which it is insured under a
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policy or policies containing a waiver of subrogation or permission to release
liability or naming the other party as an additional insured, as provided in
Sections 10.4 and 10.5. If notwithstanding the recovery of insurance proceeds by
either party for loss, damage or destruction of its property (or rental value or
business interruption) the other party is liable to the first party with respect
thereto or is obligated under this Lease to make replacement, repair, or
restoration or payment, then provided that the first party's right of full
recovery under its insurance policies is not thereby prejudiced or otherwise
adversely affected, the amount of the net proceeds of the first party's
insurance against such loss, damage or destruction shall be offset against the
second party's liability to the first party thereof, or shall be made available
to the second party to pay for replacement, repair, or restoration, as the case
may be.
10.7 The waiver of subrogation or permission for release referred to in Section
10.5 shall extend to the agents of each party and their employees and, in the
case of Tenant, shall also extend to all other persons and entities occupying,
using or visiting the Demised Premises in accordance with the terms of this
Lease, but only if and to the extent that such waiver or permission can be
obtained without additional charge (unless such party shall pay such charge).
The releases provided for in Section 10.6 shall likewise extend to such agents,
employees and other persons and entities, if and to the extent that such waiver
or permission is effective as to them. Nothing contained in Section 10.6 shall
be deemed to relieve either party of any duty imposed elsewhere in this Lease to
repair, restore or rebuild or to nullify any abatement of rents provided for
elsewhere in this Lease. Except as otherwise provided in Section 10.4, nothing
contained in Sections 10.5 and 10.6 shall be deemed to impose upon either party
any duty to procure or maintain any of the kinds of insurance referred to
therein or any particular amounts or limits of any such kinds of insurance.
However, each party shall advise the other, upon request, from time to time (but
not more often than once a year) of all of the policies of insurance it is
carrying of any of the kinds referred to in Sections 10.1 and 10.4, and if it
shall discontinue any such policy or allow it to lapse, shall notify the other
party thereof with reasonable promptness. The insurance policies referred to in
Sections 10.5 and 10.6 shall be deemed to include policies procured and
maintained by a party for the benefit of its mortgagee or pledgee.
ARTICLE 11
RULES AND REGULATIONS
11.1 Tenant and its employees and agent shall faithfully observe and comply with
the Rules and Regulations annexed hereto as Exhibit E, and such reasonable
changes therein (whether by modification, elimination, or addition) as Landlord
at any time or times hereafter may make and communicate in writing to Tenant,
which do not unreasonably affect the conduct of Tenant's business in the Demised
Premises or substantially affect Tenant's cost of occupancy; provided, however,
that in case of any conflict or inconsistency between the provisions of this
Lease and any of the Rules and Regulations as originally promulgated or as
changed, the provisions of this Lease shall control.
11.2 Nothing contained in this Lease shall be construed to impose upon Landlord
any duty or obligation to Tenant to enforce the Rules and Regulations or the
terms, covenants, or conditions in any other lease, as against any other tenant
and Landlord shall not be
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liable to Tenant for violation of the same by any other tenant or its employees,
agents or visitors. However, Landlord shall not enforce any of the Rules and
Regulations in such manner as to discriminate against Tenant or anyone claiming
under or through Tenant.
ARTICLE 12
TENANT'S CHANGES
12.1 After Tenant takes occupancy of the Demised Premises, Tenant shall make no
changes, alterations, additions, installations, substitutions, or improvements
(hereinafter collectively called "changes," and, as applied to changes provided
for in this Article, "Tenant's Changes") in and to the Demised Premises without
the express prior written consent of Landlord, which shall not be unreasonably
withheld conditioned or delayed. Any additional portion of the Demised Premises
used for lab space beyond that lab space provided for in the initial build-out
shall be considered a Tenant Change and must be approved by Landlord in writing
pursuant to this Article. Landlord's consent shall not be required for painting
of the Demised Premises provided Tenant gives Landlord written notice of its
intent to paint the premises, the manufacturer of the paint and the color of the
paint. Landlord's consent shall not be required for carpeting the Demised
Premises provided Tenant gives Landlord written notice of specifically how the
carpet is going to be installed.
All proposed Tenant's Changes shall be submitted to Landlord for written consent
at least thirty (30) days prior to the date Tenant intends to commence such
changes, such submission to include plans and specifications for the work to be
done, proposed scheduling, and the estimated cost of completion of Tenant's
Changes. Landlord agrees, within ten (10) business days from Landlord's receipt
of Tenant's request for consent to a Tenant Change, to acknowledge receipt of
such request. At the time Landlord gives its consent to the Tenant Changes,
Landlord shall provide Tenant with the estimated cost of the supervision fee as
set forth below. If Landlord consents to Tenant's Changes, Tenant may commence
and diligently prosecute to completion Tenant's Changes, under the direct
supervision of Landlord. If Landlord fails to take any action within the thirty
(30) day period set forth above, Landlord shall be deemed to approved the
Tenant's Changes. However, any Tenant Change deemed approved in such a manner
shall be subject to the Supervision Fee as set forth below and Tenant shall be
required to give Landlord written notice of Landlord's failure to respond to
Tenant's request for consent to a Tenant Change in which notice Tenant must
demand Landlord to advise Tenant of any restoration required as a result of such
Tenant Change. Thereafter, if Landlord fails to advise Tenant of any restoration
requirements pursuant to such Tenant Change within three (3) days of Landlord's
receipt of Tenant's demand, then restoration shall not otherwise be required
with respect to such Tenant's Changes.
Tenant shall pay to Landlord a Supervision Fee (which shall include the cost of
review of the proposed Tenant's Changes) the lesser of the actual cost of the
supervision or equal to ten percent (10%) of the certified cost of completion of
Tenant's Changes. Prior to the commencement of Tenant's Changes, Tenant shall
pay to Landlord ten percent (10%) of the estimated cost of completion (the
"Estimated Payment") as additional rent. Within fifteen (15) days after
completion of Tenant's Changes, Tenant shall furnish Landlord with a statement,
certified by an officer or a principal of Tenant to be accurate and true, of the
total cost of
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completion of Tenants Changes (the "Total Cost"). If such certified statement
furnished by Tenant shall indicate that the Estimated Payment exceeded the
lesser of the actual cost of the supervision or ten percent (10%) of the Total
Cost, Landlord shall forthwith either (i) pay the amount of excess directly to
Tenant concurrently with the delivery of the certified statement or (ii) permit
Tenant to credit the amount of such excess against the subsequent payment of
rent due hereunder. If such certified statement furnished by Tenant shall
indicate that the lesser of the actual cost of the supervision or ten percent
(10%) of the Total Cost exceeded Tenant's Estimated Payment, Tenant shall
simultaneously with the delivery to Landlord of the certified statement, pay
the amount of such excess to Landlord as additional rent. Any Tenant Changes
performed by the Landlord shall not be subject to a separate Supervision Fee as
described in this Paragraph (the cost of any type of supervision shall be
included in the price of the work).
12.2 Notwithstanding the provisions of Section 12. 1, all proposed Tenants
Changes which shall affect or alter:
(a) The outside appearance or the strength of the Building or of any of its
structural parts; or
(b) Any part of the Building outside of the Demised Premises; or
(c) The mechanical, electrical, sanitary and other service systems of the
Building, or increase the usage of such systems;
shall be performed only by the Landlord, at a cost to be mutually agreed upon
between Landlord and Tenant, which cost shall be commercially reasonable.
12.3 Tenant, at its expense, shall obtain all necessary governmental
permits and certificates for the commencement and prosecution of Tenant's
Changes and for final approval thereof upon completion, and shall cause
Tenant's Changes to be performed in compliance therewith and with all
applicable laws and requirements of public authorities, and with all applicable
requirements of insurance bodies, and in good and workmanlike manner, using
new materials and equipment at least equal in quality and class to the original
installations in the Building. Tenant's Changes shall be performed in such
manner as not to unreasonably interfere with or delay and (unless Tenant shall
indemnify Landlord therefor to the latter's reasonable satisfaction) as not to
impose any additional expense upon Landlord in the construction, maintenance
or operation of the Building. Throughout the performance of Tenant's Changes,
Tenant, at its expense, shall carry, or cause to be carried, workmen's
compensation insurance in statutory limits and general liability insurance for
any occurrence in or about the Building, in which Landlord and its agents
shall be named as parties insured in such limits as Landlord may reasonably
prescribe, with insurers reasonably satisfactory to Landlord. Tenant shall
furnish Landlord with reasonably satisfactory evidence that such insurance is
in effect at or before the commencement of Tenant's Changes and, on request,
at reasonable intervals thereafter during the continuance of Tenants Changes.
If any of Tenant's Changes shall invoke the removal of any fixtures, equipment
or other property in the Demised Premises which are not Tenants Property (as
defined in Article 13), such fixtures, equipment or other property shall be
promptly replaced, at Tenant's expense, with new fixtures, equipment or other
property (as the case may
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be) of like utility and at least equal value. In addition, unless Landlord
shall otherwise expressly consent in writing, the Tenant shall deliver such
removed fixtures to Landlord.
12.4 Tenant at its expense, and with diligence and dispatch, shall procure the
cancellation or discharge of all notices of violation arising from or otherwise
connected with Tenant's Changes which shall be issued by any public authority
having or asserting jurisdiction. Tenant shall defend, indemnify and save
harmless Landlord against any and all mechanic's and other liens filed in
connection with Tenants Changes, including the liens of any security interest
in, conditional sales of, or chattel mortgages upon, any material, fixtures or
articles so installed in and constituting part of the Demised Premises and,
against all costs, expenses and liabilities incurred in connection with any such
lien, security interest, conditional sale or chattel mortgage or any action or
proceeding brought thereon. Tenant, at its expense, shall procure the
satisfaction or discharge of all such liens within fifteen (15) days after
Landlord makes written demand therefor. However, nothing herein contained shall
prevent Tenant from contesting, in good faith and at its own expense, any such
notice of violation, provided that Tenant shall comply with the provisions of
Section 9.2.
12.5 Tenant agrees that the exercise of its rights pursuant to the provisions of
this Article 12 shall not be done in a manner which would create any work
stoppage, picketing, labor disruption or dispute or violate Landlord's union
contracts affecting the Land and Building, nor interference with the business of
Landlord or any tenant or occupant of the Building.
12.6 If Landlord requires restoration of all or any part of Tenants Changes,
Landlord shall advise Tenant of such restoration requirement at the time
Landlord gives its consent to any Tenant Changes. If Landlord fails to require
restoration at the time it gives such consent, then restoration shall not
otherwise be required with respect to such Tenant's Changes.
ARTICLE 13
TENANT'S PROPERTY
13.1 All fixtures, equipment, improvements, and appurtenances attached to or
built into the Demised Premises at the commencement of or during the term of
this Lease, whether or not by or at the expense of Tenant, shall be and remain
a part of the Demised Premises, shall be deemed the property of Landlord and
shall not be removed by Tenant, except as hereinafter in this Article expressly
provided.
13.2 All business and trade fixtures, machinery and equipment,
communications equipment and office equipment whether or not attached to or
built into the Demised Premises, which are installed in the Demised Premises by
or for the account of Tenant without expense to Landlord, and can be removed
without permanent structural damage to the Building, and all furniture,
furnishings and other articles of movable personal property owned by Tenant and
located in the Demised Premises (all of which are sometimes called "Tenant's
Property"), shall be and shall remain the property of Tenant and may be removed
by it at any time during the term of this Lease; provided that if any of
Tenants Property is removed, Tenant shall repair or pay the cost of repairing
any damage to the Demised Premises or to the Building resulting from such
removal. Any equipment or other property for which Landlord shall have
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granted any allowance or credit to Tenant shall not be deemed to have been
installed by or for the account of Tenant without expense to Landlord, and
shall not be considered Tenants Property.
13.3 At or before the Expiration Date, or the date of an earlier termination
of this Lease, or as promptly as practicable after such an earlier termination
date, Tenant at its expense, shall remove from the Demised Premises all of
Tenants Property except such items thereof as Tenant shall have expressly
agreed in writing with Landlord were to remain and to become the property of
Landlord, and, if requested by Landlord, all items of work done by or on behalf
of Tenant, in accordance with Article 12, after the Tenant takes occupancy of
the Demised Premises shall be removed by Tenant and Tenant shall repair any
damage to the Demised Premises or the Building resulting from such removal.
Landlord and Tenant agree that a minimum of ninety (90) days prior to the
Expiration Date of this Lease, Landlord shall walk through the Demised Premises
with Tenant and create a punchlist of all restoration which shall be required
to be completed by Tenant by the Expiration Date. Failure by Landlord and
Tenant to walk through the Demised Premises ninety (90) days prior to the
Expiration Date of this Lease shall not relieve Tenant of any restoration
obligations otherwise required pursuant to this Lease. However, if Tenant gives
Landlord notice that it desires to walk through the Demised Premises and
identify the restoration required as set forth above and Landlord does not
fulfill its obligation to walk through the Demised Premises, Tenant will not be
relieved of any of its restoration obligations but will not be deemed in
holdover as set forth below while it performs such restoration. Thereafter,
Tenant may request a written estimate from Landlord for the cost of all
restoration required pursuant to this Lease. Landlord and Tenant acknowledge
that Landlord, prior to the Expiration Date, will have already notified Tenant
of its restoration obligations pursuant to a restoration al letter dated
September 12, 1966 and Article 12 of the Lease, and, as a result,
notwithstanding the ninety (90) day time period set forth above, it shall be
Tenant's obligation to ensure that Tenant has enough time after the Landlord
and Tenant walk through the Demised Premises, if Tenant will be performing such
restoration prior to the Expiration Date of the Lease. The cost contained in
such estimate shall be commercially reasonable and where possible, Landlord
will competitively bid the work. In lieu of restoring the Demised Premises as
required pursuant to this Lease, Tenant may, at its option, pay Landlord, prior
to the Expiration Date of the Lease, the cost of such restoration as set forth
in Landlord's estimate. If Tenant fails to remove its Property (except for
minor or insubstantial pieces of Tenant's Property which can be easily removed
by Landlord at little or no expense), fails to perform any restoration required
of it under this Lease and/or fails to pay Landlord for the cost of any
restoration required, on or before the last day of the term of this Lease or
upon any earlier termination, then Tenant shall be deemed a holdover Tenant as
contemplated in Article 40. For the first fifteen (15) days of holdover as set
forth above, Tenant shall only be required to pay holdover charges on a per
them basis. After the expiration of fifteen (15) days the Tenant shall be in
subject to holdover changes on a monthly basis. If, unknowingly, Tenant
incorrectly performs any of the restoration required, Landlord shall notify
Tenant and Tenant shall have fifteen (15) days to correct such error. If Tenant
fails to correct such error within the thirty (30) day period, Tenant shall be
subject to holdover from the day on which Tenant received Landlord's notice of
the incorrect restoration.
13.4 Any other items of Tenants Property (except money, securities, and
other like valuables) which shall remain in the Demised Premises after the
Expiration Date or after a
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period of fifteen (15) days following an earlier termination date, may, at the
option of the Landlord, be deemed to have been abandoned, and in such case
either may be retained by Landlord as its property or may be disposed of,
without accountability, in such manner as Landlord may see fit, at Tenant's
expense.
ARTICLE 14
REPAIRS AND MAINTENANCE
14.1 Tenant shall take good care of the Damaged Premises. Tenant, at its
expense, shall promptly make all repairs, ordinary or extraordinary, interior
or exterior, structural or otherwise in and about the Damaged Premises and the
Building, as shall be required by reason of (i) the performance of Tenant's
Changes, if Landlord or its affiliate does not perform the Tenant's Changes;
(ii) the installation, use or operation of Tenant's Property in the Damaged
Premises by Tenant, its agents or employees; (iii) the moving of Tenant's
Property in or out of the Building; or (iv) the misuse or neglect of Tenant or
any of its employees, agents, contractors or invitees; but Tenant shall not be
responsible, and Landlord shall be responsible, for any of such repairs as are
required by reason of Landlord's neglect or other fault in the manner of
performing any of Tenant's Finish Work or Tenant's Changes which may be
undertaken by Landlord for Tenant's account or are otherwise required by reason
of neglect or other fault of Landlord or its employees, agents, or contractors.
Except if required by the neglect or other fault of Landlord or its employees,
agents, or contractors, Tenant, at its expense, shall replace all scratched,
damaged or broken doors or other glass in or about the Damaged Premises and
shall be responsible for all repairs, maintenance, and replacement of wall and
floor coverings in the Damaged Premises except for ordinary wear and tear.
Landlord shall be responsible for the repair and maintenance of all
non-conforming ballasts existing prior to the commencement of Tenant's Work
which ballasts remain as fixtures in the Damaged Premises. Tenant shall be
responsible for the repair and maintenance of all other ballasts.
14.2 Landlord, subject to the provisions of Section 5.4, shall keep and
maintain the Building and its fixtures, appurtenances, systems and facilities
serving the Damaged Premises, in good working order, condition, and repair and
shall make with all due diligence all repairs, structural and otherwise,
interior and exterior, as and when needed in or about the Damaged Premises,
except for those repairs for which Tenant is responsible pursuant to any other
provisions of this Lease.
14.3 Landlord shall have no liability to Tenant by reason of any
inconvenience, annoyance, interruption, or injury to Tenants business arising
from Landlord's making any repairs or changes which Landlord is required or
permitted by this Lease or required by law, to make in or to any portion of the
Building or the Damaged Premises, or in or to the fixtures, equipment of
appurtenances of the Building or the Demised Premises, provided that Landlord
shall use due diligence with respect thereto and shall perform such work,
except in case of emergency, at a time reasonably convenient to Tenant and
otherwise in such a manner as will not materially interfere with Tenant's use
of the Demised Premises. Landlord, at its sole expense and not subject to
ss 5.4, shall be responsible for roof replacement and structural repair
and replacement during the initial term of the Lease.
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ARTICLE 15
ELECTRICITY
15.1 Landlord shall furnish the electric energy that Tenant shall require in
the Demised Premises. Tenant shall pay to Landlord, as additional rent, the
costs and charges for all electric energy furnished to Tenant at the Demised
Premises. Additional rent for such electric energy shall be calculated and
payable in the manner hereinafter set forth.
15.2 Within a reasonable time after the commencement of the term of this
Lease, subsequent to Tenant's having taken occupancy of the Demised Premises
and having installed and commenced the use of Tenant's electrical equipment,
Landlord, at Tenant's sole expense, shall cause a survey to be made by a
reputable independent electrical engineer or similar agency of the estimated
use of electric energy (other than for heat and air conditioning) to the
Demised Premises, and shall compute the cost thereof for the quantity so
determined at prevailing retail rates. Tenant shall pay Landlord the cost of
such electric energy, as so calculated, on a monthly basis, as additional rent,
together with its payment of fixed rent.
Until such time as Landlord shall complete the aforedescribed survey, Tenant
shall pay to Landlord, each and every month, as additional rent, for and on
account of Tenant's electrical consumption, the sum of $3,906.25 for the
Initial Space for first two months of the Lease term and $5,208.33 thereafter
to be applied against Tenant's obligations hereunder. Upon completion of the
survey, there shall be an adjustment for the period from the day the Tenant
takes occupancy of the Demised Premises through the date that the results of
the survey shall be effectuated as shall be required. Landlord shall have the
right, at any time, during the term of this Lease, to cause the Demised
Premises to be resurveyed. In the event that such resurvey indicates an
increase of 10% or greater of Tenant's previous consumption for the Demised
Premises, then Tenant shall pay the cost of such resurvey. In the event that
such resurvey indicates either of (i) no increase; or (ii) an increase less
than 10% of Tenant's previous consumption, or (iii) a decrease, then Landlord
shall bear the cost of such resurvey. Tenant shall have the right, at any time
during the term of the Lease, to cause the Demised Premises to be resurveyed.
In the event that such resurvey shall indicate increased or decreased
electrical consumption by Tenant at the Demised Premises, there shall be an
adjustment in the amount paid by Tenant to Landlord for Tenant's electrical
consumption in accordance with the resurvey as well as an adjustment
retroactive to the date Landlord establishes Tenant's increase or decrease
in electrical consumption in excess of the consumption established by the
prior survey. All surveys pursuant to this Article shall be conducted by a
reputable independent electrical engineer or similar agency recognized by the
electric company servicing the Building.
Landlord shall submit to Tenant the results of any electrical survey and the
same shall be deemed binding upon Tenant unless Tenant shall object to same
within ninety (90) days of the date that Landlord shall furnish Tenant with the
results of the survey.
15.3 Landlord shall not be liable in any way to Tenant for any failure or
defect in the supply or character of electric energy furnished to the Demised
Premises by reason of any requirement, act, or omission of the public utility
serving the Building with electricity or for any
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other reason. Landlord shall furnish and install all replacement lighting
tubes, lamps and bulbs required in the Demised Premises at Tenant's expense.
15.4 Tenants use of electric energy in the Demised Premises shall not at any
time exceed the capacity of any of the electrical conductors and equipment in or
otherwise serving the Demised Premises. Landlord shall provide electricity
service to the Demised Premises (exclusive of HVAC service) for Tenant's
exclusive use for business machines and lighting equal to +3 watts per rentable
square feet. In order to insure that such capacity is not exceeded and to avert
possible adverse effect upon the Building electric service, Tenant shall not,
without Landlord's prior written consent in each instance (which shall not be
unreasonably withheld), connect any additional fixtures, appliances, or
equipment to the Building electrical distribution system or make any alteration
or addition to the electric system of the Demised Premises existing on the day
the Tenant takes occupancy of the Demised Premises. Should Landlord grant such
consent, all additional risers or other equipment required therefor shall be
provided by Landlord and the cost thereof shall be paid by Tenant upon
Landlord's demand. As a condition to granting such consent, Landlord, at
Tenant's sole expense, may cause a new survey to be made of the use of electric
energy (other than for heating and air-conditioning) in order to calculate the
potential additional electric energy to be made available to Tenant based upon
the estimated additional capacity of such additional risers or other equipment.
When the amount of such increase is so determined, and the estimated cost
thereof is calculated, the amount of monthly additional rent payable pursuant to
Section 15.2 hereof shall be adjusted to reflect the additional cost, and shall
be payable as therein provided.
15.5 If the public utility rate schedule for the supply of electric current
to the Building shall be increased during the term of this Lease, the
additional rent payable pursuant to Section 15.2 hereof shall be equitably
adjusted to reflect the resulting increase in Landlord's cost of furnishing
electric service to the Demised Premises effective as of the date of any
increase. Landlord and Tenant agree that the rate charged to Tenant for
electricity shall not be greater than the rate Tenant would have paid had the
Demised Premises been separately metered.
15.6 Tenant agrees within three (3) months from the day the Tenant takes
occupancy of the Demised Premises to submit to Landlord a list of fixtures and
equipment utilizing electric current including, but not limited to, copying
machines, computers and word processing equipment and equipment of a similar
nature. On the first day of each calendar quarter thereafter, Tenant shall
submit to Landlord a statement indicating any substantial changes in the list
previously supplied as same may be updated by the required quarterly
statements.
15.7 Tenant, at its sole cost and expense, may have a submeter installed by
Landlord at any time during the term of this Lease.
ARTICLE 16
HEATING, VENTILATION AND AIR-CONDITIONING
16.1 Landlord, subject to the provisions of Section 5.4, shall maintain and
operate the heating, ventilating, and air-conditioning systems (hereinafter
called "the systems") and shall furnish heat, ventilating, and air conditioning
(hereinafter collectively called "air
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conditioning service") in the Demised Premises through the systems, in
compliance with the performance specifications set forth in Exhibit C, as may be
required for comfortable occupancy of the Demised Premises from 7:00 AM to 6:00
PM Monday through Friday and 8:00 AM to 1:00 PM on Saturday as requested by
Tenant, except days observed by the federal or the state government as legal
holidays ("Regular Hours") throughout the year. If Tenant shall require
air-conditioning service at any other time (hereinafter called "after hours"),
Landlord shall furnish such after hours airconditioning service upon four (4)
hours advance notice or the preceding day in the event of holidays or weekends
from Tenant, and Tenant shall pay Landlord's then established charges therefor
on Landlord's demand. Landlord's current charge for after hours air-conditioning
service is $45.00 per hour for the entire Demised Premises.
16.2 Use of the Demised Premises, or any part thereof, in a manner exceeding
the design conditions (including occupancy and connected electrical load)
specified in Exhibit C for air-conditioning service in the Demised Premises, or
rearrangement of partitioning which interferes with normal operation of the
air-conditioning in the Demised Premises, may require changes in the
air-conditioning system servicing the Demised Premises. Such changes, so
occasioned, shall be made by Landlord, at Tenant's expense, as Tenant's Changes
pursuant to Article 12.
ARTICLE 17
LANDLORD'S OTHER SERVICES
17.1 Landlord, subject to the provisions of Section 5.4, shall provide
public elevator service, passenger and service, by elevators serving the floor
on which the Demised Premises are situated during Regular Hours, and shall have
at least one passenger elevator subject to call at all other times.
17.2 Landlord, subject to the provisions of Section 5.4, shall cause the
Demised Premises, including the exterior and the interior of the windows
thereof, to be cleaned. Tenant shall pay to Landlord on demand the costs
incurred by Landlord for (a) extra cleaning work in the Demised Premises
required because of (i) misuse or neglect on the part of Tenant or its
employees or visitors; (ii) use of portions of the Demised Premises for
preparation, serving or consumption of food or beverages, data processing, or
reproducing operations, private lavatories or toilets or other special purpose
areas requiring greater or more difficult cleaning work than office areas;
(iii) unusual quantity of interior glass sauces; (iv) non-building standard
materials or finishes installed by Tenant or at its request; and (b) removal
from the Demised Premises and the Building of so much of any refuse and rubbish
of Tenant as shall exceed that ordinarily accumulated daily in the routine of
business office occupancy. Landlord, its cleaning contractor, and their
employees shall have after-hours access to the Demised Premises and the free
use of light, power, and water in the Demised Premises as reasonably required
for the purpose of cleaning the Demised Premises in accordance with Landlord's
obligations hereunder.
17.3 Landlord, subject to the provisions of Section 5.4, shall furnish
adequate hot and cold water to each floor of the Building for drinking,
lavatory, and cleaning purposes, together with soap, towels, and toilet tissue
for each lavatory. If Tenant uses water for any other purpose, Landlord, at
Tenant's expense, shall install meters to measure Tenant's consumption of
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cold water and/or hot water for such other purposes and/or steam, as the case
may be. Tenant shall pay for the quantities of cold water and hot water shown
on such meters, at Landlord's cost thereof, on the rendition of Landlord's
bills therefor.
17.4 Landlord, at its expense, and at Tenant's request, shall insert
initial listings on the Building directory of the names of Tenant or any Tenant
Affiliate as defined in Section 8.9, and the names of any of their officers and
employees, provided that the names so listed shall not take up more than
Tenant's proportionate share of the space on the Building directory. All
Building directory changes made at Tenant's request after the Tenant's initial
listings have been placed on the Building directory shall be made by Landlord
at the expense of Tenant, and Tenant agrees to promptly pay to Landlord as
additional rent the cost of such changes within ten (10) days after Landlord
has submitted an invoice therefor.
17.5 Tenant at its sole cost and expense shall have the right to install its
name and logo on the existing exterior monument sign which shall be subject to
Landlord's reasonable approval and shall utilize Building standard graphics,
the size and location of which shall be determined by Landlord. Such sign shall
be the existing exterior monument sign located on the lawn adjacent to the
Building. Tenant agrees to remove such sign and restore the existing exterior
monument sign to its original condition, wear and tear excepted, upon the
expiration or earlier termination of this Lease. Tenant shall obtain all
required governmental permits and approvals and all costs and expenses
associated therewith shall be borne solely by Tenant. The erection of the sign
shall not cause any structural damage to the Building.
17.6 Landlord reserves the right, without any liability to Tenant, to stop
service of any of the heating, ventilating, air conditioning, electric,
sanitary, elevator, or other Building systems serving the Demised Premises, or
the rendition of any of the other services required of Landlord under this
Lease, whenever and for so long as may be necessary, by reason of accidents,
emergencies, strikes, or the making of repairs or changes which Landlord is
required by this Lease or by law to make or in good faith deems necessary, by
reason of difficulty in securing proper supplies of fuel, steam, water,
electricity, labor or supplies, or by reason of any other cause beyond
Landlord's reasonable control.
17.7 Throughout the term and extensions of this Lease, Landlord shall make
available for Tenant's use in common with other tenants of the Building 4
spaces per 1,000 rentable square feet and 10 reserved parking spaces in the
parking area adjacent to the Building as designated on Exhibit H. Landlord
agrees that except for payment of common expense charges covered by Article 5,
there shall be no separate fee or cost to Tenant for use of the parking area.
17.8 The Building and the Demised Premises shall be cleaned in accordance
with the Cleaning and Maintenance Schedule set forth on Exhibit D annexed
hereto and made a part hereof.
17.9 Tenant acknowledges that as part of the consideration for this Lease,
and in order not to interfere with the rights of other tenants or other
tenants' quiet enjoyment of the common areas of the Building and otherwise
prevent Landlord from performing its services without causing increases to the
cost of such services, Tenant agrees that it shall not permit its
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employees to congregate in hallways or elevators, shall not permit its
employees to create an unsightly condition in or about any passageway from the
Building or the common areas or to the parking lot/deck, with regard to
smoking, including the disposal of cigarettes, in the courtyard and/or outer
areas adjacent to the Building and will otherwise require its employees to act
and conduct themselves in the common areas in such a manner as will not disturb
other tenants or the use and enjoyment by other tenants of the Building.
17.10 Landlord, at its expense, shall maintain an in-door air quality
monitoring program to monitor the air quality of the Building and shall
effectuate such remedies as are required to insure that the air quality of the
Building satisfies current applicable governmental standards.
17.11 If due to the Landlord's failure to provide any service required to be
furnished hereby by Landlord with respect to the maintenance, repair and
operation of the Demised Premises or any portion thereof are not habitable and
therefore not usable for its permitted purpose and Tenant can not conduct
business in the Demised Premises, which condition continues for (i) ten (10)
continuous business days if such failure is not within Landlord's sole control
or (ii) five (5) continuous business days if such failure is within Landlord's
sole control, after Landlord's receipt of written notification from Tenant
stating with specificity the nature of the problem (which time shall be
extended by reason of force majeure which includes but is not limited to
strikes, lock-outs, labor controversy, inability to obtain supplies, acts of
God or other causes beyond Landlord's control other than purely reasonable
economic considerations under the circumstances), and which condition is not
caused by the negligent or intentional acts or failure to act of Tenant, then
Tenant shall be entitled to abate its fixed rent and Operating Expenses and Tax
escalations after the condition herein described continues as follows:
For each calendar day commencing after the passage of such ten (10) business
days after Landlord's receipt of written notice of such failure, Tenant shall
be entitled to one (1) additional day of rent abatement prorated on the basis
of thirty (30) day calendar month, which abatement shall run from the date of
the next monthly payment of fixed rent which was otherwise due under Article
1.4. Such prorated one (1) day abatement shall continue for each additional
calendar day during which the such failure continues. An event is not within
Landlord's control if, for reasons beyond Landlord's control, Landlord can not
reasonably purchase or obtain the necessary equipment to correct any such
failure. Landlord shall diligently proceed to repair any failure as set forth
in this Section within five (5) days of written notice from Tenant. Landlord
and Tenant agree that none of the abatement aforesaid shall apply to Tenant's
obligation to pay additional rent. For the purposes of the right of abatement,
such right shall only exist when the Demised Premises are untenable because
of failures in all the elevators, HVAC, electric and/or plumbing systems.
Further, the Demised Premises must not only be untenable but, in fact, the
Tenant must not have used the Demised Premises during any period in which the
abatement is claimed. The foregoing shall not preclude any other remedy
available to Tenant.
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ARTICLE 18
ACCESS, CHANGES IN BUILDING FACILITIES, NAME
18.1 All walls, windows, and doors bounding the Demised Premises (including
exterior Building walls, core corridor walls and doors, and any core corridor
entrance), except the inside surfaces thereof, any terraces or roofs adjacent
to the Demised Premises, and any space in or adjacent to the Demised Premises
used for shafts, stacks, piped conduits, fan room, ducts, electric or other
utilities, sinks or other Building facilities, and the use thereof, as well as
access thereto through the Demised Premises for the purposes of operation,
maintenance, decoration, and repair are reserved to Landlord. Upon Landlord's
reasonable and prompt approval, Tenant may have access to areas adjacent to the
Demised Premises for the installation of voice, data and security wiring
provided such wiring is removed by Tenant at the expiration of this Lease,
unless otherwise agreed upon by Landlord and Tenant in writing.
18.2 Tenant shall permit Landlord to have access to the Demised Premises to
install use, and maintain pipes, ducts, and conduits within the demising walls,
bearing columns, and ceilings above the Demised Premises.
18.3 Landlord or Landlord's agent shall have the right upon advance
reasonable request (except in emergency under clause (ii) hereof) to enter
and/or pass through the Demised Premises or any part thereof, at reasonable
times during Tenant's business hours, (i) to examine the Demised Premises and
to show them to the fee owners, holders of superior mortgages, or prospective
purchases or mortgagees of the Building as an entirety, and (ii) for the
purpose of making such repairs or changes or doing such repainting in or to the
Demised Premises or its facilities, as may be provided for by this Lease or as
may be mutually agreed upon by the parties or as Landlord may be required to
make by law or in order to repair and maintain said structure or its fixtures
or facilities. Landlord shall be allowed to take all materials into and upon
the Demised Premises that may be required for such repairs, changes,
repainting, or maintenance, without liability to Tenant but Landlord shall not
unreasonably interfere with Tenant's use of the Demised Premises. Landlord
shall also have the right to enter on and/or pass through the Demised Premises,
or any part thereof, at such times as such entry shall be required by
circumstances of emergency affecting the Demised Premises or the Building.
18.4 During the period of six (6) months prior to the Expiration Date,
Landlord may exhibit the Demised Premises to prospective tenants.
18.5 Landlord reserves the right, at any time after completion of the
Building, without incurring any liability to Tenant therefor, to make such
changes in or to the Building and the fixtures and equipment thereof, as well
as in or to the street entrances, halls, passages, elevators, escalators, and
stairways thereof, as it may deem necessary or desirable, provided, however,
that such changes shall not reduce the size of the Demised Premises.
18.6 Landlord may adopt any name for the Building. Landlord reserves the
right to change the name or address of the Building at any time.
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18.7 Subject to applicable law and the limitations on Landlord's Services and
HVAC as set forth in Article 16 and 17, the Building shall be accessible
twenty-four (24) hours a day, seven (7) days a week.
ARTICLE 19
NOTICE OF ACCIDENTS
19.1 Tenant shall give notice to Landlord, promptly after Tenant learns
thereof, of (i) any accident in or about the Demised Premises for which
Landlord might be liable; (ii) all fires in the Demised Premises; (iii) all
damage to or defects in the Demised Premises, including the fixtures,
equipment, and appurtenances thereof, for the repair of which Landlord might be
responsible; and (iv) all damage to or defects in any parts or appurtenances of
the Building's sanitary, electrical, heating, ventilating, air-conditioning,
elevator, and other systems located in or passing through the Demised Premises
or any part thereof.
ARTICLE 20
NON-LIABILITY AND INDEMNIFICATION
20.1 Neither Landlord nor any agent or employee of Landlord shall be liable to
Tenant for any injury or damage to Tenant or to any other person or for any
damage to, or loss (by then or otherwise) of, any property of Tenant or of any
other person, irrespective of the cause of such injury, damage, or loss, unless
caused by or due to the negligence or willful act or omission of Landlord, its
agents, contractors or employees.
20.2 Tenant shall indemnify and save harmless Landlord and its agents against
and from (a) any and all claims (i) arising from (x) the conduct or management
of the Demised Praxes or of any business therein, or (y) any work or thing
whatsoever done, or any condition created (other than by Landlord for
Landlord's or Tenant's account) in or about the Demised Premises during the
term of this Lease or during the period of time, if any, prior to the day the
Tenant takes occupancy of the Demised Premises that Tenant may have been given
access to the Demised Premises, or (ii) arising from any negligent or otherwise
wrongful act or omission of Tenant or any of its subtenants, invitees or
licensees or its or their employees, agents, or contractors, and (b) all costs,
expenses, and liabilities incurred in or in connection with each such claim or
action or proceeding brought thereon. In case any action or proceeding be
brought against Landlord by reason of any such claim, Tenant upon notice from
Landlord, shall resist and defend such action or proceeding.
20.3 Landlord shall indemnify and save harmless Tenant and its agents against
and from (a) any and all claims (i) arising from (x) the conduct or management
of the Building by Landlord and/or its agents or (y) any work or thing
whatsoever done, or any condition created (other than by Tenant for Landlord's
or Tenant's account) in or about the Building caused by Landlord or its agents
during the term of this Lease, or (iii) arising from any negligent or otherwise
wrongful act or omission of Landlord or any of its employees, agents, or
contractors, and (b) all costs, expenses, and liabilities incurred in or in
connection with each such claim or
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action described in (a) above or proceeding brought thereon. In case any action
or proceeding be brought against Tenant by reason of any such claim, Landlord,
upon notice from Tenant shall resist and defend such action or proceeding.
20.4 Except as otherwise expressly provided in this Lease, this Lease and the
obligations of Tenant hereunder shall be in no wise affected, impaired or
excused because Landlord is unable to fulfill or is delayed in fulfilling, any
of its obligations under this Lease by reason of strike, other labor trouble,
governmental preemption or priorities or other controls in connection with a
national or other public emergency or shortages of fuel supplies or labor
resulting therefrom, or other like cause beyond Landlord's reasonable control.
ARTICLE 21
DESTRUCTION OR DAMAGE
21.1 If the Building or the Demised Premises shall be partially or totally
damaged or destroyed by fire or other cause, then whether or not the damage or
destruction shall have resulted from the fault or neglect of Tenant, or its
employees, agents or visitors (and if this Lease shall not have been terminated
as in this Article hereinafter provided), Landlord shall repair the damage and
restore and rebuild the Building and/or the Demised Premises, at its expense,
with reasonable dispatch after notice to it of the damage or destruction;
provided, however, that Landlord shall not be required to repair or replace any
of the Tenant's Property.
21.2 If the Building or the Demised Premises shall be partially damaged or
partially destroyed by fire or other cause not attributable to the fault or
negligence of Tenant, its agents, or employees, the rents payable hereunder
shall be abated to the extent that the Demised Premises shall have been
rendered untenantable and for the period from the date of such damage or
destruction to the date the damage shall be repaired or restored. If the
Demised Premises or a major part thereof shall be totally (which shall be
deemed to include substantially totally) damaged or destroyed or rendered
completely (which shall be deemed to include substantially completely)
untenantable on account of fire or other cause, the rents shall abate as of the
date of the damage or destruction and usual Landlord shall repair, restore, and
rebuild the Building and the Demised Premises, provided, however, that should
Tenant reoccupy a portion of the Demised Premises during the period of
restoration work is taking place and prior to the date that the same are made
completely tenantable, rents allocable to such portion shall be payable by
Tenant from the date of such occupancy.
21.3 If the Building or the Demised Premises shall be totally damaged or
destroyed by fire or other cause, or if the Building shall be so damaged or
destroyed by fire or other cause (whether or not the Demised Premises are
damaged or destroyed) as to require a reasonably estimated expenditure of more
than twenty-five percent (25%) of the full insurable value of the Building
immediately prior to the casualty then in either such case Landlord may
terminate this Lease by giving Tenant notice to such effect within one hundred
eighty (180) days after the date of the casualty. In case of any damage or
destruction mentioned in this Article, Tenant may terminate the Lease by notice
to Landlord, if Landlord has not completed the making of the required repairs
and restored and rebuilt the Building and the Demised Premises within eight (8)
months from the date of such damage or destruction, or within such period after
such
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date (not exceeding six (6) months) as shall equal the aggregate period
Landlord may have been delayed in doing so by adjustment of insurance, labor
trouble, governmental controls, act of God, or any other cause beyond
Landlord's reasonable control.
21.4 No damages, compensation, or claim shall be payable by Landlord for
inconvenience, loss of business, or annoyance arising from any repair or
restoration of any portion of the Demised Premises or of the Building pursuant
to this Article. Landlord shall use its best efforts to effect such repair or
restoration promptly and in such manner as not unreasonably to interfere with
Tenant's use and occupancy during such time that Tenant is able to use the
Demised Premises during Landlord's restoration.
21.5 Landlord will not carry insurance of any kind on Tenant's Property, and,
except as provided by law or by reason of its fault or its breach of any of its
obligations hereunder, shall not be obligated to repair any damage thereto or
replace the same; to the extent that Tenant shall maintain insurance on
Tenant's Property, Landlord shall not be obligated to repair any damage thereto
or replace the same.
21.6 The provisions of this Article shall be considered an express agreement
governing any case of damage or destruction of the Demised Premises by fire or
other casualty, and any law of the State of New Jersey providing for such a
contingency in the absence of an express agreement, and any other law of like
import, now of hereafter in force, shall have no application in such case.
21.7 If the Demised Premises and/or access thereto become partially or totally
damaged or destroyed by any casualty not insured against, then Landlord shall
have the right to terminate this Lease upon giving the Tenant thirty (30) days
notice and upon the expiration of said thirty (30) day notice period this Lease
shall terminate as if such termination date were the Expiration Date.
ARTICLE 22
EMINENT DOMAIN
22.1 If the whole of the Building shall be lawfully taken by condemnation or in
any other manner for any public or quasi-public use of purpose, this Lease and
the term and estate hereby granted shall forthwith terminate as of the date of
vesting of title on such taking (which date is herein also referred to as the
"date of the taking"), and the rents shall be prorated and adjusted as of such
date.
22.2 If any part of the Building shall be so taken, this Lease shall be
unaffected by such taking, except that Tenant may elect to terminate this Lease
in the event of a partial taking, if the area of the Demised Premises, or
parking areas or common areas, shall not be reasonably sufficient for Tenant to
continue feasible operation of its business. Tenant shall give notice of such
election to Landlord not later than thirty (30) days after the date of such
taking. Upon the giving of such notice to Landlord, this Lease shall terminate
on the date of service of notice and the rents apportioned to the part of the
Demised Premises so taken shall be prorated and adjusted as of the date of the
taking and the rents apportioned to the remainder of the
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Demised Premises shall be prorated and adjusted as of such termination date.
Upon such partial taking and this Lease continuing in force as to any part of
the Demised Premises, the rents apportioned to the part taken shall be prorated
and adjusted as of the date of taking and from such date the fixed rent shall
be reduced to the amount apportioned to the remainder of the Demised Premises
and additional rent shall be payable pursuant to Article 5 according to the
rentable area remaining.
22.3 Except as specifically set forth in Section 22.4. hereof, Landlord shall
be entitled to receive the entire award in any proceeding with respect to any
taking provided for in this Article without deduction therefrom for any estate
vested in Tenant by this Lease, and Tenant shall receive no part of such award.
Tenant hereby expressly assigns to Landlord all of its right, title, and
interest in or to every such award. Tenant may claim a condemnation award for
the unamortized portion of the cost incurred by Tenant in connection with any
of Tenant's Property installed pursuant to this Lease. In addition, Tenant may
sue for relocation expenses and loss of profit and good will.
22.4 If the temporary use or occupancy of all or any part of the Demised
Premises shall be lawfully taken by condemnation or in any other manner for any
public or quasi-public use or purpose during the term of this Lease, Tenant
shall be entitled, except as hereinafter set forth, to receive any award which
does not serve to diminish Landlord's award in any respect and, if so awarded,
for the taking of Tenant's Property and for moving expenses, and Landlord shall
be entitled to receive that portion which represents reimbursement for the cost
of restoration of the Demised Premises. This Lease shall be and remain
unaffected by such taking and Tenant shall remain responsible for all of its
obligations hereunder insofar as such obligations are not affected by such
taking and shall continue to pay in full the fixed rent and additional rent
when due. If the period of temporary use or occupancy of the Demised Premises
(or a part thereof) shall be divided between Landlord and Tenant so that Tenant
shall receive so much thereof as represents the period prior to the Expiration
Date and Landlord shall receive so much thereof as represents the period
subsequent to the Expiration Date. All moneys received by Tenant as, or as part
of, an award for temporary use and occupancy for a period beyond the date to
which the rents hereunder have been paid by Tenant shall be received, held, and
applied by Tenant as a trust fund for payment of the rents failing due
hereunder.
22.5 In the event of any taking of less than the whole of the Building which
does not result in a termination of this Lease, or in the event of a taking for
a temporary use or occupancy of all or any part of the Demised Premises which
does not extend beyond the Expiration Date, Landlord, at its expense, shall
proceed with reasonable diligence to repair, alter, and restore the remaining
parts of the Building and the Demised Premises to substantially their former
condition to the extent that the same may be feasible and so as to constitute a
complete and tenantable Building and Demised Premises provided that Landlord's
liability under this Section 22.5 shall be limited to the net amount (after
deducting all costs and expenses, including, but not limited to, legal expenses
incurred in connection with the eminent domain proceeding) received by Landlord
as an award arising out of such taking. If such taking occurs within the last
three (3) years of the term of this Lease, Landlord shall have the right to
terminate this Lease by giving the Tenant written notice to such effect within
ninety (90) days after such taking, and this Lease shall then expire on that
effective date stated in the notice as if that were the Expiration
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Date, but the fixed rent and the additional rent shall be prorated and adjusted
as of the date of such taking.
22.6 Should any part of the Demised Premises be taken to effect compliance with
any law or requirement of public authority other than in the manner hereinabove
provided in this Article then, (i) if such compliance is the obligation of
Tenant under this Lease, Tenant shall not be entitled to any diminution or
abatement of rent or other compensation from Landlord therefor, but (ii) if
such compliance is the obligation of Landlord under this Lease, the fixed rent
hereunder shall be reduced and additional rents under Article 5 shall be
adjusted in the same manner as is provided in Section 22.2 according to the
reduction in rentable area of the Demised Premises resulting from such taking.
ARTICLE 23
SURRENDER
23.1 On the last day of the term of this Lease, or upon any earlier termination
of this Lease, or upon any reentry by Landlord upon the Demised Premises,
Tenant shall quit and surrender the Demised Premises to Landlord in good order,
condition, and repair, except for ordinary wear and tear and such damage or
destructions as Landlord is required to repair or restore under this Lease, and
Tenant shall remove all of Tenant's Property therefrom except as otherwise
expressly provided in this Lease. At the time of surrender, or earlier
termination of this Lease, the Demised Premises shall be in the same state as
existed as of the completion of Landlord's Work ordinary wear and tear
excepted. Any Tenant Changes, alterations or improvements, all of which must be
done in accordance with Article 12 shall be removed, except as may otherwise
have been provided by Landlord at the time it exercised its consent in
connection with such Tenant Changes pursuant to Article 12. Landlord and Tenant
agree that a minimum of ninety (90) days prior to the Expiration Date of this
Lease, Landlord shall walk through the Demised Premises with Tenant and create
a punchlist of all restoration which shall be required to be completed by
Tenant by the Expiration Date. Failure by Landlord and Tenant to walk through
the Demised Premises ninety (90) days prior to the Expiration Date of this
Lease shall not relieve Tenant of any restoration obligations otherwise
required pursuant to this Lease. However, if Tenant gives Landlord notice that
it desires to walk through the Demised Premises and identify the restoration
required as set forth above and Landlord does not fulfill its obligation to
walk through the Demised Premises, Tenant will not be relieved of any of its
restoration obligations but will not be deemed in holdover as set forth below
while it performs such restoration. Thereafter, Tenant may request a written
estimate from Landlord for the cost of all restoration required pursuant to
this Lease. Landlord and Tenant acknowledge that Landlord, prior to the
Expiration Date, will have already notified Tenant of its restoration
obligations pursuant to a restoration agreement letter dated September 12, 1966
and Article 12 of the Lease, and, as a result notwithstanding the ninety (90)
day time period set forth above, it shall be Tenant's obligation to ensure that
Tenant has enough time after the Landlord and Tenant walk through the Demised
Premises, if Tenant will be performing such restoration prior to the Expiration
Date of the Lease. The cost contained in such estimate shall be commercially
reasonable and where possible, Landlord will competitively bid the work. In
lieu of restoring the Demised Premises as required pursuant to this Lease,
Tenant may, at its option, pay Landlord,
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prior to the Expiration Date of the Lease, the cost of such restoration as set
forth in Landlord's estimate. If Tenant fails to perform any restoration
required of it under this Lease or fails to pay Landlord for the cost of any
restoration required on or before the last day of the term of this Lease or
upon any earlier termination, Tenant shall be deemed a holdover Tenant under
Article 40 of this Lease until such time as Tenant has completed such
restoration. For the first fifteen (15) days of holdover as set forth above,
Tenant shall only be required to pay holdover charges on a per diem basis.
After the expiration of fifteen (15) days the Tenant shall be in subject to
holdover charges on a monthly basis. If, unknowingly, Tenant incorrectly
performs any of the restoration required, Landlord shall notify Tenant and
Tenant shall have fifteen (15) days to correct such error. If Tenant fails to
correct such error within the thirty (30) day period, Tenant shall be subject
to holdover from the day on which Tenant received Landlord's notice of the
incorrect restoration.
ARTICLE 24
CONDITIONS OF LIGATION
24.1 This Lease and the term and estate hereby granted are subject to the
limitation that whenever Tenant shall make an assignment of the property of
Tenant for the benefit of creditors, or shall file a voluntary petition under
any bankrupt or insolvency law, or an involuntary petition alleging an act of
bankruptcy or insolvency shall be filed against Tenant under any bankruptcy or
insolvency law, or whenever a petition shall be filed by or against Tenant
under the reorganization provisions of the United States Bankruptcy Act or
under the provisions of any law of like imports or whenever a petition shall be
filed by Tenant under the arrangement provisions of any law of like import,
whenever a permanent receiver of Tenant or of or for the property of Tenant
shall be appointed, then Landlord, (a) at any time of receipt of notice of the
occurrence of any such event, or (b) if such event occurs without the
acquiescence of Tenant, at any time after the event continues for thirty (30)
days, Landlord may give Tenant a notice of intention to end the term of this
Lease at the expiration of five (5) days from the date of service of such
notice of intention, and upon the expiration of said five (5) day period this
Lease and the term and estate hereby granted, whether or not the term shall
theretofore have commenced, shall terminate with the same effect as if that day
were the Expiration Date, but Tenant shall remain liable for damages as
provided in Article 26.
24.2 This Lease and the term and estate hereby granted are subject to the
further limitation that:
(a) Whenever Tenant shall default in the payment of installment of
fixed rent or in the payment of any additional rent or any other
charge payable by Tenant to Landlord, or any day upon which the same
ought to be paid, and such default shall continue for five (5)
business days after written notice thereof; or
(b) Whenever Tenant shall do or permit anything to be done, whether by
action or inaction, contrary to any of Tenant's obligations hereunder,
and if such situation shall continue and shall not be remedied by
Tenant within thirty (30) days after Landlord shall have given to
Tenant a written notice specifying the same, or, in the case of a
happening or default which cannot with due diligence be cured within a
period of thirty (30) days and the
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continuance of which for the period required for cure will not subject Landlord
to risk of criminal liability or termination of any foreclosure of any superior
mortgage if Tenant shall not, (i) within said thirty (30) day period advise
Landlord of Tenants intention to duly institute all steps necessary to remedy
such situation; (ii) duly institute within said thirty (30) day period, and
thereafter diligently prosecute to completion all steps necessary to remedy the
same; (iii) complete such remedy within such time after the date of giving of
said notice to Landlord as shall reasonably be necessary; or
(c) Whenever any event shall occur or any contingency shall arise
whereby this Lease or the estate hereby granted or the unexpired
balance of the term hereof would, by operation of law or otherwise,
devolve upon or pass to any person, film, or corporation other than
Tenant, except as expressly permitted by Article 8; or
(d) Whenever Tenant shall abandon the Demised Premises (unless as a
result of a casualty), or
(e) If Tenant shall default in the timely payment of rent or
additional rent and any such default shall continue to be repeated for
two (2) consecutive months or for a total of four (4) months in any
period of twelve (12) months, or more than three (3) times in any six
(6) month period, then, notwithstanding that such defaults shall have
each been cured within the applicable period, any similar default
shall be deemed to be deliberate and Landlord may thwarter serve a
notice of termination upon Tenant without affording to Tenant
opportunity to cure such default;
then, and in any of the foregoing cases, this Lease and the term and estate
hereby granted, whether or not the term shall theretofore have commenced, shall,
if the Landlord so elects, terminate upon ten (10) days written notice by
Landlord to Tenant of Landlord's election to terminate the Lease and the term
hereof shall expire and come end on the date fixed in such notice, with the same
effect as if that day were the Expiration Date, but Tenant shall remain liable
for the rent and additional rent which subsequently accrues and for damages as
provided in Article 26.
ARTICLE 25
RE-ENTRY BY LANDLORD
25.1 If Tenant shall default in the payment of any installment of fixed rent or
of any installment of additional rent, on any date upon which the same ought to
be paid and if such default shall continue for five (5) days after written
notice thereof, or if this Lease shall expire as provided in Article 24,
Landlord or Landlord's agents and employees may immediately or at any time
thereafter re-enter the Demised Premises, or any part thereof, in the name of
the whole, either by summary dispossess proceedings or by any suitable action
or proceeding at law, or by force or otherwise, without being liable to
indictment, prosecution or damages therefor, and may repossess the same, and
may remove any persons therefrom, to the end that Landlord may have, hold, and
enjoy the Demised Premises again as and of its first estate and interest
therein. The word "re-enter," as herein used, is not restricted to its
technical legal meaning. In the event of any termination of this Lease under
the provisions of Article 24 or if Landlord shall
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re-enter the Demised Premises under the provisions of this Article or in the
event of the termination of this Lease, or of re-entry, by or under any summary
dispossess or other proceeding or action or any provision of law by reason of
default hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord
the fixed rent and additional rent payable by Tenant to Landlord up to the time
of such termination of this Lease, or of such recovery of possession or the
Demised Premises by Landlord, as the case may be, and shall also pay to
Landlord damages as provided in Article 26.
25.2 In the event of a breach or threatened breach by Landlord or Tenant of any
of their respective obligations under this Lease, either Landlord or Tenant, as
the case may be, shall also have the right of injunction. The special remedies
hereunder are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which the parties may lawfully be entitled at
any time.
25.3 If this Lease shall terminate under the provisions of Article 24, or if
Landlord shall re-enter the Demised Premises under the provisions of this
Article, or in the event of any termination of this Lease, or of re-entry, by
or under any summary dispossess or other proceeding or action or any provision
of law by reason of default hereunder on the part of Tenant, Landlord shall be
entitled to retain all moneys, if any, paid by Tenant to Landlord, whether as
advance rent, security, or otherwise, but such moneys shall be credited by
Landlord against any fixed rent or additional rent due from Tenant at the time
of such termination or re-entry or, at Landlord's option, against any damages
payable by Tenant under Article 26 or pursuant to law.
ARTICLE 26
DAMAGES
26.1 If this Lease is terminated under the provisions of Article 24, or if
Landlord shall re-enter the Demised Premises under the provisions of Article
25, or in the event of the termination of this Lease, or of re-entry, by or
under any summary dispossess or other proceeding or action of any provision of
law by reason of default hereunder on the part of Tenant, Tenant shall pay to
Landlord as damages, at the election of Landlord, either
(a) A sum which at the time of such termination of this Lease or at
the time of any such re-entry by Landlord, as the case may be,
represents the then value of the excess, if any, of (i) the aggregate
of the fixed rent and the additional rent payable hereunder which
would have been payable by Tenant (conclusively presuming the
additional rent to be the same as was payable for the year immediately
preceding such termination) for the period commencing with such
earlier termination of this Lease or the date of any such re-entry, as
the case may be, and ending with the Expiration Date, had this Lease
not so terminated or had Landlord not so re-entered the Demised
Premises, over (ii) the aggregate rental value of the Demised Premises
for the same period, or
(b) Sums equal to the fixed rent and the additional rent (as above
presumed) payable hereunder which would have been payable by Tenant
had this Lease not so terminated, or had Landlord not so re-entered
the Demised Premises, payable upon the due dates
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therefor specified herein following such termination or such re-entry and until
the Expiration Date, provided, however, that if Landlord shall relet the
Demised Premises during said period, Landlord shall credit Tenant with the net
rents received by Landlord from such reletting, such net rents to be determined
by first deducting from the gross rents as and when received by Landlord from
such reletting, the expenses incurred or paid by Landlord in terminating this
Lease or in reentering the Demised Premises and in securing possession thereof,
as well as the expenses of reletting, including altering and preparing the
Demised Premises for new tenants, brokers' commissions, and all other expenses
properly chargeable against the Demised Premises and the rental therefrom; it
being understood that any such reletting may be for a period shorter or longer
than the remaining term of this Lease; but in no event shall Tenant be entitled
to receive any excess of such net rents over the sums payable by Tenant to
Landlord hereunder, nor shall Tenant be entitled in any suit for the collection
of damages pursuant to this Subsection to a credit in respect of any net rents
from a reletting, except to the extent that such net rents are actually
received by Landlord. If the Demised Premises or any part thereof should be
relet in combination with other space, then proper apportionment on a square
foot basis shall be made of the rent received from such reletting and of the
expenses of reletting.
If the Demised Premises or any part thereof to be relet by Landlord for the
unexpired portion of the term of this Lease, or any part thereof, before
presentation of proof of such damages to any court commission or tribunal the
amount of rent reserved upon such reletting shall, prima facie, be the fair and
reasonable rental value for the Demised Premises, or part thereof, so relet
during the term of the reletting.
26.2 Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not
been so terminated under the provisions of Article 24, or under any provision
of law, or had Landlord not re-entered the Demised Premises. Nothing herein
contained shall be construed to limit or preclude recovery by Landlord against
Tenant of any sums or damages to which, in addition to the damages particularly
provided above, Landlord may lawfully be entitled by reason of any default
hereunder on the part of Tenant. Nothing herein contained shall be construed to
limit or prejudice the right of Landlord to seek and obtain as liquidated
damages by reason of the termination of this Lease or re-entry on the Demised
Premises for the default of Tenant under this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, such damages are to be proved whether or
not such amount be greater, equal to, or less than any of the sums referred to
in Section 26. 1.
26.3 In addition to the foregoing and without regard to whether this Lease is
terminated Tenant shall pay to Landlord upon demand, all costs and expenses
incurred by Landlord, including reasonable attorney's fees, with respect to any
lawsuit instituted or defended or any action taken by Landlord to enforce all
or any of the provisions of this Lease to the extent Landlord is successful.
Landlord agrees that, if, after implementing proceedings or litigation, Tenant
is successful therein, then Landlord shall pay Tenant's reasonable costs and
expenses, including reasonable attorney fees.
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26.4 Landlord agrees that if it fails to perform any service required of it,
Tenant shall notify Landlord in writing of such failure. Landlord shall then
have thirty (30) days within which to cure such default. Landlord shall
diligently and continually proceed to cure any such default within five (5)
days of written notice from Tenant. Landlord agrees to advise Tenant within
five (5) business days of Landlord's efforts to cure such default. If Landlord
fails to cure such default within the thirty (30) day period, Tenant shall be
entitled, but not obligated, to perform such service and invoice Landlord for
the cost thereof. If Landlord fails to reimburse Tenant, Tenant shall be
entitled to institute litigation against Landlord. If Tenant is successful in
such litigation, Tenant shall also be entitled to reasonable costs and expenses
including attorney's fees in connection with such litigation. Tenant agrees
that it shall not exercise the right of any offset against rent for any sums
due it pursuant to this Section until such time as Tenant has obtained a
judgment against Landlord.
ARTICLE 27
WAIVERS
27.1 Tenant, for Tenant, and on behalf of any and all persons claiming through
or under Tenant, including creditors of all kinds, does hereby waive and
surrender all right and privilege which they or any of them might have under or
by reason of any present or future law, to redeem the Demised Premises or to
have a continuance of this Lease for the term hereby demised after being
dispossessed or ejected therefrom by process of law or under the terms of this
Lease or after the termination of this Lease as herein provided.
27.2 In the event that Tenant is in arrears in payment of fixed rent or
additional rent hereunder, Tenant waives Tenant's right, if any, to designate
the items against which any payments made by Tenant are to be credited, and
Tenant agrees that Landlord may apply any payments made by Tenant to any items
it sees fit, irrespective of and notwithstanding any designation or request by
Tenant as to the items against which any such payments shall be credited.
27.3 Landlord and Tenant hereby waive trial by jury in any action, proceeding
or counterclaim brought by either against the other on any matter whatsoever
arising out of or in any way connected with this Lease, the relationship of
Landlord and Tenant, Tenant's use or occupancy of the Demised Premises,
including any claim of injury or damage, or any emergency or other statutory
remedy with respect thereto.
27.4 The provisions in Articles 16 and 17 shall be considered express
agreements governing the services to be furnished by Landlord, and Tenant
agrees that any laws and/or requirements of public authorities, now or
hereafter in force, shall have no application in connection with any
enlargement of Landlord's obligations with respect to such services.
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ARTICLE 28
NO OTHER WAIVERS OR MODIFICATIONS
28.1 The failure of either party to insist in any one or more instances upon
the strict performance of any one or more of the obligations of this Lease, or
to exercise any election herein contained, shall not be construed as a waiver
or relinquishment for the future of the performance of such one or more
obligations of this Lease or of the right to exercise such election, but the
same shall continue and remain in full force and effect with respect to any
subsequent breach, act, or omission. No executory agreement hereafter made
between Landlord and Tenant shall be effective to change, modify, release,
discharge, terminate or effect an abandonment of this Lease, in whole or in
part, unless such executory agreement is in writing, refers expressly to this
Lease and is signed by the party against whom enforcement of the change,
modification, waiver, release, discharge, or termination of effectuation of the
abandonment is sought.
28.2 Without limiting Section 28.1, the following provisions shall also apply:
(a) No agreement to accept a surrender of all or any part of the
Demised Premises shall be valid unless in writing and signed by
Landlord. The delivery of keys to an employee of Landlord or of its
agent shall not operate as a termination of this Lease or a surrender
of the Demised Premises. If Tenant shall at any time request Landlord
to sublet the Demised Premises for Tenant's account, Landlord or its
agent is authorized to receive said keys for such purposes without
releasing Tenant from any of its obligations under this Lease, and
Tenant hereby releases Tenant from any liability for loss or damage to
any of Tenant's property in connection with such subletting.
(b) The receipt by Landlord of rent with knowledge of breach of any
obligation of this Lease shall not be deemed a waiver of such breach.
(c) No payment by Tenant or receipt by Landlord of a lesser amount
than the correct fixed rent or additional rent due hereunder shall be
deemed to be other than a payment on account nor shall any endorsement
or statement on any check or any letter accompanying any check or
payment be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover
the balance or pursue any other remedy in this Lease or at law
provided.
ARTICLE 29
CURING TENANT'S DEFAULTS
29.1 If Tenant shall default in the performance of any of Tenant's obligations
under this Lease, Landlord, without thereby waiving such default, may (but
shall not be obligated to) perform the same for the account and at the expense
of Tenant, without notice, in a case of emergency, and in any other case, only
if such default continues after the expiration of (i) ten (10) days from the
date Landlord gives Tenant notice of intention so to do, or (ii) the
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applicable grace period provided in Section 24.2 or elsewhere in this Lease for
cure of such default, whichever occurs later.
29.2 Bills, invoices and purchase orders for any and all costs, charges, and
expenses incurred by Landlord in connection with any such performance by it for
the account of Tenant, including reasonable counsel fees, involved in
collecting or endeavoring to collect the fixed rent or additional rent or any
part thereof, or enforcing or endeavoring to enforce any rights against Tenant,
under or in connection with this Lease, or pursuant to law, including any such
cost, expense, and disbursement involved in instituting and prosecuting summary
proceedings, may be sent by Landlord to Tenant or immediately, at Landlord's
option, and, shall be due and payable in accordance with the terms of such
bills.
ARTICLE 30
BROKER
30.1 Tenant covenants, warrants, and represents that than was no broker except
JACOBSON, GOLDFARB & TANZMAN ASSOCIATES and PALADIN GROUP (collectively
"Brokers") instrumental in consummating this Lease and that no conversations or
negotiations were had with any broker except Broker concerning the renting of
the Demised Praises. Tenant agrees to hold Landlord harmless against any claims
for a brokerage commission arising out of any conversations or negotiations had
by Tenant with any broker except Broker. Landlord agrees to pay Broker pursuant
to a separate agreement but such payment shall not exceed a 5% commission as
described in such agreement.
ARTICLE 31
NOTICES
31.1 Any notice, statement, demand, or other communications required or
permitted to be given, rendered, or made by either party to the other, pursuant
to this Lease or pursuit to say applicable law or requirement of public
authority, shall be in writing (whether or not so stated elsewhere in this
Lease) and shall be deemed to have been properly given, rendered or made, if
sent by overnight mail courier, addressed to the other party at the address set
forth below and shall be deemed to have been given, rendered, or made on the
date following the date of mailing. Either party may, by notice as aforesaid,
designate a different address or addresses for notices, statements, demands, or
other communications intended for it. In the event of the cessation of any mail
delivery for any reason, personal delivery shall be substituted for the
aforedescribed method of serving notices.
Landlord's Notice: Alfieri Property Management 399 Thornall Street
Edison, New Jersey 08837 Attn: Charles Applebaum, Esq.
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Tenant's Notice: AT&T Paradyne 8545 126th Avenue North P.O. Box 2826
Largo, Florida 34649-22628 Attn: Red Estate Manager
ARTICLE 32
ESTOPPEL CERTIFICATE
32.1 Tenant agrees, when requested by Landlord, to execute and deliver
to Landlord a statement certifying that this Lease is unmodified and
in full force and effect (or if there have been modifications, that
the same is in full force and effect as modified and stating the
modifications), certifying the dates to which the fixed rent and
additional rent have been paid, whether any dispute exists with
respect thereto and stating whether or not, to Tenants best knowledge,
Landlord is in default in performance of any of its obligations under
this Lease, and, if so, specifying each such default of which Tenant
may have knowledge, it being intended that any such statement
delivered pursuant hereto may be relied upon by others. Such statement
shall be served upon Landlord by Tenant within ten (10) days of
Landlord's request.
ARTICLE 33
ARBITRATION
INTENTIONALLY OMITTED
ARTICLE 34
NO OTHER REPRESENTATIONS, CONSTRUCTION, GOVERNING LAW
34.1 Tenant expressly acknowledges and agrees that Landlord has not made and is
not making, and Tenant in executing and delivering this Lease, is not relying
upon, any warranties, representations, promises or statements, except to the
extent that the same are expressly set forth in this Lease. It is understood
and agreed that all understandings and agreements heretofore had between the
parties are merged in the Lease, which alone fully and completely express their
agreements and that the same are entered into after full investigation, neither
party relying upon any statement or representation not embodied in the Lease
made by the other.
34.2 If any of the provisions of this Lease, or the application thereof to any
person or circumstances, shall, to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of such provision or provisions to
persons or circumstances other than those as to whom or which it is held
invalid or unenforceable, shall not be affected thereby, and every provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.
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34.3 This Lease shall be governed in all respects by the laws of the State of
New Jersey.
ARTICLE 35
SECURITY
35.1 Tenant shall deposit with Landlord the sum of $135,416.66 upon the
execution of this Lease. Said deposit (sometimes referred to as the "Security
Deposit") shall be held by Landlord as security for the faithful performance by
Tenant of all the terms of the Lease by said Tenant to be observed and
performed. The Security Deposit shall not and may not be mortgaged, assigned,
transferred, or encumbered by Tenant without the written consent of Landlord,
and any such act on the part of Tenant shall be without force and effect and
shall not be binding upon Landlord. If any of the fixed or additional rent
herein reserved or any other sum payable by Tenant to Landlord shall be overdue
and unpaid, or if Landlord makes payment on behalf of Tenant, or if Tenant
shall fail to perform any of the terms, covenants, and conditions of the Lease,
then Landlord may, at its option and without prejudice to any other remedy
which Landlord may have on account thereof, appropriate and apply the entire
Security Deposit or so much thereof as may be necessary to compensate Landlord
toward the payment of fixed or additional rent and any loss or damage sustained
by Landlord due to such breach on the part of Tenant, plus expenses; and Tenant
shall forthwith upon demand restore the Security Deposit to the original sum
deposited. The issuance of a warrant and/or the re-entering of the Demised
Premises by Landlord for any default on the part of Tenant or for any other
reason prior to the expiration of the term shall not be deemed such a
termination of the Lease as to entitle Tenant to the recovery of the Security
Deposit. If Tenant complies with all of the terms, covenants, and conditions of
the Lease and pays all of the fixed and additional rent and all other sums
payable by Tenant to Landlord as they fall due, the Security Deposit shall be
promptly returned in full to Tenant after the expiration of the term of the
Lease and Tenant's satisfaction of all its obligations accruing prior to the
Lease expiration date. In the event of bankruptcy or other creditor-debtor
proceedings against Tenant, the Security Deposit and all other securities shall
be deemed to be applied first to the payment of fixed and additional rent and
other charges due Landlord for all periods prior to the filing of such
proceedings. In the event of sale by Landlord of the Building, Landlord may
deliver the then balance of the Security Deposit to the transferee of
Landlord's interest in the Demised Premises and Landlord shall thereupon be
discharged from any further liability with respect to the Security Deposit and
this provision shall also apply to any subsequent transferees. No holder of a
superior mortgage to which the Lease is subordinate shall be responsible in
connection with the Security Deposit, by way of credit or payment of any fixed
or additional rent, or otherwise, unless such mortgagee actually shall have
received the entire Security Deposit.
ARTICLE 36
PARTIES BOUND
36.1 The obligation of this Lease shall bind and benefit the successors and
assigns of the parties with the same effect as if mentioned in each instance
where a party is
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named or referred to, except that no violation of the provisions of Article 8
shall operate to vest any rights in any successor or assignee of Tenant and
that the provisions of this Article shall not be construed as modifying the
conditions of limitation contained in Article 24. However, the obligations of
Landlord under this Lease shall not be binding upon Landlord herein named with
respect to any period subsequent to the transfer of its interest in the
Building as owner or lessee thereof and in event of such transfer said
obligations shall thereafter be binding upon each transferee of the interest of
Landlord herein named as such owner or lessee of the Building, but only with
respect to the period ending with a subsequent transfer within the meaning of
this Article. Such transferee shall assumed all of Landlord's obligation to
Tenant pursuant to this Lease.
36.2 If Landlord shall be an individual, joint venture, tenancy in common,
partnership, unincorporated association, or other unincorporated aggregate of
individuals and/or entities or a corporation, Tenant shall look only to such
Landlord's estate and property in the Building (or the proceeds thereof) and
where expressly so provided in this Lease, to offset against the rents payable
under this Lease for the collection of a judgment (or other judicial process)
which requires the payment of money by Landlord in the event of any default by
Landlord hereunder. No other property or assets of such Landlord shall be
subject to levy, execution or other enforcement procedure for the satisfaction
of Tenants remedies under or with respect to this Lease, the relationship of
Landlord and Tenant hereunder or Tenants use or occupancy of the Demised
Premises. Further, Tenant agrees that Landlord shall not be liable to Tenant
for any special, indirect, or consequential damages arising out of Landlord's
breach of this Lease.
ARTICLE 37
CONSENTS
37.1 Wherever it is specifically provided in this Lease that a party's consent
is not to be unreasonably withheld, a response to a request for such consent
shall also not be unreasonably delayed. If either Landlord or Tenant considers
that the other had unreasonably withheld a consent, it shall so notify the
other party within ten (10) days after receipt of notice of denial of the
requested consent or, in case notice of denial is not received, within twenty
(20) days after mailing its request for the consent.
ARTICLE 38
MORTGAGE FINANCING TENANT COOPERATION
38.1 In the event that Landlord desires to seek mortgage financing secured by
the Demised Premises, Tenant agrees to cooperate with Landlord in the making of
any application(s) by Landlord for such financing including the delivery to
Landlord's mortgage broker or mortgagee, of such information as they shall
reasonably require with respect to Tenants occupancy of the Demised Premises,
including, but not limited to the current financial statement of Tenant, but
Tenant shall not be required to deliver such information directly to Landlord,
all of the above to be at no cost and expense of Tenant. In the event that
Landlord's
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mortgagee shall request changes to the within Lease in order to make same
acceptable to Landlord's mortgagee, Tenant agrees to consent to such changes,
provided such changes shall not affect the term of this case nor the financial
obligations of Tenant hereunder nor otherwise adversely affect Tenants rights
hereunder. Such changes must be agreed upon by both parties and shall be for
clarification purposes which are consistent with changes requested by financial
institutions which provide mortgages Class A office buildings similar to the
Building. The parties will agree to a request by such mortgagee for concurrent
notice of Landlord's defaults and reasonable opportunity to cure within
Landlord's grace period.
ARTICLE 39
ENVIRONMENTAL COMPLIANCE
39.1 Tenant shall at Tenants sole cost and expense, comply with the New Jersey
Industrial Site Recovery Act and the regulations promulgated thereunder
(referred to as "ISRA") as same relate to Tenant's occupancy of the Demised
Premises, as well as all other state, federal or local environmental law,
ordinance, rule, or regulation either in existence as of the date hereof or
enacted or promulgated after the date of this Lease, that concern the
management, control, discharge, treatment and/or removal of hazardous
discharges or otherwise affecting or affected by Tenant's use and occupancy of
the Demised Premises. Tenant represents that Tenant's SIC number is 0355, and
does not subject it to ISRA. Tenant shall at Tenant's own expense, make all
submissions to, provide all information to, and comply with all requirements of
the Bureau of Industrial Site Evaluation (the "Bureau") of the New Jersey
Department of Environmental Protection ("NJDEP"). Should the Bureau or any
other division of NJDEP, pursuant to any other environmental law, rule, or
regulation, determine that a cleanup plan be prepared and that a cleanup be
undertaken because of any spills or discharge of hazardous substances or wastes
at the Demised Premises which occur during the term of this Lease and were
caused by Tenant or its agents or contractors, then Tenant shall, at Tenant's
own expense prepare and submit the required plans and financial assurances, and
carry out the approved plans. In the event that Landlord shall have to comply
with ISRA by reason of Landlord's actions, Tenant shall promptly provide all
information requested by Landlord for preparation of non-applicability
affidavits or a Negative Declaration and shall promptly sign such affidavits
when requested by Landlord. Tenant shall indemnify, defend, and save harmless
Landlord from all fines, suits, procedures, claims, and actions of any kind
arising out of or in any way connected with any spills or discharges of
hazardous substances or wastes at the Demised Premises which occur during the
term of this lease and were caused by Tenant or its agents or contractors, and
from all fines, suits, procedures, claims, and actions of any kind arising out
of Tenant's failure to provide all information, make all submission and take
all actions required by the Bureau or any other division of NJDEP. Tenant's
obligations and liabilities under this Paragraph shall continue so long as
Landlord remains responsible for any spills or discharges of hazardous
substances or wastes at the Demised Premises which occur during the term of
this Lease and were caused by Tenant or its agents or contractors. Tenants
failure to abide by the terms of this paragraph shall be restrainable by
injunction. Tenant shall have no responsibility to obtain a "Negative
Declaration" or "Letter of Non-Applicability" from the NJDEP if the sole reason
for obtaining same is in connection with a sale or other disposition of the
real estate by Landlord but Tenant agrees to cooperate with Landlord in
Landlord's effort to obtain same and shall perform at
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Tenant's expense any clean up required by reason of Tenant's use and occupancy
of the Demised Premises. Landlord shall indemnify, defend, and save harmless
Tenant from all fines, suits, procedures, claims, and actions of any kind
arising out of or in any way connected with any spills or discharges of
hazardous substance or wastes at the Demised Premises, the Building or the
Landlord which occurred prior to the day the Tenant takes occupancy of the
Demised Premises and were not caused by Tenant and from all times, suits,
procedures, claims and actions of any kind arising out of or in any way
connected with any spills or discharges of hazardous substances or wastes at
the Demised Premises, the Building or the Landlord which occur during the term
of this Lease and were caused by Landlord or its agents or contractors, and
from all fines, suits, procedures, claims, and actions of any kind arising out
of Landlord's figure to provide all information, make all submission and take
all actions required by the Bureau or any other division of NJDEPE.
39.2 Landlord agrees that it shall use its best efforts to determine whether
any hazardous substances are present in or about the Demised Premises. Landlord
further agrees that if any such hazardous substances are discovered, it shall
remove such substance prior to Lease commencement at its sole cost and expense.
Tenant agrees that it shall maintain the Demised Premises and the Building free
from any hazardous substances or materials.
ARTICLE 40
HOLDING OVER
40.1 Tenant will have no right to remain in possession of all or part of the
Demised Praises after the expiration of the term. If Tenant remains in
possession of all or any part of the Demised Premises after the expiration of
the Lease, without the express consent of Landlord: (a) such tenancy will be
deemed to be a periodic tenancy from month-to-month only; (b) such tenancy will
not constitute a renewal or extension of this Lease for any further term; and
(c) such tenancy may be terminated by Landlord upon the earlier of (i) thirty
(30) days prior written notice, or (ii) the earliest date permitted by how. In
such event, monthly rent will be increased to an amount equal to 125% during
months 1 and 2; 150% during months 3 through 5; 175% during month 6 and 200%
thereafter, of the monthly rent payable during the last month of the term, and
any other sums due under this Lease will be payable in the amount and at the
times specified in this Lease. Such month-to-month tenancy will be subject to
every other term, condition, and covenant contained in this Lease. The
provisions of this Section shall not be construed to relieve Tenant from
liability to Landlord for damages resulting from any such holding over, or
preclude Landlord from implementing summary dispossess proceedings. Tenant
further acknowledges that its failure to perform any restoration required of it
under this Lease shall be deemed the same as its remaining in possession of the
Demised Premises after the explosion of the term, subjecting it to holdover
rent in accordance with this Article 40. Notwithstanding the foregoing,
Landlord agrees that Tenant may holdover for thirty (30) days after the
Expiration Date of this Lease without being liable to Landlord for damages
resulting from holdover or subject to summary dispossess proceeding provided
Tenant pays Landlord the holdover rent of 125% as set forth above.
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ARTICLE 41
CERTAIN DEFINITIONS AND CONSTRUCTIONS
41.1 For the purpose of this Lease and all agreements supplemental to this
Lease, unless the context otherwise requires, the definitions set forth in
Exhibit F annexed hereto shall be utilized.
41.2 The various terms which are italicized and defined in other Articles of
this Lease or are defined in Exhibits annexed hereto, shall have the meanings
specified in such other Articles and such Exhibits for all purposes of this
Lease and all agreements supplemental thereto, unless the context shall
otherwise require.
41.3 The submission of this Lease for examination does not constitute a
reservation of, or option for, the Demised Premises, and this Lease becomes
effective as a Lease only upon execution and delivery thereof by Landlord and
Tenant.
41.4 The Article headings in this Lease and the Index prefixed to this Lease
are inserted only as a matter of convenience in reference and are not to be
given any effect whatsoever in construing this Lease.
ARTICLE 42
RELOCATION OF TENANT
INTENTIONALLY DELETED
ARTICLE 43
OPTION TO RENEW
43.1 Provided that Tenant is not then in default of the terms, covenants, and
provisions of this Lease beyond the lapse of any applicable cure or grace
periods, Landlord hereby grants to Tenant the right to renew the term of this
Lease for one (1) additional period of five (5) years (the "Renewal Period")
commencing on the day after the initial Expiration Date upon the same terms and
conditions as set forth in this Lease other than the fixed annual rental which
shall be the Fair Market Rental of the Demised Premises at the time of the
commencement of the Renewal Period, adjusting as necessary for the lapse of
time between the date of Tenant's notification of intent to exercise its option
to renew and the date on which the Renewal Period is scheduled to commence.
Said fixed annual rental shall be payable in equal monthly installments in
advance on the first day of each and every month of the Renewal Period. Tenant
shall exercise the within Option by giving written notice to Landlord not later
than nine (9) months prior to the initial Expiration Date, TIME BEING OF THE
ESSENCE. If Tenant fails to give such notice, Tenant will be deemed to have
waived such Renewal Option and the provisions of
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this Section shall be null and void. Fair Market Value shall mean the rents
obtainable for comparable space in the Red Bank, New Jersey market area.
ARTICLE 44
RIGHT OF FIRST REFUSAL
44.1 Provided that Tenant is not then in default under the terms, covenants and
provisions of this Lease, Landlord hereby grants to Tenant the right at any
time during the term of this Lease to lease additional space on floors 3 and 4
in the Building (hereinafter "Expansion Space") which right is subject to the
prior rights of existing tenants. For purposes of this Section, "prior rights"
of existing tenants shall include an existing tenant's right of first refusal,
an option to expand, an option to renew or a renewal of an existing lease
whether or not pursuant to an option. The right of First Refusal is further
subject to the following terms and conditions:
(a) Tenant shall deliver to Landlord written notice of its Section
("Tenant's Election") to lease the Expansion Space on or before thirty
(30) calendar days after receipt of Landlord's Notice of
Negotiation/Intent to Lease (as defined in Section (b) below).
(b) Landlord, within ten (10) days after receiving Tenant's written
request and at Landlord's election, may either give Tenant written
notice of (1) its intention to negotiate with a third party for the
lease of such Expansion Space, which notice shall contain the terms
and conditions upon which Landlord initially intends to offer the
space to one or more third parties, or (2) of an offer received from a
third party to lease, which notice shall contain the terms and
conditions contained in said offer (collectively, "Landlord's Notice
of Negotiation/Intent to Lease"). For purposes hereof the terms shall
include rentable square footage and rate. If Tenant thereafter fails
to deliver to Landlord written notice of its Section to lease such
space within the applicable time periods set forth in Subsection (1)
above and on the same terms and conditions as contained in the
Landlord's Notice, Landlord may proceed to lease such Expansion Space
free and clear of this Right of First Refusal. If Tenant fails or
refuses to so exercise its Rights of First Refusal within thirty (30)
days after Landlord's written notice to Tenant, Tenant shall be deemed
to have waived its option to lease such space, and this Article shall
be null and void and have no further force and effect with respect to
such portion of the Expansion Space.
(c) In the event Landlord does not demise the Expansion Space to a
third party upon substantially the same terms and conditions contained
in Landlord's Notice of Intent to Lease, Landlord shall provide notice
to Tenant as set forth above with respect to any subsequent
negotiations or offer for said space.
(d) If Tenant exercises its Right of First Refusal then except for the
rate, then all terms and conditions of this Lease shall apply, except
as to the fixed rent and the term of to expansion space. As to such
term, no such term shall be less than the term of this Lease. If any
such terms is in excess of this Lease, then the term of this Lease
shall be deemed to have been extended commensurate with the term of
the Additional Space Lease pursuant to this Section.
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44.2 Tenant acknowledges that its Right of First Refusal shall not apply in
connection with the Lease currently being negotiated between Landlord and AT&T
for the balance of the 50,000 square feet of the Building.
ARTICLE 45
SATELLITE DISH
45.1 Permission is granted, free of rental charge, for the Tenant to install
one (1) satellite dish not to exceed two one-half (2 1/2) feet in diameter nor
protrude above the lowest part of the roof line by more than 4 feet, including
all cable, wiring, conduits and related equipment necessary for the reception
(but not the transmission) of radio and satellite-generated television
transmissions (collectively the "Antenna") at the Demised Premises on the roof
of the Building, at Tenant's sole cost and expense, subject to the following
restrictions:
(a) The location and means of securing the Antenna must be approved by Landlord
or its designated agent, and such location shall be selected with the goal of
minimizing its visual impact. Roof penetration will not be accepted except if
performed by Landlord or its designated agent, all at Tenant's sole cost and
expense. Tenant shall be responsible for any damage to the Building roof or any
surrounding property resulting from the installation or operation of the
Antenna, including, but not limited to, damage resulting from wind, ice or any
other causes. The Antenna shall not damage the Building or the system of
communication devised by any other user authorized by Landlord or users at
neighboring properties. If such damage or interference shall occur, Tenant
shall correct same promptly.
(b) Prior to installation, Tenant must provide Landlord with a copy of
all zoning or use approvals which may be required, including, without
limitation, any Federal Communications Commission ("FCC") licenses or
approvals. Landlord agrees to reasonably cooperate with Tenant in such
regard, all without cost to Landlord.
(c) Tenant agrees to maintain the Antenna in a proper and safe
operating condition and shall procure separate liability insurance
naming Landlord as an additional insured.
(d) Tenant shall comply with all applicable codes, rules, regulations and
conditions of the FCC, Federal Aviation Agency, and local governmental
agencies, and shall pay for all legal engineering and other expenses incident
thereto including all matters relating to hearings pursuant to the Municipal
Land and Use Law.
(e) Installation of the Antenna shall be performed in a responsible and
workmanlike manner by a recognized professional spite dish installer at
Tenant's sole cost and expense, through or under the supervision of Landlord.
Prior thereto, Tenant shall provide complete structural details signed and
sealed by an appropriately licensed engineer of the State of New Jersey, as
well as a sketch of the roof showing the proposed location of the antenna and
all relevant distances and heights. Landlord's supervision fee and, if the
presence or advice of Landlord's building engineer is required, Landlord's
building engineer fee shall be reimbursed to Landlord by Tenant for actual time
spent by Landlord's architect and building engineer at
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prevailing rates. Prior to installation, Tenant shall provide Landlord with a
copy of its FCC construction permit, license, or evidence of authority to
operate from this location. Landlord shall have final approval with respect to,
as well as the right to perform at Tenant's cost and expense, all roof
penetrations and repairs.
(f) Installations or substitutes shall meet all codes and shall be
made using Teflon wire (or by running wires through approved
conduits), rust-proof clamps, non-rustable hardware U-bolts, or other
similar devices of the highest quality commonly found in the industry,
capable of the bearing of the stress and strain of the installation
without impairing use and occupancy of the Building and without
adverse aesthetic impact upon any portion of the Demised Premises.
(g) Tenant shall be responsible for any costs associated with
furnishing electricity for the Antenna.
(h) Tenant shall not sublet, license or otherwise permit any third
party use of the Antenna.
(i) Access to the Antenna for inspection, servicing or any other
reason well only be allowed with prior permission and supervision by
Landlord or its agents and Tenant shall reimburse Landlord and/or its
agents at prevailing rates (during normal business hours) for time
spent by Landlord and/or its agents.
j) Landlord reserves the right to require the removal of the Antenna
at such time as the Landlord may have made provisions for acceptable
alternative arrangements, subject to Tenant's consent as to what
constitutes an acceptable alternative arrangement, which consent shall
not be unreasonably withheld. Landlord shall provide Tenant with prior
notice of the amount of time, if any, satellite services would be
interrupted and coordinate work with Tenant to avoid interruption of
Tenant's business.
(k) Tenant shall remove the Antenna and restore the roof to its
original condition at the earlier of Tenant's cessation of use of the
Antenna or the expiration of the term of this Lease or any renewal
term thereof, at Tenant's sole cost and expense, notwithstanding any
other provision of the Lease. The Antenna shall, at all times, remain
the property of Tenant and Tenant shall have the right to remove it at
any time, subject to the terms and conditions herein.
(l) Tenant acknowledges that it has been advised by Landlord that a
new roof was installed at the Building which is still the subject of a
manufacturers/installers warranty/guarantee. Tenant must install,
maintain and remove the Antenna in such a manner as to be consistent
with said warranty/guarantee and not perform or fail to perform any
act which would void, or cause to be voidable, Landlord's
warranty/guarantee.
(m) Tenant shall be responsible for implementing appropriate screening
as required by Landlord.
(n) Tenant agrees to indemnify, defend and hold Landlord harmless from
any claim resulting from property damage or personal injury arising in
connection with the
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installation, maintenance, existence or removal of the Antenna and shall carry
insurance to cover such liability and property damages.
ARTICLE 46
WAIVER OF DISTRAINT
46.1 Landlord hereby expressly waives any and all rights granted by or under
any present or future laws to levy or distrain for rent, in arrears, in advance
or both, on any goods, merchandise, equipment, fixtures (which Landlord and
Tenant agree are Tenant's Property), furniture or other personal property of
the Tenant (collectively defined for this Article only as "Tenant's Property"),
or any subtenant or licensee of Tenant except after Landlord has instituted a
legal action which permits the Landlord to levy or distrain on Tenant's
Property.
46.2 Tenant shall have the right to encumber and grant a security interest in
Tenant's Property in the Premises to a commercial bank trust company, mutual
savings bank savings and loan association or life insurance company ("Lender").
Any Lender to which the Tenant shall encumber its interest shall have the
right, but only after thirty (30) days from written notice to the Landlord, to
sell and remove from the Premises the Tenant's Property to satisfy the amount
of the outstanding lien; provided, however, that the Lender shall restore the
Premises to a condition satisfactory to the Landlord and repair any damage to
the Premises caused by such removal. Landlord hereby agrees to execute such
agreements of subordination and/or collateral assignment, in a form and consent
reasonably acceptable to Landlord, as Tenant's lenders may require from time to
time, within ten (10) business days of Landlord's receipt of said agreement.
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IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the
date and year first above written.
WITNESS: LANDLORD:
SHAV ASSOCIATES,
a New Jersey General Partnership
By: Dominick Alfieri
Title: General Partner
WITNESS: TENANT:
PARADYNE CORPORATION
a Delaware Corporation
By: JAMES L. SLATERRY
Title: Senior Vice President
<PAGE> 55
EXHIBIT A
DESCRIPTION OF LAND
100 SCHULZ DRIVE
ALL that certain tract or parcel of land and premises, situate, lying and being
in the Township of Middletown, in the County of Monmouth, State of New Jersey,
more particularly described herein.
BEING known and designated as Lot 2 in Block 296, on a map entitled "Final Map
for the SHAV Corporation consisting of Lots 16, 16-D, 17, 18 and 19 in Block
296, Middletown Two, Monmouth Co." dated June 2, 1980 and filed December 1,
1980 in the Monmouth County Clerk's Office as Case 170-6.
BEING more particularly described in accord with said filed map as follows:
BEGINNING at the point of intersection of the northerly line of the Garden
State Parkway and the westerly line of Schulz Drive as marked by a monument and
running thence:
1. North 52 degrees 20' 10" West for a distance of 185.59 feet to Garden
State Parkway Monument #A-165; thence
2. North 47 degrees 42' 50" West for a distance of 374.45 to Garden State
Parkway Monument #A-167; thence
3. North 34 degrees 29' 19" West for a distance of 90.96 feet to a
monument; thence
4. Norm 2 degrees 51' 30" West for a distance of 258.85 feet; thence
5. South 87 degrees 26' 27" East for a distance of 313.90 feet; thence
6. South 7 degrees 42' 18" West for a divorce of 34.64 feet; thence
7. South 82 degrees 17' 42" East for a distance of 265.00 feet to the
said westerly line of Schulz Drive; thence
8. South 7 degrees 42' 18" West for a distance of 620.57 feet along the
said westerly line of Schulz Drive to the place find point of Beginning.
Being Lot 16.06, Block 296, Tax Map of Township of Middletown.
Subject to easements, restrictions and covenants of record and such state of
facts as an accurate survey may reveal.
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EXHIBIT B
FLOOR PLAN
SEE ATTACHED
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EXHIBIT C
HVAC SPECIFICATIONS
Perimeter baseboard electric heat, central high velocity fan system with Barber
Coleman muting boxes, featuring return heat of light recaptured. System
utilizes a minimum of 10% to a maximum of 100% fresh air to maintain no less
than 68 degrees interior at zero degrees exterior, with a 15-mile per hour
wind. Air cooling shall maintain no more than 76 degrees F dry bulb with
approximately 50% relapse humidity when the outdoor conditions are 91 degrees F
dry bulb. Dual system - building standard. The above standard is for normal
office use only which shall be deemed to be one person for every, 200 sq. ft.
in any given or confined area which shall not include areas with special HVAC
requirements such as computer rooms, conference rooms, cafeterias, high density
or excessive heat producing equipment. Perimeter baseboard electric heat is
used during the winter operations and an air cooling system is utilized during
summer operations. One (1) diffuser per 250 sq. ft. of usable area. The
foregoing in Landlord's Building Standard HVAC and shall not apply to any
special HVAC requirements above Landlord's Building Standard such as computer
rooms, conference rooms, cafeterias, high density or excessive heat used during
winter operations and air cooling system. Any supplemental HVAC placed in the
Demised Premises shall be repaired and maintained by Landlord or Landlord's
contractor at Tenant's sole expense.
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EXHIBIT D
CLEANING AND MAINTENANCE SPECIFICATIONS
Landlord will provide building standard cleaning services to the tenant area
and the ground floor lobby area in accordance with the following
specifications:
1. GENERAL CLEANING
NIGHTLY
a. Empty all waste receptacles, removing waste to designated
central location for disposal.
b. Empty and wipe clean all ashtrays. Screen and clean all sand
urns.
c. Wash and disinfect all water coolers and drinking fountains.
d. Wipe clean fingermarks, smudges, etc. from all doors and wall
surfaces.
e. Clean all tenants interior stairways.
f. Replace plastic liners in all waste-disposal cans.
WEEKLY
a. Hand-dust all office equipment, furniture, fixtures,
including panelling, shelving, window sills, telephones, door
louvers, and all flat surfaces with a treated cloth or yard
duster.
2. GROUP A - Ceramic tile, marble, tempo.
GROUP B - Linotile, asphalt koroseal, plastic vinyl, rubber, wood, cork, or
other types of floors and base.
NIGHTLY
a. All floors in Group A to be swept and wet-mopped.
b. All floors in Group B to be dry mopped, using a "dustdown"
preparation, and spots to be removed by wet process.
PERIODIC
a. A wet mopping, waxing, buffing, stripping, or machine
scrubbing of the floors in Group B will be accomplished
whenever required to maintain a hard lustrous finish and will
be governed by the amount of wear due to weather and other
conditions.
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3. VACUUMING
NIGHTLY
a. Vacuum once per week. Carpet-sweep four times per week all
rugs and carpeted areas, moving light furniture and office
equipment other than desks and file cabinets. Spot clean to
remove soluble spots which safely respond to standard
spotting procedures without risk of injury to color or
fabric.
4. HIGH DUSTING
PERIODIC
a. Dust all closet shelving and wash all closet floors when
accessible, monthly.
b. Damp dust all pictures, charts, graphs, etc., not reached in
nightly cleaning, quarterly.
c. Dust clean all vertical surfaces such as walls, partitions,
doors, door bucks, and other surfaces not reached in nightly
cleaning, quarterly.
d. Damp dust ceiling air conditioning diffusers, wall grills,
door louvers, registers, and venetian blinds, quarterly.
e. Dust exterior of light fixtures, annually.
5. WASHROOMS AND TOILETS
NIGHTLY
a. Sweep, mop, rinse, and dry floors. Polish mirrors and
bright-work. Clean enameled surfaces.
b. Wash and disinfect basins, urinals, and bowls using scouring
powder to remove stains, making certain to clean undersides
of rims of urinals and bowls.
c. Wash and disinfect both sides of all toilet seats.
d. Supply and service all toilet tissue, soap, towns, and
sanitary napkins. Sanitary napkins will be supplied in coin
operated dispensers.
e. All wash cans and all receptacles are to be emptied and new
plastic liners installed.
f. Hand dust and wash clean all partitions, tile walls,
dispenses, and receptacles in lavatories and vanity area.
g. Empty and clean sanitary disposal receptacles.
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WEEKLY
a. Wash down walls in washrooms and stalls, from trim to floor.
6. ELEVATORS
NIGHTLY
a. Clean the floor in accordance with specifications outlined
above based upon the type of flooring installed. The doors,
surfaces, and fixtures shall be dusted daily and damp wiped
weekly.
7. GLASS
PERIODIC
a. Clean both sides of all lobby glass including the building
entrance doors, nightly.
b. Clean all perimeter windows quarterly.
c. Clean glass partitions, doors, and furniture once every six
months (limited to reasonable quantities).
8. MISCELLANEOUS
a. Check all stairwells and landings nightly throughout entire
demised area, and keep in clean condition. All stairways and
landings will be dry mopped nightly. Railings, ledges, and
equipment will be dusted nightly. These areas will be wet
mopped weekly, scrubbed when necessary, and shall be waxed
and buffed weekly where required.
b. Wipe down mail chute and mail depository nightly.
c. On completion of work, all slop sinks are to be thoroughly
cleaned, and cleaning equipment to be stored needy in
designated locations.
d. All cleaning services except those performed by day porters,
window cleaners, and matrons are to be performed nightly,
five nights per week No Saturday, Sunday or bank holiday
service to be provided. In no event shall performance of any
cleaning service interfere with Tenant's normal business
operation.
e. The Contractor or Landlord is to furnish all necessary
approved cleaning materials, implements, and machinery for
the satisfactory completion of the work. This includes
scaffolding, vacuum machines, scrubbing machines, etc.
f. Contractor shall furnish proof of liability and property
damage insurance suitable to the bank and Workman's
Compensation Insurance in amounts required under the laws of
New Jersey.
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g. Tenant will be charged for cleaning services in excess of the
specifications outlined above.
h. Tenant will be charged for the incremental cost to clean any
areas of the Demised Premises used for special purposes
requiring more difficult cleaning work than office areas
including, but not limited to, private toilets and showers,
dining areas, cafeteria, kitchen, etc.
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EXHIBIT E
RULES AND REGULATIONS
1. The rights of tenants in the entrances, corridors, elevators, and escalators
of the Building are limited to ingress to and egress from the tenants' demised
premises for the tenants and their employees, licensees, and invitees, and no
tenant shall use or permit the use of the entrances, corridors, escalators, or
elevators for any other purpose. No tenant shall invite to the tenant's demised
premises, or permit the visit of, persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
entrances, corridors, escalators, elevators, and other facilities of the
Building by other tenants. Fire exits and stairways are for emergency use only,
and they shall not be used for any other purpose by the tenants, their
employees, licensees, or invitees. No tenant shall encumber or obstruct, or
permit the encumbrance or obstruction of any of the sidewalks, plazas,
entrances, corridors, escalators, elevators, fire exits, or stairways of the
Building. The Landlord reserves the right to control and operate the public
portions of the Building and the public facilities, as well as facilities
furnished for the common use of the tenants, in such manner as it deems best
for the benefit of the tenants generally.
2. The Landlord may refuse admission to the Building outside of ordinary
business hours to any person not having a pass issued by the Landlord or the
tenant whose demised premises are to be entered or not otherwise property
identified, and may require all persons admitted to or leaving the Building
outside of ordinary business hours to register. Any person whose presence in
the Building at any time shall, in the judgment of the Landlord, be prejudicial
to the safety, character, reputation, and interests of the Building or of its
tenants may be denied access to the Building or may be ejected therefrom. In
case of invasion, riot, public excitement, or other commotion, the Landlord may
prevent all access to the Building during the continuance of the same, by
closing the doors or otherwise, for the safety of the tenants and protection of
property of the Building. The Landlord may require any person leaving the
Building with any package or other object to exhibit a pass from the tenant
from whose premises the packaging or object is being removed, but the
establishment and enforcement of such requirement shall not impose any
responsibilities on the Landlord for the protection of any tenant against the
removal of property from the premises of the tenant. The Landlord shall in no
way be liable to any tenant for damages or loss arising from the admission,
exclusion, or ejection of any person to or from the tenant's premises or the
Building under the provisions of this rule. Canvassing, soliciting, or peddling
in the Building is prohibited, and every tenant shall cooperate to prevent the
same.
3. No tenant shall obtain or accept for use in its demised premises ice, food
for on premises preparation other than warming, beverage towel, barbering, boot
blackening, floor polishing, lighting maintenance, cleaning, or other similar
services from any persons not authorized by the Landlord in writing to furnish
such services, provided that the charges for such services by persons
authorized by the Landlord are not excessive and where appropriate and
consonant with the security and proper operation of the Building sufficient
persons are so authorized for the same service to provide tenants with a
reasonably competitive selection. Such services shall be furnished only at such
hours, in such places within the Tenant's Demised
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<PAGE> 63
Premises and under such reasonable regulations as may be fixed by the Landlord.
Tenant may have a coffee service, subject to Landlord's approval, and a kitchen
for the use of its employees commensurate with normal office use.
4. The cost of repairing any damage to the public portions of the Building or
the public facilities or to any facilities in common with other tenants, caused
by a tenant or the employees, licensees, or invitees of the tenant shall be
paid by such tenant.
5. No lettering, sign, advertisement, notice or object shall be displayed in or
on the windows or doors, or on the outside of any tenant's demised premises, or
at any point inside any tenant's premises where the same might be visible
outside of such demised premises, except that the name of the tenant may be
displayed on the entrance door of the tenant's demised premises, and in the
elevator lobbies of the floors which are occupied entirely by any tenant,
subject to the approval of the Landlord as to the size, color, and style of
such display. The inscription of the name of the tenant on the door of the
tenant's demised premises shall be done by the Landlord at the expense of the
tenant.
6. No awnings or other projections over or around the windows shall be
installed by any tenant, and only such window blinds as are supplied or
permitted by the Landlord shall be used in a tenant's demised premises.
Linoleum, tile, or other floor covering shall be laid in a tenant's demised
premises only in a manner approved by the Landlord.
7. The Landlord shall have the right to prescribe the weight and position of
safes and other objects of excessive weight, and no safe or other object whose
weight exceeds the lawful load for the area upon which it would stand shall be
brought into or kept upon a tenant's demised premises. If, in the judgment of
the Landlord, it is necessary to distribute the concentrated weight of any
heavy object, the work involved in such distribution shall be done at the
expense of the tenant and in such manner as the Landlord shall determine. The
moving of safes and other heavy objects shall take place only outside of
ordinary business hours upon the same upon previous notice to the Landlord, and
the persons employed to move the same in and out of the Building shall be
reasonably acceptable to the Landlord and if so required by law, shall hold a
Master Rigger's license. Freight, furniture, business equipment, merchandise,
and bulky matter of any description shall be delivered to and removed from the
demised premises only in the freight elevators and through the service
entrances and corridors, and only during hours and in a manner approved by the
Landlord. Arrangements will be made by the Landlord with any tenant for moving
large quantities of furniture and equipment into or out of the Building.
8. No machines or mechanical equipment of any kind other than typewriters and
other ordinary business machines, may be installed or operated in any tenant's
demised premises without Landlord's prior written consent, and in no case (even
where the same are of a type so accepted or as so consented to by Landlord)
shall any machines or mechanical equipment be so placed or operated as to
disturb other tenants; but machines and mechanical equipment which may be
permitted to be installed and used in a tenant's demised premises shall be so
equipped, installed and maintained by such tenant as to prevent any disturbing
noise, vibration, or electrical or other interference from being transmitted
from such premises to any other area of the Building.
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<PAGE> 64
9. No noise, including the playing of any musical instruments, radio or
television, which, in the judgment of the Landlord might disturb other tenants
in the building, shall be made or permitted by any tenant, and no cooking, other
than microwaving, shall be done in the tenant's demised premises, except as
expressly approved by the Landlord. Nothing shall be done or permitted in any
tenants' demised premises, and nothing shall be brought into or kept in any
tenants' demised premises, which would impair or interfere with any of the
Building services or the proper and economic heating, cleaning, or other
servicing of the Building or the demised premises, or the use of enjoyment by
any other tenant of any other demised premises, nor shall there be installed by
any tenant any ventilating, air conditioning, electrical or other equipment of
any kind which, in the judgment of the Landlord, might cause any such
impairment or interference. No dangerous, inflammable, combustible, or
explosive object or material shall be brought into the building by any tenant
or with the permission of any tenant. Any cuspidors or similar containers or
receptacles used in any tenants' demised premises shall be cared for and
cleaned by and at the expense of the tenant.
10. No acids, vapors, or other materials shall be discharged or permitted to be
discharged into the waste lines, vents or flues of the Building which may
damage them. The water and wash closets and other plumbing fixtures in or
serving any tenant's premises shall not be used for any purpose other than the
purposes for which they were designed or constructed, and no sweepings,
rubbish, rags, acids or other foreign substances shall be deposited therein.
11. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows in any tenants' demised premises and no lock on any door
therein shall be changed or altered in any respect. Additional keys for a
tenant's demised premises and toilet rooms shall be procured only from the
Landlord, which may make a reasonable charge therefor. Upon the termination of
a tenant's lease, all keys of the tenant's demised premises and toilet rooms
shall be delivered to the Landlord.
12. All entrance doors in each tenants' demised premises shall be left locked,
and all windows shall be left closed by the tenant when the tenant's demised
premises are not in use. Entrance doors shall not be left open at any time.
13. Hand trucks not equipped with rubber tires and side guards shall not be
used within the Building.
14. All windows in each tenant's demised premises shall be kept closed and all
blinds therein above the ground floor shall be lowered when and as reasonably
required because of the position of the sun, during the operation of the
Building air conditioning system to cool or ventilate the tenant's demised
premises.
15. The Landlord reserves the right to rescind, alter, or waive any rule or
regulation at any time prescribed for the Building when, in its judgment, it
deems it necessary, desirable, or proper for its best interest and for the best
interests of the tenants, and no alteration or waiver of any rule or regulation
in favor of one tenant shall operate as an alteration or waiver in favor of any
other tenant. The Landlord shall not be responsible to any tenant for the
non-observance or violation by any other tenant of any of the rules and
regulations at any time prescribed by the Building.
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<PAGE> 65
EXHIBIT F
DEFINITIONS
(a) The term "mortgage" shall mean an indenture of mortgage and deed
of trust to a trustee to secure an issue of bonds, and the term
"mortgagee" shall mean such a trustee.
(b) The terms "include," "including," and "such as" shall each be
construed as if followed by the phrase "without being limited to."
(c) References to Landlord as having no liability to Tenant or being
without liability to Tenant, shall mean the Tenant is not entitled to
terminate this Lease, or to claim actual or constructive eviction,
partial or total, or to receive any abatement or diminution of rent,
or to be relieved in any manner of any of its other obligations
hereunder, or to be compensated.
(d) The term laws and/or requirements of public authorities and words
of like import shall mean laws and ordinances of any or all of the
Federal, state, city, county, and borough governments and rules,
regulations, orders and/or directives of any or all departments,
subdivisions, bureaus, agencies, or office thereof, or of any other
governmental, public, or quasipublic authorities, having jurisdiction
in the premises, and/or the direction of any public officer pursuant
to law.
(e) The term requirements of insurance bodies and words of like import
shall mean rules, regulations, orders, and other requirements of the
New Jersey Board of Fire Underwriters and/or similar body performing
the same or similar functions and having jurisdiction or cognizance of
the Building and/or the Demised Premises.
(f) The term repair shall be deemed to include restoration and
replacement as may be necessary to achieve and/or maintain good
working order and condition.
(g) Reference to termination of this Lease includes expiration or
earlier termination of the term of this Lease or cancellation of this
Lease pursuant to any of the provisions of this Lease or to law. Upon
a termination of this Lease, the term and estate granted by this Lease
shall end at noon of the date of termination as if such date were the
date of expiration of the term of this Lease and neither party shall
have any further obligation or liability to the other after such
termination (i) except as shall be expressly provided for in this
Lease, or (ii) except for such obligation as by its nature or under
the circumstances can only be, or by the provisions of this Lease, may
be performed after such termination and, in any event, unless
expressly otherwise provided in this Lease, any liability for a
payment which shall have accrued to or with respect to any period
ending at the time of termination shall survive the termination of
this Lease.
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<PAGE> 66
EXHIBIT G
NON-DISTURBANCE AGREEMENT
SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT
This Agreement dated ____________________, between NEW YORK LIFE INSURANCE
COMPANY, a corporation duly organized and existing under the laws of the State
of New York, having its principal place of business at 51 Madison Avenue, New
York, New York 10010 ("New York Life"), and _____________________________ the
address of which is ______________________________ ("Tenant").
RECITALS
Tenant has entered into a lease dated _______________________ ("Lease"),
leasing part of a certain premises located in _____________________________
("Premises"). The Premises are more particularly described in said Lease;
New York Life is the holder of a certain Note secured by a Mortgage or a Deed
of Trust, Security Agreement, Assignment of Rents and Leases and Financing
Statement ("Mortgage") upon the Premises, and as provided hereafter, the
Mortgage is prior to the Tenant's Lease. Tenant desires to be assured of the
continued use and occupancy of the Premises under the terms of the Lease;
New York Life agrees to such continued use and occupancy by Tenant provided
that Tenant agrees to recognize and attorn to New York Life or a purchaser in
the event of transfer of title to the Premises by foreclosure or otherwise.
NOW, THEREFORE, for good and valuable consideration being the mutual premises
herein contained, it is agreed:
1. In the event it should become necessary to foreclose the Mortgage or New
York Life should otherwise come into possession or title to the Premises, New
York Life will not join Tenant in summary or foreclosure proceedings unless
required by law in order to obtain jurisdiction, but in such event no judgment
foreclosing the Lease will be sought, and New York Life will not disturb the
use and occupancy of Tenant under the Lease so long as Tenant is not in default
under any of the terms, covenants or conditions of the Lease and has not
prepaid the rent except monthly in advance as provided by the terms of the
Lease.
2. Tenant agrees that in the event any proceedings are brought for foreclosure
of the Mortgage, it will attorn to the purchaser as the landlord under the
Lease. The purchaser by virtue of such foreclosure shall be deemed to have
assumed and agreed to be bound, as substitute landlord, by the terms and
conditions of the Lease until the resale or other disposition of its interest
by such purchaser, except that such assumption shall not be deemed of itself an
acknowledgment of such purchaser of the validity of any then existing claims of
Tenant against any prior landlord. All rights and obligations under the Lease
shall continue as though such foreclosure proceeding had not been brought,
except as aforesaid. Tenant waives the
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<PAGE> 67
provisions of any statute or rule of law now or hereafter in effect which may
give or purport to give it any right or election to terminate or otherwise
adversely affect the Lease and the obligations of Tenant thereunder by reason
of any foreclosure proceeding.
3. Notwithstanding the foregoing, neither New York Life nor purchaser shall in
any event (a) be liable for any previous act or omission of any prior landlord,
(b) nor be subject to any offsets or defenses which Tenant may be entitled to
assert against any (including Landlord) prior landlord, (c) nor be bound by any
amendment to or modification of the Lease made without the prior written
consent of New York Life (d) or be bound by any payment by Tenant of any rent
in advance beyond one month's rent made subsequent to the date on which Tenant
shall have received notice that New York Life, or purchaser has succeeded to
the rights of the landlord under the Lease, it being expressly understood and
agreed that the liability of New York Life or such purchaser under the lease
covenants will be limited to such covenants as shall be applicable after such
attornment, (e) be obligated to cure any defaults of any prior landlord
(including Landlord) which occurred prior to the time that New York Life or
such other purchaser succeeded to the interest of such prior landlord under the
Lease, or (f) be liable or responsible for or with respect to the retention,
application and/or return to Tenant of any security deposit paid to any prior
landlord (including Landlord), whether or not still held by such prior
landlord, unless and until New York Life or such other purchaser has actually
received for its own account as landlord the full amount of such security
deposit.
4. Tenant acknowledges that it has notice that the Lease and the rent and all
other sums due thereunder have been assigned or are to be assigned to New York
Life as security for the Loan secured by the Mortgage. In the event that New
York Life notifies Tenant of a default under the Mortgage and demands that
Tenant pay its rent and all other sums due under the Lease to New York Life,
Tenant agrees that it will honor such demand and pay its rent and all other
sums due under the Lease directly to New York Life or as otherwise required
pursuant to such notice.
5. In all events, the liability of New York Life or any purchaser to Tenant
shall be limited and restricted to their interest in the Premises and shall in
no event exceed such interest.
6. Tenant acknowledges and agrees that notwithstanding the date of the Lease or
New York Life's knowledge thereof, the Lease shall be and remain subordinate in
all respects to the Mortgage and any modification, reinstatement, extension,
supplement, consolidation or replacement thereof as well as any advances or
readvances with interest thereof and to any other mortgage on the Premises which
may hereafter be held by New York Life.
7. Tenant will give written notice to New York Life of any default by landlord
under the lease by mailing a copy of the same by certified mail, postage
prepaid, addressed as follows (or to such other address as may be specified
from time to time by New York Life to Tenant):
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To New York Life: New York Life Insurance Company
51 Madison Avenue
New York, New York 10010
Attn: Real Estate
Upon such notice, New York Life shall be permitted and shall have the option,
in its sole and absolute discretion, to cure any such default during the period
of time during which the landlord would be permitted to cure such default, but
in any event New York Life shall have a reasonable period of time after the
receipt of such notification to cure such default.
8. The provisions of this Agreement are binding upon and shall inure to the
benefit of
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<PAGE> 1
EXHIBIT 10.11
LEASE AGREEMENT
FROM
TOWNSEND PROPERTY TRUST LIMITED PARTNERSHIP, a Maryland limited partnership
LANDLORD
TO
PARADYNE CORPORATION
TENANT
PREMISES:
The Research and Development Space located in Building G and Building H
containing approximately 232,443 square feet and the Manufacturing Space
located in Building G containing approximately 100,246 square feet
DATED: Effective June 27, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Premises Demised . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Compliance With Legal Requirements . . . . . . . . . . . . . . . . . 4
6. Tenant Improvements. . . . . . . . . . . . . . . . . . . . . . . . . 5
7. Tenant's Personal Property . . . . . . . . . . . . . . . . . . . . . 5
8. Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
9. (Intentionally Deleted). . . . . . . . . . . . . . . . . . . . . . . 6
10. Environmental Provisions . . . . . . . . . . . . . . . . . . . . . . 6
11. Repairs and Maintenance. . . . . . . . . . . . . . . . . . . . . . . 9
12. Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 11
13. Tax Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14. Payment of Operating Expenses and Taxes. . . . . . . . . . . . . . . 18
15. Services and Utilities . . . . . . . . . . . . . . . . . . . . . . . 19
16. Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
17. Assignment and Sublease. . . . . . . . . . . . . . . . . . . . . . . 24
18. Damage or Destruction. . . . . . . . . . . . . . . . . . . . . . . . 25
19. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
20. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
21. Subrogation and Waiver . . . . . . . . . . . . . . . . . . . . . . . 28
22. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
23. Interruption of Services . . . . . . . . . . . . . . . . . . . . . . 28
24. Subordination and Non-Disturbance. . . . . . . . . . . . . . . . . . 29
25. Landlord's Right of Entry. . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
26. Parking Facilities . . . . . . . . . . . . . . . . . . . . . . . . . 30
27. Signs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
28. Rules and Regulations. . . . . . . . . . . . . . . . . . . . . . . . 31
29. Common Areas, Energy Center and Access. . . . . . . . . . . . . . .. 31
30. Use of the Roof and Building Structure . . . . . . . . . . . . . . . 32
31. Tenant's Default; Rights and Remedies. . . . . . . . . . . . . . . . 33
32. Technology Park and Building Security. . . . . . . . . . . . . . . . 37
33. Landlord's Default; Rights and Remedies. . . . . . . . . . . . . . . 37
34. Waiver of Landlord's Lien. . . . . . . . . . . . . . . . . . . . . . 38
35. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
36. Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
37. Mutual Representation of Authority . . . . . . . . . . . . . . . . . 39
38. Real Estate Brokers. . . . . . . . . . . . . . . . . . . . . . . . . 39
39. Business Hours . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
40. Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
41. Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . 40
42. Recordable Memorandum. . . . . . . . . . . . . . . . . . . . . . . . 41
43. Option to Renew. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
44. Right of First Opportunity and Restriction on Sale and
Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
45. New Building Rights of First Opportunity . . . . . . . . . . . . . . 44
46. Radon Gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
47. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
48. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . .. 46
49. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
50. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
51. Entire Agreement; Waiver . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
52. Name of Technology Park. . . . . . . . . . . . . . . . . . . . . . . 48
53. No Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
54. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . 48
55. Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
EXHIBIT A - PARADYNE TECHNOLOGY PARK. . . . . . . . . . . . . . . . . . . 50
EXHIBIT B - SITE PLAN OF BUILDING . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT C - LEGAL DESCRIPTION OF LAND . . . . . . . . . . . . . . . . . . 52
EXHIBIT D - SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBIT E - SUBORDINATION, NON DISTURBANCE AND
ATTORNMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . 54
EXHIBIT F - PARKING PLAN. . . . . . . . . . . . . . . . . . . . . . . . . 55
EXHIBIT G - RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . 56
EXHIBIT H - RULES AND REGULATIONS FOR USE OF THE
COMMUNICATION EQUIPMENT . . . . . . . . . . . . . . . . . . . 58
EXHIBIT I - MEMORANDUM OF LEASE. . . . . . . . . . . . . . . . . . . . . 60
EXHIBIT J - TERMINATION OF MEMORANDUM OF LEASE. . . . . . . . . . . . . . 61
</TABLE>
iii
<PAGE> 5
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease" made effective this 27th day of June,
1997, between TOWNSEND PROPERTY TRUST LIMITED PARTNERSHIP, a Maryland limited
partnership, having an office at 210 West Pennsylvania Avenue, Suite 610,
Towson, Maryland 21204 ("Landlord") and PARADYNE CORPORATION, a Delaware
corporation ("Tenant"), having an office at 8545 126th Avenue North, Largo,
Florida 33733.
W I T N E S S E T H:
1. Definitions.
The following terms are defined in the paragraphs listed below:
<TABLE>
<CAPTION>
TERM PARAGRAPH
<S> <C>
Additional Rent 4(b)
Alterations 16(a)
Buildings 2
Business Hours 39(a)
Casualty 18(a)
Commencement Date 3
Effective Date 17(d)
Event of Default 31(a)
Expense Year 12(a)(i)
Expiration Date 3
Fair Market Rent 43(b)
Fixed Rent 4(a)
Fixtures 16(h)
Force Majeure 55
Impositions 13(a)(ii)(1)
Interest Rate 14(d)
Land 2(
Landlord's Notice 44(a)
Landlord's Rental Notice 43(c)
Landlord's Statement 12(a)(ii)
Legal Requirements 5
Listed Broker 38(a)
Net Rent 31(b)(ii)
Operating Expenses 12(a)(iv)
Premises 2
Primary Term 3
Property 2
Qualified Real Estate Appraiser 43(f)
Referee 43(d)
Rent 4(a)
Substantial Damage 18(a)
Substantial Taking 19(a)
Taking 19(a)
Tax Year 13(a)(i)
Taxes 13(a)(ii)
Tenant's Property 7
Tenant's Proportionate Share 12(a)(iii)
Term 3
</TABLE>
<PAGE> 6
2. Premises Demised.
Landlord leases and demises to Tenant and Tenant leases and hires from
Landlord the following space within the technology park known as Paradyne
Technology Park more particularly described on Exhibit A attached hereto and
incorporated herein by reference (the "Technology Park"): the research and
development space located in Building G and Building H containing approximately
232,443 rentable square feet and the manufacturing space located in Building G
which contains approximately 100,246 rentable square feet, as outlined on the
site plan attached as Exhibit B, together, Building G and Building H shall be
referred to herein individually as a "Building" and together as the
"Buildings"). The term Premises and the term "Property" shall include, without
limitation, the Building and the Land (as hereinafter defined) together with
those certain appurtenant facilities located on the Land, including, without
limitation, the loading dock, turnaround area and truck delivery area located
behind the Buildings, the employee smoking facility located adjacent to the
Building(s), a free-standing communication tower located adjacent to
Building(s), the hazardous waste depository, the nitrogen tank facility located
adjacent to Building(s) and the existing overnight delivery service depository,
the location of which are all indicated on the site plan attached as Exhibit A,
together with any future appurtenances made by Tenant as permitted pursuant to
this Lease and the replacement of any such appurtenant facilities (collectively,
such appurtenant facilities are called the "Tenant Amenities"). The Buildings
are located on a parcel of land described on the attached Exhibit C (the
"Land").
3. Term.
(a) The primary term of this Lease (the "Primary Term") shall
commence on June 27, 1997 (the "Commencement Date") and shall expire on 11:59
P.M. on the date which is ten (10) years after the Commencement Date (the
"Expiration Date"). As used in this Lease, "Term" shall mean the Primary Term
and any duly exercised renewal term(s).
(b) If the Building is sold by Landlord within three (3) years after
the Commencement Date of this Lease, at the election of the Landlord or its
assignee, which election must be made within three (3) years after the
Commencement Date, the Primary Term shall be extended for an additional two (2)
years. Should such sale occur, as used in the Lease "Term" shall mean the
Primary Term
2
<PAGE> 7
(including such additional two-year term), and any duly exercised renewal
term(s).
4. Rental.
(a) Tenant agrees to pay Landlord, without notice or demand, except as
set forth herein, annual rent at the rate of Six and no/100ths Dollars ($6.00)
per rentable square feet of the research and development space in the Buildings
G and H during years one (1) through five (5) of the Primary Term (the "Fixed
Rent"). Based on 232,443 rentable square feet of research and development space
in Building G and Building H, the annual Fixed Rent during years one (1) through
five (5) of the Primary Term shall be One Million Three Hundred Ninety-Four
Thousand Six Hundred Fifty-Eight and no/100ths ($1,394,658.00) payable monthly
in advance in installments of One Hundred Sixteen Thousand Two Hundred
Twenty-One and 50/100ths Dollars ($116,221.50) on the first day of each month
during years one (1) through five (5) during the Primary Term. Tenant agrees to
pay Landlord annual rent at the rate of Seven and 50/100ths Dollars ($7.50) per
rentable square feet for the research and development space in Building G and
Building H for years six (6) through ten (10) during the Primary Term. Based
upon 232,443 rentable square feet of research and development space in Building
G and Building H, the annual Fixed Rent during years six (6) through ten (10) of
the Primary Term for the research and development space in Building G and
Building H shall be One Million Seven Hundred Forty-Three Thousand Three Hundred
Twenty-Two and 50/100ths Dollars ($1,743,322.50) payable monthly in advance and
in installments of One Hundred Forty-Five Thousand Two Hundred Seventy-Six and
88/100ths Dollars ($145,276.88) on the first day of each month during years six
(6) through ten (10) during the Primary Term. Tenant also agrees to pay to
Landlord annual rent at the fixed rate of Four Dollars and no/100ths Dollars
($4.00) per rentable square feet on the 100,246 rentable square feet of
manufacturing space in Building G during the Primary Term. Based upon 100,246
rentable square feet of manufacturing space in Building G, the annual Fixed Rent
for the 100,246 rentable square feet of manufacturing space in Building G during
the Primary Term shall be Four Hundred Thousand Nine Hundred Eighty-Four and
no/100ths Dollars ($400,984.00) payable monthly in advance without notice or
demand in installments of Thirty-Three Thousand Four Hundred Fifteen and
33/100ths ($33,415.33) on the first day of each month during each year of the
Primary Term. Notwithstanding the foregoing, in the event the Commencement Date
is other than the first day of a calendar month and/or in the event the
Expiration Date is other than the last day of a calendar month, then the Fixed
Rent and the Additional Rent for the first month of this Lease and/or the last
month of this Lease, as applicable, shall be prorated on a per diem basis for
the number of days in such month that Tenant occupies the Premises. Hereinafter,
the term "Rent" shall mean the Fixed Rent and the Additional Rent.
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(b) Tenant shall pay to Landlord as Additional Rent all sales and use
taxes imposed in the State of Florida, together with Tenant's Proportionate
Share (defined below) of Taxes (defined below) and Operating Expenses (defined
below). All payments which are due from Tenant to Landlord under this Lease
except for the Fixed Rent are hereinafter called the "Additional Rent".
(c) In the event Tenant does not remit payment of the Rent prior to
the tenth (10th) day of the month by some verifiable means in accordance with
paragraph 31 hereinbelow, Tenant shall pay to Landlord on the first day of the
next month a late fee equal to five percent (5%) of the delinquent amount.
5. Compliance With Legal Requirements.
(a) Tenant acknowledges that it is in possession of the Property and
that as of the Commencement Date Tenant is responsible for ensuring that the
Property and the uses and activities on the Property comply with all
certificates, permits and approvals required by applicable laws, statutes,
ordinances, orders, codes, rules and regulations of all federal, state, county,
and local departments and agencies now in effect (collectively, the "Legal
Requirements") as well as the terms of any restrictions which bind the Property
and which are recorded on or before the Commencement Date. Tenant further
agrees that it shall maintain all licenses required for its business operations
at the Property and shall be responsible for ensuring that all Tenant
Alterations and Tenant Improvements comply with all applicable Legal
Requirements. Tenant's obligations under this Paragraph 5(a) shall include
being responsible for ensuring that the Property complies with all future
changes in Legal Requirements; provided, however, if a future change in Legal
Requirements requires a structural change to any portions of the Buildings and
such structural change is not due to the unique or specific nature of Tenant's
use and occupancy of the Property (e.g., if the future change in Legal
Requirements is generally applied to the Technology Park as a whole as opposed
to a change in Legal Requirements specific to Tenant's unique or specific
business), then Landlord shall be solely responsible for the cost of such
structural changes.
(b) Landlord shall comply with Legal Requirements applicable to the
Common Areas of the Technology Park, including, without limitation, the roads
and parking areas. Landlord's obligations under this Paragraph 5(b) shall
include being responsible for ensuring that the Common Areas of the Technology
Park comply with all future changes in Legal Requirements; provided, however,
if a future change in Legal Requirements requires a change to the Common Areas
because of the unique or specific nature of Tenant's use and occupancy of the
Property, then Tenant shall be solely responsible for the cost of such change.
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6. Tenant Improvements.
Tenant acknowledges that it has inspected and approved the condition
of the Property and that no improvements to the Property are required to be
performed by Landlord as of the date hereof. Landlord acquired the Property
from Tenant and Tenant acknowledges that it is familiar with the condition of
the Property and accepts the Property in its AS IS CONDITION, WITH ALL FAULTS.
7. Tenant's Personal Property.
Tenant acknowledges that it has installed its personal property,
furniture, furnishings, signs, telecommunication and manufacturing equipment,
machinery and trade fixtures (collectively, "Tenant's Property") on the
Property and that the use, maintenance and repair of Tenant's Property shall
remain Tenant's responsibility.
8. Use.
Tenant's rental of the Property shall include the exclusive right to
continue to use and occupy the Premises, the Exclusive Parking Areas (defined
below) and the Tenant Amenities for general office, warehouse, manufacturing,
and research and development uses and for any other purposes consistent with
Legal Requirements which is consistent with its current use and consistent with
the nature of the Buildings. Tenant's use of the Property shall not constitute
and unreasonable waste thereof, reasonable wear and tear excepted, and Tenant's
use of the Property shall not constitute an unreasonable public nuisance or
unreasonably interfere with other Tenants of the Technology Park. Landlord
agrees that the other tenants of the Technology Park shall not unreasonably
interfere with Tenant's use of the Property. In the event Tenant's use of the
Property changes from its existing use as of the Commencement Date and such
change in use causes an increase in the Landlord's premiums for insurance, then
Tenant shall pay to Landlord on demand as Additional Rent the amount of any
increase in premiums for insurance caused by the change in use.
Tenant shall also have the right to install, at its own expense, but
for no Additional Rent: (i) an overnight delivery service depository on the
Property or on land reasonably close to the Property if required or permitted by
one or more delivery services; (ii) a free standing microwave or other
communication tower within a reasonable proximity to the Buildings and located
on the Property; and (iii) such other facilities located on the Property to
serve Tenant's use desired by Tenant on the Property. So long as (A) such
additional improvements do not physically and materially interfere with the
access or the other rights of Landlord or other tenants of the Technology Park
or their respective agents, guests, invitees and licensees over and across
portions of the Technology Park to which they are legally entitled
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to access, (B) such improvement does not cost in excess of $100,000.00, and (C)
such additional improvements are consistent with the current uses of the
Technology Park and the improvements currently existing at the Technology Park
and aesthetically compatible with the improvements now or hereafter existing at
the Technology Park, LandLord's prior consent shall not be required. In the
event the conditions set forth in paragraphs (A), (B) and (C) are not satisfied
with respect to any proposed additional improvements, Tenant shall be required
to obtain Landlord's prior written consent before installing such additional
improvements, with consent shall not be unreasonably withheld, unreasonably
delayed or unreasonably conditioned.
9. (Intentionally Deleted).
10. Environmental Provisions.
(a) Definitions.
(i) "Environmental Condition" shall mean any noncompliance on
or about the Property with any Environmental Law (as hereinafter defined).
(ii) "Environmental Law" shall mean any and all federal, state,
local, and foreign statutes, laws, regulations, ordinances, rules, judgements,
orders, decrees, permits, concessions, grants, franchises, licenses, agreements
or other governmental restrictions relating to the environment or to the
Handling (as hereinafter defined), emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances, materials or wastes, including without
limitation petroleum products, into the environment including, without
limitation, ambient air, surface water, ground water, or land.
(iii) "Handling" shall mean use, treatment, storage,
manufacture, processing, distribution, transport, placement, handling,
discharge, generation, production of disposal.
(iv) "Tenant's Operations." The parties acknowledge that prior
to the time of entry into this Lease, Tenant has owned and occupied the
Property, the commencement of Tenants operations being approximately in 1980
with respect to Building G and approximately in 1982 with respect to Building
H. Throughout this Lease the term "Tenant's Operations" shall mean Tenant's
use or occupancy of the Property commencing on the date and continuing through
the term of this Lease and all extensions or renewals thereof.
(v) "Notice" shall mean any notice or report, whether oral or
written, of any the following:
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(1) any suit, proceeding, investigation, order, consent
order, injunction, writ, award, or action related to or affecting the Handling
of any Waste (as hereinafter defined) on or about the Property or relating to
Tenant's use and Operations on the Property;
(2) any Spill (as hereinafter defined) or Environmental
Condition on or about the Property or relating to Tenant's Operations on the
Property;
(3) any dispute relating to Tenant's Handling of any Waste,
Spill or Environmental Condition on or about the Property or relating to
Tenant's use and Operations on the Property;
(4) any claims by or against any insurer related to or
arising out of any Waste, Spill or Environmental Condition on or about the
Property or relating to Tenant's use and Operations on the Property;
(5) any recommendations or requirements of any governmental
or regulatory authority, or insurer relating to any Handling of Waste, Spill,
or Environmental Condition on or about the Property, or relating to Tenant's
use and Operations on the Property.
(vi) "Spill" shall mean any spill, contamination, discharge,
leakage, release or escape of any Waste in or affecting the Property, whether
sudden or gradual, accidental or anticipated, or of any other nature or manner
that have or will occur during Tenant's use and Operations on the Property.
(vii) "Waste" shall mean any contaminant, chemical, petroleum
product, waste, waste product, radioactive waste, poly-chlorinated biphenyls,
asbestos, hazardous or toxic substance, contaminant, pollutant, material,
substance, or waste of any kind, any substance which is regulated by any
Environmental Law.
(b) Compliance with Environmental Laws. As a material inducement to
Landlord to lease the Property to Tenant, Tenant covenants and warrants that
Tenant and Tenant's use and Operations on the Property will at all times comply
with and conform to all Environmental Laws, including without limitation, those
Environmental Laws which relate to the Handling of any Waste on or about the
Property.
(c) Right of Entry/Compliance Inspections. Landlord is given the
right, but not the obligation, to inspect and monitor the Property and Tenant's
use and Operations on the Property in order to confirm Tenant's compliance
with the terms and the representations set forth in this Paragraph 10.
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(d) Notice to Landlord. Immediately upon receipt of any Notice from
any party, Tenant shall deliver to Landlord a true, correct and complete copy
of any written Notice or a true, correct, and complete report of any nonwritten
Notice.
(e) Tenant's Indemnification of Landlord for Environmental Matters.
Tenant hereby agrees that it will indemnify, defend, save and hold
harmless the Landlord against and from, and to reimburse the Landlord with
respect to, any and all damages, claims, liabilities, loss, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses, whether
in court, out of court, in bankruptcy or administrative proceedings or on
appeal), penalties, or fines, incurred by the Landlord by reason or arising out
of: (a) the breach of any representation or undertaking of Tenant under this
Paragraph 10 and also under those representations, warranties, covenants and
agreements contained in Paragraph 9; (b) arising out of the Spill or Handling of
any Waste by Tenant or any subtenant, licensee, concessionaire, manager, or
other party occupying or using the Property, through authority of Tenant or in
connection with Tenant's Operations on the Property; (c) arising out of any
Notice, Spill or Environmental Condition or any other contamination governed by
the terms of this Paragraph, including without limitation, (i) any loss, cost,
expense, claim, or liability arising out of any investigation, monitoring,
clean-up, containment, removal, storage, or restoration work required by, or
incurred by Landlord in response to the requirements imposed under any
Environmental Law, (ii) any claims of third parties for loss, injury, expense,
or damage of any kind or nature arising out of any Spill or handling of any
Waste on, under, in, above, to or from the Property relating to Tenant's
Operations on the Property; and (iii) any loss of use or diminution in value of
the Property arising out of any Spill or Handling of any Waste on, under, in,
above, to, or from the Property relating to Tenant's Operations on the Property.
(f) Landlord's Indemnification of Tenant for Environmental Matters.
Subject to all other provisions of this Lease, including but not
limited to the nonrecourse limitations set out in Paragraph 33(c) hereof,
Landlord hereby agrees that it will indemnify, defend, save and hold harmless
the Tenant against and from, and to reimburse the Tenant with respect to, any
and all damages, claims liabilities, loss, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses, whether in court,
out of court, in bankruptcy or administrative proceedings or on appeal)
penalties, or fines, incurred by or asserted against the Tenant by reason or
arising out of: (a) any generation, handling, transportation, treatment,
disposal or use of any Waste that occur on the Technology Park during the Term,
except for any Waste associated with Tenant's Operations and except as to those
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obligations assumed by Tenant pursuant to the provisions of this Paragraph 10;
(b) arising out of the Spill or handling of any Waste by Landlord or by any
tenant (other than Tenant), or licensee, concessionaire, manager, or other party
occupying or using the Technology Park property pursuant to authorization of or
lease from the Landlord; (c) arising out of any notice received by Landlord or
any Spill or Environmental Condition relating to the use of the Technology Park
by parties other than Tenant, including without limitation, with respect to all
of the Technology Park other than the Property (i) any loss, cost, expense,
claim, or liability arising out of any investigation, monitoring, clean-up,
containment, removal, storage, or restoration work required by, or incurred by
Tenant in response to the requirements of any Environmental Law, (ii) any
claims of third parties for loss, injury, expense, or damage of any kind or
nature arising out of any Spill or Handling of any Waste on, under, in above,
to, or from the Technology Park; and (iii) any loss of use or diminution in
value of the Tenant's interest in the Property arising out of any Spill or
Handling of any Waste on, under, in, above, to, or from the Technology Park
relating to Landlord's operations on such Property.
(g) Survival of Covenants, Representations and Warranties and
Indemnities.
Subject to all other provisions of this Lease, including but not limited
to the nonrecourse limitations set out in paragraph 33(c) hereof, the
convents, representations, warranties, indemnities and undertakings set forth
in this Paragraph shall survive the expiration or termination of this Lease
regardless of the issuance of any "No Further Action Letter" or other
regulatory approval with respect to any site remediation.
11. Repairs and Maintenance.
(a) During the Term, Landlord shall perform diligently, promptly and
in a good and workmanlike manner in compliance with all applicable Legal
Requirements, all maintenance, repairs and replacements to (i) the Energy
Center (as herein defined); (ii) the structural components of the Buildings,
including without limitation the roof, roofing system, exterior walls, load
bearing walls, support beams, foundations, columns, exterior doors and windows
and lateral support to the Buildings; (iii) the Buildings to assure the water
tightness of the Buildings (including caulking of the flashings) and repairs to
the roof, roofing system, curtain walls, windows, and skylights if required to
assure water tightness); (iv) the lawn sprinkler, any flood control channels
and any heating, ventilation and air conditioning systems within the Technology
Park up to the Building envelope (except for the separate air conditioning
units and separate heating units which only serve such Buildings, regardless of
the location of such units which is the Tenant's responsibility to maintain,
repair and replace, any exterior electrical and mechanical lines and
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equipment associated therewith up to each Building envelope; (v) all sanitary
sewer, drainage, electrical, water and other utility improvements within the
Technology Park up to each Building envelope; (vi) the parking lots, areas and
garages, road and other common areas of the Property and improvements of the
Technology Park (other than the interior of the Building), including, without
limitation, the exterior lighting systems and entrances to and exits from the
Technology Park; (vii) the exterior improvements to the Building, including
walkways, shrubbery and landscaping; and (viii) the exterior glass, including
cleaning and replacements. In addition, Landlord shall make any repairs which
Tenant would otherwise be responsible for pursuant to Paragraph 11(b) to the
extent such repairs are necessitated by damage caused by the negligence or
willful misconduct of Landlord, its agents, independent contractors,
representatives or employees unless such repairs are covered by any insurance
policy maintained by Tenant. In the event Landlord fails to make any repairs
required under this subparagraph (a), Tenant shall provide Landlord with
written notice requesting that Landlord complete such required repairs. In the
event Landlord does not complete such repairs within fifteen (15) days of
receipt of written notice from Tenant to Landlord, then, in the event the
Landlord has not commenced such required repairs within fifteen (15) days of
receipt from Tenant and Landlord does not thereafter diligently complete such
repairs, then Tenant shall be entitled to make such repairs on behalf of
Landlord and Landlord shall reimburse Tenant for all reasonable expenses
incurred by Tenant in making such repairs plus interest at the Interest Rate
(defined below).
(b) During the Term, Tenant shall, at its sole expense, in a good and
workmanlike manner in compliance with applicable Legal Requirements (i) do its
own redecorating of the interior of the Premises; (ii) perform all maintenance,
repairs and replacements to the interior of the Buildings, such as changing
filters and light bulbs and maintenance and repair of the elevators; (iii)
maintain and replace all interior fire sprinklers, heating, ventilation and air
condition systems and the electrical and mechanical lines and equipment
associated therewith within each Building envelope; (iv) maintain and replace
Tenant's Property and (vi) maintain and replace Tenant Amenities and the
separate air conditioning units and separate heating units which only serve such
Buildings, regardless of the location of such units. In addition, Tenant shall
make any repairs which Landlord would otherwise be responsible for pursuant to
Paragraph 11(a) to the extent such repairs are necessitated by damage caused by
the negligence or willful misconduct of Tenant, its agents, independent
contractors, representatives or employees unless such repairs are covered by any
insurance policy maintained by Landlord. In the event Tenant fails to make any
repairs or replacements required under this subparagraph (b), Landlord shall
provide Tenant with written notice
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requesting that Tenant complete such required repairs or
replacements. In the event Tenant does not complete such repairs or
replacements within fifteen (15) days of receipt of written notice from
Landlord, or in the event the required repairs or replacements are of a nature
that they cannot be reasonably completed within fifteen (15) days, then in the
event Tenant has not commenced such required repairs or replacements within
fifteen (15) days of receipt of written notice from Landlord and Tenant does
not thereafter diligently complete such repairs or replacements, then Landlord
shall be entitled to make such repairs or replacements on behalf of Tenant and
Tenant shall reimburse Landlord for all reasonable expenses incurred by
Landlord in making such repairs or replacements plus interest at the Interest
Rate (defined below).
(c) Landlord shall resurface and restripe the roads and parking areas
of the Technology Park, including without limitation, the Exclusive Parking
Area (as defined in paragraph 26 herein) when such resurfacing and restriping
is necessary or desirable to maintain the Technology Park in accordance with
reasonable standards for other business parks of the some quality as the
Technology Park. The cost therefor shall be deemed an Operating Expense. All
maintenance, repairs and replacements, including without limitation, any
necessary upgrades, performed by Landlord shall performed in a prompt and
diligent manner, in accordance with reasonable standards for other business
parks in the Tampa Bay area of the same quality as the Technology Park and so
as not to unreasonably interfere with Tenant's use of the Property.
(d) Tenant shall deliver up and surrender to Landlord possession of
the Property upon the expiration or earlier termination of the Term, in good
order, condition and state of repair (except as may be Landlord's obligation
under this Lease, and except for ordinary wear and tear and damage by casualty
and condemnation.
12. Operating Expenses.
(a) For purposes of Paragraphs 12, 13 and 14, the following
Definitions shall apply.
(i) "Expense Year" shall mean a calendar year or a portion of a
calendar year during the Term.
(ii) "Landlord's Statement" shall mean a statement furnished by
Landlord to Tenant containing a computation or information relating to any
Additional Rent asserted by Landlord to be due pursuant to the provisions of
this Lease, and containing back up data reasonably sufficient for Tenant to
verify the computation of Additional Rent.
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(iii) "Tenant's Proportionate Share" shall be based on rentable
square feet in the Buildings compared to the total rentable square feet of all
buildings within the Technology Park. If either of these figures shall vary
during the Term, Tenant's Proportionate Share shall be appropriately adjusted.
(iv) "Operating Expenses" shall mean
(1) All costs and expenses (and taxes thereon) paid by or on
behalf of Landlord in respect of the operation, cleaning, repair, safety,
management, security and maintenance of the Common Areas of the Technology Park
and the Property (unless such services are provided by Tenant as provided
herein), and the sidewalks, curbs, plazas and other areas adjacent to the
Property, or the Common Areas of the Technology Park, including (i) salaries,
wages and bonuses paid to, and the cost of any hospitalization, medical,
surgical, union and general welfare benefits (including group life insurance),
any pension, retirement or life insurance plan and other benefits or similar
expenses relating to, employees of Landlord engaged in the operation, cleaning,
repair, safety, management, security or maintenance of the Property and the
Common Areas of the Technology Park; (ii) social security, unemployment and
other payroll taxes, the cost of providing disability and worker's compensation
coverage imposed by any law or regulation, union contract or otherwise in
respect of said employees; (iii) the cost of electricity, gas, steam, water,
sewer, air conditioning and other fuel and utilities not the obligation of any
particular tenant which pertain to the Common Areas of the Technology Park;
(iv) the costs of maintaining the Energy Center, (v) the cost of casualty,
liability, and any other similar insurance, buy only to the extent a prudent
landlord of a comparable business park would carry the type and amounts of such
insurance; (vi) the cost of repairs, maintenance and painting, including costs
to comply with governmental laws and the terms of any restrictions which bind
the Property and the Common Areas of the Technology Park and which are recorded
on or before the Commencement Date (to the extent compliance does not require
capital improvements); (vii) the cost or rental of all building and cleaning
supplies, tools, materials and equipment; (viii) the cost of supplies, work
clothes and dry cleaning; (ix) window cleaning, guard, watchman or other
security personnel, service or system; (x) management fees no in excess of then
prevailing market rates for management fees payable for management of other
business parks of the same quality as the Technology Park; (xi) charges of
independent contractors performing work included within this definition of
Operating Expenses (including costs payable pursuant to service contract(s)
entered into by Landlord to provide such services); (xii) telephone and
stationery; (xiii) legal, accounting and other professional fees and
disbursements incurred in connection with the operation and management of the
Building and the Common Areas of the Technology Park; (xiv) decorations; (xv)
depreciation of hand tools and other movable equipment used in the operation,
cleaning, repair, safety,
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management, security or maintenance of the Property and the Common Areas of the
Technology Park provided the original cost of such equipment did not constitute
an Operating Expense; (xvi) exterior and interior landscaping, (xvii) the cost
of guards and performing monitoring services for security purposes of the
entire Technology Park as opposed to providing such services for any particular
tenant or any particular building in the Technology Park;
(v) "Operating Expenses" shall not include any of the following:
(1) Salaries or benefits for Landlord's executives and
employees above the grade of building manager, and of any employee in excess of
the time devoted to the Building.
(2) Any compensation paid to clerks/attendants or other
persons, or other costs incurred in commercial concessions, including without
limitation garage or other parking concessions operated by Landlord or others
on the Property (but excluding any security guards).
(3) To the extent such costs constitute capital costs under
generally accepted accounting principles ("GAAP"), the cost of replacement of
HVAC, mechanical, security, electrical, plumbing systems, or of any substantial
component or part or such systems beyond the scope of routine maintenance and
repair; or any other cost which is capital in nature (other than the cost of
resurfacing the parking areas and driveways which cost shall be a reimbursable
capital expenditure, as described herein), provided that if Landlord purchases
any item of capital equipment or make any capital expenditure which reduces
expenses which would otherwise be included in Operating Expenses, then the
costs of such capital equipment or capital expenditure may be included in
Operating Expenses if amortized over the useful life of the item on a straight
line basis, but only to the extent of the reduction in each Expense Year of
expenses which would otherwise be included in Operating Expenses, until the
savings or reductions in Operating Expenses equal Landlord's costs for such
capital expenditure. If Landlord leases any items of capital equipment which
results in savings or reductions in expenses which would otherwise be included
in Operating Expenses, then the rentals and other cost paid pursuant to such
leasing shall be included in Operating Expenses for the Expense Year in which
they were incurred, but only to the extent of the reduction in each Expense
Year of expenses which would otherwise be included in Operating Expenses.
(4) Expenditures for which Landlord is reimbursed from any
insurance carrier, from any tenant, including the Tenant, or from any other
source.
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(5) Cost of repairs which are of a capital nature,
replacements incurred by reason of fire or other casualty or condemnation.
(6) Advertising and promotional expenditures.
(7) Costs incurred in performing work or furnishing services
for any tenant (including the Tenant), whether at such tenant's or Landlord's
expense, to the extent that such work or service is in excess of any work or
service that Landlord is obligated to furnish to Tenant and Landlord's expense.
(8) Depreciation, except as provided above.
(9) Bad debt loss, rent loss, or reserves for either of them.
(10) Taxes.
(11) If Tenant pays separately for its own electricity,
chilled water, potable water, non-potable water or any other utilities then
Tenant shall not be charged for the cost of any such utilities separately
provided to and paid for by Tenant or the cost of such utilities furnished to
other tenants, provided that Tenant's Proportionate Share of common area
electricity shall be included as an Operating Expense. Regardless of whether
Tenant does or does not pay separately for its own electricity or other
utilities, any overtime or excess usage solely for the benefit of other tenants
shall be excluded form Operating Expenses.
(12) Financing costs, including points, commitment fees,
broker's fees, legal fees, and mortgage interest and amortization payments.
(13) Costs incurred in connection with the construction of
the Building or the initial development of the Property.
(14) Costs for sculpture, decorations, paintings or other
objects of art in excess of amounts typically spent for such items in office
buildings of comparable quality in the competitive area of the Building.
(15) Costs, expenses or expenditures which should have been
reimbursed by other tenants in the Technology Park.
(16) Additional costs incurred by Landlord arising out of its
failure to perform or breach of any of its covenants, agreements,
representations, warranties, guarantees or indemnities made under this Lease.
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(17) Costs of compliance, fines or penalties incurred by
Landlord due to Landlord's violations of or non-compliance with any applicable
Legal Requirements.
(18) Costs incurred in the removal, abatement or other
treatment of underground storage tanks placed on the Technology Park subsequent
to the Commencement Date by a party other than the Tenant or Hazardous
Substances present in the Building or on the Property which were placed on the
Technology Park subsequent to the Commencement Date by a party other than the
Tenant.
(19) Legal fees, space planner's fees, broker's commissions
and other costs incurred by Landlord in connection with leasing space and
negotiating leases with tenants of the Building, or legal fees in connection
with disputes between Landlord and any tenant of the Building, or between
Landlord and any mortgagee.
(20) Except as provided in Paragraph 12(a)(vi)(3), lease
payments for rented equipment, the cost of which equipment constitutes a capital
expenditure if the equipment were purchased; and any late fees, penalties,
interest charges or similar fees incurred by Landlord.
(21) Costs of improving, altering, constructing or
redecorating any space leased to tenants of the Building.
(22) Any amounts paid to a person, firm, corporation, or other
entity related to Landlord which is in excess of the amount charged by
unaffiliated parties for comparable goods or services.
(23) Costs incurred by Landlord to remedy any defects in the
design of or materials used in the Building or Building Equipment, or costs
incurred by Landlord to repair or replace the structural steel framing, roof,
roofing system, foundation and underground utility lines forming a part of or
servicing the Building or the Property provided that at the Commencement Date
Tenant did not have any knowledge, without any independent investigation, of
such defects.
(24) Costs associated with the operation of the business of
the entity which constitutes Landlord as the same are distinguished from the
costs of operation of the Building, including, without limitation, accounting
and legal expenses, costs of selling, syndicating, financing, mortgaging or
hypothecating Landlord's interest in the Building, costs of any disputes between
Landlord and its employees, or building managers.
(25) Costs and expenses paid or incurred by Landlord at any
time during the Term to convert, modify, or replace
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HVAC components in the Building using chlorofluorocarbons to alternative
refrigerant technology or components or both.
(26) The cost of any political, charitable or civic
contribution or donation.
(27) The cost of installing, operating and maintaining a
specialty improvement not requested to or consented to in writing by Tenant
which consent shall not be unreasonably withheld (provided, however, if such
specialty improvement is reasonable and customary for other business parks in
the Tampa Bay area of the same quality as the Technology Park such special
improvement shall not be excluded from Operating Expenses even if Tenant's
consent for the same was not obtained), including, but not limited to, an
observatory, athletic, luncheon or recreational club or facility.
(28) The value or lost income to Landlord of any office space
in the Building which is utilized for the management of the Building.
(29) Amounts paid as ground rental.
(b) For each Expense Year falling wholly or partially within the
Term, Tenant shall pay to Landlord as Additional Rent, Tenant's Proportionate
Share of the amount of Operating Expenses for such Expense Year. Landlord
agrees that Tenant shall be entitled to submit to Landlord suggestions on how
to efficiently operate the Technology Park.
13. Tax Expense.
(a) For purposes of Paragraph 13 the following Definitions shall
apply.
(i) "Tax Year" shall mean a calendar year or a portion of a
calendar year during the Term.
(ii) "Taxes" shall mean
(1) All real estate taxes, assessments (special or
otherwise), sewer and water rents, rates and charges, and any other
governmental levies, impositions and charges of a similar nature
("Impositions"), which may be levied, assessed or imposed on or in respect of
all or any part of the Property, whether or not the same constitute one or more
tax lots. If, however, by law, any assessment may be divided and paid in annual
installments, then, for the purposes of this definition, (i) such assessments
shall be deemed to have been so divided and to be payable in the maximum number
of annual installments permitted by law, and (ii) there shall be deemed
included in Taxes for each Tax Year the annual installment of such assessment
becoming payable
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during such year, together with interest payable during such year on such
annual installment and on all installments thereafter becoming due as provided
by law, all as if such assessment had been so divided.
(2) Any reasonable and appropriate expenses incurred by
Landlord in contesting any of the foregoing or the assessed valuation of all or
any part of the Property.
(3) If at any time during the Term the methods of taxation
prevailing at the date hereof shall be altered so that in lieu of or as a
substitute for the whole or any part of the Impositions now levied, assessed or
imposed on all or any part of the Property, there shall be levied, assessed or
imposed (i) an Imposition based on the income or rents received therefrom
whether or not wholly or partially as a capital levy or otherwise, or (ii) an
Imposition measured by or based in whole or in part upon all or any part of the
Property and imposed on Landlord, then all Impositions shall be deemed to be
Taxes.
(iii) "Taxes" shall not include any of the following:
Impositions upon improvements or alterations made by the Landlord or other
tenants outside of the Premises, or upon additions to the Property or Building
not requested or consented by Tenant; or penalties; or interest paid by the
Landlord on account of taxes.
(b) Tenant shall pay to Landlord as Additional Rent for such Tax
Year, a sum equal to Tenant's Proportionate Share of the Taxes for such Tax
Year.
(c) If, as a result of any application or proceeding or otherwise,
there should be a reduction in the Taxes for any Tax Year in respect of which
Landlord shall have previously rendered a Landlord's Statement, any amounts due
from Landlord to Tenant shall be paid to Tenant within twenty (20) days after by
Landlord, unless Tenant advises Landlord within fifteen (15) days after receipt
by Landlord of such refund to include an adjustment for the succeeding Tax Year
to reflect such decrease in Taxes. Landlord may deduct from such refund all
costs and expenses, including reasonable counsel fees, incurred by Landlord in
connection with the application or proceeding to reduce the Taxes in respect of
any Tax Year. Landlord shall promptly refund to Tenant, Tenant's Proportionate
Share of any refunds in Taxes received after the Expiration Date of this Lease.
(d) Landlord shall upon Tenant's written request provide Tenant with
copies of all trim notices relating to ad valorem taxes for the Property within
fifteen (15) days of receipt of such request. Tenant may, within fifteen (15)
days of receipt of such tax notices, provide Landlord with notice that it
desires that Landlord protest such taxes. In the event Landlord elects not to
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protest such taxes, Tenant shall have the right to contest the validity or the
amount of any Taxes by appropriate proceedings in the applicable jurisdiction,
and may defer payments of such obligations, pay same under protest, or take such
other steps as Tenant may deem appropriate, provided the foregoing does not
subject Landlord to any penalties or materially adversely affect Landlord's
interest in or financing of the Property and provided Tenant posts security as
required by law. Landlord shall cooperate in the institution and prosecution of
any such proceedings and will execute any documents required therefor without
cost or expense to Tenant. To the extent Tenant is successful in protesting the
Taxes, the cost incurred by Tenant in connection therewith shall be reimbursed
by Landlord; provided, however, to the extent the costs incurred by Tenant in
connection therewith are greater than the reduction of the Taxes, Landlord's
obligation to reimburse Tenant shall be limited solely to the reduction in the
Taxes. To the extent the reduction in the Taxes is greater than the costs
incurred by Tenant in connection with such protest, the net refund or rebate
shall be refunded to Tenant pro rata in proportion to the assessed value of the
Property compared to the assessed value of all real property covered by such tax
bill.
14. Payment of Operating Expenses and Taxes.
(a) At least thirty (30) days prior to each Expense Year, Landlord
shall advise Tenant in writing of Tenant's estimated Proportionate Share of the
Operating Expenses for the ensuing Expense Year and of the Taxes for the Tax
Year. Commencing on the first day of each month of the Expense Year, Tenant
shall pay as Additional Rent one-twelfth (1/12th) of Tenant's estimated
Proportionate Share of Operating Expenses and Taxes concurrently with the
monthly Fixed Rent payment. As soon as is reasonably possible after the
Commencement Date, Landlord shall advise Tenant in writing of Tenant's estimated
proportionate share of the Operating Expenses and of the Taxes for the 1997
calendar year. Commencing on the first day of the first month of each month
after the Commencement Date during the 1997 calendar year Tenant shall pay as
Additional Rent in equal monthly installments during such calendar year Tenant's
estimated Proportionate Share of Operating Expenses and Taxes concurrently with
the payment of the monthly Fixed Rent Payment.
(b) Within ninety (90) days after the close of each Expense Year and
the 1997 Calendar Year as applicable, Landlord shall deliver to Tenant an
itemized statement ("Landlord's Statement") showing in reasonable detail the
(i) actual Operating Expenses and Taxes for the Previous Expense Year or 1997
Calendar Year as applicable, broken down by component expenses; (ii) Tenant's
Proportionate Share of such amounts; (iii) the amount paid by Tenant during the
Expense Year towards the Operating Expenses and the amount paid by Tenant during
the Tax Year towards the Taxes, and (iv) the amount Tenant owes to Landlord for
such
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amounts, or the amount of the refund Landlord owes to Tenant. Any amount due
from Landlord to Tenant under this Paragraph 14(b) (vi) shall be enclosed with
Landlord's Statement. Any such amount due from Tenant to Landlord shall be paid
within thirty (30) days after receipt of Landlord's Statement.
(c) Landlord's failure to submit a Landlord's Statement to Tenant
within eighteen (18) months after the expiration of any Expense Year or Tax
Year or 1997 Calendar Year shall be deemed a conclusive waiver of Landlord's
right to any Additional Rent relating to such Landlord's Statement for such year
unless Landlord gives Tenant written notice within eighteen (18) months after
expiration of any Expense Year or Tax Year or 1997 Calendar Year that it is
contesting a particular item then there shall not be a waiver as to that item.
Landlord's failure to submit a Landlord's Statement shall not deprive Tenant of
its right to recover from Landlord if Tenant's estimated payments exceed the
amounts actually due from Tenant for Operating Expenses or Taxes. Subject to
the preceding sentence, the obligations of Landlord and Tenant with respect to
any Additional Rent shall survive the expiration or any sooner termination of
the Term.
(d) Landlord agrees to maintain complete records of all costs
reimbursable by Tenant under the terms of this Lease. All such records shall
be maintained in accordance with generally accepted accounting practices and
shall be retained for a period of eighteen (18) months following the date on
which such costs were charged to Tenant. Tenant shall have the right, through
itself or its representatives, to examine, copy and audit such records at all
reasonable times at Landlord's office during reasonable business hours. Each
Landlord's Statement shall be conclusive and binding upon Tenant unless, within
eighteen (18) months after the date of such Landlord's Statement, Tenant shall
notify Landlord that it disputes the correctness of Landlord's Statement.
Pending the determination of such dispute by agreement or otherwise, Tenant
shall pay Additional Rent in accordance with the applicable Landlord's
Statement, and such payment shall be without prejudice to the position of
Tenant. If the dispute is resolved in Tenant's favor, Landlord shall
immediately refund to Tenant any overpayment, together with interest at (i)
three percent (3%) over the prime rate quoted by Chase Manhattan Bank, New
York, New York or (ii) the highest rate permitted by law, whichever rate is
less (the "Interest Rate"), from the date of Tenant's overpayment through the
date of the refund. If the dispute is resolved in Landlord's favor, Tenant
shall immediately pay to Landlord any underpayment, together with interest at
the Interest Rate from the date of Tenant's underpayment through the date of
the refund.
15. Service and Utilities.
(a) Landlord shall provide those services described on the attached
Exhibit D and described herein. Notwithstanding any
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other provision of this Lease, Landlord shall in no event be liable to Tenant
for any consequential damages suffered or incurred by Tenant resulting from or
relating to Landlord's failure or delay in furnishing these services.
Furthermore, only in circumstances where it has been demonstrated that the
failure or material delay to provide such services has been caused by the
negligence or willful misconduct of Landlord or of its agents or employees
shall Landlord be liable to Tenant for direct damages suffered by Tenant as a
result of such failure or material delay in furnishing such services.
(b) Tenant shall provide its own cleaning and janitorial service.
(c) Landlord shall provide, at its expense, all the services for
which it is responsible under Paragraph 15 (a). Notwithstanding anything
herein to the contrary, Landlord shall continue to provide and maintain dual
feed facilities for electricity and water service to the Building provided that
such dual feed facilities are legally permitted.
(d) Tenant shall be responsible for and shall pay for all of its
electricity consumed on the Premises. Electricity for the Premises is currently
provided through a central meter. Tenant shall, at its cost, separately meter
the electricity provided from the central meter to the Premises and Tenant shall
pay the cost of electricity provided to the Premises directly to the utility.
Landlord agrees that it shall not charge as a cost for electricity to the
Common Areas more than the amount charged by the electricity provider. Under
current Florida law, so long as the Landlord does not charge in excess of the
amount charged by the electricity provider, Tenant's reimbursement of
electricity charges are not subject to Florida's sales and use tax. So long as
the Florida Department of Revenue does not change its position with respect to
such charges, Landlord shall not charge Tenant sales and use tax on Tenant's
reimbursement of electricity charges. If the Florida Department of Revenue
determines that Landlord is marking up the electricity charges and charging
more than the amount charged by the electricity provider, Landlord shall be
solely responsible for any sales and use tax due and payable in connection
therewith. Tenant shall also pay for its pro rata share of the cost to operate
the Energy Center. Such pro rata share shall be based upon the gallons of
chilled water delivered to the Premises from the Energy Center (as calculated
by a separate meter installed by Tenant at its sole cost), compared to the
total number of gallons of chilled water generated by the Energy Center and
shall be paid by Tenant to Landlord at the same time that Fixed Rent is paid to
Landlord. The proportionate share of chilled water used by Tenant shall then
be used to calculate the cost of producing such chilled water based upon btu's
consumed by the Energy Center and the actual cost incurred by Landlord to
purchase such energy. Landlord warrants and represents that it will obtain
Tenant's prior written approval
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which approval shall not be unreasonably withheld or unreasonably conditioned
or unreasonably delayed before Landlord intentionally interrupts any of the
following services: (i) chilled water, (ii) sewer services, (iii) potable
water and (iv) electricity.
(e) Tenant shall have the right, at any time or from time to time to
install at its cost separate meters for all utility services to the Buildings,
including without limitation, potable water, and non-potable water. If Tenant
has such separate meters installed, Tenant's Proportionate Share of Operating
Expenses shall not include the cost of such utilities that are separately
metered and paid for by Tenant.
16. Alterations.
(a) Tenant may, at its own expense, make such changes, alterations,
additions or improvements to the Property subsequent to the Commencement Date
("Alterations") and install such Tenant Property on the Property as will, in
the judgment of Tenant, better adapt the same for its needs, provided that
Tenant complies with the following provisions:
(i) The Alterations shall not result in a violation of or
require a change in any certificate of occupancy applicable to the Buildings.
(ii) The outside appearance of the Building shall not be
materially adversely affected; such Alterations shall not weaken or impair the
structure, or materially reduce the value of the Premises or the Building.
(iii) No part of the Building outside of the Premises shall be
physically affected.
(iv) The proper functioning of the building equipment shall
not be materially adversely affected.
(v) Prior to performing any construction activities, Tenant
shall submit to Landlord, for Landlord's review and, if appropriate, approval,
three (3) copies of final plans and specifications for the Alterations.
(vi) Upon completion of any Alterations (other than
decorations), Tenant shall upon Landlord's request deliver to Landlord three
(3) copies of the "as-built" plans for such Alterations.
(vii) The Alterations do not cause a violation of existing
floor loads within the Premises and do not adversely affect in a material
manner the structure of the Buildings.
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(viii) The cost of the Alterations does not exceed One
Million and no/100 Dollars ($1,000,000.00) in any calendar year.
(ix) The Alterations will not result in an increased
burden upon the mechanical systems located within the Buildings.
(x) The Alterations will not result in the increased usage
of chilled water from the Energy Center.
(b) With respect to any Alterations that do not comply with Paragraph
16 (a) (i) through 16 (a) (ix), Tenant must obtain Landlord's prior written
consent which shall not be unreasonably withheld, unreasonably delayed or
unreasonably qualified.
(c) In the event the cost of the Alteration is in excess of One
Million and no/100 Dollars ($1,000,000.00), Tenant shall require its general
contractor to post a payment and performance bond and Landlord shall be listed
as an additional obligee on such bond. In the event the cost of the Alteration
is less than One Million and no/100 Dollars ($1,000,000.00) and Tenant elects
to require its general contractor to post a payment and performance bond,
Tenant shall have the Landlord listed as an additional obligee on such bond.
In addition to the foregoing, in connection with any Alterations and in
connection with the installation of Tenant's personal property, Tenant shall
defend, indemnify and hold Landlord harmless from and against all injuries to
persons or property arising as a result of the construction of the Alterations
other than injuries arising as a result of the gross negligence or willful
misconduct of Landlord's employees, agents, guests, and invitees, which
indemnity shall include reasonable attorneys fees and paralegal fees incurred
by Landlord in connection with such Alterations.
(d) Tenant agrees that all Alterations shall at all times comply with
all applicable Legal Requirements (including, if applicable, the Americans with
Disabilities Act) and that Tenant, at its expense, shall (i) obtain all
necessary municipal and other governmental permits, authorizations, approvals
and certificates for the construction of such Alterations, (ii) deliver a copy
of such items to Landlord (iii) cause all Alterations to be constructed in a
good and workmanlike manner; and (iv) pay for any increases in Taxes arising as
a result of such Alterations. Tenant, at its expense, shall promptly procure
the cancellation or discharge of all notices of violation arising from or
otherwise connected with Alterations issued by any public authority having or
asserting jurisdiction.
(e) Throughout the making all Alterations (other than mere
decorations, Tenant, at its expense, shall carry or cause its contractors to
carry its workers, compensation insurance in
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statutory limits covering all persons employed in connection with such
Alterations, (ii) general commercial liability insurance naming Landlord as an
additional insured covering any occurrence in or about the Premises in
connection with such Alterations which complies with the requirements of
Paragraph 20 and which insurance shall have minimum limits of liability in the
amount of One Million and 00/100 Dollars ($1,000,000.00). In addition, Tenant
shall reimburse Landlord for all reasonable attorney fees' and paralegal fees'
incurred by Landlord in connection with discharging or bonding any such liens
pursuant to this subparagraph (e).
(f) Landlord and Tenant agree that the Landlord's interest in the
Property shall not be subject to a construction lien and Tenant agrees to
comply with the provisions of Florida Statutes Section 713.10 with respect to
notifying all contractors that the Landlord's interest in the Property is not
subject to lien. Additionally, the Memorandum of Lease to be executed by the
parties and recorded in the Public Records of Pinellas County, Florida, shall
contain the requisite notice provided for under Florida Statute Section 713.10.
(g) Tenant shall defend and indemnify Landlord against liability for
any and all construction liens and other liens filed in connection with
Alterations which indemnity shall include reasonable attorney fees' and
paralegal fees incurred by Landlord in connection with such construction
liens. Tenant, at its expense, shall procure the discharge of any such lien
within thirty (30) days after the filing thereof against any part of the
Property. If Tenant fails to discharge any such lien within such thirty (30)
day period, then, in addition to any other right or remedy, Landlord may, upon
giving ten (10) days prior written notice to Tenant, discharge the same either
by paying the amount claimed to be due or by deposit or bonding proceedings if
Tenant has not discharged the lien within the ten (10) day notice period
provided herein. Any amount so paid by Landlord, and all costs and expenses
incurred by Landlord in connection therewith, shall be payable by Tenant upon
demand.
(h) Except for items constituting Tenant's Property, all Alterations
and appurtenances attached to or built into the Premises at the commencement of
or during the Term, whether or not at the expense of Tenant, and whether or not
Landlord's consent is required (collectively "Fixtures"), shall be and remain a
part of the Premises, shall be deemed the property of Landlord as of the date
such Fixtures are completed, attached to or built into the Premises and shall
not be removed by Tenant. Fixtures shall include electrical, plumbing, heating
and sprinkling equipment, fixtures, outlets, venetian blinds, partitions,
except for movable partitions, gates, doors, vaults, paneling, molding,
shelving, radiator enclosures, cork, rubber, linoleum and composition floors,
ventilating, silencing, air conditioning and cooling equipment except for
cooling equipment which is attached to or used in
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Tenant's manufacturing projects, and all fixtures, equipment and appurtenances
of a similar nature or purpose. Any Alterations which shall involve the
removal of any Fixtures shall be promptly replaced, at Tenant's expense and
free of superior title, liens, security interests and claims, with like
property, of at least equal quality and value. Notwithstanding the foregoing,
Tenant shall be required to remove at the end of the Term of this Lease, at the
written request of Landlord, all those Alterations which are first installed
subsequent to the Commencement Date provided that such Alterations (i) are not
reasonably consistent with the type of improvements comprising the Buildings as
of the Commencement Date; (ii) require Landlord's consent, if Landlord, at the
time it gives such consent, expressly requires in writing removal or restoration
of such Alterations; or (iii) are not substantially similar to the existing
tenant improvements. In no event shall Tenant be required to remove any tenant
improvements located on the Property as of the Commencement Date. Any
Alterations and Fixtures not removed by Tenant at the end of the Term of this
Lease shall become property of the Landlord. Except as otherwise provided in
this Lease, to the extent Tenant is required to remove any Alterations or
Fixtures, Tenant shall promptly repair any damage caused to the Premises by such
removal and restore the Premises to its original condition reasonable wear and
tear and damage by casualty and condemnation excepted.
17. Assignment and Sublease.
(a) Tenant may only with the prior written consent of the Landlord,
which shall not be unreasonably withheld, delayed or qualified, assign this
Lease or sublet the whole or any part of the Property or grant a license to use
a portion of the Property. Notwithstanding any provision to the contrary, it
is expressly understood and agreed to between the parties that Tenant without
the prior written consent of Landlord can grant use rights to others in
connection with its operations and services provided that such persons who are
granted these use rights comply with the provisions of this Lease. It is
expressly understood and agreed to between the parties that such users do not
have any rights under this Lease.
(b) Any assignment of this Lease or any sublease of the Premises or
the grant of any license shall not relieve Tenant of any of its obligations
under this Lease.
(c) Landlord's failure to respond within twenty (20) days after
receipt of Tenant's request and the information specified in Paragraph 17 (a)
(iv) shall be deemed approval of the proposed assignment or sublease or license.
(d) The consent of the Landlord need not be obtained if the
assignment or sublease or license is to any present or future successor or
affiliate (including any wholly-owned subsidiary
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thereof) of Tenant, or to any unaffiliated new entities that may be formed by
Tenant pursuant to a public offering, asset sale or any other type of
reorganization, including any successor entity or subsidiary or affiliated
entity thereof (collectively a "Tenant Affiliate"). For purposes of this
Lease, the term Tenant Affiliate shall include any affiliate as such term is
defined in The Securities Act of 1933 and the regulations promulgated
thereunder and any successor to Tenant resulting from a merger or corporate
reorganization so long as substantially all of the assets of Tenant are owned by
such successor to Tenant. Tenant shall give Landlord written notice of any
assignment to a Tenant Affiliate, including the effective date of the
assignment ("Effective Date"). Landlord acknowledges that the Premises may be
occupied by one or more Tenant Affiliates and their employees and that such use
of the Premises shall not be considered an assignment or sublease, unless Tenant
elects to treat it as such. Any of Landlord's representations, warranties,
covenants, agreements, guarantees and indemnities made for the benefit of
Tenant or any rights or privileges granted by Landlord to Tenant shall also
inure to the benefit of such Tenant Affiliates and their employees.
Notwithstanding anything in this subparagraph (d) to the contrary, Tenant's
rights granted under this subparagraph (d) may not be exercised by Tenant if
there is a monetary default by Tenant under this Lease beyond any applicable
grace and cure period or if there is a non-monetary default beyond any
applicable grace and cure period under this Lease on behalf of Tenant and
Tenant has not commenced to cure such non-monetary default and is diligently
proceeding to effect such cure.
(e) Tenant agrees that it shall not without the prior written consent
of Landlord mortgage or pledge as collateral its interest in this Lease.
(f) Notwithstanding any provision in this Paragraph 17 to the
contrary, Tenant shall not have the right to assign or sublease all or any
portion of the Premises to any party pursuant to an agreement that extends the
term of the Lease beyond the Expiration Date including any consensual voluntary
termination evidenced by a termination of Lease signed by both Tenant and
Landlord. Additionally, the consent by Landlord to any assignment or sublet
requiring Landlord's consent shall not be construed as a waiver of Landlord's
right to consent to any future subletting or assignment.
18. Damage or Destruction.
(a) If the Premises shall be so damaged by fire, other casualty, acts
of God or the elements (a "Casualty") so that they cannot be restored or made
suitable for Tenant's business needs within one hundred eighty (180) days from
the date of the Casualty ("Substantial Damage"), then either Landlord or Tenant
may terminate this Lease by written notice given to the other party
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within sixty (60) days after the date of the Casualty. If the Lease is so
terminated, the termination shall be effective as of the date of the Casualty
and the Rent shall abate from that date, and any Rent paid for any period beyond
such date shall be refunded to Tenant. In addition, Landlord shall have the
right to terminate this Lease in the event of any casualty occurring during the
last year of this Lease unless Tenant exercises an option to extend the term of
the Lease in accordance with the provisions set forth hereinabove, or if the
Lender who has a mortgage encumbering the Property elects to apply the insurance
proceeds in order to reduce the outstanding principal balance of the loan
secured by a mortgage on the Property. Notwithstanding anything herein to the
contrary, if the casualty is caused by the gross negligence or willful
misconduct of Tenant or its employees, agents, guests or invitees, Tenant shall
not have the right to terminate the Lease in accordance with this subparagraph
(a); provided, however, Landlord shall use its best efforts to restore the
Premises as soon as reasonably possible. Additionally, if the casualty was
caused by Tenant in accordance with the standards set forth in the preceding
sentence, Tenant shall be required to pay for restoration costs not covered by
insurance, including any deductible; provided, however, the obligation of Tenant
to pay any amounts pursuant to this sentence shall not exceed Two Hundred
Thousand and no/100 Dollars ($200,000.00). Finally, Tenant shall not have the
right to terminate this Lease pursuant to this subparagraph (a) if at the time
Tenant attempts to terminate this Lease, there exists a monetary default on
behalf of Tenant beyond any applicable grace and cure period or there exists any
non-monetary default on behalf of Tenant beyond any applicable grace and cure
period for which Tenant has not commenced to cure and is diligently thereafter
processing such cure; provided, however, if as a result of the casualty, Tenant
cannot reasonably be expected to commence and prosecute the cure of a
non-monetary default, then Tenant shall then be entitled to terminate this Lease
pursuant to the provisions of this subparagraph (a).
(b) If this Lease is not terminated as provided in Paragraph 18 (a),
then Landlord shall, at its sole cost and expense, restore the Premises as
speedily as practical to the condition existing prior to the Casualty. During
the restoration period, the Rent shall abate for the period during which the
Premises are not suitable for Tenant's business needs. If only a portion of the
Premises is damaged, the Rent shall abate proportionatly based upon the square
footage of the Premises that are not damaged by the casualty.
(c) if Landlord, subject to Force Majeure not to exceed one hundred
twenty (120) days, and subject to any delays occasioned by Tenant's actions or
inactions or the actions or inactions of Tenant's agents or employees, does not
restore the Premises as required in Paragraph 18 (b) within one hundred eighty
(180) days after the date of the Casualty, Tenant may terminate this Lease
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without incurring any liability to Landlord subsequent to the Casualty,
provided (i) Tenant gives Landlord not less than thirty (30) days prior written
notice, and (ii) Landlord does not complete the restoration during such thirty
(30) day period.
19. Eminent Domain.
(a) If there is a taking of the Property or the Premises by right or
threat of eminent domain (a "Taking") which results in the remainder of the
Premises being unable to be restored to a condition suitable for Tenant's
business needs within one hundred eighty (180) days from the date possession is
taken by the condemning authority ("Substantial Taking"), this Lease shall
terminate. In such event, the Rent shall abate from the date of the Taking, and
any Rent for any period beyond such date shall be returned to Tenant.
(b) If there shall be a Taking which does not constitute a
Substantial Taking, this Lease shall not terminate but Landlord shall, at its
sole cost and expense, with due diligence, restore the Premises as speedily as
practical to its condition before the Taking. During the restoration period,
the Rent shall abate for the period during which the Premises are not suitable
for Tenant's business purposes. If only a portion of the Premises is taken, the
Rent shall abate proportionately based upon the square footage of the Premises
that are taken by the condemnation.
(c) Tenant shall not be entitled to any part of the payment or award
for a Taking, provided that Tenant may file a claim for any loss of Tenant's
Property; moving expenses; or for damages for cessation or interruption of
Tenant's business, provided such claim will not diminish Landlord's recovery.
20. Insurance.
(a) Landlord shall maintain, at its expense, during the Term, with
solvent and responsible companies, fire insurance, with standard "all risk"
coverage for the Property. Such coverage shall equal one hundred percent
(100%) of the replacement cost of the Buildings and any parking facility,
exclusive of excavation, footings and foundations.
(b) Landlord shall maintain, at its expense, during the Term, with
solvent and responsible companies, comprehensive general liability insurance
covering injuries occurring on the Property, which shall provide for a combined
coverage for bodily injury and property damage in an amount not less than Ten
Million Dollars ($10,000,000).
(c) Tenant shall maintain, at its expense, during the Term,
comprehensive general liability insurance for the Premises in a combined
coverage for bodily injury and property damage in an
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amount not less than Ten Million Dollars ($10,000,000). Tenant shall name
Landlord, and any mortgagee of which Landlord has advised Tenant, as additional
insureds under such policy.
(d) Tenant shall maintain such worker's compensation insurance as is
required by applicable law.
(e) The policy or policies evidencing such insurance for Paragraphs 20
(a), (b) and (c) shall provide that they may not be canceled or amended without
thirty (30) days prior written notice being given to the party for whose benefit
such insurance has been obtained. Prior to the Commencement Date, each party
shall submit to the other insurance certificates demonstrating the required
policies are in effect.
21. Subrogation and Waiver.
The parties release each other and their respective authorized
representatives from any claims for injury to any person or damage to the
Property that are caused by or result from risks insured against under any all
risk or fire insurance policies carried by either of the parties. Each party to
the extent possible shall obtain, for each policy of insurance, provisions
permitting waiver of any claim against the other party for loss or damage within
the scope of the insurance and each party to the extent permitted, for itself
and its insurer, waives all such insured claims against the other party. If such
waiver or agreement shall not be, or shall cease to be, obtainable without
additional charge or at all, the insured party shall so notify the other party
promptly after notice thereof. If the other party shall agree in writing to pay
the insurer's additional charge therefor, such waiver or agreement shall (if
obtainable) be included in the policy.
22. Indemnity.
(a) Tenant shall defend, indemnify and save harmless the Landlord, its
affiliates, agents, employees, guests and invitees, and their officers,
directors, shareholders and partners, against all claims, liabilities, losses,
fines, penalties, damages, costs and expenses (including reasonable attorneys'
fees and other costs of litigation) because of injury, including death, to any
person, or damage or loss of any kind to any property caused by any action or
omission of Tenant or Tenant's agents, employees, guests or invitees, or any
failure on the part of Tenant to perform its obligations under this Lease,
except to the extent caused by the negligence or willful misconduct of Landlord,
or its employees, contractors, agents or representatives.
(b) Landlord shall defend, indemnify and save harmless the Tenant and
Tenant Affiliates, agents, employees, guests and invitees, their officers,
directors, shareholder and
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partners, against all claims, liabilities, losses, fines, penalties, damages,
costs and expenses (including reasonable attorneys' fees and other costs of
litigation) because of injury, including death, to any person, or damage or loss
of any kind to any property caused by any action or omission of Landlord or
Landlord's agents, employees, guests or invitees, or any failure on the part of
Landlord, to perform its obligations under this Lease, except to the extent
caused by the negligence or willful misconduct of Tenant, or is employees,
contractors, agents or representatives.
23. Interruption of Services.
If Landlord fails to deliver electricity, chilled water, potable water
and sewer, and such failure continues for seven (7) consecutive calender days in
any one-month period, after Tenant's written notice to Landlord specifying the
nature of the such failure and such failure is not caused by (i) Tenant or the
agents, contractors or employees of Tenant, (ii) by an event of force majeure as
defined in Paragraph 55 hereof, or by acts of the ultimate third party supplier
of such services, Tenant shall have the right to abate Rent commencing on the
eighth (8th) day that such services are interrupted until such interrupted
services are fully restored.
24. Subordination and Non-Disturbance.
Tenant's interest in this Lease shall be subordinate to the lien of
any mortgage or deed of trust which may now or hereafter be placed on the
Property provided that Landlord supplies Tenant with an acceptable form of
Subordination, Non-Disturbance and Attornment Agreement from any present and
future mortgagee, trustee, fee owner, prime lessor or any person having an
interest in the Premises. Attached hereto as Exhibit "E" is an acceptable form
of Subordination, Non-Disturbance and Attornment Agreement.
25. Landlord's Right of Entry.
(a) Landlord has the right to enter the Premises at any reasonable
time upon twenty-four (24) hours prior written notice to Tenant, or without
notice in case of emergency, for the purpose of performing maintenance, repairs,
and replacements to the Premises as are permitted under this Lease.
(b) Upon reasonable notice to Tenant and subject to Tenant's standard
security check, Landlord may, during the Term, show the Premises to prospective
purchasers and mortgagees, and, during the nine (9) months prior to expiration
of this Lease, to prospective tenants.
(c) In exercising its rights under this Paragraph, Landlord shall not
materially interfere with or disrupt the normal
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operation of Tenant's business. Landlord, and any third parties entering the
Premises at Landlord's invitation or request shall at all times strictly
observe Tenant's rules relating to security on the Premises. Tenant shall have
the right, in its sole discretion, to designate a representative to accompany
Landlord, or any third parties, while they are on the Premises.
26. Parking Facilities.
Tenant, its employees, agents, customers and visitors shall have the
exclusive right to use the 684 parking spaces located on Lot 4, Lot 5, Lot 6
and a portion of Lot 3 all as graphically described on Exhibit F attached
hereto (the "Exclusive Parking Area"). Tenant, its employees, agents, customers
and visitors shall also have the exclusive right to use the 81 parking spaces
located and designated for such use on Lot 3 until such time as another tenant
located in buildings A through F of the Technology Park requires the use of
such parking space. Finally, Tenant, its employees, agents, customers and
visitors shall have the exclusive right to use the 216 parking spaces located
and designated for such use on Lot 3 (the "216 Parking Spaces") unless within a
period of three (3) years from the "Effective Date" another tenant in buildings
A through F of the Technology Park requires the use of such parking space or if
any governmental authority having land use regulatory authority over the
Technology Park determines buildings A through F require Landlord and its
tenants in those buildings to have access to more parking spaces. In that
event, Tenant shall have the option of either (i) giving such tenant in
Buildings A through F the right to use such portion of the 216 Parking Spaces
that such tenant requires or (ii) pay for the construction costs of such
parking spaces that the tenant of buildings A through F requires not to exceed
216 Parking Spaces and at a rate not to exceed One Thousand and 00/100 Dollars
($1,000.00) per parking space of (iii) giving such tenant a portion of the 216
Parking Spaces and paying for the remaining spaces that such tenant requires at
a rate not to exceed One Thousand and 00/100 Dollars ($1,000.00). All parking
shall be provided at no cost to Tenant during the Term. Tenant agrees that
notwithstanding any provision to the contrary, Tenant, its employees, agents,
customers and visitors shall not park in any other areas of the Technology Park.
27. Signs.
Landlord shall place the Tenant's name and location on the bulletin
board or directory in the Technology Park, and afford Tenant, without charge,
the placing of the customary number of names in the Technology Park directory.
If customary in the Technology Park Tenant shall be permitted to place its name
on the exterior doors or other locations on the Buildings. Tenant shall be
entitled to have an outdoor sign identifying Tenant placed on the Property at a
location reasonably acceptable to Landlord, at Tenant's sole cost and expense,
and in compliance with
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applicable Legal Requirements. Tenant shall also be entitled to continue to
have and maintain its sign on Ulmerton Road (in the same location as said sign
currently exists provided that the applicable governmental authorities permit
the Location of such signs) and the directional signs within the Technology
Park which give direction to the Buildings. Directional signs for Tenant within
the Technology Park shall not be relocated or altered without Tenant's prior
approval, which shall not be unreasonably withheld. Notwithstanding anything in
this paragraph 27 to the contrary, Landlord shall have the right to construct a
monument sign for the Technology Park so long as Tenant is provided top of
monument space if Tenant is leasing the same amount or more space than Tenant
leased at the Commencement Date. In such event, Landlord shall have the right
to remove the signage on Ulmerton Road at Landlord's sole cost and expense.
Additionally, Landlord shall have the right to replace the directional signs
within the Technology Park so long as such new directional signs still provide
directions to the Buildings and the design and location of such new directional
signs are approved by Tenant, which approval shall not be unreasonably withheld,
conditioned or delayed.
28. Rules and Regulations.
Tenant agrees to comply with all reasonable written rules and
regulations which the Landlord may establish for the protection and welfare of
the Tenant, the Building and all the other tenants and occupants, provided that
no rule or regulation shall be applied against Tenant which is not applied
against other tenants of the Technology Park and such rules and regulations
shall not unreasonably and materially interfere with Tenant's use of the
Premises. Tenant shall be given a copy of the rules at least ten (10) days
before they become effective. A copy of the current rules and regulations are
attached as Exhibit "G". In the event of a conflict between the rules and
regulations, and the provisions of this Lease, the provisions of this Lease
shall prevail.
29. Common Areas, Energy Center and Access.
(a) Tenant shall have full and unrestricted access to the Premises
at all times. Tenant shall have the non-exclusive right to use all Common Areas
and Landlord shall have the right to increase or decrease or reconfigure the
Common Areas, so long as the changes do not materially interfere with Tenant's
use of or access to the Property. Common Areas means all areas, facilities and
improvements provided in the Technology Park from time to time for the
convenience and use of tenants in the Technology Park and shall include, but not
be limited to, the parking areas and facilities, the Energy Center
and monitoring system for security purposes, sidewalks, landscaped areas, access
and interior roads and lighting facilities. If access to any public road,
including, without limitation, Ulmerton Road, 126th Avenue, and Starkey Road,
is via private roads or streets, Tenant shall have the right to use
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such private roads and streets for ingress to the Building and Premises and for
egress from the Building and Premises via such private roads or streets to all
public roads, including, without Limitation, Ulmerton Road, 126th Avenue, and
Starkey Road.
(b) Tenant shall continue to have the exclusive right for ingress to
and egress from the Property via 126th Avenue for Tenant and its employees,
agents, licensees and invitees. As part of Tenant's exclusive right of ingress
and egress via 126th Avenue, Tenant shall have the right to provide security
for such ingress and egress via 126th Avenue at Tenant's sole cost and expense
and to limit such access via 126th Avenue by the use of gates and such other
means as determined by Tenant in its sole discretion. Notwithstanding the
foregoing, Landlord shall have the right to redesign the access point via 126th
Avenue at Landlord's sole cost and expense. In the event Landlord elects to
redesign such access point, Landlord shall assume maintenance and operation
of the existing card entry system and in such event, Tenant's right to use such
access point shall be non-exclusive with the rights of other tenants of the
Technology Park. Notwithstanding anything herein to the contrary, Landlord's
redesign of the access point via 126th Avenue shall be subject to Tenant's
reasonable review and approval and shall be in compliance with all applicable
laws, rules and regulations.
(c) Landlord agrees that all improvements constructed within the
Common Areas of the Technology Park and the Property subsequent to the date
hereof by Landlord, its agents, employees or contractors and any alterations,
repairs and replacements of any such improvements, shall at all times comply
with all applicable Legal Requirements (including, if applicable, the Americans
with Disabilities Act) and that Landlord shall (i) obtain all necessary
municipal and other governmental permits, authorizations, approvals and
certificates for the construction or repair, alteration or replacement of any
such improvements, and (ii) cause all such improvements and repairs,
alterations or replacements thereof to be constructed in a good and workmanlike
manner.
30. Use of the Roof and Building Structure.
Subject to Landlord's prior written approval, which approval shall not
be unreasonably withheld, unreasonably conditioned or unreasonably delayed,
Tenant and Tenant Affiliates shall have the right to use a portion of the roof
of the Building and building structure and structures within reasonable
proximity of the Building for installation and use of one or more microwave
dishes or other communications radio antenna and associated equipment
("Communication Equipment"); provided, however, Tenant shall maintain, repair
and replace any Communication Equipment located on the Buildings and Property as
of the Commencement Date without obtaining Landlord's consent. Tenant shall have
no obligation to pay Rent for such right, but Tenant shall, at its
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sole cost and expense, maintain any Communication Equipment in good condition
and repair, and comply with the terms and conditions set forth on Exhibit "H"
for use of the roof and building structure. Tenant's installation and use of any
other microwave tower or other communication antenna and associated equipment
as contemplated in Paragraph 8 herein shall also be deemed to be Communication
Equipment under this Lease.
31. Tenant's Default: Rights and Remedies.
(a) The occurrence of any one or more of the following matters
constitutes an "Event of Default" by Tenant under this Lease:
(i) failure by Tenant to pay to Landlord Rent within ten (10)
days after receipt of written notice from Landlord of such failure to pay on the
due date; provided, however, in the event Landlord is required to deliver
written notice to Tenant to pay the Rent twice in any consecutive twelve (12)
month period, thereafter, Landlord shall not be obligated to provide written
notice to Tenant and it shall be an Event of Default for Tenant to fail to pay
said Rent on or before the tenth (10th) day of the month. Tenant shall have the
burden to prove that the Rent was sent to Landlord by some verifiable fashion
(verifiable fashion shall only mean obtaining a federal wire transfer number, or
possessing a receipt from an overnight courier. So long as Tenant can establish
that the Rent was sent in some verifiable manner, it shall not be an Event of
Default hereunder if Landlord has not actually received said Rent on or before
the tenth (10th) day of each month; however, Tenant shall be obligated to make
certain that the Rent is paid to Landlord within two (2) business days of the
date that Landlord notifies Tenant by telephone or mail that Tenant did not
receive such payment. Tenant designates James Slattery, whose address is 8545
126th Avenue, Largo, Florida 33773, as the person who is to receive notice under
this Paragraph on Tenant's behalf. Tenant may choose the person who is to
receive notice under this Paragraph by giving Landlord written notice or such
change;
(ii) failure by Tenant to observe or perform any other covenant,
agreement, condition or provision of this Lease, if such failure continues for
thirty (30) days after receipt of written notice from Landlord to Tenant,
except that if the default cannot be cured within the thirty (30) day period,
it shall not be considered an Event of Default if Tenant commences to cure such
default within such thirty (30) day period and proceeds diligently thereafter
to seek to effect such cure;
(iii) the entry against Tenant of a decree or order for relief
in an involuntary case under the federal bankruptcy, laws (as now or hereafter
constituted) or any other applicable federal or state bankruptcy, insolvency or
other similar
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law, or the appointment of a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or similar official) for Tenant or for any substantial part of
Tenant's property, or an order for the winding-up or liquidation of Tenant's
affairs which proceeding is not dismissed within one hundred eighty (180) days;
(iv) the commencement by Tenant of a voluntary case under the
federal bankruptcy laws (as now constituted or hereafter amended) or any other
applicable federal or state bankruptcy, insolvency, or other similar law or the
taking of corporate action by Tenant in furtherance of any of the foregoing;
(v) entry of a judgment against the Tenant in excess of
$500,000.00 which judgment is no longer subject to appeal and which judgment
remains unsatisfied for thirty (30) days after receipt of written notice from
Landlord to Tenant requiring that such judgment be satisfied;
(vi) appointment of a receiver for all or substantially all of
Tenant's assets which receiver is not discharged within thirty (30) days of
written notice from Landlord to Tenant;
(vii) Tenant's abandonment of the Premises for more than thirty
(30) consecutive days;
(viii) seizure of a material portion of Tenant's personal
property located on or at the Premises.
(b) If an Event of Default by Tenant occurs beyond any applicable
grace and cure period, Landlord may do any of the following:
(i) terminate this Lease, in which event the Term shall end, and
all right, title and interest of the Tenant hereunder shall expire, on the
date stated in such notice;
(ii) Landlord may terminate the right of the Tenant to possession
of the Premises without terminating the Lease and Landlord, on Tenant's behalf,
without termination of this Lease, may at Landlord's option, evidenced by
written notice to Tenant, terminate Tenant's right to possession and enter upon
and re-let the Premises at the price obtainable by reasonable effort, without
advertisement, and by private negotiations and for any term Landlord deems
proper. If Landlord retakes possession of the Premises for its own account or
for the account of Tenant, Landlord shall exercise good faith efforts in
attempting to relet the Premises to mitigate damages. Tenant shall upon receipt
of such notice surrender possession of the Premises to Landlord and remove all
of Tenant's effects therefrom; and Landlord may forthwith re-enter the Premises
and repossess itself thereof; and remove all persons and effects therefrom in
accordance with applicable law.
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Tenant shall be liable to Landlord for the deficiency, if any, between the
amount of all Rent reserved in this Lease and the net rent, if any, collected
by Landlord in reletting the Premises (the "Net Rent"), which deficiency shall
be due and payable by Tenant for the period in which Rent reserved in the Lease
would have been due and payable. Net Rent shall be computed by deducting from
gross rents collected all reasonable expenses or costs of whatsoever nature
incurred by Landlord in reletting the Premises, including, but not limited to
attorneys' fees incurred in retaking possession of the Premises and/or
negotiating a new lease for the Premises, broker's commissions with respect to
the reletting of the Premises only, rent concessions with respect to the
Premises only and the cost of renovating or remodeling Premises.
(iii) Landlord may declare immediately due and payable all Fixed
Rent which aggregate amount shall be discounted to present value at a discount
rate equal to the Interest Rate, in which event, upon payment of the
accelerated rent, Tenant shall have the right to remain in possession of the
Property for the remaining term of this Lease; or
(iv) Landlord may pursue any other remedies which may be
available to it from time to time under Florida law.
(c) If Landlord elects to terminate this Lease and the Term and
estate hereby granted shall terminate for an Event of Default as provided in
Paragraph 31(b), then
(i) Landlord and Landlord's agents may thereupon re-enter the
Premises or any part thereof by summary proceedings or by any other applicable
proceeding and may repossess the Premises and dispossess Tenant and any other
persons therefrom and remove any and all of its or their property and effects
from the Premises, and
(ii) Landlord, at its option, may relet the whole or any part of
the Premises from time to time, either in the name of Landlord or otherwise, to
such tenant(s), for such term(s) ending before, on or after the Expiration Date,
at such rental(s) and upon such other conditions, which may include concessions
and free rent periods, as Landlord may reasonably determine to be necessary.
Landlord shall use reasonable efforts to relet the Premises or parts thereof.
Landlord may make such repairs, improvements, alterations, additions,
decorations and other physical changes in and to the Premises as Landlord, in
its reasonable discretion, considers advisable or necessary in connection with
any such reletting or proposed reletting, without relieving Tenant of any
liability under this Lease or otherwise affecting any such liability.
(d) Should this Lease be terminated as provided in Paragraph 31(c),
or by or under any other proceeding, or if
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Landlord shall re-enter the Premises, Landlord shall be entitled to recover,
and Tenant shall pay, as and for agreed damages therefor, the then cost of:
(i) restoring the Premises to the same condition as that in
which Tenant has agreed to surrender them to Landlord on the Expiration Date;
and
(ii) completing in accordance with this Lease any improvements to
the Premises or for any part thereof.
(e) if an Event of Default by Tenant or any person claiming through
or under Tenant of any of the terms of this Lease should occur, Landlord shall
be entitled to seek to enjoin such default and shall have the right to invoke
any right allowed at law or in equity, by statute or otherwise, as if re-entry,
summary proceedings or other specific remedies were not provided for in this
Lease, except that Landlord shall not have any right to place a lien on any of
Tenant's Property and Landlord expressly waives and releases any right to
obtain such lien.
(f) Should this Lease be terminated by Landlord as provided herein,
(i) Tenant shall pay to Landlord all Rent to the date upon which
this Lease shall have been terminated.
(ii) Tenant shall be liable for and shall pay to Landlord, as
damages, any deficiency between (A) the rent that would have been payable
hereunder for the period which otherwise would have constituted the unexpired
portion of the Term and (B) the net amount, if any, of rents ("Net Rent")
collected under any reletting effected pursuant to the provisions of this
Paragraph 31 for any part of such period (first deducting from the rents
collected under any such reletting all of Landlord's expenses in connection with
the termination of this Lease or Landlord's re-entry, including all repossession
costs, brokerage commissions, legal expenses, alteration costs and other
expenses of preparing the Premises for such reletting).
(g) Whether or not Landlord shall have collected any monthly
deficiencies as provided in Paragraph 31(f), Landlord shall be entitled to
recover from Tenant, and Tenant shall pay Landlord, on demand, as liquidated
damages and not as a penalty, a sum equal to the amount by which (A) the Fixed
Rent and Additional Rent payable hereunder for the period ending on the
Expiration Date and beginning on the latest of the date of termination of this
Lease, the date of re-entry by Landlord or the date through which monthly
deficiencies shall have been paid in full exceeds (B) an amount equal to the
then fair and reasonable rental value of the Premises for the same period, both
amounts discounted to present value at the Interest Rate. If, before
presentation of proof of such
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liquidated damages to any court, commission or tribunal, the Premises or any
part thereof shall have been relet by Landlord for the period which otherwise
would have constituted all or any part of the unexpired portion of the Term,
the amount of rent upon such reletting shall be deemed, prima facie, to be the
fair and reasonable rental value for the part or the whole of the Premises (as
the case may be) so relet during the term of such reletting.
(h) In no event shall Tenant be entitled (A) to receive any excess of
any Net Rent under Paragraph 31(f) over the sums payable by Tenant to Landlord
hereunder or (B) in any suit for the collection of damages pursuant to this
Paragraph 31 to a credit in respect of any Net Rent from a reletting except to
the extent that such Net Rent is actually received by Landlord. Should the
Premises or any part thereof be relet in combination with other space, then
proper apportionment on a square foot area basis shall be made of the rent
received from such reletting and the expenses of reletting.
(i) If Landlord spends any money to cure such Event of Default by
Tenant, then Landlord shall also be entitled to interest on such expenditure at
the Interest Rate.
(j) Nothing contained herein shall be construed as limiting or
precluding the recovery by Landlord from Tenant of any sums or damages to
which, in addition to the damages particularly provided above, Landlord may
lawfully be entitled by reason of any default hereunder on the part of Tenant.
32. Technology Park and Building Security.
Landlord shall have the obligation as part of its services to provide
reasonable security for the Common Areas of the Technology Park.
Notwithstanding Landlord's obligation to provide security for the Common Areas
of the Technology Park, Landlord cannot guaranty the efficacy of such security
and Tenant will not hold Landlord responsible for theft, vandalism or other
crimes occurring within the Technology Park. Tenant shall have the
responsibility for providing security service, at its cost, for access to the
Premises and for the Buildings. Any security services provided by Tenant for
Tenant's benefit, shall not be deemed to be a security service for any other
tenant of the Technology Park or for Landlord, but shall be provided for
Tenant's sole benefit.
33. Landlord's Default; Rights and Remedies.
(a) The occurrence of the following constitutes an "Event of Default"
by Landlord under this Lease:
Failure by Landlord to observe or perform any covenant, agreement,
condition or provision of this Lease, if such failure
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shall continue for thirty (30) days after receipt of written notice from Tenant
to Landlord, except that if such default cannot be cured within such thirty
(30) day period, it shall not be considered an Event of Default if Landlord
commences to cure the default within the thirty (30) day period and proceeds
diligently thereafter to seek to effect such cure. Notwithstanding the
foregoing, in the event of an emergency, Tenant shall have the obligation to
notify Landlord of the emergency if it is reasonably feasible to do so under
the circumstances which notice can be by telephone or in writing or in person
and thereafter to immediately commence to correct such emergency situation.
Landlord designates Norman Mansour, Florida Real Estate Advisors, whose
telephone number is (813) 286-2856, as the person who is to receive notice
under this Paragraph. Landlord may change the person who is to receive notice
under this Paragraph by giving Tenant written notice of such change.
(b) If an Event of Default by Landlord occurs which has not been
cured, or which Landlord has not commenced to cure, within thirty (30) days
after notice of such default has been delivered to Landlord or if Landlord does
not diligently and continuously prosecute such cure, then in that event,
Tenant shall have the right, but not the obligation, to spend such amount as is
reasonable and necessary to cure such Event of Default. If Tenant spends any
money to cure such Event of Default by Landlord, then Tenant shall also be
entitled to interest on such expenditure at the Interest Rate.
(c) If an Event of Default by Landlord occurs, Tenant shall have all
rights and remedies available at law or in equity, plus interest on such
expenditure at the Interest Rate. Landlord's liability for any Event of Default
by Landlord under this Lease shall be limited to Landlord's equity in the
Technology Park. Additionally, upon any sale or other transfer of the
Technology Park to an unrelated third party, Landlord shall be relieved of all
obligations arising under this Lease from and after the date title to the
Technology Park transfers of record to the unrelated third party.
34. Waiver of Landlord's Lien.
Landlord hereby waives any right it may have by law, contract or
otherwise, to a lien upon Tenant's Property or any other property owned or
controlled by Tenant within the Technology Park, including, without limitation,
the Premises. Notwithstanding anything in this Lease to the contrary, Tenant
shall have the right to encumber its leasehold interest in the Lease and if the
leasehold interest is foreclosed or transferred in lieu of foreclosure, the
successful bidder or purchaser shall be deemed to be approved by Landlord to
the same extent as a Tenant Affiliate.
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35. Holding Over.
Should Tenant remain in possession of the Property after the
expiration of this Lease with Landlord's consent, Tenant shall be a tenant from
month-to-month of the Property, under all the terms and conditions of this
Lease for the first thirty (30) days of the holdover and thereafter at a Fixed
Rent of one hundred fifty percent (150%) of the then applicable Fixed Rent
prorated on a daily basis. Such month-to-month tenancy may be terminated by
either Landlord or Tenant as of the end of any calendar month upon at least
thirty (30) days prior written notice. Should Tenant remain in possession of
the Property after the expiration of this Lease without Landlord's consent,
Landlord shall have all rights and remedies permitted by law with respect to
evicting Tenant or permitted under this Lease with respect to other remedies of
Landlord for Tenant's Default; however, notwithstanding any provision to the
contrary, Landlord shall not be entitled to recover from Tenant more than one
hundred fifty percent (150%) of the then applicable Fixed Rent prorated on a
daily basis for the holdover period.
36. Quiet Enjoyment.
Landlord covenants that if and for so long as Tenant pays the Rent and
performs the covenants and conditions hereof, Tenant shall peaceably and
quietly have, hold and enjoy the Premises for the Term against any and all
claims arising out of persons claiming by or through Landlord.
37. Mutual Representation of Authority.
(a) Landlord and Tenant represent and warrant to each other that they
have full right, power and authority to enter into this Lease without the
consent or approval of any other entity or person and each party makes these
representations knowing that the other party will rely thereon.
(b) The signatories on behalf of Landlord and Tenant further
represent and warrant that each has full right, power and authority to act for
and on behalf of Landlord and Tenant in entering into this Lease.
38. Real Estate Brokers.
(a) Tenant represents that Tenant has dealt directly with and only
with Granite Partners, Inc. (the "Listed Broker") (whose commission shall be
paid by Tenant pursuant to separate agreement), in connection with this Lease
and agrees to defend, indemnify and save harmless Landlord against all claims,
liabilities, losses, damages, costs and expenses (including reasonable
attorneys' fees and other costs of defense) arising from Tenant's breach of
this representation.
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(b) Landlord represents that Landlord has not dealt with any broker
in connection with the execution of this Lease and Landlord agrees to defend,
indemnify and save harmless Tenant against all claims, liabilities, losses,
damages, costs and expenses (including reasonable attorneys' fees and other
costs of defense) arising from Landlord's breach of this representation.
39. Business Hours.
(a) "Business Hours" shall mean twenty-four (24) hours a day,
including Saturdays and Sundays.
(b) During Business Hours, Tenant shall have unrestricted access to
the Premises, and Landlord shall furnish, without extra charge, all services
and utilities required under this Lease.
40. Attorneys' Fees.
In the event either party institutes legal proceedings against the
other for breach of or interpretation of any of the terms, conditions or
covenants of this Lease, the party against whom a judgement is entered shall
pay all reasonable costs and expenses relative thereto, including reasonable
attorneys' fees and paralegals' fees and costs of the prevailing party whether
incurred at trial, on appeal or in bankruptcy and/or administrative proceedings.
41. Estoppel Certificate.
(a) Tenant agrees, upon not less than twenty (20) days prior written
request by Landlord, to deliver to Landlord a statement in writing signed by
Tenant certifying (i) that this Lease is unmodified and in full force and
effect (or if there have been modifications, identifying the modifications);
(ii) the date upon which Tenant began paying Fixed Rent and the dates to which
the Fixed Rent has been paid; (iii) that, to the best of Tenant's knowledge,
the Landlord is not in default under any provision of this Lease, or, if in
default, the nature thereof; (iv) that there has been no prepayment of Fixed
Rent other than that provided for in this Lease; and (v) such other information
as Landlord may reasonably request. Said estoppel certificate may be relied
upon by Landlord's mortgagee or a potential purchaser of the Technology Park.
Tenant also agrees to provide Landlord with current financial statements of
Tenant upon the request of Landlord; provided, Landlord shall not make such a
request more than once a year.
(b) Landlord, upon not less than twenty (20) days prior written
request from Tenant, shall furnish a statement in writing to Tenant covering
the matters set forth in Paragraph 40(a), to the extent applicable to Landlord.
40
<PAGE> 45
42. Recordable Memorandum.
Landlord and Tenant agree not to record this Lease, but each party
agrees, upon request by the other, to execute a memorandum of this Lease in
recordable form and in the form attached hereto as Exhibit "I". If requested
by Landlord, Tenant agrees to execute and deliver to Carlton, Fields, Ward,
Emmanuel, Smith & Cutler, to hold in escrow, a termination of the memorandum of
lease, the form of which termination is attached hereto as Exhibit "J".
43. Option to Renew.
(a) Landlord hereby grants to Tenant the exclusive and irrevocable
option to renew this Lease for two (2) additional terms of five (5) years each
by giving Landlord written notice at least twelve (12) months prior to the
Expiration Date of the Primary Term or any applicable renewal period.
(b) The renewal shall be on the same terms and conditions as this
Lease, except that the Fixed Rent shall be ninety-five percent (95%) of Fair
Market Rent. "Fair Market Rent" shall mean (i) rent in comparable buildings in
the relevant competitive market including concessions offered to new tenants
such as free rent, tenant improvement allowances, moving allowances and other
such concessions which rent shall be calculated on a net lease basis; (ii) the
amount of space and length of term taken by the Tenant; and (iii) the credit
worthiness and quality of the Tenant.
(c) Within thirty (30) days after Tenant exercises its option to
renew, Landlord will advise Tenant of its determination of Fair Market Rent for
the renewal term. If Landlord and Tenant cannot agree on the rental rate for
the renewal term within thirty (30) days of the date that Landlord provides
Tenant with Landlord's determination of Fair Market Rent, then within thirty
(30) days after such failure to reach agreement, Landlord shall furnish to
Tenant a notice in writing ("Landlord's Rental Notice") stating what Landlord
perceives to be in Fair Market Rent projected to the commencement date of the
renewal term. Landlord's Rental Notice shall be accompanied by an opinion from
a Qualified Real Estate Appraiser stating the appraiser's opinion of Fair
Market Rent and that it has been determined in accordance with this Paragraph.
(d) If Tenant disagrees with the estimate of Fair Market Rent
submitted by Landlord with Landlord's Rental Notice, then within thirty (30)
days after receipt of Landlord's Rental Notice, Tenant shall have the right to
submit to Landlord an appraisal by a Qualified Real Estate Appraiser of Fair
Market Rent effective as of the commencement date of the renewal term. If the
higher estimate is not more than one hundred five percent (105%) of the lower
estimate, the Fair Market Rent shall be established as the
41
<PAGE> 46
average of the two appraisals. If the higher estimate is more than one hundred
five percent (105%) of the lower estimate, the two appraisers acting on behalf
of Landlord and Tenant, shall, within fifteen (15) days after Tenant's
appraisal has been submitted, jointly appoint a third Qualified Real Estate
Appraiser (the "Referee"). If the two appraisers are unable to agree upon the
selection of a Referee, then the Referee shall be selected within fifteen (15)
days thereafter by an arbitrator pursuant to the rules of the American
Arbitration Association.
(e) The Referee shall, within thirty (30) days after appointment,
render his decision, which decision shall be strictly limited to choosing one
of the two determinations made by the two appraisers chosen by Landlord and
Tenant with respect to Fair Market Rent. The decision of the Referee shall be
binding upon Landlord and Tenant and shall constitute the Fixed Rent for the
applicable renewal term. Landlord and Tenant shall each pay for their own
appraisal, and the cost of the Referee shall be shared equally by Landlord and
Tenant.
(f) As used in this Paragraph, the term "Qualified Real Estate
Appraiser" shall mean an appraiser who has at least five (5) years' full time
commercial appraisal experience in the area in which the Premises are located.
(g) Notwithstanding anything herein to the contrary, Tenant shall not
have the right to exercise the option to renew granted pursuant to this
Paragraph 43 if at the commencement of the Renewal Term or at the time the
Option was exercised there exists either (i) a monetary default which has not
been cured by Tenant beyond any applicable grace and cure period, or (ii) there
exists a non-monetary default beyond applicable grace and cure periods and
Tenant has either (a) not as of such date commenced to cure such non-monetary
default or (b) is not diligently proceeding to cure such default in a
reasonable manner.
44. Right of First Opportunity and Restriction on Sale and Lease.
(a) Except as provided hereinbelow, from and after the first
anniversary of the Commencement Date, Tenant shall have a right of first
opportunity to lease or purchase all or any part of the remaining space in any
other building within the Technology Park, whether such space now or hereafter
exists. In the event any premises become available (the "Remaining Premises")
for lease or purchase during the term ("Availability"), Landlord shall advise
Tenant in writing of such Availability and Landlord's intention to offer such
Remaining Premises to prospective tenants or buyers, as the case may be
("Landlord's Notice"), and shall furnish to Tenant all of the material terms
and conditions of such Availability. For purposes of this Paragraph 44,
material terms and conditions shall mean rental rates, tenant improvement
allowances, amount of
42
<PAGE> 47
Additional Rent and expense caps, if applicable, and proposed term.
Notwithstanding the foregoing, the right of first opportunity to lease or
purchase the portion of the Technology Park which consists of vacant land as of
the date hereof shall apply immediately upon the Commencement date and not
subsequent to the first anniversary of the Commencement Date.
(b) Tenant shall have the right, within ten (10) days after receipt
of Landlord's Notice, to exercise its right of first opportunity by giving
notice in writing to Landlord that it accepts the material terms an conditions
of the Availability. If Tenant fails to exercise its right of first opportunity
within ten (10) days of receipt of Landlord's Notice, the rights granted Tenant
under subparagraph (a) above shall terminate for a period of eighteen (18)
months and Landlord may market such Availability to other potential tenants or
purchasers. To the extent any of the Availability remains after such eighteen
months (18) period, and Landlord intends to continue offering such Availability
to prospective tenants and/or purchasers, Landlord shall again provide Tenant
with notice of such Availability in accordance with the provisions of Paragraph
44(a) above if the square footage of the Remaining Premises exceeds Ten
Thousand (10,000) square feet. If the square footage of the Remaining Premises
is less than Ten Thousand (10,000) square feet, then Landlord shall not be
required to offer the Remaining Premises to Tenant again. If Tenant exercises
its right of first opportunity, Landlord and Tenant shall enter into a final
agreement reflecting the terms, covenants and conditions of Tenant's lease or
purchase of the Remaining Premises within fifteen (15) days of Landlord's
receipt of Tenant's election to exercise its right of first opportunity.
Failure to agree on the final terms and conditions of the lease or sale of the
Remaining Premises within such fifteen (15) day period shall allow Landlord to
immediately market, sell or lease the Remaining Premises to third parties on
substantially the same terms offered to Tenant. For purposes of the preceding
sentence, substantially the same terms offered to Tenant shall mean that (i)
the length of the lease term offered to the third party is not ninety percent
(90%) or less than the lease term offered to Tenant; (ii) the rent or sales
price offered to the third party is not ninety (90%) or less than the rent or
sales price offered to Tenant; and (iii) any tenant improvement allowance,
concession or other economic incentives offered to the third party is not one
hundred ten percent (110%) or more than the tenant improvement allowance,
concession or other economic incentives offered to Tenant. Tenant shall have
the right to record a memorandum of this Right of Opportunity. In addition,
during the term of this Lease, the Landlord, its successors, assigns and
grantees cannot lease or sell any part or all of the Remaining Premises to a
materially direct and substantial competitor of Tenant in Tenant's primary
business. Tenant shall provide to Landlord at least one time per year during
the term of the Lease a list of its competitors. In addition, if Landlord is
in doubt as to whether a particular purchaser or Tenant
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<PAGE> 48
is a materially direct and substantial competitor of Tenant, Landlord may
request Tenant's approval of the prospective tenant or purchaser, as the case
may be, and Tenant agrees that it shall respond to any request delivered by
Landlord pursuant to this subparagraph 44(b) within five (5) business days of
receipt of request from Landlord. Notwithstanding anything herein to the
contrary, restriction on the Landlord, its successors, assigns and grantees, to
lease or sell all or any part of the Remaining Premises to a materially direct
and substantial competitor of Tenant in Tenant's primary business shall be null
and void, if at the time that Landlord attempts to lease or to sell any part or
all of the Remaining Premises to a materially direct and substantial
competitor of Tenant in Tenant's primary business if there exists either (i) a
monetary default which is not being cured by Tenant beyond any applicable grace
and cure periods or (ii) there exists a non-monetary default of a material
nature beyond any applicable grace and cure periods and Tenant has not either
(a) as of such date commenced to cure such non-monetary default or (b) is not
diligently proceeding to cure such defaults in a reasonable manner.
(c) Notwithstanding anything herein to the contrary, Tenant shall not
have the right to exercise the right of first opportunity granted pursuant to
this Paragraph 44 if at such time that it is notified of such availability or
upon the date Tenant is to commence leasing the Remaining Space or as of the
proposed sales date, as applicable, there exists either (i) a monetary default
which has not been cured by Tenant beyond any applicable grace and cure period,
or (ii) there exists a non-monetary default beyond applicable grace and cure
periods and Tenant has not either (a) as of such date commenced to cure such
non-monetary default or (b) is not diligently proceeding to cure such default
in a reasonable manner. In addition to the foregoing, the rights granted under
this Paragraph 44 shall terminate in the event Tenant assigns the Lease to an
entry other than a Tenant Affiliate.
(d) Notwithstanding the foregoing, the right of first opportunity for
purchase shall not apply with respect to a foreclosure or deed in lieu of
foreclosure whereby Lender, Lender's subsidiary, or a purchaser at the
foreclosure sale obtains title to the Remaining Premises; however, the right of
first opportunity of Tenant will apply to any new owner thereafter and any
subsequent sale or conveyance of the Remaining Premises.
45. New Building Rights of First Opportunity.
(a) At any time subsequent to the first anniversary of the
Commencement Date, Tenant shall have the right, at any time, or from time to
time, to request that Landlord construct a building on Landlord's property (the
"New Building") for lease by Tenant of all or a portion of the New Building by
sending Landlord written notice of Tenant's request (the "Tenant's Request to
Build"). Tenant's Request to Build shall also provide Landlord with the
material terms and conditions of Tenant's building requirements and lease or
purchase terms. Within twenty (20) days of Landlord's receipt of Tenant's
Request to Build, Landlord shall notify Tenant in writing whether it accepts or
rejects Tenant's Request to Build, which decision shall be made by Landlord in
its sole and absolute discretion. A rejection or acceptance by Landlord of
Tenant's Request to Build shall not amend or modify any of the terms and
conditions of this Lease. If Landlord accepts Tenant's Request to
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<PAGE> 49
Build, Landlord and Tenant shall promptly and in good faith attempt to execute
a "build to suit" lease or other agreement within thirty (30) days of
Landlord's acceptance of Tenant's Request to Build. Failure to agree to the
final terms and conditions of Tenant's Request to Build within such thirty (30)
day period, after prompt and good faith efforts, shall end any obligation of
Landlord or Tenant to continue such negotiations.
(b) During the Term, Tenant shall have a right of first opportunity
to lease or purchase all or any portion of any new building to be built by
Landlord on its own initiative within the Technology Park or on any other land
owned or controlled by Landlord within a one (1) mile radius of the Technology
Park. In the event Landlord intends to build any such new building (the
"Building Availability"), Landlord shall advise Tenant in writing of such
Building Availability and Landlord's intention to build and lease it or sell it
to prospective tenants or purchasers, as the case may be ("Landlord's Building
Notice") and shall furnish to Tenant all the material terms and conditions of
the Building Availability. Tenant shall thereafter have the right, within
twenty (20) days of its receipt of Landlord's Building Notice, to exercise its
right of first opportunity by giving notice in writing to Landlord that it
accepts the material terms and conditions of the Building Availability. If
Tenant fails to exercise its rights of first opportunity within twenty (20)
days after receipt of Landlord's Building Notice, the rights granted Tenant
under this paragraph shall terminate for a period of eighteen (18) months and
Landlord may market such new building to other potential tenants or purchasers.
To the extent the new building or any portion thereof remains available after
eighteen (18) months, and Landlord intends to continue offering such building
or portion thereof to prospective tenants and/or purchasers, Landlord shall
again provide Tenant with notice of such Building Availability in accordance
with the provisions of this paragraph if the square footage of the Building
Availability exceeds Ten Thousand (10,000) square feet. If the square footage
of the Building Availability is less than Ten Thousand (10,000) square feet,
then Landlord shall not be required to offer such Building Availability to
Tenant. If Tenant exercises the right of first opportunity, Landlord and Tenant
shall enter into a final agreement reflecting the terms, covenants and
conditions of Tenant's lease or purchase of the new building or portion thereof
within fifteen (15) days of Landlord's receipt of Tenant's election to exercise
its right of first opportunity. Failure to agree on the final terms and
conditions of the lease or sale of the new building within such fifteen (15)
day period shall allow Landlord to immediately market, sell or lease the
building to third parties on substantially the same terms offered to Tenant.
For purposes of the preceding sentence, substantially the same terms offered
to Tenant shall mean that (i) the length of the lease term offered to the third
party is not ninety percent (90%) or less than the lease term offered to
Tenant; (ii) the rent or sales price offered to the third party is not ninety
(90%) or less than the
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<PAGE> 50
rent or sales price offered to Tenant; and (iii) any tenant improvement
allowance, concession or other economic incentives offered to the third party
is not one hundred ten percent (110%) or more than the tenant improvement
allowance, concession or other economic incentives offered to Tenant. In
addition, during the Term of this Lease, Landlord, its successors, assigns and
grantees cannot lease or sell any part of a new building to a materially direct
and substantial competitor of Tenant, as defined in Paragraph 44(c).
Notwithstanding anything herein to the contrary, restriction on the Landlord,
its successors, assigns and grantees, to lease or sell all or any part of the
Building Availability to a materially direct and substantial competitor of
Tenant in Tenant's primary business shall be null and void, if at the time that
Landlord attempts to lease or to sell any part or all of the Building
Availability to a materially direct and substantial competitor of Tenant in
Tenant's primary business if there exists either (i) a monetary default which
is not being cured by Tenant beyond any applicable grace and cure periods or
(ii) there exists a non-monetary default of a material nature beyond any
applicable grace and cure periods and Tenant has not either (a) as of such
date commenced to cure such non-monetary default or (b) is not diligently
proceeding to cure such defaults in a reasonable manner.
(c) Notwithstanding anything herein to the contrary, Tenant shall not
have the right to exercise its rights of first opportunity if at the time of
Landlord's Building Notice, the proposed construction start date of the new
building, the date upon which Tenant is to commence leasing the new building or
as of the proposed sales date of the new building as may be applicable there
exists either (i) a monetary default which has not been cured by Tenant beyond
any applicable grace and cure period, or (ii) there exists a non-monetary
default beyond applicable grace and cure periods and Tenant has either (a) not
as of such date commenced to cure such non-monetary default or (b) is not
diligently proceeding to cure such default in a reasonable manner. In addition
to the foregoing, the rights granted under this Paragraph 45 shall terminate in
the event Tenant assigns the Lease to an entity other than a Tenant Affiliate.
(d) Notwithstanding the foregoing, the right of first opportunity to
purchase all or any portion of any New Building to be built by Landlord shall
not apply with respect to a foreclosure or deed in lieu of foreclosure whereby
Lender, Lender's subsidiary, or a purchaser at a foreclosure sale obtains title
to the land in the Technology Park or within a one-mile radius of the
Technology Park; however, the right of first opportunity to purchase all or any
portion of any New Building of Tenant will apply to any new owner thereafter
and any subsequent sale or conveyance of such land.
46. Radon Gas. Radon is naturally occurring radioactive gas that, when it
has accumulated in a building in sufficient quantities, may present health
risks to persons who are exposed to it over time. Levels of Radon that exceed
federal and state guidelines have been found in buildings in Florida.
Additional information regarding Radon and Radon testing may be obtained from
your county public health unit.
47. Confidentiality.
Landlord and Tenant shall not make, nor shall it authorize any broker
to make, any public announcement or press release concerning this transaction
unless it has received the
<PAGE> 51
other party's written consent, which will not be unreasonably withheld or
delayed. The foregoing shall not be construed to prohibit Landlord or Tenant
from disclosing the terms and conditions contained herein to their respective
attorneys, accountants and lenders.
48. Governing Law.
This Lease shall be construed and interpreted in accordance with
the laws of the state where the Premises are located, except for its conflict of
law rules.
49. Notices.
Any notice by either party to the other shall be in writing and
shall be deemed to be duly given only if delivered personally or sent by
registered or certified mail return receipt requested, or overnight delivery
service, to the following:
If to Tenant: Paradyne Corporation
8545 126th Avenue North
Largo, Florida 33773
Attn: Lease Administration
with a copy to: Paradyne Corporation
8545 126th Avenue North
Largo, Florida 33773
Attn: Law Department
If to Landlord: Townsend Property Trust Limited
Partnership
210 West Pennsylvania Avenue
Suite 610
Towson, Maryland 21204
with a copy to: Judy Waranch, Esquire
The Townsend Company
210 West Pennsylvania Avenue
Suite 610
Towson, Maryland 21204
and: Carlton, Fields, Ward, Emmanuel,
Smith & Cutler, P.A.
One Harbour Place
777 South Harbour Island Boulevard
Tampa, Florida 33602 - 5799
Attn: Roger D. Schwenke, Esquire
Notice shall be deemed to have been given on the date received, if delivered
personally or by overnight delivery service, or, if mailed, three (3) business
days after the date postmarked.
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50. Counterparts.
This Lease may be executed in one or more counterparts each one of
which shall be deemed an original.
51. Entire Agreement; Waiver.
This Lease constitutes the entire agreement between the parties,
there being no other terms, oral or written, except as herein expressed. No
modification of this Lease shall be binding on the parties unless it is in
writing and signed by both parties hereto. Landlord and Tenant shall not be
deemed to have waived any provisions contained in this Lease unless such waiver
is set forth in writing. Acceptance of partial payment of rent by Landlord
shall not be deemed an accord and satisfaction.
52. Name of Technology Park. Landlord shall have the right to name or
rename the Technology Park; provided, however, the Technology Park shall not be
named after another tenant of the Technology Park or a substantial and
materially direct competitor of Tenant, so long as Tenant leases the same amount
of space covered by this Lease or more space.
53. No Partnership. The rights and obligations of the parties under
this Lease shall create a landlord/tenant relationship and nothing herein
shall be construed to form any type of partnership or joint venture between
Landlord and Tenant.
54. Waiver of Jury Trial. Landlord and Tenant each hereby waives all
right to trial by jury in any claim, action, proceeding or counterclaim by
either party against the other on any matters arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant and/or
Tenant's use or occupancy of the Premises.
55. Force Majeure. As used in this Lease, the term "Force Majeure"
shall mean a delay occasioned by acts of God, the application of governmental
regulations (to the extent the delay occasioned thereby is not a result of a
specific action or inaction of Landlord, wars, civil unrest, and strikes
(provided, however, delays occasioned by strikes that could be resolved by
Landlords's payment of money shall not constitute a strike for purposes of this
definition) or other reasons beyond the reasonable control of the party delayed
in doing the acts required under this Lease. The provisions of this paragraph
shall not operate to excuse Tenant from prompt payment of the Rent required by
the terms of this Lease.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Lease as of the day and year first above written.
TOWNSEND PROPERTY TRUST LIMITED
PARTNERSHIP, a Maryland limited
partnership
By: DWT ATRIUM, INC., a Maryland
WITNESSES: corporation, its general partner
/s/ [SIG] By: /s/ [SIG]
- -------------------------------- -------------------------------------
Print Name: [SIG] Print Name: [SIG]
--------------------- --------------------------
Its: Vice President
/s/ [SIG] ---------------------------------
- -------------------------------- "LANDLORD"
Print Name: [SIG]
---------------------
PARADYNE CORPORATION
/s/ STEPHEN KUSSNER By: /s/ [SIG]
- -------------------------------- -------------------------------------
Print Name: Stephen Kussner Print Name: [SIG]
--------------------- --------------------------
Its: Senior Vice President
/s/ CHARLENE CARPENTER --------------------------------
- -------------------------------- "TENANT"
Print Name: Charlene Carpenter
---------------------
49
<PAGE> 54
EXHIBIT A
LEGAL DESCRIPTION:
PARCEL 1:
LOTS 4 AND 5 PINELLAS GROVES IN THE NORTHWEST 1/4 OF SECTION 12, TOWNSHIP 30
SOUTH, RANGE 15 EAST, FLAT BOOK 1, PAGE 55, PUBLIC RECORDS OF PINELLAS COUNTY,
FLORIDA. LESS THAT PART LYING WITHIN 72 FEET OF SURVEY LINE OF STATE ROAD 688
AND LESS THE EAST 140 FEET OF THE SOUTH 700 FEET OF LOT 4; ALSO DESCRIBED AS:
FROM THE NORTHWEST CORNER OF SECTION 12, TOWNSHIP 30 SOUTH, RANGE 15 EAST, RUN
SOUTH 89 DEGREES 01'16" EAST, ALONG THE NORTH BOUNDARY OF SAID SECTION, 679.29
FEET; THENCE RUN SOUTH 0 DEGREES 10'00" WEST, 72.00 FEET TO A POINT OF
BEGINNING. THENCE RUN SOUTH 89 DEGREES 01' 16" EAST 679.29 FEET ALONG THE SOUTH
BOUNDARY OF ULMERTON ROAD; THENCE RUN SOUTH 0 DEGREES 09'36" WEST, 562.94 FEET,
ALONG THE EAST BOUNDARY OF SAID LOT 4; THENCE RUN NORTH 89 DEGREES 02'30" WEST,
140.00 FEET; THENCE RUN SOUTH 0 DEGREES 09'36" WEST, 700.00 FEET TO THE SOUTH
BOUNDARY OF SAID LOT 4; THENCE RUN NORTH 89 DEGREES 02'30" WEST, 539.44 FEET
TO THE SOUTHWEST CORNER OF SAID LOT 5; THENCE RUN NORTH 0 DEGREES 10'00" EAST
1263.18 FEET, ALONG THE WEST LINE OF SAID LOT 5 TO THE POINT OF BEGINNING.
LESS AND EXCEPT THE FOLLOWING:
COMMENCE AT THE NORTHWEST CORNER OF SECTION 12, TOWNSHIP 30 SOUTH, RANGE 15
EAST, PINELLAS COUNTY, FLORIDA; THENCE RUN SOUTH 00 DEGREES 10'50" WEST ALONG
THE WEST LINE OF SAID SECTION 12, A DISTANCE OF 382.08 FEET TO A POINT; THENCE
SOUTH 89 DEGREES 01'16" EAST A DISTANCE OF 60.00 FEET TO A POINT ON THE EAST
RIGHT-OF-WAY LINE OF STARKEY ROAD, SAID POINT ALSO BEING ON THE SOUTH
RIGHT-OF-WAY LINE OF 133RD AVENUE N.; THENCE CONTINUE SOUTH 89 DEGREES 01'16"
EAST ALONG SAID SOUTH RIGHT-OF-WAY LINE OF 133RD AVENUE N., A DISTANCE OF
619.33 FEET, TO THE NORTHEAST CORNER OF THE STARKEY-ULMERTON BUSINESS PARK AS
RECORDED IN PLAT BOOK 96, PAGE 82, PINELLAS COUNTY, FLORIDA, ALSO BEING THE
POINT OF BEGINNING; THENCE CONTINUE SOUTH 89 DEGREES 01'16" EAST ALONG SAID
SOUTH RIGHT-OF-WAY LINE A DISTANCE OF 251.86 FEET; THENCE SOUTH 00 DEGREES
09'19" WEST A DISTANCE OF 253.02 FEET; THENCE NORTH 89 DEGREES 02'30" WEST A
DISTANCE OF 251.93 FEET ALONG THE NORTHERLY BOUNDARY OF THE PROPERTY DESCRIBED
ON O.R. BOOK 5105, PAGE 1978, PINELLAS COUNTY RECORDS, TO THE EASTERLY BOUNDARY
OF SAID STARKEY-ULMERTON BUSINESS PARK; THENCE NORTH 00 DEGREES 09'19" EAST
ALONG SAID EASTERLY LINE OF STARKEY-ULMERTON BUSINESS PARK, A DISTANCE OF 253.11
FEET TO THE POINT OF BEGINNING.
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<PAGE> 55
A PORTION OF LOT 5, IN THE NORTHWEST 1/4 OF SECTION 12, TOWNSHIP 30 SOUTH,
RANGE 15 EAST, PINELLAS GROVES, RECORDED IN PLAT BOOK 1, PAGE 55 OF THE PUBLIC
RECORDS OF PINELLAS COUNTY, FLORIDA, DESCRIBED AS FOLLOWS: COMMENCE AT THE
NORTHWEST CORNER OF SAID SECTION 12, TOWNSHIP 30 SOUTH, RANGE 15 EAST, PINELLAS
COUNTY, FLORIDA; THENCE ALONG THE NORTH BOUNDARY OF SAID SECTION 12, SOUTH 89
DEGREES 01'16" EAST, 310.00 FEET; THENCE SOUTH 00 DEGREES 10'25" WEST, 72.00
FEET TO THE SOUTH RIGHT-OF-WAY BOUNDARY OF ULMERTON ROAD, STATE ROAD NO. 688
(D.O.T. SECTION NO. 15120-2502); THENCE ALONG SAID SOUTH RIGHT-OF-WAY BOUNDARY
SOUTH 89 DEGREES 01'16" EAST, 377.58 FEET FOR A POINT AT BEGINNING; THENCE
CONTINUE ALONG SAID SOUTH RIGHT OF WAY BOUNDARY SOUTH 89 DEGREES 01'16" EAST,
60.00 FEET; THENCE SOUTH 00 DEGREES 10'25" WEST, 250.00 FEET; THENCE NORTH 89
DEGREES 01'16" WEST, 60.00 FEET; THENCE NORTH 00 DEGREES 10'25" EAST, 250.00
FEET TO THE POINT OF BEGINNING.
PART OF LOTS 4 & 5 OF "PINELLAS GROVES" AS RECORDED IN PLAT BOOK 1, PAGE 55 OF
THE PUBLIC RECORDS OF PINELLAS COUNTY, FLORIDA. PARCEL LOCATED IN THE NORTHWEST
1/4 OF SECTION 12, TOWNSHIP 30 SOUTH, RANGE 15 EAST, MORE PARTICULARLY
DESCRIBED AS FOLLOWS: COMMENCE AT THE NORTHWEST CORNER OF SECTION 12, TOWNSHIP
30 SOUTH, RANGE 15 EAST; THENCE SOUTH 89 DEGREES 01'16" EAST ALONG THE NORTH
LINE OF SAID SECTION 12, ALSO KNOWN AS THE CENTER LINE OF ULMERTON ROAD 60.00
FEET, THENCE SOUTH 00 DEGREES 10'25" WEST, 322.00 FEET; THENCE SOUTH 89 DEGREES
01'16" EAST 770.00 FEET TO THE POINT OF BEGINNING; THENCE CONTINUING SOUTH 89
DEGREES 01'16" EAST 528.66 FEET TO THE EAST LINE OF LOT 4; THENCE SOUTH 00
DEGREES 09'36" WEST ALONG THE EAST LINE OF LOT 4 60.01 FEET; THENCE NORTH 89
DEGREES 01'16" WEST 528.67 FEET; THENCE NORTH 00 DEGREES 10'25" EAST 60.00 FEET
TO THE POINT OF BEGINNING.
A PORTION OF LOT 4, LYING IN THE NORTHWEST 1/4 OF SECTION 12, TOWNSHIP 30
SOUTH, RANGE 15 EAST, OF PINELLAS GROVES PLAT AS RECORDED IN PLAT BOOK 1, PAGE
55 OF PINELLAS COUNTY RECORDS, MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCE
AT THE SOUTHEAST CORNER OF SAID LOT 4; THENCE NORTH 0 DEGREES 09'36" EAST ALONG
THE EAST LINE OF SAID LOT 4 FOR 700.00 FEET TO THE POINT OF BEGINNING; THENCE
NORTH 10 DEGREES 26'49" WEST, FOR 258.03 FEET TO A POINT ON THE EXISTING SOUTH
RIGHT-OF-WAY LINE OF 133RD AVENUE NORTH; THENCE SOUTH 89 DEGREES 01'16" EAST,
ALONG SAID SOUTH RIGHT-OF-WAY LINE FOR 47.50 FEET TO A POINT ON SAID EAST LINE
OF LOT 4; THENCE SOUTH 0 DEGREES 09'36" WEST, ALONG SAID EAST LINE OF LOT 4, FOR
252.94 FEET TO THE POINT OF BEGINNING.
51
<PAGE> 56
SOUTH 700 FEET OF LOT 5 AND SOUTH 700 FEET OF LOT 4, LESS THE EAST 140 FEET OF
SAID LOT 4, PINELLAS GROVES IN NORTHWEST 1/4 OF SECTION 12, TOWNSHIP 30 SOUTH,
RANGE 15 EAST, ACCORDING TO PLAT THEREOF RECORDED IN PLAT BOOK 1, PAGE 55,
PUBLIC RECORDS OF PINELLAS COUNTY, FLORIDA.
A PORTION OF LOT 5, IN THE NORTHWEST 1/4 OF SECTION 12, TOWNSHIP 30 SOUTH,
RANGE 15 EAST, PINELLAS GROVES, RECORDED IN PLAT BOOK 1, PAGE 55, OF THE PUBLIC
RECORDS OF PINELLAS COUNTY, FLORIDA, DESCRIBED AS FOLLOWS: COMMENCE AT THE
NORTHWEST CORNER OF SAID SECTION 12, TOWNSHIP 30 SOUTH, RANGE 15 EAST, PINELLAS
COUNTY, FLORIDA; THENCE ALONG THE NORTH BOUNDARY OF SAID SECTION 12, SOUTH 89
DEGREES 01'16" EAST 310.00 FEET; THENCE SOUTH 00 DEGREES 10'25" WEST 72.00 FEET
TO THE SOUTH RIGHT OF WAY BOUNDARY OF ULMERTON ROAD, STATE ROAD 688 (D.O.T.
SECTION NO. 15120-2502); THENCE ALONG SAID SOUTH RIGHT OF WAY BOUNDARY, SOUTH
89 DEGREES 01'16" EAST 437.58 FEET FOR A POINT OF BEGINNING; THENCE CONTINUE
ALONG SAID SOUTH RIGHT OF WAY BOUNDARY, SOUTH 89 DEGREES 01'16" EAST, 135.00
FEET; THENCE SOUTH 00 DEGREES 10'25" WEST, 250.00 FEET; THENCE NORTH 89 DEGREES
01'16" WEST, 135.00 FEET; THENCE NORTH 00 DEGREES 10'25" EAST, 250.00 FEET TO
THE POINT OF BEGINNING.
A PORTION OF LOT 4, LYING IN THE NORTHWEST 1/4 OF SECTION 12, TOWNSHIP 30
SOUTH, RANGE 15 EAST, OF PINELLAS GROVES PLAT AS RECORDED IN PLAT BOOK 1, PAGE
55 OF PINELLAS COUNTY RECORDS, MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCE
AT THE SOUTHEAST CORNER OF SAID LOT 4; THENCE NORTH 0 DEGREES 09'36" EAST ALONG
THE EAST LINE OF SAID LOT 4, FOR 1012.94 FEET TO A POINT ON THE EXISTING NORTH
RIGHT OF WAY LINE OF 133RD AVENUE NORTH AND THE POINT OF BEGINNING; THENCE
NORTH 89 DEGREES 01'16" WEST ALONG SAID NORTH RIGHT OF WAY LINE, FOR 83.00
FEET; THENCE NORTH 45 DEGREES 34'10" EAST FOR 67.40 FEET; THENCE NORTH 0 DEGREES
09'36" EAST, FOR 187.00 FEET; THENCE NORTH 44 DEGREES 25'50" WEST, FOR 21.36
FEET, TO A POINT ON THE EXISTING SOUTH RIGHT OF WAY OF ULMERTON ROAD (S.R. 688),
AS RECORDED IN INSTRUMENT NO. 61122-B, IN OFFICIAL RECORDS BOOK 1659, PAGE 262,
OF PINELLAS COUNTY RECORDS; THENCE SOUTH 89 DEGREES 01'16" EAST, ALONG WITH
SOUTH RIGHT-OF-WAY LINE, FOR 50.00 FEET TO A POINT ON SAID EAST LINE OF LOT 4;
THENCE SOUTH 0 DEGREES 09'36" WEST, ALONG SAID EAST LINE OF LOT 4, FOR 250.00
FEET TO THE POINT OF BEGINNING.
52
<PAGE> 57
FROM THE NORTHWEST CORNER OF SECTION 12, TOWNSHIP 30 SOUTH, RANGE 15 EAST, RUN
ALONG THE NORTH LINE OF SAID SECTION 12, ALSO KNOWN AS THE CENTER LINE OF
ULMERTON ROAD, SOUTH 89 DEGREES 01'16" EAST, 60.00 FEET, THENCE SOUTH 00
DEGREES 10'25" WEST, 322.00 FEET TO A POINT OF BEGINNING; THENCE SOUTH 89
DEGREES 01'16" EAST, 770.00 FEET, THENCE SOUTH 00 DEGREES 10'25" WEST, 60.00
FEET, THENCE NORTH 89 DEGREES 01'16" WEST, 770.00 FEET; THENCE NORTH 00 DEGREES
10'25" EAST 60.00 FEET TO THE POINT OF BEGINNING.
THAT PORTION OF LOT 5 IN THE NORTHWEST 1/4 OF SECTION 12, TOWNSHIP 30 SOUTH,
RANGE 15 EAST, PINELLAS GROVES, RECORDED IN PLAT BOOK 1, PAGE 55 OF THE PUBLIC
RECORDS OF PINELLAS COUNTY, FLORIDA; LYING WEST OF FOUNTAIN WAY AS DESCRIBED IN
O.R. BOOK 7396, PAGE 927.
PARCEL 2:
THE NORTH 1/2 OF LOT 10, IN THE NORTHWEST 1/4 OF SECTION 12, TOWNSHIP 30 SOUTH,
RANGE 15 EAST, PINELLAS GROVES, ACCORDING TO THE PLAT THEREOF, RECORDED IN PLAT
BOOK 1, PAGE 55, PUBLIC RECORDS OF PINELLAS COUNTY, FLORIDA, BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
FROM THE SOUTHWEST CORNER OF THE NORTHWEST 1/4 OF SAID SECTION 12, THENCE NORTH
00 DEGREES 10'25" EAST ALONG THE WEST LINE OF SECTION 12, A DISTANCE OF 667.71
FEET, THENCE SOUTH 89 DEGREES 03'06" EAST, 679.52 FEET FOR A POINT OF
BEGINNING, THENCE NORTH 00 DEGREES 10'01" EAST, 667.59 FEET TO THE NORTHWEST
CORNER OF SAID LOT 10; THENCE SOUTH 89 DEGREES 02'30" EAST, 339.72 FEET TO THE
NORTHEAST CORNER OF LOT 10; THENCE SOUTH 00 DEGREES 09'49" WEST, ALONG THE EAST
LINE OF LOT 10, A DISTANCE OF 667.53 FEET; THENCE NORTH 89 DEGREES 03'06" WEST,
339.76 FEET TO THE POINT OF BEGINNING.
PARCEL 3:
THE EAST 200 FEET OF LOT EIGHT, IN THE NORTHWEST 1/4 OF SECTION 12, TOWNSHIP 30
SOUTH, RANGE 15 EAST, ACCORDING TO THE PLAT OF PINELLAS GROVES, RECORDED IN
PLAT BOOK 1, PAGE 55, PUBLIC RECORDS OF PINELLAS COUNTY, FLORIDA, MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
FROM THE SOUTHWEST CORNER OF THE NORTHWEST 1/4 OF SAID SECTION 12, THENCE NORTH
00 DEGREES 10'25" EAST, ALONG THE WEST LINE OF SECTION 12, A DISTANCE OF
667.71 FEET TO THE SOUTHWEST CORNER OF SAID LOT 8, THENCE SOUTH 89 DEGREES
03'06" EAST, ALONG THE SOUTH LINE OF LOT 8, A DISTANCE OF 479.50 FEET FOR A
POINT OF BEGINNING; THENCE NORTH 00 DEGREES 10'01" EAST, 667.63 FEET TO THE
NORTH LINE OF LOT 8, THENCE SOUTH 89 DEGREES 02'30" EAST, 200.02 FEET TO THE
NORTHEAST CORNER OF LOT 8; THENCE SOUTH 00 DEGREES 10'01" WEST, 667.59 FEET TO
THE SOUTHEAST CORNER OF LOT 8, THENCE NORTH 89 DEGREES 03'06" WEST, 200.02 FEET
TO THE POINT OF BEGINNING.
53
<PAGE> 58
PARCEL 4:
THE NORTH 60 FEET OF LOT 8, LESS THE EAST 200 FEET, AND LESS THE WEST 60 FEET
FOR ROAD RIGHT-OF-WAY, IN THE NORTHWEST 1/4 OF SECTION 12, TOWNSHIP 30 SOUTH,
RANGE 15 EAST, PINELLAS GROVES, AS RECORDED IN PLAT BOOK 1, PAGE 55, PUBLIC
RECORDS OF PINELLAS COUNTY, FLORIDA, BEING MORE PARTICULARLY DESCRIBED AS
FOLLOWS:
FROM THE SOUTHWEST CORNER OF THE NORTHWEST 1/4 OF SAID SECTION 12, THENCE NORTH
00 DEGREES 10'25" EAST, ALONG THE WEST LINE OF SAID SECTION 12, A DISTANCE OF
1,335.42 FEET; THENCE SOUTH 89 DEGREES 02'30" EAST, 60 FEET TO THE EAST
RIGHT-OF-WAY LINE OF STARKEY ROAD FOR A POINT OF BEGINNING; THENCE CONTINUE
SOUTH 89 DEGREES 02'30" EAST, 419.42 FEET; THENCE SOUTH 00 DEGREES 10'01" WEST,
60.01 FEET; THENCE NORTH 89 DEGREES 02'30" WEST, 419.42 FEET; TO THE EAST
RIGHT-OF-WAY LINE OF STARKEY ROAD; THENCE NORTH 00 DEGREES 10'25" EAST ALONG
SAID EAST RIGHT-OF-WAY LINE A DISTANCE OF 60.01 FEET TO THE POINT OF BEGINNING.
PARCEL 5:
ALL OF LOT 3 IN THE NORTHWEST 1/4 OF SECTION 12, TOWNSHIP 30 SOUTH, RANGE 15
EAST, AS SHOWN ON THE PLAT OF PINELLAS GROVES, INC., AS RECORDED IN PLAT BOOK
1, PAGE 55 OF THE PUBLIC RECORDS OF PINELLAS COUNTY, FLORIDA, LESS THAT PART OF
SAID LOT LYING WITHIN 72 FEET OF THE SURVEY LINE OF STATE ROAD 688, CONVEYED TO
THE STATE OF FLORIDA BY INSTRUMENT RECORDED IN OFFICIAL RECORDS BOOK 1659, PAGE
262, OF THE PUBLIC RECORDS OF PINELLAS COUNTY, FLORIDA.
LESS THE WEST 45 FEET OF THE NORTH 310 FEET OF SAID LOT 3 LYING SOUTH OF THE
EXISTING 72 FOOT RIGHT OF WAY FOR ULMERTON ROAD (SR 688) CONVEYED TO THE CITY
OF LARGO BY INSTRUMENT RECORDED IN OFFICIAL RECORDS BOOK 7396, PAGE 929, OF THE
PUBLIC RECORDS OF PINELLAS COUNTY, FLORIDA.
PARCEL 6:
THE SOUTH 700 FEET OF LOT 5 AND SOUTH 700 FEET OF LOT 4, PINELLAS GROVES, IN
NORTHWEST 1/4 OF SECTION 12, TOWNSHIP 30 SOUTH, RANGE 15 EAST, ACCORDING TO THE
MAP OR PLAT THEREOF AS RECORDED IN PLAT BOOK 1, PAGE 55, OF THE PUBLIC RECORDS
OF PINELLAS COUNTY, FLORIDA.
54
<PAGE> 59
PARCEL 7:
LOTS 12 AND 13 IN THE NORTHWEST 1/4 OF SECTION 12, TOWNSHIP 30 SOUTH, RANGE 15
EAST, AS SHOWN ON THE PLAT OF PINELLAS GROVES INC., ACCORDING TO THE PLAT
THEREOF AS RECORDED IN PLAT BOOK 1, PAGE 55, OF THE PUBLIC RECORDS OF PINELLAS
COUNTY, FLORIDA.
LESS THAT PART OF SAID LOTS LYING WITHIN 30 FEET OF THE SOUTH LINE OF THE
NORTHWEST 1/4 OF SAID SECTION 12 CONVEYED TO PINELLAS COUNTY BY INSTRUMENT
RECORDED IN OFFICIAL RECORDS BOOK 4948, PAGE 1098, OF THE PUBLIC RECORDS OF
PINELLAS COUNTY, FLORIDA.
PARCEL 8:
TRACT A, PINELLAS CENTER, AS RECORDED IN PLAT BOOK 78, PAGES 71 AND 72, OF THE
PUBLIC RECORDS OF PINELLAS COUNTY, FLORIDA.
LESS THE FOLLOWING DESCRIBED PARCEL; COMMENCE AT THE SOUTHWEST CORNER OF SAID
TRACT A, THENCE ALONG THE WEST BOUNDARY NORTH 00 DEGREES 10'20" EAST, 652.81
FEET, THENCE PARALLEL WITH THE SOUTH LINE OF SAID TRACT, SOUTH 89 DEGREES
01'43" EAST, 209.61 FEET; THENCE PARALLEL WITH THE EAST LINE OF SAID TRACT
SOUTH 0 DEGREES 10'57" WEST, 322.81 FEET THENCE PARALLEL WITH THE SOUTH LINE OF
SAID TRACT NORTH 89 DEGREES 01'43" WEST, 75.0 FEET, THENCE PARALLEL WITH THE
EAST LINE OF SAID TRACT SOUTH 0 DEGREES 10'57" WEST, 330.0 FEET TO THE SOUTH
LINE OF SAID TRACT; THENCE ALONG THE SOUTH LINE OF SAID TRACT NORTH 89 DEGREES
01'43" WEST, 134.39 FEET TO THE POINT OF BEGINNING.
55
<PAGE> 60
EXHIBIT G
RULES AND REGULATIONS
A. Tenant shall not in any manner use the name of the Property for any purpose
other than that of the business address of the Tenant.
B. Furniture, freight and other large or heavy articles and all other deliveries
shall be at the Tenant's sole responsibility and risk. All damage done to the
Property by moving or maintaining such furniture, freight, or articles shall be
repaired by Landlord at Tenant's expense.
C. Tenant shall not overload any floor or part thereof in the Premises, or
Property, unless appropriate precautions are taken.
D. The toilet room, urinals, wash bowls and other such 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 herein and the expense
of any breakage, stoppage, or damage resulting from violation of this Rule shall
be borne by the Tenant, who or whose employees or invitees shall have caused it.
E. Landlord reserves the right to exclude or expel from the Technology Park any
person who, in the judgment 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
these Rules. Tenant shall not at any time manufacture, or sell, any spirituous,
fermented, intoxicating or alcoholic liquors on the Premises, nor permit any of
the same to occur. Tenant shall not at any time sell, purchase or give away food
in any form by or to any of Tenant's agents or employees or any other parties on
the Premises nor permit any of the same to occur (other than in lunch rooms or
kitchens for employees or vending machines which does not violate any Laws or
bother or annoy any other tenant).
F. Tenant shall conduct no auction, fire or "going out of business sale" or
bankruptcy sale in or from the Premises.
G. Tenant shall cooperate and comply with any reasonable safety or security
programs, including fire drills and air raid drills, and the appointment of
"fire wardens" developed by Landlord for the Property, or required by Law.
Before leaving the Premises unattended, Tenant shall close and securely lock all
doors or other means of entry to the Premises and shut of all task lights and
water faucets in the Premises.
H. Tenant will not use the Premises for any immoral purposes.
56
<PAGE> 61
I. Tenant shall not attach, or permit to be attached, additional locks or
similar devices to any external door or external window, or which change
existing locks or the mechanisms thereof on external doors or external windows,
unless the keys for the primary external access doors are supplied to Landlord
so that Landlord will have access solely during an emergency.
J. Parking shall be available in areas designated for Tenant parking on Exhibit
"D" to the Lease. Tenant and its employees, agents and visitors shall not use
parking in any other areas of the Technology Park. In case of any violation of
these provisions, Landlord may refuse to permit the violator to park and may
remove the vehicle owned or driven by the violator from the Technology Park
without liability whatsoever, at such violator's risk and expense. Every parker
is required to park and lock his own car. Washing, waxing, cleaning or
servicing of any vehicle is prohibited.
57
<PAGE> 62
EXHIBIT H
RULES AND REGULATIONS FOR USE OF THE COMMUNICATION EQUIPMENT
(Paragraph 30)
Permission is granted, free of rental charge, for the Tenant to install
the Communication Equipment specified in Paragraph 30 at the Premises on the
roof and building structure, at Tenant's sole cost and expense, subject to the
following restrictions:
(a) The location and means of securing the Communication Equipment must be
approved by Landlord or its designated agent, which shall not be unreasonably
withheld or delayed. Tenant shall be responsible for any damage to the Building
roof or structure or any surrounding property resulting from the installation
or operation of the Communication Equipment, including, but not limited to,
damage resulting from wind, ice or any other causes. The Communication Equipment
shall not damage the Building, the structure or the system of communication
devised by any other user authorized by Landlord or users at neighboring
properties. If such damage or interference shall occur, Tenant shall correct
same promptly.
(b) Tenant agrees to maintain the Communication Equipment in a proper and
safe operating condition.
(c) Tenant shall comply with all codes, rules, regulations and conditions
of any applicable governmental agency and shall pay for all legal, engineering
and other expenses incident thereto. Prior to installation, Tenant shall
provide Landlord with a copy of all required permits, licenses, or evidence of
authority to operate from this location.
(d) Installation of the Communication Equipment shall be performed, at
Tenant's sole cost and expense, in a responsible and workmanlike manner by
personnel with all necessary skill and expertise.
(e) Tenant shall be responsible for any costs associated with furnishing
electricity for the Communication Equipment.
(f) Tenant shall remove the Communication Equipment and restore the roof
and structure to its original condition, except for ordinary wear and tear, at
the earlier of Tenant's cessation of use of the Communication Equipment or the
expiration of the term of this Lease or any renewal term thereof, at Tenant's
sole cost and expense. The Communication Equipment shall, at all times, remain
the property of Tenant and Tenant shall have the right to remove it at any
time, subject to the terms and conditions herein.
58
<PAGE> 63
(g) Tenant shall be responsible for implementing appropriate screening as
reasonably required by Landlord.
(h) Tenant agrees to indemnify, defend and hold Landlord harmless from any
claim resulting from property damage or personal injury arising in connection
with the installation, maintenance, existence or removal of the Communication
Equipment and shall carry insurance (or shall be self-insured as permitted under
this Lease) to cover such liability and property damages.
(i) Notwithstanding in this Exhibit E or Paragraph 30 to the contrary,
Tenant agrees that any new Communication Equipment installed by Tenant
subsequent to the Commencement Date shall not unreasonably interfere with any
other communication equipment installed by any other tenants in the Technology
Park and that Tenant shall stop using any such new Communication Equipment until
such time as any interference is corrected. In consideration for the foregoing,
Landlord agrees that it shall cause all other tenants of the Technology Park to
stop using any communication equipment installed by them if such communication
equipment unreasonably interferes with any of Tenant's Communication Equipment.
In addition, the installation of any new Communication Equipment by Tenant on
the roof of the Buildings shall not violate any warranties for the roofs and
Tenant shall assume the responsibility for making any repairs to the roof or
other portions of the Buildings as a result of the installation, operation or
removal of the Communication Equipment.
59
<PAGE> 64
EXHIBIT I
THIS INSTRUMENT PREPARED BY
AND RETURN TO:
Stephen L. Kussner, Esquire
Annis, Mitchell, Cockey,
Edwards & Roehn, P.A.
Post Office Box 3433
Tampa, Florida 33601
MEMORANDUM OF LEASE AND SHORT FORM OF LEASE
THIS IS A MEMORANDUM OF LEASE AND SHORT FORM OF LEASE by and between
TOWNSEND PROPERTY TRUST LIMITED PARTNERSHIP, a Maryland limited partnership
("Landlord"), and PARADYNE CORPORATION, a Delaware corporation ("Tenant"),
whereby Landlord does hereby lease the Premises to Tenant upon the following
terms:
Date of Lease: _________________________, 1997.
Premises: See Exhibit A attached hereto.
The primary term of the Lease shall commence _______________ 1997.
Primary term: Ten (10) years.
Renewal option(s): Two (2) renewal terms of five (5) years each
(the "Extension(s)").
Tenant Rights: The Lease contains (i) a right of first opportunity granted
to Tenant to lease or purchase all or any part of the remaining space in any
other buildings within the Paradyne Technology Park described in Exhibit B
attached hereto.
The Lease expressly provides that the interest of Landlord in the Paradyne
Technology Park shall not be subject to liens for improvements made by Tenant.
The purpose of this Memorandum of Lease is to give record notice of the
Lease and of the rights created thereby, all of which are hereby confirmed. In
the event of any conflict between the terms of this Memorandum of Lease and the
Lease, the terms of the Lease shall control. Parties are put on notice that they
should
1
<PAGE> 65
review the Lease for more detail of the terms and conditions of the Lease.
IN WITNESS WHEREOF the parties have executed this Memorandum of Lease as
of the dates set forth in their respective acknowledgements.
<TABLE>
<CAPTION>
Witnesses: LANDLORD:
<S> <C>
TOWNSEND PROPERTY TRUST LIMITED
PARTNERSHIP, a Maryland limited
partnership
By: DWT ATRIUM, INC., a Maryland
corporation
By:
- ----------------------------- --------------------------------
Name: Name:
------------------------ ---------------------------
Title:
--------------------------
- -----------------------------
Name:
------------------------ Address: 210 West Pennsylvania Avenue
Townsend, Maryland 21204
TENANT:
PARADYNE CORPORATION, a Delaware
limited partnership
By: PARADYNE CORPORATION, a
Delaware corporation
By:
- ----------------------------- ---------------------------
Name: Name:
------------------------ ----------------------
Title:
---------------------
- -----------------------------
Name: Address: 8545 126th Avenue North
------------------------ Largo, Florida 33773
</TABLE>
EXHIBIT A: Description of Premises
EXHIBIT B: Description of Paradyne Technology Park
2
<PAGE> 66
STATE OF
----------------
COUNTY OF
---------------
The foregoing instrument was acknowledged before me this________________
day of ______________, 1997, by ____________________, as __________________
of DWT ATRIUM, INC., a Maryland corporation which is the general partner of
TOWNSEND PROPERTY TRUST LIMITED PARTNERSHIP, a Maryland limited partnership, on
behalf of the corporation and on behalf of the limited partnership. He/She is
personally known to me or has produced ______________________ as identification.
----------------------------------
NOTARY PUBLIC
Name:
-----------------------------
Serial Number:
--------------------
My Commission Expires:
------------
STATE OF
----------------
COUNTY OF
---------------
The foregoing instrument was acknowledged before me this ________________
day of ____________________, 1997, by ____________________, as _____________
of PARADYNE CORPORATION, a Delaware corporation, on behalf of the corporation.
He is personally known to me or has produced _________________________ as
identification.
----------------------------------
NOTARY PUBLIC
Name:
-----------------------------
Serial Number:
--------------------
My Commission Expires:
------------
3
<PAGE> 67
EXHIBIT "A"
4
<PAGE> 68
EXHIBIT J
---------
TERMINATION OF MEMORANDUM OF LEASE
----------------------------------
61
<PAGE> 69
EXHIBIT "J"
THIS INSTRUMENT PREPARED BY
AND RETURN TO:
Jeanette Flores, Esquire
CARLTON FIELDS
One Harbour Place
777 S. Harbour Island Blvd.
Tampa, FL 33602-5799
TERMINATION OF MEMORANDUM OF LEASE AND SHORT FORM OF LEASE
----------------------------------------------------------
THIS IS A TERMINATION OF MEMORANDUM OF LEASE AND SHORT FORM OF LEASE by
and between TOWNSEND PROPERTY TRUST LIMITED PARTNERSHIP, a Maryland limited
partnership ("Landlord"), the PARADYNE CORPORATION, a Delaware corporation
("Tenant"), whereby Landlord and Tenant hereby agree that as of ____________,
______________ that certain Lease described in that Memorandum of Lease and
Short Form of Lease by and between Landlord and Tenant recorded in Official
Record Book____________, Page ___________, Public Records of Pinellas County,
Florida on _____________________________ is terminated and that the foregoing
Memorandum of Lease and Short Form of Lease is hereby terminated and cancelled
of record, and that Tenant no longer has any right, title and interest in any of
the properties described therein.
IN WITNESS WHEREOF the parties have executed this Termination of
Memorandum of Lease and Short Form of Lease as of this ______ day of
__________________, 1997.
Witnesses: LANDLORD:
TOWNSEND PROPERTY TRUST LIMITED PARTNERSHIP,
a Maryland limited partnership
By: DWT ATRIUM, INC., a Maryland
corporation
By:
- ------------------------------ ----------------------------------
Name: Name:
------------------------- -----------------------------
Title:
----------------------------
- ------------------------------ Address: 210 West Pennsylvania Avenue
Name: Towson, Maryland 21204
-------------------------
<PAGE> 70
<TABLE>
<CAPTION>
Witnesses: TENANT:
<S> <C>
PARADYNE CORPORATION, a Delaware
limited partnership
By:
- ----------------------------- -----------------------------
Name: Name:
------------------------ ------------------------
Title:
-----------------------
- -----------------------------
Name: Address: 8545 126th Avenue North
------------------------ Largo, Florida 33733
</TABLE>
2
<PAGE> 71
STATE OF
----------------
COUNTY OF
---------------
The foregoing instrument was acknowledged before me this ______________
day of _______________, 1997, by ____________________, as ___________________
of DWT ATRIUM, INC., a Maryland corporation, which is the general partner of
TOWNSEND PROPERTY TRUST LIMITED PARTNERSHIP, a Maryland limited partnership, on
behalf of the corporation and on behalf of the limited partnership. He/She is
personally known to me, or has produced _________________________________ as
identification.
----------------------------------
NOTARY PUBLIC
Name:
-----------------------------
Serial No.
------------------------
My Commission Expires:
------------
STATE OF
----------------
COUNTY OF
---------------
The foregoing instrument was acknowledged before me this _______________
day of ______________, 1997, by ____________________, as ___________________
of PARADYNE CORPORATION, a Delaware corporation, on behalf of the corporation.
He/She is personally known to me, or has produced _________________________ as
identification.
----------------------------------
NOTARY PUBLIC
Name:
-----------------------------
Serial No.
------------------------
My Commission Expires:
------------
3
<PAGE> 1
EXHIBIT 10.12
PARADYNE CORPORATION
KEY EMPLOYEE AGREEMENT
FOR
THOMAS E. EPLEY
This Key Employee Agreement ("Agreement") is entered into as of the
1st day of August, 1997, by and between THOMAS E. EPLEY ("Executive") and
PARADYNE CORPORATION, a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide personal
services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and
WHEREAS, Executive wishes to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits; and
WHEREAS, Executive has been employed by the Company pursuant to a
Compensation Agreement dated as of July 31, 1996 which by its terms expires at
the end of one year and it is the intent of the parties to continue Executive's
employment pursuant to the terms hereof.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 The Company agrees to employ Executive in the
position of Chairman of the Board of Directors, and Executive hereby accepts
such employment effective as of the date of this Agreement. In addition the
Company shall cause the Executive to be elected to its Board of Directors
during the term of this Agreement. During the first year of the term of his
employment with the Company under this Agreement, Executive will devote his
best efforts and the majority of his business time and attention (except for
such time as Executive shall require to act as Chairman of Globespan
Technologies Inc., vacation periods and reasonable periods of illness or other
incapacities permitted by the Company's general employment policies) to the
business of the Company. During the second year of the term of this Agreement
Executive shall continue to service as Chairman but in a more traditional role
with part time commitment, including presiding over and attendance at regularly
scheduled Board of Directors' meetings and presiding over all Board related
activities and responsibilities. If Executive shall be offered and shall accept
additional positions with an affiliate of the Company or another entity which
is directly or indirectly affiliated with a shareholder of the Company the
Board and the Executive shall mutually agree to any change in roles hereunder
and compensation as hereinafter provided. Such change shall be reflected in an
amendment to this Agreement.
1.2 The employment relationship between the parties
shall also be governed by the general employment policies and practices of the
Company, including those relating to
1
<PAGE> 2
protection of confidential information and assignment of inventions, except
that when the terms of this Agreement differ from or are in conflict with the
Company's general employment policies or practices, this Agreement shall
control.
1.3 The term of this Agreement shall be for a period of two years
commencing on the date hereof and shall end on its second anniversary date (the
"Term").
2. COMPENSATION.
2.1 SALARY. Executive shall receive, for services to be rendered
under this Agreement, an annualized base salary of $650,000 for the first twelve
months of this Agreement and an annualized base salary of $500,000 for the
second twelve months of this Agreement, payable in installments consistent with
the Company's payroll policies.
2.2 EQUITY PLAN. Executive will not be eligible to participate in
the Company's Equity Incentive Plan.
2.3 DISCRETIONARY INCENTIVE BONUS. Executive will not be eligible
for a discretionary or incentive bonus.
2.4 STANDARD COMPANY BENEFITS. Except for the Company's Severance
Benefit Plan (if any) and any incentive or bonus plans, Executive shall be
entitled to all rights and benefits for which he is eligible under the terms and
conditions of the standard Company benefits and compensation practices which may
be in effect from time to time including its Retirement Savings Plan and
provided by the Company to its employees generally and to its management and
executive employees in specific. In addition to such standard benefits Executive
shall receive during the first year of this Agreement a fully taxable housing
allowance in the amount of $1,600 per month and reimbursement of Executive's
travel to California on personal business which reimbursement shall be subject
to federal tax gross-up.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Executive agrees to execute and abide by the
Proprietary Information and Inventions Agreement attached hereto as Exhibit A.
3.2 REMEDIES. Executive's duties under the Proprietary
Information and Inventions Agreement shall survive termination of his employment
with the Company. Executive acknowledges that a remedy at law for any breach or
threatened breach by him of the provisions of the Proprietary Information and
Inventions Agreement would be inadequate, and he therefore agrees that the
Company shall be entitled to injunctive relief in case of any such breach or
threatened breach.
4. OUTSIDE ACTIVITIES.
4.1 Except investments or activities associated with Texas
Pacific Group or with the prior written consent of the Company's Board of
Directors, Executive will not during the first year of the term of this
Agreement undertake or engage in any other employment or occupation, other than
ones in which Executive is a passive investor. Executive may engage in
2
<PAGE> 3
civic and not-for-profit activities so long as such activities do not materially
interfere with the performance of his duties hereunder.
4.2 Except as permitted by Section 4.3, Executive agrees not to
acquire, assume, or participate in (directly or indirectly) any position,
investment or interest known by him to be adverse or antagonistic to the
Company, its business, or its prospects, financial or otherwise.
4.3 Except as specified above, during the term of his employment by
the Company, except on behalf of the Company, Executive will not have any
direct or indirect business connection or interest, in any capacity whatsoever,
with any other person or entity known by him to compete directly in a material
detrimental way with the Company, throughout the world, in any line of business
engaged in (or planned to be engaged in) by the Company. Nothing in this
paragraph shall bar Executive from owning securities of any competitor
corporation as a passive investor so long as his aggregate direct holdings in
any one such corporation shall not constitute more than 4% of the voting stock
of that corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 EMPLOYMENT AT-WILL. Executive and Company each acknowledge that
either party has the right to terminate Executive's employment with the Company
at any time for any reason whatsoever, with or without cause or advance
notice. This at-will employment relationship cannot be changed except in a
writing signed by a duly authorized officer of the Company.
5.2 COMPANY-INITIATED TERMINATION WITHOUT CAUSE OR EXECUTIVE
TERMINATION FOR GOOD REASON.
(a) The Company shall have the right to terminate Executive's
employment with the Company at any time without cause and the Executive shall
have the right to terminate at any time for Good Reason.
(b) If Executive's employment is terminated without cause by
the Company or by the Executive for Good Reason, and upon Executive's providing
the Company with a signed general release of all claims, a form of which is set
forth in Exhibit B (the "Release"), then on the Effective Date of such Release,
the Company shall pay Executive an amount equivalent to the remainder of the
Executive's base salary due through July 31, 1999 and shall provide Executive at
its expense with comparable benefits for such period. Executive's compensation
and benefits otherwise cease as of his termination date.
(c) For purposes of this Agreement, "Good Reason" shall mean
the occurrence of the following without Executive's express written consent:
(i) the assignment to Executive of any duties inconsistent with
Executive's status as Chairman of the Board of Directors or failure to
elect Executive Chairman and a member of the Board of Directors;
(ii) a reduction by the Company in Executive's annual base salary; or
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<PAGE> 4
(iii) There shall be a Change in Control of the Company and Executive shall
not prior to such Change in Control agree in writing to continue to serve
in a mutually acceptable capacity for mutually acceptable compensation. For
purposes of this Agreement, a "Change in Control of Paradyne" shall mean a
change in control of a nature that would be required to be reported in
response to Item 5(f) of & Schedule 14A of Regulation 14A promulgated under
the Securities Exchange Act of 1-34 as amended "Exchange Act"), whether or
not Paradyne is then subject to such reporting requirements provided
however, without limitation, such a change in control shall without
limitation be deemed to have occurred if any "person" (as such term is used
in Section 3(a)(9), 13(d) and 14(d) of the Exchange Act), other than a
direct or indirect affiliate of Texas Pacific Group, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of Paradyne representing 51 percent or
more of the combined voting power of Paradyne's then outstanding securities
entitled to vote for directors of Paradyne.
5.3 COMPANY-INITIATED TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate Executive's
employment with the Company at any time for cause.
(b) "Cause" for termination shall mean: (a) indictment or
conviction of any felony or of any crime involving dishonesty; (b) participation
in any fraud against the Company; (c) breach of Executive's duties to the
Company or violations of Company policy which causes the Company to sustain a
material financial or other liability; (d) intentional damage to any property of
the Company; or (e) conduct by Executive which, in the good faith and reasonable
determination of the Board, demonstrates gross unfitness to serve. "Cause" shall
include any single instance of gross breach of Executive's duties, gross
violation of Company policy, or other serious misconduct.
(c) If Executive's employment is terminated at any time for
cause, unless the Company elects to offer the payment specified in Section 7, he
will not be entitled to severance pay, pay in lieu of notice, or any other such
compensation.
5.4 EXECUTIVE-INITIATED VOLUNTARY TERMINATION.
(a) Executive may voluntarily terminate his employment with the
Company at any time, after which no further compensation will be paid to
Executive.
(b) If Executive voluntarily terminates his employment, he will
not be entitled to severance pay, pay in lieu of notice, or any other such
compensation unless the Company elects to offer the payments specified under
Section 7.
6. RESTRICTIVE COVENANT. Provided Executive is receiving a payment
under 5.2(b), or if the Company elects to make such payment for termination
under 5.3 or 5.4 if Executive's employment with the Company terminates, then for
six (6) months immediately following the termination date, Executive shall not,
without the prior written approval of the Company,directly or indirectly engage
or prepare to engage in any activities in direct or obvious competition with the
Company, or accept employment or establish a business relationship with a
business engaged in or preparing to engage in direct or obvious competition with
the Company,
4
<PAGE> 5
in any geographical location in which the Company as of the termination date
either conducts or plans to conduct business. Executive agrees that this
restriction is reasonably necessary to protect the Company's legitimate business
interests in its trade secrets and valuable confidential business information.
7. NONINTERFERENCE. While employed by the Company, and thereafter,
provided the Company has offered the Executive the payment specified under
5.2(b), for six (6) months immediately following the termination of Executive's
employment. Executive agrees not to interfere with the business of the Company
by:
(a) soliciting, attempting to solicit, inducing, or otherwise causing
any employee of the Company to terminate his or her employment in order to
become an employee, consultant, or independent contractor to or for any
competitor of the Company; or
(b) using confidential information of the Company on behalf of a
competitor of the Company to directly or indirectly solicit the business of any
customer, client, vendor, or distributor of the Company which was a customer,
client, vendor, or distributor of the Company at the time of termination or at
any time in the year immediately preceding that date.
Executive agrees that this restriction is reasonably necessary to
protect the Company's legitimate business interest in its substantial
relationship with specific customers, and its valuable confidential business
information.
8. GENERAL PROVISIONS.
8.1 NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by fax) or the third day after mailing by first-class mail to
the Company at its primary office location and to Executive at his address a
listed on the Company payroll.
8.2 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal, or unenforceable in any respect under any applicable law or rule in
any jurisdiction, such invalidity, illegality, or unenforceability will not
affect any other provision or any other jurisdiction, but this Agreement will
be reformed, construed and enforced in such jurisdiction as if such invalid,
illegal, or unenforceable provisions had never been contained herein.
8.3 WAIVER. If either party should waive any breach of any provisions
of this Agreement, that party shall not hereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
8.4 COMPLETE AGREEMENT. This Agreement and its Exhibits, together
with any agreements governing any equity interests which may become available
to Executive in conjunction with his employment by the Company, constitute the
entire agreement between Executive and the Company and it is the complete,
final, and exclusive embodiment of their agreement with regard to this subject
matter. It is entered into without reliance on any promise or representation
other than those expressly contained herein, and it cannot be modified or
amended except in a writing signed by an officer of the Company.
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<PAGE> 6
8.5 COUNTERPARTS. This agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.
8.6 HEADINGS. The heading of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
8.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any of his duties hereunder and he may not
assign any of his rights hereunder without the written consent of the company,
which shall not be withheld unreasonably.
8.8 CHOICE OF LAW. All questions concerning the construction, validity
and interpretation of this Agreement will be governed by the law of the State of
Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
PARADYNE CORPORATION
By:/s/ James L. Slattery
------------------------------------------
James L. Slattery, Senior Vice President &
Chief Legal & Intellectual Property Officer
Date: 29 August 1997
--------------
Accepted and agreed as of the 29
day of August, 1997.
/s/Thomas E. Epley
- ------------------
THOMAS E. EPLEY
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<PAGE> 7
EXHIBIT A
PARADYNE
EMPLOYEE PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment by
PARADYNE, (the "Company"), and the compensation now and hereafter paid to
me, I hereby agree as follows:
1. NONDISCLOSURE.
1.1 Recognition of Company's Rights; Nondisclosure. At all times during my
employment and thereafter, I will hold in strictest confidence and will not
disclose, use, lecture upon or publish any of the Company's Proprietary
Information (defined below), except as such disclosure, use or publication may
be required in connection with my work for the Company, or unless an officer of
the Company expressly authorizes such in writing. I have been informed and
acknowledge that the unauthorized taking of the Company's trade secrets (i)
could result in civil liability under Florida's Uniform Trade Secret Act
(Florida statutes ss. 688.001-688.009), and, if willful, could result in an
award for double the amount of the Company's damages and for attorneys' fees;
and (ii) is a crime under Florida Statute ss. 812.081, punishable by
imprisonment for up to five years, or a fine of up to $5,000, or both. I will
obtain Company's written approval before publishing or submitting for
publication any material (written, oral, or otherwise) that relates to my work
at Company and/or incorporates any Proprietary Information. I hereby assign to
the Company any rights I may have or acquire in such Proprietary Information
and recognize that all Proprietary Information shall be the sole property of
the Company and its assigns.
1.2 Proprietary Information. The term "Proprietary Information" shall mean
any and all confidential and/or proprietary knowledge, data or information of
the Company. By way of illustration but not limitation, "Proprietary
Information" includes (a) trade secrets, inventions, mask works, ideas,
processes, formulas, source and object codes, data, programs, other works of
authorship, know-how, improvements, discoveries, developments, designs and
techniques (hereinafter collectively referred to as "Inventions"); and (b)
information regarding plans for research, development, new products, marketing
and selling, business plans, budgets and unpublished financial statements,
licenses, prices and costs, suppliers and customers; and (c) information
regarding the skills and compensation of other employees of the Company.
Notwithstanding the foregoing, it is understood that, at all such times, I am
free to use information which is generally known in the trade or industry,
which is not gained as a result of a breach of this Agreement, and my own,
skill, knowledge, know-how and experience to whatever extent and in whichever
way I wish.
1.3 Third Party Information. I understand, in addition, that the Company
has received and in the future will receive from third parties confidential or
proprietary
1.
<PAGE> 8
information ("Third Party Information") subject to a duty on the Company's part
to maintain the confidentiality of such information and to use it only for
certain limited purposes. During the term of my employment and thereafter, I
will hold Third Party Information in the strictest confidence and will not
disclose to anyone (other than Company personnel who need to know such
information in connection with their work for the Company) or use, except in
connection with my work for the Company, Third Party Information unless
expressly authorized by an officer of the Company in writing.
1.4 No Improper Use of Information of Prior Employers and Others. During
my employment by the Company I will not improperly use or disclose any
confidential information or trade secrets, if any, of any former employer or
any other person to whom I have an obligation of confidentiality, and I will
not bring onto the premises of the Company any unpublished documents or any
property belonging to any former employer or any other person to whom I have an
obligation of confidentiality unless consented to in writing by that former
employer or person. I will use in the performance of my duties only information
which is generally known and used by persons with training and experience
comparable to my own, which is common knowledge in the industry or otherwise
legally in the public domain, or which is otherwise provided or developed by
the Company.
2. ASSIGNMENT OF INVENTIONS.
2.1 Proprietary Rights. The term "Proprietary Rights" shall mean all
trade secret, patent, copyright, mask work and other intellectual property
rights throughout the world.
2.2 Prior Inventions. Inventions, if any, patented or unpatented, which I
made prior to the commencement of my employment with the Company are excluded
from the scope of this Agreement. To preclude any possible uncertainty, I have
set forth on Exhibit A (Previous Inventions) attached hereto a complete list of
all Inventions that I have, alone or jointly with others, conceived, developed
or reduced to practice or caused to be conceived, developed or reduced to
practice prior to the commencement of my employment with the Company, that I
consider to be my property or the property of third parties and that I wish to
have excluded from the scope of this Agreement (collectively referred to as
"Prior Inventions"). If disclosure of any such Prior Invention would cause me
to violate any prior confidentiality agreement, I understand that I am not to
list such Prior Inventions in Exhibit A but am only to disclose a cursory name
for each such invention, a listing of the party(ies) to whom it belongs and the
fact that full disclosure as to such inventions has not been made for that
reason. A space is provided on Exhibit A for such purpose. If no such
disclosure is attached, I represent that there are no Prior Inventions. If,
in the course of my employment with the Company, I incorporate a Prior
Invention into a Company product, process or machine, the Company is hereby
granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual,
worldwide license (with rights to sublicense through multiple tiers of
sublicensees) to make, have made, modify, use and sell such Prior Invention.
Notwithstanding the foregoing, I agree that I will not incorporate, or permit
to be incorporated, Prior Inventions in any Company Inventions without the
Company's prior written consent.
2.3 Assignment of Inventions. Subject to Sections 2.4, and 2.6, I hereby
assign and agree to assign in the future (when any such Inventions or
Proprietary Rights are first reduced to practice or first fixed in a tangible
medium, as applicable) to the Company all my
2.
<PAGE> 9
right, title and interest in and to any and all Inventions (and all Proprietary
Rights with respect thereto) whether or not patentable or registrable under
copyright or similar statures, made or conceived or reduced to practice or
learned by me, either alone or jointly with others, during the period of my
employment with the Company. Inventions assigned to the Company, or to a third
party as directed by the Company pursuant to this Section 2, are hereinafter
referred to as "Company Inventions."
2.4 Nonassignable Inventions. I recognize that, in the event of a
specifically applicable state law, regulation, rule, or public policy ("Specific
Inventions Law"), this Agreement will not be deemed to require assignment of any
invention which qualifies fully for protection under a Specific Inventions Law
by virtue of the fact that any such invention was, for example, developed
entirely on my own time without using the Company's equipment, supplies,
facilities, or trade secrets and neither related to the Company's actual or
anticipated business, research or development, nor resulted from work performed
by me for the Company. In the absence of a Specific Inventions Law, the
preceding sentence will not apply.
2.5 Obligation to Keep Company Informed. During the period of my employment
and for six (6) months after termination of my employment with the Company, I
will promptly disclose to the Company fully and in writing all Inventions
authored, conceived or reduced to practice by me, either alone or jointly with
others. In addition, I will promptly disclose to the Company all patent
applications filed by me or on my behalf within a year after termination of
employment. At the time of each such disclosure, I will advise the Company in
writing of any Inventions that I believe fully qualify for protection under the
provisions of a Specific Inventions Law; and I will at that time provide to the
Company in writing all evidence necessary to substantiate that belief. The
Company will keep in confidence and will not use for any purpose or disclose to
third parties without my consent any confidential information disclosed in
writing to the Company pursuant to this Agreement relating to Inventions that
qualify fully for protection under a Specific Inventions Law. I will preserve
the confidentiality of any Invention that does not fully qualify for protection
under a Specific Inventions Law.
2.6 Government or Third Party. I also agree to assign all my right, title
and interest in and to any particular Company Invention to a third party,
including without limitation the United States, as directed by the Company.
2.7 Works for Hire. I acknowledge that all original works of authorship
which are made by me (solely or jointly with others) within the scope of my
employment and which are protectable by copyright are "works made for hire,"
pursuant to United States Copyright Act (17 U.S.C., Section 101).
2.8 Enforcement of Proprietary Rights. I will assist the Company in every
proper way to obtain, and from time to time enforce, United States and foreign
Proprietary Rights relating to Company Inventions in any and all countries. To
that end I will execute, verify and deliver such documents and perform such
other acts (including appearances as a witness) as the Company may reasonably
request for use in applying for, obtaining, perfecting, evidencing, sustaining
and enforcing such Proprietary Rights and the assignment thereof. In addition, I
will execute, verify and deliver assignments of such Proprietary Rights to the
Company or its designee. My obligation to assist the Company with respect to
Proprietary Rights relating to such Company
<PAGE> 10
Inventions in any and all countries shall continue beyond the termination of my
employment, but the Company shall compensate me at a reasonable rate after my
termination of the time actually spent by me at the Company's request on such
assistance.
In the event the Company is unable for any reason, after reasonable effort,
to secure my signature on any document needed in connection with the actions
specified in the preceding paragraph, I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agent and attorney
in fact, which appointment is coupled with an interest, to act for and in my
behalf to execute, verify and file any such documents and to do all other
lawfully permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by me. I hereby waive and
quitclaim to the Company any and all claims, of any nature whatsoever, which I
now or may hereafter have for infringement of any Proprietary Rights assigned
hereunder to the Company.
3. RECORDS. I agree to keep and maintain adequate and current records (in the
form of notes, sketches, drawings and in any other form that may be required by
the Company) of all Proprietary Information developed by me and all Inventions
made by me during the period of my employment at the Company, which records
shall be available to and remain the sole property of the Company at all times.
4. NO CONFLICTING OBLIGATION. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep in confidence information acquired by me in
confidence or in trust prior to my employment by the Company. I have not entered
into, and I agree I will not enter into, any agreement either written or oral in
conflict herewith.
5. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I
will deliver to the Company any and all drawings, notes, memoranda,
specifications, devices, formulas, and documents, together with all copies
thereof, and any other material containing or disclosing any Company
Inventions, Third Party Information or Proprietary Information of the Company.
I further agree that any property situated on the Company's premises and owned
by the Company, including disks and other storage media, filing cabinets or
other work areas, is subject to inspection by Company personnel at any time
with or without notice. Prior to leaving, I will cooperate with the Company in
completing and signing the Company's termination statement.
6. LEGAL AND EQUITABLE REMEDIES. Because my services are personal and unique
and because I may have access to and become acquainted with the Proprietary
Information of the Company, the Company shall have the right to enforce this
Agreement and any of its provisions by injunction, specific performance or other
equitable relief, without bond and without prejudice to any other rights and
remedies that the Company may have for a breach of this Agreement.
7. NOTICES. Any notices required or permitted hereunder shall be given to the
appropriate party at the address specified below or at such other address as
the party shall specify in writing. Such notice shall be deemed given upon
personal delivery to the appropriate address or if sent by certified or
registered mail, three (3) days after the date of mailing.
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<PAGE> 11
8. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the
Company, I hereby consent to the notification of my new employer of my rights
and obligations under this Agreement.
9. GENERAL PROVISIONS.
9.1 Governing Law; Consent to Personal Jurisdiction. This Agreement will
be governed by and construed according to the laws of the State of Florida, as
such laws are applied to agreements entered into and to be performed entirely
within Florida between Florida residents. I hereby expressly consent to the
personal jurisdiction of the state and federal courts located in Pinellas
County, Florida for any lawsuit filed there against me by Company arising from
or related to this Agreement.
9.2 Severability. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively
broad as to duration, geographical scope, activity or subject, it shall be
construed by limiting and reducing it, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear.
9.3 Successors and Assigns. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be
for the benefit of the Company, its successors, and its assigns.
9.4 Survival. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the
Company to any successor in interest or other assignee.
9.5 Employment. I agree and understand that nothing in this Agreement
shall confer any right with respect to continuation of employment by the
Company, nor shall it interfere in any way with my right or the Company's right
to terminate my employment at any time, with or without cause.
9.6 Waiver. No waiver by the Company of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by the
Company of any right under this Agreement shall be construed as a waiver of any
other right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.
9.7 Entire Agreement. The obligations pursuant to Sections 1 and 2 of
this Agreement shall apply to any time during which I was previously employed,
or am in the future employed, by the Company as a consultant if no other
agreement governs nondisclosure and assignment of inventions during such period.
This Agreement is the final, complete and exclusive agreement of the parties
with respect to the subject matter hereof and supersedes and merges all prior
discussions between us. No modification of or amendment to this Agreement, nor
any waiver of any rights under this Agreement, will be effective unless in
writing and signed by the party to be charged. Any subsequent change or changes
in my duties, salary or compensation will not affect the validity or scope of
this Agreement.
This Agreement shall be effective as of the first day of my employment
with the Company, namely:
, 1996.
- ------------------------------
5.
<PAGE> 12
I have read this agreement carefully and understand its terms. I have
completely filled out Exhibit A to this Agreement.
Dated:
---------------------------------
Accepted and Agreed to:
Paradyne
By:
------------------------------------
Title:
---------------------------------
---------------------------------------
(Address)
---------------------------------------
Dated:
---------------------------------
<PAGE> 13
EXHIBIT B
RELEASE AND WAIVER OF CLAIMS
In exchange for payment to me of amounts pursuant to Section 5.2(b) of my
Employment Agreement to which this form is attached, I hereby furnish Paradyne
(the "Company") with the following release and waiver:
I hereby release, and forever discharge the Company, its officers,
directors, agents, employees, stockholders, successors, assigns and affiliates,
of and from any and all claims, liabilities, demands, causes of action, costs,
expenses, attorney's fees, damages, indemnities and obligations of every kind
and nature, in law, equity, or otherwise, known and unknown, suspected and
unsuspected, disclosed and undisclosed, arising ant any time prior to and
including the execution date of this Release with respect to any claims relating
to my employment and the termination of my employment, including but not limited
to, claims pursuant to any federal, state or local law relating to employment
including, but not limited to, discrimination claims, claims under the Florida
Civil Human Rights Act of 1977, as amended, and the federal Age Discrimination
in Employment Act of 1967, as amended ("ADEA"), or claims for wrongful
termination, breach of the covenant of good faith, contract claims, tort
claims, and wage or benefit claims, including but not limited to, claims for
salary, bonuses, commissions, stock, stock options, vacation pay, fringe
benefits, severance pay (including benefits available under the Paradyne Staff
Reduction Policy, if any) or any form of compensation.
I also acknowledge that I have read and understand the following statement,
which reads as follows: "A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his settlement
with the debtor." I hereby expressly waive and relinquish all rights and under
that statement and any law of Florida or any other jurisdiction of similar
effect with respect to any claims I may have against the Company.
I acknowledge that, among other rights, I am waiving and releasing any
rights I may have under ADEA, that this waiver and release is knowing and
voluntary, and that the consideration given for this waiver and release is in
addition to anything of value to which I was already entitled as an employee of
the Company. I further acknowledge that I have been advised, as required by the
Older Workers Benefit Protection Act, that: (a) the waiver and release granted
herein does not relate to claims which may arise after this agreement is
executed; (b) I have the right to consult with an attorney prior to executing
this agreement (although I may choose voluntarily not to do so); (c) I have
twenty-one (21) days from the date I receive this agreement, in which to
consider this agreement (although I may choose voluntarily to execute this
agreement earlier); (d) I have seven (7) days following the execution of this
agreement to revoke my consent to the agreement; and (3) following the execution
of this agreement to revoke my consent to the agreement; and (e) this agreement
shall not be effective until the seven (7) day revocation period has expired.
Date: By:
------------------------------------------- ---------------------------
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<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
31st day of October, 1996 by and between Paradyne Corporation, a Delaware
corporation (the "Company"), and Andrew S. May ("Executive").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Employment. On the terms and subject to the conditions contained in
this Agreement, the Company hereby employs Executive, and Executive hereby
accepts employment, to serve the Company in the position described in Section 3.
2. Term. The term of Executive's employment shall be for the period
commencing December 3, 1996 (the first date of employment being the "Effective
Date") and ending December 31, 1998, unless sooner terminated pursuant to the
terms of this Agreement. Commencing on December 31, 1997, and each day
thereafter the term of this Agreement shall automatically be extended for one
additional day so that thereafter the remaining term of this Agreement shall
always be one year.
3. Duties.
3.1 Position. During the period from the Effective Date through
March 31, 1997, Executive will serve as President and Chief Operating Officer
reporting to the Chief Executive Officer and thereafter as President and Chief
Executive Officer reporting to the Chairman of the Board and the Board of
Directors of the Company. Executive will also be elected to the Board of
Directors of Paradyne Acquisitions Corp. on or before April 1, 1997. Executive
shall also hold such position or render such services to the corporations
specified in Section 4.2(c) so as to qualify and continue to qualify for the
grants specified in said section. Initially Executive will have the usual and
customary duties of the President and Chief Operating Officer, which duties
will be consistent with the then-current Certificate of Incorporation and
By-laws of the Company and shall include responsibility for Business
Management, Engineering, U.S. and International Sales and Communications and as
of April 1, 1997, such responsibilities shall be increased to include all of
the remaining departments of organizations within the Company, subject to the
general supervision of the Chairman of the Board of the Board of Directors.
3.2 Outside Activities. Executive will devote Executive's full time to
the performance of Executive's duties hereunder but may make and manage
personal investments of Executive's choice and may serve as a director of a
business enterprise (not directly or indirectly in competition with the Company)
or civic organization, subject to prior approval of the Board of Directors.
3.3 Place of Performance. In connection with Executive's employment by
the Company, the Executive shall be based at the principal executive offices of
the
<PAGE> 2
Company in Largo, Florida, or in the greater Tampa Bay, Florida area, or as
otherwise mutually agreed to by the Company and the Executive, except for
vacations and requested or necessary travel on Company business.
4. Compensation. During the term of this Agreement, Executive shall
receive the following compensation and fringe benefits.
4.1 Base Salary. Executive shall receive a base salary ("Base
Salary") at an annual rate of $300,000 payable in installments consistent with
the Company's payroll policies. Executive's Base Salary rate shall be subject
to annual review by the Board of Directors, but in no event shall Executive's
Base Salary be reduced below Executive's Base Salary for any prior period.
4.2 Incentive Compensation. Executive shall receive additional
compensation as follows:
(a) A commencement bonus in the amount of $35,000 payable on
January 2, 1997.
(b) Beginning in the Company's fiscal year 1997 and for each
subsequent year during the term of this Agreement, Executive shall be eligible
to receive a cash bonus equal to fifty percent (50%) of Executive's then Base
Salary if the Company and the Executive achieve the quarterly and annual
targeted performance objectives as shall be agreed upon by the Executive, the
Chairman of the Board and adopted by Board of Directors of the Company. One
third of such bonus shall be paid as soon as is practicable after the conclusion
of the Company's fiscal year (currently the calendar year) based upon the
achievement of agreed upon fiscal year objectives and the remaining two thirds
shall be spread equally over the four fiscal quarters and shall be determined
and paid as soon as is practicable after the end of each fiscal quarter based
upon the achievement of agreed upon quarterly objectives.
(c) Upon the Effective Date, the Company shall cause Paradyne
Acquisition Corp. ("PAC") and Globespan Technologies Inc. (GTI) to grant to
Executive in the aggregate three nonstatutory stock options. The first option
shall be to purchase 600,000 shares of common stock of PAC with an exercise
price of three (3) dollars pursuant to the Paradyne Acquisition Corp. 1996
Equity Incentive Plan. The second option shall be to purchase 250,000 share of
common stock of PAC with an exercise price of fifteen (15) dollars (the value of
such unexercised options if the Company is sold shall take into consideration
the total value of the transaction including debt assumption). The third option
shall be to purchase 150,000 shares of common stock of GTI with an exercise
price of one (1) dollar pursuant to the Globespan Technologies Inc. 1996 Equity
Incentive Plan. To the extent required, the Company shall cause the plans to be
amended to increase shares available for grant. The options shall have a term of
at least ten years from the Effective Date. The Options shall vest with respect
to 25 percent of all shares subject to the options on the first anniversary of
the Effective Date and six and one quarter
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percent (6.25%) on each three (3) month anniversary of the Effective Date
thereafter (for full vesting after four years). Notwithstanding the foregoing,
the options of the applicable company shall vest: with respect to 100 percent
of the total number of shares subject to the options upon any liquidation,
dissolution, consolidation or merger of the company or transfer to one or more
transferees of substantially all of the assets of the either PAC or GTI,
occurring in a single transaction or series of transactions, where the
shareholders of the Company prior to the first of such transactions own less
than majority of the voting power of the applicable company after such
transaction (a public offering of the common stock of PAC or GTI shall not
cause accelerated vesting). The provisions of the relevant option plans are
incorporated herein by reference; provided, however that where such terms are
inconsistent with the terms hereof the terms of this Agreement shall prevail.
In addition the provisions contained in Exhibit A attached hereto shall apply
to the options granted under the PAC and GTI plans.
4.3 Benefits. For the term of this Agreement the Company agrees to
provide the following benefits:
4.3.1 Company Benefit Plans. Executive shall participate in all of
the Company's benefit plans including, without limitation, the Company's life
insurance, medical, dental, prescription, short-term and long-term disability,
accidental death and dismemberment, travel, and retirement savings plan, in
accordance with the terms of such plans and consistent with Executive's
position with the Company. The Company may discontinue or amend any such plans
at its election.
4.3.2 Vacations and Holidays. Executive shall be entitled to five
weeks annual vacation time, to be taken in a manner consistent with
Executive's duties. Executive shall be entitled to all holidays and personal
days regularly observed or given by Company.
4.3.3 Relocation Expenses. The Company shall pay the costs of
Executive's relocation of Executive's and Executive's immediate family's
household effects to a site near the present location of the Company's offices
in Florida, including reasonable travel expenses of Executive and Executive's
spouse to identify appropriate interim living accommodations. The Company shall
pay to the Executive $73,000 on the Effective Date or as soon thereafter as is
practicable as reimbursement for the estimated closing costs for the sale of
Executive's residence in California, closing costs for the purchase of a
permanent residence near the present location of the Company's offices in
Florida, and any other agreed upon relocation expenses. Any such payments shall
be subject to appropriate withholding for federal and state taxes if applicable.
If necessary the Company will reimburse Executive for up to seven months after
the Effective Date for monthly rental payments for temporary quarters in
Pinellas County, Florida, such payments shall be subject to being grossed up for
any and all federal and Florida state taxes.
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5. Reimbursement of Business Expenses. During the term of this
Agreement, the Company shall promptly reimburse Executive for business expenses
incurred by Executive in accordance with the Company's policies.
6. Termination.
6.1 Death. Executive's employment by the Company shall terminate
automatically upon the death of Executive, but the Company shall remain liable
to Executive's estate/heirs/devisees for then accrued but unpaid Base Salary and
vested benefits, including, without limitation, any bonus to which Executive
would be entitled under Section 4.2 if the Company or the Executive had achieved
the targeted performance under its plan, such bonus to be prorated for the
number of days Executive was employed by the Company in the year in which death
occurs. All payments shall be made to Executive's estate or as directed by
Executive in writing.
6.2 Termination by the Company. The Company may at its election
terminate Executive's employment at any time with or without cause. Upon the
effective date of termination without cause, Executive shall be entitled to (i)
the full amount of Base Salary specified in Section 4.1 for the remainder of the
term hereof and (ii) if such termination occurs prior the January 1, 1999,
acceleration of vesting of those options that would have vested in the calendar
year of termination without cause. Under (ii) the Company shall have the right
to purchase the stock of the Company subject to such acceleration at a fair
market value as described in the relevant stock option plan and pursuant to the
provisions of paragraph 8 of Exhibit A attached hereto. If such termination is
for cause the Executive shall only be entitled to Executive's Base Salary
through the date of termination and shall not be entitled to any bonus not yet
paid and no further vesting of the options shall occur beyond the termination
date. For purposes of this Agreement, the Company shall have "cause" to
terminate the Executive's employment hereunder upon (i) the willful and
continued failure by the Executive to substantially perform Executive duties
hereunder after demand for substantial performance is delivered by the Company
that specifically identifies the manner in which the Company believes the
Executive has not substantially performed Executive's duties, or (ii) the
willful engaging by the Executive in misconduct which is materially injurious to
the Company, monetarily or otherwise, or (iii) conviction of any felony.
6.3 Termination by Executive. If Executive terminates Executive's
employment with the Company following a material breach by the Company (as
defined below), Executive shall be entitled to the benefits described above for
termination without cause. As used in this Section, "material breach by the
Company" shall mean either (a) the assignment of Executive, without Executive's
consent, to a position or duties inconsistent with Executive's status as a
senior executive officer or as a member of key management or a material
alteration in the nature or status of Executive's title, duties, authority,
place of performance or responsibilities in effect on the Effective Date or
April 1, 1997, as the case may be or (b) the failure by the Company to provide
compensation and other benefits to Executive in accordance with this Agreement.
If Executive terminates Executive's
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employment without a material breach by the Company, Executive shall only be
entitled to the benefits described above for termination with cause.
6.4 Subsequent Employment. If after termination without cause,
Executive accepts employment with or is in anyway engaged for compensation by an
entity or organization that does not compete with the Company as described in
Section 7 the Executive shall give prompt written notice to the Company and
payments obligated under this Section shall cease upon the later of twelve
months after the date of termination or the date of such subsequent employment.
Provided however such payments shall be offset by the amount of taxable income
Executive is entitled to receive or reasonably should be entitled to receive
with respect to such employment and further provided that the provisions of this
Section 6.4 shall not operate or be construed to mean any payment shall extend
beyond that provided for under Section 6.2 or 6.3 above. If Executive accepts
subsequent employment in violation of Section 7 or violates its provisions in
any other way all payments under Section 6 shall immediately be terminated.
Notwithstanding the termination of such payments in either case Executive shall
continue to be bound by the provisions of Section 7. The provisions of this
Section 6.4 do not apply to the vesting of options or rights to exercise options
upon termination as such issues are addressed elsewhere in this Agreement.
7. Non-Compete.
7.1 Non Compete
(a) During the term of this Agreement and for a period of six
months after the termination of Executive's employment, Executive will not
directly or directly:
I. engage in, or be employed by, or in any way advise or act for, or have
any financial interest in any business which is a material competitor
of the Company which produces, markets and/or sell products or services
that were offered for or planned to be offered for sale, license or
lease by the Company while Executive was employed by the Company;
provided however that the ownership of 1% of the outstanding securities
of any corporation, even though such corporation may be a material
competitor of the Company as specified above, shall not be deemed as
constituting a financial interest in such competitor, or
II. recruit, solicit or induce, or attempt to induce, any employee or
employees of the Company to terminate their employment with, or
otherwise cease their relationship with, the Company; or
III. solicit, divert or take away, or attempt to divert or to take away, the
business or patronage of any of the clients, customers or accounts, or
prospective clients, customers or accounts, of the Company which were
contacted, solicited or served by Executive while employed by the
Company.
(b) If any restriction set forth in this Section 7 is found by any
court of competent jurisdiction to be unenforceable because it extends for too
long a period of time or over
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too great a range of activities or in too broad a geographic area, it shall be
interpreted to extend only over the maximum period of time, range of activities
or geographic areas as to which it may be enforceable.
(c) The restrictions contained in this Section 7 are necessary for
the protection of the business and goodwill of the Company and are considered by
Executive to be reasonable for such purpose. Executive agrees that any breach of
this Section 7 will cause the Company substantial and irrevocable damage and
therefore, in the event of any such breach, in addition to such other remedies
which may be available, the Company shall have the right to seek specific
performance and injunctive relief.
8. Proprietary Information.
8.1 Proprietary Information.
(a) Executive agrees that all information, whether or not in
writing, of a private, secret or confidential nature concerning the Company's
business or financial affairs (collectively, "Proprietary Information") is and
shall be the exclusive property of the Company. By way of illustration, but not
limitation, Proprietary Information may include inventions, products, formulas,
compositions, compounds, projects, developments, plans, research data, clinical
data, financial data, personnel data, computer programs, and customer and
supplier lists. Except in the ordinary course of business and in accordance with
Company policies regarding such disclosures, Executive will not disclose any
Proprietary Information to others outside the Company or use the same for any
unauthorized purposes without written approval by the Board of Directors of the
Company, either during or after Executive's employment, unless and until such
Proprietary Information has become public knowledge without fault by Executive.
(b) Executive agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, laboratory notebooks, inventions, program
listings, or other written, photographic, or other tangible material containing
Proprietary Information, whether created by Executives or others, which shall
come into Executive's custody or possession, shall be and are the exclusive
property of the Company to be used by Executive only in the performance of
Executive's duties for the Company.
9. Miscellaneous
9.1 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been given
on the date of delivery if delivered personally or by overnight courier, or
three days after mailing if mailed by first class certified mail, postage
prepaid and return receipt requested, addressed as follows:
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to the Company: Paradyne Corporation
8545 126th Avenue North
Largo, FL 33773
Attention: Corporate Secretary
to Executive: Andrew S. May
13606 Bodie Ct.
San Diego, CA 92129
or to such other address (or to such other person's attention as either party
may specify in a notice to the other given in accordance with this Section).
9.2 Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the respective heirs, executors, administrators,
successors, and assigns of the parties, provided, however, that neither the
Company nor Executive may assign any obligations hereunder without the prior
written consent of the other party.
9.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida applicable to
contracts entered into and fully to be performed within the State of Florida by
Florida residents, without reference to its conflicts of law principles.
9.4 Arbitration. At the option of either the Company or the
Executive, any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration conducted in the Tampa
Bay, Florida area before a neutral arbitrator in accordance with the rules of
the American Arbitration Association then in effect. The Company and the
Executive shall make every good faith effort to submit any dispute or
controversy promptly following notice of such controversy or the date of a
termination and to complete the arbitration within 60 days following such notice
or date of termination. Judgment may be entered on the arbitrator's award in any
court having jurisdiction. If the Executive is successful in pursuing any
material claim or dispute arising out of this Agreement, the Company shall pay
all the Executive's attorney's fees and other costs. The expense of such
arbitration shall be borne by the Company. Furthermore during such period of
arbitration the Company shall continue to pay and provide Executive all Base
Salary and any other benefits provided under Section 4.3.1 of this Agreement and
further provided that the amount of any Base Salary or other benefits paid
during such period of arbitration shall under no circumstances be required to be
repaid by the Executive to the Company regardless of the outcome of any
arbitration proceeding.
9.5 Modifications. All modifications to this Agreement must be in
writing and signed by both parties.
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9.6 Counterparts. This Agreement may be signed in two
counterparts, each of which shall be deemed an original and both of which shall
together constitute the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PARADYNE CORPORATION
a Delaware Corporation
BY: /s/ James Slattery /s/ Andrew May
----------------------- -----------------------
Executive
Its: Senior Vice President
-----------------------
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EXHIBIT A
TO
ANDREW S. MAY
EMPLOYMENT AGREEMENT
1. METHOD OF PAYMENT. Payment of the exercise price by cash or check is
due in full upon exercise of all or any part of Executive's options, provided
that Executive may elect, to the extent permitted by applicable law, to make
payment pursuant to a program developed under Regulation T as promulgated by the
Federal Reserve Board which, prior to the issuance of Common Stock, results in
either the receipt of cash (or check) by the Company or the receipt of
irrevocable instructions to pay the aggregate exercise price to the Company from
the sales proceeds.
2. WHOLE SHARES. Executive's options may only be exercised for whole
shares.
3. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein or the Agreement, Executive's option may not be exercised
unless the shares issuable upon exercise of Executive's option are then
registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act. Further the
Company agrees that, with respect to any exercise of the acquisition of stock
under an option during the time that a Registration Statement under the
Securities Act of 1933, as amended, is in effect with respect to such stock and
an appropriate exemption under applicable state securities laws is available,
Executive will not be required by the Company to give the written assurances
provided for pursuant to Section 11(e) of the option plans.
4. TERM. The term of Executive's options commences on the Effective Date
under the Agreement and expires upon the earliest of:
(i) as provided in the Employment Agreement;
(ii) the tenth (10th) anniversary of the Effective Date;
(iii) twelve (12) months after Executive's death, if Executive dies
during Executive's continuous status as Employee; or
(iv) twelve (12) months after the termination of Executive's continuous
status as Employee due to disability; or
(v) sixty (60) days after the termination of Executive's continuous
status as an Employee for any other reason, provided that during any part of
such sixty.
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(60) day period the option is not exercisable solely because of the condition
set forth in paragraph 3 (Securities Law Compliance), in which event the option
shall not expire until the earlier of the tenth anniversary of the Effective
Date or until it shall have been exercisable for an aggregate period of sixty
(60) days after the termination of continuous status as an Employee.
5. EXERCISE.
(a) Executive may exercise the vested portion of Executive's option
during its term by delivering a notice of exercise (in a form designated by the
Company) together with the exercise price to the Secretary of the Company, or to
such other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising Executive's option Executive agrees that:
(i) as a condition to any exercise of Executive's option, the
Company may require Executive to enter an arrangement providing for the payment
by Executive to the Company of any tax withholding obligation of the Company
arising by reason of (1) the exercise of Executive's option; (2) the lapse of
any substantial risk of forfeiture to which the shares are subject at the time
of exercise; or (3) the disposition of shares acquired upon such exercise;
(ii) the Company (or a representative of the underwriters) may, in
connection with the first underwritten registration of the offering of any
securities subject to the option under the Act, require that Executive not sell
or otherwise transfer or dispose of any shares of such common stock or other
securities of PAC or GTI during such period (not to exceed one hundred eighty
(180) days) following the effective date of the registration statement filed
under the Act as may be requested by the PAC or GTI or the representative of the
underwriters. Executive further agrees that either company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
6. TRANSFERABILITY. Executive's option is not transferable, except by
will or by the laws of descent and distribution, and is exercisable during
Executive's life only by Executive. Notwithstanding the foregoing, by delivering
written notice to the Company, in a form satisfactory to the Company, Executive
may designate a third party who, in the event of Executive's death, shall
thereafter be entitled to exercise Executive's option.
8. RIGHT OF REPURCHASE. Prior to the date of the first registration of
an equity security of the relevant company under Section 12 of the Exchange Act,
such company shall have the right, but not the obligation, to repurchase all or
any part of the shares received pursuant to the exercise of Executive's option
at a price equal to the Fair Market Value of such shares at the date the company
exercises the right of repurchase (the
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"Repurchase Option"). The Repurchase Option shall expire 90 days following the
termination of Executive's Continuous Status as an Employee (the "Repurchase
Period"). The Repurchase Option shall be exercised by the company giving
Executive, or Executive's legal representative, written notice of its intention
to exercise the Repurchase Option on or before the last day of the Repurchase
Period. The company may, in exercising the Repurchase Option, designate one or
more nominees to purchase the shares, whether with or without the participation
of the company.
9. GOVERNING PLAN DOCUMENT. Executive's option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of
Executive's option, including without limitation the provisions of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of the Employment Agreement and those of the option plans, the
provisions of the Employment Agreement shall control.
10. PLAN EXCEPTIONS. The provisions of Section 8 of the option plans
are made specifically subject to the provisions of Section 13 e of the plans,
and the reference to "kind" in Section 12 a. of the option plans shall not be
construed to include a distribution of the equity of such corporation.
/s/ James Slattery
- ---------------------------------------
Company
/s/ Andrew May
- ----------------------------------------
Executive
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EXHIBIT 10.14
PARADYNE CORPORATION
KEY EMPLOYEE AGREEMENT
FOR
PATRICK M. MURPHY
This Key Employee Agreement ("Agreement") is entered into as of the 1st
day of August, 1996, by and between PATRICK M. MURPHY ("Executive") and
PARADYNE CORPORATION, a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide personal
services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and
WHEREAS, Executive wishes to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 The Company agrees to employ Executive in the position of
Senior Vice President, Chief Financial Officer and Treasurer, and Executive
hereby accepts such employment effective as of the date of this Agreement.
During the terms of his employment with the Company, Executive will devote his
best efforts and substantially all of his business time and attention (except
for vacation periods and reasonable periods of illness or other incapacities
permitted by the Company's general employment policies) to the business of the
Company.
1.2 Executive shall serve in an executive capacity and shall
perform such duties as are customarily associated with his then current title,
consistent with the Bylaws of the Company and as required by the Company's
Board of Directors (the "Board").
1.3 The employment relationship between the parties shall also
be governed by the general employment policies and practices of the Company,
including those relating to protection of confidential information and
assignment of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment policies or
practices, this Agreement shall control.
1.4 The term of this Agreement shall be for a period commencing
on the date hereof and shall end on its anniversary date the next year (the
"Term").
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2. COMPENSATION.
2.1 SALARY. Executive shall receive, for services to be
rendered under this Agreement, an annualized base salary of $215,000, payable
in installments consistent with the Company's payroll policies.
2.2 EQUITY PLAN. Executive will be eligible to
participate in the Company's Equity Plan, and shall be granted an option to
purchase 100,000 shares under the plan at an exercise price of three dollars
($3) per share with four year vesting and such other terms as shall be in
accordance with provisions of the Plan or determined by the Board of Directors.
2.3 DISCRETIONARY INCENTIVE BONUS. Executive will be
eligible for a discretionary bonus, in an annualized amount of $70,000 with
participation for 1996 prorated from July 8, 1996, to the end of 1996. The
amount to be earned if all of the following criteria are met:
(a) COMPANY PROFITABILITY. The Company must
meet or exceed its planned profit objectives for the bonus year, and
(b) EXECUTIVE'S PERFORMANCE. Executive must
demonstrate performance over and above that required to meet the ordinary
expectations of his job position, as determined by the Company in its sole
discretion; and
(c) ACTIVE EMPLOYMENT. Executive must remain an
active employee through the end of the bonus year. Executive forfeits any bonus
for which he would otherwise be eligible if his employment terminates for any
reason before the end of the bonus year. Except as provided above for 1996, no
prorated bonus can be earned.
2.4 STANDARD COMPANY BENEFITS. Except for the Company's
Severance Benefit Plan (if any), Executive shall be entitled to all rights and
benefits for which he is eligible under the terms and conditions of the
standard Company benefits and compensation practices which may be in effect
from time to time and provided by the Company to its employees generally and to
its management and executive employees in specific.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Executive agrees to execute and abide by
the Proprietary Information and Inventions Agreement attached hereto as Exhibit
A.
3.2 REMEDIES. Executive's duties under the Proprietary
Information and Inventions Agreement shall survive termination of his
employment with the Company. Executive acknowledges that a remedy at law for
any breach or threatened breach by him of the provisions of the Proprietary
Information and Inventions Agreement would be inadequate, and he therefore
agrees that the Company shall be entitled to injunctive relief in case of any
such breach or threatened breach.
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4. OUTSIDE ACTIVITIES.
4.1 Except for the "winddown" activities for Continental
Broadcasting and the Robert M. Bass Group Inc. and otherwise with the prior
written consent of the Company's Board of Directors, Executive will not during
the term of this Agreement undertake or engage in any other employment,
occupation or business enterprise, other than ones in which Executive is a
passive investor. Executive may engage in civic and not-for-profit activities
so long as such activities do not materially interfere with the performance of
his duties hereunder.
4.2 Except as permitted by Section 4.3, Executive
agrees not to acquire, assume, or participate in (directly or indirectly) any
position, investment or interest known by him to be adverse or antagonistic to
the Company, its business, or its prospects, financial or otherwise.
4.3 During the term of his employment by the Company,
except on behalf of the Company, Executive will not have any direct or indirect
business connection or interest, in any capacity whatsoever, with any other
person or entity known by him to compete directly with the Company, throughout
the world, in any line of business engaged in (or planned to be engaged in) by
the Company. Nothing in this paragraph shall bar Executive from owning
securities of any competitor corporation as a passive investor, so long as his
aggregate direct holdings in any one such corporation shall not constitute more
than 1% of the voting stock of that corporation.
5. TERMINATION OF EMPLOYMENT
5.1 EMPLOYMENT AT-WILL. Executive and Company each
acknowledge that either party has the right to terminate Executive's employment
with the Company at any time for any reason whatsoever, with or without cause
or advance notice. This at-will employment relationship cannot be changed
except in a writing signed by a duly authorized officer of the Company.
5.2 COMPANY-INITIATED TERMINATION WITHOUT CAUSE.
(a) The Company shall have the right to
terminate Executive's employment with the Company at any time without cause.
(b) If Executive's employment is terminated
without cause, and upon Executive's providing the Company with a signed general
release of all claims, a form of which is set forth in Exhibit B (the
"Release", then on the Effective Date of such Release, the Company shall pay
Executive an amount equivalent to the greater of six months of his then-base or
the remainder of the Executive's unpaid annualized base salary through the end
of the Term, subject to standard payroll deductions and withholding.
Executive's compensation and benefits otherwise cease as of his termination
date.
5.3 COMPANY-INITIATED TERMINATION FOR CAUSE.
(a) The Company shall have the right to
terminate Executive's employment with the Company at any time for cause.
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(b) "Cause" for termination shall mean: (a)
indictment or conviction of any felony or of any crime involving dishonesty;
(b) participation in any fraud against the Company; (c) breach of Executive's
duties to the Company or violations of Company policy; (d) intentional damage
to any property of the Company; or (e) conduct by Executive which, in the good
faith and reasonable determination of the Board, demonstrates gross unfitness
to serve. "Cause" shall include any single instance of gross breach of
Executive's duties, gross violation of Company policy, or other serious
misconduct.
(c) If Executive's employment is terminated at
any time for cause, unless the Company elects to offer the payment specified in
Section 7, he will not be entitled to severance pay, pay in lieu of notice, or
any other such compensation.
5.4 Executive-Initiated Voluntary Termination.
(a) Executive may voluntarily terminate his
employment with the Company at any time, after which no further compensation
will be paid to Executive.
(b) If Executive voluntarily terminates his
employment, he will not be entitled to severance pay, pay in lieu of notice, or
any other such compensation unless the Company elects to offer the payments
specified under Section 7.
6. RESTRICTIVE COVENANT. Provided Executive is receiving a
payment under 5.2 (b), or if the Company elects to make such payment for
termination under 5.3 or 5.4 if Executive's employment with the Company
terminates, then for six (6) months immediately following the termination date,
Executive shall not, without the prior written approval of the Company,
directly or indirectly engage or prepare to engage in any activities in
competition with the Company, or accept employment or establish a business
relationship with a business engaged in or preparing to engage in competition
with the Company, in any geographical location in which the Company as of the
termination date either conducts or plans to conduct business. Executive agrees
that this restriction is reasonably necessary to protect the Company's
legitimate business interests in its trade secrets and valuable confidential
business information.
7. NONINTERFERENCE. While employed by the Company, and
thereafter, provided the Company has offered the Executive the payment
specified under 5.2 (b) for six (6) months immediately following the
termination of Executive's employment, Executive agrees not to interfere with
the business of the Company by:
(a) soliciting, attempting to solicit, inducing, or
otherwise causing any employee of the Company to terminate his or her
employment in order to become an employee, consultant or independent contractor
to or for any competitor of the Company; or
(b) directly or indirectly soliciting the business of
any customer, client, vendor, or distributor of the Company which was a
customer, client, vendor, or distributor of the Company at the time of
termination or at any time in the year immediately preceding that date.
Executive agrees that this restriction is reasonably necessary to
protect the Company's legitimate business interest in its substantial
relationship with specific customers, and its valuable confidential business
information.
4
<PAGE> 5
8. GENERAL PROVISIONS.
8.1 NOTICES. Any notices provided hereunder must be in
writing and shall be deemed effective upon the earlier of personal delivery
(including personal delivery by fax) or the third day after mailing by
first-class mail to the Company at its primary office location and to Executive
at his address as listed on the Company payroll.
8.2 SEVERABILITY. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal, or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality, or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal, or unenforceable provisions had never been contained herein.
8.3 WAIVER. If either party should waive any breach of
any provisions of this Agreement, that party shall not thereby be deemed to
have waived any preceding or succeeding breach of the same or any other
provision of this Agreement.
8.4 COMPLETE AGREEMENT. This Agreement and its Exhibits,
together with any agreements governing any equity interests which may become
available to Executive in conjunction with his employment by the Company,
constitute the entire agreement between Executive and the Company and it is the
complete, final, and exclusive embodiment of their agreement with regard to this
subject matter. It is entered into without reliance on any promise or
representation other than those expressly contained herein, and it cannot be
modified or amended except in a writing signed by an officer of the Company.
8.5 COUNTERPARTS. This agreement may be executed in
separate counterparts, any one of which need not contain signatures of more
than one party, but all of which taken together will constitute one and the
same Agreement.
8.6 HEADINGS. The heading of the sections hereof are
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof
8.7 SUCCESSORS AND ASSIGNS. This Agreement is intended
to bind and inure to the benefit of and be enforceable by Executive and the
Company, and their respective successors, assigns, heirs, executors and
administrators, except that Executive may not assign any of his duties
hereunder and he may not assign any of his rights hereunder without the written
consent of the Company, which shall not be withheld unreasonably.
5
<PAGE> 6
8.8 CHOICE OF LAW. All questions concerning the
construction, validity and interpretation of this Agreement will be governed by
the law of the State of Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the day and year first above written.
PARADYNE CORPORATION
By: /s/ James L. Slattery
-----------------------------------------
James L. Slattery, Senior Vice President &
Chief Legal & Administrative Officer
Date: 12 Sept 1996
-----------------------------------------
Accepted and agreed as of the
1st day of August, 1996.
/s/ Patrick M. Murphy
- -------------------------------
PATRICK M. MURPHY
6
<PAGE> 7
PARADYNE CORPORATION
KEY EMPLOYEE AGREEMENT
AMENDMENT NO. 1
FOR
PATRICK M. MURPHY
A Key Employee Agreement ("Agreement") was entered into as of the 1st
day of August, 1996, by and between PATRICK M. MURPHY ("Executive") and
PARADYNE CORPORATION, a Delaware corporation (the "Company").
WHEREAS, the Company and the Executive desire to amend said Agreement
by providing for a continuing extension of said Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto that
said Agreement shall be amended as follows:
The Agreement is amended by deleting Section 1.4 and substituting therefore the
following new Section 1.4:
"1.4 Unless terminated pursuant to its terms, the term of this
Agreement shall be for one year provided however commencing on
August 1, 1996, and each day thereafter the term of this Agreement
shall automatically be extended for one additional day so that
thereafter the remaining term of this Agreement shall always be
one year."
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
PARADYNE CORPORATION
By: /s/ Thomas Epley
-------------------------------------
Thomas Epley, Chairman & CEO
Date: 3-18-97
-------------------------------------
Accepted and agreed as of the
18 day of March, 1997.
/s/ PATRICK M. MURPHY
- ----------------------------------
PATRICK M. MURPHY
1
<PAGE> 8
EXHIBIT A
PARADYNE
EMPLOYEE PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment by
PARADYNE, (the "Company"), and the compensation now and hereafter paid to
me, I hereby agree as follows:
1. NONDISCLOSURE.
1.1 Recognition of Company's Rights; Nondisclosure. At all times during my
employment and thereafter, I will hold in strictest confidence and will not
disclose, use, lecture upon or publish any of the Company's Proprietary
Information (defined below), except as such disclosure, use or publication may
be required in connection with my work for the Company, or unless an officer of
the Company expressly authorizes such in writing. I have been informed and
acknowledge that the unauthorized taking of the Company's trade secrets (i)
could result in civil liability under Florida's Uniform Trade Secret Act
(Florida statutes ss. 688.001-688.009), and, if willful, could result in an
award for double the amount of the Company's damages and for attorneys' fees;
and (ii) is a crime under Florida Statute ss. 812.081, punishable by
imprisonment for up to five years, or a fine of up to $5,000, or both. I will
obtain Company's written approval before publishing or submitting for
publication any material (written, oral, or otherwise) that relates to my work
at Company and/or incorporates any Proprietary Information. I hereby assign to
the Company any rights I may have or acquire in such Proprietary Information
and recognize that all Proprietary Information shall be the sole property of
the Company and its assigns.
1.2 Proprietary Information. The term "Proprietary Information" shall mean
any and all confidential and/or proprietary knowledge, data or information of
the Company. By way of illustration but not limitation, "Proprietary
Information" includes (a) trade secrets, inventions, mask works, ideas,
processes, formulas, source and object codes, data, programs, other works of
authorship, know-how, improvements, discoveries, developments, designs and
techniques (hereinafter collectively referred to as "Inventions"); and (b)
information regarding plans for research, development, new products, marketing
and selling, business plans, budgets and unpublished financial statements,
licenses, prices and costs, suppliers and customers; and (c) information
regarding the skills and compensation of other employees of the Company.
Notwithstanding the foregoing, it is understood that, at all such times, I am
free to use information which is generally known in the trade or industry,
which is not gained as a result of a breach of this Agreement, and my own,
skill, knowledge, know-how and experience to whatever extent and in whichever
way I wish.
1.3 Third Party Information. I understand, in addition, that the Company
has received and in the future will receive from third parties confidential or
proprietary
1.
<PAGE> 9
information ("Third Party Information") subject to a duty on the Company's part
to maintain the confidentiality of such information and to use it only for
certain limited purposes. During the term of my employment and thereafter, I
will hold Third Party Information in the strictest confidence and will not
disclose to anyone (other than Company personnel who need to know such
information in connection with their work for the Company) or use, except in
connection with my work for the Company, Third Party Information unless
expressly authorized by an officer of the Company in writing.
1.4 No Improper Use of Information of Prior Employers and Others. During
my employment by the Company I will not improperly use or disclose any
confidential information or trade secrets, if any, of any former employer or
any other person to whom I have an obligation of confidentiality, and I will
not bring onto the premises of the Company any unpublished documents or any
property belonging to any former employer or any other person to whom I have an
obligation of confidentiality unless consented to in writing by that former
employer or person. I will use in the performance of my duties only information
which is generally known and used by persons with training and experience
comparable to my own, which is common knowledge in the industry or otherwise
legally in the public domain, or which is otherwise provided or developed by
the Company.
2. ASSIGNMENT OF INVENTIONS.
2.1 Proprietary Rights. The term "Proprietary Rights" shall mean all
trade secret, patent, copyright, mask work and other intellectual property
rights throughout the world.
2.2 Prior Inventions. Inventions, if any, patented or unpatented, which I
made prior to the commencement of my employment with the Company are excluded
from the scope of this Agreement. To preclude any possible uncertainty, I have
set forth on Exhibit A (Previous Inventions) attached hereto a complete list of
all Inventions that I have, alone or jointly with others, conceived, developed
or reduced to practice or caused to be conceived, developed or reduced to
practice prior to the commencement of my employment with the Company, that I
consider to be my property or the property of third parties and that I wish to
have excluded from the scope of this Agreement (collectively referred to as
"Prior Inventions"). If disclosure of any such Prior Invention would cause me
to violate any prior confidentiality agreement, I understand that I am not to
list such Prior Inventions in Exhibit A but am only to disclose a cursory name
for each such invention, a listing of the party(ies) to whom it belongs and the
fact that full disclosure as to such inventions has not been made for that
reason. A space is provided on Exhibit A for such purpose. If no such
disclosure is attached, I represent that there are no Prior Inventions. If,
in the course of my employment with the Company, I incorporate a Prior
Invention into a Company product, process or machine, the Company is hereby
granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual,
worldwide license (with rights to sublicense through multiple tiers of
sublicensees) to make, have made, modify, use and sell such Prior Invention.
Notwithstanding the foregoing, I agree that I will not incorporate, or permit
to be incorporated, Prior Inventions in any Company Inventions without the
Company's prior written consent.
2.3 Assignment of Inventions. Subject to Sections 2.4, and 2.6, I hereby
assign and agree to assign in the future (when any such Inventions or
Proprietary Rights are first reduced to practice or first fixed in a tangible
medium, as applicable) to the Company all my
2.
<PAGE> 10
right, title and interest in and to any and all Inventions (and all Proprietary
Rights with respect thereto) whether or not patentable or registrable under
copyright or similar statures, made or conceived or reduced to practice or
learned by me, either alone or jointly with others, during the period of my
employment with the Company. Inventions assigned to the Company, or to a third
party as directed by the Company pursuant to this Section 2, are hereinafter
referred to as "Company Inventions."
2.4 Nonassignable Inventions. I recognize that, in the event of a
specifically applicable state law, regulation, rule, or public policy ("Specific
Inventions Law"), this Agreement will not be deemed to require assignment of any
invention which qualifies fully for protection under a Specific Inventions Law
by virtue of the fact that any such invention was, for example, developed
entirely on my own time without using the Company's equipment, supplies,
facilities, or trade secrets and neither related to the Company's actual or
anticipated business, research or development, nor resulted from work performed
by me for the Company. In the absence of a Specific Inventions Law, the
preceding sentence will not apply.
2.5 Obligation to Keep Company Informed. During the period of my employment
and for six (6) months after termination of my employment with the Company, I
will promptly disclose to the Company fully and in writing all Inventions
authored, conceived or reduced to practice by me, either alone or jointly with
others. In addition, I will promptly disclose to the Company all patent
applications filed by me or on my behalf within a year after termination of
employment. At the time of each such disclosure, I will advise the Company in
writing of any Inventions that I believe fully qualify for protection under the
provisions of a Specific Inventions Law; and I will at that time provide to the
Company in writing all evidence necessary to substantiate that belief. The
Company will keep in confidence and will not use for any purpose or disclose to
third parties without my consent any confidential information disclosed in
writing to the Company pursuant to this Agreement relating to Inventions that
qualify fully for protection under a Specific Inventions Law. I will preserve
the confidentiality of any Invention that does not fully qualify for protection
under a Specific Inventions Law.
2.6 Government or Third Party. I also agree to assign all my right, title
and interest in and to any particular Company Invention to a third party,
including without limitation the United States, as directed by the Company.
2.7 Works for Hire. I acknowledge that all original works of authorship
which are made by me (solely or jointly with others) within the scope of my
employment and which are protectable by copyright are "works made for hire,"
pursuant to United States Copyright Act (17 U.S.C., Section 101).
2.8 Enforcement of Proprietary Rights. I will assist the Company in every
proper way to obtain, and from time to time enforce, United States and foreign
Proprietary Rights relating to Company Inventions in any and all countries. To
that end I will execute, verify and deliver such documents and perform such
other acts (including appearances as a witness) as the Company may reasonably
request for use in applying for, obtaining, perfecting, evidencing, sustaining
and enforcing such Proprietary Rights and the assignment thereof. In addition, I
will execute, verify and deliver assignments of such Proprietary Rights to the
Company or its designee. My obligation to assist the Company with respect to
Proprietary Rights relating to such Company
<PAGE> 11
Inventions in any and all countries shall continue beyond the termination of my
employment, but the Company shall compensate me at a reasonable rate after my
termination of the time actually spent by me at the Company's request on such
assistance.
In the event the Company is unable for any reason, after reasonable effort,
to secure my signature on any document needed in connection with the actions
specified in the preceding paragraph, I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agent and attorney
in fact, which appointment is coupled with an interest, to act for and in my
behalf to execute, verify and file any such documents and to do all other
lawfully permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by me. I hereby waive and
quitclaim to the Company any and all claims, of any nature whatsoever, which I
now or may hereafter have for infringement of any Proprietary Rights assigned
hereunder to the Company.
3. RECORDS. I agree to keep and maintain adequate and current records (in the
form of notes, sketches, drawings and in any other form that may be required by
the Company) of all Proprietary Information developed by me and all Inventions
made by me during the period of my employment at the Company, which records
shall be available to and remain the sole property of the Company at all times.
4. NO CONFLICTING OBLIGATION. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep in confidence information acquired by me in
confidence or in trust prior to my employment by the Company. I have not entered
into, and I agree I will not enter into, any agreement either written or oral in
conflict herewith.
5. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I
will deliver to the Company any and all drawings, notes, memoranda,
specifications, devices, formulas, and documents, together with all copies
thereof, and any other material containing or disclosing any Company
Inventions, Third Party Information or Proprietary Information of the Company.
I further agree that any property situated on the Company's premises and owned
by the Company, including disks and other storage media, filing cabinets or
other work areas, is subject to inspection by Company personnel at any time
with or without notice. Prior to leaving, I will cooperate with the Company in
completing and signing the Company's termination statement.
6. LEGAL AND EQUITABLE REMEDIES. Because my services are personal and unique
and because I may have access to and become acquainted with the Proprietary
Information of the Company, the Company shall have the right to enforce this
Agreement and any of its provisions by injunction, specific performance or other
equitable relief, without bond and without prejudice to any other rights and
remedies that the Company may have for a breach of this Agreement.
7. NOTICES. Any notices required or permitted hereunder shall be given to the
appropriate party at the address specified below or at such other address as
the party shall specify in writing. Such notice shall be deemed given upon
personal delivery to the appropriate address or if sent by certified or
registered mail, three (3) days after the date of mailing.
4
<PAGE> 12
8. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the
Company, I hereby consent to the notification of my new employer of my rights
and obligations under this Agreement.
9. GENERAL PROVISIONS.
9.1 Governing Law; Consent to Personal Jurisdiction. This Agreement will
be governed by and construed according to the laws of the State of Florida, as
such laws are applied to agreements entered into and to be performed entirely
within Florida between Florida residents. I hereby expressly consent to the
personal jurisdiction of the state and federal courts located in Pinellas
County, Florida for any lawsuit filed there against me by Company arising from
or related to this Agreement.
9.2 Severability. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively
broad as to duration, geographical scope, activity or subject, it shall be
construed by limiting and reducing it, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear.
9.3 Successors and Assigns. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be
for the benefit of the Company, its successors, and its assigns.
9.4 Survival. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the
Company to any successor in interest or other assignee.
9.5 Employment. I agree and understand that nothing in this Agreement
shall confer any right with respect to continuation of employment by the
Company, nor shall it interfere in any way with my right or the Company's right
to terminate my employment at any time, with or without cause.
9.6 Waiver. No waiver by the Company of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by the
Company of any right under this Agreement shall be construed as a waiver of any
other right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.
9.7 Entire Agreement. The obligations pursuant to Sections 1 and 2 of
this Agreement shall apply to any time during which I was previously employed,
or am in the future employed, by the Company as a consultant if no other
agreement governs nondisclosure and assignment of inventions during such period.
This Agreement is the final, complete and exclusive agreement of the parties
with respect to the subject matter hereof and supersedes and merges all prior
discussions between us. No modification of or amendment to this Agreement, nor
any waiver of any rights under this Agreement, will be effective unless in
writing and signed by the party to be charged. Any subsequent change or changes
in my duties, salary or compensation will not affect the validity or scope of
this Agreement.
This Agreement shall be effective as of the first day of my employment
with the Company, namely:
, 1996.
- ------------------------------
5.
<PAGE> 13
I have read this agreement carefully and understand its terms. I have
completely filled out Exhibit A to this Agreement.
Dated:
---------------------------------
Accepted and Agreed to:
Paradyne
By:
------------------------------------
Title:
---------------------------------
---------------------------------------
(Address)
---------------------------------------
Dated:
---------------------------------
<PAGE> 1
EXHIBIT 10.15
PARADYNE CORPORATION
KEY EMPLOYEE AGREEMENT
FOR
JAMES L. SLATTERY
This Employment Agreement ("Agreement") is entered into as of the 1st
day of August, 1996, by and between JAMES L. SLATTERY ("Executive") and
PARADYNE CORPORATION, a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide personal
services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and
WHEREAS, Executive wishes to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 The Company agrees to employ Executive in the
position of Senior Vice President and Chief Legal and Administrative Officer,
and Secretary, and Executive hereby accepts such employment effective as of the
date of this Agreement. During the term of his employment with the Company,
Executive will devote his best efforts and substantially all of his business
time and attention (except for vacation periods as set forth herein and
reasonable periods of illness or other incapacities permitted by the Company's
general employment policies) to the business of the Company.
1.2 Executive shall serve in an executive capacity and
shall perform such duties as are customarily associated with his then current
title, consistent with the Bylaws of the Company and as required by the
Company's Board of Directors (the "Board").
1.3 The employment relationship between the parties
shall also be governed by the general employment policies and practices of the
Company, including those relating to protection of confidential information and
assignment of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company's general employment policies or
practices, this Agreement shall control.
1.4 The term of this Agreement shall be for a period
commencing on the date hereof and shall end on its anniversary date the next
year (the "Term").
1
<PAGE> 2
2. COMPENSATION.
2.1 SALARY. Executive shall receive, for services to be
rendered under this Agreement, an annualized base salary of not less than
Executive's annual salary as of June 1, 1996 ($189,410) payable in installments
consistent with the Company's payroll policies.
2.2 EQUITY PLAN. Executive will be eligible to
participate in the Company's Equity Plan, if any, to the full extent allowed
under the terms of that Plan. Option grants to Executive pursuant to the Plan
shall be determined in all respects in the Company's sole discretion.
2.3 DISCRETIONARY INCENTIVE BONUS. Executive will be
eligible for a discretionary bonus, in an amount not less than the Executive's
target incentive as of June 1, 1996 ($85,000) or such higher amount to be
determined solely by the Company in its discretion, earned if all of the
following criteria are met:
(a) COMPANY PROFITABILITY. The Company must
meet or exceed its planned profit objectives for the bonus year, and
(b) EXECUTIVE'S PERFORMANCE. Executive must
demonstrate performance over and above that required to meet the ordinary
expectations of his job position, as determined by the Company in its sole
discretion; and
(c) ACTIVE EMPLOYMENT. Executive must remain an
active employee through the end of the bonus year. Executive forfeits any bonus
for which he would otherwise be eligible if his employment terminates for any
reason before the end of the bonus year. No prorated bonus can be earned.
2.4 STANDARD COMPANY BENEFITS. Except for the Company's
Severance Benefit Plan (if any), Executive shall be entitled to all rights and
benefits for which he is eligible under the terms and conditions of the standard
Company benefits and compensation practices which may be in effect from time to
time and provided by the Company to its employees generally and to its
management and executive employees in specific.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Executive agrees to execute and abide by
the Proprietary Information and Inventions Agreement attached hereto as Exhibit
A.
3.2 REMEDIES. Executive's duties under the Proprietary
Information and Inventions Agreement shall survive termination of his employment
with the Company. Executive acknowledges that a remedy at law for any breach or
threatened breach by him of the provisions of the Proprietary Information and
Inventions Agreement would be inadequate, and he therefore agrees that the
Company shall be entitled to injunctive relief in case of any such breach or
threatened breach.
2
<PAGE> 3
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior written consent of the
Company's Board of Directors, Executive will not during the term of this
Agreement undertake or engage in any other employment, occupation or business
enterprise, other than ones in which Executive is a passive investor. Executive
may engage in civic and not-for-profit activities so long as such activities do
not materially interfere with the performance of his duties hereunder.
4.2 Except as permitted by Section 4.3, Executive agrees
not to acquire, assume, or participate in (directly or indirectly) any
position, investment or interest known by him to be adverse or antagonistic to
the Company, its business, or its prospects, financial or otherwise.
4.3 During the term of his employment by the Company,
except on behalf of the Company, Executive will not have any direct or indirect
business connection or interest, in any capacity whatsoever, with any other
person or entity known by him to compete directly with the Company, throughout
the world, in any line of business engaged in (or planned to be engaged in) by
the Company. Nothing in this paragraph shall bar Executive from owning
securities of any competitor corporation as a passive investor, so long as his
aggregate direct holdings in any one such corporation shall not constitute more
than 1% of the voting stock of that corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 EMPLOYMENT AT-WILL. Executive and Company each
acknowledge that either party has the right to terminate Executive's employment
with the Company at any time for any reason whatsoever, with or without cause
or advance notice. This at-will employment relationship cannot be changed
except in a writing signed by a duly authorized officer of the Company.
5.2 COMPANY-INITIATED TERMINATION WITHOUT CAUSE.
(a) The Company shall have the right to
terminate Executive's employment with the Company at any time without cause.
(b) If Executive's employment is terminated
without cause, and upon Executive's providing the Company with a signed general
release of all claims, a form of which is set forth in Exhibit B (the
"Release"), then on the Effective Date of such Release, the Company shall pay
Executive an amount equivalent to the greater of six months of his then-base
salary, or the remainder of the Executive's unpaid annualized base salary
through the end of the Term, subject to standard payroll deductions and
withholding. Executive's compensation and benefits otherwise cease as of his
termination date.
5.3 COMPANY-INITIATED TERMINATION FOR CAUSE.
(a) The Company shall have the right to
terminate Executive's employment with the Company at any time for cause.
3
<PAGE> 4
(b) "Cause" for termination shall mean: (a)
indictment or conviction of any felony or of any crime involving dishonesty;
(b) participation in any fraud against the Company; (c) breach of Executive's
duties to the Company, or violations of Company policy; (d) intentional damage
to any property of the Company, or (e) conduct by Executive which, in the good
faith and reasonable determination of the Board, demonstrates gross unfitness
to serve. "Cause" shall include any single instance of gross breach of
Executive's duties, gross violation of Company policy, or other serious
misconduct.
(c) If Executive's employment is terminated at
any time for cause, he will not be entitled to severance pay, pay in lieu of
notice, or any other such compensation.
5.4 EXECUTIVE-INITIATED VOLUNTARY TERMINATION.
(a) Executive may voluntarily terminate his
employment with the Company at any time, after which no further compensation
will be paid to Executive.
(b) If Executive voluntarily terminates his
employment, he will not be entitled to severance pay, pay in lieu of notice, or
any other such compensation.
6. RESTRICTIVE COVENANT. Provided Executive is receiving a
payment under 5.2 (b), if Executive's employment with the Company is
terminated, then for one (1) year immediately following the termination date,
Executive shall not, without the prior written approval of the Company,
directly or indirectly engage or prepare to engage in any activities in
competition with the Company, or accept employment or establish a business
relationship with a business engaged in or preparing to engage in competition
with the Company, in any geographical location in which the Company as of the
termination date either conducts or plans to conduct business. Executive agrees
that this restriction is reasonably necessary to protect the Company's
legitimate business interests in its trade secrets and valuable confidential
business information.
7. NONINTERFERENCE. While employed by the Company, and
thereafter, provided Executive is receiving a payment under 5.2 (b) for one (1)
year immediately following the termination of Executive's employment, Executive
agrees not to interfere with the business of the Company by:
(a) soliciting, attempting to solicit, inducing, or
otherwise causing any employee of the Company to terminate his or her
employment in order to become an employee, consultant, or independent
contractor to or for any competitor of the Company; or
(b) directly or indirectly soliciting the business of
any customer, client, vendor, or distributor of the Company which was a
customer, client, vendor, or distributor of the Company at the time of
termination or at any time in the year immediately preceding that date.
Executive agrees that this restriction is reasonably necessary to
protect the Company's legitimate business interests in its substantial
relationship with specific customers, and its valuable confidential business
information.
4
<PAGE> 5
8. GENERAL PROVISIONS.
8.1 NOTICES. Any notices provided hereunder must be in
writing and shall be deemed effective upon the earlier of personal delivery
(including personal delivery by fax) or the third day after mailing by
first-class mail to the Company at its primary office location and to Executive
at his address as listed on the Company payroll.
8.2 SEVERABILITY. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal, or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality, or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal, or unenforceable provisions had never been contained herein,
8.3 WAIVER. If either party should waive any breach of
any provisions of this Agreement, that party shall not thereby be deemed to
have waived any preceding or succeeding breach of the same or any other
provision of this Agreement.
8.4 COMPLETE AGREEMENT. This Agreement and its Exhibits,
together with any agreements governing any equity interests which may become
available to Executive in conjunction with his employment by the Company,
constitute the entire agreement between Executive and the Company and it is the
complete, final, and exclusive embodiment of their agreement with regard to this
subject matter. It is entered into without reliance on any promise or
representation other than those expressly contained herein, and it cannot be
modified or amended except in a writing signed by an officer of the Company.
8.5 COUNTERPARTS. This agreement may be executed in
separate counterparts, any one of which need not contain signatures of more
than one party, but all of which taken together will constitute one and the
same Agreement
8.6 HEADINGS. The heading of the sections hereof are
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof.
8.7 SUCCESSORS AND ASSIGNS. This Agreement is intended
to bind and inure to the benefit of and be enforceable by Executive and the
Company, and their respective successors, assigns, heirs, executors and
administrators, except that Executive may not assign any of his duties
hereunder and he may not assign any of his rights hereunder without the written
consent of the Company, which shall not be withheld unreasonably.
8.8 CHOICE OF LAW. All questions concerning the
construction, validity and interpretation of this Agreement will be governed by
the law of the State of Florida.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement
on the day and year first above written.
PARADYNE CORPORATION
By: /s/ Tom Epley
------------------------------------
Tom Epley
Chief Executive Officer
Date: JULY 31, 1996
------------------------------------
Accepted and agreed this
1st day of August 1996.
/s/ James L. Slattery
- -------------------------------
JAMES L. SLATTERY
6
<PAGE> 7
PARADYNE CORPORATION
KEY EMPLOYEE AGREEMENT
AMENDMENT NO. 1
FOR
JAMES L. SLATTERY
A Key Employee Agreement ("Agreement") was entered into as of the 1st
day of August, 1996, by and between JAMES L. SLATTERY ("Executive") and
PARADYNE CORPORATION, a Delaware corporation (the "Company").
WHEREAS, the Company and the Executive desire to amend said Agreement
by providing for a continuing extension of said Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto that
said Agreement shall be amended as follows:
The Agreement is amended by deleting Section 1.4 and substituting therefore the
following new Section 1.4:
"1.4 Unless terminated pursuant to its terms, the term of this
Agreement shall be for one year provided however commencing on August
1, 1996, and each day thereafter the term of this Agreement shall
automatically be extended for one additional day so that thereafter
the remaining term of this Agreement shall always be one year."
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
PARADYNE CORPORATION
By: /s/ Thomas Epley,
------------------------------------
Thomas Epley, Chairman & CEO
Date: 3-18-97
------------------------------------
Accepted and agreed as of the
18th day of March, 1997.
/s/ James L. Slattery
- ----------------------------------
JAMES L. SLATTERY
1
<PAGE> 8
EXHIBIT A
PARADYNE
EMPLOYEE PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment by
PARADYNE, (the "Company"), and the compensation now and hereafter paid to
me, I hereby agree as follows:
1. NONDISCLOSURE.
1.1 Recognition of Company's Rights; Nondisclosure. At all times during my
employment and thereafter, I will hold in strictest confidence and will not
disclose, use, lecture upon or publish any of the Company's Proprietary
Information (defined below), except as such disclosure, use or publication may
be required in connection with my work for the Company, or unless an officer of
the Company expressly authorizes such in writing. I have been informed and
acknowledge that the unauthorized taking of the Company's trade secrets (i)
could result in civil liability under Florida's Uniform Trade Secret Act
(Florida statutes ss. 688.001-688.009), and, if willful, could result in an
award for double the amount of the Company's damages and for attorneys' fees;
and (ii) is a crime under Florida Statute ss. 812.081, punishable by
imprisonment for up to five years, or a fine of up to $5,000, or both. I will
obtain Company's written approval before publishing or submitting for
publication any material (written, oral, or otherwise) that relates to my work
at Company and/or incorporates any Proprietary Information. I hereby assign to
the Company any rights I may have or acquire in such Proprietary Information
and recognize that all Proprietary Information shall be the sole property of
the Company and its assigns.
1.2 Proprietary Information. The term "Proprietary Information" shall mean
any and all confidential and/or proprietary knowledge, data or information of
the Company. By way of illustration but not limitation, "Proprietary
Information" includes (a) trade secrets, inventions, mask works, ideas,
processes, formulas, source and object codes, data, programs, other works of
authorship, know-how, improvements, discoveries, developments, designs and
techniques (hereinafter collectively referred to as "Inventions"); and (b)
information regarding plans for research, development, new products, marketing
and selling, business plans, budgets and unpublished financial statements,
licenses, prices and costs, suppliers and customers; and (c) information
regarding the skills and compensation of other employees of the Company.
Notwithstanding the foregoing, it is understood that, at all such times, I am
free to use information which is generally known in the trade or industry,
which is not gained as a result of a breach of this Agreement, and my own,
skill, knowledge, know-how and experience to whatever extent and in whichever
way I wish.
1.3 Third Party Information. I understand, in addition, that the Company
has received and in the future will receive from third parties confidential or
proprietary
1.
<PAGE> 9
information ("Third Party Information") subject to a duty on the Company's part
to maintain the confidentiality of such information and to use it only for
certain limited purposes. During the term of my employment and thereafter, I
will hold Third Party Information in the strictest confidence and will not
disclose to anyone (other than Company personnel who need to know such
information in connection with their work for the Company) or use, except in
connection with my work for the Company, Third Party Information unless
expressly authorized by an officer of the Company in writing.
1.4 No Improper Use of Information of Prior Employers and Others. During
my employment by the Company I will not improperly use or disclose any
confidential information or trade secrets, if any, of any former employer or
any other person to whom I have an obligation of confidentiality, and I will
not bring onto the premises of the Company any unpublished documents or any
property belonging to any former employer or any other person to whom I have an
obligation of confidentiality unless consented to in writing by that former
employer or person. I will use in the performance of my duties only information
which is generally known and used by persons with training and experience
comparable to my own, which is common knowledge in the industry or otherwise
legally in the public domain, or which is otherwise provided or developed by
the Company.
2. ASSIGNMENT OF INVENTIONS.
2.1 Proprietary Rights. The term "Proprietary Rights" shall mean all
trade secret, patent, copyright, mask work and other intellectual property
rights throughout the world.
2.2 Prior Inventions. Inventions, if any, patented or unpatented, which I
made prior to the commencement of my employment with the Company are excluded
from the scope of this Agreement. To preclude any possible uncertainty, I have
set forth on Exhibit A (Previous Inventions) attached hereto a complete list of
all Inventions that I have, alone or jointly with others, conceived, developed
or reduced to practice or caused to be conceived, developed or reduced to
practice prior to the commencement of my employment with the Company, that I
consider to be my property or the property of third parties and that I wish to
have excluded from the scope of this Agreement (collectively referred to as
"Prior Inventions"). If disclosure of any such Prior Invention would cause me
to violate any prior confidentiality agreement, I understand that I am not to
list such Prior Inventions in Exhibit A but am only to disclose a cursory name
for each such invention, a listing of the party(ies) to whom it belongs and the
fact that full disclosure as to such inventions has not been made for that
reason. A space is provided on Exhibit A for such purpose. If no such
disclosure is attached, I represent that there are no Prior Inventions. If,
in the course of my employment with the Company, I incorporate a Prior
Invention into a Company product, process or machine, the Company is hereby
granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual,
worldwide license (with rights to sublicense through multiple tiers of
sublicensees) to make, have made, modify, use and sell such Prior Invention.
Notwithstanding the foregoing, I agree that I will not incorporate, or permit
to be incorporated, Prior Inventions in any Company Inventions without the
Company's prior written consent.
2.3 Assignment of Inventions. Subject to Sections 2.4, and 2.6, I hereby
assign and agree to assign in the future (when any such Inventions or
Proprietary Rights are first reduced to practice or first fixed in a tangible
medium, as applicable) to the Company all my
2.
<PAGE> 10
right, title and interest in and to any and all Inventions (and all Proprietary
Rights with respect thereto) whether or not patentable or registrable under
copyright or similar statures, made or conceived or reduced to practice or
learned by me, either alone or jointly with others, during the period of my
employment with the Company. Inventions assigned to the Company, or to a third
party as directed by the Company pursuant to this Section 2, are hereinafter
referred to as "Company Inventions."
2.4 Nonassignable Inventions. I recognize that, in the event of a
specifically applicable state law, regulation, rule, or public policy ("Specific
Inventions Law"), this Agreement will not be deemed to require assignment of any
invention which qualifies fully for protection under a Specific Inventions Law
by virtue of the fact that any such invention was, for example, developed
entirely on my own time without using the Company's equipment, supplies,
facilities, or trade secrets and neither related to the Company's actual or
anticipated business, research or development, nor resulted from work performed
by me for the Company. In the absence of a Specific Inventions Law, the
preceding sentence will not apply.
2.5 Obligation to Keep Company Informed. During the period of my employment
and for six (6) months after termination of my employment with the Company, I
will promptly disclose to the Company fully and in writing all Inventions
authored, conceived or reduced to practice by me, either alone or jointly with
others. In addition, I will promptly disclose to the Company all patent
applications filed by me or on my behalf within a year after termination of
employment. At the time of each such disclosure, I will advise the Company in
writing of any Inventions that I believe fully qualify for protection under the
provisions of a Specific Inventions Law; and I will at that time provide to the
Company in writing all evidence necessary to substantiate that belief. The
Company will keep in confidence and will not use for any purpose or disclose to
third parties without my consent any confidential information disclosed in
writing to the Company pursuant to this Agreement relating to Inventions that
qualify fully for protection under a Specific Inventions Law. I will preserve
the confidentiality of any Invention that does not fully qualify for protection
under a Specific Inventions Law.
2.6 Government or Third Party. I also agree to assign all my right, title
and interest in and to any particular Company Invention to a third party,
including without limitation the United States, as directed by the Company.
2.7 Works for Hire. I acknowledge that all original works of authorship
which are made by me (solely or jointly with others) within the scope of my
employment and which are protectable by copyright are "works made for hire,"
pursuant to United States Copyright Act (17 U.S.C., Section 101).
2.8 Enforcement of Proprietary Rights. I will assist the Company in every
proper way to obtain, and from time to time enforce, United States and foreign
Proprietary Rights relating to Company Inventions in any and all countries. To
that end I will execute, verify and deliver such documents and perform such
other acts (including appearances as a witness) as the Company may reasonably
request for use in applying for, obtaining, perfecting, evidencing, sustaining
and enforcing such Proprietary Rights and the assignment thereof. In addition, I
will execute, verify and deliver assignments of such Proprietary Rights to the
Company or its designee. My obligation to assist the Company with respect to
Proprietary Rights relating to such Company
<PAGE> 11
Inventions in any and all countries shall continue beyond the termination of my
employment, but the Company shall compensate me at a reasonable rate after my
termination of the time actually spent by me at the Company's request on such
assistance.
In the event the Company is unable for any reason, after reasonable effort,
to secure my signature on any document needed in connection with the actions
specified in the preceding paragraph, I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agent and attorney
in fact, which appointment is coupled with an interest, to act for and in my
behalf to execute, verify and file any such documents and to do all other
lawfully permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by me. I hereby waive and
quitclaim to the Company any and all claims, of any nature whatsoever, which I
now or may hereafter have for infringement of any Proprietary Rights assigned
hereunder to the Company.
3. RECORDS. I agree to keep and maintain adequate and current records (in the
form of notes, sketches, drawings and in any other form that may be required by
the Company) of all Proprietary Information developed by me and all Inventions
made by me during the period of my employment at the Company, which records
shall be available to and remain the sole property of the Company at all times.
4. NO CONFLICTING OBLIGATION. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep in confidence information acquired by me in
confidence or in trust prior to my employment by the Company. I have not entered
into, and I agree I will not enter into, any agreement either written or oral in
conflict herewith.
5. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I
will deliver to the Company any and all drawings, notes, memoranda,
specifications, devices, formulas, and documents, together with all copies
thereof, and any other material containing or disclosing any Company
Inventions, Third Party Information or Proprietary Information of the Company.
I further agree that any property situated on the Company's premises and owned
by the Company, including disks and other storage media, filing cabinets or
other work areas, is subject to inspection by Company personnel at any time
with or without notice. Prior to leaving, I will cooperate with the Company in
completing and signing the Company's termination statement.
6. LEGAL AND EQUITABLE REMEDIES. Because my services are personal and unique
and because I may have access to and become acquainted with the Proprietary
Information of the Company, the Company shall have the right to enforce this
Agreement and any of its provisions by injunction, specific performance or other
equitable relief, without bond and without prejudice to any other rights and
remedies that the Company may have for a breach of this Agreement.
7. NOTICES. Any notices required or permitted hereunder shall be given to the
appropriate party at the address specified below or at such other address as
the party shall specify in writing. Such notice shall be deemed given upon
personal delivery to the appropriate address or if sent by certified or
registered mail, three (3) days after the date of mailing.
4
<PAGE> 12
8. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ of the
Company, I hereby consent to the notification of my new employer of my rights
and obligations under this Agreement.
9. GENERAL PROVISIONS.
9.1 Governing Law; Consent to Personal Jurisdiction. This Agreement will
be governed by and construed according to the laws of the State of Florida, as
such laws are applied to agreements entered into and to be performed entirely
within Florida between Florida residents. I hereby expressly consent to the
personal jurisdiction of the state and federal courts located in Pinellas
County, Florida for any lawsuit filed there against me by Company arising from
or related to this Agreement.
9.2 Severability. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively
broad as to duration, geographical scope, activity or subject, it shall be
construed by limiting and reducing it, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear.
9.3 Successors and Assigns. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be
for the benefit of the Company, its successors, and its assigns.
9.4 Survival. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the
Company to any successor in interest or other assignee.
9.5 Employment. I agree and understand that nothing in this Agreement
shall confer any right with respect to continuation of employment by the
Company, nor shall it interfere in any way with my right or the Company's right
to terminate my employment at any time, with or without cause.
9.6 Waiver. No waiver by the Company of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by the
Company of any right under this Agreement shall be construed as a waiver of any
other right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.
9.7 Entire Agreement. The obligations pursuant to Sections 1 and 2 of
this Agreement shall apply to any time during which I was previously employed,
or am in the future employed, by the Company as a consultant if no other
agreement governs nondisclosure and assignment of inventions during such period.
This Agreement is the final, complete and exclusive agreement of the parties
with respect to the subject matter hereof and supersedes and merges all prior
discussions between us. No modification of or amendment to this Agreement, nor
any waiver of any rights under this Agreement, will be effective unless in
writing and signed by the party to be charged. Any subsequent change or changes
in my duties, salary or compensation will not affect the validity or scope of
this Agreement.
This Agreement shall be effective as of the first day of my employment
with the Company, namely:
, 1996.
- ------------------------------
5.
<PAGE> 13
I have read this agreement carefully and understand its terms. I have
completely filled out Exhibit A to this Agreement.
Dated:
---------------------------------
Accepted and Agreed to:
Paradyne
By:
------------------------------------
Title:
---------------------------------
---------------------------------------
(Address)
---------------------------------------
Dated:
---------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 12, 1999, relating
to the financial statements of Paradyne Corporation, and our report dated
November 23, 1998, relating to the financial statements of Paradyne Predecessor
Business, both of which appear in such Prospectus. We also consent to the
references to us under the headings "Experts" and "Selected Consolidated
Financial Data" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Consolidated Financial Data."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tampa, Florida
April 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PARADYNE CORPORATION FOR THE YEAR ENDED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,356
<SECURITIES> 0
<RECEIVABLES> 33,369
<ALLOWANCES> 3,007
<INVENTORY> 16,997
<CURRENT-ASSETS> 55,753
<PP&E> 26,853
<DEPRECIATION> 10,750
<TOTAL-ASSETS> 75,063
<CURRENT-LIABILITIES> 47,371
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 27,288
<TOTAL-LIABILITY-AND-EQUITY> 75,063
<SALES> 195,153
<TOTAL-REVENUES> 198,801
<CGS> 107,921
<TOTAL-COSTS> 108,541
<OTHER-EXPENSES> 36,116
<LOSS-PROVISION> 125
<INTEREST-EXPENSE> 1,711
<INCOME-PRETAX> (4,727)
<INCOME-TAX> (1,082)
<INCOME-CONTINUING> (4,727)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,645)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
