SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 3, 1998
Digital Link Corporation
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(Exact name of Registrant as specified in its charter)
California 0-23110 77-0067742
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
217 Humboldt Court, Sunnyvale, California 94089
(Address of principal executive offices, including zip code)
(408) 745-6200
(Registrant's telephone number, including area code)
<PAGE>
Item 2: Acquisition or Disposition of Assets.
On April 3, 1998, Digital Link Corporation (the "Company") entered into
an Asset Sale Agreement (the "Agreement") with Semaphore Communications
Corporation, a Delaware corporation ("Semaphore"), to acquire substantially all
of Semaphore's non-cash assets (excluding furniture and fixtures) (the
"Assets"). This acquisition of assets (the "Asset Acquisition") was consummated
as of such date. Semaphore is a supplier of security management and virtual
private network solutions for Internet/intranet and Frame relay applications.
The provisions of the Agreement and related agreements described in this report
are qualified in their entirety by reference to the actual text of such
agreements, which are incorporated by reference as exhibits to this report.
The Assets acquired pursuant to the Agreement include intellectual
property, inventory, trade receivables and rights under certain assumed
contracts. Under the terms of the Agreement, the Company issued 291,182 shares
of the Company's Common Stock (the "Shares") to Semaphore on April 3, 1998 and
assumed certain liabilities (the "Liabilities"). The number of Shares issued was
determined by dividing $3,200,000 by the volume-weighted average price per share
(as reported by Bloomberg Financial Services) at which the Company's Common
Stock traded on the five business days immediately preceding the execution of
the Agreement by the parties. The Liabilities include certain obligations under
assumed contracts and under various outstanding purchase orders as well as
certain warranty obligations. The Company received $182,000 from Semaphore with
respect to the assumption of certain of such Liabilities. The Agreement provides
for a contingent reduction of $250,000 in the purchase price paid by the Company
in connection with the Asset Acquisition if certain rights held by Xerox
Corporation ("Xerox") under a License Agreement dated as of December 1, 1994
between Semaphore and Xerox are not waived by Xerox or if the existing
non-competition agreement with respect to such rights is not extended through
April 3, 2003. In addition, in connection with the Asset Acquisition,
approximately 25 of Semaphore's employees currently located in Semaphore's Santa
Clara, California headquarters are expected to become employees of the Company.
The amount of consideration paid in connection with the Asset
Acquisition was determined through arms' length negotiations between the parties
and their respective assessment of the value of the Assets, the Liabilities and
the Shares. There were no material relationships between the Company, or any of
its affiliates, directors or officers, and Semaphore prior to the Asset
Acquisition.
The Shares issued to Semaphore in the Asset Acquisition were issued in
a private placement pursuant to an exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act") and consequently can
be transferred only pursuant to an effective registration statement filed under
the Securities Act or an exemption from the registration requirements of the
Securities Act. In connection with the Asset Acquisition, the Company and
Semaphore entered into a Registration Rights Agreement (the "Registration Rights
Agreement") which grants Semaphore certain "piggyback" and "shelf" registration
rights that are summarized below.
Under the Registration Rights Agreement, the Company, upon the request
of Semaphore, is obligated to file a registration statement on Form S-3 for a
continuous offering under Rule 415 of the Securities Act (the "Shelf
Registration") covering the registration of all of the Shares. The Company has
agreed to cause, as soon as practicable, the effectiveness of the Shelf
Registration and to continually maintain such effectiveness until the date that
is the first anniversary of the closing of the Asset Acquisition, subject to
certain limited exceptions. Any sale of Shares pursuant to the Shelf
Registration may be made only during certain permitted windows, which consist of
a period of thirty consecutive calendar days following the Company's notice to
Semaphore in response to a request from Semaphore to sell at least 5% of the
outstanding Shares. The Registration Rights Agreement provides for no more than
three such permitted windows. The parties have agreed that the number of Shares
sold by Semaphore pursuant to the Shelf Registration during any calendar quarter
will not exceed 2% of the outstanding shares of the Company.
In addition to the Shelf Registration, the Registration Rights
Agreement provides that in the event that the Company files a registration
statement under the Securities Act to register a public offering of its
securities, Semaphore may also elect to register the Shares under such
registration statement in certain circumstances.
The Company's obligations to register the Shares will expire (a) after
the expiration of one year from the closing of the Asset Acquisition; (b) with
respect to the Shelf Registration, if the Company has already effected three (3)
permitted windows pursuant to the Registration Rights Agreement; (c) if all the
Shares proposed to be sold may be sold in a three (3) month period without
registration under the Securities Act pursuant to Rule 144 promulgated under the
Securities Act or otherwise; or (d) if all Shares have been registered and sold
pursuant to a registration effected pursuant to the Registration Rights
Agreement and/or have been transferred in transactions in which registration
rights have not been assigned in accordance with the Registration Rights
Agreement. Semaphore may assign the rights under the Registration Rights
Agreement with the consent of the Company and under certain other circumstances.
Item 7: Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
The audited financial statements of Semaphore required to be filed
pursuant to Item 7(a) of Form 8-K will be filed on a Form 8-K/A within 60 days
after the date this Form 8-K is required to be filed.
(b) Pro Forma Financial Information.
The pro forma financial information required to be filed pursuant to
Item 7(b) of Form 8-K will be filed on a Form 8-K/A within 60 days after the
date this Form 8-K is required to be filed.
(c) Exhibits.
The following exhibits are filed herewith:
2.01 Asset Sale Agreement dated April 3, 1998 by and among
Digital Link Corporation and Semaphore Communications
Corporation. Pursuant to Item 601(b)(2) of Regulation S-K,
certain schedules have been omitted from this filing but
will be furnished supplementally to the Commission upon
request.
4.01 Registration Rights Agreement dated April 3, 1998 by and
among Digital Link Corporation and Semaphore Communications
Corporation.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: April 17, 1998 By: /s/ Stanley E. Kazmierczak
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Stanley E. Kazmierczak
Vice President, Finance and
Administration
and Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Description of Exhibit
2.01 Asset Sale Agreement dated April 3, 1998 by and
among Digital Link Corporation and Semaphore
Communications Corporation. Pursuant to Item
601(b)(2) of Regulation S-K, certain schedules have
been omitted from this filing but will be furnished
supplementally to the Commission upon request.
4.01 Registration Rights Agreement dated April 3, 1998
by and among Digital Link Corporation and Semaphore
Communications Corporation.
Exhibit 2.01
ASSET SALE AGREEMENT
This ASSET SALE AGREEMENT is made and entered into April 3, 1998 (the
"Closing Date"), by and between Digital Link Corporation, a California
corporation ("Buyer") and Semaphore Communications Corporation, a Delaware
corporation ("Seller"). Seller's Federal identification number is 06-1313436 and
Buyer's federal tax identification number is 77-0067742.
PURCHASE AND SALE OF ASSETS
1.1 Purchased Assets. Upon the terms and subject to the conditions
contained herein, Seller hereby sells, conveys, transfers, assigns and delivers
to Buyer all its right title and interest in the Purchased Assets. The
"Purchased Assets" are all of the assets listed below:
(a) All of Seller's rights in the "Seller Intellectual
Property" as defined in Schedule 1.1A.
(b) All of Seller's rights in the word "Semaphore". Even
though Seller is assigning all its rights in the name "Semaphore",
Seller shall have three (3) months after the Closing Date Seller to
change its corporate name to a name which does not use the word
"Semaphore" or any confusingly similar name. After such three month
period Seller shall not retain any rights to the name "Semaphore".
(c) The Seller's inventory of finished products, work in
process and spare parts as evidenced by the inventory listing attached
as Schedule 1.1C (the "Inventory"). The Inventory includes a finished
goods inventory of not less than 581 IOENI adapter boards, 36 SMDS
adaptor units and 1150 Roadrunner chips.
(d) The equipment and other assets (excluding furniture,
fixtures and leasehold improvements) as evidenced by the list attached
as Schedule 1.1D (the "Fixed Assets").
(e) All Seller's rights in the Assumed Contracts (as defined
in Section 1.3).
(f) [Intentionally deleted]
(g) Marketing and sales material, including brochures,
displays, models, demonstration equipment, training materials,
advertising material, product documentation, support materials, books,
records, files and papers related to the portion of the Business
represented by the Purchased Assets including drawings, engineering
information, computer programs (including source code), software
programs, manuals and data, sales and advertising materials, sales and
purchases correspondence, trade association files, research and
development records, lists of present and former customers and
suppliers, and copies and recordings of the foregoing (the "Books and
Records");
(h) The goodwill of the Seller in connection with the
Purchased Assets.
(i) The trade receivables of Seller attached as Schedule 1.1I
("Receivables").
(j) The benefit of any pre-paid assets on Seller's balance
sheet as of the Closing Date (to the extent same pertain to the
Purchased Assets or Assumed Contracts) attached as Schedule 1.1J.
(k) To the extent assignable, all rights and interests under
or pursuant to all warranties, representations and guarantees, express,
implied or otherwise, of or made by suppliers or others in connection
with the Purchased Assets or the Assumed Liabilities and Obligations.
For purposes of this Agreement, "Business" means the business carried on by the
Seller which primarily involves development, marketing, distribution, sale and
servicing of the Software and those products in which the Software is
incorporated and "Related to the Business" means used primarily in, arising
primarily from, or relating primarily to the Business.
1.2 Excluded Assets. Anything in Section 1.1 to the contrary
notwithstanding, there shall be excluded from the assets, properties, rights and
business to be transferred to the Buyer hereunder cash, securities and other
cash equivalents and any assets that are not Purchased Assets (collectively, the
"Excluded Assets").
1.3 Assumed Liabilities and Obligations. Effective the Closing Date,
Buyer assumes and agrees to discharge in a due and timely manner the following
liabilities and obligations (the "Assumed Liabilities and Obligations"). For
purposes of this Agreement, "Liabilities" and "Obligations" means all costs,
expenses, charges, debts, liabilities, claims, demands and obligations, whether
primary or secondary, direct or indirect, fixed, contingent, absolute or
otherwise, under or in respect of any contract, agreement, arrangement, lease,
commitment, undertaking, law or tax.
(a) Seller's obligations under the Assumed Contracts.
"Assumed Contracts" are those contracts and agreements listed on
Schedule 1.3A.
(b) Buyer will assume Seller's warranty obligations stated in
the Termination Agreement between MCM Japan Ltd. and Seller dated 24
March 1998 ("MCM Settlement Agreement"). At the Closing Seller shall
pay Buyer $182,000 in consideration of Buyer's on-going customer
supports efforts and Buyer assuming this obligation and the other
Assumed Contracts.
(c) Buyer will assume Seller's responsibility to deliver (1)
the remaining 36 SMDS units to British Telecom that are included in
Data Innovation Limited's (Zergo) Purchase Order W548 and (2) the 581
units of product as stated in the MCM Settlement Agreement. Buyer shall
be entitled to amounts paid by the customer respecting the delivery of
"(1)" above but Seller shall be entitled to the amounts paid by the
customer respecting the units of "(2)" above.
(d) Buyer shall assume Seller's obligations under the
outstanding purchase orders issued to Seller's vendors listed on
Schedule 1.3D.
Seller transfers and assigns to Buyer the Assumed Contracts and all of Seller's
rights therein, and Buyer assumes and agrees to perform and discharge in a due
and timely manner the obligations of Seller pursuant to the Assumed Contracts.
To the extent that the assignment of any of the Assumed Contracts are not
permitted without the consent or approval of another party to such contract,
this Agreement shall not be deemed to be an assignment of same until such
consent or approval is given. After the Closing Date and until all such rights
are transferred to the Buyer, the Seller shall:
(1) maintain its existence and hold the rights in trust for
the Buyer;
(2) comply with the terms and provisions of the rights as
agent for the Buyer at the Buyer's cost and for the Buyer's benefit;
(3) cooperate with the Buyer in any reasonable and lawful
arrangements designed to provide the benefits of such rights to the
Buyer; and
(4) enforce, at the request of the Buyer and at the expense
and for the account of the Buyer, any rights of the Seller arising from
such rights against any third person, including the right to elect to
terminate any such rights in accordance with the terms of such rights
upon the written direction of the Buyer.
In order that the full value of the rights may be realized for the benefit of
the Buyer, the Seller shall, at the request and expense and under the direction
of the Buyer, in the name of the Seller or otherwise as the Buyer may specify,
take all such action and do or cause to be done all such things as are,
reasonable and necessary or proper in order that the obligations of the Seller
under such rights may be performed in such manner that the value of such rights
is preserved and enures to the benefit of the Buyer, and that any moneys due and
payable and to become due and payable to the Buyer in and under the rights are
received by the Buyer. The Seller shall promptly pay to the Buyer all moneys
collected by or paid to the Seller in respect of every such right. The Buyer
shall indemnify and hold the Seller harmless from and against any cost, expense,
claim or liability under or in respect of such rights arising because of any
action of the Seller taken pursuant to this Section.
1.4 Excluded Liabilities and Obligations. Except as expressly set forth
in Section 1.3 above, Buyer does not assume and shall not be liable for any
debt, Obligation, responsibility or Liability of Seller (the "Excluded
Liabilities and Obligations"). In particular, and for the avoidance of doubt but
without limiting the foregoing, Buyer shall have no right or responsibility with
respect to the following:
(a) Cancellation of DEC Purchase Order #18096.
(b) Any agreements or arrangements between Seller and Intel
concerning Roadrunner technology.
(c) Except as provided in Section 1.3(b) and (c), the MCM
Settlement Agreement.
(d) Any agreements or arrangements between Seller and Dovatron
International.
(e) Any agreements or arrangements between Seller and Forsythe
Technologies.
<PAGE>
FINANCIAL ARRANGEMENT
2.1 Purchase Price. At the Closing on the Closing Date, Buyer shall
issue to Seller 291,182 shares of Buyer's common stock which is the number of
shares calculated by dividing $3,200,000 divided by the volume-weighted average
price per share (as reported by Bloomberg Financial Services) at which Buyer's
common stock traded on the five (5) business days immediately preceding the
Closing Date. The said shares are referred to herein as the "Purchase Price".
Buyer has granted certain registration rights in the Shares pursuant to a
Registration Rights Agreement dated the date of this Agreement. Except as
otherwise provided in Article 4 the Purchased Assets are being transferred and
sold "as is" "where is". In particular, and subject to Section 2.10, there shall
not be an adjustment in the Purchase Price (either an increase or decrease) if
any assets cannot be located or are in poor condition, or if any assets have a
fair market value which is more or less than book value, or if the Receivables
are collected in amounts greater or less than the value less reserves reflected
on Seller's books.
2.2 Assumed Contracts. (1) As provided above, Buyer is purchasing the
Receivables and the right to receive all amounts due from customers under the
Assumed Contracts. However, and subject to Section 2.2(2), Seller shall be
entitled to retain all amounts received prior to the Closing Date from customers
pursuant to the Assumed Contracts even if the amount received pertained to
services to be performed after the Closing Date.
(2) Buyer shall assume Seller's obligations under the outstanding
purchase orders from Seller's customers listed on Schedule 2.2. Buyer shall be
entitled to all amounts received from customers in respect of such purchase
orders.
2.3 SMDS Product. The parties agree that British Telecom
unconditionally accepted the Seller's SMDS product which satisfies one of the
conditions communicated by the Buyer to the Seller with respect to the execution
of this Agreement.
2.4 Digital Storage Scope. Seller shall promptly exercise the option to
purchase for $1.00 the TEK/TDS754A Digital Storage Scope ("DSS") leased for a
term of twelve months from AT&T Capital Services Corporation ("AT&T") pursuant
to an Alternative Purchase Plan agreement dated March 4, 1997. When Seller
acquires title to the DSS title shall transfer to Buyer without any additional
consideration. Seller will secure the release of the UCC-1 filing by AT&T
respecting the DSS.
2.5 Purchase Price Allocation. The Purchase Price shall be allocated
among the Purchased Assets as set forth on Schedule 2.5.
2.6 Tax. (a) Buyer is purchasing the Software for the purpose of
reproducing and reselling copies of the Software by Buyer and not for use or
consumption. Seller shall deliver to Buyer possession of the Seller Intellectual
Property, including documentation and other tangible manifestations thereof, at
Seller's office in Santa Clara, California.
(b) Buyer shall be responsible for paying sales tax applicable to
this Agreement.
(c) Buyer shall be responsible for all property and use taxes imposed
or assessed upon the Purchased Assets with assessment dates subsequent to the
Closing Date.
2.7 Real Estate. (a) Seller is conducting business in approximately
10,000 square feet of a facility ("Facility") located at 4000 Burton Drive,
Santa Clara, California pursuant to a lease ("Lease") dated January 3, 1996
between Seller and Koll/Intereal Bay Area, a California general partnership.
Subject to any required landlord consent and compliance by Buyer with the Lease,
Seller gives Buyer permission to keep the Purchased Assets and Transferred
Employees in the Facility during a transition period until not later than
December 31, 1998. Buyer shall be financially responsible for amounts payable to
the landlord based the same financial and other terms and conditions as
currently applicable to Seller. Buyer shall be financially responsible for its
operating expenses such as office supplies and telephone calls (including lease
payments to Leasepartners for the Toshiba Strata DK280 and Octel 200SX equipment
but there shall not be a charge to Buyer for use of Seller's telephone sets).
(b) As an alternative to 2.7(a) Buyer may elect, by notice to Seller
given on or before April 15, 1998 to have the following arrangement apply in
lieu of Section 2.7(a). Subject to any required landlord consent, Seller will
give Buyer permission to keep the Purchased Assets and Transferred Employees in
the Facility during a transition period until June 30, 1998. During this period
Seller will continue to be financially responsible for the lease payments and
charges due to the landlord of the Facility. Buyer shall be financially
responsible for its operating expenses such as office supplies and telephone
calls (including lease payments to Leasepartners for the Toshiba Strata DK280
and Octel 200SX equipment but there shall not be a charge to Buyer for use of
Seller's telephone sets). After June 30, 1998 Buyer may not keep the Purchased
Assets and Transferred Employees in the Facility.
2.8 ITL. Seller shall be financially responsible for work done by
Infosys Technologies Ltd. through April 3, 1998 and Buyer shall be financially
responsible for work done thereafter.
2.9 Shares and Proceeds. For not less than one year following the
Closing Seller shall retain the Shares, and any proceeds from the sale of the
Shares should Seller sell any of the Shares, and, in particular, shall not
distribute the Shares (including any proceeds from the sale of any Shares) to
its stockholders unless, in any case, Xerox Corporation ("Xerox") (Seller's
majority stockholder) shall first fund the Seller with cash or a promissory note
of Xerox in an amount, or having a face value in an amount, of not less than the
value of the Shares or proceeds distributed or otherwise not retained.
2.10 Contingent Reduction in Purchase Price. Reference is made to that
certain License Agreement dated and effective as of December 1, 1994 between
Seller and Xerox Corporation ("Xerox") (the "SCC License"). If by May 1, 1998
Xerox has not agreed to do either "(a)" or "(b)" below Seller will pay Buyer
$250,000 and such amount shall be an adjustment in the Purchase Price. This
paragraph shall not apply if:
(a) Xerox agrees to amend the non-competition Section 5.1 of the SCC
License to make the clause apply for five years following the Closing so that
the first clause of Section 5.1 shall then read "During the period through April
3, 2003, Xerox . . . ", or
(b) Xerox agrees to amend the SCC License to Buyer's reasonable
satisfaction to the effect that Xerox will have no grant back rights under the
SCC License.
THE CLOSING
3.1 Closing. The closing ("Closing") of the transactions contemplated
by the Agreement is taking place contemporaneous with the execution of this
Agreement. The execution of this Agreement shall operate as an effective
conveyance, assignment and transfer of the Purchased Assets as contemplated
herein effective as of the Closing Date. However, in order to effectuate more
fully and completely the assignment, transfer and conveyance of the Purchased
Assets pursuant to the terms and conditions hereof, Seller shall
contemporaneously with the execution hereof or upon reasonable request after
execution hereof, deliver to Buyer such bills of sale, assignments and
instruments of conveyance as requested by Buyer, acting reasonably, to permit
the assignment, transfer and conveyance from Seller to Buyer and the acquisition
by Buyer from Seller of all right, title and interest in, to and under the
Purchased Assets, the whole with effect as of the Closing.
3.2 Deliveries by the Parties. At the Closing the parties shall deliver
the following in addition to this Agreement and the schedules hereto:
(1) Buyer shall deliver to Seller the Shares.
(2) Seller shall deliver to Buyer a cheque in the amount
specified in Section 1.3(b).
(3) Buyer and Seller shall deliver to each other the
Registration Right Agreement.
(4) Seller shall deliver to Buyer physical possession of the
Purchased Assets which shall be at Seller's office in Santa Clara,
California. To the extent physical assets are located other than at
Seller's office they shall be deemed delivered to Buyer on the Closing
Date "where is". Buyer shall have the right, at its cost, to relocate
any Purchased Assets to a site of its choice.
(5) Buyer shall deliver to Seller a re-sale certificate for
the Software and Inventory.
Also at the Closing Buyer and Xerox delivered to each other an Assignment
Agreement dated April 3, 1998 and Xerox delivered to Buyer a Waiver agreement.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the Closing Date as
follows:
4.1 Validity. Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to execute, deliver and perform its
obligations under this Agreement and all other agreements and instruments to be
executed by it as contemplated by this Agreement, and this Agreement constitutes
the legal, valid and binding agreement of Seller, enforceable in accordance with
its terms. The execution and delivery of this Agreement and such other
agreements and instruments and the completion of the transactions contemplated
by this Agreement and such other agreements and instruments have been duly
authorized by all necessary corporate action on the part of the Seller and its
shareholders. The execution and delivery of this Agreement do not, and the
undertaking of the transactions and obligations contemplated to be undertaken by
Seller hereunder will not, subject to (a) Section 1.3 respecting assignment of
Assumed Contracts, (b) the approval and consent of Seller's stockholders (which
approval and consent has been obtained) and (c) landlord consents (i) violate
any provision of the Certificate of Incorporation or By Laws of Seller or any
statute, judgment, order, decree, injunction, regulation or ruling of any court
or governmental authority applicable to Seller; (ii) result in or constitute a
default, breach or violation or an event that, with notice or lapse of time or
both, would be a default, breach or violation of any of the terms, conditions or
provisions of any Assumed Contract; (iii) constitute an event which, pursuant to
the terms of any Assumed Contract, causes any right or interest of the Seller to
come to an end or be affected in any way that is materially adverse to the
portion of the Business represented by the Purchased Assets; (iv) result in the
creation or imposition of any lien on any Purchased Asset that is material to
the portion of the Business represented by the Purchased Assets; (v) constitute
the violation of any applicable law applicable to or affecting the Seller which
is Related to the portion of the Business represented by the Purchased Assets
and would have a material adverse effect on the portion of the Business
represented by the Purchased Assets. Subject to (a) Section 1.3 respecting
assignment of Assumed Contracts, (b) the approval and consent of Seller's
stockholders (which approval and consent has been obtained) and (c) landlord
consents, (x) none of the actions on the part of Seller contemplated by this
Agreement or (y) the conduct of the portion of the Business represented by the
Purchased Assets by Buyer after the Closing as that portion of the Business is
currently carried on by the Seller, are subject to the approval or consent of
any person or entity not a party to this Agreement and no authorization, consent
or approval of, or filing with, any public body or authority is necessary for
the consummation by Seller of the transactions contemplated by this Agreement.
4.2 Warranty. Seller warrants to Buyer that Buyer will acquire good and
marketable title in the Purchased Assets free of any security interest or other
lien or encumbrance. However, there exists a dispute with Intel concerning title
to the Roadrunner chips and Seller makes no warranty as to title to the
Roadrunner chips included in the Inventory. Seller transfers to Buyer whatever
rights of ownership it has in the Roadrunner chips including any title Seller
may acquire to such chips in the future. Should Seller or Buyer be required to
purchase the Roadrunner chips from Intel Seller shall be responsible for any
payments to Intel.
4.3 Investment. Seller is acquiring the Shares for investment for its
own account and not with a view to the public resale or distribution of same.
Seller has no present intention of selling, granting any participation in, or
otherwise distributing the Shares. Seller has received or has had full access to
all the information it considers necessary or appropriate to make an informed
investment decision with respect to the Shares to be acquired by it under this
Agreement. Seller further has had an opportunity to ask questions and receive
answers from the Buyer regarding the terms and conditions of the offering of the
Shares and to obtain additional information (to the extent the Buyer possessed
such information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to Seller or to which such Seller
had access. Seller understands that the acquisition of the Shares involves
substantial risk and, by reason of Seller's business and financial experience,
is capable of evaluating the merits and risks of the acquisition of the Shares,
has the ability to protect its own interests in this transaction and financially
capable of bearing a total loss of the investment. Seller has a preexisting
business relationship with Buyer and certain of its officers, directors or
controlling persons of a nature and duration that enables Seller to be aware of
the character, business acumen and financial circumstances of such persons.
Seller is an "accredited investor" within the meaning of Regulation D
promulgated under the 1933 Act. Seller understands that the Shares have not been
registered under the Securities Act of 1933 and may not be transferred except
pursuant to the Securities Act of 1933 or an exemption therefrom or pursuant to
the Registration Rights Agreement. In this connection, Seller represents that it
is familiar with Rule 144 promulgated under the Securities Act of 1933, as
presently in effect, and understands the resale limitations imposed thereby and
by such Act.
Seller understands and agrees that the Shares shall bear a legend
substantially as follows:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
4.4 Seller Intellectual Property.
(a) The Seller Intellectual Property and Software is owned by
the Seller free and clear of all liens.
(b) There is no current or threatened litigation relating to
the Seller Intellectual Property or Software that would be material to
the portion of the Business represented by the Purchased Assets.
(c) To Seller's knowledge, no person has challenged the
validity of Seller's rights to any of the Seller Intellectual Property
or Software. To Seller's knowledge, no person has infringed the
Seller's rights to the Seller Intellectual Property or Software.
(d) Seller is not obligated to pay any compensation to any
person in respect of the use of the Seller Intellectual Property and
Software.
(e) Subject to Schedule 1.1A, Seller has the exclusive
ownership of the Seller Intellectual Property and Software and the
right to assign the Seller Intellectual Property and Software to Buyer.
(f) To Seller's knowledge, the Seller Intellectual Property
and the Software do not infringe the intellectual property rights of a
third party.
(g) Schedule 1.1A discloses all the third party rights in the
Seller Intellectual Property and the Software.
4.5 Disclaimer of Warranty. EXCEPT AS SET FORTH IN SECTIONS 4.2
AND 4.4 THE PURCHASED ASSETS ARE SOLD ON AN "AS IS" "WHERE IS" BASIS.
EXCEPT AS SET FORTH IN SECTIONS 4.2 AND 4.4 SELLER MAKES NO WARRANTY, EXPRESS OR
IMPLIED, CONCERNING THE PURCHASED ASSETS INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OR REPRESENTATION AS TO MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE, AND BUYER HEREBY WAIVES RELIANCE UPON ANY EXPRESS OR IMPLIED COVENANTS,
REPRESENTATIONS OR WARRANTIES INCLUDING FITNESS FOR A PARTICULAR PURPOSE OR
MERCHANTABILITY.
4.6 Survival of Representations and Warranties. The
representations and warranties of the Seller contained in Section 4.1 through
4.5 or any other agreement, certificate or instrument delivered pursuant to this
Agreement shall survive the Closing Date for a period of one year from the
Closing Date, and notwithstanding the Closing Date and any inspection or
inquiries made by or on behalf of the Buyer, shall continue in full force and
effect for the benefit of the Buyer, after which time the Seller shall be
released from all obligations in respect of such representations and warranties
except with respect to any claims asserted by the Buyer in writing (setting out
in reasonable detail the nature of the claim and the approximate amount of such
claim) before the expiration of such period, but there shall be no time limit on
the representations and warranties of the Seller set out in Section 4.1 which
relate to the incorporation of the Seller, the due authorization of this
Agreement by the Seller or the enforceability of the Seller's obligations under
this Agreement.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as of the Closing Date
as follows:
5.1 Validity. Buyer is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of California and has
full corporate power and authority to execute, deliver and perform its
obligations under this Agreement and all other agreements and instruments to be
executed by it as contemplated by this Agreement, and this Agreement constitutes
the legal, valid and binding agreement of Buyer, enforceable in accordance with
its terms. The execution and delivery of this Agreement and such other
agreements and instruments and the completion of the transactions contemplated
by this Agreement and such other agreements and instruments have been duly
authorized by all necessary corporate action on the part of the Buyer. The
execution and delivery of this Agreement do not, and the undertaking of the
transactions and obligations contemplated to be undertaken by Buyer hereunder
will not, (i) violate any provision of the Certificate of Incorporation or By
Laws of Buyer or any statute, judgment, order, decree, injunction, regulation or
ruling of any court or governmental authority applicable to Buyer. Except as
provided in Section 1.3 respecting assignment of Assumed Contracts, none of the
actions on the part of Buyer contemplated by this Agreement are subject to the
approval or consent of any person or entity not a party to this Agreement and no
authorization, consent or approval of, or filing with, any public body or
authority is necessary for the consummation by Buyer of the transactions
contemplated by this Agreement.
5.2 Issuance of Shares. (a) Upon consummation of the Closing the Shares
will be duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive or similar rights of security holders of Buyer.
(b) Since January 1, 1996, Buyer has made all filings with the Securities and
Exchange Commission that have been required to be made under the Securities Act
of 1933 and the Securities Exchange Act of 1934 (collectively, the "Public
Reports"). Each of the Public Reports complied with the requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934 in all material
respects and none of the Public Reports, as of their respective dates, contained
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The financial
statements included in the Public Reports were prepared from the books and
records of Buyer in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered thereby and present
fairly in all material respects the financial condition Buyer as of the
indicated dates and the results of operations and cash flows of Buyer for the
indicated periods.
5.3 Survival of Representations and Warranties. The representations and
warranties of the Buyer contained in Sections 5.1 and 5.2 or any other
agreement, certificate or instrument delivered pursuant to this Agreement shall
survive the Closing Date for a period of one year from the Closing Date, and
notwithstanding the Closing Date, shall continue in full force and effect for
the benefit of the Seller, after which time the Buyer shall be released from all
obligations in respect of such representations and warranties except with
respect to any claims asserted by the Seller in writing (setting out in
reasonable detail the nature of the claim and the approximate amount thereof)
before the expiration of such period, but there shall be no time limit on the
representations and warranties of the Buyer set out in Section 4.1 which relate
to the incorporation of the Buyer, the due authorization of this Agreement by
the Buyer and the enforceability of the Buyer's obligations under this
Agreement.
COVENANTS AND AGREEMENTS OF THE PARTIES
6.1 Continued Assistance. Following the Closing, Seller shall refer to
Buyer as promptly as practicable any telephone calls, letters, orders, notices,
requests, inquiries and other communications relating to the Purchased Assets or
Assumed Contracts. Seller shall cooperate in an orderly transfer of the
Purchased Assets. From time to time, at Buyer's reasonable request and without
further consideration, Seller shall execute, acknowledge and deliver such
documents, instruments or assurances and take such other action as Buyer may
reasonably request to more effectively assign, convey and transfer any of the
Purchased Assets.
6.2 Records and Documents. For six years following the Closing Date,
Buyer grants to Seller and its representatives, at Seller's reasonable request,
access to employees of Seller hired by Buyer and those records and documents
(including the right to make copies thereof), possession of which is transferred
to Buyer, as may be necessary in connection with Seller's obligations hereunder
and the conduct after the Closing of the affairs of Seller.
6.3 Bulk Sales Act. Buyer waives compliance by Seller with the
provisions of Article 6 of the Uniform Commercial Code, or equivalent bulk
transfer laws, of any applicable state. Seller shall indemnify and hold harmless
Buyer from and against any and all expense, loss or liability which Buyer may
suffer as a result of claims asserted by third parties against Buyer due to any
noncompliance by Seller and Buyer with applicable bulk transfer laws.
6.4 Roadrunner chips. Roadrunner chips will be used by Buyer only
installed in products and may not be sold or used individually. As any
agreements or arrangements between Seller and Intel concerning Roadrunner
technology is an Excluded Liability compliance with this covenant is the only
obligation Buyer has respecting same.
6.5 Audit Assistance. Seller understands that Buyer's independent
auditors desire to conclude an audit of the Business in April, 1998. Such audit
shall be at Buyer's cost. Seller agrees to cooperate in the conduct of the audit
as reasonably requested by Buyer.
6.6 UCC Filings. Seller will promptly secure the release of the
UCC-1 filing covering the Purchased Assets.
INDEMNIFICATION AND LIMITATION OF LIABILITY
7.1 Seller Indemnification. Seller indemnifies Buyer and its directors,
officers, employees, agents, representatives and affiliates from and against any
Liability, loss or claim, and all costs thereof, incurred in respect of (1) any
Excluded Assets and any Excluded Liabilities and Obligations, (2) the breach by
Seller of any representations, warranties or covenants of this Agreement or any
other agreement, certificate or instrument executed and delivered pursuant to
this Agreement, (3) the indemnity of Section 6.3 and (4) any claim by either
SNMP Research or Accelerated Technologies either (x) that Seller's products
infringe their respective intellectual property rights or (y) that there is any
royalty or other payment owed by Seller to them concerning intellectual property
licensed from them by Seller.
7.2 Buyer Indemnification. Buyer indemnifies Seller and its directors,
officers, employees, agents, representatives and affiliates from and against any
Liability, loss or claim, and all costs thereof, incurred in respect of (1) any
Assumed Liabilities and Obligations or the ownership or use of the Purchased
Assets, each occurring or accruing after the Closing Date and (2) the breach by
Buyer of any representations, warranties or covenants of this Agreement or any
other agreement, certificate or instrument executed and delivered pursuant to
this Agreement and (3) the indemnity of the last sentence of the last paragraph
of Section 1.3.
7.3 Limitation of Liability. NO PARTY SHALL BE LIABLE FOR PUNITIVE,
INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS)
ARISING UNDER OR RELATING TO THIS AGREEMENT EVEN IF THE PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES. NO PARTY'S AGGREGATE LIABILITY TO THE OTHER
PARTY FOR DAMAGES ARISING UNDER OR RELATING TO THIS AGREEMENT UNDER ANY AND ALL
CLAIMS OF ANY TYPE OR NATURE, BASED ON ANY THEORY OF LIABILITY (INCLUDING
CONTRACT, TORT, NEGLIGENCE, WARRANTY OR STRICT LIABILITY), SHALL EXCEED A TOTAL
OF $3,200,000. This paragraph shall not limit a party's obligation to indemnify
the other party in respect of third party claims against the other party for
which indemnity is available under Sections 7.1(1) or (3) or 7.2(1) or (3).
7.4 A party's obligation to indemnify the other is subject to (1) the
party seeking indemnity giving prompt (and in any event within thirty (30) days)
notice of any claim to the other party following the indemnified party having
knowledge of the matter in question (but the failure to give such notice in
respect of a third party claim shall not affect the right of the indemnified
party to indemnity hereunder unless and to the extent that such failure
materially and adversely affected the defense of such claims by the indemnifying
party) and (2) the indemnifying party having the right, at its sole cost and
expense, to assume and control the defense of any such third party claim (in
which case the indemnified party shall have the right, at no cost or expense to
the indemnifying party, to participate in such defense). If the indemnifying
party, having elected to assume such control, thereafter fails to defend the
third party claim within a reasonable time, the indemnified party shall be
entitled to assume such control and the indemnifying party shall be bound by the
results obtained by the indemnified party with respect to such third party
claim. If the indemnifying party makes a payment, by settlement of the third
party claim, which precludes a final determination of the merits of the third
party claim and the indemnified party and the indemnifying party are unable to
agree whether such payment was unreasonable in the circumstances having regard
to the amount and merits of the third party claim, then such dispute shall be
referred to and finally settled by binding arbitration from which there shall be
no appeal. If the indemnifying party fails to assume control of the defense of
any third party claim, the indemnified party shall have the exclusive right to
contest, settle or pay the amount claimed; provided, however, that any such
actions shall not affect the indemnifying party's right to contest in good faith
its indemnity obligation with respect to such claim or the reasonableness of any
settlement thereof. Whether or not the indemnifying party assumes control of the
negotiation, settlement or defense of any third party claim, the indemnifying
party shall not settle any third party claim without the written consent of the
indemnified party, which consent shall not be unreasonably withheld or delayed;
provided, however, that the liability of the indemnifying party shall be limited
to the proposed settlement amount if any such consent is not obtained for any
reason within a reasonable time after the request therefor. Following
indemnification the indemnifying party shall be subrogated to all rights of the
indemnified party with respect to all third parties relating to the matter for
which indemnification has been made. In the case of a claim that is not a third
party claim (a "Direct Claim"), the indemnifying party shall have 60 days from
receipt of notice of the claim within which to make such investigation of the
claim as the indemnifying party considers necessary or desirable. For the
purpose of such investigation, the indemnified party shall make available to the
indemnifying party the information relied upon by the indemnified party to
substantiate the claim, together with all such other information as the
indemnifying party may reasonably request. If both parties agree at or before
the expiration of such 60 day period (or any mutually agreed upon extension
thereof) to the validity and amount of such claim, the indemnifying party shall
immediately pay to the indemnified party the full agreed upon amount of the
claim, failing which the matter shall be referred to binding arbitration in such
manner as the parties may agree or shall be determined by a court of competent
jurisdiction.
EMPLOYEES AND EMPLOYEE BENEFITS
8.1 Offer of Employment. Buyer has offered or will offer employment to
the employees of Seller listed on Schedule 8.1 (the "Transferred Employees")
contingent on the happening of the Closing, at not less than the employee's
current rate of salary. The Transferred Employees will be eligible to
participate in the same employee benefit plans as are generally available to
similarly situated employees of Buyer.
8.2 Assistance. The Buyer shall not be obligated to any employee who
refuses the Buyer's offer of employment. The Seller shall render all reasonable
assistance to encourage each Employee to accept the Buyer's offer of employment.
8.3 Severance. Seller shall be responsible for any severance,
termination and all other similar benefits which may be due to Seller's
employees. In addition, Seller is responsible for any amounts owing to Seller's
employees that accrue prior to the Closing, including accrued vacation, whether
or not that employee is a Transferred Employee.
8.4 Information. Former Seller employees who become Transferred
Employees are hereby released by Seller from any confidence obligations to
Seller arising from their previous employee relationship with Seller which would
prevent them from using confidential information respecting the business
represented by the Purchased Assets for the benefit of Buyer.
GENERAL PROVISIONS
9.1 Waiver. No amendment or waiver of any provision of this Agreement
shall in any event be effective, unless the same shall be in writing and signed
by the parties hereto, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given. No waiver
shall be inferred from or implied by any failure to act or delay in acting by a
party in respect of any default, breach or non-observance or by anything done or
omitted to be done by the other party.
9.2 Notices. All official notices, requests, demands and other
communications hereunder shall be in writing and shall be sent by registered or
certified mail, postage prepaid, return receipt requested, by personal delivery,
prepaid courier or fax with confirmation of receipt as follows:
(a) If to Seller:
Semaphore Communications Corporation
800 Long Ridge Road
P.O. Box 1600
Stamford, Connecticut 06904
Attention: Chief Financial Officer
With a copy to:
Semaphore Communications Corporation
800 Long Ridge Road
P.O. Box 1600
Stamford, Connecticut 06904
Attention: General Counsel
(b) If to Buyer:
Digital Link Corporation
217 Humboldt Court
Sunnyvale, California 94089-1300
Attention: Chief Financial Officer
Any party may change its address for receiving notice by written notice given to
the others named above.
Any such communication so given or made shall be deemed to have been given or
made and to have been received on the day of delivery if delivered, or on the
day of faxing or sending by other means of recorded electronic communication,
provided that such day in either event is a business day and the communication
is so delivered, faxed or sent before 4:30 p.m. on such day. Otherwise, such
communication shall be deemed to have been given and made and to have been
received on the next following business day. Any such communication sent by mail
shall be deemed to have been given and made and to have been received on the
fifth business day following the mailing thereof; provided, however, that no
such communication shall be mailed during any actual or apprehended disruption
of postal services. Any such communication given or made in any other manner
shall be deemed to have been given or made and to have been received only upon
actual receipt.
9.3 Expenses. Each party to this Agreement shall pay its own costs and
expenses in connection with the entering into of this Agreement including legal,
accounting and investment advisor fees. Each party acknowledges and to and
agrees with the other that it has not entered into an agreement that would
result in a broker or finder fee pertaining to the Agreement being payable by
the other party.
9.4 Entire Transaction. This Agreement and the documents referred to
herein contain the entire understanding among the parties with respect to the
transactions contemplated hereby and supersedes all other agreements and
understandings among the parties on the subject matter hereof. The obligations
and rights of this agreement shall inure to the parties hereto and their
respective successors and assigns.
9.5 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
9.6 Publicity. Immediately after the Closing the parties shall issue a
mutually agreed press release. The parties will not make any other public
announcement of this transaction without the other party's written consent,
except as may be required by applicable Federal securities or other law.
9.7 Successors and Assigns. This Agreement shall enure to the benefit
of, and be binding on, the parties and their respective successors and permitted
assigns. Neither party may assign or transfer, whether absolutely, by way of
security or otherwise, all or any part of its respective rights or obligations
under this Agreement without the prior written consent of the other party.
9.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
taken together shall be deemed to constitute one and the same instrument.
Counterparts may be executed either in original or faxed form and the parties
adopt any signatures received by a receiving fax machine as original signatures
of the parties; provided, however, that any party providing its signature in
such manner shall promptly forward to the other party an original of the signed
copy of this Agreement which was so faxed.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by a duly authorized officer all as of the Closing Date.
DIGITAL LINK CORPORATION SEMAPHORE COMMUNICATIONS
CORPORATION
/s/ Stanley E. Kazmierczak /s/ Timothy da Silva
By: _________________________ By: _________________________
Chief Financial Officer President & CEO
Its: __________________________ Its: _________________________
<PAGE>
The following schedules were omitted from this filing:
Schedule 1.3A -- Assumed Contracts
Schedule 1.1A -- Seller Intellectual Property
Schedule 1.1C -- Inventory on Hand by Stock Room
Schedule 1.1D -- Property, Plant & Equipment Schedule
Schedule 1.1I -- Accounts Receivable Aging Report
Schedule 1.1J -- Prepaid Assets
Schedule 1.3B -- Deferred Revenue
Schedule 1.3D -- Open Purchase Orders from Customers
Schedule 2.2 -- Purchase Order Commitment Report
Schedule 2.5 -- Purchase Price Allocation
Schedule 8.1 -- Transferred Employees
Exhibit 4.01
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of April 3, 1998 (the
"Agreement"), is made and entered into by and between Digital Link Corporation,
a California corporation (the "Company") and Semaphore Communications
Corporation, a Delaware corporation ("Semaphore").
WHEREAS, Semaphore has been issued 291,182 shares of the
Company's outstanding Common Stock;
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter set forth, and for other valuable consideration, the Company and
Semaphore agree as follows:
1. Definitions. The Company's Common Stock, no par value, and any other
securities of the Company convertible into or exchangeable for the Company's
Common Stock are hereinafter referred to as the "Common Stock" and the 291,182
shares of Common Stock beneficially owned by the Stockholders are hereinafter
referred to as the "Shares." The term "Registrable Securities" means: (i) the
Shares; and (ii) any shares of Company Common Stock that may be issued as a
dividend or other distribution (including without limitation shares of the
Company's Common Stock issued in a subdivision and split of the Company's
outstanding Common Stock) with respect to, or in exchange for, or in replacement
of, shares of the Company's Common Stock described in clause (i) above or in
this clause (ii); excluding in all cases, however, from the definition of
"Registrable Securities" any such shares that are: (w) registered under the 1933
Act other than pursuant to a registration statement filed pursuant to this
Agreement; (x) sold by a person in a transaction in which rights under this
Agreement with respect to such shares are not assigned in accordance with the
terms of this Agreement; (y) sold pursuant to a registration statement filed
pursuant to this Agreement; or (z) sold pursuant to Rule 144 promulgated under
the 1933 Act or otherwise sold to the public. For purposes of this Agreement,
the terms "beneficial ownership," "person" and "affiliate," shall have the
meanings ascribed to such terms in Rules 12b-2 and 13d-3 under the Securities
Exchange Act of 1934 (the "1934 Act"). Each of the terms "Securities Act" and
"1933 Act" means the Securities Act of 1933, as amended. The term "SEC" means
the Securities and Exchange Commission. Capitalized terms used but not otherwise
defined herein shall have the meaning given to them in the Asset Sale Agreement
of even date herewith. As used herein, the term "Stockholder" and "Stockholders"
shall mean Semaphore or any assignee of record of the Shares to whom rights
under this Agreement have been duly assigned in accordance with the provisions
of this Agreement.
2. Assignment of Registration Rights. The rights to cause the Company
to register Common Stock pursuant to Section 4 below may be assigned by the
Stockholder only with the Company's express prior written consent, which may be
withheld in the Company's sole discretion; provided, however, that the rights of
a Stockholder under this Agreement may be assigned without the Company's express
prior written consent: (a) to a Permitted Assignee (as defined below); or (b)
(if applicable) by will or by the laws of intestacy, descent or distribution,
provided that the assignee agrees in writing to be bound by all the obligations
of the Stockholder under this Agreement. Any attempt to assign any rights of the
Stockholder under this Agreement without the Company's express prior written
consent in a situation in which such consent is required by this Section shall
be null and void and without effect. Subject to the foregoing restrictions, all
rights, covenants and agreements in this Agreement by or on behalf of the
parties hereto will bind and inure to the benefit of the respective permitted
successors and assigns of the parties hereto. Each of the following parties are
"Permitted Assignees" for purposes of this Section 2: (a) a trust whose
beneficiaries consist solely of a Stockholder and such Stockholder's immediate
family; (b) the personal representative (such as an executor of a Stockholder's
will), custodian or conservator of a Stockholder, in the case of the death,
bankruptcy or adjudication of incompetency of that Stockholder; (c) partners of
a Stockholder that is a partnership, if Registrable Securities are distributed
pro rata, without additional consideration, to the partners; (d) stockholders of
a Stockholder that is a corporation, if the Registrable Securities are
distributed to such stockholders; or (d) immediate family members of a
Stockholder.
3. Termination of Section 4. The Company will have no obligations
pursuant to Section 4 of this Agreement with respect to any Notice of Resale or
other request or requests for registration (or inclusion in a registration) made
by any Stockholder or to maintain or continue to keep effective any registration
or registration statement pursuant hereto: (a) after the expiration or
termination of the Registration Period; (b) with respect to Section 4.3 only, if
the Company has already effected three (3) Permitted Windows pursuant to this
Agreement; (c) with respect to a particular Stockholder if, in the opinion of
counsel to the Company, all such Registrable Securities proposed to be sold by
such Stockholder may be sold in a three (3) month period without registration
under the 1933 Act pursuant to Rule 144 promulgated under the 1933 Act or
otherwise; or (d) if all Registrable Securities have been registered and sold
pursuant to a registration effected pursuant to this Agreement and/or have been
transferred in transactions in which registration rights hereunder have not been
assigned in accordance with this Agreement.
4. Registration Rights.
4.1.1 In the event that the Company proposes to register any
shares of Common Stock under the 1933 Act (other than for an offering primarily
or exclusively to employees or in connection with the acquisition of the assets
or shares of, or merger or consolidation with, another corporation) and a
registration form is available for use which may also be used for the
registration of the Shares held by the Stockholder (a "Piggyback Registration"),
the Company shall notify the Stockholder at least 15 days prior to the filing of
any such registration form with the SEC, and will use its best efforts to
include in such registration all such Shares with respect to which the Company
has received written request for inclusion within 10 days after such notice.
Each such request shall specify the number of shares such Stockholder wishes to
include in such registration statement and shall contain an undertaking from the
Stockholder to provide all such information and material and to take all such
actions as may be required by the Company in order to permit the Company to
comply with all applicable federal and state securities laws.
4.1.2 The Stockholder shall pay all sales commissions or
similar selling charges with respect to Shares sold by the Stockholder pursuant
to a Piggyback Registration. The Company shall pay all registration and filing
fees, fees and expenses of compliance with federal and state securities laws,
printing expenses, messenger and delivery expenses, accounting fees and the
reasonable fees and disbursements of counsel for the Company and one counsel for
the Stockholders in connection with a Piggyback Registration.
4.1.3 If a Piggyback Registration is for an underwritten
offering, then the Company shall so advise the Stockholders of Registrable
Securities. In such event, the right of any such Stockholder's Registrable
Securities to be included in a registration pursuant to this Section 4.1.1 shall
be conditioned upon such Stockholder's participation in such underwriting and
the inclusion of such Stockholder's Registrable Securities in the underwriting
to the extent provided herein. All Stockholders proposing to distribute their
Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriter(s) selected for such underwriting. Notwithstanding any other
provision of this Agreement, if the managing underwriters advise the Company in
writing that in their opinion the number of shares requested to be included in
such Registration exceeds the number which can be sold in such offering or will
have a material adverse effect on the price of the Common Stock to be sold, then
the Company will include in such Registration (a) first, shares of Common Stock
the Company proposes to sell and (b) second, shares that the Stockholder and any
other stockholders which have registration rights have requested to be included,
pursuant to the terms of their applicable registration rights agreement, on a
pro rata basis based on the total number of registrable securities then held by
each such stockholder. If any Stockholder disapproves of the terms of any such
underwriting, such Stockholder may elect to withdraw therefrom by written notice
to the Company and the underwriter, delivered at least ten (10) business days
prior to the effective date of the registration statement. Any Registrable
Securities excluded or withdrawn from such underwriting shall be excluded and
withdrawn from the registration. For any Stockholder which is a partnership or
corporation, the partners, retired partners and shareholders of such
Stockholder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "Stockholder," and any pro rata reduction with respect to
such "Stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"Stockholder," as defined in this sentence.
4.2 Reporting. With a view to making available to the Stockholders the
benefits of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public on Form S-3 or without registration,
after such time as a public market exists for the Common Stock of the Company,
the Company agrees to use its best efforts to:
4.2.1 At all times make and keep public information available,
as those terms are understood and defined in SEC Rule 144 under the Securities
Act and Item I.A.3 of Form S-3 or any similar or analogous rule or form;
4.2.2 File with the SEC, in a timely manner, all reports and
other documents required of the Company under the Securities Act and 1934 Act;
and
4.2.3 So long as the Stockholders own any Registrable
Securities, furnish to the Stockholders forthwith upon written request: a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144 of the Securities Act and of the 1934 Act; a copy
of the most recent annual or quarterly report of the Company; and such other
reports and documents as the Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing it to sell any such
securities without registration.
The Company agrees that upon receiving notice from a Stockholder of its
intention to avail itself of benefits of Rule 144 or any similar or analogous
rule, or of Section 4.3 below, the Company will as soon as practicable comply
with the information and reporting requirements of this Section 4.2 if, despite
the Company's best efforts to effect ongoing compliance, there shall have been
any failure or lapse in fulfilling the reporting and information requirements of
this Section.
4.3 Form S-3 Registration.
4.3.1 Registration and Notice.
(a) Filing and Registration Period. In case the Company shall
receive from the Stockholder a written request that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities, then as soon as
practicable thereafter, and consistent with the requirements of applicable law,
the Company shall prepare and file with the SEC a registration statement on Form
S-3 for an offering to be made on a continuous basis pursuant to Rule 415
covering all of the then outstanding Registrable Securities (the "Shelf
Registration"). The Company shall use its reasonable good faith efforts to have
such Shelf Registration declared effective as soon as practicable after its
filing and to keep the Shelf Registration continuously effective under the 1933
Act for a continuous period of time (such period of time being hereinafter
called the "Registration Period") commencing on the date the Shelf Registration
is declared effective under the 1933 Act by the SEC (the "Date of
Effectiveness") and ending on the date that is the first (1st) anniversary of
the Closing (subject to Section 4.3.2(b)). The Company shall have no duty or
obligation to keep the Shelf Registration (or any Subsequent Registration, as
defined below) effective after the expiration of the Registration Period.
Accordingly, the Stockholders acknowledge that the Registrable Securities will
not be registered under the 1933 Act beginning one (1) year after the Closing.
(b) Subsequent Registration. If the Shelf Registration is
filed with the SEC and becomes effective under the 1933 Act, and the Shelf
Registration or a Subsequent Registration (as defined below) thereafter ceases
to be effective for any reason at any time during the Registration Period, then
the Company shall use its best efforts to obtain the prompt withdrawal of any
order suspending the effectiveness thereof, and in any event shall, within
thirty (30) days of such cessation of effectiveness, file an amendment to the
Shelf Registration seeking to obtain the withdrawal of the order suspending the
effectiveness thereof, or file an additional "shelf" registration statement
pursuant to Rule 415 covering all of the then outstanding Registrable Securities
(a "Subsequent Registration"). If a Subsequent Registration is filed, the
Company shall use its best efforts to cause the Subsequent Registration to be
declared effective as soon as practicable after such filing and to keep such
registration statement continuously effective until the end of the Registration
Period.
(c) Supplements and Amendments. Subject to the provisions of
Section 4.3.1(g), during the Registration Period the Company shall supplement
and amend the Shelf Registration if, as and when required by the 1933 Act, the
rules and regulations promulgated thereunder or the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration.
(d) Timing and Manner of Sales. Any sale of Registrable
Securities pursuant to a Shelf Registration or a Subsequent Registration under
this Section 4.3 may be made only during a "Permitted Window" (as defined in
Section 4.3.1(g) below). In addition, any sale of Registrable Securities
pursuant to a Shelf Registration or a Subsequent Registration under this Section
4.3 may only be made in accordance with the method or methods of distribution of
such Registrable Securities that are described in the registration statement for
the Shelf Registration (or Subsequent Registration, as applicable) and permitted
by such form of registration statement, which methods of distribution will be
specified by the Stockholders in their Notice of Resale (as defined below). A
Stockholder may also sell Registrable Securities in a bona fide private offering
if the selling Stockholder provides the Company with a written opinion of
counsel, reasonably satisfactory to counsel to the Company, that such offer and
sale is an exempt transaction under the 1933 Act and applicable state securities
laws, complies with all requirements for such exemption(s) and is not made with
use of the prospectus for the Shelf Registration (or Subsequent Registration, if
applicable). Each Stockholder agrees that it will not sell any Registrable
Securities in any manner that would breach or violate any agreement between such
Stockholder and any third party.
(e) Trading Limits; No Underwritings. During any calendar
quarter during the Registration Period, the Stockholders, collectively, may not
sell an amount of Registrable Securities that, in the aggregate, exceeds two
percent (2%) of the outstanding shares of Company Common Stock (as indicated in
the Company's then most recent published report) without the Company's prior
written consent. No sale of Registrable Securities under any Shelf Registration
(or Subsequent Registration) effected pursuant to this Section 4.3 may be
effected pursuant to any underwritten offering without the Company's prior
written consent, which may be withheld in its sole and absolute discretion.
(f) Notice of Resale. Before any Stockholder may make any
sale, transfer or other disposition of any Registrable Securities under the
Shelf Registration (or a Subsequent Registration) during the Registration
Period, a Stockholder or Stockholders who own at least twenty percent (20%) of
the then outstanding Registrable Securities must first give written notice to
the Company (a "Notice of Resale") of such Stockholder's or Stockholders'
present intention to so sell, transfer or otherwise dispose of some or all of
such Stockholder's or Stockholders' Registrable Securities, and the number of
Registrable Securities such Stockholder proposes to so sell, transfer or
otherwise dispose of. In addition, a Notice of Resale shall contain the
information required to be included therein under Section 4.3.1(d) and Section
4.3.1(g).
(g) Permitted Window; Sale Procedures.
(i) A "Permitted Window" is a period of thirty (30)
consecutive calendar days commencing upon the Company's written notification to
the Stockholders in response to a Notice of Resale that the prospectus contained
in the Form S-3 registration statement filed pursuant to Section 4.3.1 of this
Agreement is available to be used for resales of Registrable Securities pursuant
to the Shelf Registration (or a Subsequent Registration, as applicable).
(ii) Before a Stockholder can make a sale of any
Registrable Securities, and in order to cause a Permitted Window to commence, a
Stockholder or Stockholders who own(s) at least twenty percent (20%) of the then
outstanding Registrable Securities must first give the Company a Notice of
Resale indicating such Stockholder's or Stockholders' intention to sell at least
five percent (5%) of the then outstanding Registrable Securities pursuant to the
Shelf Registration (or Subsequent Registration, as applicable).
(iii) Upon receipt of such Notice of Resale (unless a
certificate of the President or the Chief Financial Officer of the Company is
delivered as provided in Section 4.3.2(b) below), the Company will give written
notice to all Stockholders as soon as practicable, but in no event more than
seven (7) business days after the Company's receipt of such Notice of Resale
that either: (A) the prospectus contained in the registration statement for the
Shelf Registration (or Subsequent Registration, if applicable) is current (it
being acknowledged that it may be necessary for the Company during this period
to supplement the prospectus or make an appropriate filing under the 1934 Act so
as to cause the prospectus to become current) and that (as applicable) (1) the
Permitted Window will commence on the date of such notice by the Company or (2)
the Company is required under the 1933 Act and the regulations thereunder to
amend the registration statement for the Shelf Registration (or Subsequent
Registration, as applicable) in order to cause the prospectus to be current. In
the event that the Company determines that an amendment to the registration
statement is necessary as provided above, it will file and cause such amendment
to become effective as soon as practicable; whereupon it will notify the
Stockholders that the Permitted Window will then commence.
(iv) There will be no more than three (3) Permitted
Windows during the Registration Period and there will be at least a 30-day
interval between any two (2) Permitted Windows. Company shall not be obligated
to keep the registration statement for the Shelf Registration (or any Subsequent
Registration) current during any period other than a Permitted Window. If,
pursuant to Section 4.3.2(b), the Company defers a Permitted Window, and the
Stockholders withdraw their Notice of Resale, then such withdrawal shall not
count as a Permitted Window. The Stockholders may elect to withdraw a request
for registration pursuant to a Notice of Resale and such withdrawal shall not
count as a Permitted Window; provided however, that if the Company has commenced
preparation of any supplement or amendment to the registration statement or any
part thereof in response to such Notice of Resale prior to receiving written
notice from the Stockholders' of the withdrawal of their request for
registration, then the Stockholders who originally gave the Company such Notice
of Resale will promptly reimburse Company for its actual costs and expenses
reasonably incurred in preparing and/or filing such supplement and/or amendment.
(h) Trading Window Compliance. The Stockholders acknowledge
that the Company maintains an Insider Trading Compliance Program and an Insider
Trading Policy, as such may be amended (the "Company Trading Policy") and that
the Company Trading Policy requires that those directors, officers, employees
and other persons whom the Company determines to be "Access Personnel" or
otherwise subject to the "trading window" and pre-clearance requirements of the
Company Trading Policy (and members of their immediate families and households)
are permitted to effect trades in Company securities: (i) only during those
specified time periods ("trading windows") in which such persons are permitted
to make sales, purchases or other trades in the Company's securities under the
"trading window" provisions of the Company Trading Policy; and (ii) only after
pre-clearance of such sales, purchases or other trades with the Company's
Insider Trading Compliance Officer. If a Stockholder is or becomes subject to
the "trading window" and/or "pre-clearance" provisions of the Company Trading
Policy described above, then, notwithstanding anything herein to the contrary,
such Stockholder may sell, transfer and dispose of Registrable Securities only
during those trading windows during which such Company Access Personnel are
permitted to effect trades in Company stock under the Company Trading Policy and
only after pre-clearing such trades with the Company's Insider Trading
Compliance Officer as provided in the Company Trading Policy. Semaphore is not a
stockholder to which the Company Trading Policy applies.
4.3.2 Registration. Notwithstanding the provisions of Section
4.3.1 above, the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 4.3, and the Stockholder
shall not be entitled to sell the Shares pursuant to any registration statement
filed under Section 4.3 of this Agreement, as applicable:
(a) if Form S-3 is not then available for such offering
by the Stockholder;
(b) if the Company shall furnish to the Stockholder a
certificate signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Permitted Window to be in effect at such time, in which event the
Company shall have the right to defer a Permitted Window for a period of not
more than sixty (60) days after receipt of a Notice of Resale from the
Stockholder or Stockholders pursuant to Section 4.3.1(f); provided, however,
that the Company may so postpone a Permitted Window no more than twice during
the Registration Period; and provided further, that if the Company so postpones
a Permitted Window, then notwithstanding the last sentence of Section 4.3.1(a),
the Registration Period of the Shelf Registration shall be extended by a period
of time equal to the period of postponement plus, if a Permitted Window is in
effect at the end of such extended Registration Period, the Registration Period
of the Shelf Registration shall be further extended until the expiration of such
thirty day Permitted Window (subject to the provisions of Section 3 above and
Section 4.3.3 below); and provided further, that if Company defers a Permitted
Window as provided herein and the Stockholders withdraw their Notice of Resale,
then such withdrawal shall not count as a Permitted Window;
(c) if the Company is acquired and its Common Stock
ceases to be publicly traded;
(d) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to service
of process in effecting such registration, qualification or compliance.
(e) if the SEC refuses to declare such registration effective
due to the participation of any particular Stockholder in such registration
(unless such Stockholder withdraws all such Stockholder's Registrable Securities
from such registration statement).
4.3.3 Shares Otherwise Eligible for Resale. Notwithstanding
anything herein to the contrary, the Company shall not be obligated to effect or
continue to keep effective any such registration, registration statement,
qualification or compliance with respect to the Registrable Securities held by
any particular Stockholder:
(a) if the Company or its legal counsel shall have received a
"no-action" letter or similar written confirmation from the SEC that all the
Registrable Securities then held by such Stockholder may be resold by such
Stockholder within a three (3) month period without registration under the 1933
Act pursuant to the provisions of Rule 144 promulgated under the 1933 Act (or
successor provisions), or otherwise;
(b) if legal counsel to the Company shall deliver a written
opinion to the Company, its transfer agent and the Stockholders, in form and
substance reasonably acceptable to the Company and the Stockholder, to the
effect that all the Registrable Securities then held by such Stockholder may be
resold by such Stockholder within a three (3) month period without registration
under the 1933 Act pursuant to the provisions of Rule 144 promulgated under the
1933 Act, or otherwise; or
(c) after expiration or termination of the Registration
Period.
4.3.4 Expenses. The Company shall pay all expenses incurred in
connection with each registration requested pursuant to this Section 4.3,
(excluding underwriters' or brokers' discounts and commissions), including
without limitation all filing, registration and qualification, printers' and
accounting fees and the reasonable fees and disbursements of counsel for the
Company and one counsel for the Stockholders.
4.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Stockholders will furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition and plan of distribution of such Registrable Securities as shall be
required to timely effect the registration of their Registrable Securities.
5. Injunctive and Other Relief. The Company and the Stockholder agree
that in the event that either party breaches this Agreement, the non-breaching
party will be irreparably harmed and will be entitled to injunctive relief and
specific enforcement in addition to any other remedy which it may have at law or
in equity. No Stockholder will have any right to obtain or seek an injunction
restraining or otherwise delaying any registration that is the subject of this
Agreement as the result of any controversy that might arise with respect to the
interpretation or implementation of this Agreement.
6. Entire Agreement; Modification. This Agreement sets forth the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof, and merges and supersedes any and all prior discussions,
agreements, and understandings between or among them with respect thereto, and
no party shall be bound by any condition, definition, warranty or
representation, other than those expressly set forth or provided for in this
Agreement or in any document or instrument delivered pursuant to this Agreement,
or as may be set forth in writing and signed by the party or parties to be bound
thereby on or subsequent to the date hereof. This Agreement may not be changed
or modified, except by an agreement in writing executed by the Company and the
Stockholder.
7. Governing Law. This Agreement shall be governed by California law
(excluding the choice of law provisions) and applicable Federal law.
8. Severability. If any term, provision, covenant or restriction
contained in this Agreement is held by a court of competent jurisdiction to be
invalid, void, or unenforceable, then the remainder of this Agreement shall
remain operative and in full force and effect. If any provision contained in
this Agreement is invalidated or becomes inoperative because of a change in law,
the parties hereto will use their best efforts to adopt an appropriate
substitute (if any) for such provision consistent with the intent of the
parties.
9. Binding Effect of Agreement. The terms of this Agreement shall be
binding on and inure to the benefit of the parties hereto and their respective
subsidiaries, parents or other affiliated entities, agents, attorneys, heirs,
executors, successors, representatives and assigns.
10. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by (i) hand, (ii) certified or registered mail, return receipt
requested, (iii) facsimile (with confirmation receipt) or (iv) prepaid courier
service, to the following addresses: (a) if to the Company to 217 Humboldt
Court, Sunnyvale, CA 94089, Attention: Chief Financial Officer and (b) if to the
Stockholder, to Semaphore Communications Corporation, 800 Long Ridge Road, P.O.
Box 1600, Stamford, Connecticut 06904, Attention: Chief Financial Officer, with
a copy to Semaphore Communications Corporation, 800 Long Ridge Road, P.O. Box
1600, Stamford, Connecticut, Attention: General Counsel or to such other person
or persons or to such other address or addresses as may be designated by one to
the other.
11. Counterparts. This Agreement may be executed in counterparts, each
of which will be deemed an original, but all of which together will constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DIGITAL LINK CORPORATlON
By: /s/ Stanley E. Kazmierczak, CFO
SEMAPHORE COMMUNICATIONS CORPORATION
By: /s/ Timothy da Silva, President & CEO
