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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. FOR THE FISCAL YEAR ENDED MARCH 31, 1998.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the transition period from _______ to ______.
Commission file number 0-15895
DIGITAL MICROWAVE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 77-0016028
(State of Incorporation) (I.R.S. Employer Identification No.)
170 ROSE ORCHARD WAY, SAN JOSE, 95134
CALIFORNIA (Zip Code)
(Address of Principal Executive
Offices)
Registrant's telephone number, including area code: (408) 943-0777
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK-PAR VALUE $0.01 PER SHARE
(Title of class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. / /
State the aggregate market value of the voting stock held by non-affiliates
of Registrant (based on the last reported sale price of $7.00 per share on the
Nasdaq National Market) as of June 24, 1998: Approximately $241,636,808.
As of June 24, 1998, there were 46,685,992 shares of Common Stock, par
value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended March 31, 1998 are incorporated by reference into Parts I and II
of this Form 10-K Report. With the exception of those portions which are
incorporated by reference, the Registrant's Fiscal 1998 Annual Report is
not deemed filed as part of this Report.
2. Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on August 4, 1998 are incorporated by reference
into Part III of this Form 10-K Report.
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TABLE OF CONTENTS
DIGITAL MICROWAVE CORPORATION
1998 FORM 10-K ANNUAL REPORT
PART I
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Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 17
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . 18
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations . . 18
Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . 18
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . 18
PART III
Item 10 Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . 19
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 12 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . 19
Item 13 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . 19
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . 20
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ITEM 1. BUSINESS
THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "FACTORS THAT MAY
AFFECT FUTURE FINANCIAL RESULTS" AND ELSEWHERE IN, OR INCORPORATED BY REFERENCE
INTO, THIS FORM 10-K.
INTRODUCTION
Digital Microwave Corporation ("DMC" or the "Company") designs,
manufactures and markets advanced wireless solutions for worldwide telephone
network interconnection and access. The Company provides its customers with a
broad product line, which contains products that operate using a variety of
transmission frequencies, ranging from 0.3 GHz to 38 GHz, and a variety of
transmission capacities, typically ranging from 64 Kilobits to DS-3 (45 Megabits
per second). The Company's broad product line allows it to market and sell its
products to service providers in many locations worldwide with varying
interconnection and access requirements. DMC designs its products to meet the
requirements of mobile communications networks and fixed access networks
worldwide. The Company's products typically enable its customers to deploy and
expand their wireless infrastructure and market their services rapidly to
subscribers, so that service providers can realize a return on their investments
in frequency allocation licenses and network equipment.
In March 1998, the Company merged with MAS Technology Limited ("MAS"), a
New Zealand company, which designs, manufactures, markets and supports digital
microwave radio links for the worldwide telecommunications market. The
complementary product lines and distribution channels of MAS broadened the range
of wireless connection solutions that the Company offers to its customers
worldwide.
The Company believes that it is well-positioned to address worldwide market
opportunities for wireless infrastructure suppliers. For example, there are
substantial telecommunications infrastructures being built for the first time in
many African, Asian and Latin American countries; infrastructures are being
expanded in Europe; and PCS interconnect networks are being constructed in the
United States. The Company believes that maintaining close proximity to its
customers provides it with a competitive advantage in securing orders for its
products and in servicing its customers. Local offices enable the Company to
better understand the local issues and requirements of its customers and to
address its customers' individual geographic, regulatory, and infrastructure
requirements. As a result, the Company has developed a global sales, service and
support organization, with offices in Europe, Africa, Asia, New Zealand,
Australia, and the Americas. With its 33 sales or support offices in 25
countries, the Company can respond quickly to its customers' needs and provide
prompt on-site technical support.
The Company has sold over 95,000 radios, which have been installed in
over 70 countries. The Company markets its products to service providers
directly, as well as indirectly through its relationships with original
equipment manufacturer ("OEM") base station suppliers, such as Motorola,
Inc., Siemens AG, and Northern Telecom. Between April 1, 1997 and March 31,
1998, the Company had sold its products to a number of service providers,
including Beijing Telecommunication Equipment Factory, Bell South,
Microelectronics Technology, Mutiara Telecom and SMART Communications, Inc.
in the Asia/Pacific region; IONICA, Jordan Mobile Telephone Services, and
Telkom SA in Europe, the Middle East and Africa; and Sprint PCS and Winstar
Wireless in the Americas.
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INDUSTRY BACKGROUND
In recent years, there has been increased worldwide demand for high
performance mobile voice telephony, high speed data communications, fixed and
mobile cellular communications, video broadcast services and paging services.
This demand continues to increase due to: (i) changes in the regulatory
environment in many countries; (ii) the rapid establishment of
telecommunications infrastructures in many developing countries; (iii)
technological advances, particularly in the wireless telecommunications market;
and (iv) the deployment of private communications networks. Given their
relatively low cost and ease of deployment, wireless solutions are attractive to
new service providers establishing competing telecommunications services in
developed countries and to telecommunications service providers in developing
countries seeking to rapidly increase the availability and quality of
telecommunications services. The upgrade and expansion of existing networks and
the deployment of new networks, such as those for GSM, PCN, and PCS, are
expected to continue to offer growth opportunities for wireless infrastructure
suppliers. Wireless infrastructure suppliers address the requirements of both
mobile communications networks and fixed access networks.
Cellular telephone and other wireless services have grown rapidly over the
past several years due to deregulation, increased competition, technological
advances, and increasing consumer demand for connectivity to telecommunications
services. The demand for fixed access networks also continues to increase for
many of the same reasons, including the privatization of public telephone
operators, deregulation and the emergence of new applications, such as wireless
local loop, wireless data transport and alternative local telephone facilities
access.
Wireless networks are constructed using microwave radios and other
equipment to connect cell sites, switching systems, other wireline transmission
systems and other fixed facilities. Wireless networks range in size from a
single transmission link connecting two buildings to complex networks comprised
of thousands of wireless connections. The architecture of a network is
influenced by several factors, including the available radio frequency spectrum,
coordination of frequencies with existing infrastructure, application
requirements, environmental factors and local geography. Regulatory authorities
in different jurisdictions allocate different portions of the radio frequency
spectrum for various telecommunications services. In addition, most individual
networks require radio links which operate at several frequencies and the
transmission of voice and data typically requires different transmission
capacities. Moreover, networks in different locations are constructed using
different combinations of frequencies and with different transmission
capacities. No one transmission frequency or transmission capacity predominates
in the global market.
Whether expanding existing networks or deploying new networks, service
providers must choose between constructing such networks using traditional
wireline infrastructure or wireless infrastructure. Traditional wireline
connectivity solutions typically require significant installation periods and
may be relatively expensive to install. In developed countries where wireline
infrastructure is in place, new service providers may have the option to lease
networks from traditional service providers, but in many instances choose not to
do so because leasing arrangements must be entered into with their competitors,
may be comparatively expensive and do not allow control over the network. In
developing countries, many service providers are initially installing wireless
networks because such networks are generally faster to install and may be less
expensive than traditional wireline networks. As a result, many service
providers are deploying wireless networks as an alternative to the construction
or leasing of traditional wireline networks.
For several applications, digital microwave transmission systems offer
numerous advantages over competing transmission technologies, including lower
cost of implementation and rapid deployment. Digital microwave systems can be
deployed in a matter of weeks and typically require lower infrastructure
investments and installation lead times than alternative transmission
technologies. Digital microwave systems are especially advantageous where
geographically dispersed customers or operations, environmental constraints,
difficult terrain, or limited installation times render the installation and
implementation of wireline networks impractical or too costly.
The Company believes that as telecommunication requirements grow, digital
microwave systems will continue to be used as transmission links to support a
variety of existing and expanding communications networks and applications. In
this regard, the Company believes that digital microwave systems will be used to
address the connection requirements
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of the several markets and applications, including the infrastructure
development market, cellular applications, private networks and wireless analog
replacement applications.
THE DMC SOLUTION
DMC designs, manufactures and markets advanced, wireless solutions for
worldwide telephone network interconnection and access. The Company provides its
customers with a broad product line, which contains products that operate using
a variety of transmission frequencies, ranging from 0.3 GHz to 38 GHz, and a
variety of transmission capacities, typically ranging from 64 Kilobits to DS-3
(45 Megabits per second), carrying voice, data and video signals. The Company's
broad product line allows it to market and sell its products to service
providers in many locations worldwide with varying interconnection and access
requirements. The Company has sold more than 95,000 radios, which have been
installed in over 70 countries. During the last two years, the Company has sold
its products and provided services to over 300 customers.
The Company has established offices worldwide, with locations in Europe,
Africa, Asia, New Zealand, Australia, and the Americas. These offices enable the
Company to understand the local issues and requirements of its customers and to
address its customers' individual geographic, regulatory and infrastructure
requirements. In addition, its global sales, service and support organization
allows the Company to respond quickly to its customers' needs and to provide
prompt on-site technical support.
The Company believes that the use of standard design platforms for both
hardware and software components in the development of its products enables the
Company to more rapidly introduce and commercially ship new products and product
enhancements to address changing market demands. The use of standard design
platforms, flexible architectures and components, and software configurable
features allows the Company to offer its customers high-performance products
with a high degree of flexibility and functionality. Flexible architectures and
components facilitate system scalability, allow customers to acquire additional
features at a relatively low incremental cost, reduce the development time of
new features, and facilitate the efficient customization of the Company's
products. The use of standard design platforms also enables the Company to
manufacture its products in a more cost-effective manner. The software features
of many of the Company's product lines provide the Company's customers with a
greater degree of flexibility in installing, operating and maintaining their
networks.
The Company certifies its products to comply with various standards, such
as European Telecom Standards Institute ("ETSI") and International
Telecommunications Union ("ITU") regulations, which allow the Company to market
and sell its products in Europe and other locations worldwide. In addition, the
Company's manufacturing facilities in San Jose, California and Wellington, New
Zealand are certified to International Standards Organization ("ISO") 9001, a
recognized international quality standard.
THE COMPANY'S STRATEGY
The Company's strategy is to build on the strength of its current products,
which offer point-to-point solutions, and its strong customer sales, service and
support organization to become a leading provider of integrated wireless
solutions. Key elements of DMC's strategy include:
MAINTAIN A COMPREHENSIVE PRODUCT LINE. The Company anticipates that the
requirements of its customers will continue to evolve as the telecommunications
services market changes and expands. In this regard, since the Company's
customers often do not know the exact frequency band and capacity needs of their
networks at the time they are awarded franchises, DMC's broad product line
provides them with the flexibility to respond to individual market needs, and to
coordinate frequencies with existing infrastructure and other significant
variables. The Company believes that the use of standard design platforms and
flexible architectures for both hardware and software components in its products
enables DMC to quickly introduce and commercially ship new products and product
enhancements to address changing market
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demands. The Company intends to continue to expand its product line in response
to the varying worldwide requirements of wireless networks.
PURSUE WORLDWIDE MARKET OPPORTUNITIES. The Company believes that the
deployment of new wireless telecommunications networks and the upgrade and
expansion of existing networks provide it with many global market opportunities.
In many emerging markets in Africa, Asia and Latin America, substantial
telecommunications networks are being built for the first time; in Europe,
infrastructures are being expanded; and, in the United States, PCS interconnect
networks are being constructed. The Company intends to continue to pursue
global market opportunities through its established worldwide sales, service and
support organization, as well as through its relationships with OEM base station
suppliers.
ENHANCE GLOBAL SALES, SERVICE AND SUPPORT ORGANIZATION. The Company
believes maintaining close proximity to its customers provides it with a
competitive advantage in securing orders and servicing its customers. Local
offices provide the Company with a better understanding of its customers' needs
and enable the Company to respond to local issues and unique local requirements.
As a result, DMC has developed a global sales, service and support organization,
with offices in Europe, Africa, Asia, New Zealand, Australia, and the Americas.
The Company intends to continue to provide its customers with direct sales,
service and support from local offices.
LEVERAGE DISTRIBUTION CHANNELS. The Company markets its products to
service providers directly, as well as indirectly through its relationships with
OEM base station suppliers, such as Motorola, Inc., Siemens AG, and Northern
Telecom, as well as through its relationships with system integrators and
private labelers. The Company also markets its products through independent
agents and distributors in certain countries. The Company intends to leverage
upon such relationships and its direct worldwide presence with service providers
to expand its customer base and enhance its global presence.
FOCUS ON BUSINESS EXPANSION INTO EMERGING APPLICATIONS. The Company
believes that it can leverage its core technical competencies and its global
sales, service and support organization to enter into emerging applications,
including wireless local loop, wireless data transport, and alternative local
telephone facilities access. The Company intends to migrate and expand its
product line from a full point-to-point product line to offer multipoint
distribution products with a broader range of traffic handling capacities to
meet emerging market demands.
PRODUCTS
The Company's principal product families include the SPECTRUM-TM- II,
FibreNex-TM-, DMC Net-Registered Trademark- for
OpenView-Registered Trademark-, DXR-TM- 200, and DXR-TM- 100.
EXISTING PRODUCTS
SPECTRUM II. The SPECTRUM II product family, introduced in July 1995,
offers medium capacity ranging from T-1 (1.5 Mbps) to DS-3 (45 Mbps) products
that operate at 7, 8, 13, 15, 18, 23, 26 and 38 GHz. The SPECTRUM II product
line is smaller in size, less expensive and easier to install than previous
products. In addition, significantly more functionality is available in the
SPECTRUM II product line because of its enhanced software configurability which
provides the Company's customers with greater flexibility and control.
FIBRENEX. The FibreNex product solution, introduced in June 1997,
consists of a compact add/drop multiplexer ("ADM"), SPECTRUM II radios, and
the DMC Net for OpenView network management system. By using the FibreNex
solution, telecos/PTTs, competitive access providers ("CAPs"), local exchange
carriers and others can distribute voice, data, and video transport service
of a 155 Mbps SONET/SDH communications network to multiple end users. Using
the ADM, the service provider can tap into fiber infrastructures. The
service provider then can apply microwave radios operating at various
capacities and frequencies to provide wireless extensions of network
capability into numerous
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different locations. The integrated network management system enables
centralized monitoring of the entire network, including both fiber and radio
elements.
DMC NET FOR OPENVIEW. The latest generation solution, DMC Net for
OpenView is a versatile, interoperable network management system based on the
HP OpenView platform and is designed for use in small, medium, and large
telecommunications networks. Using Simple Network Management Protocol
("SNMP"), DMC Net for OpenView provides customers with an increased ability
to manage the hardware of multiple vendors from a common management platform.
Centralized management and control allows for the early warning of fault
conditions and the rapid diagnosis of problems, which reduce downtime and
lower the cost of maintenance. DMC Net for OpenView, which is supported on
Windows NT and will be supported UNIX systems, succeeds standalone network
element managers sold previously under the DMC Net name.
DXR 200. First shipped in 1994, the DXR 200 product line provides an
integrated, modular, linking solution for a wide variety of communications
systems in markets with low to medium capacity transmission requirements. The
DXR 200's integrated modular design allows it to support over 2,000 different
configurations, which can incorporate multiple features in the unit to
accommodate the differing communications needs of the Company's customers,
overcome difficult radio frequency environments, accommodate multiple data
speeds and support multiple communication protocols. The DXR 200 can operate on
every frequency band from 64 Kbps to 2.7 GHz.
DXR 100. First shipped in 1996, the DXR 100 product line is designed to
address medium and long haul, trunking applications and capacities higher than
those addressed by the DXR 200. The DXR 100 supports these higher capacity
environments using spectrum efficient transmission techniques such as QPSK or
QAM modulation and low error rate technologies such as forward error correction
and adaptive equalization. The DXR 100 provides low to medium capacity links
for cellular applications, basic telephony transmission and customer access
applications, particularly in urban areas. The DXR 100 supports a variety of
data rates with high spectrum efficiencies and maintains signal reception in
harsh or difficult radio frequency environments.
NEW PRODUCT DEVELOPMENT
The Company intends to continue to focus significant resources on product
development to maintain its competitiveness and to support its entry into new
wireless opportunities, including those in wireless local loop, wireless data
transport and alternative local telephone facilities access. Programs currently
in progress, if successfully completed, could result in new products which are
both point-to-point and point-to-multipoint and could have the capability to
handle greater amounts of voice and data traffic at increased
cost-effectiveness.
There can be no assurance that the Company will be successful in developing
and marketing any of the products currently being developed, that the Company
will not experience difficulties that could further delay or prevent the
successful development, introduction and sale of future products, or that these
products will adequately meet the requirements of the marketplace and achieve
market acceptance. See "Research and Development."
CUSTOMERS
The Company markets its products to customers in the telecommunications
industry worldwide. The Company's customers include service providers, which
incorporate the Company's products into their telecommunications networks to
deliver services directly to consumers, and OEMs, which provide and install
integrated systems to service providers. The following is a representative list
of customers to which the Company has shipped its products for the period from
April 1, 1997 to March 31, 1998:
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SERVICE PROVIDERS
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AMERICAS
Baja Celular Mexicana SA de CV Telcel
IMPSAT S.A. Winstar Wireless
Sprint PCS
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EUROPE/MIDDLE EAST/AFRICA
Comviq GSM AB Polska Telefonia Komorkowa
E-Plus Mobilfunk GmbH Tele Greenland
Eskom, South Africa Telkom SA, South Africa
IONICA UAB Omnitel
Jordan Mobile Telephone Services Zimbabwe Post and Telecommunications
Panafon SA Corporation
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ASIA/PACIFIC
Beijing Telecommunication Sapura PCN
Equipment Factory SMART Communications, Inc.
BellSouth, New Zealand Star Digitel Limited
Dhiraaga Maldives Sterling Cellular Ltd.
Microelectronics Technology, Inc. Zhejiang Unicom
Mutiara Telecom
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OEMs
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Motorola Inc. Siemens AG
Northern Telecom
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Although the Company has a large customer base, during any given quarter, a
small number of customers account for a significant portion of the Company's net
sales. In certain circumstances, the Company sells its products to service
providers through OEMs, which provide the service providers with access to
financing and the Company, in some instances, with protection from fluctuations
in foreign currency exchange rates. During Fiscal 1998, 1997 and 1996, Siemens
AG accounted for 5%, 12%, and 19%, respectively, of the Company's net sales. At
March 31, 1998, five customers collectively accounted for approximately 21% of
the Company's $83.2 million backlog. While management considers the Company's
relationships with each of its major customers to be good, there can be no
assurance that the Company's current customers will continue to place orders
with the Company, that orders by existing customers will continue to be at
levels of previous periods, or that the Company will be able to obtain orders
from new customers. The Company's customers typically are not contractually
obligated to purchase any quantity of products in a particular period and
product sales to major customers have varied widely from period to period. The
loss of any existing customer, a significant reduction in the level of sales to
any existing customer, or the failure of the Company to gain additional
customers could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Factors That May Affect
Future Financial Results."
SALES, MARKETING AND SERVICE
The Company believes that a direct and continuing relationship with service
providers is a competitive advantage in attracting new customers and satisfying
existing ones. As a result, the Company offers its products and services
principally through its own sales, service and support organization, which
allows the Company to closely monitor the needs of its customers. The Company
has offices in the United States, New Zealand, Australia, Canada, the United
Kingdom, Germany, Jordan, Mexico, Colombia, India, China, Singapore, Argentina,
Brazil, Greece, Indonesia, Malaysia, Russia, Sweden, Denmark, South Africa,
Zimbabwe, Botswana, and the Philippines. The Company's local offices provide it
with a better understanding of its customers' needs and enable the Company to
respond to local issues and unique local requirements.
The Company has informal relationships with OEM base station suppliers.
Such relationships increase the Company's ability to pursue the limited
number of major contract awards each year. In addition, such relationships
provide the Company's customers with easier access to financing and to
integrated system providers with a variety of
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equipment and service capabilities. There can be no assurance that the
Company will continue to be able to maintain and develop such relationships
or, that if such relationships are developed, they will be successful. In
selected countries, the Company also markets its products through independent
agents and distributors, as well as system integrators and brand labelers.
As of March 31, 1998, the Company employed approximately 460 people in its
sales, service and support organization, approximately 60% of whom primarily
support sales outside the United States. Sales personnel are highly trained to
provide the customer with assistance in selecting and configuring a digital
microwave system suitable for the customer's particular needs. The Company's
customer service and support personnel provide customers with training,
installation, service and maintenance of the Company's systems under contract.
The Company generally offers a standard two-year warranty for all customers on
all of the Company's products other than the DXR 200 and DXR 700 product lines,
for which there is generally a standard one-year warranty for all customers. The
Company provides warranty and post-warranty services from its manufacturing
locations in the United States, the United Kingdom and New Zealand and its
service centers in Mexico, Brazil, the Philippines and Canada.
RESEARCH AND DEVELOPMENT
The Company believes that its ability to enhance its current products,
develop and introduce new products on a timely basis, maintain technological
competitiveness and meet customer requirements is essential to the Company's
continued success. Accordingly, the Company allocates, and intends to continue
to allocate, a significant portion of its resources to research and development
efforts. During Fiscal 1998, Fiscal 1997, and Fiscal 1996, the Company invested
$19.9 million, $13.2 million, and $12.9 million, respectively, on research and
development which represents 6.4%, 6.3%, and 7.5%, respectively, of net sales.
The Company expects research and development expenses to increase in Fiscal
1999. As of March 31, 1998, the Company employed approximately 172 people in its
research and development organization.
The market for the Company's products is characterized by rapidly changing
technologies and evolving industry standards. Accordingly, the Company's future
performance depends on a number of factors, including its ability to identify
emerging technological trends in its target markets, to develop and to maintain
competitive products, to enhance its products by adding innovative features that
differentiate its products from those of its competitors and to manufacture and
to bring products to market quickly at cost-effective prices. The Company
believes that the use of flexible architectures and components assists in the
rapid deployment of new products and enhancements to satisfy customer, industry
and market needs. The Company believes that to remain competitive in the future
it will need to continue to develop new products, which will require the
investment of significant financial resources in product development. There can
be no assurance, however, that the Company will successfully complete the
development of any future products, that such products will achieve market
acceptance or that such products will be capable of being manufactured at
competitive prices in sufficient volumes. In the event that such products are
not developed in a timely manner, do not gain market acceptance or are not
manufacturable at competitive prices, the Company's business, financial
condition and results of operations could be materially adversely affected.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations consist primarily of final
assembly, customer software configuration, test and quality control of
materials and components. The manufacturing process consists primarily of
materials management, extensive unit and environmental testing of components
and subassemblies at each stage of the manufacturing process, final assembly
of the terminals, and prior to shipment, quality assurance testing and
inspection of all products. The Company has three manufacturing facilities,
which presently are located in San Jose, California, Wellington, New Zealand
and East Kilbride, Scotland. The Company recently purchased a manufacturing
facility in Hamilton, Scotland and intends to sell the East Kilbride
building. The Company's manufacturing operations in San Jose, California and
Wellington, New Zealand are certified to ISO 9001, a recognized international
quality standard. The manufacturing facility in Wellington, New Zealand is
also certified to ISO 14001, an internationally-recognized environmental
quality standard. As of March 31, 1998, the Company maintained a staff of
380 manufacturing personnel.
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The Company's manufacturing operations are highly dependent upon the
delivery of materials and components by outside suppliers in a timely manner. In
addition, the Company depends in part upon subcontractors to assemble major
components and subassemblies used in its products in a timely and satisfactory
manner. The Company does not generally enter into long-term or volume purchase
agreements with any of its suppliers, and no assurance can be given that such
materials, components and subsystems will be available in the quantities
required by the Company, if at all. The inability of the Company to develop
alternative sources of supply quickly and on a cost-effective basis could
materially impair the Company's ability to manufacture and deliver its products
in a timely manner. There can be no assurance that the Company will not
experience material supply problems or component or subsystem delays in the
future.
From time to time, the Company has experienced delays and other supply
problems with vendors, but such delays and other problems have not had a
significant impact on the Company's results of operations. To reduce any future
problems associated with delays, the Company has contracted for component and
subassembly parts from additional sources. The Company and its key suppliers
maintain a high level of communication at all levels of their respective
management to ensure that production requirements and constraints are taken into
account in each of their respective production plans.
BACKLOG
The Company's backlog at March 31, 1998 was $83.2 million, as compared with
$98 million at March 31, 1997. The Company only includes orders scheduled for
delivery within 12 months in its backlog. Product orders in the Company's
current backlog are subject to changes in delivery schedules or to cancellation
at the option of the purchaser without significant penalty. Accordingly,
although useful for scheduling production, backlog as of any particular date may
not be a reliable measure of sales for any future period because of the timing
of orders, delivery intervals, customer and product mix, and the possibility of
changes in delivery schedules and additions or cancellations of orders.
COMPETITION
The microwave interconnection and access business is a specialized
segment of the wireless telecommunications industry and is extremely
competitive. The Company expects such competition to increase in the future.
Several established and emerging companies offer a variety of microwave,
fiber optic, and other connectivity products for applications similar to
those of the Company's products. Many of the Company's competitors have more
extensive engineering, manufacturing and marketing capabilities and
substantially greater financial, technical and personnel resources than the
Company. In addition, many of the Company's competitors have greater name
recognition, a larger installed base of products and longer-standing customer
relationships. The Company considers its primary competitors to be L.M.
Ericsson, Northern Telecom, Siemens AG, P-COM, Inc., and the Farinon Division
of Harris Corporation. In addition, other existing competitors include
Alcatel, Nokia, Innova, SIAE, NEC, and NERA. Both Northern Telecom and
Siemens AG have product lines that compete with those of the Company, and are
also OEMs through which the Company markets and sells its products. Some of
the Company's largest customers could develop the capability to manufacture
products similar to those manufactured by the Company. Existing and potential
competition in the industry has resulted in, and will continue to result in,
significant price competition. The Company believes that competition in its
markets is based primarily on price, quality, availability, customer service
and support, breadth of product line, product performance and features, rapid
delivery, reliability, timing of new product introductions by the Company,
its customers and its competitors, and the ability of its customers to obtain
financing. The Company's future success will depend upon its ability to
address the increasingly sophisticated needs of its customers by enhancing
its current products, by developing and introducing new products in a timely
manner that keep pace with technological developments and emerging wireless
telecommunications services, and by providing such products at competitive
prices. There can be no assurance that the Company will have the financial
resources, technical expertise, or marketing, sales, distribution, and
customer service and support capabilities to compete successfully. See
"Factors That May Affect Future Financial Results."
Page 10
<PAGE>
GOVERNMENT REGULATION
Radio communications are subject to regulation by United States and foreign
laws and international treaties. The Company's equipment must conform to
international requirements established to avoid interference among users of
microwave frequencies and to permit interconnection of telecommunication
equipment. The Company has complied with such rules and regulations with respect
to its existing products. Any delays in compliance with respect to future
products could delay the introduction of such products. In addition, radio
transmission is subject to regulation by foreign laws and international
treaties. Equipment to support these services can be marketed only if permitted
by suitable frequency allocations and regulations. Failure by the regulatory
authorities to allocate suitable frequency spectrum could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The regulatory environment in which the Company operates is subject to
change. Regulatory changes, which are affected by political, economic and
technical factors, could significantly impact the Company's operations by
restricting development efforts by the Company and its customers, making current
systems obsolete or increasing the opportunity for additional competition. Any
such regulatory changes could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company might deem
it necessary or advisable to modify its systems to operate in compliance with
such regulations. Such modifications could be extremely expensive and
time-consuming to complete.
INTELLECTUAL PROPERTY
The Company's ability to compete will depend, in part, on its ability to
obtain and enforce intellectual property protection for its technology in the
United States and internationally. The Company relies upon a combination of
trade secrets, trademarks, copyrights, patents and contractual rights to protect
its intellectual property. For example, the Company presently has two patents
covering its products. In addition, the Company enters into confidentiality and
invention assignment agreements with its employees, and enters into
non-disclosure agreements with its suppliers and appropriate customers so as to
limit access to and disclosure of its proprietary information. There can be no
assurance that any steps taken by the Company will be adequate to deter
misappropriation or impede independent third party development of similar
technologies. In the event that such intellectual property arrangements are
insufficient, the Company's business, financial condition and results of
operations could be materially adversely affected. Moreover, there can be no
assurance that the protection provided to the Company's intellectual property by
the laws and courts of foreign nations will be substantially similar to the
remedies available under United States law or that third parties will not assert
infringement claims against the Company.
While the Company's ability to compete may be affected by its ability to
protect its intellectual property, the Company believes that, because of the
rapid pace of technological change in the wireless telecommunications industry,
its innovative skills, technical expertise and ability to introduce new products
on a timely basis will be more important in maintaining its competitive position
than protection of its intellectual property. Trade secret, trademark, copyright
and patent protections are important but must be supported by other factors such
as the expanding knowledge, ability and experience of the Company's personnel,
new product introductions and product enhancements. Although the Company
continues to implement protective measures and intends to defend vigorously its
intellectual property rights, there can be no assurance that these measures will
be successful.
The wireless telecommunications industry is characterized by numerous
allegations of patent infringement among competitors and considerable related
litigation. Accordingly, the Company may in the future be notified that it is
infringing certain patent or other intellectual property rights of others.
Although there are no such pending lawsuits against the Company or unresolved
notices that the Company is infringing upon intellectual property rights of
others, there can be no assurance that litigation or infringement claims will
not occur in the future. Such litigation or claims could result in substantial
costs and diversion of resources and could have a material adverse effect on the
Company's business, financial condition and results of operations. The wireless
telecommunications industry is subject to frequent litigation regarding patent
and other intellectual property rights. Certain companies and organizations in
the wireless
Page 11
<PAGE>
telecommunications industry have patents that protect their intellectual
property rights in these areas. In the event of an adverse result of any such
litigation, the Company could be required to expend significant resources to
develop non-infringing technology or to obtain licenses to the technology which
is the subject of the litigation. There can be no assurance that the Company
would be successful in such development or that any such license would be
available on commercially reasonable terms.
LITIGATION
The Company may be a defendant at any time in various suits and is subject
to various claims that arise in the normal course of business. In the opinion
of management, the ultimate disposition of these proceedings will not have a
material adverse effect on the consolidated financial position, liquidity or
results of operations of the Company.
EMPLOYEES
As of March 31, 1998, the Company employed 1,147 full-time and temporary
employees. None of the Company's employees is represented by a collective
bargaining agreement. The Company's future performance will depend in large
measure on its ability to attract and retain highly skilled employees.
Competition for such personnel is intense and there can be no assurance that the
Company will be successful in attracting and retaining highly skilled employees.
The Company has never experienced a work stoppage and believes its relationship
with its employees to be good.
Page 12
<PAGE>
EXECUTIVE OFFICERS OF DMC
The current executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Charles D. Kissner 51 Chairman of the Board and Chief Executive Officer
Sam Smookler 58 President and Chief Operating Officer
Frank Carretta, Jr. 53 Senior Vice President, Worldwide Sales, Service and Marketing
Jack Hillson 47 Senior Vice President and General Manager, Operations
John C. Brandt 41 Corporate Controller
Carol A. Goudey 50 Treasurer and Assistant Secretary
Timothy R. Hansen 37 Vice President, New Business Development
Paul A. Kennard 47 Vice President, Engineering
Shaun McFall 37 Vice President, Corporate Marketing
John P. O'Neil 60 Vice President, Personnel
Carl A. Thomsen 53 Vice President, Chief Financial Officer and Secretary
</TABLE>
Mr. Charles D. Kissner joined the Company as President, Chief Executive
Officer and was elected Director of the Company in July 1995 and Chairman of the
Board in August 1996. He currently serves as Chairman of the Board and Chief
Executive Officer of the Company. Prior to joining the Company, he served as
Vice President and General Manager of the Microelectronics Division of
M/A-COM, Inc. ("M/A-COM"), a manufacturer of radio and microwave communication
products, from July 1993 to July 1995. From February 1990 to July 1993,
Mr. Kissner served as President, Chief Executive Officer, and a Director of
Aristacom International, Inc., a communications software company. Mr. Kissner
currently is a director of Quickturn Design Systems, Inc., a provider of design
emulation systems, Spectrian, Inc., a supplier of linear high power amplifiers
for wireless communications, and American Medical Flight Support, Inc., a
non-profit medical transportation company.
Mr. Sam Smookler joined the Company as President and Chief Operating
Officer in January 1998. Prior to joining the Company, he served as President
and Chief Operating Officer of Signal Technology Corporation, a manufacturer of
electronic components and subsystems, from September 1997 to January 1998, and
as President of East Coast Operations from February 1997 to September 1997.
Prior to such time he served as Vice President and General Manager of the
Interconnection Products Division of Augat Corporation, a manufacturer of
telecommunications connection products, from November 1994 to February 1997.
From February 1992 to October 1994, he served as General Manager of a division
of M/A-COM. In addition, Mr. Smookler served as Group Vice President of Sipex
Corporation, a manufacturer of hybrid semiconductors from 1986 to January 1992.
Mr. Frank Carretta, Jr. joined the Company as Vice President, Worldwide
Sales and Service in October 1995 and was appointed Senior Vice President,
Worldwide Sales, Service and Marketing in November 1996. Prior to joining DMC,
Mr. Carretta served as Area Sales Director of M/A-COM from July 1992 to
September 1995. From 1988 to June 1992, Mr. Carretta was Vice President of Ward
Davis Associates, a manufacturers' representative company selling electronic
test instrumentation and software development tools.
Mr. Jack Hillson was appointed Senior Vice President and General Manager,
Operations of the Company in November 1996. He previously served as Vice
President and General Manager, QUANTUM/Magnum Division of the Company from
December 1995 to November 1996. Prior to joining DMC, Mr. Hillson was with
M/A-COM for eleven years, serving in various technical and management positions
with the Semiconductor and Microelectronics Divisions. Most recently,
Mr. Hillson served as the Director of Operations for M/A-COM's Power Hybrids
Division, which manufactures transistors and amplifier modules for the wireless
communications market.
Page 13
<PAGE>
Mr. John C. Brandt joined the Company as Controller in June 1997. Prior to
joining the Company, Mr. Brandt was employed with Honeywell-Measurex, a
manufacturer of control systems, from 1981 to June 1997, where he served in a
variety of financial positions, and most recently served as Operations
Controller from 1988 to June 1997.
Ms. Carol A. Goudey joined the Company as Treasurer in April 1996 and was
additionally appointed Assistant Secretary in May 1996. Prior to joining DMC,
she served as Acting Treasurer of California Micro Devices Corporation, a
manufacturer of semiconductor devices, since 1994. Ms. Goudey has also
previously held the position of Corporate Treasurer at both
Ungermann-Bass, Inc., a network systems company, from 1985 to 1989, and System
Industries, Inc., a computer peripheral company, from 1984 to 1985.
Mr. Timothy R. Hansen has served as Vice President, New Business
Development of the Company since August 1996. He previously served as Vice
President and General Manager, SPECTRUM Division of the Company from
February 1995 to August 1996, and as Vice President and Program Manager of the
SPECTRUM product line. He joined the Company in August 1984 as product manager,
and has held management positions in marketing, planning, sales and order
management.
Mr. Paul Kennard joined the Company as Vice President, Engineering in April
1996. From 1989 to March 1996, Mr. Kennard was with California Microwave
Corporation, a satellite and wireless communications company, serving as
Director of the Signal Processing Technology Department until his promotion in
1994 to Vice President of Engineering, and then to Senior Vice President of
Engineering in 1995 for the Microwave Network Systems Division.
Mr. Shaun McFall has served as Vice President, Corporate Marketing of the
Company since February 1995. He joined the Company's UK operations in January
1989, and has held several management positions in marketing. Prior to joining
DMC, he worked for GEC Telecommunications Ltd. in Germany and Ferranti
Industrial Electronics PLC, in Edinburgh, Scotland, both of which are
telecommunications companies.
Mr. John O'Neil joined the Company as Vice President, Personnel in May
1993. Mr. O'Neil was Vice President of Personnel and Administration of BEI
Electronics, Inc., a defense electronics firm, from January 1989 to April 1993.
Mr. Carl A. Thomsen joined the Company as Vice President, Chief Financial
Officer and Secretary in February 1995. Prior to joining the Company, he was
Senior Vice President and Chief Financial Officer of Measurex Corporation, a
manufacturer of sensor based process control systems. Mr. Thomsen joined
Measurex Corporation in 1983 as Corporate Controller, was promoted to Vice
President in 1986, to Chief Financial Officer in 1992, and to Senior Vice
President in 1993.
Page 14
<PAGE>
FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS
The statements in the Annual Report to Stockholders and this Form 10-K
concerning the Company's future products, expenses, revenues, gross margins,
liquidity, and cash needs, as well as the Company's plans and strategies,
contain forward-looking statements concerning the Company's future operations
and financial results. These forward-looking statements are based on current
expectations, and the Company assumes no obligation to update this information.
Numerous factors could cause actual results to differ materially from those
described in these statements. In particular, the Company's results can vary
due to economic and competitive conditions, the volume and timing of product
orders received and delivered during the quarter, product margins, the ability
of the Company and its key suppliers to respond to changes made by customers in
their orders, and the timing of new product introductions by the Company and its
competitors. The Company's results may also vary significantly depending on
other factors, including the mix of products sold; the cost and availability of
components and subsystems; relative prices of the Company's products; adoption
of new technologies and industry standards; competition; fluctuations in foreign
currency exchange rates; regulatory developments; and general economic
conditions. Furthermore, the Company's backlog may not be representative of
actual sales for any succeeding period because of the timing of orders, delivery
intervals, customer and product mix, and the possibility of changes in delivery
schedules and additions or cancellation of orders. Prospective investors and
stockholders should carefully consider the factors discussed above and set forth
below in evaluating these forward-looking statements.
The quarterly operating results of the Company can vary significantly
depending on several factors, any of which could have a material adverse effect
on the Company's business, financial condition or results of operations. In
particular, the Company's quarterly results of operations can vary due to the
volume and timing of product orders received and delivered during the quarter,
the ability of the Company and its key suppliers to respond to changes made by
customers in their orders, and the timing of new product introductions by the
Company and its competitors. The quarterly operating results also may vary
significantly depending on other factors, including the mix of products sold,
the cost and availability of components and subsystems, relative prices of the
Company's products, adoption of new technologies and industry standards,
competition, fluctuations in foreign currency exchange rates, regulatory
developments, and general economic conditions.
Manufacturers of digital microwave telecommunications equipment are
experiencing, and are likely to continue to experience, intense price pressure,
which has resulted, and is expected to continue to result, in downward pricing
pressure on the Company's products. As a result, the Company has experienced,
and expects to continue to experience, declining average sales prices for its
products. The Company's future profitability is dependent upon its ability to
improve manufacturing efficiencies, reduce material costs of products, and to
continue to introduce new products and product enhancements. Any inability of
the Company to respond to increased price competition would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The markets for the Company's products are extremely competitive, and
the Company expects that competition will increase. The Company's existing
and potential competitors include established and emerging companies, such as
L.M. Ericsson, Northern Telecom, Siemens AG, Farinon Division of Harris
Corporation, P-COM, Alcatel, Nokia, Innova, NERA, NEC, and SIAE, many of
which have more extensive engineering, manufacturing and marketing
capabilities and significantly greater financial, technical, and personnel
resources than the Company. The Company believes that its ability to compete
successfully will depend on a number of factors both within and outside its
control, including price, quality, availability, customer service and
support, breadth of product line, product performance and features, rapid
delivery, reliability, timing of new product introductions by the Company,
its customers and its competitors, and the ability of its customers to obtain
financing. The Company continues to experience customer demands for shorter
delivery cycles. The Company increased its inventory levels in order to
respond to this demand which, in turn, may increase the risk of obsolescence
of its inventories. There can be no assurance that the Company will have the
financial resources, technical expertise, or marketing, sales, distribution,
and customer service and support capabilities to compete successfully.
The Company expects that international sales will continue to account for
the majority of its net product sales for the foreseeable future. As a result,
the Company is subject to the risks of doing business internationally, including
unexpected changes in regulatory requirements; fluctuations in foreign currency
exchange rates; imposition of tariffs and
Page 15
<PAGE>
other barriers and restrictions; the burdens of complying with a variety of
foreign laws; and general economic and geopolitical conditions, including
inflation and trade relationships. In addition, recent events in Asia,
including depreciation of certain Asian currencies, failures of financial
institutions, stock market declines, and reduction in planned capital investment
at key enterprises, may continue to adversely impact the Company's revenues in
Asian markets. There can be no assurance that currency fluctuations, changes in
the rate of inflation or any of the aforementioned factors will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's manufacturing operations are highly dependent upon the
delivery of materials by outside suppliers in a timely manner. In addition, the
Company depends in part upon subcontractors to assemble major components and
subsystems used in its products in a timely and satisfactory manner. The
Company does not generally enter into long-term or volume purchase agreements
with any of these suppliers, and no assurance can be given that such materials,
components and subsystems will be available in the quantities required by the
Company, if at all. The inability of the Company to develop alternative sources
of supply quickly and on a cost-effective basis could materially impair the
Company's ability to manufacture and deliver its products in a timely manner.
There can be no assurance that the Company will not experience material supply
problems or component or subsystem delays in the future.
The Company has pursued, and will continue to pursue, growth opportunities
through internal development and acquisitions of complementary businesses and
technologies. Acquisitions may involve difficulties in the retention of
personnel, diversion of management's attention, unexpected legal liabilities,
and tax and accounting issues. There can be no assurance that the Company will
be able to successfully identify suitable acquisition candidates, complete
acquisitions, integrate acquired businesses into its operations, or expand into
new markets. Once integrated, acquired businesses may not achieve comparable
levels of revenues, profitability, or productivity as the existing business of
the Company or otherwise perform as expected. The Company's failure to manage
its growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The Year 2000 problem is
concerned with whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Year 2000 problem is pervasive and complex, as virtually every
company's computer operation will be affected in some way. The Company's
computer programs, which process its operational and financial transactions,
were designed and developed without considering the impact of the upcoming
change in century. If not corrected, the Company's computer programs could fail
or create erroneous results by or at the year 2000. The Company has purchased
new computer programs to address this issue and intends to implement these
applications during Fiscal 1999. The Company is contacting its primary
suppliers and subcontractors to determine that they are developing plans to
address processing transactions in the year 2000 and to monitor their progress
toward Year 2000 capability. The Company believes that it will expend
approximately $0.5 million for investigating and remedying issues related to
Year 2000 compliance involving its internal operations. Management believes
that the Year 2000 compliance expenses will not have a material adverse effect
on the Company's earnings. However, there can be no assurance that Year 2000
problems will not occur with respect to the Company's computer systems. The
Year 2000 problem may impact other entities with which the Company transacts
business, and the Company cannot predict the effect of the Year 2000 problem on
such entities.
During any given quarter, a small number of customers account for a
significant portion of the Company's net sales. The Company's customers
typically are not contractually obligated to purchase any quantity of products
in any particular period, and product sales to major customers have varied
widely from period to period. The loss of any existing customer, a significant
reduction in the level of sales to any existing customer, or the failure of the
Company to gain additional customers could have a material adverse effect on the
Company's business, financial condition and results of operations.
Page 16
<PAGE>
ITEM 2. PROPERTIES
The Company's corporate offices and principal research, development and
manufacturing facilities are located in San Jose, California in five leased
buildings aggregating approximately 230,000 square feet. The Company owns
20,000 square feet of office and manufacturing space in East Kilbride, Scotland,
1,500 square feet of which has been sublet until the year 2004. The Company
recently purchased 32,000 square feet of office and manufacturing space in
Hamilton, Scotland and intends to sell the East Kilbride building. The Company
also leases 17,000 square feet in Coventry, England and 45,000 square feet in
Wellington, New Zealand. The Company leases approximately 45,000 aggregate
square feet of sales and customer service and support offices. The Company
believes these facilities are adequate to meet its anticipated needs for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
See "Business -- Litigation" under Item 1 of this Form 10-K and Note 4 of
"Notes to Consolidated Financial Statements" incorporated herein by reference
from the Company's 1998 Annual Report to Stockholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held a Special Meeting of Stockholders on March 23,
1998.
(b) At the Special Meeting of Stockholders, the following matters
were voted upon:
1. A proposal to approve the issuance of shares of the Company's
Common Stock pursuant to an Agreement and Plan of Reorganization
and Amalgamation, dated as of December 22, 1997, by and among the
Company, South Amalgamation Sub Ltd. and MAS Technology Limited.
<TABLE>
<S> <C>
Affirmative votes: 27,735,229
Negative votes: 91,879
Abstain: 78,142
Non-votes: 7,264,457
</TABLE>
2. A proposal to approve an amendment to the Restated Certificate of
Incorporation of the Company to (a) increase the total number of
shares that the Company has authority to issue from 65,000,000 to
100,000,000 shares and (b) increase the number of authorized
shares of the Company's Common Stock from 60,000,000 to
95,000,000 shares.
<TABLE>
<S> <C>
Affirmative votes: 34,439,390
Negative votes: 676,020
Abstain 54,297
Non-votes 0
</TABLE>
3. A proposal to approve the adoption of an amendment to the
Company's 1994 Stock Incentive Plan to increase the number of
shares of the Company's Common Stock authorized for issuance
thereunder from 4,666,660 shares to 7,166,660 shares.
<TABLE>
<S> <C>
Affirmative votes: 15,956,945
Negative votes: 11,696,404
Abstain 251,901
Non-votes 7,264,457
</TABLE>
Page 17
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The section appearing on the inside front cover of the Company's 1998
Annual Report to Stockholders relating to prices of the Company's Common Stock
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The section labeled "Selected Consolidated Financial Data" appearing on
page 15 of the Company's 1998 Annual Report to Stockholders is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information appearing under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 11 through
15 of the Company's 1998 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data, and related
notes and Report of Independent Public Accountants appearing on pages 16 through
29 of the Company's 1998 Annual Report to Stockholders are incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
Page 18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and executive officers under the caption
"Election of Directors," "Board Meetings and Committees," "Security Ownership of
Certain Beneficial Owners and Management" and "Compliance with Section 16(a) of
the Securities Exchange Act of 1934" in the Company's Proxy Statement for the
Annual Meeting of Stockholders to be held on August 4, 1998 (the "Proxy
Statement"), is incorporated herein by reference. In addition, see the
discussion under the caption "Business -- Employees -- Executive Officers" under
Item 1 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information included in the Company's Proxy Statement under the
captions "Compensation of Directors," "Executive Compensation and Other
Information," "Stock Options," "Option Exercises and Holdings," "Compensation
Committee Interlocks and Insider Participation" and "Employment and Termination
Arrangements" is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information included in the Company's Proxy Statement under the
captions "Security Ownership of Certain Beneficial Owners and Management" and
"Employment and Termination Arrangements" is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Business -- Manufacturing and Suppliers" under Item 1 of this Form
10-K and Note 4 of "Notes to Consolidated Financial Statements" of the Company's
1998 Annual Report to Stockholders incorporated herein by reference.
Page 19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following consolidated financial statements are contained in the
Company's 1998 Annual Report to Stockholders and are incorporated
herein by reference pursuant to Item 8:
1. Consolidated Balance Sheets as of March 31, 1998 and 1997.
2. Consolidated Statements of Operations for each of the three
years in the period ended March 31, 1998.
3. Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended March 31, 1998.
4. Consolidated Statements of Cash Flows for each of the three
years in the period ended March 31, 1998.
5. Notes to Consolidated Financial Statements.
6. Report of Independent Public Accountants.
2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule for each of
the three years in the period ended March 31, 1998 is submitted
herewith:
II Valuation and Qualifying Accounts and Reserves.
Schedules not listed above have been omitted because they are not
applicable or required, or information required to be set forth
therein is included in the Consolidated Financial Statements,
including the Notes thereto, incorporated herein by reference.
3. EXHIBITS
The Exhibit Index begins on Page 25 hereof.
(B) There were no reports on Form 8-K filed by the Registrant during
the quarter ended March 31, 1998.
(C) See Item 14 (a) 3 above.
(D) See Item 14 (a) 2 above.
Page 20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: June 29, 1998.
DIGITAL MICROWAVE CORPORATION
BY: /S/ CHARLES D. KISSNER
------------------------------
Charles D. Kissner
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Page 21
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of Digital Microwave
Corporation do hereby constitute and appoint Charles D. Kissner and Carl A.
Thomsen, and each of them, the lawful attorney and agent or attorneys and agents
with power and authority to do any and all acts and things and to execute any
and all instruments which said attorneys and agents, or either of them,
determine may be necessary or advisable or required to enable Digital Microwave
Corporation to comply with the Securities and Exchange Act of 1934, as amended,
and any rules or regulations or requirements of the Securities and Exchange
Commission in connection with this Form 10-K Report. Without limiting the
generality of the foregoing power and authority, the powers include the power
and authority to sign the names of the undersigned officers and directors in the
capacities indicated below to this Form 10-K report or amendment or supplements
thereto, and each of the undersigned hereby ratifies and confirms all that said
attorneys and agents or either of them, shall do or cause to be done by virtue
hereof. This Power of Attorney may be signed in several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney
as of the date indicated opposite his name.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES SIGNING CAPACITY DATE
---------- ---------------- ----
<S> <C> <C>
/s/ CHARLES D. KISSNER Chairman of the Board and June 29, 1998
- ------------------------------ Chief Executive Officer
Charles D. Kissner
/s/ CARL A. THOMSEN Vice President, Chief June 29, 1998
- ------------------------------ Financial Officer & Secretary
Carl A. Thomsen (Principal Financial and
Accounting Officer)
/s/ RICHARD C. ALBERDING Director June 29, 1998
- ------------------------------
Richard C. Alberding
/s/ JOHN W. COMBS Director June 29, 1998
- ------------------------------
John W. Combs
/s/ CLIFFORD H. HIGGERSON Director June 29, 1998
- ------------------------------
Clifford H. Higgerson
/s/ JAMES D. MEINDL Director June 29, 1998
- ------------------------------
James D. Meindl
/s/ BILLY B. OLIVER Director June 29, 1998
- ------------------------------
Billy B. Oliver
/s/ HOWARD ORINGER Director June 29, 1998
- ------------------------------
Howard Oringer
</TABLE>
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Digital Microwave Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Digital Microwave
Corporation's Annual Report incorporated by reference in this Form 10-K, and
have issued our report thereon dated April 21, 1998. Our audits were made for
the purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The schedule listed in item 14a(2) is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
consolidated financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
April 21, 1998
Page 23
<PAGE>
SCHEDULE II
DIGITAL MICROWAVE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ---------------------------------------------------------------------------------------
BALANCE AT CHARGED TO BALANCE BALANCE
BEGINNING OF COSTS AND DEDUCTIONS/ AT END
DESCRIPTION YEAR EXPENSES WRITE-OFF OF YEAR
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended March 31, 1998
Allowance for
doubtful accounts $3,362 $ 356 $(77)(A) $3,795
Year Ended March 31, 1997
Allowance for
doubtful accounts $1,373 $1,400 $(589)(A) $3,362
Year Ended March 31, 1996
Allowance for
doubtful accounts $1,413 $ 580 $ 620 $1,373
</TABLE>
(A) Net of transfers from other reserve accounts.
Page 24
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement and Plan of Reorganization and Amalgamation, dated December
22, 1997, among the Company, South Amalgamation Sub Ltd. and MAS
(incorporated by reference to Exhibit 2.1 to the Company's
Registration Statement on Form S-4 (File No. 333-45053)).
3.1 Restated Certificate of Incorporation, as amended as of March 24,
1998.
3.2 Amended and Restated Bylaws, dated as of March 24, 1998.
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit
4.1 to the Company's Annual Report on Form 10-K for the year ended
March 31, 1988).
4.2 Rights Agreement dated as of October 24, 1991 between the Company and
Manufacturers Hanover Trust Company of California, including the
Certificate of Designations for the Series A Junior Participating
Preferred Stock (incorporated by reference to Exhibit 1 to the
Company's Current Report on 8-K filed on November 5, 1991).
10.1 Digital Microwave Corporation 1984 Stock Option Plan, as amended and
restated on June 11, 1991. (incorporated by reference to Exhibit 10.1
to the Company's Annual Report on Form 10-K for the year ended March
31, 1991).
10.2 Form of Installment Incentive Stock Option Agreement (incorporated by
reference to Exhibit 28.2 to the Company's Registration Statement on
Form S-8 (File No. 33-43155)).
10.3 Form of installment Non-qualified Stock Option Agreement (incorporated
by reference to Exhibit 28.3 to the Company's Registration Statement
on Form S-8 (File No. 33-43155)).
10.4 Lease of premises located at 170 Rose Orchard Way, San Jose,
California (incorporated by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the year ended March 31, 1991).
10.5 Lease of premises located at 130 Rose Orchard Way, San Jose,
California. (incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ended March 31,
1991).
10.6 Lease of premises located at 110 Rose Orchard Way, San Jose,
California. (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended March 31,
1991).
10.7 Microelectronics Technology, Inc. Development Agreement dated as of
March 9, 1984 (incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-1 (File No. 33-13431)).
10.8 Form of Indemnification Agreement between the Company and its
directors and certain officers (incorporated by reference to Exhibit
10.16 to the Company's Registration Statement on Form S-1 (File No.
33-13431)).
Page 25
<PAGE>
10.9* Technology Transfer & Marketing Agreement dated October 2, 1987
between Microelectronics Technology Inc. and the Company (incorporated
by reference to Exhibit 10.17 to the Company's Annual Report on Form
10-K for the year ended March 31, 1988).
10.10* Product Acquisition Agreement dated as of September 23, 1992 between
the Company and Microelectronics Technology, Inc. (incorporated by
reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K
for the year ended March 31, 1993).
10.11* Product Acquisition Agreement dated as of December 28, 1992 between
the Company and Microelectronics Technology, Inc. (incorporated by
reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K
for the year ended March 31, 1993).
10.12* Teaming Agreement dated as of November 16, 1993 between the Company
and Siemens AG (including the Supply Agreement dated November 16, 1993
between Siemens AG and E-Plus Mobilfunk GmbH) (incorporated by
reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K
for the year ended March 31, 1994).
10.13 Agreement on Exchange of Interim Equipment dated October 27, 1994
(incorporated by reference the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1994).
10.14 Digital Microwave Corporation 1994 Stock Incentive Plan, as amended
and restated (incorporated by reference to the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on
August 4, 1998).
10.15 Employment Agreement dated May 1, 1996 between the Company and Charles
D. Kissner (incorporated by reference to Exhibit 10.36 of the
Company's Annual Report on Form 10-K for the year ended March 31,
1996).
10.16 Form of Employment Agreement between the Company and certain executive
officers (incorporated by reference to Exhibit 10.38 of the Company's
Annual Report on Form 10-K for the year ended March 31, 1996).
10.17 Amendment to Loan Agreement dated June 24, 1996 between the Company
and the CoastFed Business Credit Corporation (incorporated by
reference to Exhibit 10.38 of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996).
10.18 Amendment to Loan Agreement effective as of June 25, 1996 between the
Company and the CoastFed Business Credit Corporation (incorporated by
reference to Exhibit 10.39 of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996).
10.19 Form of Employment Agreement between the Company and certain executive
officers (incorporated by reference to Exhibit 10.28 to the Company's
Annual Report on Form 10-K for the year ended March 31, 1997).
10.20 Credit Agreement, dated as of June 30, 1997, by and between the
Company and Bank of America National Trust and Savings Association
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997).
10.21 Lease, dated April 5, 1995, by and between Metropolitan Life Insurance
Company and Digital Microwave Corporation, relating to 180 Rose
Orchard Way, San Jose, California (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).
Page 26
<PAGE>
10.22 Sublease Agreement, dated August 29, 1997, by and between Wyse
Technology Inc., Digital Microwave Corporation and Wyse Technology
Investments, Inc., relating to 3745 North First Street, San Jose,
California.
10.23* Purchase Agreement, dated January 15, 1998, between the Company and
Microelectronics Technology, Inc.
10.24* Purchase Agreement, dated January 15, 1998, between the Company and
REMEC, Inc.
10.25* Business Agreement, dated January 26, 1998, between the Company and
Microelectronics Technology, Inc.
13.1 Portions of 1998 Annual Report to Stockholders incorporated herein by
reference.
21.1 List of subsidiaries.
23.1 Consent of Independent Public Accountants (included on page 28 of this
Annual Report on Form 10-K).
24.1 Power of Attorney (included on page 22 of this Annual Report on Form
10-K).
27.1 Financial Data Schedule for the fiscal year ended March 31, 1998.
27.2 Restated Financial Data Schedule for the fiscal year ended March 31,
1997.
27.3 Restated Financial Data Schedule for the fiscal year ended March 31,
1996.
* Confidential treatment of certain portions of this exhibit has been
requested.
Page 27
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included (or incorporated by reference) in this Form 10-K
into the Company's previously filed Registration Statements (File Nos.
33-16539, 33-37173, 33-43155, 33-85270, 33-94438, 333-00855, 333-11385,
333-11387, 333-11389, 333-25953, 333-48533, 333-48535 and 333-46867) on
Form S-8.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
June 26, 1998
Page 28
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION OF
DIGITAL MICROWAVE CORPORATION
Digital Microwave Corporation, a corporation organized
and existing under the laws of the State of Delaware, hereby certifies as
follows:
1. The original Certificate of Incorporation of this corporation
was filed with the Secretary of State of Delaware on February 13, 1987.
2. This Restated Certificate of Incorporation was duly adopted by
the Board of Directors of the corporation on February 27, 1987 in accordance
with the provisions of Sections 241 and 245 of the General Corporation Law of
the State of Delaware. The Corporation has not received payment for any of
its stock. The Restated Certificate of Incorporation restates, integrates
and further amends the original Certificate of Incorporation by increasing
the authorized capital stock and making other conforming changes to Article
IV. The text of the Restated Certificate of Incorporation as amended and
restated shall be read in full as follows:
ARTICLE I
The name of this corporation is Digital Microwave
Corporation.
ARTICLE II
The address of the registered office of the corporation
in the State of Delaware is 1209 Orange Street, the City of Wilmington,
County of New Castle, and the name of its registered agent at that address is
The Corporation Trust Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE IV
(A) Classes of Stock.
This corporation is authorized to issue two classes of
shares to be designated, respectively, "Preferred Stock" and "Common Stock."
The total number of shares which the corporation is authorized to issue is
thirty-five million (35,000,000). Five million (5,000,000) shares shall be
Preferred Stock, consisting of 1,000,000 shares designated Series A Preferred
Stock and 500,000 shares designated Series B Preferred Stock and thirty
million (30,000,000) shares shall be Common Stock. The Preferred Stock shall
have a par value of $.01 per share; the Common Stock shall have a par value
of $.01 per share.
<PAGE>
(B) THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF THE
SERIES A AND SERIES B PREFERRED STOCK (COLLECTIVELY, THE "PREFERRED STOCK")
ARE FIXED AND DETERMINED AS SET FORTH BELOW.
The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
shares of Preferred Stock and Common Stock then outstanding, voting as a
single class. Except as to the Series A and Series B Preferred Stock and
except as otherwise provided in this Certificate of Incorporation, the Board
of Directors is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon such additional series
of Preferred Stock, and the number of shares constituting any such series and
the designation thereof, or any of them. They Board of Directors is also
authorized to decrease the number of shares of any series, subsequent to the
issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series. Unless otherwise specified, all
cross-references in this part (B) are to other paragraphs contained herein.
1. DIVIDEND PROVISIONS.
(a) The holders of shares of Series A and Series B
Preferred Stock shall be entitled to receive distributions (as defined
below), out of any assets legally available therefor, when, as and if
declared by the Board of Directors; provided that no distribution shall be
paid on the shares of Common Stock unless a distribution in the same amount
per share is paid contemporaneously on the shares of Series A and Series B
Preferred Stock, on the basis of the number of shares of Common Stock into
which such shares of Series A and Series B Preferred Stock would be
convertible as provided in paragraph 4 on the record date for determining the
holder of Common Stock entitled to such dividends.
(b) For purposes of this paragraph 1, unless the context
otherwise requires, distribution shall mean the transfer of cash or property
without consideration (other than under paragraphs 2 or 5 hereof), whether by
way of dividend or otherwise, payable other than in Common Stock, or the
purchase or redemption of shares of this corporation (other than repurchases
of Common Stock held by employees or consultants of this corporation upon
termination of their employment or services pursuant to agreements providing
for such repurchase) for cash or property, including any such transfer,
purchase or redemption by a subsidiary of this corporation.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or
winding up of this corporation, whether voluntary or involuntary, the holders
of shares of Series A and Series B Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of
this corporation to the holders of Common
2
<PAGE>
Stock by reason of their ownership thereof, an amount per share of (i) $3.50
for each outstanding share of Series A Preferred Stock (the "Original Series
A Issue Price") held by such holder, (ii) $6.00 for each outstanding share of
Series B Preferred Stock (the "Original Series B Issue Price") held by such
holder (the Original Series A Issue Price and the Original Series B Issue
Price being referred to collectively as the "Original Issue Price"), and
(iii) an amount equal to the declared but unpaid dividends, if any, on each
such share. If upon the occurrence of such event, the assets and funds
available to be distributed among the holders of shares of Series A and
Series B Preferred Stock and any other series of Preferred Stock which ranks
on a parity with the Series A and Series B Preferred Stock in liquidation
(the "Parity Preferred") shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amounts, then the entire assets
and funds of this corporation legally available for distribution shall be
distributed ratably among the holders of the Series A and Series B Preferred
Stock and the Parity Preferred in proportion to the full preferential amount
each such holder is otherwise entitled to receive.
(b) Upon the completion of the distribution required by
paragraph 2(a), if assets remain in this corporation, the holders of shares
of Common Stock shall be entitled to receive the amount per share of $3.50
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) for each outstanding share of Common Stock held by them.
If upon the completion of the distribution required by paragraph 2(a), the
assets and funds available to be distributed among the holders of shares of
Common Stock shall be insufficient to permit the payment to such holders of
the full aforesaid amounts, then the remaining assets and funds of this
corporation legally available for distribution shall be distributed ratably
among the holders of the Common Stock in proportion to the full preferential
amount each such holder is otherwise entitled to receive.
(c) Upon the completion of the distributions required by
paragraphs 2(a) and (b), if assets remain in this corporation, the remaining
assets and funds of the corporation shall be distributed ratably among the
holders of the then outstanding shares of Series A and Series B Preferred
Stock, Parity Preferred and Common Stock of this corporation in the same
proportion as the number of shares of outstanding Series A and Series B
Preferred Stock and Parity Preferred then held by each of them bears to the
total number of shares of outstanding Common Stock and Common Stock issuable
upon conversion of outstanding Series A and Series B Preferred Stock and
Parity Preferred.
(d) A sale, conveyance or disposition of all or
substantially all of the assets of this corporation, or a consolidation or
merger of this corporation with or into any other corporation in which the
stockholders of this corporation own less than a majority of the combined
voting power of the surviving corporation, shall not be considered to be a
liquidation, dissolution or winding up within the meaning of this paragraph
2, but shall instead be treated pursuant to paragraph 5 hereof.
3
<PAGE>
3. REDEMPTION.
(a) On or at any time after the receipt by this
corporation from the holders of a majority of the then outstanding shares of
Series A and Series B Preferred Stock of their written consent to redemption
hereunder of their respective shares, this corporation may at any time it may
lawfully do so, at the option of the Board of Directors, redeem in whole or
in part the respective outstanding shares of Series A and Series B Preferred
Stock by paying in cash therefor a sum equal to the respective Original Issue
Price per share, together with any dividend on each such share that has been
declared but remains unpaid prior to the Redemption Date (as hereinafter
defined) (such total amount being hereinafter referred to as the "Redemption
Price").
(b) On or at any time after March 31, 1987, this
corporation may at any time it may lawfully do so, at the option of the Board
of Directors, redeem in whole or in part the outstanding shares of Series A
Preferred Stock by paying in cash therefor a sum equal to the Redemption
Price for such Series A Preferred Stock. On or at any time after December
31, 1987, this corporation may at any time it may lawfully do so, at the
option of the Board of Directors, redeem in whole or in part the outstanding
shares of Series B Preferred Stock by paying in cash therefor a sum equal to
the Redemption Price for such Series B Preferred Stock.
(c) (i) In the event of any redemption of only a part
of the then outstanding shares of Series A and Series B Preferred Stock, this
corporation shall effect such redemption pro rata according to the number of
shares held by each holder thereof.
(ii) At least 30 but no more than 60 days prior to
each date fixed pursuant to paragraphs 3(a) or 3(b) for any redemption of
shares of Series A and Series B Preferred Stock (the "Redemption Date"),
written notice shall be mailed, postage prepaid, to each holder of record (at
the close of business on the business day next preceding the day on which
notice is given) of shares of Series A and Series B Preferred Stock to be
redeemed, at the address for such holder as it appears on the stock transfer
books of this corporation, notifying such holder of the redemption to be
effected, specifying the Redemption Date, the Redemption Price, the place at
which payment may be obtained and the date on which such holder's Conversion
Rights (as hereinafter defined) as to such shares terminate and calling upon
such holder to surrender to this corporation, in the manner and at the place
designated, his certificate or certificates representing the shares to be
redeemed less the number of shares converted between such Notice Date and the
Redemption Date (the "Redemption Notice"). Except as provided in paragraph
3(c)(iii), on or after the Redemption Date, each holder of shares of Series A
and Series B Preferred Stock to be redeemed shall surrender to this
corporation the certificate or certificates representing such shares, in the
manner and at the place designated in the Redemption Notice, and thereupon
the Redemption Price of such shares shall be payable to the order of the
person whose name appears on such certificate or certificates as the owner
thereof. Shares of Series A and Series B Preferred Stock that are redeemed
shall be cancelled and shall not be reissued. In the event less than all the
shares
4
<PAGE>
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(iii) From and after the Redemption Date, unless
there shall have been a default in payment of the Redemption Price, all
rights of the holders of the shares designated for redemption in the
Redemption Notice, as holders of shares of Series A and Series B Preferred
Stock (except the right to receive the Redemption Price without interest upon
surrender of their certificate or certificates), shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books
of this corporation or be deemed to be outstanding for any purpose
whatsoever. The shares of Series A and Series B Preferred Stock not redeemed
shall remain outstanding and entitled to all the rights and preferences
provided herein.
(iv) Three days prior to the Redemption Date, this
corporation shall either
(A) actually deliver to each of the
holders of the shares to be redeemed a cashier's or
certified check in an amount equal to the Redemption
Price of such holder's shares to be redeemed, or
(B) deposit the Redemption Price of
all outstanding shares of Series A and Series B Preferred
Stock designated for redemption in the Redemption Notice,
and not yet redeemed or converted, with a bank or trust
company having aggregate stated capital and surplus in
excess of $50,000,000, as a trust fund for the benefit of
the holders of the shares designated for redemption and
not yet redeemed and simultaneously deposit irrevocable
instruction and authority to such bank or trust company
to pay, on and after the date fixed for redemption or
prior thereto, the Redemption Price of each share to the
holders thereof upon surrender of their certificates.
Any moneys delivered or deposited by this corporation pursuant to this
paragraph 3(c)(iv) for the redemption of shares which are thereafter
converted into shares of Common Stock pursuant to paragraph 4 hereof no later
than the Redemption Date, shall be returned to this corporation forthwith
upon such conversion. The balance of any moneys deposited by this
corporation pursuant to paragraph 3(c)(iv)(B) remaining unclaimed at the
expiration of ninety (90) days following the Redemption Date shall thereafter
be returned to this corporation upon its request expressed in a resolution of
its Board of Directors, provided that the stockholder to which such moneys
would be payable hereunder shall be entitled, upon proof of its ownership of
the Series A and Series B Preferred Stock and payment of any bond requested
by the Company, to receive such monies but without interest from the
Redemption Date.
5
<PAGE>
4. CONVERSION. The holders of outstanding shares of Series A
and Series B Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) RIGHT TO CONVERT; AUTOMATIC CONVERSION.
(i) Subject to paragraph 4(c), each share
of Series A and Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any
time after the date of issuance of such share and prior
to the close of business on any Redemption Date as may
have been fixed in any Redemption Notice with respect to
such share, at the office of this corporation or any
transfer agent for such shares, into such number of fully
paid and nonassessable shares of Common Stock as is
determined by dividing the Original Issue Price by the
Conversion Price at the time in effect for such share.
The initial Conversion Price per share for shares of
Series A Preferred Stock and Series B Preferred Stock
shall be $.875 and $1.50, respectively; provided,
however, that the Conversion Price for shares of Series A
and Series B Preferred Stock shall be subject to
adjustment as set forth in paragraph 4(c).
(ii) In the event this corporation gives a
Redemption Notice with respect to any shares of Series A
or Series B Preferred Stock pursuant to paragraph 3
hereof, the Conversion Rights shall terminate as to the
shares designated for redemption at the close of business
on the Redemption Date, unless default is made in payment
of the Redemption Price.
(iii) Each share of Series A and Series B
Preferred Stock shall automatically be converted into
shares of Common Stock at the Conversion Price at the
time in effect for such Series A and Series B Preferred
Stock immediately upon the closing of this corporation's
underwritten sale of its Common Stock pursuant to a
registration statement under the Securities Act of 1933,
as amended (other than a registration statement
registering an employee benefit plan or an SEC Rule 145
transaction), which results in aggregate cash proceeds to
this corporation of at least $5,000,000, and the public
offering price of which is not less than $3.00 per share
(adjusted to reflect subsequent stock dividends, stock
splits or recapitalizations).
(b) MECHANICS OF CONVERSION. Before any holder of
shares of Series A or Series B Preferred Stock shall be entitled to convert
the same into shares of Common Stock, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of this corporation or of
any transfer agent for such shares, and shall give written notice by mail,
postage prepaid, to this corporation at its principal corporate office, of
the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. This corporation shall, as soon as practicable thereafter, issue and
deliver at such
6
<PAGE>
office to such holder of shares of Series A or Series B Preferred Stock, or
to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled
as aforesaid. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the
certificate or certificates representing the share of Series A or Series B
Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date.
(c) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK.
The Conversion Price of the shares of Series A and Series B Preferred Stock
shall be subject to adjustment from time to time as follows:
(i) (A) If this corporation shall issue any
Additional Stock (as hereinafter defined) without
consideration or for a consideration per share less than the
Conversion Price for shares of Series A Preferred Stock in
effect immediately prior to the issuance of such Additional
Stock the Conversion Price for the shares of Series A
Preferred Stock in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this
clause (i)) be reduced to:
the Conversion Price determined by dividing (X)
an amount equal to the sum of (a) the product derived by
multiplying such Conversion Price in effect immediately prior
to such issue or sale times the number of shares of Common
Stock Deemed Outstanding (as hereinafter defined) immediately
prior to such issue or sale, plus (b) the consideration, if
any, received or deemed to be received by this corporation
upon such issue or sale, by (Y) the number of shares of Common
Stock Deemed Outstanding immediately after such issue or sale.
(B) If this corporation shall issue any
Additional Stock (as hereinafter defined) prior to December
24, 1988 for a consideration per share less than the
Conversion Price for shares of Series B Preferred Stock in
effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for the shares of Series B
Preferred Stock in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this
clause (i)) be reduced to the lower of (X) the consideration
per share of such Additional Stock but not lower than $4.00
per share or (Y) the Conversion Price determined pursuant to
paragraph 4(c)(i)(C).
(C) Except as provided in paragraph 4(c)(i)(B),
if this corporation shall issue any Additional Stock (as
hereinafter defined) without consideration or for a
consideration per share less than the Conversion Price for
shares of Series B Preferred Stock in effect immediately prior
to the issuance of such Additional Stock, the Conversion Price
for the shares of Series B Preferred Stock in effect
7
<PAGE>
immediately prior to each such issuance shall forthwith
(except as otherwise provided in this clause (i)) be reduced
to:
the Conversion Price determined by
dividing (X) an amount equal to the sum of (a) the product
derived by multiplying such Conversion Price in effect
immediately prior to such issue or sale times the number of
shares of Common Stock Deemed Outstanding (as hereinafter
defined) immediately prior to such issue or sale, plus (b) the
consideration, if any, received or deemed to be received by this
corporation upon such issue or sale, by (Y) the number of shares
of Common Stock Deemed Outstanding immediately after such issue
or sale.
The number of shares of "Common Stock
Deemed Outstanding" shall equal the sum of the number of shares
of Common Stock then outstanding plus the number of shares of
Common Stock then obtainable pursuant to (aa) options to
purchase or rights to subscribe for Common Stock, (bb)
securities by their terms convertible into or exchangeable for
Common Stock and (cc) options to purchase or rights to subscribe
for such convertible or exchangeable securities.
(D) No adjustment of the Conversion Prices for
shares of Series A and Series B Preferred Stock shall be made
in an amount less than five cents per share, provided that any
adjustment that is not required to be made by reason of this
sentence shall be carried forward and taken into account in
any subsequent adjustment. Except to the limited extent
provided for in paragraphs (4)(c)(i)(G)(3), (c)(i)(G)(4) and
(c)(v), no adjustment of such Conversion Prices shall have the
effect of increasing the Conversion Prices above the
Conversion Prices in effect immediately prior to such
adjustment.
(E) In the case of the issuance of Common Stock
for cash, the consideration shall be deemed to be the amount
of cash paid therefor before deducting any discounts,
commissions or other expenses allowed, paid or incurred by
this corporation for any underwriting or otherwise in
connection with the issuance and sale thereof.
(F) In the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
value thereof as determined by the Board of Directors
irrespective of any accounting treatment.
(G) In the case of the issuance of options to
purchase or rights to subscribe for Common Stock, securities
by their terms convertible into or exchangeable for Common
Stock or options to purchase or rights to subscribe for such
convertible or exchangeable
8
<PAGE>
securities (where the shares of Common Stock issuable upon
exercise of such options or rights or upon conversion or
exchange of such securities are not excluded from the
definition of Additional Stock), the following provisions
shall apply:
(1) the aggregate maximum number of
shares of Common Stock deliverable upon exercise of such
options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options
or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in paragraphs
4(c)(i)(E) and (c)(i)(F)), if any, received by the corporation
upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the
Common Stock covered thereby;
(2) the aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be deemed to
have been issued at the time such securities were issued or
such options or rights were issued and for a consideration
equal to the consideration, if any, received by this
corporation for any such securities and related options or
rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional
consideration, if any, to be received by the corporation upon
the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each
case to be determined in the manner provided in paragraphs
4(c)(i)(E) and (c)(i)(F));
(3) In the event of any change in the
number of shares of Common Stock deliverable upon exercise of
such options or rights or upon conversion of or in exchange
for such convertible or exchangeable securities, including,
but not limited to, a change resulting from the antidilution
provisions thereof, the Conversion Prices in effect at the
time for the Series A and Series B Preferred Stock shall
forthwith be readjusted to such Conversion Prices as would
have been obtained had the adjustment that was made upon the
issuance of such options, rights or securities not converted
prior to such change or the options or rights related to such
securities not converted prior to such change been made upon
the basis of such change, but no further adjustment shall be
made for the actual issuance of Common Stock upon the exercise
of any such options or rights or the conversion or exchange of
such securities;
(4) Upon the expiration of any such
options or rights, the termination of any such rights to
convert or
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<PAGE>
exchange or the expiration of any options or rights related to
such convertible or exchangeable securities, the Conversion
Prices for the Series A and Series B Preferred Stock shall
forthwith be readjusted to such Conversion Prices as would
have been obtained had the adjustment which was made upon the
issuance of such options, rights or securities or options or
rights related to such securities been made upon the basis of
the issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options or rights,
upon the conversion or exchange of such securities or upon the
exercise of the options or rights related to such securities.
(ii) For purposes of paragraphs 4(c)(i)(A) and 4(c)(i)(C),
"Additional Stock" shall mean any shares of Common Stock issued (or deemed to
have been issued pursuant to paragraph 4(c)(i)(G)) by this corporation after
the closing date of the Series A Stock Purchase Agreement ("Series A Purchase
Date") with respect to the Series A Preferred Stock and the closing date of
the Series B Stock Purchase Agreement ("Series B Purchase Date") with respect
to the Series B Preferred Stock other than:
(A) Common Stock issued pursuant to a
transaction described in paragraph 4(c)(iv),
(B) Up to 1,432,000 shares of Common Stock
(adjusted to reflect subsequent stock dividends, stock splits
or recapitalizations) issued or issuable to employees,
officers, directors or consultants of this corporation under
any stock option, stock purchase or similar plan,
(C) Common Stock issued or issuable upon
conversion of shares of Series A and Series B Preferred Stock,
(D) Up to 92,676 shares of Series A
Preferred Stock (adjusted to reflect subsequent stock
dividends, stock splits or recapitalizations) issued or
issuable to Tech Associates pursuant to a Multi-Tenant Lease
Agreement dated April 1, 1984, as amended by a First Amendment
and Supplement to Multi-Tenant Lease Agreement dated August
31, 1984, or
(E) Up to 370,856 shares of Series A
Preferred Stock (adjusted to reflect subsequent stock
dividends, stock splits or recapitalizations) issued or
issuable to Microelectronics Technology, Inc. pursuant to the
Stock Purchase Agreement dated March 9, 1984 between this
corporation and Microelectronics Technology, Inc.
(iii) For purposes of paragraph 4(c)(i)(B), "Additional
Stock" shall mean any shares of Common Stock issued (or deemed to have
10
<PAGE>
been issued pursuant to paragraph 4(c)(i)(G)) by this corporation after the
Series B Purchase Date other than:
(A) Shares of Common Stock or Series A Preferred Stock
referred to in paragraphs 4(c)(ii)(A), 4(c)(ii)(C), 4(c)(ii)(D)
and 4(c)(ii)(E),
(B) Shares of Common Stock issued or issuable to employees,
officers, directors or consultants of this corporation under any
stock option, stock purchase or similar plan, or
(C) Up to 400,000 shares of Common Stock (adjusted to
reflect subsequent stock dividends, stock splits or
recapitalizations) issued or issuable by this corporation as
payment for services rendered to this corporation.
(iv) In the event this corporation should at any time or from
time to time after the Series A Purchase Date with respect to the Series A
Preferred Stock and the Series B Purchase Date with respect to the Series B
Preferred Stock fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such
holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Prices of the Series A and Series B Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable
on conversion of each such share shall be increased in proportion to such
increase of outstanding shares determined by taking paragraph 4(e)(i)(G) into
account.
(v) If the number of shares of Common Stock outstanding at
any time after the Series A Purchase date with respect to the Series A
Preferred Stock and the Series B Purchase Date with respect to the Series B
Preferred Stock is decreased by a combination of the outstanding shares of
Common Stock, then, as of the record date of such combination, the Conversion
Prices for the Series A and Series B Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion
of each such share shall be decreased in proportion to such decrease in
outstanding shares.
(d) OTHER DISTRIBUTIONS. In the event this corporation
shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by this corporation or other persons, assets
(excluding cash dividends) or options or rights not referred to in paragraph
4(c)(iv) hereof, then, in each such case for the purpose of this paragraph
(d), the holders of the Series A and Series B
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Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of
Common Stock of the corporation into which their shares of Series A and
Series B Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the corporation entitled to
receive such distribution.
(e) RECAPITALIZATIONS. If at any time or from time to
time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this paragraph 4 or paragraph 5), provision shall be made (in
form and substance satisfactory to the holders of a majority of the Series A
and Series B Preferred Stock then outstanding) so that the holders of the
Series A and Series B Preferred Stock shall thereafter be entitled to
receive, upon conversion of the Series A and Series B Preferred Stock, such
shares or other securities or property of the corporation or otherwise, to
which a holder of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this paragraph 4 with
respect to the rights of the holders of the Series A and Series B Preferred
Stock after the recapitalization to the end that the provisions of this
paragraph 4 with respect to the rights of the holders of the Series A and
Series B Preferred Stock after the recapitalization to the end that the
provisions of this paragraph 4 (including adjustment of the Conversion Prices
then in effect and the number of shares purchasable upon conversion of shares
of Series A and Series B Preferred Stock) shall be applicable after that
event as nearly equivalent as may be practicable.
(f) NO IMPAIRMENT. This corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in
the carrying out of all the provisions of this paragraph 4 and in the taking
of all such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A and Series B Preferred Stock
against impairment.
(g) NO FRACTIONAL SHARES AND CERTIFICATE AS TO
ADJUSTMENTS.
(i) No fractional shares shall be issued upon
conversion of shares of Series A and Series B Preferred Stock. In lieu of
fractional shares, this corporation shall pay cash equal to such fraction
multiplied by the then fair market value of a share of Common Stock, as
determined by the Board of Directors. Whether or not fractional shares would
be issuable upon such conversion shall be determined on the basis of the
total number of shares of Series A and Series B Preferred Stock the holder is
at the time converting into Common Stock and the number of shares of Common
Stock issuable upon such aggregate conversion.
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<PAGE>
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Prices of Series A or Series B Preferred Stock
pursuant to this paragraph 4, this corporation, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of shares of Series A or Series
B Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. This corporation shall, upon the written request at any time of any
holder of shares of Series A or Series B Preferred Stock, furnish or cause to
be furnished to such holder a like certificate setting forth (A) and
adjustment and readjustment, (B) the Conversion Price at the time in effect,
and (C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share
of Series A or Series B Preferred Stock.
(h) NOTICE OF RECORD DATE. In the event of any taking
by this corporation of a record of its stockholders for the purpose of
determining stockholders who are entitled to receive payment of any dividend
(other than a cash dividend) or other distribution, any right to subscribe
for, purchase or otherwise acquire any shares of any class or any other
securities or property, or to receive any other right, this corporation shall
mail to each holder of shares of Series A and Series B Preferred Stock, at
least 20 days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(i) RESERVATION OF SHARES ISSUABLE UPON CONVERSION.
This corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series A and Series B Preferred
Stock, such number of its shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all outstanding shares of Series A
and Series B Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Series A and Series B Preferred
Stock, this corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for
such purposes.
(j) NOTICES. Any notice required by the provisions of
this paragraph 4 to be given to the holders of shares of Series A and Series
B Preferred Stock shall be deemed to be delivered when deposited in the
United States mail, postage prepaid, registered or certified, and addressed
to each holder of record at his address appearing on the stock transfer books
of this corporation.
5. MERGER, CONSOLIDATION.
(a) At any time, in the event of:
(i) any consolidation or merger of the
corporation with or into any other corporation in which the stockholders of this
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corporation own less than a majority of the combined voting power of the
surviving corporation, or
(ii) a sale of all or substantially all of the
assets of the corporation,
then holders of the Series A and Series B Preferred Stock and the Parity
Preferred shall first receive for each share of such stock in cash or in
securities received from the acquiring corporation, or in a combination
thereof, at the closing of any such transaction, an amount equal to the
respective preferential amounts to which such holders would be entitled on
liquidation of the corporation, and the remaining proceeds of such
transaction shall be distributed as a Shared Allocation (as defined in
paragraph 5(b)). Such payments shall be made with respect to the Series A
and Series B Preferred Stock (A) by redemption of such shares pursuant to
paragraph 3(c) (provided that in such event, (i) the date of closing of such
transaction shall, for purposes of this subparagraph, be deemed to be the
"Redemption Date" and (ii) only twenty (20) days' prior notice of the date
fixed for redemption need be given) or (B) by purchase of such shares of
Series A or Series B Preferred Stock by the surviving corporation, entity or
person or by a third party. In the event the full amount of such payment is
not paid to the holders of the Series A and Series B Preferred Stock and the
Parity Preferred upon or immediately prior to such transaction in accordance
herewith, then the entire amount payable in respect of the proposed
transaction shall be distributed among the holders of the Series A and Series
B Preferred Stock and the Parity Preferred in proportion to the full
preferential amount each such holder is otherwise entitled to receive.
(b) The term "Shared Allocation" shall mean that the
holders of shares of Common Stock shall be entitled to receive the amount per
share of $3.50 (adjusted to reflect subsequent stock dividends, stock splits
or recapitalizations) for each outstanding share of Common Stock held by
them. If the remaining consideration to be paid by the acquiring corporation
in such transaction is insufficient to permit the payment to such holders of
the full aforesaid amounts, then such remaining consideration shall be
distributed ratably among the holders of the Common Stock. After payment of
such amount to the holders of the Common Stock, the holders of the Series A
Preferred Stock, Series B Preferred Stock, and Parity Preferred and Common
Stock of this corporation shall share the remaining consideration, if any, to
be paid by the acquiring corporation in such transaction in the same
proportion as the number of shares of outstanding Common Stock and Common
Stock issuable upon conversion of outstanding Series A Preferred Stock,
Series B Preferred Stock and Parity Preferred then held by each of them bears
to the total number of shares of outstanding Common Stock and Common Stock
issuable upon conversion of outstanding Series A Preferred Stock, Series B
Preferred Stock, and Parity Preferred.
(c) Any securities to be delivered to the holders of the
Series A and Series B Preferred Stock pursuant to paragraph 5(a) above shall
be valued as follows:
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<PAGE>
(i) Securities not subject to investment letter or
other similar restrictions on free marketability;
(A) If traded on a securities exchange, the value
shall be deemed to be the average of the closing prices of the
securities on such exchange over the 30-day period ending three
(3) days prior to the closing;
(B) If traded over-the-counter, the value shall
be deemed to be the average of the closing bid prices of the
securities over the 30-day period ending three (3) days prior to
the closing; and
(C) If there is no public market, the value shall
be the fair market value thereof, as determined in good faith by
the Board of Directors of the corporation.
(ii) The method of valuation of securities subject
to investment letter or other restrictions on free marketability shall be to
make an appropriate discount from the market value determined as above in
(i)(A), (B) or (C) to reflect the approximate fair market value thereof, as
determined in good faith by the Board of Directors of the corporation.
(d) In the event the requirements of paragraph 5(a) are
not complied with, the corporation shall forthwith either:
(i) cause such closing to be postponed until such
time as the requirements of such subparagraph have been complied with, or
(ii) cancel such transaction.
(e) The corporation shall give each holder of record of
Series A and Series B Preferred Stock written notice of such impending
transaction not later than twenty (20) days prior to the stockholders'
meeting called to approve such transaction, or twenty (20) days prior to the
closing of such transaction, whichever is earlier, and shall also notify such
holders in writing of the final approval of such transaction. The first of
such notices shall describe the material terms and conditions of the
impending transaction and the application thereto of the provisions of this
paragraph 5, and the corporation shall thereafter give such holders prompt
notice of any material changes in the terms and conditions so described. The
transaction shall in no event take place sooner than twenty (20) days after
the corporation has given the first notice provided for herein or sooner than
ten (10) days after the corporation has given notice of any material changes
provided for herein; provided, however, that such periods may be shortened
upon the written consent of the holders of a majority of the shares of Series
A and Series B Preferred Stock then outstanding.
(f) In addition to the provisions of this paragraph 5,
the holders of Series A and Series B Preferred Stock shall also have the
rights set forth in paragraph 7 hereof.
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<PAGE>
6. VOTING RIGHTS. Except as herein provided, and as
provided by law, the holder of each outstanding share of Series A and Series
B Preferred Stock shall have the right to one vote for each share of Common
Stock into which each such share of Series A and Series B Preferred Stock
could then be converted (with any fractional share determined on an aggregate
conversion basis being rounded up to the next highest whole share), and with
respect to such vote, such holder shall have full voting rights and powers
equal to the voting rights and powers of the holders of shares of Common
Stock, and shall be entitled, notwithstanding any provision hereof, to notice
of any stockholders' meeting in accordance with the Bylaws of this
corporation, and shall be entitled to vote, together with holders of shares
of Common Stock, with respect to any question upon which holders of shares of
Common Stock have the right to vote.
7. PROTECTIVE PROVISIONS. So long as any shares of Series A
and Series B Preferred Stock are outstanding, this corporation shall not
without first obtaining the approval (by vote or written consent, as provided
by law) of the holders of 66 and 2/3% of the then outstanding shares of
Series A and Series B Preferred Stock, voting together as a class:
(a) (i) sell, lease, exchange, convey or otherwise
dispose of or encumber (other than encumbrances made in the ordinary course
of business) all or substantially all of its property or business, or (ii)
enter into any merger or consolidation with any other corporation in which
the stockholders of this corporation own less than a majority of the combined
voting power of the surviving corporation; or
(b) alter or change the rights, preferences or
limitations of the shares of Series A and Series B Preferred Stock; or
(c) authorize, create or enter into any agreement
providing for the issuance of shares of any class or series having any
rights, privileges or preferences superior to or on a parity with the Series
A and Series B Preferred Stock, or authorize or create shares of any class or
any bonds, debentures, notes or other obligations or securities convertible
into, or exchangeable for, or having optional rights to purchase, any shares
of the corporation having any such rights, privileges or preferences;
(d) increase the authorized number of shares of Series A
or Series B Preferred Stock.
8. STATUS OF CONVERTED OR REDEEMED SHARES. In the event any
shares of Series A and Series B Preferred Stock shall be redeemed or
converted pursuant to paragraph 3 or 4 hereof, the shares so converted or
redeemed shall be returned to the category of authorized but unissued
Preferred Stock.
9. AMENDMENTS. Any term of these Articles of Incorporation
relating to the Series A and Series B Preferred Stock may be amended only
with the written consent of the corporation and the written consent of the
holders of 66 and 2/3% of all shares of Series A and Series B Preferred Stock
then outstanding. Any amendment
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<PAGE>
so effected shall be binding upon this corporation and any holder of Series A
and Series B Preferred Stock.
(C) Common Stock.
1. DIVIDEND RIGHTS. Subject to the prior rights of
holders of all classes of stock at the time outstanding having
prior rights as to dividends, the holders of the Common Stock
shall be entitled to receive, when and as declared by the Board
of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time
to time by the Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation,
dissolution or winding up of the corporation, the assets of the
corporation shall be distributed as provided in Section 2 of
Division (B) of this Article IV.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of
Common Stock shall have the right to one vote, and shall be
entitled to notice of any stockholders' meeting in accordance
with the Bylaws of this corporation, and shall be entitled to
vote upon such matters and in such manner as may be provided by
law.
ARTICLE V
A Director of this corporation shall not be personally
liable to this corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except for liability (i) for any
breach of the Director's duty of loyalty to this corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, or (iv) for any transaction from
which the Director derived any improper personal benefit. If the Delaware
General Corporation Law is hereafter amended to authorize, with the approval
of a corporation's stockholders, further reductions in the liability of the
corporation's directors for breach of fiduciary duty, then a Director of this
corporation shall not be liable for any such breach to the fullest extent
permitted by the Delaware General Corporation Law as so amended. Any repeal
or modification of the foregoing provisions of this Article Fifth by the
stockholders of this corporation shall not adversely affect any right or
protection of a Director of this corporation existing at the time of such
repeal or modification.
ARTICLE VI
In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
repeal, alter, amend and rescind from time to time any or all of the bylaws
of the corporation.
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<PAGE>
ARTICLE VII
This corporation reserves the right to amend, alter,
change or repeal any provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statue, and all
rights conferred on stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, DIGITAL MICROWAVE CORPORATION has
caused its corporate seal to be affixed hereto and this Restated Certificate
of Incorporation to be signed by William E. Gibson, its President, and
attested by Robert E. Friess, its Secretary, this 10th day of April, 1987.
(SEAL) DIGITAL MICROWAVE CORPORATION
/s/ WILLIAM E. GIBSON
----------------------------------------
William E. Gibson
President
Attest: /s/ ROBERT E. FRIESS
--------------------------
Robert E. Friess
Secretary
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CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
DIGITAL MICROWAVE CORPORATION
(Pursuant to Section 151 of the
Delaware General Corporation Law)
---------------------------------------
Digital Microwave Corporation, a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on October 24, 1991:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of the Corporation (hereinafter called the "Board of Directors" or
the "Board") in accordance with the provisions of the Restated Certificate of
Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $.01 per share (the "Preferred Stock"), of the Corporation and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be Two Hundred Thousand (200,000). Such number of shares may be
increased or decreased by resolution of the Board of Directors; PROVIDED, that
no decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series A Preferred Stock.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of Common Stock, par
value $.01 per share (the "Common Stock"), of the Corporation, and of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend
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<PAGE>
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the
greater of (a) $1 or (b) subject to the provision for adjustment hereinafter
set forth, 100 times the aggregate per share amount of all cash dividends,
and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since
the immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case
the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution
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<PAGE>
declared thereon, which record date shall be not more than 60 days prior to
the date fixed for the payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 100 votes
on all matters submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which
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dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Restated Certificate of Incorporation, or in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts
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to which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate amount
to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. NO REDEMPTION. The shares of Series A Preferred Stock shall
not be redeemable.
Section 9. RANK. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of the Corporation's Preferred Stock.
Section 10. AMENDMENT. The Restated Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least a majority of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
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IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by its Chairman of the Board and Chief Executive Officer and
its corporate seal attested by its Secretary this 24th day of October, 1991.
/s/ P. MICHAEL FRIEDENBACH
----------------------------------------
Name: P. Michael Friedenbach
Title: Chairman of the Board and
Chief Executive Officer
[SEAL]
Attest:
/s/ ROBERT E. FRIESS
- -------------------------
Secretary
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CERTIFICATE OF AMENDMENT OF
THE RESTATED CERTIFICATE OF INCORPORATION
OF
DIGITAL MICROWAVE CORPORATION
Digital Microwave Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a special meeting of the Board of Directors of Digital
Microwave Corporation duly held on August 28, 1997, resolutions were duly
adopted setting forth a proposed amendment of the Restated Certificate of
Incorporation of said corporation, declaring said amendment to be advisable and
calling a meeting of the stockholders of said corporation for consideration
thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the first paragraph of Article IV of this Corporation's
Restated Certificate of Incorporation be amended to read in full as follows:
"This Corporation is authorized to issue two classes of
stock to be designated, respectively, "Preferred Stock" and
"Common Stock." The total number of shares that this Corporation
is authorized to issue is 65,000,000. Five million (5,000,000)
shares shall be Preferred Stock, consisting of 200,000 shares
designated Series A Junior Participating Preferred Stock, and
sixty million (60,000,000) shares shall be Common Stock. The
Preferred Stock shall have a par value of $.01 per share; the
Common Stock shall have a par value of $.0l per share.
Upon the filing of this Certificate of Amendment to the
Restated Certificate of Incorporation with the Secretary of State
of the State of Delaware (the "Effective Time"), each share of
Common Stock of this Corporation issued and outstanding
immediately prior to the Effective Time shall be changed and
converted into two (2) shares of Common Stock of this
Corporation."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute was voted in favor of the amendment.
<PAGE>
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced
under or by reason of said amendment.
IN WITNESS WHEREOF, Digital Microwave Corporation has caused this
certificate to be signed by Carl A. Thomsen, its Vice President, Chief Financial
Officer and Secretary this 5th day of November, 1997.
BY: /s/ CARL A. THOMSEN
---------------------------------------
Carl A. Thomsen
Vice President, Chief Financial Officer
and Secretary
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CERTIFICATE OF AMENDMENT OF
THE RESTATED CERTIFICATE OF INCORPORATION
OF
DIGITAL MICROWAVE CORPORATION
Digital Microwave Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a special meeting of the Board of Directors of Digital
Microwave Corporation duly held on January 23, 1998, resolutions were duly
adopted setting forth a proposed amendment of the Restated Certificate of
Incorporation of said corporation, declaring said amendment to be advisable and
calling a meeting of the stockholders of said corporation for consideration
thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the first paragraph of Article IV of this Corporation's
Restated Certificate of Incorporation be amended to read in full as follows:
"This Corporation is authorized to issue two classes of
stock to be designated, respectively, "Preferred Stock" and
"Common Stock." The total number of shares that this Corporation
is authorized to issue is 100,000,000. Five million (5,000,000)
shares shall be Preferred Stock, consisting of 200,000 shares
designated Series A Junior Participating Preferred Stock, and
ninety-five million (95,000,000) shares shall be Common Stock.
The Preferred Stock shall have a par value of $.01 per share; the
Common Stock shall have a par value of $.0l per share.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute was voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced
under or by reason of said amendment.
<PAGE>
IN WITNESS WHEREOF, Digital Microwave Corporation has caused this
certificate to be signed by Carl A. Thomsen, its Vice President, Chief Financial
Officer and Secretary this 24th day of March, 1998.
BY: /s/ CARL A. THOMSEN
-----------------------------------
Carl A. Thomsen
Vice President, Chief Financial Officer
and Secretary
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EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS OF
DIGITAL MICROWAVE CORPORATION
(Amended and Restated as of March 24, 1998)
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City of San Jose, State of California, at such
place as may be fixed from time to time by the Board of Directors, or at such
other place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the
notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. Annual meetings of stockholders shall be held on the
third Thursday in July, if not a legal holiday and, if a legal holiday, then
on the next succeeding business day following, at the same hour and place, or
at such other date and time as shall be designated from time to time by the
Board of Directors and stated in the
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notice of the meeting, at which they shall elect by a plurality vote a Board
of Directors, and transact such other business as may properly be brought
before the meeting.
Section 3. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten (10) nor more than sixty
(60) days before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 5. Special meetings of stockholders shall be called by
the president or secretary at the request in writing of a majority of the
Board of Directors or upon written application of one or more stockholders
who hold at least forty percent (40%) of the capital stock entitled to vote
at such meeting. Such request of the Board of Directors or written
application of the stockholders shall state the purpose or purposes of the
proposed special meeting. The place, date and time of any special meeting
shall be determined by the Board of Directors. Such determination shall
include the record date for determining the stockholders having the right to
notice of and to vote at such meeting.
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Section 6. Written notice of a special meeting stating the
place, date and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be given not less than ten (10) nor more than sixty
(60) days before the date of the meeting, to each stockholder entitled to
vote at such meeting.
Section 7. Only such business shall be conducted at a special
meeting as shall have been stated in the written notice of the meeting as the
purpose or purposes for the meeting.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the stockholders entitled
to vote thereat, present in person or represented by proxy, shall have power
to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented
any business may be transacted which might have been transacted at the
meeting as originally notified. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 9. In all matters other than the election of directors,
the affirmative vote of a majority of shares present in person or represented
by proxy at any meeting and entitled to vote on the subject matter shall be
the act of the stockholders, unless the question is one upon which by express
provision of any statute or of the
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certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital
stock having voting power held by such stockholder, but no proxy shall be
voted on after three years from its date, unless the proxy provides for a
longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, and subject to the provisions of Article II, Section 12 of
these Bylaws, any action required to be taken at any annual or special
meeting of stockholders of the corporation, or any action which may be taken
at any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented
in writing.
Section 12. In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting pursuant to Article II, Section 11 of these Bylaws, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than ten (10) days after
the date upon which the resolution fixing the record date is adopted by the
Board of
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Directors. Any stockholder of record seeking to have the stockholders
authorize or take corporate action by written consent shall, by written
notice to the secretary, request the Board of Directors to fix a record date.
The Board of Directors shall promptly, but in all events within ten (10) days
after the date on which such a request is received, adopt a resolution fixing
the record date. If no record date has been fixed by the Board of Directors
within such ten (10) day period, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is required by applicable law, shall
be the first date on which a signed written consent setting forth the action
taken or proposed to be taken is delivered to the corporation by delivery to
its registered office in the state of Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the
book in which proceedings of stockholders' meetings are recorded, to the
attention of the secretary of the corporation. Delivery shall be by hand or
by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
Section 13. At any annual meeting of the stockholders, only
such business shall be conducted as shall be properly before the meeting. To
be properly before an annual meeting, business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (c) otherwise properly
brought before the meeting by a stockholder. For business to be
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<PAGE>
properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the secretary. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal place of business of the corporation not less than sixty (60)
days nor more than ninety (90) days prior to the meeting; provided, however,
that in the event that less than seventy (70) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be received not later than the
close of business on the tenth day following the day on which such notice of
the date of the meeting was mailed or such public disclosure was made.(1) A
stockholder's written notice to the secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (b) the
name and address as they appear on the corporation's books of the stockholder
proposing such business, (c) the class and number of shares of the
corporation which are beneficially owned by such stockholder, and (d) any
material interest of such stockholder in such business. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at
any annual meeting unless properly brought before such meeting in accordance
with the procedures set forth in this Section 13. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section 13 and if it shall be so determined, the chairman
of the meeting shall so declare this to the
- -------------------------------------
(1) It shall be necessary for the corporation to determine the date of each
annual meeting at least 70 days in advance thereof and make a public disclosure
of such date and of the provisions of Article II, Section 13 of these Bylaws.
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meeting and such business not properly brought before the meeting shall not be
transacted.
Section 14. Only persons who are nominated in accordance with the
procedures set forth in this Section 14 shall be eligible for election as
directors of the corporation by the stockholders. Nominations of persons for
election to the Board of Directors may be made at a meeting of stockholders
by or at the direction of the Board of Directors or by any stockholder of the
corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 14. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the
secretary. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal place of business of the corporation not
less than sixty (60) nor more than ninety (90) days prior to the meeting;
provided, however, that in the event that less than seventy (70) days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
less than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure
was made. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or re-election as a
director (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the corporation which are beneficially owned by
such person and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors or is otherwise required in each case pursuant to Regulation 14A
under the Securities and Exchange Act of 1934, as
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amended (including without limitation such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the corporation's books of such stockholder, (ii)
the class and number of shares of the corporation which are beneficially
owned by such stockholder, and (iii) any material relationship of the
stockholder to the person the stockholder proposes to nominate. At the
request of the Board of Directors any person nominated by the Board of
Directors for election as a director shall furnish to the secretary that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the
procedures set forth in this Section 14. The chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination
was not made in accordance with the provisions of this Section 14 and if it
shall be so determined, the chairman shall so declare this to the meeting and
the defective nomination shall be disregarded.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be seven (7). The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office until his or her successor is
elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having a
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right to vote as a single class may be filled by a majority of the directors
then in office, though less than a quorum, or by a sole remaining director,
and the directors so chosen shall hold office until the next annual election
and until their successors are duly elected and qualified, unless sooner
removed. If there are no directors in office, then an election of directors
may be held in the manner provided by statute. If, at the time of filling any
vacancy or any newly created directorship, the directors then in office shall
constitute less than a majority of the whole Board of Directors (as
constituted immediately prior to any such increase), the Court of Chancery
may, upon application of any stockholder or stockholders holding at least ten
percent (10%) of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to
be held to fill any such vacancies or newly created directorships, or to
replace the directors chosen by the directors then in office.
Section 3. The business of the corporation shall be managed by or
under the direction of its Board of Directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not
by statute or by the certificate of incorporation or by these Bylaws directed
or required to be exercised or done by the stockholders.
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote
of the stockholders at the annual meeting and no notice of such meeting shall
be necessary to the newly elected directors in order legally to constitute
the meeting, provided a quorum shall be present. In the event of the failure
of the stockholders to fix the time or place of such first meeting of
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the newly elected Board of Directors, or in the event such meeting is not
held at the time and place so fixed by the stockholders, the meeting may be
held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors, or as
shall be specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board of Directors.
Section 7. Special meetings of the Board of Directors may be called
by the Chairman of the Board of Directors, the president, any vice-president,
the secretary or any two (2) directors on four (4) days' notice to each
director by mail or two (2) days' notice to each director either personally
or by telegram.
Section 8. At all meetings of the Board of Directors, one-third
(1/3) of the authorized number of directors, or two (2), whichever is
greater, shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the certificate of incorporation or by
Article III, Section 9 of these Bylaws. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time without notice other than announcement
at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate
of incorporation or these Bylaws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all members
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of the Board of Directors or committee thereof, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee thereof.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, members of the Board of Directors or any
committee designated by the Board of Directors, may participate in a meeting
of the Board of Directors, or any committee thereof, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee who may replace any absent or disqualified member at any meeting of
the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of
the corporation, and may authorize the seal of the corporation to be affixed
to all papers which may require it, but no such committee shall have the
power or authority in reference to amending the
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certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the Bylaws of the corporation, and,
unless the resolution or the certificate of incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
Section 12. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
Section 13. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, the Board of Directors shall have the
authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee meetings.
Section 14. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of shares
entitled to vote at an election of directors.
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ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of statutes or of the
certificate of incorporation or of these Bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed
to such director or stockholder, at his address as it appears on the records
of the corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
Board of Directors and shall be a Chairman of the Board, a president, one or
more vice-presidents, a secretary and a chief financial officer. The Board of
Directors may elect from among its members a Vice Chairman of the Board and
may also choose one or more assistant secretaries and assistant treasurers.
Any number of offices may be held by the same person, unless the certificate
of incorporation or these Bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose the officers of the corporation.
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Section 3. The Board of Directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
their successors are duly elected and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. Any vacancy
occurring in any office of the corporation shall be filled by the Board of
Directors.
Section 6. The Chairman of the Board shall preside at all meetings
of the Board of Directors and of the stockholders at which he shall be
present and shall have and may exercise such powers as are, from time to
time, assigned by the Board of Directors and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
Chairman, if any, shall preside at all meetings of the Board of Directors and
of the stockholders at which he shall be present. The Vice Chairman shall
have and may exercise such powers as are, from time to time, assigned by the
Board of Directors and as may be provided by law.
Section 8. The president shall be the general manager and chief
executive officer of the corporation, and in the absence of the Chairman and
Vice Chairman of the Board of Directors, shall preside at all meetings of the
stockholders and the Board of Directors. The president shall have general and
active management of the business of the
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corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 9. The president shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the corporation.
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice president, if any, (or in the event
there be more than one vice president, the vice presidents in the order
designated by the directors, or in the absence of any designation, then in
the order of their election) shall perform the duties of the president, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. The vice presidents shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the Board of Directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. The secretary shall give or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board
of Directors and shall perform such other duties as may be prescribed by the
Board of Directors or president, under whose supervision he shall be. The
secretary shall have custody of the corporate seal of the corporation, and
the secretary or an assistant secretary shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested
by his signature or by the signature of
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such assistant secretary. The Board of Directors may give general authority
to any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
Section 12. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of
the secretary and shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
Section 13. The chief financial officer may also be designated by
the alternate title of "treasurer." The chief financial officer shall have
the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the corporation in such depositories as may be
designated by the Board of Directors.
Section 14. The chief financial officer shall disburse the funds of
the corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the president and the
Board of Directors, at its regular meetings, or when the Board of Directors
so requires, an account of all his transactions as treasurer and of the
financial condition of the corporation.
Section 15. If required by the Board of Directors, the chief
financial officer shall give the corporation a bond (which shall be renewed
every six years) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement or removal from office, of all
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books, papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the corporation.
Section 16. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the chief financial officer or in the
event of his inability or refusal to act, perform the duties and exercise the
powers of the chief financial officer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE VI
STOCK
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation
by, the Chairman or Vice Chairman of the Board of Directors, or the president
or a vice president and the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of the corporation, certifying the number
of shares owned by the shareholder in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and
the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise
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provided in Section 202 of the General Corporation Law of Delaware, in lieu
of the foregoing requirements, there may be set forth on the face or back of
the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.
Section 2. Any or all of the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such
manner as it shall require and/or to give the corporation a bond in such sum
as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen
or destroyed.
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Section 4. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 5. In order that the corporation may determine
the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may
fix, in advance, a record date, which shall not be more than sixty (60) nor
less than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting: provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 6. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
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ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 2. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such
sum or sums as the directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think conducive
to the interest of the corporation, and the directors may modify or abolish
any such reserve in the manner in which it was created.
Section 3. All checks or demands for money and notes of
the corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
Section 4. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 5. The Board of Directors may adopt a corporate
seal having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware". The seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced
or otherwise.
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Section 6. The corporation shall indemnify to the full
extent permitted by, and in the manner permissible under, the laws of the
State of Delaware any person made, or threatened to be made, a party to an
action or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or intestate is or
was a director of the corporation or any predecessor of the corporation, or
served any other enterprise as a director or officer at the request of the
corporation or any predecessor of the corporation.
Section 7. Expenses incurred by a director of the
corporation in defending a civil or criminal action, suit or proceeding by
reason of the fact that he is or was a director of the corporation (or was
serving at the corporation's request as a director or officer of another
enterprise or corporation) shall be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized by relevant sections of the General Corporation Law
of Delaware.
Section 8. Article VII, Sections 6 and 7 shall be deemed
to be a contract between the corporation and each director who serves in such
capacity at any time while this Bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole
or in part upon any such state of facts.
Section 9. The Board of Directors in its discretion
shall have power on behalf of the corporation to indemnify any person, other
than a director, made a party to
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any action, suit or proceeding by reason of the fact that he, his testator or
intestate is or was an officer or employee of the corporation.
Section 10. The foregoing rights of indemnification
shall not be deemed exclusive of any other rights to which any director or
officer may be entitled apart from the provisions of Article VII, Sections 6,
7, 8, 9 and this Section 10.
ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by the stockholders or by the Board of
Directors, when such power is conferred upon the Board of Directors by the
certificate of incorporation, at any regular meeting of the stockholders or
of the Board of Directors or at any special meeting of the stockholders or of
the Board of Directors if notice of such alteration, amendment, repeal or
adoption of new Bylaws be contained in the notice of such special meeting. If
the power to adopt, amend or repeal Bylaws is conferred upon the Board of
Directors by the certificate of incorporation, it shall not divest or limit
the power of the stockholders to adopt, amend or repeal Bylaws.
Section 2. Notwithstanding any other provision in these
Bylaws, Sections 5, 12, 13, and 14 of Article II of these Bylaws and this
Section 2 shall not be amended, modified or repealed, directly or indirectly
except by (i) the affirmative vote of two-thirds (2/3) or more of the
Continuing Directors ("Continuing Director" shall mean any person then
serving as a director of this corporation (i) who was a member of the Board
of Directors of this corporation on October 24, 1991, or (ii) who becomes a
director after October 24, 1991 and whose election, or nomination for
election by this corporation's stockholders, was approved by a majority of
the directors who at that time
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are Continuing Directors, either by a specific vote or by approval of the
proxy statement issued by this corporation on behalf of the Board of
Directors in which such person is named as nominee for director) and the
approval of the stockholders otherwise required by applicable law or these
Bylaws for such amendment; or (ii) the affirmative vote of the holders of a
majority of the capital stock entitled to vote.
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EXHIBIT 10.22
SUBLEASE AGREEMENT
This Sublease Agreement is made and entered into the 29th day of August ,
1997 by and between Wyse Technology Inc. (hereinafter "Sublessor" or
"Wyse") Digital Microwave Corporation (hereinafter "Sublessee" or "DMC")
and Wyse Technology Investments Inc. (hereinafter "Landlord" or "WTI").
For consideration of the rent, covenants, agreements and conditions herein
contained, Sublessor, Sublessee and the Landlord hereby agree as follows:
1 . Subleased Premises. Wyse leases from Landlord certain premises which
contain 167,200 square feet in the building located at 3475 North
First St., San Jose, CA 95134 (hereinafter referred to as "Premises")
which are the subject of that certain Lease dated March 19, 1993
between Wyse and Landlord. Wyse hereby subleases to DMC, and DMC
hereby subleases from Wyse, for the term and upon conditions herein
after set forth, the Subleased Premises, as shown on the drawing
attached hereto as Exhibit A and incorporated herein by this
reference. The Subleased Premises contains 62,023 rentable square
feet ("RSF"). Landlord hereby provides his unqualified consent to
this sublease of the Subleased Premises.
2. Term. Subject to the terms and conditions set forth herein, the term
of this Sublease shall commence on the date (the "Commencement Date")
set forth on Exhibit B ("Commencement Date Memorandum") and shall
terminate on January 1, 2002, except that it is understood and agreed
by the Sublessee and the Sublessor that the right and interest of
Sublessee under this Sublease are derivative of those of Sublessor
under the Lease between Sublessor Landlord and not any greater than
such rights and interest of Sublessor as to the Subleased Premises.
3. Occupancy. Between the date first written above and September 15,
1997, Sublessor shall give Sublessee notice of the availability of the
Premises ("Notice of Occupancy"). Physical occupancy will be granted
to DMC within one week of the Notice of Occupancy.
4. Use. Sublessee is permitted to use the Subleased Premises for general
office, administration, assembly and warehouse activities.
5. Rent.
(a) During the term of this Sublease, Sublessee covenants and agrees
to pay to Sublessor as full rental for the Subleased Premises,
without previous notice or demand therefore, rent at the gross
rate of $1.50 per moth per RSF, which equals a total monthly
payment of $93,034.50. Rent shall be paid on or before the first
day of each calendar month during the term of the Sublease
hereof, with the first such
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monthly installment to be paid upon the date that DMC executes
this Sublease Agreement. The first installment shall be the
rent for the month of October, 1997.
*(b) Notwithstanding the foregoing, Wyse will provide DMC with two
weeks free rental, from September 15, 1997 through September 30,
1997. This is based on an anticipated Commencement Date prior to
September 15.
(c) As security for Sublessee's faithful performance under the
Sublease, DMC shall upon execution of the Sublease pay the sum of
$93,034.50 (equaling one month's rent) for security deposit.
Except for reasonable charges for cleaning the Subleased
Premises, the security deposit will be remitted to Sublessee
within forty-five (45) days of the termination of the Sublease
(unless the Sublease is terminated for default of Sublessee.)
Wyse is under no obligation to keep the security deposit in an
account separate from its normal business accounts, neither is it
required to accrue interest on the deposit for the benefit of
DMC.
(d) Rent Inclusions. The gross rental rate includes-
(i) Common Area Maintenance Charges (CAM), property taxes and
other operating expenses. It also includes access to and use of
the electronic security system, which is installed in the
building.
(ii) Use, by DMC's on-site employees, of the cafeteria and
recreation center (which includes lockers, showers, weight room,
sauna, pool and Jacuzzi).
Rent does not include utilities or janitorial services (see
Section 6, below).
(e) Late Payments. In the event that Sublessee falls to remit
payments as described above, Sublessee shall additionally be
liable for interest on the unpaid amount, calculated at one and
one-half percent (1 1/2%) per month (or the highest amount
permitted by law) on the unpaid balance due.
6. Condition of Subleased Premises. Sublessee hereby agrees to accept the
Subleased Premises on an "as is", "as built" condition on the Commencement
Date of the term of this Sublease, it being understood and agreed that
Sublessor makes no warranties, express or implied, as to the Subleased
Premises including by way of example, and not limitation, any warranties of
suitability, fitness for purpose of use or habitability. Sublessor shall
leave premises in broom-clean condition.
7. Utilities. Sublessee shall contract for provision of utility services
(natural gas, electricity, telephones and water) directly with the
provider(s). Sublessor shall not be responsible to provide any such
utilities to the Subleased Premises. Additionally, DMC is responsible to
provide its own janitorial services for the Subleased Premises.
8. Insurance. Sublessee shall, prior to Commencement Date, provide Sublessor
with a certificate of insurance naming Landlord and Sublessor as additional
named insureds.
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9. DMC's Covenants.
(a) Except as set forth in this Agreement, all Sublessee's covenants and
obligations to the Sublessor and the Landlord under this Sublease
shall be the same as the covenants and obligations of Sublessor to
Landlord under the Lease and all Amendments hereto, which are attached
hereto as Exhibit C and incorporated herein by reference, to the
extent that such covenants and obligations are applicable to the
Subleased Premises and the Sublease terms.
(b) Sublessee hereby covenants and agrees to indemnify, hold harmless and
at the option of Sublessor, defend Sublessor in all suits, actions and
proceedings arising out of, related to, or concerning either (i) any
default or non-performance by Sublessee of this Sublease, including
without limitation, those covenants and obligations undertaken in the
preceding subparagraph, or (ii) the use or occupancy by Sublessee of
the Subleased Premises, except to the extent that such arises from the
negligence or willful misconduct on the part of the Sublessor.
(c) In the event of any dispute and/or litigation between the Sublessee
and the Landlord, the Sublessee will hold the Sublessor harmless.
10. Wyse's Covenants.
(a) Except as set forth above or as otherwise required by the context of
the Lease, all of the Sublessor's covenants and obligations under the
Sublease shall be the same as the covenants and obligations of
Landlord to Sublessor under the Lease and all Amendments thereto.
(b) In the event of any dispute and/or litigation between the Sublessor
and the Landlord, the Sublessor will hold the Sublessee harmless.
(c) Wyse hereby covenants and agrees to indemnify, hold harmless and at
the option of DMC, defend DMC in all suits, actions and proceedings
arising out of, related to, or concerning any default or
non-performance by Wyse of this Sublease, except to the extent that
such arises from the negligence or willful misconduct on the part of
the DMC.
11. Landlord Covenants: Except as set forth herein, or as otherwise required by
the contents of the Lease, all of Landlord's covenants and obligations
under the Sublease shall be the same as the covenants and obligations of
Landlord to Sublessor under the Lease and all Amendments thereto.
12. Parking. A minimum of four (4) parking spaces per one thousand (1,000) RSF
shall be available to DMC. Such parking spaces shall be identified in a
general manner on the Exhibit A. The spaces will not be reserved or
specifically marked as being for the benefit
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of DMC. Use thereof shall be in accordance with any current Landlord
rules or regulations governing same.
13. Option to Extend. Wyse and Landlord shall grant DMC a one time, personal
option to extend the Term for up to three (3) years upon at least six (6)
month's written notice from DMC prior to the end of the Term. Rent for the
extended term will be at the then current fair market value for the
Subleased Premises.
14. Signs. DMC will have the right, subject to agreement by Wyse and
compliance with any applicable laws, ordinances or other regulations, to
install (i) a sign on the Subleased Premises and (ii) a monument type sign
at the parking lot entry way on First St. Any signs will be installed and
maintained solely at Sublessee's expense.
15. Special Access to Subleased Premises. In addition to rights of access set
forth in Section 12 of the Lease, Wyse shall, at all reasonable times (and
upon reasonable notice except in cases of emergency) have access via the
Subleased Premises to the "roof access door" located therein.
16. Assignment. DMC shall not assign this Sublease or any of its rights or
obligations hereunder without the written consent of Wyse and WTI. Such
consent shall not be unreasonably withheld provided the proposed assignee
is financially equivalent to DMC, will use the Premises for similar
purposes, and DMC remains responsible for the assignee's performance in its
role as assignor.
17. Miscellaneous-
(a) The terms "Sublessor', "Sublessee" and "Landlord" shall, as
applicable, include their legal representatives, successor and
assigns. All covenants herein made binding upon Landlord, Sublessee
and Sublessor shall be equally binding on its agents, employees and
others claiming the right to be in the Subleased Premises through or
under the Sublessee or Sublessor. The Sublease shall be binding upon
and shall inure to the benefit of the parties hereto and their
respective assigns.
(b) This Sublease shall be governed by the laws of the State of
California.
(c) All notices required to be made hereunder shall be sent to the
following addresses, or such other addresses as a party may later
designate:
TO SUBLESSEE:
Digital Microwave Corporation
170 Rose Orchard Way
San Jose, CA 95134
Attention: John O'Neil
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TO SUBLESSOR:
Wyse Technology Inc.
3471 N. First Street, MS 150-3
San Jose, CA 95134-1803
Attention: Facilities Manager
TO LANDLORD:
Wyse Technology Investments Inc.
c/o Wyse Technology Inc.
Same address as above for Sublessor
Attention: Katherine Jen
(d) Brokers and Commissions. The parties hereby represent that other than
Colliers Parrish International Inc. and Cornish & Carey Commercial
they have not obtained the services of any real estate brokers or
agents for the purposes of leasing the Subleased premises and that
each will indemnify and hold harmless the other parties from such
claims in the event that any other party established a right derived
from such indemnifying party to receive commissions or any payment as
a consequence of this Sublease.
Wyse is responsible for the commission arising from the Sublease
transaction. The aforementioned brokers have separately agreed upon
the method by which the commission will be shared between them.
Neither Wyse, WTI or DMC shall be liable to either brokerage firm for
breach of such commission agreement.
(e) The parties hereby agree that there shall be no recording of this
Sublease or notice of this Sublease in any registry of deeds with any
public agency, and that the terms and conditions of this Sublease are
confidential and shall not be disclosed to any third party without a
need to know for financial, legal or other substantial reasons.
(f) Sublessee agrees to reimburse all of Sublessor's costs and expenses in
seeking and obtaining any judicial enforcement of this Sublease,
including, without limitation, all resulting reasonable attorneys
fees.
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In witness whereof, the parties hereto have caused this instrument to be
executed in triplicate as of the date first written above.
DIGITAL MICROWAVE CORPORATION WYSE TECHNOLOGY INC.
BY: /s/ CARL A. THOMSEN BY: /s/ GARY A. MARTELL
--------------------------------------- ------------------------
Carl A. Thomsen Gary A. Martell
- ------------------------------------------- ----------------------------
(Print or type name) (Print or type name)
Vice President, Chief Financial Officer and Vice President, Finance and
Secretary Administration
- ------------------------------------------- ----------------------------
(Title) (Title)
8/29/97 9/2/97
- ------------------------------------------- ----------------------------
(Date) (Date)
WYSE TECHNOLOGY INVESTMENTS INC.
BY: /s/ KATHERINE JEN
---------------------------------------
Katherine Jen
- -------------------------------------------
(Print or type name)
Secretary
- -------------------------------------------
(Title)
8/30/97
- -------------------------------------------
(Date)
6
<PAGE>
EXHIBIT A
---------
3475 North First Street, San Jose
[Plus of Minus]62,023 square feet
[This exhibit consists of a
drawing of the property]
7
<PAGE>
EXHIBIT B
---------
COMMENCEMENT DATE MEMORANDUM
LANDLORD: Wyse Technology Investments, Inc., A California Corporation
SUBLESSOR: Wyse Technology Inc., a Delaware Corporation
SUBLESSEE: Digital Microwave Corporation, A California Corporation
Pursuant to Section 2 of the Sublease Agreement, the parties hereby acknowledge
and agree that the Commencement Date is:
September , 1997.
---
The foregoing is agreed as evidenced by the authorized signatures of the parties
below.
This Memorandum is executed on , 1997.
------------
LANDLORD
Wyse Technology Investments, Inc.
By:
---------------------------------------
Its:
---------------------------------------
SUBLESSOR
Wyse Technology Inc.
By:
----------------------------------------
Its:
---------------------------------------
SUBLESSEE
Digital Microwave Corporation
By:
----------------------------------------
Its:
---------------------------------------
8
<PAGE>
EXHIBIT C
AMENDED AND RESTATED LEASE AGREEMENT
LANDLORD: Wyse Technology Investments, Inc., a California corporation
TENANT: Wyse Technology, Inc., a Delaware corporation
PREMISES: Buildings located at
3471-3475 North First Street
San Jose, California
DATE: March 19, 1993
<PAGE>
BASIC LEASE INFORMATION
<TABLE>
<S> <C>
Landlord: Wyse Technology Investments, Inc., a California
corporation
Landlord's Taxpayer I.D. No.: 77-0311526
Tenant: Wyse Technology, Inc., a California corporation
Tenant's Taxpayer I.D. No.: 94-2757606
Project: The three building complex located at the corner
of North First Street and River Oaks Place in San
Jose, California
Premises (Section 1.a.): Amenities Space Address:
3471 North First Street
San Jose, California
Approximately 24,100 square feet
Building 2 Address:
3471 North First Street
San Jose, California [1st and 2nd Floors]:
Approximately 88,818 rentable square feet
Building 3 Address:
3471 North First Street
San Jose, California
Approximately 143,400 rentable square feet of the
one-story Building (entire building)
Rentable Square Footage of 24,100
Amenities Space (Section 1.d.):
Rentable Square Footage of 167,200
Building 2 (Section 1.d.):
Rentable Square Footage of 143,400
Building 3 (Section 1.d.):
Rentable Square Footage of 433,700
Project (Section 1.d.):
Rentable Square Footage of 237,926
Premises (Section 1.d.)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Usable Square Footage of 24,100 square feet in Amenities Space;
Premises (Section 1.d.): up to 88,818 square feet in Building 2; and
143,000 square feet in Building 3
Total: max. 255,918 square feet
Use (Section 15.a.): Computer manufacturing and research and
development facility
Term (Section 2): Ten (10) years commencing on
Commencement Date
Commencement Date: June 1, 1992
(Section 2.b.)
Monthly Base Rent (Section 4): Monthly Rental Rate
Month Per Rentable Square Foot
----- ------------------------
0-7
8-19
20-31
32-43
44-55
56-67
68-79
90-91
92-120
Estimated Operating Expenses Annual: $_________
(Section 6.a.):
Monthly: $__________
Tenant's Percentage Share
(Section 6.a): Building 2: 42.12%
Building 3: 100%
Project: 54.85%
Parking Spaces (Section 33): Reserved: See EXHIBIT A
Unreserved: 4 spaces/1,000 rentable square feet of
the Premises minus the reserved parking spaces
Landlord's Address 3471 N. First Street
(Section 40): M/S 120-3
San Jose, California 95134-1803
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Tenant's Address 3471 N. First Street
(Section 40): M/S 120-3
San Jose, California 95134-1803
"Landlord" "Tenant"
Wyse Technology Investments, Wyse Technology, Inc. a
Inc., a California corporation Delaware corporation
By: /s/ GARY ANDERSON By: /s/ GLORIA C. WAHL
----------------------- --------------------------
Name: Gary Anderson Name: Gloria C. Wahl
Title: Vice President Title: Treasurer
Date: March 19, 1993 Date: March 19, 1993
----------------- --------------------
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Premises.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Term.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Rent.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. Monthly Base Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5. Payment of Additional Charges. . . . . . . . . . . . . . . . . . . . . . . 5
6. Additional Rent-Operating Expenses.. . . . . . . . . . . . . . . . . . . . 5
7. Proration of Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
8. Insurance and Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . .18
9. Landlord Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
10. Utilities and Service. . . . . . . . . . . . . . . . . . . . . . . . . . .20
11. Repairs and Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . .21
12. Access to Premises.. . . . . . . . . . . . . . . . . . . . . . . . . . . .22
13. Alterations and Signs. . . . . . . . . . . . . . . . . . . . . . . . . . .23
14. Use and Compliance with Laws.. . . . . . . . . . . . . . . . . . . . . . .25
15. Damage or Destruction. . . . . . . . . . . . . . . . . . . . . . . . . . .26
16. Eminent Domain.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
17. Default by Tenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
18. Tenant's Remedies Upon Landlord's Default. . . . . . . . . . . . . . . . .32
19. Assignment and Subletting. . . . . . . . . . . . . . . . . . . . . . . . .32
20. Hazardous Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . .33
21. Surrender of Premises. . . . . . . . . . . . . . . . . . . . . . . . . . .34
22. Estoppel Certificate.. . . . . . . . . . . . . . . . . . . . . . . . . . .34
23. Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
24. Warranties of Landlord; Quiet Enjoyment. . . . . . . . . . . . . . . . . .37
25. Holding Over.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
26. Recording. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
27. Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
28. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
29. Parking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
30. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
31. Transfer of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
32. General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
</TABLE>
i
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A: Legal Description of Real Property; Floor Plan for Buildings;
Calculation of Total Rentable and Useable Square Footage for
each Building and the Project; and Site Plan of the Project
Exhibit B-1: Summary of:
1. Project Operating Expenses for 1990 and 1991
2. Estimate of Project Operating Expenses for 1992 and 1993
3. Building Operating Expenses for 1990 and 1991 (Segregated
by Building 1, Building 2 and Building 3)
4. Estimate of Building Operating Expenses for 1992 and 1993
(Segregated by Building 1, Building 2 and Building 3)
Exhibit B-2: Summary of:
1. Amenities Expenses for 1990 and 1991
2. Estimated Amenities Expenses for 1992 and 1993
Exhibit C: Form of Estoppel Certificate
Exhibit D: Landlord's Normal Business Hours For Operation of HVAC
Exhibit E: Memorandum of Lease
Exhibit F: Tenant Insurance Requirements
Exhibit G: Specifications for Utilities and Services
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED LEASE AGREEMENT
THIS AMENDED AND RESTATED LEASE AGREEMENT (this "Lease"), dated as of
March, 1993, is entered into by WYSE TECHNOLOGY INVESTMENTS, INC., a
California corporation ("Landlord"), and WYSE TECHNOLOGY, INC., a Delaware
corporation ("Tenant") in order to modify and amend that certain Lease
Agreement, dated as of May 27, 1992, entered into by Landlord, as landlord,
and Tenant, as Tenant. Terms which are capitalized in this Lease (but which
are not defined in the body of this Lease) shall have the meanings set forth
in the Basic Lease Information, which is incorporated herein by this
reference and appears immediately preceding this page.
THIS LEASE IS ENTERED on the basis of the following facts, intentions
and understandings of the parties:
A. Landlord has acquired, or is in the process of acquiring, from
Tenant pursuant to that certain Contract of Sale dated as of May 27, 1992,
between Landlord, as purchaser, and Tenant, as seller, (i) two separate legal
parcels comprising approximately thirty-two and six hundred nineteen
thousandths (32.619) acres of real property in San Jose, California more
particularly described in EXHIBIT A, attached hereto ("Real Property") and
(ii) the improvements located on the Real Property ("Improvements") which
include: (a) three office buildings ("Buildings"); (b) a cafeteria
("Cafeteria"); and (c) a health club, including tennis courts and a swimming
pool ("Health Club"). The Improvements are generally shown in the Site Plan
attached hereto as EXHIBIT A. The Real Property and the Improvements are
hereinafter collectively referred to as the "Project".
B. The Buildings are commonly known as: (i) One River Oaks Place
("Building 1"); (ii) 3475 North First Street ("Building 2"); and (iii) 3471
North First Street ("Building 3").
C. Landlord desires to lease to Tenant, and Tenant desires to lease
from Landlord, in accordance with the terms of this Lease the following
portions of the Project: (i) up to 88,818 rentable square feet in Building 2
to the extent that Landlord shall make such space available to Tenant and
Tenant shall in fact occupy the same from time to time ("Building 2 Space"),
(ii) 143,000 rentable square feet in Building 3 ("Building 3 Space"), and
(iii) subject to the rights of Pacific Bell, as tenant ("Pacific Bell"),
under that certain Lease Agreement dated as of October 31, 1991 between
Landlord and Pacific Bell (the "Pacific Bell Lease"), the Cafeteria and
Health Club, consisting in the aggregate of 24,100 square feet (the
"Amenities Space"). As of the date hereof, the amount of Building 2 Space
being leased by Tenant is 88,818 square feet.
D. The portion of (i) the Operating Expenses of the applicable Building
("Building 2 Operating Expenses" and "Building 3 Operating Expenses",
respectively) and (ii) the Operating Expenses of the Project ("Project
Operating Expenses"), for which Tenant will be responsible is set forth in
Section 6.a(xiii). The
1
<PAGE>
portion of the Amenities Expenses for which Tenant will be responsible is set
forth in Section 6.d(ix).
E. The term (the "Term") of this Lease will be ten (10) years,
commencing on June 1, 1992 (the "Commencement Date").
F. The premises ("Premises") subject to this Lease at any time will be
the Building 2 Space, the Building 3 Space and the Amenities Space.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises of
the parties, the parties hereto agree as follows:
1. PREMISES.
a. PREMISES. Landlord leases to Tenant, and Tenant leases from
Landlord, the Premises, together with the right in common to use the Common
Areas within the Project.
(i) AMENITIES SPACE. Tenant acknowledges and
agrees that Tenant's lease of the Amenities Space is subject
to the rights of Pacific Bell under the Pacific Bell Lease to
use the Amenities Space and Tenant shall not use or alter the
Amenities Space in any manner which would adversely affect
Pacific Bell's ability to use and enjoy the Amenities Space to
the extent permitted under the Pacific Bell Lease.
(ii) BUILDING 2 SPACE. Tenant acknowledges and
agrees that Tenant's lease of the Building 2 space is subject
to the rights of Pacific Bell to exercise certain expansion
rights granted to Pacific Bell under the Pacific Bell Lease
with respect to the Building 2 Space. Tenant further agrees
that Landlord shall have the unconditional right at any time
and from time to time during the term of this Lease, upon 30
days prior written notice ("Pacific Bell Expansion Notice")
delivered to Tenant following Landlord's receipt of notice of
Pacific Bell's exercise of its right to expand into any
portion of the Building 2 Space, to terminate this Lease as to
the portion of the Building 2 Space described in such notice
from Pacific Bell. The Pacific Bell Expansion Notice will
describe in reasonable detail the portion of the Building 2
Space to which it applies (including the rentable square
footage of such portion). Tenant shall surrender such portion
of the Building 2 Space to Landlord in accordance with, and in
the condition required under, Section 21 of this Lease on or
before the 30th day following Tenant's receipt of the Pacific
Bell Expansion Notice. Upon the termination of this Lease as
to any portion of the Building 2 Space pursuant to this
Section 1.a(ii), (A) Tenant's Share of Project Operating
Expenses and Tenant's Share of Building 2 Operating Expenses
shall be adjusted to reflect such termination and (B) the
Monthly Base Rent (as hereinafter defined) shall be partially
reduced by an amount equal to the amount of basic rent Pacific
Bell is obligated to pay to Landlord for such portion of the
Building 2 Space under the Pacific Bell Lease; provided that
at the end of the seventh Lease Year the
2
<PAGE>
Monthly Base Rent shall be fully adjusted to reflect the
termination of this Lease as to such portion of the Building 2
Space and, following such full adjustment, Landlord shall
reimburse Tenant for any Monthly Base Rent Tenant has paid to
Landlord which Tenant would not have been obligated to pay had
such full adjustment to the Monthly Base Rent been made
concurrently with such termination of this Lease as to such
portion of the Building 2 Space, PLUS interest on any such
amount at a rate equal to 6% per annum.
b. COMMON AREAS. The "Common Areas" shall mean the areas and
facilities within the Project for the general use, convenience and benefit of
Tenant and other tenants and occupants of the Buildings (E.G., unreserved
parking areas; and, as to the Buildings not leased exclusively to Tenant or
other tenants, the restrooms, janitorial, telephone and electrical closets,
and elevators available for common use; PROVIDED, HOWEVER, that (i) Tenant's
use of space in the closets shall be limited to the percentage share thereof
("Tenants Percentage Share") equal to the rentable square footage of the
applicable Building covered by this Lease as a percentage of the rentable
square footage of that entire building, (ii) any access thereto and use
thereof shall be subject to Landlord's reasonable rules and regulations in
respect thereof and shall be done in a manner and at times so as to minimize
any interference with the Building systems and with other tenants, and (iii)
Tenant shall not use the Common Areas in a manner that materially or
unreasonably interferes with or annoys other tenants). Subject to Section
1.c, Landlord shall not change the Common Areas in any manner which
materially or unreasonably interferes with Tenant's use of the Premises.
c. BUILDING AND PROJECT SQUARE FOOTAGES. The Usable Square
Footage of the Buildings, the Rentable Square Footage of the Buildings and
the Rentable Square Footage of the Project have been determined in accordance
with the latest applicable standards of the Building Owners and Managers
Association ("BOMA"). Tenant understands that Landlord is contemplating the
construction of an additional building and other improvements on the parcel
of land on which is located Building 3 (to the north thereof) and may
construct other improvements on the Project. In the event of any such
improvements which shall result in an increase or decrease in the Rentable
Square Footage of the Project, Tenant's Percentage Share of the applicable
Buildings and Tenant's Percentage Share of the Project shall be adjusted
based upon the rentable square feet in the applicable Buildings and in the
Project.
d. SQUARE FOOTAGES. Landlord and Tenant acknowledge that the
rentable square footage of each of the Building 2 Space, the Building 3 Space
and the Amenities Space is accurate and shall be used for purposes of
calculating Base Rent payable by Tenant, Tenant's Share of Building 2
Operating Expenses, Tenant's Share of Building 3 Operating Expenses, Tenant's
Share of Amenities Expenses and Tenant's Share of the Project Operating
Expenses.
e. TENANT'S PERCENTAGE SHARE OF BUILDINGS. As used in this Lease,
(i) the term "Tenant's Percentage Share of Building 2" shall be the
percentage determined by dividing (A) the rentable square footage of Building
2 Space by (B) the total rentable square footage of Building 2 and (ii)
"Tenant's Percentage Share of
3
<PAGE>
Building 3" shall be the percentage determined by dividing (A) the rentable
square footage of the Building 3 Space by (B) the total rentable square
footage of Building 3.
f. TENANT'S PERCENTAGE SHARE OF PROJECT. As used in this Lease,
the term "Tenant's Percentage Share of the Project" shall be the percentage
determined by dividing (i) the rentable square footage of the Premises by
(ii) the total rentable square footage of the Project.
2. TERM.
a. LEASE TERM. The Term of this Lease shall commence on the
Commencement Date and, unless terminated on an earlier date in accordance
with the terms of this Lease, shall extend for the Term and shall expire on
the date that is ten (10) years from the Commencement Date (the "Expiration
Date"), unless sooner terminated pursuant to the terms of this Lease.
b. LEASE YEARS. The first lease year ("First Lease Year") of the
Term shall be the period commencing on the Commencement Date and ending on
December 31, 1992. The subsequent lease years ("Lease Years") shall be the
twelve (12) month periods measured from the end of the First Lease Year.
c. WAIVER. Tenant hereby waives its rights under California Civil
Code Section 1932(1), it being agreed that the terms under this Section 2 and
Section 3 hereof shall govern and replace any rights covered by said statute.
3. RENT. As used in this Lease, the term "Rent" shall mean (i) the
Monthly Base Rent; (ii) Tenant's Share of Building 2 Operating Expenses;
(iii) Tenant's Share of Building 3 Operating Expenses; (iv) Tenant's Share of
the Project Operating Expenses; (v) Tenant's Share of Amenities Expenses; and
(vi) all other amounts due from Tenant under this Lease.
4. MONTHLY BASE RENT.
a. PAYMENT. The Monthly Base Rent shall be payable in equal
monthly installments. Tenant shall pay the Monthly Base Rent to Landlord in
advance upon the Commencement Date and, thereafter, upon the first day of
each calendar month of the Term. The Monthly Base Rent shall be paid at
Landlord's Address (or at such other place within the United States
designated by Landlord in a notice to Tenant) without prior demand or notice
and without any deduction or set-off whatsoever, except as expressly set
forth in this Lease.
b. MONTHLY BASE RENT. Subject to Section 2.a(ii), Tenant shall
pay Monthly Base Rent per rentable square foot of Building 2 Space actually
occupied by Tenant, Building 3 Space and Amenities Space ("Monthly Base
Rent"), in accordance with the following schedule:
4
<PAGE>
<TABLE>
<CAPTION>
MONTHLY RENTAL RATE
MONTH PER RENTABLE SQUARE FOOT
----- ------------------------
<S> <C>
0-7 Jun 92-Dec 92
8-19 Jan 93-Dec 93
20-31 Jan 94-Dec 94
32-43 Jan 95-Dec 95
44-55 1/96-12/96
56-67 1/97-12/97
68-79 1/98-12/98
90-91 1/99-12/99
92-120 1/00-12/02
</TABLE>
c. LATE PAYMENT CHARGE. If Tenant fails to pay an increment of
Monthly Base Rent when due, Tenant shall pay a late payment charge of Five
Thousand Dollars ($5,000.00). Any late payment charge shall be payable on
the second day of the month in which such delinquent increment of Monthly
Base Rent was due.
5. PAYMENT OF ADDITIONAL CHARGES. Tenant's Share of Operating
Expenses shall be paid as provided in Section 6. All other charges required
to be paid by Tenant under this Lease (I.E., other than Base Rent, Operating
Expenses and Amenities Expenses) shall be paid by Tenant within thirty (30)
days after receipt from Landlord of a bill evidencing Landlord's payment
thereof.
6. ADDITIONAL RENT-OPERATING EXPENSES.
a. OPERATING EXPENSES.
(i) SUMMARY AND ESTIMATED OPERATING EXPENSES. Set forth in
EXHIBIT B-1 to this Lease are (A) a summary of the Project Operating Expenses
for the 1990 and 1991 calendar years; (B) an estimate of Project Operating
Expenses for the 1992 and 1993 Lease Years; (C) a summary of Building
Operating Expenses for the 1990 and 1991 calendar years (segregated by
Building 1, Building 2 and Building 3); and (D) an estimate of the Building
Operating Expenses (segregated by Building 1, Building 2 and Building 3) for
the 1992 and 1993 Lease Years.
(ii) PROJECT OPERATING EXPENSES. The term "Project Operating
Expenses" shall mean the reasonable and actual operating expenses which are
paid by Landlord in connection with only the Common Areas. The Project
Operating Expenses shall be directly attributable to the operations,
maintenance, management and repair of the Common Areas, as determined under
generally accepted accounting principles, consistently applied, for the
applicable period. Project Operating Expenses shall be the following: (A)
Real Estate Taxes, as defined in Section 6.b.; (B) premiums for insurance;
(C) wages, salaries and related expenses and benefits (including fringe
benefits, payroll taxes, workers' compensation and uniforms) of on-site
employees engaged in operation, maintenance and security; (D) the reasonable
costs of repairs, replacements (amortized, as provided below) and general
maintenance (excluding those which are the sole obligation of Landlord
expressly so provided herein, those paid for by proceeds of
5
<PAGE>
insurance or other parties, and alterations attributable solely to tenants of
the Buildings other than Tenant); (E) reasonable charges for steam, heat,
ventilation, air conditioning, water, gas, electricity and other utilities
used or consumed in the Common Areas; (F) the cost of supplies and equipment
used in the operation and maintenance of the Project; (G) reasonable
professional fees (E.G., fees of attorneys, auditors and other professionals
and consultants) and association dues; (H) the cost of resurfacing and
restriping the parking areas and janitorial and other cleaning costs and
fees; (I) the cost of governmental licenses and permits, or renewals thereof,
necessary for the operation of the Project; (J) the cost of capital
improvements made to the Project either (1) for the intended purpose of
reducing Project Operating Expenses (but only to the extent of the lesser of
the amortized cost of the capital improvement or the actual cost savings
resulting from the capital improvement) or (2) pursuant to a requirement of
law, ordinance, order, rule or regulation of any governmental,
quasi-governmental or public authority (a "Law") or a requirement of any
insurance carrier or insurance rating organization or underwriting board,
provided the Law or requirement is amended, enacted or promulgated after the
Effective Date or (3) as set forth in Section 6.a(vi) hereof; and (K) all
other reasonable and actual expenses paid in connection with the operation,
maintenance, management and repair of the Common Areas. The costs of
replacements pursuant to Section 6.a(ii)(D), capital improvements pursuant to
Section 6.a(ii)(J), and resurfacing under Section 6.a(ii)(H) (if capital in
nature) shall be amortized on a straightline basis over the useful life of
the replacement, improvement or resurfacing using generally accepted
accounting principles, consistently applied. The cost of capital
improvements which are made to the Project pursuant to a Law which was in
existence prior to or on the Effective Date but only became applicable to the
Project by reason of any act or cause of Tenant (E.G., any tenant
improvements or any particular use by Tenant of the Premises) shall not be
included in Project Operating Expenses but shall be paid by Tenant.
(iii) BUILDING OPERATING EXPENSES. The term "Building
Operating Expenses" shall mean the reasonable, actual operating expenses
which are paid by Landlord in connection with only the Buildings containing
any portion of the Premises. The Building Operating Expenses shall be
directly attributable to the operations, maintenance, management and repair
of the Buildings, as determined under generally accepted accounting
principles, consistently applied. Building Operating Expenses shall be the
following: (A) Real Estate Taxes, as defined in Section 6.b.; (B) premiums
for insurance; (C) wages, salaries and related expenses and benefits of
on-site employees engaged in operation, maintenance and security (including
fringe benefits, payroll taxes, workers' compensation and uniforms); (D) the
reasonable costs of repairs, replacements (amortized, as provided below) and
general maintenance (excluding those which are the sole obligation of
Landlord expressly so provided herein, those paid for by proceeds of
insurance or other parties, and alterations attributable solely to tenants of
the Buildings other than Tenant); and (E) reasonable charges for steam, heat,
ventilation, air conditioning, water, gas, electricity and other utilities
used or consumed in the Buildings; (F) the cost of supplies and equipment
used in the operation and maintenance of the Buildings; (G) reasonable
professional fees (E.G., fees of attorneys, auditors and other professionals
and consultants) and association dues; (H) the cost of resurfacing and
restriping the parking areas and janitorial and other cleaning costs and
6
<PAGE>
fees; (I) the cost of governmental licenses and permits, or renewals thereof,
necessary for the operation of the Buildings; (J) the cost of capital
improvements made to the Buildings either (1) for the intended purpose of
reducing Buildings Operating Expenses (but only to the extent of the lesser
of Tenant's pro rata share of the cost of any capital improvement or the
actual cost savings resulting from the capital improvement) or (2) pursuant
to a requirement of Law or a requirement of any insurance carrier or
insurance rating organization or underwriting board, provided the Law or
requirement is amended, enacted or promulgated after the Effective Date or
(3) as set forth in Section 6.a(vi) hereof; and (K) all other reasonable,
actual expenses paid in connection with the operation, maintenance,
management and repair of the Buildings. The cost of replacements pursuant to
Section 6.a(iii)(D), capital improvements pursuant to Section 6.a(iii)(J) and
resurfacing under Section 6.a(iii)(H) (if capital in nature) shall be
amortized on a straightline basis over the useful life of the replacement,
improvement or resurfacing, using generally accepted accounting principles,
consistently applied. The cost of capital improvements which are made to the
Buildings pursuant to a Law which was in existence prior to or on the
Effective Date but only became applicable by reason of any act or cause of
Tenant (E.G., any tenant improvements or any particular use by Tenant of the
Premises) shall not be included in Building Operating Expenses but shall be
paid by Tenant.
(iv) OPERATING EXPENSES. The term "Operating Expenses" shall
mean the sum of Project Operating Expenses and Building Operating Expenses.
The term "Operating Expense" shall mean any individual expense included
within the definition of Operating Expenses. All goods and services
comprising Operating Expenses shall be obtained at competitive prices, but
may be obtained from related parties. Any item which is a Project Operating
Expense shall not be a Building Operating Expense.
(v) EXCLUSIONS. Operating Expenses shall not include the
following: (A) legal fees, brokerage commissions, advertising costs, or
other related expenses incurred in connection with the leasing of any portion
of the Project; (B) repairs, alterations, additions, improvements or
replacements made to rectify or correct any defect in the design, materials
or workmanship of the Project (provided that the foregoing shall not include
repairs, alterations, additions, improvements or replacements to
non-defective items which are caused by Tenant's construction activities);
(C) except as provided in Section 6.a(ii)(J)(2) and Section 6.a(iii)(J)(2),
repairs, alterations, additions, improvements or replacements made to comply
with any requirements of Law in effect as of the Effective Date; (D) any
repairs, additions, improvements, alterations, replacements or expenditures
of a capital nature, except as specifically allowed and limited pursuant to
Sections 6.a(ii)(J) and 6.a(iii)(J) and Section 6.a(vi); (E) depreciation or
amortization of the Buildings or any other improvements within the Project
except as set forth in (D) above; (F) the cost of damage and repairs
attributable to fire or other casualty (except for the deductible portion of
insurance which shall be included in Operating Expenses in the event of a
casualty); (G) the cost of damage and repairs covered under any insurance
policy carried by, or required to be carried by, Landlord in connection with
the Project (except for the deductible portion of insurance which shall be
included in Operating Expenses in the
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event of a casualty); (H) damage and repairs necessitated by the negligence
or wilful misconduct of Landlord or Landlord's employees, contractors or
agents; (I) executive salaries (except for Landlord's Project or Building
Director of Facilities, Manager or Superintendent); (J) salaries of service
personnel to the extent that the service personnel perform services not
solely in connection with the management, operation, repair or maintenance of
the Project; (K) Landlord's general overhead expenses not related to the
Buildings; (L) payments of principal or interest on any mortgage or other
encumbrance; (M) legal fees, accountants' fees and other expenses incurred in
connection with disputes with Tenant, or other occupants or tenants under or
with respect to their leases or associated with the enforcement of any leases
or defense of Landlord's title to or interest in the Project or any part
thereof; (N) costs (including permit, license and inspection fees) incurred
in renovating or otherwise improving, decorating, painting or altering space
for other tenants or other occupants or of vacant rentable space in the
Buildings or Project; (O) costs incurred due to violation by Landlord or any
other tenant in the Project of the terms and conditions of any lease; (P)
interest, penalties or other costs arising out of Landlord's failure to make
timely payment of its obligations; (Q) the cost of any service provided to
Tenant or other occupants of the Project for which Landlord is entitled to be
reimbursed (other than pursuant to provisions similar to this Section 6); (R)
overhead and profit paid to subsidiaries or affiliates of Landlord for
management or other services for the Buildings or Project or for supplies or
other materials to the extent that the costs of the services, supplies or
materials exceed the competitive costs of the services, supplies or materials
if they were not provided by a subsidiary or an affiliate; (S) costs incurred
to test, survey, clean up, contain, abate, remove or otherwise remedy
Hazardous Materials (as defined in Section 20 hereof) from the Project unless
the Hazardous Materials were in or on the Project because of Tenant's
negligence or intentional acts; (T) costs incurred in connection with any
portion of the Project which is intentionally segregated from the parking
available for Tenant and other tenants of the Project or used solely for
parking by non-tenants of the Project and for which parking fees are charged;
(U) property management fees; (V) costs incurred in advertising and
promotional activities for the Project (including gifts and promotional
services to tenants or other parties); (W) imputed amounts for rent for space
within the Project or other locations which is unoccupied or occupied by
property managers; (X) all Amenities Expenses; and (Y) any other expense
which, under generally accepted accounting principles, consistently applied,
are not reasonable, actual operating expenses which are directly attributable
to the operations, maintenance, management and repair of the Project or the
Buildings, as applicable.
(vi) RESTRICTIONS ON SPECIFIC OPERATING EXPENSES. The costs
of any major repair which is made to the roofs or the heating, ventilation
and air conditioning (HVAC) systems which is not caused solely by the
negligence of Tenant shall be amortized over the useful life of the repair,
as determined in accordance with generally accepted accounting principles,
consistently applied; provided that (A) Tenant shall not be responsible for
any amortized costs of repairs to the roofs during the term hereof and (B)
Tenant shall not be responsible for any amortized costs of repairs to the
HVAC systems during the first five (5) years of this Lease. Notwithstanding
the provisions of clauses (A) and (B) above, Tenant shall be solely
responsible for any repairs to the roofs or HVAC systems arising out of any
acts or omissions of Tenant or its
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agents, representatives, contractors, subcontractors or servants or anyone
else under the reasonable control of Tenant.
(vii) LIMITATION ON SPECIFIED PROJECT OPERATING EXPENSES.
Tenant shall not be responsible in the First Lease Year for the Project
Operating Expenses specified in EXHIBIT B-1 as "CAM & Landscaping" and
"Insurance" ("Specified Project Operating Expenses") in excess of Four and
Fifty-Five Hundredths Cents ($0.0455) per rentable square foot of Building 2
Space actually occupied by Tenant, Building 3 Space and Amenities Space in
the First Lease Year. The limitation (and the Specified Project Operating
Expenses) shall be calculated on the basis of the annualized Project
Operating Expenses for the Building 2 Space actually occupied by Tenant,
Building 3 Space and Amenities Space. The limitation set forth in this
Section 6.a(vii) shall not apply to any other Operating Expenses.
(viii) LIMIT ON ANNUAL SPECIFIED PROJECT OPERATING EXPENSE
INCREASES. After the First Lease Year, Tenant shall not be liable for any
increase in the Specified Project Operating Expenses for any Lease Year
during the Term in excess of five percent (5%) (calculated on a per rentable
square footage basis) per Lease Year on a compounded basis (E.G., the maximum
Specified Project Operating Expense for which Tenant shall be responsible in
the second Lease Year shall be $0.047775 per rentable square foot and the
maximum Specified Project Operating Expenses for which Tenant shall be
responsible in the third Lease Year shall be $0.050164 per rentable square
foot); provided, however, that increases in the Specified Project Operating
Expenses which directly result from governmentally mandated costs or fees
(E.G., penalties for excess water usage) shall not be subject to the above
limitation. For purposes of this Section 6.a(viii), Real Estate Taxes shall
not be included in the Specified Project Operating Expenses (as Real Estate
Taxes shall be subject to the limitation set forth in Section 6.b(iv)). The
limitation set forth in this Section 6.a(viii) shall not apply to any other
Operating Expenses.
(ix) COLLECTION. Landlord shall use reasonable efforts to
keep the Operating Expenses at reasonable amounts while operating the Project
as a first-class office/research and development campus and there shall not
be included in Operating Expenses any costs in excess of those that would be
reasonably incurred by prudent owners who act as operators and managers of
similar first-class office/research and development campuses located in the
cities of Sunnyvale, Santa Clara, Milpitas and the North San Jose area
("Similar Facilities"), which owner operators and managers are not generally
engaged in the operation and management of Similar Facilities or other
properties and do not have access to the economies and resources available to
operators and managers of Similar Facilities or other properties. Landlord
shall not collect in excess of one hundred percent (100%) of any operating
Expense or any Operating Expense more than once. All Operating Expenses
shall be determined in accordance with generally accepted accounting
principles and practices, consistently applied. Landlord's statement of
Operating Expenses shall be certified by a certified public accountant or
signed and certified to be correct by Landlord.
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(x) RIGHT TO CHALLENGE. Tenant shall have the right, by
giving written notice to Landlord at any time within one (1) year after
receipt of any statement of Operating Expense, to challenge the accuracy of
any Operating Expense set forth in the statement. Failure to timely notify
Landlord of a challenge shall be a waiver of Tenant's right to challenge the
Operating Expenses set forth in the applicable statement. If Tenant
challenges any Operating Expenses, Landlord shall make Landlord's books and
supporting documents available at reasonable times during office hours and
upon reasonable prior notice for Tenant to audit. If requested by Tenant,
Landlord shall provide adequate work space within Landlord's offices for
Tenant's authorized representatives to review the books and supporting
documents. Tenant shall pay the cost and expenses of any audit unless the
audit shows an overstatement of at least five percent (5%) in the Operating
Expenses, in which event Landlord shall pay the costs and expenses of the
audit. Landlord shall pay any overstated amounts to Tenant, together with
interest at the rate of ten percent (10%) per annum from the date of
overpayment to the date payment is made by Landlord (and, if applicable, the
cost of the audit), within thirty (30) days after the amount of the
overstatement is finally determined.
(xi) SURVIVAL. If the exact amount of any item payable by
Tenant under this Section 6 which would not otherwise be due until after the
Expiration Date or termination of this Lease is uncertain as of the
Expiration Date or termination of this Lease, the item shall be paid by
Tenant to Landlord within sixty (60) days after Landlord's notice to Tenant
of Landlord's final determination of the exact amount.
(xii) NOTICE OF OBLIGATION. Landlord shall provide Tenant
with at least two (2) months' prior notice ("Rent Adjustment Notice") of the
effective date of any adjustments in Rent which are to be made under this
Lease. If Landlord fails to give notice to Tenant at least two (2) months
prior to the date an adjustment is to be effective, (A) Tenant shall have the
right, for a period of two (2) months after the Rent Adjustment Notice, to
pay Rent in an amount equal to the Rent payable prior to the adjustment, and
(B) within two (2) months after Tenant receives the appropriate Rent
Adjustment Notice, Tenant shall pay, without any penalty or interest, any
accrued increases in Rent during the two (2) month period stated in the Rent
Adjustment Notice.
(xiii) ESTIMATED PAYMENTS. Prior to the commencement of
each Lease Year during the Term, or as soon thereafter as is practicable,
Landlord shall estimate the Operating Expenses payable by Tenant pursuant to
this Section 6.a and Tenant shall pay to Landlord on the first of each month,
in advance, one-twelfth (1/12) of Landlord's estimated amount of Tenant's
Share ("Tenants Share") of Building 2 Operating Expenses, Building 3
Operating Expenses and Project Operating Expenses. Subject to the provisions
of Section 6.a(xii), if Landlord's estimate is given at any time after the
beginning of a Lease Year, the first payment after delivery of the estimate
shall include the aggregate of the underpayments for the prior months in the
Lease Year as if the applicable statement of estimated Operating Expenses
been timely given prior to the beginning of the Lease Year and as if the
adjusted amounts of Operating Expenses had been due from the first month of
the Lease Year. Landlord's estimate shall include a comparison, by each
category, of the prior Lease Year's Operating Expenses (in terms of both
dollars and percentages) and, if requested by Tenant, shall include a
reasonably
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detailed description of the reasons for increases to support Landlord's
estimate. If Landlord does not provide an estimate (and, if requested by
Tenant, a reasonably detailed description) to Tenant prior to the
commencement of a Lease Year, Tenant shall continue, until the month after
Tenant receives Landlord's estimate of the revised Operating Expenses (and,
if requested by Tenant, reasonable, detailed documentation), to pay the
Operating Expenses based on the prior Lease Year's estimate. After a Lease
Year has commenced, Landlord may revise its estimate of Operating Expenses;
provided that Landlord shall not revise its estimate more than twice during
any Lease Year.
(xiv) ADJUSTMENT IN ESTIMATED PAYMENTS. Tenant's Share of
Building 2 Operating Expenses, Tenant's Share of Building 3 Operating
Expenses and Tenant's Share of the Project Operating Expenses shall be
adjusted as applicable every time during the Term that there is an increase
or decrease in either (A) the rentable square footage of the Premises leased
by Tenant or (B) the rentable square footage of the Project. The increases
or decreases shall result from Tenant leasing additional or less Building 2
Space or as a result of Landlord making additional improvements to the
Project.
(xv) ANNUAL ADJUSTMENT. Within ninety (90) days after the
end of each Lease Year, Landlord shall deliver to Tenant a final statement of
actual Operating Expenses for the Lease Year and there shall be an adjustment
made to account for (A) any difference between the actual and the estimated
Operating Expenses for the previous Lease Year and (B) any change in the
actual rentable square footage of the Premises Tenant leased during the
previous Lease Year. If Tenant has overpaid the amount of Operating Expenses
owing pursuant to this Section 6.a, Tenant shall subtract the amount of the
overpayment from the next payment of Rent; provided, that in the case of an
overpayment for the final Lease Year of the Term, Landlord shall refund the
overpayment to Tenant within sixty (60) days after Landlord's determination
(which shall be made in a timely manner) that there was an overpayment. If
Tenant has overpaid the amount of Operating Expenses by more than five
percent (5%), Tenant shall be entitled to interest, at the rate of ten
percent (10%) per annum, on the amount of the overpayment from the date of
the overpayment to the date of application of the overpayment to Rent (or
refund by Landlord). If Tenant has underpaid the amount owing pursuant to
this Section, Tenant shall pay the amount of the underpayment to Landlord
within sixty (60) days after receipt of Landlord's written demand accompanied
by a final statement of the Operating Expenses.
b. REAL ESTATE TAXES.
(i) GENERAL. Subject to Section 6.b(ii), "Real Estate
Taxes" shall mean the aggregate amount of real estate taxes, personal
property taxes and other similar charges on real property or improvements,
assessments, special assessments and all other charges levied or assessed
upon the Project or the Buildings, other than any water or sewer charges to
the extent the same are included in Operating Expenses for the applicable
Lease Year. If because of any change in the taxation of real estate, any
other tax, assessment or surcharge of any kind or nature (including any
franchise, income, profit, sales, use, occupancy, gross receipts or rental
tax) is imposed upon, against or with
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respect to the Project, the Buildings, the Common Areas (including the
parking areas or the number of parking spaces) or the occupancy, rents or
income therefrom or the ownership or owners (direct or indirect) thereof,
either in lieu of, in substitution for or in addition to any of the foregoing
Real Estate Taxes, such other tax, assessment or surcharge shall be deemed
part of Real Estate Taxes. With respect to any Lease Year, all reasonable
expenses, including attorneys', accountants' and experts' reasonable fees and
expenses, incurred in contesting the validity or amount of Real Estate Taxes,
the assessed valuation of the Project or the Buildings or in obtaining a
refund of Real Estate Taxes shall be considered as part of the Real Estate
Taxes for that Lease Year to the extent that the prudent owner of Similar
Facilities (under similar circumstances) would expend the fees and expenses.
(ii) EXCLUSIONS. The following shall not constitute Real
Estate Taxes for purposes of this Lease: (A) except as set forth in Section
6.b(i) above, any state, local, federal, personal or corporate income tax
measured by the income of Landlord; (B) except as set forth in Section 6.b(i)
above, any estate, inheritance, or gross rental receipts tax; (C) except as
set forth in Section 6.b(i) above, any franchise, succession or transfer
taxes; (D) interest on taxes or penalties resulting from Landlord's failure
to pay taxes; (E) any increases in taxes attributable to improvements
constructed by or for Tenant; (F) any increases in taxes attributable to
change of ownership (E.G., sale) of all or any part of the Premises,
Buildings or Project to any entity which is not Tenant or an Affiliate (as
defined in Section 19.9 hereof); (G) any assessments which are levied as a
result of Landlord's construction of additional improvements to the Project;
(H) real estate taxes resulting from tenant improvements costing in excess of
Eight Dollars ($8.00) per rentable square foot ("Overstandard Tenant
Improvements") made by other tenants of the Project (which shall be treated
in accordance with the provisions of Section 6.b(iii)); or (I) any
entitlement fees or taxes which are essentially payments to a governmental
agency for the right to make improvements to the Buildings, the Project, the
surrounding area or other projects of Landlord.
(iii) OVERSTANDARD TENANT IMPROVEMENTS. Real Estate Taxes
resulting from (A) Overstandard Tenant Improvements by Tenant or (B) from any
other tenant improvements or Alterations made within the Premises shall not
be included in the Operating Expenses but instead shall be the obligation of
Tenant. Real Estate Taxes resulting from Overstandard Tenant Improvements
made to other portions of the Project (E.G., by other tenants of the Project)
shall not be included in the Operating Expenses and Tenant shall not have an
obligation for such Real Estate Taxes.
(iv) LIMIT ON ANNUAL INCREASE OF REAL ESTATE TAXES. The
Real Estate Taxes to be included in the Operating Expenses for the First
Lease Year shall be based on Forty-Three Million Dollars ($43,000,000.00)
(representing the reassessment of the Project based on the transaction
pursuant to which Landlord acquired the Project), subject to increase for the
first Eight Dollars ($8.00) per rentable square foot of tenant improvements
but shall not include Overstandard Tenant Improvements constructed for the
benefit of Tenant. Subject to the provisions of Section 6.b(v), the Real
Estate Taxes which shall be included in the Operating Expenses for any Lease
Year during the Term after the First Lease Year shall not be in excess of one
hundred and two percent (102%)
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of the Real Estate Taxes included in the Operating Expenses for the
immediately preceding Lease Year.
(v) GOVERNMENTAL CHANGES. The limitation on increases of
Real Estate Taxes set forth in Section 6.b(iv) shall not apply to any
increases resulting from (1) governmental changes in the manner of
determining the amount of the Real Estate Taxes due (E.G., governmental
changes resulting from (A) determination that Proposition 13, and the
applicable provisions of the California Constitution (E.G., Article XIII),
are unconstitutional or (B) increases, above two percent (2%), in the
permitted annual percentage rate of increase in the "full cash value", as
defined in Article XIII.A, Section 2 of the California Constitution), (2) any
change described in the second sentence of Section 6.b(i) hereof, (3) any
expenses described in the third sentence of Section 6.b(i) hereof, and (4) as
a result of any tenant improvements, but only to the extent of Eight Dollars
($8.00) per rentable square foot of such improvements.
c. PERSONAL PROPERTY TAXES. Tenant shall pay or cause to be
paid, prior to delinquency, any and all taxes and assessments levied upon all
improvements, alterations, fixtures, trade fixtures, inventories and other
personal property placed in and upon the Premises by Tenant.
d. LESS THAN FULL OCCUPANCY.
(i) BUILDINGS. If less than one hundred percent (100%)
of the rentable square footage of either Building 2 or Building 3 is
occupied, the Operating Expenses for the Building (I.E., Building 2 or
Building 3) shall be adjusted to equal Landlord's reasonable estimate of the
Operating Expenses if one hundred percent (100%) of the rentable square
footage of the Building were occupied.
(ii) PROJECT. If less than one hundred percent of the
rentable square footage of the Project is occupied, the Operating Expenses
for the Project shall be adjusted to equal Landlord's reasonable estimate of
the Operating Expenses for the Project if one hundred percent (100%) of the
rentable square footage of the Project were occupied.
e. AMENITIES EXPENSES.
(i) SUMMARY AND ESTIMATED AMENITIES EXPENSES. Set forth
in EXHIBIT B-2 to this Lease are (A) a summary of the Amenities Expenses for
the 1990 and 1991 calendar years; and (B) an estimate of the Amenities
Expenses for the 1992 and 1993 Lease Years.
(ii) AMENITIES COMMITTEE. The responsibility for
determining the Amenities Expenses for the period after the Commencement Date
shall be vested in an amenities committee ("Amenities Committee"). The
Amenities Committee shall at all times consist of two (2) members; one (1)
member shall be Landlord's Property Manager (or other individual appointed by
Landlord) and the other member shall be Pacific Bell's Asset Manager (or
other individual appointed by Pacific Bell). The Amenities Committee shall
meet at Landlord's offices at the Project (or such other place as may be
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agreed upon by the Amenities Committee) as frequently as the Amenities
Committee may determine.
(iii) AMENITIES EXPENSES BUDGET. Not less than sixty (60)
days prior to the beginning of each Lease Year during the Term, the Amenities
Committee shall agree upon a budget ("Amenities Expenses Budget") stating an
estimate of the Amenities Expenses and Tenant's Share of Amenities Expenses
(determined in accordance with Section 6.e(ix) hereof) for the upcoming Lease
Year. Each Amenities Expenses Budget shall only include those costs and
expenses which are reasonable and necessary to operate and maintain the
Project Amenities in a first-class manner, consistent with comparable
amenities within Similar Facilities operated by prudent owners operating
comparable amenities. If the Project Amenities are being operated by an
unaffiliated third party approved by the Amenities Committee, its fees and
expenses (if payable pursuant to a written contract) and any costs that it
advises should be incurred shall conclusively be deemed to be reasonable and
necessary. Notwithstanding anything to the contrary set forth herein,
Landlord shall not be obligated to provide any facility, service or other
amenity during a particular period if the cost therefore will not be included
in the Amenities Expense Budget.
(iv) CAPITAL IMPROVEMENTS. The Amenities Committee shall
approve any and all capital improvements, the cost of which are to be
included in Amenities Expenses.
(v) AMENITIES EXPENSES. The term "Amenities Expenses"
shall mean the reasonable, actual and necessary operating expenses, approved
by the Amenities Committee, which are paid by Landlord in connection with the
Project Amenities. Goods and services comprising the Amenities Expenses
shall be obtained at competitive prices. The Amenities Expenses shall be
directly attributable to the operations, maintenance, management and repair
of the Project Amenities, as determined under generally accepted accounting
principles, consistently applied, for the applicable period. Amenities
Expenses shall be the following to the extent incurred solely in connection
with the Project Amenities: (A) premiums for insurance; (B) fees, charges,
expenses, wages, salaries and related expenses and benefits (including,
without limitation, fringe benefits, payroll taxes, worker's compensation and
uniforms) of employees or other persons or entities (including, without
limitation, those payable to a third party operating or managing the Project
Amenities or providing services therefor) engaged in management, operation,
maintenance and security; (C) the reasonable cost of repairs and general
maintenance (excluding those paid for by proceeds of insurance or other
parties); (D) reasonable charges for steam, heat, ventilation, air
conditioning, water, gas, electricity and other utilities used or consumed in
connection with the Project Amenities; (E) the cost of supplies and
equipment; (F) the cost of governmental licenses and permits, or renewals
thereof, necessary for the operation of the Project Amenities; and (G) the
cost of capital improvements approved by the Amenities Committee (as provided
in Section 6.e(iv)), amortized on a straightline basis over the useful life
thereof in accordance with generally accepted accounting principles,
consistently applied; and (H) all other reasonable, actual expenses approved
by the Amenities Committee, paid in
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connection with the operation, maintenance, management and repair of the
Project Amenities.
(vi) EXCESS USE OF PROJECT AMENITIES. Tenant shall pay to
Landlord the resulting increase in Amenities Expenses if (A) as a result of
Tenant's extended operating hours or increased employment of persons,
Tenant's use of the Project Amenities exceeds the use of the Project
Amenities by other tenants in the Project and (B) as a result of Tenant's
increased use, Landlord is required to extend the hours that the Project
Amenities are available or the services provided. The amount of the increase
shall be reasonably determined by the Amenities Committee.
(vii) COLLECTION. Landlord shall use reasonable efforts to
keep the Amenities Expenses at reasonable amounts while operating the Project
Amenities in a first class manner for comparable amenities within Similar
Facilities. Landlord shall not collect in excess of one hundred percent
(100%) of any Amenities Expense or any Amenities Expense more than once.
(viii) RIGHT TO CHALLENGE. Tenant shall have the right, by
notice in writing to Landlord given at any time within one (1) year after
receipt of any statement of Amenities Expense, to challenge the accuracy of
any Amenities Expenses. Failure to timely notify Landlord of a challenge
shall be a waiver of the right for the applicable statement. If Tenant
challenges any Amenities Expenses, Landlord shall make Landlord's books and
supporting documents available at reasonable times during office hours and
upon reasonable prior notice for Tenant to audit. If requested, Landlord
shall provide adequate work space within Landlord's offices for Tenant's
authorized representatives to review the books and supporting documents.
Tenant shall pay the costs and expenses of any audit unless the audit shows
an overstatement of at least five percent (5%) in the Amenities Expenses, in
which event Landlord shall pay the cost and expenses of the audit.
(ix) ESTIMATED PAYMENTS. Tenant shall pay to Landlord
Tenant's Percentage Share of Amenities Expenses for each Lease Year on an
estimated basis, in the same manner and subject to the same terms and
conditions as set forth for the payment of Operating Expenses pursuant to
Section 6.a(xiii) hereof. Tenant's Percentage Share of Amenities Expenses
shall be the product of (A) a fraction, the numerator of which shall be the
rentable square footage of the Premises actually occupied by Tenant at the
commencement of the then current Lease Year and the denominator of which
shall be the total rentable square footage of the Project, TIMES (B) the
estimated Amenities Expenses for the Lease Year.
(x) ADJUSTMENT IN ESTIMATED PAYMENTS. Tenant's
Percentage Share of Amenities Expenses shall be adjusted every time during
the Term that there is an increase or decrease in either (A) the rentable
square footage of the Premises leased by Tenant or (B) the rentable square
footage of the Project. The increases or decreases shall result from Tenant
leasing additional or less Building 2 Space or as a result of Landlord making
additional improvements to the Project.
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(xi) ANNUAL ADJUSTMENT PERIOD. Within ninety (90) days
after the end of each Lease Year, Landlord shall deliver a final statement to
Tenant of actual Amenities Expenses for the Lease Year and there shall be an
adjustment made to account for any difference between (A) the actual and the
estimated Amenities Expenses for the previous Lease Year and (B) the actual
rentable square footage of the Premises during the previous Lease Year, the
actual rentable square footage of the Project and the rentable square footage
used to calculate Tenant's Percentage Share of Amenities Expenses in the
estimated budget which may have been revised during the Lease Year, in
accordance with Section 6.e(x). If Tenant has overpaid the amount of the
Amenities Expenses owing pursuant to this Section, Tenant shall subtract the
amount of the overpayment from the next payment(s) of Rent; provided, that in
the case of an overpayment for the final Lease Year of the Term, Landlord
shall refund the overpayment to Tenant within sixty (60) days after the
Amenities Committee's determination (which shall be made in a timely manner)
that there was an overpayment. If Tenant has overpaid the amount of
Amenities Expenses by more than five percent (5%), Tenant shall be entitled
to interest, at the rate of ten percent (10%) per annum, on the amount of the
overpayment from the date of the overpayment to the date of application of
the overpayment to Rent (or refund by Landlord). If Tenant has underpaid the
amount owing pursuant to this Section, Tenant shall pay the amount of the
underpayment to Landlord within sixty (60) days after receipt of Landlord's
written demand accompanied by a final statement of the Amenities Expenses.
f. RIGHT TO DISCONTINUE USE OF CAFETERIA. Tenant shall have
the right, in accordance with the terms of this Section 6.f., to discontinue
its use of the Cafeteria.
(i) NOTICE. Upon not less than one (1) year's prior
notice to Landlord, Tenant may elect to discontinue its use of the Cafeteria
at any time during the Term.
(ii) PAYMENT. Not later than the date designated by
Tenant that its use of the Cafeteria will cease (the "Cafeteria Termination
Date"), Tenant shall deliver to Landlord a termination payment (the
"Cafeteria Termination Payment"). The Cafeteria Termination Payment shall be
an amount equal to the unamortized portion of any additional capital
expenditures (including expenditures for fixtures and equipment) approved by
the Amenities Committee (pursuant to Section 6.e(iv)) made by Landlord which
the Amenities Committee reasonably determined (A) to be necessary to
adequately provide food and beverage service to Tenant's employees and (B)
would not be necessary if Tenant had not used the Cafeteria. If Tenant makes
the Cafeteria Termination Payment in a timely manner, Tenant shall have the
right, within sixty (60) days after the Cafeteria Termination Date, to remove
the fixtures and equipment for which the Cafeteria Termination Payment was
paid (I.E., the fixtures and equipment upon which the Cafeteria Termination
Payment was calculated) but only to the extent that such removal shall not
result in any permanent damage to any portion of the Project, and provided
that Tenant shall repair any damage caused by such removal.
(iii) REIMBURSEMENT EXPENDITURES. Landlord shall obtain
the Amenities Committee's approval (pursuant to Section 6.e(iv)) prior to
Landlord making
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any capital expenditures for fixtures or equipment for which Landlord will
desire any reimbursement as part of the Cafeteria Termination Payment.
(iv) METHOD OF AMORTIZATION. Any capital expenditure
which is to be part of the Cafeteria Termination Payment shall be amortized
over the useful life (as determined under generally accepted accounting
principles, consistently applied) of the item for which the capital
expenditure was made.
(v) REDUCED AMENITIES EXPENSES. On the Cafeteria
Termination Date, any and all costs and expenses associated with the
Cafeteria shall be excluded from Amenities Expenses payable under this Lease.
g. USE OF HEALTH CLUB.
(i) SUBJECT TO AMENITIES COMMITTEE. Use of the Health
Club by Tenant shall be limited to employees of Tenant who work at the
Project and their immediate families. Operations of the Health Club shall be
subject to the terms and conditions (E.G., rules) established by the
Amenities Committee.
(ii) RULES OF TENANT. In addition to the terms and
conditions established by the Amenities Committee, Tenant may impose
additional restrictions on the use of the Health Club by its employees. For
example, (A) Tenant may limit the use of the Health Club to employees of
Tenant who work at the Project, and (B) Tenant's employees who desire to use
the Health Club may be required to present proof of their compliance with
Tenant's required physical health and fitness assessment program and sign
participation waivers in the form provided by Tenant, prior to being allowed
to use the Health Club. Tenant shall pay the costs of imposition of any
additional restrictions which Tenant requests on the use of the Health Club
by its employees.
(iii) HEALTH CLUB MANAGEMENT. Tenant's Asset Manager (or
designee) shall meet with Landlord and/or Landlord's operator of the Health
Club as often as Tenant reasonably determines is necessary to (A) coordinate
the programs and activities provided at the Health Club and (B) agree on the
terms and conditions (E.G., rules) applicable to use of the Health Club.
7. PRORATION OF RENT.
a. COMMENCEMENT DATE. If the Commencement Date is not the
first day of the month, or the end of the Term is not the last day of the
month, Rent shall be appropriately prorated on a monthly basis (based on the
number of days in the month) for the fractional month during the month which
this Lease commences or terminates.
b. TERMINATION. The termination of this Lease with respect
to all or any portion of the Premises shall not affect the obligations of
Landlord and Tenant pursuant to Section 6 which are to be performed after the
termination.
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8. INSURANCE AND INDEMNITY.
a. TENANT'S INSURANCE. Tenant shall obtain and keep in full
force and effect at all times at Tenant's sole cost and expense, the
insurance described on Exhibit F hereto. All such insurance shall (i) be
written by an insurance company licensed and qualified to do business in the
State of California which is reasonably acceptable to Landlord, (ii) shall
name Landlord, and any person firms or corporations (including any management
agent, Lessor or Mortgagee (each as hereinafter defined)) designated by
Landlord as insureds and (iii) shall contain a clause that the insurer will
not cancel or change the insurance without first giving Landlord 30 days'
prior written notice. An original copy of such policies or renewals thereof
or certificates of insurance therefor shall be delivered to Landlord upon
execution and 30 days prior to expiration of any then existing policies, as
the case may be. Tenant shall not carry separate or additional insurance,
concurrent in form or contributing in the event of any loss or damage, with
any insurance required to be obtained by Tenant under this Lease.
b. INDEMNITY AND NON-LIABILITY. (i) Neither Landlord nor
Landlord's agents nor any Lessor or Mortgagee shall be liable to Tenant or
Tenant's agents or any other occupant of the Premises, and Tenant shall
indemnify and hold harmless Landlord, any Lessor and Mortgagee, their
successors and assigns and their respective agents from any loss, cost,
liability, claim, damage, expense (including reasonable attorney's fees and
disbursements), penalty or fine incurred in connection with or arising from
any injury to Tenant or to any other person or for any damage to, or loss (by
theft or otherwise) of, any of Tenant's property or the property of any other
person, irrespective of the cause of such injury, damage or loss (including
the acts or negligence of any tenant or of any owners or occupants of
adjacent or neighboring property or caused by operations in construction of
any private, public or quasi-public work) unless due to the gross negligence
or willful misconduct of Landlord or Landlord's agents. However, even if such
loss or damage is caused by the gross negligence or willful misconduct of
Landlord or its agents, Tenant waives, to the full extent permitted by law,
any claim for consequential damages in connection therewith. To the extent of
Tenant's insurance coverage, Landlord and its agents shall not be liable for
any loss or damage to any person or property due to the gross negligence or
willful misconduct of Landlord or its agents.
(ii) Neither any (A) performance by Landlord, Tenant or others
of any repairs, improvements, alterations, additions, installations,
substitutions, betterments or decorations in or to the Project, the Buildings
equipment and systems or the Premises, (B) failure of Landlord or others to make
any such repairs or improvements, (C) damage to the Project, the Building
equipment or systems, the Premises or Tenant's property, (D) injury to any
persons caused by other tenants or persons in the Buildings, or by operations in
the construction of any private, public, or quasi-public work, or by any other
cause, (E) latent defect in the Buildings, the Building equipment or systems,
the Common Areas or the Premises, nor (F) inconvenience or annoyance to Tenant
or injury to or interruption of Tenant's business by reason of any of the events
or occurrences referred to in the foregoing subdivisions (A) through (E), shall
impose any liability on Landlord to Tenant other than, subject to Sections 31.k.
and 31.l. hereof, such liability as may be imposed upon Landlord by law for the
gross negligence
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of Landlord or Landlord's agents in the operation or maintenance of the
Project or the Building equipment or systems or for the breach by Landlord of
any express covenant of this Lease on Landlord's part to be performed.
(iii) Tenant hereby indemnifies and holds harmless Landlord
and Landlord's agents and Lessors or Mortgagees from any loss, cost,
liability, claim, damage, expense (including reasonable attorney's fees and
disbursements), penalty or fine incurred in connection with or arising from
(A) any default by Tenant in the performance of any of the terms of this
Lease on Tenant's part to be performed, or (B) any acts, omissions or
negligence of or the use or occupancy or manner of use or occupancy of the
Premises by Tenant, any assignee, sublessee, invitee or other person claiming
by, through or under Tenant or any of their respective agents, or (C) any
accident, injury or damage whatsoever caused to any person or to the property
of any person and occurring in or about the Premises, or (D) any accident,
injury or damage whatsoever caused to any person or to the property of any
person and occurring in or about the Project, resulting or claimed to have
resulted from an act or omission of Tenant, or any of their respective
agents. Tenant's obligations under this Section 8 shall survive the
expiration or earlier termination of this Lease.
(iv) Tenant shall pay to Landlord as Rent, within 5 days
after submission by Landlord to Tenant of bills or statements therefor, sums
equal to all losses, costs, liabilities, claims, damages, fines, penalties
and expenses referred to in this Section 8.b.
c. WAIVER OF SUBROGATION. (i) Landlord and Tenant shall each
endeavor to procure an appropriate clause in, or endorsement to, each of its
policies for fire and extended coverage insurance pursuant to which the
insurance company waives subrogation or consents to waiver of its right of
recovery against the other party, which, in the case of Tenant, shall be
deemed to include any subtenant in the Premises, and having obtained such
clause or endorsement of waiver of subrogation or consent to a waiver of the
right of recovery, such party hereby agrees that it will not make any claim
against or seek to recover from the other, and it waives all claims and
recoveries to the extent of any such waiver, for any loss or damage to its
property or the property of others covered by such fire or extended coverage
insurance; PROVIDED, HOWEVER, that the release, discharge and covenant not to
sue herein contained shall be limited by the terms and provisions of the
waiver of subrogation clause or endorsement, or the clause or endorsement
consenting to a waiver of right of recovery, and shall be co-extensive
therewith.
(ii) If either party hereto shall not be able to obtain such
clause or endorsement on a particular policy or if the inclusion of such
clause or endorsement would result in an increase in premium, then that party
shall so notify the other party hereto at least 15 days prior to the date the
policy is to take effect. The other party shall be obligated to pay the
amount of any increase in premium resulting from the inclusion of such clause
or endorsement unless such other party notifies the party obtaining the
insurance, promptly following notice of the amount of such increase, that
such other party declines to pay such increase, in which event the party
obtaining the insurance may
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omit such clause or endorsement. If a party shall fail to give notice either
of inability to obtain such clause or endorsement or notice of an increase in
premium, then that party shall be deemed to have waived its right of recovery
from the other party with respect to any loss or damage insured against by
the policy with respect to which notice was not given as provided above.
9. LANDLORD INSURANCE.
a. ALL RISK COVERAGE. Landlord shall procure and maintain during
the Term "all risk" property insurance with respect to the Buildings and the
Common Areas including coverage for earthquake damage. The coverage shall be
in an amount equal to one hundred percent (100%) (50% for earthquake) of the
full insurance replacement value (replacement cost new, including debris
removal and demolition but excluding footings, excavation and Tenant's
improvements, furniture, fixtures and equipment).
b. COMMERCIAL GENERAL LIABILITY INSURANCE. Landlord shall
procure and maintain during the Term, at its sole cost and expense, a policy
or policies of commercial general liability insurance, naming Tenant, and
Tenant's directors and employees, as additional insureds, on an "occurrence"
basis against claims for bodily injury, death, property damage or personal
injury liability with a combined single limit of not less than Five Million
Dollars ($5,000,000.00) in the event of injury to any number of persons or of
damage to property, arising out of any one occurrence, including contractual
liability and personal injury liability, with "employee" and "contractual"
exclusions deleted.
c. INSURANCE CERTIFICATES (OR ENDORSEMENTS). Landlord shall
furnish to Tenant prior to the Commencement Date, and thereafter within
thirty (30) days prior to the expiration of each such policy, a certificate
of insurance (or endorsement) issued by the insurance carrier of each policy
of insurance carried hereunder. The certificates (or endorsements) shall
expressly provide that the policies shall not be cancellable or subject to
reduction of coverage or otherwise be subject to modification except after
thirty (30) days' prior written notice to Tenant.
10. UTILITIES AND SERVICE.
a. LANDLORD'S DUTY TO PROVIDE.
(i) COMMON AREAS. Landlord shall provide levels of utilities
and services to the Common Areas which are consistent with the levels
provided to comparable facilities in the geographical area of the Project.
(ii) PREMISES. Landlord shall provide levels of utilities and
services to the Premises in accordance with Exhibit G hereto. Landlord shall
cause the electricity to Building 2 and Building 3 to be separately metered,
and the cost thereof shall be paid by Tenant. Tenant shall be charged for
all of the electricity supplied to the applicable Buildings (determined based
on the meters) to the extent Tenant is the sole occupant of Building 2 or
Building 3 and otherwise shall be charged for the electricity
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supplied to the portion of the applicable Building (determined based on the
meters and otherwise equitably) to the extent Tenant is not the sole occupant
of Building 2 or Building 3.
(iii) ADDITIONAL SERVICES. Upon Tenant's request, Landlord
shall provide HVAC to the Premises requested by Tenant during hours other
than Landlord's customary and normal hours for operation of the HVAC system
within the Project (as those hours are stated in EXHIBIT D). The use by
Tenant of the HVAC system during hours other than those set forth in EXHIBIT
D shall be considered excess HVAC use ("Excess HVAC Use"). Tenant shall
reimburse Landlord the fair and reasonable cost to Landlord in providing the
Excess HVAC Use, determined in accordance with EXHIBIT D.
b. INTERRUPTION IN SERVICES -- LANDLORD'S FAULT. If there shall
occur a failure, stoppage, interruption or reduction in the furnishing of any
utilities or services which Landlord is required to provide to the Premises
or to Tenant pursuant to the terms of this Lease, and if such failure,
stoppage, interruption or reduction renders any portion of the Premises
untenantable for a period of ten (10) consecutive business days, then,
provided that Tenant shall not use or occupy that portion of the Premises for
the conduct of its business during such period of ten (10) consecutive
business days, the Rent payable with respect to such portions of the Premises
shall be abated or reduced, as the case may be, in the proportion that the
untenantable rentable area of the Premises bears to the total rentable area
of the Premises on a day-by-day basis, for each day that Tenant shall not use
or occupy the Premises, or such portion thereof, for the conduct of Tenant's
business during the period beginning on the eleventh (11th) consecutive
business day and terminating on the earlier of (i) the date that such portion
of the Premises shall become tenantable again, and (ii) the date Tenant
commences to use or occupy the Premises or such portion thereof for the
conduct of Tenant's business. The ten (10) business day period shall be
reduced to such shorter period of time as required for Landlord's rent
abatement insurance to accrue. Tenant shall have the right to terminate this
Lease as to any portion of the Premises for which any interruption in the
utilities or services continues for ninety (90) consecutive days.
11. REPAIRS AND MAINTENANCE.
a. LANDLORD'S REPAIRS.
(i) OBLIGATIONS OF LANDLORD. The Project shall be maintained
and repaired to the standard of projects (and buildings) of similar type and
use in the geographical area of the Project and in compliance with all
applicable Laws. Except for repairs specifically required herein to be made
by Tenant, Landlord, at all times, shall keep, replace and maintain in
first-class condition, order and repair: (A) all portions of the Project
which are not a part of the Premises; (B) all portions of the roofs, roof
structures and supports, and all structural portions of the Project
including, but not limited to, the foundation and structural supports,
exterior and load bearing walls, floors (but not floor coverings), gutters
and downspouts, but excluding exterior doors and exterior glass; (C) all
utilities to the Common Areas; (D) all Common Areas, including all driveways,
sidewalks, parking areas; and (E) all defects in the Project as well as any
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damage to the Project. The cost of the foregoing shall be included in
Operating Expenses, subject to Section 6 hereof.
(ii) TENANT'S NOTICE TO LANDLORD. Tenant may give Landlord a
notice ("Tenant's Repair Notice") of any repairs that are required under the
terms of this Lease. Landlord promptly and diligently shall undertake the
repairs, with Landlord to commence the repairs not later than ten (10)
business days after receipt of a Tenant Repair Notice or such longer period
as is reasonably necessary to prepare plans, hire consultants and
contractors, and obtain the required materials, equipment and permits.
(iii) LANDLORD'S FAILURE TO MAINTAIN. If Landlord fails to
immediately and diligently undertake to repair the Project, upon not less
than five (5) business days' notice in writing to Landlord, Tenant may
perform the repairs or maintenance and, in addition to any other remedies
Tenant may have at law or in equity, Landlord shall reimburse Tenant for the
reasonable costs of the repairs. Tenant shall provide Landlord with
reasonably appropriate supporting documentation evidencing the costs incurred
by Tenant.
b. TENANT'S REPAIRS. Tenant shall, at Tenant's sole cost and
expense, keep and maintain the interior non-structural portions of the
Premises, and the exterior doors and exterior glass of the Premises, in good
condition, order and repair, excepting conditions covered under any
warranties of Landlord's contractors, damage by fire and other casualties.
Tenant, at its sole cost and expense, shall keep and maintain and take good
care of all improvements to the Premises and all fixtures, furniture and
equipment therein, including making repairs thereto under all circumstances,
and Landlord shall have no liability or responsibility therefor, except where
due to the gross negligence or willful misconduct of Landlord. In addition,
Tenant shall reimburse Landlord for all repairs to any portion of the Project
the need for which arises out of (i) the performance or existence of any
alterations or modifications of the Premises made by or for Tenant
(including, without being limited to, the generator and storage tanks), (ii)
the installation, use or operation of Tenant's property or fixtures, or (iii)
the acts, omissions, negligence or misuse by Tenant or those holding under
Tenant or any of their respective agents, or their use or occupancy or manner
of use and occupancy of the Premises or the Project.
12. ACCESS TO PREMISES.
a. RIGHT OF LANDLORD. Landlord, at reasonable times and upon
reasonable notice, may enter the Premises (i) to complete construction
undertaken by Landlord on the Buildings; (ii) to inspect; (iii) to clean,
maintain or repair the Premises; (iv) to show the Premises to prospective
purchasers and lenders; and, (v) during the last twelve (12) months of the
Term, to show the Premises to prospective tenants.
b. RESTRICTIONS ON LANDLORD. Landlord shall enter and conduct
its activities in the Premises subject to Tenant's reasonable security
regulations and in the manner which will cause the least possible
inconvenience, annoyance, interference and disturbance to Tenant or Tenant's
business. Landlord shall not do any act under this
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Section which would materially and unreasonably interfere with Tenant's
access to the Premises or use of the Premises.
13. ALTERATIONS AND SIGNS.
a. PERMITTED ALTERATIONS. Consent of Landlord, which consent
shall not be unreasonably withheld or delayed, shall be required for any
structural work to be undertaken by Tenant or any work the cost of which
exceeds $20.00 per square foot. For purposes of this Section 13, structural
work shall be work which materially impacts load bearing walls, floors,
systems, utilities, services, foundations and footings or affecting or
visible outside of the Premises or reducing the value, utility or efficiency
of the Building. Tenant shall have the right, without Landlord's consent, to
make any other improvements, alterations and additions and to install
furniture and equipment upon or to the Premises (including both the interior
and exterior thereof). All improvements, alterations and additions are
herein referred to as "Alterations." Upon notice given by Landlord, Tenant
shall remove any Alterations (other than Alterations in connection with the
initial occupancy by Tenant of the Premises) upon the expiration or
termination of the Lease.
b. SIGNS. Subject to compliance with applicable Laws, local
ordinances and private restrictions, Tenant shall have the right, with
Landlord's consent (which shall not be unreasonably withheld or delayed), to
erect any signs ("Signs") in, on, about, or outside the Premises as Tenant
desires.
c. COMPLIANCE WITH CODES. All work undertaken by Tenant in
connection with the Alterations and Signs shall be done in a workmanlike
manner, in compliance with all Laws and applicable building and other codes
and the requirements of insurance carriers, insurance rating organizations
and underwriting boards affecting the Project, and without endangering the
structural integrity of the Premises or adversely affecting the value or
first-class appearance of the Project or the rentability to other tenants.
d. OWNERSHIP OF ALTERATIONS AND SIGNS. Ownership of all Tenant's
Alterations and Signs (other than those paid for by Landlord, which shall be
owned by Landlord) shall remain in Tenant whether or not they are affixed to
or attached to the Premises. Tenant shall have the right, but not the
obligation, to remove all or any part of the Alterations and Signs made or
installed by Tenant from the Premises at any time (including expiration or
termination of this Lease). Tenant shall remove all furniture, fixtures and
equipment at the expiration or termination of this Lease and shall remove
(and restore the Premises) all Alterations if requested in writing by
Landlord in accordance with Section 13.a. hereof.
e. MECHANICS' LIENS. Tenant shall (i) pay before delinquency all
costs and expenses of work done or caused to be done by Tenant in the
Premises; (ii) keep the title to the Project free and clear of any lien or
encumbrance in respect of such work; and (iii) indemnify and hold harmless
Landlord from and against any claim, loss, cost or demand (including
reasonable legal fees), whether in respect of liens or
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otherwise, arising out of the supplying of material, services or labor for
such work. Tenant shall immediately notify Landlord of any lien, claim of
lien or other action of which Tenant has or reasonably should have knowledge
and which affects the title to the Project or any part thereof, and shall
cause the same to be removed within 5 days (or such additional time as
Landlord may consent to in writing), by payment, filing of a bond permitted
by law or otherwise. If Tenant shall fail to remove any lien or action
within said time period, Landlord may take such action as Landlord deems
necessary to remove the same and the entire cost thereof shall be immediately
due and payable by Tenant to Landlord, and such amount shall bear interest
until paid at the rate of 10% per annum.
f. GENERAL ALTERATION RULES. All Alterations shall be made
subject to, and in performing the work involved in making all Alterations
Tenant shall be bound by and observe, all of the following conditions:
(i) Tenant and Tenant's agents shall only utilize contractors
approved by Landlord (which approval, subject to the terms of paragraph (ii)
hereof, shall not be unreasonably withheld).
(ii) Tenant shall not, at any time prior to or during the
Term, directly or indirectly employ, or permit the employment of, any
contractor, mechanic or laborer in or about the Premises, or permit any
materials to be delivered to or used in the Premises, whether in connection
with any Alterations or otherwise, if such employment, delivery or use would
interfere or cause any conflict with other contractors, mechanics or laborers
engaged in the construction, maintenance or operation of the Buildings or the
Project by Landlord, Tenant or others, or of any adjacent property owned by
Landlord. Landlord shall have the absolute right to disapprove any
contractor selected by Tenant which presents, in Landlord's judgment,
potential scheduling problems or the potential interference or conflict
problems described in the preceding sentence. In the event that after
approval of any contractor any such interference or conflict shall arise,
Tenant, upon demand of Landlord, shall cause all contractors causing such
interference or conflict to leave the Building immediately.
(iii) Prior to making any Alterations, Tenant shall, at its
expense, obtain all permits, approvals and certificates required by any
Governmental Authorities and, upon completion, certificates of final approval
thereof, and shall promptly deliver to Landlord duplicates of all such
permits, approvals and certificates.
(iv) Tenant and Tenant's agents shall carry, and shall cause
their agents to carry, the insurance described in Section 8.a. and such other
insurance as Landlord may reasonably require and shall deliver or cause to be
delivered to Landlord the certificates evidencing such insurance promptly
upon request therefor.
(v) Before proceeding with any Alterations, Tenant shall
submit to Landlord three (3) copies of detailed final plans and
specifications therefor for Landlord's review and prior consent. If such
Alterations require consent by or notice to any Lessor or Mortgagee,
Landlord, if Landlord consents to the Alterations, will request such consent
or give such notice and Tenant shall not proceed with the Alterations until
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such consent has been received or such notice has been given and all
applicable conditions and provisions of the Superior Lease or Superior
Mortgage with respect to the proposed Alterations have been met or complied
with at Tenant's expense. No amendments or additions to the approved plans
and specifications shall be made without the prior consent of Landlord.
(vi) No Alterations costing more than $50,000 (as reasonably
estimated by Landlord's) shall be undertaken except under the supervision of
a licensed architect or licensed professional engineer reasonably
satisfactory to Landlord.
(vii) Any Alterations for which consent has been received
shall be promptly commenced and completed and shall be performed in a good
and workmanlike manner using new materials of first quality and shall be
performed in accordance with the approved plans and specifications and all
Laws and insurance requirements and so as not to interfere with the occupancy
of any other tenant or delay or impose any additional expense upon Landlord
in the construction, maintenance, cleaning, repair, safety, management,
security or operation of the Buildings or the Building equipment, and if any
such additional expense shall be incurred by Landlord as a result of Tenant's
making of any Alterations, Tenant shall pay such additional expense upon
demand.
(viii) Tenant shall reimburse Landlord upon demand for all
reasonable costs and expenses incurred by Landlord and each Lessor and
Mortgagee to review Tenant's plans and specifications, to inspect the
Alterations to confirm that they have been made in accordance with approved
plans and specifications and all Laws and insurance requirements and, if the
Alterations affect the structure of the Building or Building equipment, the
fees of any architects and engineers hired by Landlord to so review and
inspect such plans, specifications and Alterations.
(ix) Tenant shall not install any materials, fixtures,
furnishings or equipment, or make any other Alterations, which are subject to
liens, conditional sales contracts, chattel mortgages or security interests.
(x) Upon completion of any Alterations, Tenant shall
deliver to Landlord all plans and specifications for the Alteration submitted
for purposes of obtaining any necessary governmental permit, together with
all other drawings, schematics, field or margin notes, changes, revisions,
modifications, supplements and notations pertaining thereto.
g. EXECUTION OF DOCUMENTS. Within an appropriate, reasonable
time after receipt, Landlord shall cooperate with Tenant in the execution of
building permit applications as may be reasonably necessary to effectuate the
intent of this Section 13, at Tenant's sole cost and expense.
14. USE AND COMPLIANCE WITH LAWS.
a. USE. Tenant may use the Premises for any use permitted by law
and any restrictions of record applicable to the Project. No other Tenant or
person acting
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by, through or under Tenant (including, without being limited to, any
assignee or sublessee) shall have the right to use the Premises for any
purpose other than as set forth in the Basic Lease Information, without
Landlord's consent, not to be unreasonably withheld or delayed. Landlord
shall have the right to withhold consent to any proposed use that could
compete with any business that Landlord or its affiliates may presently or
prospectively be involved in.
b. COMPLIANCE WITH LAWS. Tenant shall comply with all Laws and
the requirements of municipal, county, state, federal and other applicable
governmental authorities, now in force, or which may hereafter be in force,
pertaining to the Premises or its use. The cost of any structural changes or
capital expenditures in or on the Premises, Building 2 or Building 3 made by
Landlord in order to comply with any law, ordinance, rule or regulation as a
result of Tenant's particular use of the Premises, shall be paid by Tenant.
15. DAMAGE OR DESTRUCTION.
a. LANDLORD'S OBLIGATION TO REBUILD. If the Premises, Buildings,
or Project are damaged or destroyed, Landlord promptly and diligently shall
repair or rebuild the damage or destruction and rebuild the Premises (other
than Tenant's improvements and the furniture, fixtures and equipment),
Buildings and Project, in compliance with all applicable laws and
regulations, to substantially their condition immediately prior to the damage
or destruction; PROVIDED, HOWEVER, that Landlord's obligation to repair or
rebuild under this Article 15 shall exist only to the extent that Landlord
receives insurance proceeds.
b. RENT ABATEMENT. Rent otherwise due and payable under this
Lease shall be abated proportionately during any period in which, and to the
extent that, by reason of any damage or destruction, there is substantial
interference with the operation of Tenant's business in the Premises. The
abatement shall consider the nature and extent of interference to Tenant's
ability to conduct business in the Premises and the need for access to
essential services. The abatement shall continue for the period commencing
with the damage or destruction and ending with the date Landlord has
completed the work under Section 15.a. above with respect to the Premises and
Tenant has been afforded such number of additional days following completion
of such work by Landlord as would be required to repair and restore any
tenant improvements damaged, with the exercise of due diligence and
continuity to the condition existing immediately prior to such damage or
destruction.
c. EXCESSIVE DAMAGE OR DESTRUCTION. Landlord or Tenant may
terminate this Lease if the Premises, Building(s) or Project is damaged or
destroyed to the extent that the Premises, Building(s) or Project cannot,
with reasonable diligence, be fully repaired or restored by Landlord within
twelve (12) months after the date of the damage or destruction and Tenant
reasonably determines that it cannot engage in the normal conduct of its
business. Within forty-five (45) days after any damage or destruction,
Landlord shall notify Tenant whether the Premises, Building(s) or Project, as
the case may be, can be fully repaired or restored within the twelve (12)
month period and if such
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notice states a period greater than twelve (12) months, Tenant must, within
10 days either terminate or waive, subject to Section 15.d. hereof, its right
to terminate. If the Premises, Building(s) or Project, as the case may be,
can be fully repaired or restored within the twelve (12) month period,
Landlord promptly shall commence the process of obtaining necessary permits
and approvals, shall commence repair of the Premises, Building(s) or Project,
as the case may be, as soon as practical, and shall, subject to Section 15.a.
hereof, prosecute the repair to completion.
d. ADDITIONAL RIGHT TO TERMINATE. In addition to Tenant's right
to terminate this Lease under Section 15.c., Tenant shall have the right to
terminate this Lease if (i) Landlord fails to proceed with reasonable
diligence to rebuild the Premises, Building(s) or Project, as the case may
be, or (ii) for whatever reason, the Premises, Building(s) or Project, as the
case may be, are not rebuilt within the later of (A) the period set forth in
Landlord's notice delivered pursuant to Section 15.c. hereof or (B) the
twelve (12) month period described in Section 15.c. hereof.
e. INSURANCE PROCEEDS. If this Lease is terminated by reason of
damage or destruction, then Landlord shall be entitled to keep any insurance
proceeds, provided that any insurance proceeds awarded or paid by reason of
damage to or destruction of Tenant's signs, trade fixtures, equipment or any
property owned by Tenant under this Lease shall be paid and belong to Tenant.
16. EMINENT DOMAIN. If all or any portion of Building 2, Building 3,
the Premises or the Project is taken for public or quasi-public use by a
governmental authority under the power of eminent domain or is conveyed to a
governmental authority in lieu of such taking (a "Taking"), and Tenant
reasonably determines that the Taking causes the (remaining portion of the)
Premises to be untenantable and inadequate for use by Tenant for the purpose
for which they were leased, then Tenant, at its option and by giving notice
within thirty (30) days after the Taking, may terminate this Lease as of the
date the portion of Building 2, Building 3, the Premises, or the Project is
taken. If a portion of the Premises is Taken but Tenant reasonably
determines that the remaining portion is tenantable and adequate for Tenant's
use, then this lease shall be terminated as to the portion taken or conveyed
as of the date Tenant surrenders possession; Landlord immediately shall make
such repairs, alterations and improvements to the Premises (exclusive of any
improvements, furniture, fixtures and equipment), at no expense to Tenant, as
may be necessary to render the portion not taken or conveyed tenantable,
provided that Landlord shall have no obligation to make such repairs,
alterations and improvements to the extent that Landlord shall not receive
condemnation awards or proceeds for the cost thereof; and the Rent shall be
reduced in proportion to the portion of the Premises taken or conveyed.
Landlord shall perform the work to restore the Premises and Building 2 and
Building 3 as nearly as possible to their original condition (to the extent
set forth above) and with minimum interference to Tenant's normal business
operations. Notwithstanding the foregoing, Landlord shall have the right to
terminate this Lease in the event of any Taking which results in
(i) twenty-five percent (25%) or more of the Project being taken or conveyed
or (ii) any lender having the right to require all awards and proceeds to be
applied against the obligations under a loan held by such lender, by notice
in writing to Tenant. Tenant shall not be entitled to share in any award
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to Landlord, but shall have the right to apply, in a separate proceeding, for
an award for the interruption of Tenant's business; Tenant's moving and
relocation expenses; the costs and expenses of removal of Tenant's
Alterations (other than those paid for by Landlord), trade fixtures and
personal property (or the award attributable to the Alterations, trade
fixtures or personal property to the extent Tenant does not remove them) and
the depreciation in value caused by the removal.
17. DEFAULT BY TENANT.
a. EVENTS OF TENANT DEFAULT. Each of the following events shall
constitute an "Event of Default" on the part of Tenant following written
notice from Landlord:
(i) PAYMENT OF MONTHLY BASE RENT. Failure to pay any
installment of Rent pursuant to Sections 3(i) through (iv) hereof within
three (3) business days after notice from Landlord to Tenant that the
installment was not paid when due;
(ii) PAYMENT OF OTHER MONETARY OBLIGATION. Failure to pay any
monetary obligation, other than Rent pursuant to Sections 3(i) through
(iv) hereof, due and payable hereunder within five (5) business days after
notice from Landlord to Tenant that the installment was not paid when due;
(iii) PERFORMANCE. Failure to commence to cure a default in
the performance of any of Tenant's covenants, agreements or obligations
hereunder (except defaults described in Sections 17.a.(i) and 17.a(ii)),
within thirty (30) days after written notice from Landlord and to
diligently and continuously prosecute to completion the cure of such
default without delay;
(iv) VOLUNTARY ASSIGNMENT OF ASSETS. Tenant's voluntary
assignment of its assets for the benefit of its creditors;
(v) ATTACHMENT. The sequestration of, attachment of, or
execution on, any substantial part of the property of Tenant located on the
Premises or on any property essential to the conduct of Tenant's business
in the Premises shall have occurred and, if done involuntarily and without
consent by Tenant, Tenant shall have failed to obtain a return or release
of property within ninety (90) days thereafter, or prior to sale pursuant
to the sequestration, attachment or levy, whichever is earlier;
(vi) REORGANIZATION. Tenant commencing any case, proceeding
or other action seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors,
seeking appointment of a receiver, trustee, custodian, or other similar
official for it or for all or any substantial part of its property; or
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(vii) BANKRUPTCY. The commencement of any case, proceeding or
other action against Tenant seeking to have an order for relief entered
against Tenant as debtor, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of Tenant or its debts
under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors, or seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of its
property, and such case, proceeding or other action remains undismissed for
a period of forty-five (45) days.
b. LANDLORD'S REMEDIES. Upon the occurrence of an Event of
Default, Landlord shall have the following remedies in addition to all other
rights and remedies provided by law, to which Landlord may resort
cumulatively, or in the alternative:
(i) RECOVERY OF RENT. Landlord shall be entitled to keep
this Lease in full force and effect (whether or not Tenant shall have
abandoned the Premises) and to enforce all of its rights and remedies under
this Lease, including the right to recover Rent and other sums as they
become due, plus interest at the rate of the percent (10%) per annum from
the due date of each installment of Rent or other sum until paid. Without
limiting the foregoing, Landlord shall have the remedy described in
California Civil Code Section 1951.4, which provides that a lessor may
continue a lease in effect after the lessee's breach and abandonment and
recover rent as it becomes due, if the lessee has the right to sublet or
assign, subject only to reasonable limitations.
(ii) TERMINATION. Landlord may terminate this Lease by giving
Tenant written notice of termination. On the giving of the notice, all of
Tenant's rights in the Premises shall terminate. Upon the giving of the
notice of termination, Tenant shall surrender and vacate the Premises in
the condition required by Section 21, and Landlord may re-enter and take
possession of the Premises and all the remaining improvements and eject
Tenant or any of Tenant's subtenants, assignees or other person or persons
claiming any right under or through Tenant or eject some and not others or
eject none. This Lease may also be terminated by a judgment specifically
providing for termination. Any termination under this Section shall not
release Tenant from the payment of any sum then due Landlord or from any
claim for damages or Rent previously accrued or then accruing against
Tenant. In no event shall any one or more of the following actions by
Landlord constitute a termination of this Lease: (A) maintenance and
preservation of the Premises; (B) efforts to relet the Premises;
(C) appointment of a receiver in order to protect Landlord's interest
hereunder; (D) consent to any subletting of the Premises or assignment of
this Lease by Tenant, whether pursuant to provisions hereof concerning
subletting and assignments or otherwise; or (E) any other action by
Landlord or Landlord's agents intended to mitigate the adverse effects from
any breach of this Lease by Tenant or otherwise permitted by law.
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(iii) DAMAGES. If this Lease is terminated pursuant to
Section 17.b(ii), Landlord shall be entitled to damages in the following
sums: (A) the worth at the time of award of the unpaid Rent which has been
earned at the time of termination; PLUS (B) the worth at the time of award
of the amount by which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided; PLUS (C) the worth
at the time of award of the amount by which the unpaid Rent for the balance
of the Term after the time of award of the amount exceeds the amount of
such rental loss that Tenant proves could be reasonably avoided; PLUS
(D) any other amount necessary to compensate Landlord for all detriment
proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease, or which in the ordinary course of things would be likely
to result therefrom including reasonable amounts for the following:
(1) expenses for cleaning, repairing or restoring the Premises;
(2) expenses for altering, remodeling, subdividing, splitting, or otherwise
improving the Premises for the purpose of reletting, including installation
of leasehold improvements (whether such installation is funded by a
reduction of Rent, direct payment or allowance to the succeeding lessee, or
otherwise); (3) real estate broker's fees, advertising costs and other
expenses of reletting the Premises; (4) costs of carrying the premises such
as taxes and insurance premiums thereon, utilities and security
precautions; (5) expenses in retaking possession of the Premises; and
(6) attorneys' fees and court costs. The "worth at the time of award" of
the amounts referred to in Sections 17.b(iii)(A) and (B) is computed by
allowing interest at the rate of ten percent (10%) per annum. The "worth
at the time of award" of the amounts referred to in Section 17.b(iii)(C) is
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
(iv) OTHER RIGHTS AND REMEDIES.
(A) To the greatest extent permitted by law, upon and
after such entry into possession Landlord may, but shall have no obligation
to, relet the Premises or any part thereof for the account of Tenant to any
person, firm or corporation, other than Tenant, for such Rent, for such time
and upon such terms as Landlord, in Landlord's sole discretion, shall
determine, and Landlord shall not be required to accept any tenant offered by
Tenant or to observe any instruction given by Tenant about such reletting.
(B) Suit or suits for the recovery of any and all
damages, or any installments thereof, provided for hereunder 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 terminated under the
provisions of this Article 17, or under provisions of any law, or had
Landlord not re-entered the Premises.
(C) Nothing herein contained shall be construed as
limiting or precluding the recovery by Landlord against Tenant of any damages
to which
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Landlord may lawfully be entitled in any case other than those particularly
provided for above.
(D) Should Landlord, following any breach or default of
this Lease by Tenant, elect to keep this Lease in full force and effect, with
Tenant retaining the right to possession of the Premises (notwithstanding the
fact Tenant may have abandoned the Premises), then Landlord, besides all
other rights and remedies Landlord may have at law or equity, shall have the
right to enforce all of Landlord's rights and remedies under this Lease,
including the right to recover the installments of Rent as they become due
under this Lease. During the period that Landlord elects to keep this Lease
in full force and effect with Tenant retaining the right to possession of the
Premises, Tenant shall have the right to assign and sublet as set forth in
Article 19 hereof. Notwithstanding any such election to have this Lease
remain in full force and effect, Landlord may at any time thereafter elect to
terminate Tenant's right to possession of the Premises and thereby terminate
this Lease for any previous breach or default which remains uncured, or for
any subsequent breach or default.
(E) Whether or not Landlord elects to terminate this
Lease on account of any default by Tenant, Landlord shall have the right to
terminate any and all subleases, licenses, concessions or other consensual
arrangements for possession entered into by Tenant and affecting the Premises
or may, in Landlord's sole discretion, succeed to Tenant's interest in such
subleases, licenses, concessions or arrangements. In the event of Landlord's
election to succeed to Tenant's interest in any such subleases, licenses,
concessions or arrangements, Tenant shall, as of the date of notice by
Landlord of such election, have no further right to or interest in the rent
or other consideration receivable thereunder.
(F) No reference to nor exercise of any specific right
or remedy by Landlord shall prejudice or preclude Landlord from exercising or
invoking any other remedy in respect thereof, whether allowed at law or in
equity or expressly provided for herein. No such remedy shall be exclusive
or dependent upon any other such remedy, but Landlord may from time to time
exercise any one or more of such remedies independently or in combination.
(G) In the event Landlord commences any summary
proceeding or action for non-payment of Rent, Tenant covenants and agrees not
to interpose, by consolidation of actions or otherwise, any counterclaim in
any such proceeding. To the extent permitted by law, the parties hereto
shall and they hereby do waive trial by jury in any action or proceeding
brought by either of the parties hereto against the other on any matters
whatsoever arising out of or in any way connected with this Lease or the
interpretation thereof, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Premises, and/or any claim of injury or damage. The
provisions of this Section 17.b(iv)(G) shall survive the termination of this
Lease.
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___________ ___________
___________ ___________
TENANT LANDLORD
INITIALS INITIALS
(H) No waiver by Landlord or Tenant of the breach of any
covenant, agreement, obligation or condition of this Lease shall be construed
to be a waiver of any future breach of the same or any other covenant,
agreement, obligation or condition hereof. The rights and remedies hereby
created are cumulative, and the use of one remedy shall not be construed to
exclude or waive the right to the use of another, or exclude any other right
or remedy allowed by law.
18. TENANT'S REMEDIES UPON LANDLORD'S DEFAULT.
a. TENANT'S RIGHT. If Landlord fails to perform any of its
obligations under this Lease, Tenant shall notify Landlord (first orally then
followed up in writing). If, within ten (10) business days after Tenant's
written notification, Landlord has not commenced to cure the default in
accordance with Section 11.a(ii) hereof (or subsequently does not diligently
pursue the cure), Tenant may present Landlord with a request for
reimbursement of actual costs associated with Tenant's performance of
Landlord's obligations.
b. NO WAIVER. No failure by Landlord or Tenant to insist upon the
strict performance of any term of this Lease, or to exercise any right or
remedy upon a breach by Tenant or Landlord, respectively, of this Lease,
shall constitute a waiver of any breach or of any term. Efforts by Landlord
or Tenant to mitigate the damages caused by the other party's breach of this
Lease shall not be construed to be a waiver of Landlord's or Tenant's right
to recover damages. Landlord's or Tenant's waiver of any covenant, term or
condition contained in this Lease (which waiver must be in writing) shall not
be construed as a waiver of any subsequent breach by Tenant or Landlord,
respectively, of the same covenant, term or condition.
19. ASSIGNMENT AND SUBLETTING.
a. CONSENT REQUIRED. Tenant shall not, voluntarily or
involuntarily, by operation of law or otherwise: (i) assign, mortgage,
pledge, encumber or in any manner transfer this Lease in whole or in part, or
(ii) sublet all or any part of the Premises, or allow any other person to
occupy all or any part thereof (any event described in clauses (i) and
(ii) being a "Transfer"), without the prior written consent of Landlord in
each instance, which shall not be unreasonably withheld or delayed, and any
attempt to do any of such acts without such consent shall be null and void
and of no effect. Anything contained in the foregoing to the contrary
notwithstanding, Tenant may assign this Lease or sublet all or any portion of
the Premises to an Affiliate without the consent of Landlord. As used
herein, the term "Affiliate" means and includes (A) Channel Overseas
Corporation, Wyse Technology Investments, Inc., Wyse Technology (Taiwan)
Limited, (B) any entity that is a successor entity to Tenant or any entity
described in
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clause (A) above, whether by restructuring, renaming, merger, consolidation,
operation of law or otherwise, (C) any direct or indirect individual
shareholders of, or holders of a beneficial interest in, any entity described
in clauses (A) or (B) above, or (D) any entity that is a direct or indirect
parent or subsidiary of any person or entity described in clauses (A), (B) or
(C) above.
b. CONSENTS. Any consent by Landlord that may hereafter be given
to any act of Transfer shall be held to apply only to the specific
transaction thereby approved. Such consent shall not be construed as a
waiver of the duty of Tenant or its successors or assigns to obtain from
Landlord consent to any other subsequent assignment, mortgage, pledge,
encumbrance or subletting or as a modification or limitation of the rights of
Landlord with respect to any covenants by Tenant hereunder.
20. HAZARDOUS MATERIALS.
a. LANDLORD'S WARRANT. Landlord represents and warrants to Tenant
that (i) Landlord has delivered to Tenant all reports known by Landlord
regarding Hazardous Materials within the Project or Buildings which have been
prepared and of which Landlord is aware; and (ii) except as set forth in said
reports, Landlord knows of no Hazardous Materials located within the Project,
Common Areas, Buildings or Premises as of the Commencement Date except for
usual amounts of cleaning solvents and fluids and reproduction fluids and
other usual amounts for office operations. Landlord shall indemnify, defend,
protect and hold Tenant harmless from and against any and all claims, loss,
proceedings, damages, causes of action, liability, costs or expenses
(including attorneys' fees) arising as a result of any Hazardous Materials
which exist within the Project, Common Areas, Buildings or Premises as of the
Commencement Date and any Hazardous Materials which are present within the
Project, Common Areas, Buildings or Premises after the Commencement Date
which are not the result of the activities of Tenant, or Tenant's agents,
assignees, subtenants, invitees, contractors or suppliers, or any machinery
or equipment used by them or located in or servicing the Premises.
b. DEFINITION OF "HAZARDOUS MATERIALS". For purposes of this
Lease, the term "Hazardous Materials" shall include asbestos, any flammable,
corrosive or ignitible material, any explosives, or petroleum by products,
any radioactive materials, waste or substances or any toxic substances and
other substances defined as "hazardous substances", "hazardous wastes",
"extremely hazardous wastes", "hazardous materials" or "toxic substances" in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 USC Section 9601, ET SEQ.; the Toxic Substances Control
Act, 15 USC Section 2601, ET SEQ.; the Hazardous Materials Transportation
Act, 49 USC Section 1801 ET SEQ.; the Resource Conservation and Recovery Act,
42 USC Section 6901 ET SEQ.; and/or in similar federal, state or local law.
c. TENANT'S RESPONSIBILITY. Unless specifically agreed to by
Landlord, Tenant shall not use or bring on the Premises any Hazardous
Materials other than usual and customary materials used in offices. Any
Hazardous Materials brought on the Premises by Tenant shall be used and
stored in accordance with applicable state and
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federal law. Tenant shall indemnify, defend, protect and hold Landlord
harmless from and against any and all claims, losses, proceedings, damages,
causes of action, liability, costs or expenses (including attorneys' fees)
arising as a result of Tenant breach of this Section 20.c. or the existence,
use, disposal or removal of any Hazardous Materials on or affecting the
Project as a result of the activities of Tenant, or Tenant's agents,
assignees, subtenants, invitees, contractors or suppliers, or any machinery
or equipment used by them in or servicing the Premises.
d. SCOPE OF INDEMNITY. The party indemnifying under this Section
20 ("Indemnifying Party") shall employ counsel reasonably acceptable to the
party indemnified under this Section 20 ("Indemnified Party") to prosecute,
negotiate and defend any claims, actions or causes of action brought under
this Section 20. The Indemnified Party shall not have the right to
compromise or settle any such claim, action, or cause of action without the
Indemnifying Party's consent, except to the extent that such compromise or
settlement does not impose liability directly on the Indemnifying Party
without the Indemnifying Party's right to defend. The Indemnifying Party
shall pay any amounts arising under the indemnity to the Indemnified Party
immediately upon demand by the Indemnified Party, together with interest
thereon at a rate equal to one percent (1%) per annum in excess of the "Prime
Rate" of Wells Fargo Bank, N.A. ("Wells Fargo") in effect at the time the
Indemnified Party advances funds for amounts covered by such indemnity (Wells
Fargo's "Prime Rate" being the interest rate announced by Wells Fargo, in San
Francisco, California, as the base rate of interest for loans or obligations
making reference thereto), but in no event more than the maximum rate
permitted by law. The Indemnifying Party's duty to indemnify the Indemnified
Party under this Section 20 shall survive the expiration or earlier
termination of this Lease.
21. SURRENDER OF PREMISES. On the expiration or early termination of
this Lease with respect to any portion of the Premises, Tenant shall
surrender the portion of the Premises to Landlord in its condition as of the
Commencement Date for the portion thereto, wear and tear, damage or
destruction, condemnation and Alterations which Tenant is not required to
remove pursuant to Section 13 hereof excepted. Tenant shall have the right
to remove from the Premises all of Tenant's personal property and trade
fixtures. In no event shall Tenant have any obligation to remove any cables
or wiring which Tenant (or Landlord) has installed in the Premises so long as
consistent with normal office installation. Tenant shall repair damage or
perform any restoration work required by its removal.
22. ESTOPPEL CERTIFICATE. At any time either party may request an
estoppel certificate, in the form attached hereto as EXHIBIT C, from the
other party. The estoppel certificate, which shall be provided at no cost or
expense to the requesting party, shall be delivered within twenty (20) days
after receipt of a request.
23. SUBORDINATION.
a. SUBORDINATION. Subject to the provisions of Section 23.b.,
this Lease is and sh all be subject and subordinate to all ground leases,
operating leases, superior leases and underlying leases now or hereafter in
effect (each, a "Superior
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Lease"), to all mortgages and deeds of trust which now or hereafter affect
the Project, the Buildings or any ground or underlying leases thereof (each a
"Superior Mortgage"), to all advances made or to be made under any Superior
Mortgage and to all renewals, modifications, consolidations, replacements and
extensions of any Superior Lease or Superior Mortgage. The provisions of
this section shall be automatic and shall not require any further action. In
confirmation of such subordination, Tenant will execute and deliver upon
demand of Landlord any and all instruments desired by Landlord subordinating
this lease to such Superior Lease or Superior Mortgage. Landlord is hereby
irrevocably appointed and authorized as agent and attorney-in-fact of Tenant
to execute and deliver all such subordination instruments in the event Tenant
fails to execute and deliver said instruments within 10 days after notice
from Landlord requesting the execution thereof.
b. RECOGNITION OR ATTORNMENT AGREEMENT. The subordination of
this Lease to any Superior Mortgage or Lease shall be subject to the
fulfillment of the conditions precedent that, subject to the remaining
provisions of this Article 23, the Successor Lessor or Successor Mortgagee
shall have entered into a Non-Disturbance Agreement with Tenant.
c. SUPERIOR LEASES; SUPERIOR MORTGAGES. (i) Tenant agrees that,
at the option of the landlord under any Superior Lease (each a "Lessor"),
Tenant shall attorn to said Lessor in the event of the termination or
cancellation of such Superior Lease or, if requested by said Lessor, enter
into a new lease with said Lessor (or a successor ground lessee designated by
said Lessor) (the Lessor and any designated ground lessee being a "Successor
Lessor") for the balance of the term then remaining hereunder upon the same
terms and conditions as those herein provided.
(ii) Tenant covenants and agrees that, if by reason of
default under any Superior Mortgage, the mortgagee or beneficiary thereunder
(each a "Mortgagee") or its designee or any other person or persons (each
Mortgagee or other person that becomes the owner of the mortgaged property
being a "Successor Mortgagee") enters into and becomes possessed of the said
mortgaged property thereunder either through possession, foreclosure action
or proceeding, deed-in-lieu of foreclosure or otherwise, or in the event of
the sale of the said mortgaged property as a result of any action or
proceeding to foreclose or otherwise to realize upon the security afforded by
such Superior Mortgage, Tenant will attorn to the Successor Mortgagee as its
landlord under this Lease, unless the Successor Mortgagee shall elect to
terminate this Lease and the rights of the tenant hereunder. Any Successor
Lessor and Successor Mortgagee is herein referred to as a "Successor".
(iii) The foregoing provisions of this Section 23.c. shall
inure to the benefit of any Successor, shall apply notwithstanding that, as a
matter of law, this Lease may terminate upon the termination of the Superior
Lease or foreclosure of the Superior Mortgage, as the case may be, shall be
self-operative upon the election of any Successor, and no further instrument
shall be required to give effect to said provisions. Tenant agrees to
execute and deliver, at any time and from time to time, upon the request of
any Successor, instruments, satisfactory to each Successor, which may be
necessary or
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appropriate to evidence and confirm the foregoing provisions of this Section,
acknowledging such attornment and setting forth the terms and conditions of
its tenancy. Tenant hereby appoints the Lessor, Mortgagee or any Successor
the attorney-in-fact, irrevocably, of Tenant to execute and deliver for and
on behalf of Tenant any such instrument. Tenant further waives the
provisions of any statute or rule of law now or hereafter in effect which may
give or purport to give Tenant any right of election to terminate this Lease
or to surrender possession of the Premises in the event any proceeding is
brought by any Mortgagee to foreclose under its Superior Mortgage or by any
Lessor to terminate the Superior Lease, and agrees that unless and until the
Successor, in connection with any such proceeding, shall elect to terminate
this Lease and the rights of Tenant hereunder, this Lease shall not be
affected in any way whatsoever by any such proceeding.
d. DIRECT LEASE. Upon an attornment as set forth in Section
23.c. above, this Lease shall continue in full force and effect as a direct
lease between the Successor and Tenant upon all of the then executory terms
of this Lease except that such Successor shall not be (i) liable for any
previous act, omission or negligence of Landlord under this Lease; (ii)
subject to any counterclaim, defense or offset which theretofore shall have
accrued to Tenant against Landlord; (iii) bound by any previous modification
or amendment of this Lease or by any previous prepayment of more than one
month's rent, unless such modification or prepayment shall have been approved
in writing by the Lessor or the Mortgagee through or by reason of which the
Successor shall have succeeded to the rights of Landlord under this Lease;
(iv) liable for any security deposited pursuant to this Lease unless such
security has actually been delivered to the Successor; (v) obligated to
repair the Premises or the Building or any part thereof in the event of total
or substantial damage or partial condemnation, beyond such repair as can
reasonably be accomplished from the net proceeds of insurance or condemnation
award actually made available to the Successor or (vi) obligated to perform
any Landlord's work or other Alterations.
e. RIGHT TO CURE. If any act or omission by Landlord would give
Tenant the right, immediately or after lapse of time, to cancel or terminate
this Lease or to claim a partial or total eviction, abatement of rent, setoff
or counterclaim, Tenant will not exercise any such right until (i) it has
given written notice of such act or omission to each Lessor and Mortgagee
whose name and address shall have previously been furnished to Tenant and
(ii) a reasonable period for remedying such act or omission shall have
elapsed following such giving of notice and following the time when such
Lessor or Mortgagee shall have become entitled under the applicable Superior
Lease or Superior Mortgage as the case may be, to remedy the same (which
shall in no event be less than the period to which Landlord would be entitled
under this Lease to effect such remedy).
24. WARRANTIES OF LANDLORD; QUIET ENJOYMENT.
a. WARRANTIES OF LANDLORD. Landlord represents and warrants to
Tenant that there are no agreements, restrictions, covenants, encumbrances or
easements which will increase any of Tenant's obligations under this Lease or
diminish any of Tenant's rights hereunder. In addition, Landlord warrants
that it shall not allow any
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portion of the real property within and adjoining the Project (over which
Landlord has any control) to be used for any purposes which would detract
from the desirability of the Project to Tenant.
b. QUIET ENJOYMENT. Landlord covenants with Tenant that, during
the periods that no Events of Default on the part of Tenant are outstanding,
(i) Tenant shall and may peaceably and quietly have, hold and enjoy the
Premises and Common Areas for the Term; (ii) neither Landlord, nor any party
claiming under or through Landlord, shall disturb Tenant's quiet enjoyment of
the Premises or Common Areas; and (iii) Landlord shall defend Tenant's right
to such quiet enjoyment. Landlord shall defend, indemnify and hold Tenant
harmless from and against all losses and damages that arise as a result of a
breach of Landlord's covenant under this Section.
25. HOLDING OVER. If Tenant holds over and retains and fails to
deliver possession of the Premises or any part thereof after the expiration
or earlier termination of this Lease, the parties agree that the damage to
Landlord will be substantial and impossible to measure accurately. Tenant
therefore, at the option of Landlord, shall pay as monthly Rent a sum equal
to 125% of the amount of all Rent and any other charges hereunder payable
during the last month of the Term, computed on a daily basis for each day
that Tenant remains in possession. In addition thereto, Tenant shall be
liable for and shall pay to Landlord all damages, consequential as well as
direct, sustained by reason of Tenant's holding over and hereby indemnifies
Landlord from and against liability resulting from delay by Tenant in so
surrendering the Premises, including (a) any claims made by any succeeding
tenant or prospective tenant founded upon such delay, (b) any payment or rent
concession which Landlord may be required to make to any succeeding or
prospective tenant for all or any part of the Premises in order to induce
such tenant not to terminate its lease or its negotiation therefor by reason
of Tenant's delay in so surrendering the Premises and (c) any loss suffered
if a succeeding or prospective tenant shall terminate its lease or not
proceed to execute and deliver its lease by reason of Tenant's delay in so
surrendering the Premises. Nothing herein contained shall be deemed to
permit Tenant to remain in possession of the Premises after the expiration or
sooner termination of the Term of this Lease.
26. RECORDING. Within thirty (30) days after the date hereof, a
memorandum of this Lease in the form attached hereto as EXHIBIT E shall be
signed by Landlord and Tenant (with their signatures notarized) and recorded
in the Official Records of Santa Clara County.
27. ATTORNEYS' FEES. If either party shall bring any action or legal
proceeding for damages for an alleged breach of any provision of this Lease,
to enforce, protect or establish any term, condition or covenant of this
Lease, or otherwise to establish the rights of the parties, the prevailing
party shall be entitled to recover, as a part of the action or proceedings,
or in a separate action brought for that purpose, reasonable attorneys' fees
and court costs as may be fixed by the court or jury.
28. BROKERS. Landlord and Tenant each warrants and represents for the
benefit of the other that it has had no dealings with any real estate broker
or agent in connection
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with the negotiation of this Lease and that it knows of no other real estate
broker or agent who is or might be entitled to a real estate brokerage
commission or finder's fee in connection with this Lease. Each party shall
indemnify and hold harmless the other from and against any and all
liabilities or expenses arising out of claims made by any broker or
individual for commissions or fees resulting from the actions of the
indemnifying party in connection with this Lease.
29. PARKING.
a. TENANT'S RESERVED PARKING SPACES. Tenant, at no additional
cost (except to the extent covered in the Operating Expenses), shall have the
exclusive use of the reserved parking spaces within the Project ("Reserved
Parking Spaces") which are at the locations shown on EXHIBIT A. At Tenant's
request and at no cost to Tenant, Landlord shall use best efforts to ensure
Tenant's exclusive use of the Reserved Parking Spaces and shall construct
signs or otherwise mark Tenant's Reserved Parking Spaces to state that they
are for Tenant's exclusive use.
b. UNRESERVED PARKING SPACES. Tenant, at no additional cost
(except to the extent covered in the Operating Expenses), shall have the use
of unreserved parking spaces within the Project ("Unreserved Parking Spaces")
to the extent that the total of all Reserved Parking Spaces and Unreserved
Parking Spaces shall afford Tenant use of parking spaces at an aggregate
ratio of four (4) parking spaces for each one thousand (1,000) rentable
square feet of the Premises. The Unreserved Parking Spaces shall be within
the locations shown on EXHIBIT A. Tenant shall have the use of the
Unreserved Parking Spaces, in common with other tenants of the Building, upon
such reasonable terms and conditions as may from time to time be established
by Landlord.
c. COMPLIANCE OF PARKING LAWS AND REGULATIONS. Landlord shall
maintain all parking areas in first class condition, including striping,
security, lighting, and repair. Landlord represents and warrants that
throughout the Term the parking spaces Landlord provides to Tenant shall
comply with all applicable laws and regulations and that they shall be
sufficient in number to meet all requirements under applicable parking laws
and regulations. Tenant's use of the parking spaces shall be in compliance
with and Tenant agrees to comply with all such laws and regulations and any
rules and regulations promulgated by Landlord, so long as such rules and
regulations are applied in a uniform and non-discriminatory manner.
d. NO CHARGE. There shall be no charge (except to the extent
covered in the Operating Expenses) for any portion of the parking facilities
(E.G., there shall be no charge for either the Reserved Parking Spaces or the
Unreserved Parking Spaces), unless and to the extent of charges imposed by
applicable governmental authorities after the Commencement Date.
30. NOTICES. Any notice or demand required or desired to be given
under this Lease shall be in writing and shall be given by hand delivery,
electronic mail (E.G., facsimile) or the United States mail. Notices which
are sent by electronic mail shall be deemed to
38
<PAGE>
have been given upon receipt. Notices which are mailed shall be deemed to
have been given when seventy-two (72) hours have elapsed after the notice was
deposited in the United States mail, registered or certified, the postage
prepaid, addressed to the party to be served. As of the date of execution of
this Lease, the addresses of Landlord and Tenant are those specified in the
Basic Lease Information. Either party may change its address to another
location or locations within the United States by giving notice of the change
in accordance with this Section.
31. TRANSFER OF TITLE. Landlord shall deliver notice to Tenant within
ten (10) days after a transfer of title of all or any portion of the Project.
Tenant shall not be obligated to deliver the Rent or otherwise fulfill any
other obligations under this Lease to the transferee until Tenant has
received a (conformed) copy of the recorded deed transferring title to the
Project to the transferee.
32. GENERAL
a. CAPTIONS. The captions and headings used in this Lease are
for the purpose of convenience only and shall not be construed to limit or
extend the meaning of any part of this Lease.
b. TIME. Time is of the essence for the performance of each
term, condition and covenant of this Lease.
c. SEVERABILITY. If any provision of this Lease is held to be
invalid, illegal or unenforceable, the invalidity, illegality, or
unenforceability shall not affect any other provision of this Lease, but this
Lease shall be construed as if the invalid, illegal or unenforceable
provision had not be contained herein.
d. CHOICE OF LAW; CONSTRUCTION. This Lease shall be construed
and enforced in accordance with the laws of the State of California. The
language in all parts of this Lease shall in all cases be construed as a
whole according to its fair meaning and not strictly for or against either
Landlord or Tenant. For the purposes of this Lease and all agreements
supplemental to this Lease, unless the context otherwise requires:
1. The terms "include", "including" and "such as" shall be
construed as if followed by the phrase "without being limited to".
The words "herein", "hereof", "hereby", "hereunder" and words of
similar import shall be construed to refer to this Lease as a whole
and not to any particular Article or Section unless expressly so
stated.
2. The term "law" or "legal requirements" shall mean all
laws, statutes, ordinances (including building codes and zoning
regulations and ordinances), orders, rules, regulations, directives
and requirements of, and the provisions of all licenses, permits
(special or otherwise), approvals and certificates issued by, all
governmental authorities, whether now or hereafter in force, and
all requirements, obligations and conditions of all instruments of
record, in each case to the extent applicable to the Project or the
Premises or any part thereof or the sidewalks, curbs or areas
adjacent or appurtenant thereto. The
39
<PAGE>
term "law" or "legal requirements" includes legal requirements
relating to the environment.
3. The term "governmental authorities" shall mean all
federal, state, county, city and municipal governments, all
political subdivisions thereof and all agencies, boards, bureaus,
commissions, departments, offices and instrumentalities of any of
the foregoing, and any officials thereof, and any other
governmental, public or quasi-public authorities, now existing or
hereafter created, having jurisdiction or affecting the Project or
the Premises.
4. The term "agents" of any person described in this Lease
shall include all agents, contractors, subcontractors, affiliates,
servants, employees, invitees and licensees of such person, and the
agents of such agents.
5. The words "Tenant hereby indemnifies Landlord against
liability" and words of like import shall mean that Tenant hereby
agrees to and hereby does indemnify and hold and save harmless
Landlord, the Lessor, the Mortgagee and the irrespective agents,
from and against any and all loss, cost, liability, claim, damage,
fine, penalty and expense, including reasonable attorneys' fees and
disbursements, but the same shall not be construed as indemnifying
any of the foregoing named persons for liability to Tenant arising
out of the negligence or tortious acts of such person.
6. The necessary grammatical changes required to make the
provisions of this Lease apply in the plural sense where there is
more than one tenant and to either corporations, associations,
partnerships or individuals, males or females, shall in all
instances be assumed as though fully expressed. If there is more
than one person or entity who or which are Tenant under this Lease,
the obligations imposed upon Tenant under this Lease shall be joint
and several. The relationship between Landlord and Tenant created
hereunder shall be that of lessor and lessee and nothing herein
shall be construed as creating any joint venture or partnership.
7. The rule of "ejusdem generis" shall not be applicable to
limit a general statement following or referrable to an enumeration
of specific matters to matters similar to the matters specifically
mentioned.
8. Each of the terms of this Lease to be performed shall be
deemed and construed as a separate and independent covenant of the
person obligated to perform the same, not dependent upon any of the
other terms of this Lease. This Lease shall be construed without
regard to any presumption or other rule requiring construction
against the party causing this Lease to be drafted.
9. The various terms which are 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
40
<PAGE>
and all agreements supplemental hereto, nless the context clearly
indicates the contrary.
10. The Article headings or other captions in this Lease and
the Table of Contents to this Lease are inserted only as a matter
of convenience or reference, and are not to be given any effect in
construing this Lease.
e. GENDER; SINGULAR, PLURAL. When the context of this Lease
requires, the neuter gender includes the masculine, the feminine, a
partnership, a corporation, or a joint venture, and the singular includes the
plural.
f. BINDING EFFECT. The covenants and agreements contained in
this Lease shall be binding on the parties hereto and on their respective
successors and assigns.
g. ENTIRE AGREEMENT. This Lease is the entire agreement between
the parties, and there are no agreements or representations between the
parties except as expressed herein. Except as otherwise provided herein, no
subsequent change or addition to this Lease shall be binding unless in
writing and signed by the parties hereto.
h. COUNTERPARTS. This Lease may be executed in counterparts,
each of which shall be an original, but all counterparts shall constitute one
instrument.
i. EXHIBITS. The Basic Lease Information and all Exhibits
attached hereto are hereby incorporated herein and made an integral part
hereof.
j. DEFINITION OF LANDLORD. The term "Landlord" shall mean only
the owner at the time in question of the present landlord's interest in the
Project and the Buildings and in the event of a transfer or transfers (by
operation of law or otherwise) of the Project or the Buildings or a lease of
all or substantially all of the Project and the Buildings, or a transfer or
transfers (by operation of law or otherwise) of the leasehold estate under
any such lease, the transferor or lessor, as the case may be, shall be and
hereby is automatically and entirely released and discharged, from and after
the date of such transfer or leasing, of all liability in respect of any
covenant and obligation under and the performance of any of the terms of this
Lease on the part of Landlord thereafter to be performed; and the transferee
or lessee shall be deemed to have assumed and agreed to perform, subject to
the limitations of this Section and Sections 23 and 32.k. (and without
further agreement), all of the terms of this Lease on the part of Landlord to
be performed during its period of ownership.
k. EXCULPATORY CLAUSE. Tenant shall look solely to Landlord's
estate and interest in the Project and the Buildings for the satisfaction of
any right of Tenant for the collection of a judgment or other judicial
process or arbitration award requiring the payment of money by Landlord and
no other property or assets of Landlord or Landlord's agents shall be subject
to levy, lien, execution, attachment, or other enforcement procedure for the
satisfaction of Tenant's rights and remedies under or with respect to this
Lease, the relationship of Landlord and Tenant hereunder or under law, or
Tenant's use and occupancy of the Premises or any other liability of Landlord
to Tenant.
41
<PAGE>
l. FORCE MAJEURE. In the event Landlord shall be delayed or
hindered in or prevented from the performance of any act required hereunder
by reason of strikes, lock-outs, labor troubles, inability to procure
materials, failure of power, restrictive governmental laws or regulations,
riots, insurrection, war or other reason of a like nature beyond the
reasonable control of Landlord ("Force Majeure"), then performance of such
act shall be extended for a period equivalent to the period of such delay.
IN WITNESS WHEREOF, the parties have executed this Lease, on the date(s)
set forth below.
"Landlord": "Tenant":
WYSE TECHNOLOGY INVESTMENTS, INC., WYSE TECHNOLOGY, INC.,
a California corporation a Delaware corporation
By: /s/ GARY ANDERSON By: /s/ GLORIA WAHL
---------------------------- --------------------------------
Name: Gary Anderson Name: Gloria Wahl
Title: Vice President Title: Treasurer
Date: March 19, 1993 Date: March 19, 1993
-------------------------- ------------------------------
42
<PAGE>
EXHIBIT A
Legal Description of Real Property; Floor Plan for Buildings; Calculation of
Total Rentable and Useable Square Footage for each Building and the Project;
and Site Plan of the Project
<PAGE>
EXHIBIT B-1
SUMMARY OF OPERATING EXPENSE
To include:
(1) Summary of Project Operating Expenses for 1990 and 1991;
(2) Estimate of Project Operating Expenses for 1992 and 1993;
(3) Summary of Building Operating Expenses for 1990 and 1991,
segregated for Building 1, Building 2, and Building 3; and
(4) Estimate of Building Operating Expenses (and Tenant's
Percentage Share of the Building Operating Expenses) for 1992
and 1993, segregated for Building 1, Building 2, and
Building 3.
<PAGE>
EXHIBIT B-2
SUMMARY OF AMENITIES EXPENSES
To include:
(1) Summary of Amenities Expenses for 1990 and 1991
(2) Estimate of Amenities Expenses for 1992 and 1993
<PAGE>
EXHIBIT C
ESTOPPEL CERTIFICATE
- -------------------
- -------------------
- -------------------
Re: Lease dated March __, 1992 ("Lease") by and between
_______________ _____________ ("Landlord") and
______________________ ("Tenant").
Gentlemen:
Reference is made to the above-described Lease in which the undersigned is
the Tenant. The undersigned hereby acknowledges that:
1. A true and correct copy of the Lease is attached hereto as EXHIBIT 1.
2. There are no modifications, amendments, supplements, arrangements
or side letters modifying, amending, altering, supplementing or changing the
terms of the Lease except as follows: ________________________________________.
3. The Lease is in full force and effect, and the Lease has been duly
executed and delivered by the Tenant.
4. The undersigned acknowledges that (a) Rent on the Lease has been paid
up to and including 19__ (b) Monthly Base Rent during the ____________ (__) year
of the term of the Lease is _________________ Dollars ____________ and (c) Rent
has not been paid for any period after _____________ 19__.
5. Tenant is not aware of any outstanding default under the Lease except:
_____________________________________________________________________.
Dated: _____________, 19__ Very truly yours,
"Tenant"
__________________________,
a ________________________
By: ______________________
Its:______________________
<PAGE>
EXHIBIT D
LANDLORD'S NORMAL BUSINESS HOURS FOR OPERATION OF HVAC
Supply fans provide air circulation for heating, cooling and outside air
according to the following schedule:
SITE DAYS SCHEDULED
Building 2 Monday-Friday 5:30am-7:30pm
Saturday 8:00am-5:00pm
Sunday Off
Cafeteria Monday-Friday 5:30am-3:00pm
Saturday/Sunday Off
Health Club Monday-Friday 10:00am-8:00pm
Saturday/Sunday Off
Boiler On constantly Turned on 9/27/90
during winter
Chiller: Provides
chilled water for Monday-Friday 6:30am-9:00pm
all Buildings: Saturday 8:00am-7:00pm
Sunday 9:00am-7:00pm
[Building 3?]
<PAGE>
EXHIBIT E
MEMORANDUM OF LEASE
<PAGE>
EXHIBIT F
TENANT INSURANCE REQUIREMENTS
(a) Commercial General Liability Insurance to afford protection against
any liability for bodily injury, death or property damage occurring in, upon,
adjacent to or in connection with the Premises, in such amount as Landlord
may determine and in no event less than $5,000,000 with respect to bodily
injury, death or property damage arising out of any one occurrence and not
less than $5,000,000 from the aggregate of all such occurrences within each
policy year. This policy shall include (i) coverage for contractual
liability (including the matters set forth in Section 9 hereof), owner's
protective liability, independent contractor's liability and completed
operations liability and (ii) a provision that said aggregate limit shall
apply separately at the Premises and that said insurer will provide notice to
Landlord if said aggregate is reduced by either payments of a claim or the
establishment of reserves for claims if said payments or reserves exceed
$250,000. Tenant agrees that if said aggregate limit applied to the Premises
is reduced by the payment of a claim or the establishment of a reserve to
take all practical immediate action to have the aggregate limit restored by
endorsement to the existing policy or the purchase of an additional insurance
policy complying with these requirements;
(b) Insurance upon the Premises (other than the basic Buildings but
including all Alterations thereto and all furniture, furnishings, fixtures
and equipment thereon) in an amount equal to the full replacement value
thereof (including an "agreed amount" endorsement), including any increase in
value resulting from increased costs, with coverage against such perils and
casualties as are commonly included in "all risk" insurance policies
(including breakage of glass within the Premises, sprinkler leakage and
collapse);
(c) Broad Form Boiler and Machinery Insurance on all air conditioning
equipment, electrical apparatus, boilers and other pressure vessels or
systems, whether fired or unfired, installed by Tenant (or by Landlord, at
Tenant's expense) in or near the Premises, either as part of the extended
coverage insurance mentioned in clause (b) above or in amounts set by
Landlord, but in no event less than $1,000,000;
(d) During the course of construction of any Alterations (including
under the Exhibit C or in connection with the preparation of the Premises for
occupancy) by Tenant in the Premises and until completion thereof, Builder's
Risk Insurance on an "all risk" basis (including collapse) on a completed
value (non-reporting) form for full replacement value covering the interests
of Landlord and Tenant (and their respective contractors and subcontractors),
and any Lessor or Mortgagee in all work incorporated in the Building and all
materials and equipment in or about the Premises;
(e) Workers' Compensation Insurance, as required by law;
<PAGE>
(f) Loss of income and business interruption insurance in such
amounts as will reimburse Tenant for direct and indirect loss of earnings
attributable to all perils commonly insured against by prudent tenants or
attributable to prevention of access to the Premises or to the Building as a
result of such perils; and
(g) Such other insurance in such amounts as Landlord or any Lessor or
Mortgagee may reasonably require from time to time.
<PAGE>
EXHIBIT G
SPECIFICATIONS FOR UTILITIES AND SERVICES
<PAGE>
PURCHASE AGREEMENT
ALTIUM TECHNOLOGY
JANUARY 15, 1998
MICROELECTRONICS TECHNOLOGY INC.
HSINCHU SCIENCE-BASED INDUSTRIAL PARK
HSINCHU 30077 TAIWAN, R.O.C
ATTN.: ALLEN YEN, VICE PRESIDENT OF SALES
CHRIS PAN, ORDER ADMINISTRATOR MANAGER
PAUL CHAO, PRESIDENT AND CEO, OPTICAL MICROWAVE NETWORKS, INC.
Mr. Yen, Ms. Pan and Mr. Chao:
This memo serves to document the requirements and agreements between Digital
Microwave Corporation (DMC) and Microelectronics Technology Inc. (MTI).
1. Upon MTI's acceptance of this letter by signing, and returning one copy
to DMC, MTI is directed to proceed at once to commence activities per
the Statement of Work described in EXHIBIT A. DMC is requesting MTI to
assemble [*] ([*]) Beta units and manufacture [*] ([*]) full production
[*] GHz Out-Door Units per technical documentation provided by DMC. In
addition to the Work related to the [*] GHz ODU assembly and associated
sub-assemblies, this agreement also serves to cover design, development
and production of other frequency bands defined in EXHIBIT C.
2. Based on the completion of each task of [*] GHz in the Statement of Work
in EXHIBIT A, Beta delivery will be per the MTI quotation number
97120902 dated December 9, 1997. Delivery will be [*] beta units by [*]
and [*] beta units by [*]. The configuration and frequency information
of the beta units is given in EXHIBIT E.
3. Notwithstanding any provision herein to the contrary, MTI may not expend
or commit in the aggregate, for production material a sum exceeding $[*]
and DMC shall not in any event be obligated to reimburse MTI for Work
performed hereunder for any amount in excess of said sum unless further
authorization is granted by DMC in writing.
4. MTI shall be paid for performance of the Work hereunder upon delivery of
product as set forth in EXHIBIT A, attached hereto, DMC may terminate
the Work for just cause on a ([*]) day written notice and MTI shall
immediately stop performance of the Work and not incur further charges.
DMC shall make any payment due to MTI for Work performed and material
expenses MTI incurred or
- -----------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
committed to its vendors for completion of the Altium program up until
the time of termination in an amount commensurate with the actual Work
performed for a particular milestone.
5. Digital Microwave Corporation will issue a fixed price purchase order in
the estimated amount of $[*] for [*] ([*] ) production [*] Ghz Out Door
Units and [*] ([*]) [*] GHz Out Door beta units before January 16,1998.
The price per unit is given in EXHIBIT D. The production units will be
delivered over a [*] period per a schedule to be developed by [*] and is
expected to be approximately [*] protected and [*] non protected units.
This schedule will also provide configuration and frequency requirements
for the production units. Both parties acknowledge that such contract
must be accepted by both DMC and MTI. No such acceptance is implied by
this letter of agreement. All sales are subject to the DMC terms and
conditions as noted in EXHIBIT B. Any further changes by DMC to the
design, specification, or test requirements which impact material cost
or labor time standards shall initiate discussion to re-negotiate the
unit price. The balance of product for other frequency bands to be
negotiated no later than [*] under a separate letter of agreement.
6. Standard Terms and Conditions of Purchase set forth is [*], any
reference in said terms and Conditions of Purchase to adjustment in
prices or delivery schedule shall be inapplicable and no changes to this
letter shall be deemed to increase MTI's authorization to expend funds
and to make commitments hereunder unless expressly so stated in any such
change.
7. The purchase order shall include the Terms and Conditions of Purchase
set forth in EXHIBIT B, and the delivery schedule, prices and any
additional provisions that the parties agree upon.
8. It is understood that fabrication of Beta assemblies and modules is to
commence prior to completion of the Alpha phase. DMC shall pay for any
excess material in the event of design changes implemented after the
start of fabrication or assembly, which render the assembly scrap
including effected production material.
9. In the event of termination of this agreement, per paragraph 4 above,
DMC shall pay MTI for all Work performed up to the date of notice of
such termination on a time and material basis (including overhead and
G&A at a reasonable and customary rate), MTI shall submit all financial
data required for DMC to verify charges. MTI acknowledges that in no
event shall DMC be responsible to MTI for any payments in excess of the
not-to-exceed amount set forth in Paragraph 3. Upon such payment, MTI
shall turn over to DMC all Work performed by MTI up to the date of
termination. All Work prepared under this agreement shall be deemed a
"Work made for hire" under the United States copyright laws. In the
event that, notwithstanding the foregoing, title to and ownership of the
Work initially vests in MTI, MTI agrees to execute, at DMC's request,
all documents
- ---------------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
that are necessary to transfer and assign all such title and ownership
of the Work to DMC, except Work that is not unique to Altium. MTI
ownership includes, but is not limited to: filters, modules and circuits
MTI developed either for Altium application or other applications, and
associated process drawings which are not specified in DMC's PSD.
10. Both parties warrant that Work to be performed under this agreement
letter shall be performed in a professional manner by qualified
personnel. DMC and MTI agree that the full cooperation of both
companies is necessary to enable the Work to meet its scheduled
timetable.
Please signify your concurrence with this agreement by signing in the space
provided below and returning the signed original to me.
Very truly yours,
DIGITAL MICROWAVE CORPORATION
/s/ Gary G. Lopes 1-19-98
- --------------------------------------------------
By: Gary G. Lopes
Title: Manager, Altium Product for DIGITAL MICROWAVE CORPORATION
Accepted this day (date) January 19, 1998
-------------------------
MICROELECTRONICS TECHNOLOGY INC.
/s/ Allen Yen 1-19-98
- --------------------------------------------------
By: Allen Yen
Title: Vice President of Sales for MICROELECTRONICS TECHNOLOGY INC.
<PAGE>
EXHIBIT A:
STATEMENT OF WORK
DMC and MTI shall participate in a joint effort to design and develop the Altium
ODU assembly for various frequency bands with the intention of MTI being an ODU
manufacturer. The top level ODU design, as well as several key modules ([*] and
[*]) will be designed by DMC with MTI's participation to ensure
manufacturability to MTI design/manufacturing standards. Other modules will be
specified by DMC and wholly designed and developed by MTI ([*] and [*]). After
development of the [*] GHz product, MTI will assume full responsibility for
design and development of all applicable modules.
DESIGN PHASE
The key tasks and responsibilities are:
[*]
ALPHA PHASE
DMC and MTI shall participate in a joint effort to develop the design into
prototype modules and ODU assemblies for various frequency bands. The key
tasks and responsibilities are:
[*]
ALPHA PHASE DELIVERABLES
[*]
- --------------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSIONS.
<PAGE>
BETA PHASE
DMC and MTI shall participate in a joint effort to develop the prototype
design into pre-production ODU assemblies for various frequency bands. The
key tasks and responsibilities are:
[*]
BETA PHASE DELIVERABLES
[*] [*] GHz ODU, built and tested per DMC provided documentation.
Configuration and frequency requirements listed in EXHIBIT E.
Pricing is as defined in EXHIBIT D. Additional bands will be priced as
specifications and drawings are released by DMC.
PRODUCTION DELIVERABLES
[*] complete and tested [*] GHz Out Door Units per DMC documentation.
- -----------------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
EXHIBIT B:
TERMS AND CONDITIONS OF PURCHASE
Alpha, payment will be [*] per set price.
Beta, payment will be [*] per set price.
Production, payment will be [*] per set price.
1. ACCEPTANCE. ACCEPTANCE OF THIS ORDER BY SELLER IS EXPRESSLY LIMITED TO THE
TERMS AND CONDITIONS CONTAINED IN THIS ORDER. ANY TERM OR CONDITION STATED BY
THE SELLER IN ANY PRIOR PROPOSAL, ON SELLER'S ACKNOWLEDGMENT FORM, OR IN
OTHERWISE ACKNOWLEDGING OR ACCEPTING THIS ORDER IS DEEMED BY BUYER TO BE A
MATERIAL ALTERATION OF THIS ORDER AND IS HEREBY OBJECTED TO BY BUYER. ANY SUCH
TERM OR CONDITION SHALL BE TOTALLY INAPPLICABLE TO THIS ORDER UNLESS
SPECIFICALLY AGREED TO IN A WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF
BUYER. ACCEPTANCE OF THE GOODS OR SERVICES COVERED BY THIS ORDER WILL NOT
CONSTITUTE ACCEPTANCE BY BUYER OF SELLER'S TERMS AND CONDITIONS. ANY OF THE
FOLLOWING ACTS BY SELLER SHALL CONSTITUTE ACCEPTANCE OF THIS ORDER AND ALL OF
ITS TERMS AND CONDITIONS: SIGNING AND RETURNING A COPY OF THIS ORDER; DELIVERY
OF ANY OF THE GOODS ORDERED; INFORMING THE BUYER IN ANY MANNER OF COMMENCEMENT
OF PERFORMANCE; OR RETURNING SELLER'S OWN FORM OF ACKNOWLEDGMENT.
2. PRICES. Seller warrants that the prices to be charged for products or
services identified on the face hereof are not in excess of prices charged to
other customers for similar quantities and delivery requirements. In the event
of any price reductions during the effective period covered by this order which
apply to similar products or services, such price reductions shall automatically
reduce the unit price of the unshipped products or services not yet rendered by
a comparable percentage at the time of the price reduction.
3. INVOICES. Payment of invoices shall not constitute acceptance of the
product and shall be subject to adjustment for errors, shortages, defects in the
product or other failure of Seller to meet the requirements of the order. Buyer
may at any time set off any amount owed by Buyer to Seller against any amount
owed by Seller or any of its affiliated companies to Buyer.
4. TAXES. Unless otherwise specified, the prices set forth in this order
include all applicable federal, state, and local taxes. All such taxes shall be
stated separately on Seller's invoice. Duty and taxes on all foreign procured
material is buyer's responsibility.
5. OVERSHIPMENTS. Buyer will pay only for maximum quantities ordered.
Overshipments will be held at Seller's risk and expense for a reasonable time
awaiting shipping instructions. Return shipping charges for excess quantities
will be at Seller's expense.
6. PACKING AND SHIPPING. Unless otherwise specified, all products shall be
packed, packaged, marked and otherwise prepared for shipment in a manner which
is: (i) in accordance with good commercial practice, (ii) acceptable to common
carriers for shipment at the lowest rate for the particular product and in
accordance with all governmental regulations
<PAGE>
and (iii) adequate to insure safe arrival of the product at the named
destination and for storage and protection against weather. An itemized packing
sheet must accompany each shipment unless otherwise specified.
7. F.O.B. POINT. Unless otherwise specifically provided on the face of the
purchase order, the product called for hereunder shall be delivered on an
F.O.B. sellers facility.
8. RESPONSIBILITY FOR SUPPLIES. Notwithstanding any prior inspections and
irrespective of the F.O.B. point specified by Buyer, the Seller shall bear all
risk of loss, damage, or destruction to the products called for hereunder until
final acceptance by Buyer at destination. Further, the Seller shall also bear
the same risks with respect to any products rejected by Buyer, provided,
however, that in either case the Buyer shall be responsible for any loss
occasioned by the gross negligence of its employees acting within the scope of
their employment.
9. WARRANTY. Seller warrants that all supplies delivered hereunder shall be
free from defects in Workmanship, material and manufacture for [*] months from
the sellers ship date and shall comply with the requirements of this contract,
including any drawings or specifications incorporated herein or samples
furnished by Seller; and, where design is Seller's responsibility, be free from
defects in design. Seller further warrants all supplies purchased hereunder
shall be of merchantable quality and shall be fit and suitable for the purposes
intended by Buyer. The foregoing warranties shall constitute conditions and are
in addition to all other warranties, whether expressed or implied, and shall
survive delivery, inspection, acceptance and payment. If any products delivered
hereunder do not meet the warranties specified herein or otherwise applicable,
Buyer may at its election (i) require the Seller to promptly correct, at no cost
to Buyer, any defective or nonconforming products by repair or replacement, at
the location as specified by Buyer, or (ii) return such defective or
nonconforming products at Seller's expense to the Seller, and recover from the
Seller the order price thereof. The foregoing remedies are in addition to all
other remedies at law in equity or under this order, for damages or otherwise
and shall be deemed to be exclusive. Buyer's approval of the Seller's product
or design shall not relieve Seller of the warranties set forth in this clause.
The provisions of this clause shall not limit or effect the rights of Buyer
under the clause hereof entitled Inspection.
Seller shall have no responsibility or obligation to Buyer under warranty claims
with respect to Products that have been subjected to abuse, misuse accident, act
of God, alteration, neglect, or unauthorized repair.
10. INSPECTION. All products purchased hereunder shall be subject to
inspection and test by Buyer to the extent practicable at all times and places
during and after the period of manufacture and in any event prior to final
acceptance. In case any product is defective in material or Workmanship, or
otherwise not in conformity with the requirements of this order, Buyer shall
have the right either to reject it, require its correction, or conditionally
accept it. Buyer reserves the right to return such conditionally accepted
products for credit, within [*] ([*]) working days after receipt in the event
that Buyer determines that such products are unsuitable for its purpose. Any
product which has been rejected or required to be corrected shall be replaced or
corrected by and at the expense of the Seller promptly after notice. If, after
being requested by Buyer, the Seller fails to promptly replace or correct any
defective
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<PAGE>
product within the delivery schedule Buyer may (i) at its option, by contract or
otherwise replace or correct such product and charge the Seller the cost
occasioned thereby or (ii) without further notice terminate this order for
default in accordance with the clause herein entitled "Termination for Default"
or (iii) may utilize the defective product and require an appropriate reduction
in price. Notwithstanding any prior inspection or payment hereunder, all
products shall also be subject to final inspection and acceptance at Buyer's
plant within a reasonable time after delivery. If buyer does not provide Seller
with written notice within [*] ([*]) working days, the product will be presumed
to have been accepted.
11. CHANGES IN PROCESS OR METHOD OF MANUFACTURING. Seller agrees that it will
not make changes in the process or method of manufacturing during the term of
this purchase order without Buyer's written consent. Seller further agrees that
any contemplated changes in process or method of manufacturing will be submitted
to Buyer in sufficient time to enable Buyer a reasonable opportunity in which to
evaluate such changes.
12. CHANGES. The Buyer may at any time by written order, and without notice to
sureties or assignees, suspend performance hereunder, increase or decrease the
ordered quantity or make changes in the applicable drawings, designs or
specification, the method of shipment or packing, and/or place of delivery. If
any such change causes an increase or decrease in the cost of or the time
required for performance of this order, an equitable adjustment shall be made in
the order price or delivery schedule or both, and the order shall be modified in
writing accordingly. However, nothing in this clause shall excuse Seller from
proceeding with the order as changed or amended.
13. TERMINATION FOR DEFAULT. It is understood and agreed that time is of the
essence under this order or any extension thereof effected by any change order.
Buyer may by written notice terminate this order in whole or in part if the
Seller fails (i) to make delivery of the product or to perform the service
within the time specified herein, or (ii) to replace or correct defective
products in accordance with the provision of those clauses hereof entitled
"Warranty" and "Inspection" or, (iii) to perform any of the provisions of this
order or to so fail to make progress as to endanger performance in accordance
with the terms hereof, including delivery schedules, or (iv) if Seller becomes
insolvent, admits in writing its inability to pay its debts as they mature,
files a voluntary petition to bankruptcy, makes an assignment for the benefit of
creditors or if a petition under bankruptcy is filed against it. In the event
of termination pursuant to this clause, Buyer may procure upon such terms and in
such manner as Buyer may deem appropriate, products and services similar or
substantially similar to those so terminated and Seller shall be liable to Buyer
for any excess costs occasioned Buyer thereby. If Buyer issues a notice of
termination for default, and it is subsequently determined that Buyer's
termination under this clause is inappropriate, the termination shall be deemed
by Buyer and Seller to have been originally issued under the clause entitled
Termination for Convenience.
14. TERMINATION FOR CONVENIENCE. Buyer may terminate Work under this purchase
order in whole or part at any time by the giving of written notice to Seller
specifying the extent to which performance of Work is terminated. After such
notice the Seller shall stop Work under this order, and within [*] ([*]) days
after such notice, the Seller shall submit to Buyer its written termination
claim. Failure of the Seller to submit its termination claim as provided herein
shall constitute an unconditional and absolute waiver by the Seller of any claim
arising
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from the Buyer's notice termination. Seller shall reasonably assess its claim
to determine whether or not such items may be used by Seller for the manufacture
of associated products or diverted for any other purpose and to correspondingly
reduce its termination claim by the value of such items. When settlement has
been made title to any such items determined not usable by Seller and charged to
Buyer in the termination claim shall vest in Buyer upon payment of the claim and
forthwith be delivered to Buyer at Buyer's expense, under Buyer's shipping
instructions. In no event shall Seller be entitled to incidental or
consequential damages, costs of preparing claims, attorney's fees, cost of
tooling or equipment sales or agent's commissions. Buyer reserves the right to
verify claims hereunder and Seller shall make available to Buyer upon its
request with reasonable notice, all relevant books, records, inventories and
facilities for its inspection and audit. In the event Seller fails to
reasonably afford Buyer its right hereunder then Seller shall be deemed to have
relinquished its claim asserted under the provisions of this clause.
15. PATENT INDEMNITY. Seller represents and warrants that (i) it has the right
to disclose or use, without liability to others, all subject matter, including
ideas, inventions, creations, Works, processes, designs and methods that Seller
will disclose or use in its performance of this order; (ii) the products, and
Buyer's use thereof, do not and will not infringe any patent, copyright, trade
secret, mask Work right, or other proprietary right of others; and (iii) in
connection with its performance under this order, Seller will not infringe any
patent, copyright, trade secret, mask Work right, or any other proprietary right
of any third party. Seller will indemnify, hold harmless, and at Buyer's
request defend Buyer from and against any loss, cost, liability or expense
(including court costs and reasonable fees of attorneys and other professionals)
arising out of or resulting from any breach or claimed breach of the above
representations and warranties. In the event of any such claim, Buyer agrees
(i) to notify Seller of the claim, (ii) if Buyer has not requested that Seller
defend the claim, to permit Seller, at Seller's expense, to participate in the
defense thereof with counsel of Seller's choosing, subject to Buyer's
supervision and control, and (iii) if Buyer has requested that Seller defend the
claim, to provide Seller with all needed information, assistance and authority
necessary for Seller to do so. If the use by Buyer of any of the products
purchased under this Agreement is enjoined, or in Buyer's opinion is likely to
be enjoined, at Buyer's request and option, and without prejudice to Buyer's
rights and remedies, Seller at its expense will procure from the person or
persons claiming or likely to claim infringement, a license for Buyer and its
customers to continue to use such products, or modify the allegedly infringing
order to avoid the infringement, without materially impairing performance or
compliance with Buyer's specifications or this order.
In the event that the Seller performs its obligations under this agreement
pursuant to the Buyer's specification, designs, drawings, the Seller is entitled
to the above protection stated in this article.
16. COMPLIANCE WITH LAWS. The Seller warrants that no law, rule or ordinance
of the United States, a State or any other governmental agency has been violated
in the manufacture or sale of the products or in the performance of services
covered by this order, and will defend and hold Buyer harmless from loss, cost
or damage as a result of any such actual or alleged violation. Upon written
request by Buyer, Seller agrees to execute and furnish a certification of
compliance, which may be on Buyer's form and which shall certify compliance with
any applicable Federal, State and or Local Laws or Regulations, including but
<PAGE>
not limited to FLSA, EEOC, and OSHA.
17. ASSIGNMENT AND SUBCONTRACTORS. No right or obligation under this purchase
order including the right to receive Monies due hereunder) shall be assigned by
Seller, and Seller shall not enter into any substantial subcontracts without the
prior written consent of Buyer. Any purported assignment without such consent
shall be null and void and Buyer shall not be obligated to recognize any claim
from Seller resulting from a subcontract, not previously consented to by Buyer.
18. SPECIAL TOOLING. If special tooling used in the performance of this
purchase order has been charged to this order, or to this order and other orders
placed by the Buyer, title to such special tooling shall vest in the Buyer, at
the option of the Buyer. Such tooling is to be used only in the performance of
such Purchase Orders unless otherwise approved by Buyer. The Seller agrees that
it will follow normal industrial practice in the identification and maintenance
of property control records on all such tooling, and will make such records
available for inspection by the Buyer at all reasonable times. After the
termination or completion of such Order(s) and upon the request of the Buyer,
the Seller shall furnish a list of such tooling in the form requested and shall
make such tooling available for disposition by the Buyer.
19. APPLICABLE LAW. This purchase order shall be governed by and enforced in
accordance with California law as applied to contracts entered into in
California by California residents to be performed entirely within the State of
California.
<PAGE>
EXHIBIT C:
SCHEDULE FOR DEVELOPMENT
FREQUENCY BETA PRODUCTION
BAND (GHZ) COMPLETE BEGINS
[*] [*] [*]
[*] [*] [*]
[*] [*] [*]
[*] [*] [*]
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EXHIBIT D:
PRICING
A: Unit price for Altium [*] GHz ODU. All prices are in United States dollars
($).
1) Tooling for housing $[*]
2) Non-protected (NN configurations)
[*] units $[*]
[*] units $[*]
[*] units $[*]
[*] units $[*]
Protected units (HH, HS configurations)
[*] units $[*]
[*] units $[*]
[*] units $[*]
[*] units $[*]
B. Currency Fluctuation: If the currency rate exchange between the United
States Dollar and the currency used for purchase of Product or component
Taiwan Dollar changes significantly DMC and MTI agree to share equally the
effects to such change. Significant change means [*].
The currency exchange rate will be determined by the United States
Department of Treasury and as report in the daily Wall Street Journal as
the source of reference. The initial baseline exchange rate will be the
rate on the effective date of this agreement. The exchange rate will be
reviewed and reset on the fifteenth day of the last month of every calendar
quarter, by taking the average of the previous three (3) month exchange and
using that average as the baseline for the upcoming quarter. This process
will be used for all currencies by which components are purchased, relative
to the United States Dollar.
[*]
[*]
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<PAGE>
EXHIBIT E
ALTIUM ODU BETA UNIT FREQUENCY REQUIREMENTS
[*] GHZ
CONFIGURATION FTX FRX T/R SPACING
1 HH [*] [*] [*]
2 HH [*] [*] [*]
3 HH [*] [*] [*]
4 HH [*] [*] [*]
5 HH [*] [*] [*]
6 HH [*] [*] [*]
7 HH [*] [*] [*]
8 HH [*] [*] [*]
9 HH [*] [*] [*]
10 HH [*] [*] [*]
11 HH [*] [*] [*]
12 HH [*] [*] [*]
13 HH [*] [*] [*]
14 HH [*] [*] [*]
15 HS [*] [*] [*]
16 HS [*] [*] [*]
17 HS [*] [*] [*]
18 HS [*] [*] [*]
19 HS [*] [*] [*]
20 HS [*] [*] [*]
21 HS [*] [*] [*]
s22 HS [*] [*] [*]
s23 HS [*] [*] [*]
24 NN [*] [*] [*]
25 NN [*] [*] [*]
26 NN [*] [*] [*]
27 NN [*] [*] [*]
28 HH [*] [*] [*]
29 HH [*] [*] [*]
30 HH [*] [*] [*]
31 HH [*] [*] [*]
32 HS [*] [*] [*]
33 HS [*] [*] [*]
s34 HS [*] [*] [*]
35 NN [*] [*] [*]
36 NN [*] [*] [*]
37 NN [*] [*] [*]
38 NN [*] [*] [*]
39 NN [*] [*] [*]
40 NN [*] [*] [*]
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<PAGE>
PURCHASE AGREEMENT
ALTIUM TECHNOLOGY
JANUARY 15, 1998
REMEC INC.
9404 CHESAPEAKE DRIVE
San Diego, CA. 92123
Attn.: Mr. Errol Ekaireb
President and Chief Operating Officer
Mr. Jon Opalski
Vice President and General Manager
Gentlemen:
This memo serves to document the requirements and agreements between Digital
Microwave Corporation (DMC) and REMEC Inc. (REMEC).
1. Upon REMEC's acceptance of this letter by signing, and returning one copy
to DMC, REMEC is directed to proceed at once to commence activities per the
Statement of Work described in EXHIBIT A. DMC is requesting REMEC to
support the Alpha phase of product engineering, assemble [*] ([*])
PROTECTED Beta units and manufacture [*] ([*]) full production [*] GHz
Out-Door Units per technical documentation provided by DMC. The product
split is expected to be 80% protected units and 20% unprotected. In
addition to the work related to the [*] GHz ODU assembly and associated
sub-assemblies, this agreement also serves to cover design, development and
production of other frequency bands defined in EXHIBIT C. DMC recognizes
that this effort will require NRE (non-recurring engineering) and STE
(special test equipment) cost, as detailed in EXHIBIT A. STE is defined as
application specific interface fixtures and software. The costs detailed in
EXHIBIT A is for each frequency band and each module except where a module
is a common subassembly for all bands. The [*] GHz NRE and STE costs will
be amortized over the initial [*] units during the first year. DMC will
retain title of all STE listed in EXHIBIT A. If additional STE is required
for growth in volume Remec will make the appropriate investment. DMC holds
the right to purchase the additional STE. Additional bands will be funded
by DMC per an agreed schedule for each band as outlined in EXHIBIT C.
2. Beta unit delivery is critical to the overall Altium program. Material
procurement for the beta phase has already started at DMC to insure that
beta schedules are maintained. All material for the beta phase will be
procured by DMC and provided to Remec to build the [*] beta units. Remec
will assemble the beta units using the supplied material at a cost of $[*]
each.
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3. Notwithstanding any provision herein to the contrary, REMEC may not expend
or commit in the aggregate a sum exceeding $[*] and DMC shall not in any
event be obligated to reimburse REMEC for Work performed hereunder for any
amount in excess of said sum unless further authorization is granted by DMC
in writing.
4. REMEC shall be paid for performance of the work hereunder upon delivery of
product as set forth in EXHIBIT A, attached hereto, DMC may terminate the
Work for just cause on a ([*]) day written notice and REMEC shall
immediately stop performance of the Work and not incur further charges.
DMC shall make any payment due to REMEC for Work performed and material
expenses REMEC incurred or committed to its vendors for completion of the
Altium program up until the time of termination in an amount commensurate
with the actual Work performed for a particular milestone.
5. Digital Microwave Corporation will issue a fixed price purchase order in
the estimated amount of $[*] for [*] [*] Ghz Out Door Units before [*].
Price per unit is given in EXHIBIT D. Product will be delivered over a [*]
period. A purchase order for the estimated amount of $[*] for the assembly
of the [*] beta units will be issued on our before [*]. The balance of
frequency bands to be negotiated no later than [*]. The price of the
additional bands will be negotiated by reviewing the forecasted Vs actual
cost performance of the [*] GHz product and negotiating the difference
followed by a [*]% learning curve and a [*]% reduction in the price for the
next years production. Both parties acknowledge that such contract must be
accepted by both DMC and REMEC. No such acceptance is implied by this
letter of agreement. All sales are subject to the DMC terms and conditions
as noted in EXHIBIT B. Any further changes by DMC to the design,
specification, or test requirements which impact material cost or labor
time standards shall initiate discussion to re-negotiate the unit price.
6. Standard Terms and Conditions of Purchase set forth is [*], any reference
in said terms and Conditions of Purchase to adjustment in prices or
delivery schedule shall be inapplicable and no changes to this letter shall
be deemed to increase REMEC's authorization to expend funds and to make
commitments hereunder unless expressly so stated in any such change.
7. The purchase order shall include the Terms and Conditions of Purchase set
forth in EXHIBIT B, and the delivery schedule, prices and any additional
provisions that the parties agree upon.
8. It is understood that fabrication of Beta assemblies and modules is to
commence prior to completion of the Alpha phase. DMC shall pay for any
excess material in the event of design changes implemented after the start
of fabrication or assembly, which render the assembly scrap including
effected production material.
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9. In the event of termination of this agreement, per paragraph 4 above, DMC
shall pay REMEC for all Work performed up to the date of notice of such
termination on a time and material basis (including overhead and G&A at a
reasonable and customary rate), REMEC shall submit all financial data
required for DMC to verify charges. REMEC acknowledges that in no event
shall DMC be responsible to REMEC for any payments in excess of the
not-to-exceed amount set forth in Paragraph 3. Upon such payment, REMEC
shall turn over to DMC all Work performed by REMEC up to the date of
termination. All Work prepared under this agreement shall be deemed a
"work made for hire" under the United States copyright laws. In the event
that, notwithstanding the foregoing, title to and ownership of the Work
initially vests in REMEC, REMEC agrees to execute, at DMC's request, all
documents that are necessary to transfer and assign all such title and
ownership of the Work to DMC, except work that is not unique to Altium.
REMEC ownership includes, but is not limited to: filters, modules and
circuits REMEC developed either for Altium application or other
applications, and associated process drawings which are not specified in
DMC's PSD. REMEC is entitled to own all rights and such designs.
10. Both parties warrant that Work to be performed under this agreement letter
shall be performed in a professional manner by qualified personnel. DMC
and REMEC agree that the full cooperation of both companies is necessary to
enable the Work to meet its scheduled timetable.
Please signify your concurrence with this agreement by signing in the space
provided below and returning the signed original to me.
Very truly yours,
DIGITAL MICROWAVE CORPORATION
- -----------------------------
/s/ Tony Alva 1-15-98
- ---------------------------------------
By: Tony Alva
Title: Director of Technology Transfer
Accepted this 15th day of January 1998
-------------------------
REMEC INC.
/s/ Errol Ekaireb 1-15-98
- ---------------------------------------
By: Errol Ekaireb
-------------------------------
Printed Name
Title: President and Chief Operating Officer
<PAGE>
EXHIBIT A:
STATEMENT OF WORK
DMC and REMEC shall participate in a joint effort to design and develop the
Altium ODU assembly for various frequency bands with the intention of REMEC
being an ODU manufacturer. The top level ODU design, as well as several key
modules ([*] and [*]) will be designed by DMC with REMEC's participation to
ensure manufacturability to REMEC design/manufacturing standards. Other modules
will be specified by DMC and wholly designed and developed by REMEC ([*] and
[*]). After development of the [*] GHz product, REMEC will assume full
responsibility for design and development of all applicable modules.
DESIGN PHASE
The following key tasks and responsibilities are defined and shall be covered by
the NRE costs detailed below:
[*]
ALPHA PHASE
DMC and REMEC shall participate in a joint effort to develop the design into
prototype modules and ODU assemblies for various frequency bands. The following
tasks and responsibilities are defined and shall be covered by the NRE costs
detailed below:
[*]
ALPHA PHASE DELIVERABLES
Alpha phase module deliverables shall be individually priced and separately
procured as individual specifications and drawings are released by DMC to REMEC.
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ALPHA PHASE DELIVERABLES cont'd
Fab parts and assemblies:
QTY Part Number Description Supplies Services Price
[*] [*] [*] [*] [*] $[*]
[*] [*] [*] [*] [*] $[*]
[*] [*] [*] [*] [*] $[*]
[*] [*] [*] [*] [*] $[*]
[*] [*] [*] [*] [*] $[*]
Modules:
[*]
[*]
[*]
[*]
Long Lead funding is detailed in Exhibit E
BETA PHASE
DMC and REMEC shall participate in a joint effort to develop the prototype
design into pre-production ODU assemblies for various frequency bands. The
following tasks and responsibilities are defined and shall be covered by the NRE
costs detailed below:
[*]
BETA PHASE DELIVERABLES
[*] [*] [*] GHz ODU, Protected, built and tested per DMC provided
documentation.
Pricing is as defined in EXHIBIT D. Additional bands will be priced as
specifications and drawings are released by DMC.
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PRODUCTION DELIVERABLES
[*] complete and tested [*] GHz Out Door Units per DMC documentation. NRE and
STE charges will be amortized over the initial quantity of [*] units as noted in
EXHIBIT D.
NRE AND STE COSTS
The anticipated Total NRE & STE cost
<TABLE>
<CAPTION>
NRE Band/Division Total
<S> <C> <C>
[*] GHz $[*]
[*] GHz $[*]
[*] GHz $[*]
Total $[*]
STE Band/Division
[*] GHz $[*]
[*] GHz $[*]
[*] GHz $[*]
STE + NRE $[*]
</TABLE>
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EXHIBIT B:
TERMS AND CONDITIONS OF PURCHASE
Alpha, payment will be [*] per set price.
Beta, payment will be [*] per set price.
Production, payment will be [*] per set price.
1. INVOICES. Payment of invoices shall not constitute acceptance of the
product and shall be subject to adjustment for errors, shortages, defects in the
product or other failure of Seller to meet the requirements of the order. Buyer
may at any time set off any amount owed by Buyer to Seller against any amount
owed by Seller.
2. TAXES. Unless otherwise specified, the prices set forth in this order
include all applicable federal, state, and local taxes. All such taxes shall be
stated separately on Seller's invoice.
3. OVERSHIPMENTS. Buyer will pay only for maximum quantities ordered.
Overshipments will be held at Seller's risk and expense for a reasonable time
awaiting shipping instructions. Return shipping charges for excess quantities
will be at Seller's expense.
4. PACKING AND SHIPPING. Unless otherwise specified, all products shall be
packed, packaged, marked and otherwise prepared for shipment in a manner which
is: (i) in accordance with good commercial practice, (ii) acceptable to common
carriers for shipment at the lowest rate for the particular product and in
accordance with all governmental regulations and (iii) adequate to insure safe
arrival of the product at the named destination and for storage and protection
against weather. An itemized packing sheet must accompany each shipment unless
otherwise specified.
5. F.O.B. POINT. Unless otherwise specifically provided on the face of the
purchase order, the product called for hereunder shall be delivered on Ex Works
(Incoterms 1990) Sellers facility freight collect.
6. RESPONSIBILITY FOR SUPPLIES. Title passes to Buyer and Buyer assumes risk of
loss upon delivery to the carrier at the Sellers facility.
7. WARRANTY. Seller warrants that all supplies delivered hereunder shall be
free from defects in workmanship, material other than material furnished by
Buyer, and manufacture; shall comply with the requirements of this contract,
including any drawings or specifications incorporated herein or samples
furnished by Seller; and, where design is Seller's responsibility, be free from
defects in design. The foregoing warranties shall constitute conditions and are
in lieu of all other warranties, whether expressed or implied, and shall survive
delivery, inspection, acceptance and payment. If any products delivered
hereunder do not meet the warranties specified herein or otherwise applicable,
Buyer may at its election require the Seller to promptly correct, at no cost to
Buyer, any defective or nonconforming products by repair or replacement, at
Seller's facility for a period of [*] ([*]) months from delivery. The
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foregoing remedies shall be deemed to be exclusive, and in no event shall Seller
be liable to Buyer for incidental or consequential damages. The provisions of
this clause shall not limit or effect the rights of Buyer under the clause
hereof entitled Inspection.
8. INSPECTION. All products purchased hereunder shall be subject to inspection
and test by Buyer to the extent practicable at all times and places during and
after the period of manufacture and in any event prior to final acceptance. In
case any product is defective in material or workmanship, or otherwise not in
conformity with the requirements of this order, Buyer shall have the right to
reject it, and require its correction or replacement. Any product which has
been rejected or required to be corrected shall be replaced or corrected by and
at the expense of the Seller promptly after notice. If, after being requested
by Buyer, the Seller fails to replace or correct any defective product within a
reasonable time of the delivery schedule Buyer may with appropriate notice
terminate this order for default in accordance with the clause herein entitled
"Termination for Default". Notwithstanding any prior inspection or payment
hereunder, all products shall also be subject to final inspection and acceptance
at Buyer's plant within a reasonable time after delivery.
9. CHANGES IN PROCESS OR METHOD OF MANUFACTURING. Seller will notify buyer of
any significant changes in the process or method of manufacture during the term
of this purchase order when such changes are implemented by seller, allowing
buyer to evaluate them in a parallel process. Comments to such changes must be
returned to seller within [*] working days. If buyer determines within [*]
working days the proposed changes may have a significant impact to the
performance required by DMC's specifications, Buyer may request for an
additional [*] working days for further evaluation. Seller agrees that should
the change prove to compromise performance, quality or reliability as defined in
the specification, Seller will be financially responsible for product
manufactured during this [*] day period.
10. CHANGES. The Buyer may at any time by written order, and without notice to
sureties or assignees, suspend performance hereunder, increase or decrease the
ordered quantity or make changes in the applicable drawings, designs or
specification, the method of shipment or packing, and/or place of delivery. If
any such change causes an increase or decrease in the cost of or the time
required for performance of this order, an equitable adjustment shall be made in
the order price or delivery schedule or both, and the order shall be modified in
writing accordingly. However, nothing in this clause shall excuse Seller from
proceeding with the order as changed or amended.
11. TERMINATION FOR DEFAULT. It is understood and agreed that time is of the
essence under this order or any extension thereof effected by any change order.
Buyer may by written notice terminate this order in whole or in part if the
Seller fails (i) to make delivery of the product or to perform the service
within a reasonable time of the time specified herein, or (ii) to replace or
correct defective products in accordance with the provision of those clauses
hereof entitled "Warranty" and "Inspection" or, (iii) to perform any of the
provisions of this order or to so fail to make progress as to endanger
performance in accordance with the terms hereof, including delivery schedules,
or (iv) if Seller becomes insolvent, admits in writing its inability to pay its
debts as they mature, files a voluntary petition to bankruptcy, makes an
assignment for the benefit of creditors or if a petition under bankruptcy is
filed against it.
12. PATENT INDEMNITY. Seller represents and warrants that (i) it has the right
to disclose or use, without liability to others, all subject matter, including
ideas, inventions, creations,
- --------------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
works, processes, designs and methods that Seller will disclose or use in its
performance of this order; (ii) the products, and Buyer's use thereof, do not
and will not infringe any patent, copyright, trade secret, mask work right, or
other proprietary right of others; and (iii) in connection with its performance
under this order, Seller will not infringe any patent, copyright, trade secret,
mask work right, or any other proprietary right of any third party. Seller will
indemnify, hold harmless, and at Buyer's request defend Buyer from and against
any loss, cost, liability or expense (including court costs and reasonable fees
of attorneys and other professionals) arising out of or resulting from any
breach or claimed breach of the above representations and warranties. In the
event of any such claim, Buyer agrees (i) to notify Seller of the claim, (ii) if
Buyer has not requested that Seller defend the claim, to permit Seller, at
Seller's expense, to participate in the defense thereof with counsel of Seller's
choosing, subject to Buyer's supervision and control, and (iii) if Buyer has
requested that Seller defend the claim, to provide Seller with all needed
information, assistance and authority necessary for Seller to do so. If the use
by Buyer of any of the products purchased under this Agreement is enjoined, or
in Buyer's opinion is likely to be enjoined, at Buyer's request and option, and
without prejudice to Buyer's rights and remedies, Seller at its expense will
procure from the person or persons claiming or likely to claim infringement, a
license for Buyer and its customers to continue to use such products, or modify
the allegedly infringing order to avoid the infringement, without materially
impairing performance or compliance with Buyer's specifications or this order.
Buyer represents and warrants that (i) it has the right to disclose or use,
without liability to others, all subject matter, including ideas, inventions,
creations, works, processes, designs and methods that Buyer will disclose or use
in its performance of this order; (ii) the products, and Seller's use thereof,
do not and will not infringe any patent, copyright, trade secret, mask work
right, or other proprietary right of others; and (iii) in connection with its
performance under this order, Buyer will not infringe any patent, copyright,
trade secret, mask work right, or any other proprietary right of any third
party. Buyer will indemnify, hold harmless, and at Seller's request defend
Seller from and against any loss, cost, liability or expense (including court
costs and reasonable fees of attorneys and other professionals) arising out of
or resulting from any breach or claimed breach of the above representations and
warranties. In the event of any such claim, Seller agrees (i) to notify buyer
of the claim, (ii) if Seller has not requested that Buyer defend the claim, to
permit Buyer , at Seller's expense, to participate in the defense thereof with
counsel of Buyer's choosing, subject to Seller's supervision and control, and
(iii) if Seller has requested that Buyer defend the claim, to provide Buyer with
all needed information, assistance and authority necessary for Seller to do so.
13. COMPLIANCE WITH LAWS. The Seller warrants that no law, rule or ordinance
of the United States, a State or any other governmental agency has been violated
in the manufacture or sale of the products or in the performance of services
covered by this order, and will defend and hold Buyer harmless from loss, cost
or damage as a result of any such actual or alleged violation. Upon written
request by Buyer, Seller agrees to execute and furnish a certification of
compliance, which may be on Buyer's form and which shall certify compliance with
any applicable Federal, State and or Local Laws or Regulations, including but
not limited to FLSA, EEOC, and OSHA.
14. ASSIGNMENT AND SUBCONTRACTORS. No right or obligation under this purchase
order (including the right to receive monies due hereunder) shall be assigned by
Seller, and Seller shall not enter into any substantial subcontracts without the
prior written consent of Buyer. Any purported assignment without such consent
shall be null and void and Buyer shall
<PAGE>
not be obligated to recognize any claim from Seller resulting from a
subcontract, not previously consented to by Buyer.
15. SPECIAL TOOLING. If special tooling used in the performance of this
purchase order has been charged to this order, or to this order and other orders
placed by the Buyer, title to such special tooling shall vest in the Buyer, at
the option of the Buyer. Such tooling is to be used only in the performance of
such Purchase Orders unless otherwise approved by Buyer. The Seller agrees that
it will follow normal industrial practice in the identification and maintenance
of property control records on all such tooling, and will make such records
available for inspection by the Buyer at all reasonable times. After the
termination or completion of such Order(s) and upon the request of the Buyer,
the Seller shall furnish a list of such tooling in the form requested and shall
make such tooling available for disposition by the Buyer.
APPLICABLE LAW. This purchase order shall be governed by and enforced in
accordance with California law as applied to contracts entered into in
California by California residents to be performed entirely within the State of
California.
17. EXCUSABLE DELAYS. The Seller shall be liable for default unless
nonperformance is caused by an occurrence beyond the reasonable control of the
Seller and without its fault or negligence such as, acts of God or the public
enemy, acts of the Government in either its sovereign or contractual capacity,
fires, floods, epidemics, quarantine restrictions, strikes, unusually severe
weather, and delays of common carriers. The Seller shall notify the Buyer in
writing as soon as it is reasonably possible after the commencement of any
excusable delay, setting forth the full particulars in connection therewith,
shall remedy such occurrence with all reasonable dispatch, and shall promptly
give written notice to the Buyer of the cessation of such occurrence.
18. DISPUTES. The parties shall attempt to resolve all disputes and
disagreements arising under or relating to this Agreement through negotiation.
If the parties are not able to reach a resolution after reasonable, good faith
efforts, the matter (excluding claims under Article 13, Patent Indemnity) shall
be referred to mediation, before and as a condition precedent to the initiation
of any adjudicative action or proceeding. In the event that such dispute or
disagreement is not resolved through mediation, then it shall be submitted to
arbitration upon the request of one party after the service of that request on
the other party. Pending resolution of any such dispute, Seller shall diligently
perform all work called for by this Agreement.
<PAGE>
EXHIBIT C:
SCHEDULE FOR DEVELOPMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
TYPE SPEC'S* ALPHA ALPHA ALPHA ALPHA BETA BETA BETA
(GHz) (SCD's) XCVR SYNTH FILTER ODU MODULE ODU SYSTEM
MODULE MODULE MODULE TEST TEST TEST TEST
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
[*] RESPONSIBLE: [*] [*] [*] [*] [*] [*] [*] [*]
BY (Date): [*] [*] [*] [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------------------------------------------------------
[*] RESPONSIBLE: [*] [*] [*] [*] [*] [*] [*] [*]
BY (Date): [*] [*] [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------------------------------------------------------
[*] RESPONSIBLE: [*] [*] [*] [*] [*] [*] [*] [*]
BY (Date): [*] [*] [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* THE DATES IN THE SPEC'S COLUMN MEANS COMPLETION OF ALL REQUIRED
SPECIFICATIONS FOR THE RESPECTIVE FREQUENCY BAND BY THE DATE GIVEN.
NOTE: ALL DATES SHOWN ABOVE ARE COMPLETION DATES FOR EACH OF THE RESPECTIVE
PHASES
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[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
EXHIBIT D:
BETA PRICING:
Qty ODU Unit Price
[*] $[*]
Total $[*]
PRODUCTION PRICING
<TABLE>
<CAPTION>
1ST YEAR 2ND YEAR
<S> <C> <C>
QTY [*] [*]
PRICE $[*] $[*]
NRE $[*] $[*]
STE $[*] $[*]
UNIT COST $[*] $[*]
YEARLY PRICE $[*] $[*]
Beta total $[*]
TOTAL $[*]
</TABLE>
<PAGE>
DIGITAL MICROWAVE CORPORATION
BUSINESS AGREEMENT FINAL VERSION
- -------------------------------------------------------------------------------
BUSINESS AGREEMENT
BETWEEN
MICROELECTRONICS TECHNOLOGY INC.
AND
DIGITAL MICROWAVE CORPORATION
DOCUMENT REFERENCE
JANUARY 26, 1998 FINAL VERSION
- -------------------------------------------------------------------------------
DIGITAL MICROWAVE CONFIDENTIAL
Initials: DMC:________
Page 1 Initials: Manufacturer:________
<PAGE>
BUSINESS AGREEMENT
This Manufacturing Agreement, herein after called the "Agreement",
effective as of the date of the last signature, made between Digital
Microwave Corporation (DMC), a corporation organized under the laws of the
state of California, USA, having its principal office at 170 Rose Orchard
Way San Jose, CA 95134 USA, hereinafter called the "Purchaser" and:
Microelectronics Technology Inc. (MTI)
with offices at:
1, Innovation Road II
Hsinchu Science Based Industrial Park
Hsinchu 300, Taiwan, R.O.C.
hereinafter called the "Manufacturer";
WITNESS:
WHEREAS, the Purchaser is engaged in the design and selling of electronic
and electromechanical products; and
WHEREAS, the Manufacturer is an independent business organization engaged
in the manufacturing and assembly of products similar to those designed and
sold by the Purchaser, and desires to manufacture products for the
Purchaser for sale.
WHEREAS, The Purchaser and Manufacturer have on March 17, 1997 executed a
Purchase Order Agreement in which Manufacturer agreed to manufacture
products for the purchaser and both parties contemplated the execution of
this manufacturing agreement.
NOW, THEREFORE, in order to provide for effective service to Purchaser from
Manufacturer for manufacture of products, and in consideration of the
mutual promises herein contained, it is agreed as follows:
1. PURPOSE
The purpose of this Agreement is to set forth the terms and conditions
applicable to purchases of Purchaser's Magnum, ClassicII and SpectrumII
products, hereinafter referred to as 'Products' and listed herein on
APPENDIX 'A', from Manufacturer by Purchaser. All documents issued by
Purchaser or Manufacturer must incorporate this Agreement by reference. Any
additional or different terms or conditions proposed by Purchaser or
Manufacturer are not applicable unless expressly approved and agreed to in
writing and signed by authorized representative of the other party.
Page 2
<PAGE>
2. THE PURCHASER RELATIONSHIP
This Agreement does not constitute Manufacturer as an employee, agent, or
legal representative of Purchaser for any purpose whatsoever. Manufacturer
is not granted, nor shall it represent that it has been granted, any right
or authority to assume or create any obligation or responsibility,
expressed or implied, on behalf of, or in the name of, Purchaser, to incur
debts or make collections for Purchaser or to bind Purchaser in any manner
whatsoever. It being the intent of the parties hereto to create the
relationship on the part of the Manufacturer of an independent contractor,
for whose actions or failure to act, the Purchaser shall not be
responsible.
3. PRICE OF PRODUCTS TO PURCHASER
The prices for Products are in U.S. dollars as set forth in APPENDIX G to
this Agreement. The prices will be reviewed every [*] months and changed
as mutually agreed. It is agreed that such changes to the prices for the
subsequent [*] months will include a provision based upon exchange rate
fluctuations between the U.S. Dollar and the Taiwan Dollar assuming a [*]%
local Taiwan content and [*]% U.S. Dollar content. The base rate upon
contract signature is [*] Taiwan Dollar per U.S. Dollar.
Prices set forth in this Agreement are exclusive of any and all Federal,
State and local excise, sales, use or similar taxes. Where applicable such
taxes shall be included on the invoices submitted by Manufacturer and paid
by Purchaser. Purchaser shall in no event be liable for taxes levied on
Manufacturer based upon its income.
4. DELIVERY
All Purchase Orders issued by Purchaser will be shipped according to the
schedule provided in Purchaser's purchase order.
5. ORDERING
A. Each purchase order from the Purchaser shall include the following:
(1) Quantity of each type Product purchased
(2) Description of each type Product purchased
(3) Assembly Control Document identifying applicable Document
Revisions
(4) Unit price and Total Price for each item of Product
(5) Total Amount of Order
(6) Method of payment Invoice address and billing contact
(7) Resale Certificate number for each state to which a shipment is
being made
(8) Shipping Address
(9) Method of Shipment including if shipment is to be insured
(10) Desired delivery schedule
(11) Special instructions or markings
(12) A statement that the order is governed by this Agreement
Page 3
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[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
B. Within ten (10) working days after the receipt of an order from
Purchaser, Manufacturer shall provide written acceptance or rejection of
the order as issued.
6. CANCELLATION OF ORDER
The Purchaser with a [*]-day notice may cancel orders issued by Purchaser
and received by Manufacturer in accordance with the terms and conditions of
this Agreement.
7. TERMS OF PAYMENT
Payment is due and payable [*] ([*]) days from the date of the invoice.
Purchaser agrees to make payments to Manufacturer in U.S. dollars through
the issuance of an Electronic Funds Transfer (EFT) on a US bank in
accordance with the terms of payment.
8. CLAIMS FOR SHIPMENT DAMAGE
Purchaser agrees to notify Manufacturer in writing of any shortages or
rejection within [*] ([*]) working days after receipt of Product and file
a claim with the carrier for any shortage of packages or obvious damage
caused by the carrier. If such shortage or rejection is due to the fault of
Manufacturer, the Product will be replaced or repaired by Manufacturer. If
Purchaser does not provide Manufacturer such notice within the [*] ([*])
working day period, the Product will be presumed to have been accepted.
9. WARRANTY
Manufacturer warrants all Products sold under this Agreement to be free
from defects in material and workmanship under normal and proper use for a
period of [*] months from the date of shipment to Purchaser. Material
defect warranty shall not apply to any material supplied to Manufacturer by
Purchaser.
THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES EXPRESSED,
IMPLIED, OR STATUTORY, INCLUDING WARRANTY OF MERCHANTABILITY.
Within the stated warranty period, Manufacturer will repair or replace, at
its option, f.o.b. its plant, any Product which is returned to its plant,
shipping charges prepaid, provided inspection and examination discloses to
Manufacturer's satisfaction that (a) the reported defects are within the
warranty coverage, (b) the Product has not been tampered with, or (c) the
Product has not been damaged due to misuse, improper storage or
maintenance, negligence or accident. Manufacturer will return the warranty
repaired Product, shipping prepaid, via the same type of service used by
Purchaser to ship failed Product to the Manufacturer.
Page 4
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BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
THE FOREGOING CONSTITUTES THE PURCHASER'S SOLE AND EXCLUSIVE REMEDY AND IS
IN LIEU OF ANY AND ALL REMEDIES WHICH MAY BE AVAILABLE TO THE PURCHASER.
10. TITLE TO GOODS, RISK OF LOSS, AND INSURANCE
Shipments are made Ex Works (Incoterms 1990) Manufacturer's Premises,
shipment, freight collect. Title passes to Purchaser and Purchaser assumes
risk of loss upon delivery to the carrier at the premises, the carrier
acting as purchaser's agent.
Purchaser shall own title to all NRE property and other property provided
to Manufacturer by Purchaser associated with this Agreement. Manufacturer
agrees to exercise reasonable care in the use and custody of such property.
Manufacturer shall maintain sufficient insurance to cover Purchaser's cost
of such property.
Proof of insurance for material and property shall be provided to Purchaser
at the first of each calendar quarter.
11. RESPONSIBILITIES OF PURCHASER
A. Purchaser shall provide Manufacturer drawings and documentation in an
acceptable format and in sufficient detail to permit Manufacturer to
perform the work covered by this Agreement.
B. Purchaser shall provide Manufacturer a non-binding rolling six-month
forecast for all Products listed in APPENDIX 'A'.
C. Purchaser shall assist Manufacturer in analyzing test results,
reviewing procedures and formulating plans to improve throughput,
yield, and quality for all Products.
D. Purchaser shall provide supplied material, as listed in APPENDIX 'B',
at a mutually agreed to schedule.
12. RESPONSIBILITIES OF MANUFACTURER
A. APPENDIX 'C' lists the Scope of Work for this Agreement.
B. Manufacturer shall provide Purchaser a list, with prices, of the top
20% highest cost components, subassemblies or labor items for each
Product upon request of Purchaser.
C. Manufacturer shall use Purchaser's Approved Vendor List (AVL) for all
material required to be purchased by Manufacturer under this
Agreement.
D. During the term of this Agreement, Manufacturer shall use commercially
reasonable efforts to enhance and cost reduce the manufacturing
process for the Products. Manufacturer shall report on cost reduction
efforts at the first of every quarter.
13. TERM
The term of this Agreement shall be [*] ([*]) from the effective date of
this Agreement, and will be automatically renewed for successive [*] terms
thereafter. This Agreement may otherwise be terminated as hereinafter
provided:
Page 5
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[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
A. Manufacturer may immediately terminate this Agreement at any time, for
[*].
B. Purchaser may immediately terminate this agreement at any time, for
[*].
C. Either party hereto may terminate this Agreement, without cause upon
giving to the other [*] days prior written notice. The Manufacturer in
accordance with the Agreement will fulfill any outstanding orders
placed by Purchaser in place at the time of termination.
D. Notice of termination hereunder shall be sent by Certified or
Registered Mail, return receipt requested.
E. In the event of termination as herein provided, Manufacturer shall
return to Purchaser all Purchaser Product information, documentation,
software, firmware, drawings, test fixtures and test equipment
Purchaser may have supplied or paid for in connection with this
Agreement.
14. FORCE MAJEURE
Manufacturer will exercise every reasonable effort to meet any quoted or
agreed upon shipment date or dates. Manufacturer shall not, however, be
liable for any loss or damage, including consequential damages, due to
delays or failure to ship resulting from any cause beyond its reasonable
control, such as, but not limited to, securing necessary export licenses,
compliance with government law or regulation, acts of God, acts or
omissions of the Purchaser, acts of civil or military authority, judicial
action, defaults of subcontractors or vendors, labor disputes, failure or
delays in transportation, embargoes, wars or riots, or the inability of
carriers to make scheduled deliveries
15. ACCEPTANCE AND INSPECTION
The basic acceptance criteria for Products shall be [*]. Products shall
also conform to Manufacturer's [*].
Products, which fail to meet the acceptance criteria, will not be accepted
and be returned to Manufacturer for corrective action. All such Products
shall be tracked by Manufacturer's RMA system. Manufacturer shall provide
monthly reports on the status of all RMAs.
Page 6
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[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
16. NO RIGHTS
Manufacturer agrees that it will not in any manner represent that it has
ownership of the trade name "Digital Microwave Corporation." or any other
trade name or trademark used by Purchaser to identify the Products or used
in connection with the Products. Manufacturer further agrees that it will
not register or attempt to register any such trade names or trademarks
under the laws of any jurisdiction, and will not at any time do, or cause
to be done, any act or thing contesting, or in any way impairing or tending
to impair, any part of Purchaser's right, title, and interest in such trade
names or trademarks, whether or not they are registered in the
jurisdictions in which Manufacturer is located or does business.
Nothing in this Agreement shall be construed as granting to Manufacturer or
conferring on Manufacturer any rights by license or otherwise to
Purchaser's patent, trademark, copyright know how or other proprietary or
confidential rights.
17. COMPUTER SOFTWARE
Any and all computer software delivered hereunder is and shall remain the
sole and exclusive property of Purchaser, or Purchaser's suppliers, and
shall be held in trust and confidence by the Manufacturer for Purchaser, or
Purchaser's suppliers. The Manufacturer shall have a non-exclusive license
to use such computer software solely in conjunction with the execution of
this Agreement. The Manufacturer's license to use such computer software
shall terminate upon termination of this Agreement. All copies of the
software shall be returned to Purchaser upon termination of this Agreement.
18. NO WAIVER AT RIGHTS
A failure by one of the parties to this Agreement to assert its rights for
or upon any breach of this Agreement shall not be deemed a waiver of such
rights, nor shall any such waiver be implied from the acceptance of any
payment. No waiver in writing by one of the parties hereto, with respect to
any right, shall extend to or affect any subsequent breach, either of like
or different kind, or impair any right consequent thereon.
19. INDEMNIFICATION
Manufacturer shall defend, indemnify and hold Purchaser harmless from
personal injury, expense or property damage, including attorney's fees
incurred by any employee, agent, invitee or licensee of Manufacturer, or
any other person, regardless of how caused if arising out of the
manufacture, assembly, test, use, or possession of the Products procured
hereunder unless such loss was caused solely by the gross negligence or
willful misconduct of Purchaser, its employees, or its authorized agents.
Page 7
<PAGE>
20. TAXES
All price set forth in this agreement are exclusive of any sales, use,
excise, property or any other taxes imposed by any government applicable to
the sale, use or delivery of the products, including import duties on the
Equipment, now or hereafter enacted, all of which will be paid by purchaser
separately or added by Manufacturer to the invoice where Manufacturer is
required by law to collect the same, unless purchaser provides Manufacturer
with a proper tax exemption certificate.
21. LIMITATION OF LIABILITY
Neither Party or its suppliers shall be liable for any indirect,
incidental, special, or consequential damages, including but not limited
to, loss of profits or revenue, or cost of substituted facilities,
equipment or services which arise out of performance or failure to perform
any obligation contained within this agreement, whether the claim is in
contract, tort (including negligence), strict liability or otherwise, even
if such party has been advised of the possibility of such damages.
Manufacturer or its suppliers shall not be liable for indirect, incidental,
special, or consequential damages and in no event shall the liability of
the Manufacturer arising in connection with any Products purchased under
this Agreement exceed the actual amount paid by Purchaser to Manufacturer
for Products delivered.
22. NON COMPETE
Manufacturer agrees that it is not involved in any business as of the date
of this Agreement, nor will it enter into any business during the term of
this Agreement that involves the design or manufacture of microwave radios
for terrestrial applications of the nature and scope of the products which
are being produced under this Agreement.
23. PRODUCT CHANGES
Manufacturer understands and agrees that Purchaser from time to time may
make changes to the design and specifications on any Product involved with
this Agreement. Changes will be documented and provided to Manufacturer via
Engineering Change Orders (ECOs). Each ECO will specify an effective date
for the change.
Upon receipt of an ECO Manufacturer shall review it and provide a written
response to Purchaser within 5 working days stating any impact to schedule
or price. Manufacturer shall not implement any ECO which delays any
delivery schedule or increases price to the Purchaser without first
obtaining written authorization.
24. PROPRIETARY INFORMATION
APPENDIX 'E' 'Non-Disclosure Agreement' as signed by both parties is
attached and incorporated by reference.
Page 8
<PAGE>
This Agreement and the existence of this Agreement shall be deemed to be
confidential and shall be controlled by the 'Non-Disclosure Agreement'.
25. ENTIRE AGREEMENT
This instrument including the referenced Purchase Order Agreement
Appendices constitutes the entire Agreement relative to the establishment
of the manufacturer relationship between Purchaser and Manufacturer.
Purchaser may use its standard forms to issue purchase orders, specify
quantities, authorize prices, change schedules, modify specifications and
documentation or provide other notices as provided for in this Agreement.
In the event of any conflict, discrepancy or inconsistency between this
Agreement and any other Purchaser document delivered to Manufacturer, the
terms and conditions of this Agreement shall prevail to the extent of such
conflict, discrepancy or inconsistency.
26. NON-ASSIGNABLE
This Agreement may not be transferred or assigned in whole or in part by
either party without the prior written consent of the other party.
27. NOTICES
All notices given pursuant to this Agreement shall be in the English
language. Notices shall be deemed effective on the day they are dispatched
by certified or registered mail, return receipt requested, addressed to the
other party at the address stated on the first page of this Agreement or at
any superseding address so notified hereunder.
28. SEVERABILITY OF PROVISIONS
The invalidity under applicable law, regulations, or other governmental
restrictions or prohibitions of any provisions of this Agreement shall not
affect the validity of any other provisions of this Agreement, and in the
event that any provision hereof be determined to be invalid or otherwise
illegal, this Agreement shall remain effective and shall be construed in
accordance with its terms as if the invalid or illegal provision were not
contained herein.
29. GOVERNING LAW
This Agreement is deemed entered into in San Jose, California, and shall in
all respects be governed by and construed under the laws of the state of
California as such laws are applied to agreements between California
residents entered into and performed entirely within California. Any
litigation or other dispute resolution between the parties relating to this
Agreement will take place in Santa Clara County, California or as the case
may be, at any California State or Federal Courts generally serving the
Santa Clara County area with respect to the subject matter of this
agreement.
Page 9
<PAGE>
30. AUTHORITY
Purchaser and Manufacturer each represent to the other that it has due and
proper authority to make and perform all duties and obligations stipulated
herein and contemplated by this Agreement.
31. INTEGRATION
This Agreement embodies the entire understanding of the parties as it
relates to the subject matter hereof. This Agreement supersedes any prior
agreements or understandings between the parties as to this subject matter.
No amendment or modification of this Agreement shall be valid or binding
upon the parties unless in writing and signed by an officer of each party.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year showed below.
DIGITAL MICROWAVE CORP. MICROELECTRONICS TECHNOLOGY INC.
TONY ALVA Allen Yen
Director of Product VP Sales & Special Assistants to
/ Technology Transfer Chairman of Executive Committee
/s/ Tony Alva /s/ Allen Yen
---------------------------- ---------------------------------
Signature Authorized Signature
1/20/98 2/6/98
---------------------------- ---------------------------------
Acceptance Date Acceptance Date
Page 10
<PAGE>
LIST OF APPENDICES
APPENDIX A MANUFACTURER'S PRODUCTS
APPENDIX B PURCHASER SUPPLIED MATERIAL
APPENDIX C SCOPE OF WORK
APPENDIX D DMC QUALITY STANDARD
APPENDIX E NON-DISCLOSURE AGREEMENT
APPENDIX F PRODUCT TEST PROCEDURES
APPENDIX G PRICING
Page 11
<PAGE>
APPENDIX A
AUTHORIZED PRODUCTS
This Appendix lists the Products covered by this Agreement.
MAGNUM
[*] Assembly Drawing [*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*] [*]
[*]
[*] [*]
[*]
CLASSICII
[*] [*]
[*] [*]
[*] [*]
SPECTRUMII
[*] [*]
[*]
[*]
[*]
[*]
[*]
Applicable Drawings
Applicable Documents
Page 12
- ---------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
APPENDIX B
MATERIALS PROVIDED BY PURCHASER
This Appendix lists the Materials provided by Purchaser for each Product
Manufacturer is to produce.
B.1 Top Level Assembly Drawing Number: (Appendix A)
Material Provided (quantity provided as required to meet Purchaser's
schedule):
DESCRIPTION PART NUMBER ASSET NUMBER
----------- ----------- ------------
SpectrumII [*]ghz ODU
Test Fixtures
Test Equipment
Miscellaneous:
Shipping Box, Shipping Inserts, Config. Label, Manual
Page 13
- ---------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
APPENDIX C
SCOPE OF WORK
This Appendix lists the Scope of Work to be performed by the Manufacturer.
1. RECEIVING OF MATERIAL - [*]
2. INSPECTION OF MATERIAL - [*]
3. STORAGE OF COMPONENTS - [*]
4. KIT AND STAGE - [*]
5. BOARD LEVEL FUNCTIONAL TEST - [*]
6. PRODUCT ASSEMBLY - [*]
7. BURN-IN - [*]
8. UNIT LEVEL TEST - [*]
9. CERTIFICATE OF CONFORMANCE - [*]
10 PACKING - [*]
11. STORAGE - [*]
12. SHIPPING - [*]
Page 14
- ---------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
[*]
APPENDIX D
DMC QUALITY STANDARD
DMC QUALITY PLAN (PENDING)
Page 15
- ---------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
APPENDIX E
NON-DISCLOSURE AGREEMENT
WHEREAS, Digital Microwave Corporation (DMC) ("Disclosing Party") has developed
unique and proprietary technology, business strategies and financial
information;
WHEREAS, Microelectronics Technology Inc. (MTI) ("Receiving Party") has
approached Disclosing Party concerning a relationship between the Disclosing
Party and the Receiving Party: and
WHEREAS, the Disclosing Party is interested in discussing the possibility of
such a relationship with the Receiving Party;
NOW, THEREFORE:
The Receiving Party understands that the Disclosing Party has disclosed or may
disclose information (including, without limitation, certain proprietary
technology, business strategies, code, algorithms, names and expertise of
employees and consultants, know-how, formulas, processes, ideas inventions
(whether patentable or not), schematics and other technical, business, financial
and product development plans, forecasts, strategies and information), which to
the extent previously, presently, or subsequently disclosed to the Receiving
Party is hereinafter referred to as "Proprietary Information" of the Disclosing
Party.
In consideration of the parties' discussions and any access the Receiving Party
may have to Proprietary Information of the Disclosing Party, the Receiving Party
hereby agrees as follows:
1. The Receiving Party agrees (i) to hold the Disclosing Party's
Proprietary Information in confidence as a fiduciary and to take all
necessary precautions to protect such Proprietary Information
(including, without limitation, all precautions the Receiving Party
employs with respect to its confidential materials, (ii) not to
divulge any such Proprietary Information or any information derived
therefrom to any third person, (iii) not to make any use whatsoever at
any time of such Proprietary Information except to evaluate internally
whether to enter into the currently contemplated business relationship
with the Disclosing Party, (iv) not to copy or reverse engineer,
reverse, compile or attempt to derive the composition or underlying
information of any such Proprietary Information. Any employee
affiliated with the Receiving Party given access to any such
Proprietary Information shall be
Page 16
<PAGE>
similarly bound in writing. Without granting any right or license, the
Disclosing Party agrees that the foregoing shall not apply with
respect to information the Receiving Party can document (i) is in the
public domain (and is readily available without substantial effort) at
the time of disclosure or which thereafter enters the pubic domain
(and is readily available without substantial effort), through no
improper action or inaction by the Receiving Party or any affiliate,
agent or fellow employee, or (ii) is in its possession or known by it
other than by receipt from the Disclosing Party, or (iii) is
rightfully disclosed to it by another person without restriction, or
(iv) is independently developed without reference to the disclosed
information.
2. Immediately upon a request by the Disclosing Party at any time (which
will be effective if actually received or if mailed First class
postage prepaid to the Receiving Party's address herein), the
Receiving Party will turn over to the Disclosing Party all Proprietary
Information of the Disclosing Party and all documents or media
containing any such Proprietary Information and any and all copies or
extracts thereof. The Receiving Party understands that nothing herein
requires the Disclosing Party to proceed with any proposed transaction
or relationship in connection with which Proprietary Information may
be disclosed.
3. Except to the extent required by law, neither party shall disclose the
existence or subject matter of the negotiations or business
relationship contemplated by this Agreement.
4. The Receiving Party acknowledges and agrees that due to the unique
nature of the Disclosing Party's Proprietary Information, there can be
no adequate remedy at law for any breach of its obligations hereunder,
that any such breach may allow the Receiving Party or third parties to
unfairly compete with the Disclosing Party resulting in irreparable
harm to the Disclosing Party and therefore, that upon any such breach
or any threat thereof, the Disclosing Party shall be entitled to
appropriate equitable relief in addition to whatever remedies it might
have at law and to be indemnified by the Receiving Party from any loss
or harm, including, without limitation, attorney's fees, in connection
with any breach or enforcement of the Receiving Party's obligations
hereunder or the unauthorized use or release of any such Proprietary
Information. The Receiving Party will notify the Disclosing Party in
writing immediately upon the occurrence of any such unauthorized
release or other breach. In the event that any of the provisions of
this statement shall be held by a court order or other tribunal of
competent jurisdiction to be unenforceable, the remaining portions
hereof shall remain in full force and effect. This Agreement
supersedes all prior discussions and writings and constitutes the
entire agreement between the parties with respect to the
Page 17
<PAGE>
subject matter hereof. No waiver or modification of this Agreement
will be binding upon either party unless made in writing and signed by
a duly authorized representative of such party or the Receiving Party
and no failure or delay in enforcing any right will be deemed a
waiver.
5. This Agreement shall be governed by the laws of the State of
California, without regard to conflicts of laws provisions thereof and
each party submits to the jurisdiction and venue of any California
State or federal Courts generally serving the Santa Clara County area
with respect to the subject matter of the Agreement.
Digital Microwave Corporation, Microelectronics Technology Inc.
The Disclosing Party The Receiving Party
Tony Alva Allen Yen
Director of Product / Technology VP Sales & Special Assistants to
Transfer Chairman of Executive Committee
/s/ Tony Alva /s/ Allen Yen
- ------------------------------------- ----------------------------------
Signature Authorized Signature
1/20/98 2/6/98
- ------------------------------------- ----------------------------------
Acceptance Date Acceptance Date
Page 18
<PAGE>
APPENDIX F
PRODUCT TEST PROCEDURES
Page 19
<PAGE>
APPENDIX G
PRICING
- --------------------------------- ----------------------------------
PRODUCT PER UNIT PRODUCT COST PER UNIT
COST COST
- --------------------------------- ----------------------------------
M2 RF: PROT QPSK
- ------ ---------
M3:
---
N/P,SP, [*] 2X/4X [*]
RF
N/P,HP, [*] 8X/16X [*]
RF X
PROT,SP,RF [*]
PROT,HP,RF [*] TERMINAL PRICE:
---------------
N/P,SP,RF,4 [*]
E1
MDM QPSK M3: N/P,HP,RF,4 [*]
- ------------ E1
2X [*] PROT,SP,RF, [*]
4E1
4X [*] PROT,HP,RF [*]
,4E1
8X [*]
16X [*] N/P,SP,RF,16 [*]
E1
N/P,HP,RF,1 [*]
6E1
- ---------------------------------
PROT,SP,RF,16E1 [*]
PROT,HP,RF,16E1 [*]
- --------------------------------- ----------------------------------
Page 20
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[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
of financial condition and results of operations
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Factors That May Affect Future
Financial Results" and elsewhere in this Annual Report.
All data from prior years has been restated to reflect the Company's merger in
March 1998 with MAS Technology Limited ("MAS Technology"), a New Zealand
company, which designs, manufactures, markets, and supports digital microwave
radio links for the worldwide telecommunications market. See Note 9 of the Notes
to Consolidated Financial Statements.
OVERVIEW
Digital Microwave Corporation designs, manufactures, and markets advanced
wireless solutions for worldwide telephone network interconnection and access.
The Company was founded in 1984, and since its inception has shipped over 95,000
microwave radios worldwide.
The Company has equipment installed in over 70 countries, and a significant
portion of the Company's revenue is derived from sales outside the United
States. In Fiscal 1998, 1997, and 1996, 95%, 95%, and 89%, respectively, of the
Company's revenues were from sales for equipment and services outside the United
States.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of certain items
from the Company's consolidated statements of operations as a percentage of net
sales for the periods indicated:
<TABLE>
<CAPTION>
Years Ended March 31,
- ------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 63.5 64.9 77.5
-------------------------------
Gross profit 36.5 35.1 22.5
Research and development 6.4 6.3 7.5
Selling, general and administrative 18.7 20.6 18.4
Merger and restructuring 4.7 - -
-------------------------------
Operating income (loss) 6.7 8.2 (3.4)
Other income (expense), net 0.9 (0.4) 0.1
-------------------------------
Income (loss) before provision for income taxes 7.6 7.8 (3.3)
Provision (credit) for income taxes 1.2 1.3 (0.7)
-------------------------------
Net income (loss) 6.4% 6.5% (2.6)%
-------------------------------
-------------------------------
</TABLE>
YEAR ENDED MARCH 31, 1998 COMPARED TO YEAR ENDED MARCH 31, 1997
NET SALES. Net sales for Fiscal 1998 were $310.5 million, a 47% increase
compared to net sales of $211.3 million in Fiscal 1997. The increase in net
sales was due to higher sales in all the Company's major geographic areas. For
Fiscal 1998, net sales were $119.6 million in Europe, $95.8 million in the
Asia/Pacific region, $49.5 million in South America, $29.3 million in North
America, and $16.3 million in Africa compared to $81.0, $66.5, $26.3, $25.2, and
$12.3 million, respectively, in Fiscal 1997. See Note 8 of the Notes to
Consolidated Financial Statements. However, the Company expects a decline in net
sales for Fiscal 1999 in the Asia/Pacific region due to that region's current
economic and political instability.
The increase in net sales in Fiscal 1998 compared to Fiscal 1997 was also due to
the increased market acceptance of the SPECTRUM-TM- II product line and its
growing worldwide market. SPECTRUM II sales increased by 138% in Fiscal 1998
from Fiscal 1997 and accounted for 56% of total net sales in Fiscal 1998
compared to 35% in Fiscal 1997. In addition, the MAS Technology DXR-TM- product
line sales increased by 22% in Fiscal 1998 from Fiscal 1997 due to the increased
market acceptance of this product line.
GROSS PROFIT. Gross profit in Fiscal 1998 was higher than in Fiscal 1997
primarily due to a greater mix of SPECTRUM II product line shipments versus
older products and improved utilization of manufacturing capacity. Net sales for
Fiscal 1998 of SPECTRUM II increased to $175.3 million from $73.5 million in
Fiscal 1997. Net sales of the MAS Technology DXR product line increased to $30.6
million in Fiscal 1998 from $25.0 million in Fiscal 1997. Net sales of
QUANTUM-TM- decreased to $23.9 million in Fiscal 1998 from $29.5 million in
Fiscal 1997 primarily due to decreased customer demand for this product. Net
sales in Fiscal 1998 of the M Series product line, which has been largely
replaced by the SPECTRUM II product line, decreased to $13.6 million from $31.5
million in Fiscal 1997. Net sales for other products and services amounted to
$67.1 million in Fiscal 1998 compared to $51.8 million in Fiscal 1997.
The Company has seen its gross profit improve in Fiscal 1998; however, there can
be no assurance that the Company will be able to maintain its gross profit at
current levels. Of particular concern is the current economic and political
instability in the Asia/Pacific region and the intense competitive price
pressure of the telecommunications market, which results in downward pricing
pressure on the Company's products. See "Factors That May Affect Future
Financial Results."
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for Fiscal
1998 of $19.9 million were $6.7 million higher than the $13.2 million reported
in Fiscal 1997. This increase was primarily attributable to the Company's
development of its new Altium-TM- high-capacity wireless platform. The Altium
digital product line will
11
<PAGE>
be available in frequencies ranging from 6 to 38 Gigahertz ("GHz"). Product
shipments of certain frequencies of Altium radios are planned to begin in the
second half of Fiscal 1999. The Company will continue to invest in the
development of new products and features in order to maintain and enhance its
competitive position and as a result, expects research and development spending
to continue to increase in Fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for Fiscal 1998 increased by $14.6 million to $58.1
million from $43.5 million in Fiscal 1997. This increase was mostly attributable
to an increase in personnel, sales office, and related travel and expenses as
the Company continued to increase its worldwide sales and customer service and
support organization, as well as greater sales commissions resulting from the
Company's increased sales. In addition, goodwill amortization of $1.2 million,
which was related to the Company's acquisition of Granger, Inc. in May 1997 as
well as selling, general and administrative expenses of Granger Inc., partially
contributed to this increase.
MERGER AND RESTRUCTURING EXPENSES. Merger and restructuring expenses for Fiscal
1998 primarily included payments to the Company's investment bankers of $3.4
million for brokering the Company's merger with MAS Technology, legal and
accounting fees of $0.9 million, asset valuation reserves for inventory,
receivables, and warranty totaling $7.1 million, as well as various other costs
of $3.2 million relating to office closures and contract terminations.
INTEREST AND OTHER INCOME, NET. Interest and other income, net for Fiscal 1998
was $3.1 million compared to $0.4 million in Fiscal 1997. This increase
primarily resulted from interest income of $2.1 million on higher average cash
balances and from foreign exchange gains by MAS Technology.
INTEREST EXPENSE. Interest expense for Fiscal 1998 was $0.3 million compared to
$1.3 million in Fiscal 1997. The decrease in interest expense was primarily
attributable to lower average principal balances outstanding on the Company's
line of credit and note payable in Fiscal 1998.
PROVISION (CREDIT) FOR INCOME TAXES. The Company recorded an income tax
provision in Fiscal 1998 and 1997 at an effective rate of 16%. This was less
than the statutory rate primarily due to the utilization of the net operating
loss, tax credit, and other tax attributable carry-forwards. The Company
expects, assuming continued operating profitability, that the effective tax rate
will increase in Fiscal 1999, but that it will be less than the statutory rate
as the Company continues to benefit from its deferred tax asset.
YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH 31, 1996
NET SALES. Net sales for Fiscal 1997 were $211.3 million, a 23% increase
compared to net sales of $172.4 million in Fiscal 1996. The increase in net
sales was due to higher sales in all regions. For Fiscal 1997, net sales were
$81.0 million in Europe, $66.5 million in the Asia/Pacific region, $51.5 million
in the Americas, and $12.3 in Africa compared to $75.5 million, $47.6 million,
$43.4 million, and $5.9 million, respectively, in Fiscal 1996.
The increase in net sales in Fiscal 1997 compared to Fiscal 1996 was also due to
the rapid market acceptance of the SPECTRUM II product line after its first
commercial shipment in 1995. SPECTRUM II accounted for 35% of total net sales in
Fiscal 1997 compared to 15% in Fiscal 1996. MAS Technology's sales increased 32%
in Fiscal 1997 compared to Fiscal 1996 due to increased customer demand for the
DXR product line.
GROSS PROFIT. Gross profit in Fiscal 1997 was higher than in Fiscal 1996
primarily due to the Company's shift in product mix toward the SPECTRUM II
product line, which began shipping in July 1995. In addition, an increase in the
number of MAS Technology DXR products sold, combined with an increase in the
average selling price of the MAS Technology DXR product, contributed to a
greater gross profit in Fiscal 1997 as compared to Fiscal 1996. In Fiscal 1997,
the Company instituted a formal process improvement program, entitled "Operation
NewWave," to improve manufacturing operations, product development cycle time,
and asset utilization. The Company started to see results from this program with
improved gross margins and better inventory turnover. A shift in product mix
also increased gross profit. Fiscal 1996 was negatively impacted by the
shipments of approximately $9.0 million of M Series and other products to
E-Plus, a major European customer, at no margin due to delays in completion of
the SPECTRUM II product. See Note 7 of Notes to Consolidated Financial
Statements. Fiscal 1996 also included provisions for excess and obsolete
inventory of approximately $7.0 million, unabsorbed manufacturing expenses due
to lower production volume, rework expenses, and other costs related to the
startup of SPECTRUM II production. The additional inventory reserves were
necessary as a result of the changes in the Company's product line focus with
the introduction of the SPECTRUM II product line, as well as changes in customer
requirements. Net sales for Fiscal 1997 of SPECTRUM II increased to $73.5
million from $25.6 million in Fiscal 1996. Net sales of QUANTUM increased to
$29.5 million in Fiscal 1997 from $12.9 million in Fiscal 1996. Net sales in
Fiscal 1997 of the M Series product line, which has been largely replaced by the
SPECTRUM II product line, decreased to $31.5 million from $63.1 million in
Fiscal 1996. Net sales for other products and services, including MAS Technology
sales, amounted to $76.8 million in Fiscal 1997 compared to $70.8 million in
Fiscal 1996.
12
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for Fiscal
1997 of $13.2 million were $0.3 million more than the $12.9 million reported in
Fiscal 1996. This increase was primarily attributable to the roll out of the MAS
Technology DXR product line. However, as a percentage of sales, research and
development expenses decreased. This decrease was primarily attributable to
lower project costs in connection with the SPECTRUM II product as it
transitioned from its initial development stage to production.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for Fiscal 1997 increased by $11.8 million to $43.5
million from $31.7 million in Fiscal 1996. This increase was mostly attributable
to an increase in personnel, sales office, and related travel expenses as the
Company continued to increase its worldwide sales and customer service and
support organization. Also contributing to the increase were consulting fees
related to the company-wide process improvement program, a higher provision for
uncollectable accounts receivable, primarily related to one customer in Asia, as
well as profit-sharing and management bonus expenses due to the improved
profitability of the Company during Fiscal 1997.
INTEREST AND OTHER INCOME, NET. Interest and other income, net for Fiscal 1997
was $0.4 million compared to $2.1 million in Fiscal 1996. Fiscal 1996 included
interest income related to income tax refunds of $0.4 million and gain on the
sale of investments of $0.7 million. There were no similar items in Fiscal 1997.
The Company's foreign exchange gains were $0.6 million higher in Fiscal 1996
compared to Fiscal 1997.
INTEREST EXPENSE. Interest expense for Fiscal 1997 was $1.3 million compared to
$2.0 million in Fiscal 1996. The decrease in interest expense was primarily
attributable to lower average principal balances outstanding on the Company's
line of credit and note payable in Fiscal 1997.
PROVISION (CREDIT) FOR INCOME TAXES. The Company recorded an income tax
provision in Fiscal 1997 at an effective rate of 16%. This was less than the
statutory rate primarily due to the utilization of the net operating loss, tax
credit, and other tax carry-forwards. For Fiscal 1996, the Company recorded a
net tax benefit of $1.2 million. The net tax benefit included a $2.0 million tax
benefit resulting from the completion of an IRS audit of the Fiscal years ended
March 31, 1990 through 1994, and the receipt of tax refunds resulting from a
favorable IRS letter ruling. The ruling allowed the Company to carry-back and
obtain a refund for certain net tax operating losses incurred in Fiscal 1995.
The $0.8 million difference between the total net tax benefit and the tax
benefit recorded as a result of the IRS audit settlement represents a tax
provision on income earned in foreign jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
In Fiscal 1998, the Company's cash and short-term investments decreased by $18.0
million. Proceeds from the sale of ordinary shares related to a public offering
by MAS Technology prior to its merger with the Company, and from the exercise of
Company stock options by employees, generated cash in the amount of $32.7
million. This was offset by the acquisition of Granger, Inc. for $14.7 million,
the purchase of a minority interest in Granger Associates, Ltd. for $4.0
million, and investments in property and equipment of $22.6 million.
Accounts receivable increased by 29% during Fiscal 1998 compared to Fiscal 1997,
while sales increased by 47% in Fiscal 1998 as compared to Fiscal 1997. Net
inventories increased by 18% in Fiscal 1998 compared to the prior year due to
the Company's growth in sales. Inventory reserves increased in Fiscal 1998
compared to Fiscal 1997 due primarily to the phase-out of older product lines.
Deferred taxes increased in Fiscal 1998 primarily due to timing differences of
certain expenses, such as inventory reserves.
Accounts payable increased by 13% in Fiscal 1998 compared to Fiscal 1997 as a
result of the sales growth that generated increased inventory and operating
expenses. The 6% decrease in accrued liabilities was due primarily to a
reduction in customer deposits, which was partially offset by an acquisition and
restructuring accrual related to the Company's merger with MAS Technology.
At March 31, 1998, the Company had an unsecured $20 million credit facility with
a major U.S. bank that expires on June 30, 1998. The facility provides
borrowings at either (a) the greater of the bank's prime reference rate or the
federal funds rate plus 0.5% per annum (8.50% at March 31, 1998) or (b) the
applicable London Interbank Offering Rate plus 1% per annum. At March 31, 1998,
there were no borrowings outstanding under this credit facility, and $19.6
million of credit was available, net of outstanding letters of credit. The
credit facility agreement requires the Company to maintain certain financial
covenants, including various liquidity and debt ratios, minimum tangible net
worth, and profitability requirements. At March 31, 1998, the Company was in
compliance with the requirements of the facility. The Company is currently
negotiating an increase in and extension of this credit facility.
The Company believes that it will be necessary to borrow against its credit
facility to meet both its working capital and capital expenditure requirements
through Fiscal 1999. Management believes that the Company will receive an
increase in and an extension of its credit facility; however, there can be no
assurance that this will occur. In the event that the Company's credit facility
is not increased or extended, management will attempt to
13
<PAGE>
obtain additional financing from other sources; however, there can be no
assurance that the Company will be able to obtain such additional financing in
the required time frame on commercially reasonable terms, or at all. In the
event that the credit facility is not extended and such additional financing is
not available, management will implement plans to reduce the Company's cash
requirements through a combination of reductions in working capital, equipment
purchases and operating expenditures. Management believes that such plans
combined with existing cash balances and other sources of liquidity will enable
the Company to meet its cash requirements through Fiscal 1999. However, there
can be no assurance that the Company can implement these plans or that it can do
so without a material adverse effect on the Company's business, financial
results or results of operations.
FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS
The Stockholders' Letter and discussions in this Annual Report concerning the
Company's future products, expenses, revenues, gross margins, liquidity, and
cash needs, as well as the Company's plans and strategies, contain
forward-looking statements concerning the Company's future operations and
financial results. These forward-looking statements are based on current
expectations, and the Company assumes no obligation to update this information.
Numerous factors, such as economic and competitive conditions, timing and volume
of incoming orders, shipment volumes, product margins, and foreign exchange
rates, could cause actual results to differ materially from those described in
these statements, and prospective investors and stockholders should carefully
consider the factors set forth below in evaluating these forward-looking
statements. The Company's backlog may not be representative of actual sales for
any succeeding period because of the timing of orders, delivery intervals,
customer and product mix, and the possibility of changes in delivery schedules
and additions or cancellation of orders.
The quarterly operating results of the Company can vary significantly depending
on several factors, any of which could have a material adverse effect on the
Company's business, financial condition or results of operations. In particular,
the Company's quarterly results of operations can vary due to the volume and
timing of product orders received and delivered during the quarter, the ability
of the Company and its key suppliers to respond to changes made by customers in
their orders, and the timing of new product introductions by the Company and its
competitors. The quarterly operating results also may vary significantly
depending on other factors, including the mix of product sold, the cost and
availability of components and subsystems, relative prices of the Company's
products, adoption of new technologies and industry standards, competition,
fluctuations in foreign currency exchange rates, regulatory developments, and
general economic conditions.
Manufacturers of digital microwave telecommunications equipment are
experiencing, and are likely to continue to experience, intense price pressure,
which has resulted, and is expected to continue to result, in downward pricing
pressure on the Company's products. As a result, the Company has experienced,
and expects to continue to experience, declining average sales prices for its
products. The Company's future profitablility is dependent upon its ability to
continue to improve manufacturing efficiencies, reduce material costs of
products, and introduce new products and product enhancements.
The markets for the Company's products are extremely competitive, and the
Company expects that competition will increase. The Company's existing and
potential competitors include established and emerging companies, such as L.M.
Ericsson, Siemens AG, Farinon Division of Harris Corporation, P-COM, Alcatel,
Nokia, Innova, NERA, NEC, and SIAE, many of which have more extensive
engineering, manufacturing, and marketing capabilities and significantly greater
financial, technical, and personnel resources than the Company. The Company
believes that its ability to compete successfully will depend on a number of
factors both within and outside its control, including price, quality,
availability, customer service and support, breadth of product line, product
performance and features, rapid delivery, reliability, timing of new product
introductions by the Company, its customers and its competitors, and the ability
of its customers to obtain financing. The Company continues to experience
customer demands for shorter delivery cycles. The Company increased its
inventory levels in order to respond to this demand which, in turn, may increase
the risk of obsolescence of its inventories.
The Company expects that international sales will continue to account for the
majority of its net product sales for the foreseeable future. As a result, the
Company is subject to the risks of doing business internationally, including
unexpected changes in regulatory requirements, fluctuations in foreign currency
exchange rates, imposition of tariffs and other barriers and restrictions, the
burdens of complying with a variety of foreign laws, and general economic and
geopolitical conditions, including inflation and trade relation-ships. In
addition, recent economic events in Asia, including depreciation of certain
Asian currencies, failures of financial institutions, stock market declines, and
reduction in planned capital investment at key enterprises, may continue to
adversely impact the Company's revenues in Asian markets. There can be no
assurance that currency fluctuations, changes in the rate of inflation or any of
the aforementioned factors will not have a material adverse effect on the
Company's business, financial conditions or results of operations.
The Company's manufacturing operations are highly dependent upon the delivery of
materials by outside suppliers in a timely manner. In addition, the Company
depends in part upon subcontractors to assemble major components and subsystems
used in its products in a timely and satisfactory manner. The Company does not
generally enter into long-term or volume purchase agreements with any of its
suppliers, and no assurance
14
<PAGE>
can be given that such materials, components, and subsystems will be available
in the quantities required by the Company, if at all. The inability of the
Company to develop alternative sources of supply quickly and on a cost-effective
basis could materially impair the Company's ability to manufacture and deliver
its products in a timely manner. There can be no assurance that the Company will
not experience material supply problems or component or subsystem delays in the
future.
The Company has pursued, and will continue to pursue, growth opportunities
through internal development and acquisitions of complementary businesses and
technologies. Acquisitions may involve difficulties in the retention of
personnel, diversion of manage-ment's attention, unexpected legal liabilities,
and tax and accounting issues. There can be no assurance that the Company will
be able to successfully identify suitable acquisition candidates, complete
acquisitions, integrate acquired businesses into its operations, or expand into
new markets. Once integrated, acquired businesses may not achieve comparable
levels of revenues, profitability, or productivity as the existing business of
the Company or otherwise perform as expected. The Company's failure to manage
its growth effectively could have a material adverse effect on the Company's
business, financial condition, and results of operations.
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is concerned with whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Year 2000 problem is pervasive and complex, as virtually
every company's computer operation will be affected in some way. The Company's
computer programs, which process its operational and financial transactions,
were designed and developed without considering the impact of the upcoming
change in century. If not corrected, the Company's computer programs could fail
or create erroneous results by or at the year 2000. The Company has purchased
new computer programs to address this issue and intends to implement these
applications during Fiscal 1999. The Company is contacting its primary suppliers
and subcontractors to determine that they are developing plans to address
processing transactions in the year 2000 and to monitor their progress toward
Year 2000 capability. The Company believes that it will expend approximately
$0.5 million for investigating and remedying issues related to Year 2000
compliance involving its internal operations. Management believes that the Year
2000 compliance expenses will not have a material adverse effect on the
Company's earnings. However, there can be no assurance that Year 2000 problems
will not occur with respect to the Company's computer systems. The Year 2000
problem may impact other entities with which the Company transacts business, and
the Company cannot predict the effect of the Year 2000 problem on such entities.
During any given quarter, a small number of customers may account for a
significant portion of the Company's net sales. The Company's customers
typically are not contract-ually obligated to purchase any quantity of products
in any particular period, and product sales to major customers have varied
widely from period to period. The loss of any existing customer, a significant
reduction in the level of sales to any existing customer, or the failure of the
Company to gain additional customers could have a material adverse effect on the
Company's business, financial condition, and results of operations.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended March 31,
- ----------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Net sales $310,490 $211,337 $172,418 $165,148 $126,236
Net income (loss) 19,878 13,790 (4,472) 2,567 (22,874)
Diluted net income
(loss) per share 0.42 0.35 (0.12) 0.07 (0.69)
CONSOLIDATED BALANCE
SHEETS DATA:
Total assets $240,400 $193,199 $106,850 $109,500 $ 87,504
Long-term liabilities 204 158 2,783 6,362 459
</TABLE>
15
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Years Ended March 31,
- ---------------------------------------------------------------------------------
1998 1997
---------------------
(In thousands, except share
and per share amounts)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 25,130 $ 40,374
Short-term investments 15,220 17,947
Accounts receivable, net of allowance
of $3,795 in 1998 and $3,362 in 1997 74,897 57,873
Inventories 60,981 51,469
Deferred tax asset 6,685 361
Other current assets 8,896 5,232
---------------------
Total current assets 191,809 173,256
---------------------
PROPERTY AND EQUIPMENT:
Machinery and equipment 56,308 41,921
Land and buildings 4,125 1,575
Furniture and fixtures 8,749 7,341
Leasehold improvements 3,332 2,120
---------------------
72,514 52,957
Accumulated depreciation and amortization (39,986) (33,757)
---------------------
Net property and equipment 32,528 19,200
---------------------
Other assets 16,063 743
---------------------
$240,400 $193,199
---------------------
---------------------
</TABLE>
<TABLE>
<CAPTION>
Years Ended March 31,
- ---------------------------------------------------------------------------------
1998 1997
---------------------
(In thousands, except share
and per share amounts)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit $ - $ 6,601
Current maturities
of capital lease obligations 238 681
Accounts payable 33,793 29,824
Income taxes payable 1,298 2,440
Accrued liabilities 26,373 28,188
---------------------
Total current liabilities 61,702 67,734
LONG-TERM LIABILITIES:
Capital lease obligations,
net of current maturities 204 158
---------------------
Total liabilities 61,906 67,892
---------------------
COMMITMENTS AND CONTINGENCIES
(NOTE 4) STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized;
none outstanding - -
Common stock, $.01 par value;
95,000,000 shares authorized;
46,663,581 shares in 1998 and 37,021,138
shares in 1997 issued and outstanding 466 370
Additional paid-in capital 158,707 123,899
Unrealized holding loss on
available-for-sale securities (17) (63)
Retained earnings 20,936 1,058
Cumulative translation adjustment (1,598) 43
---------------------
Total stockholders' equity 178,494 125,307
---------------------
$240,400 $193,199
---------------------
---------------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
16
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended March 31,
- --------------------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
NET SALES: $ 310,490 $ 211,337 $ 172,418
Cost of sales 197,048 137,261 133,612
----------------------------------------
Gross profit 113,442 74,076 38,806
----------------------------------------
OPERATING EXPENSES:
Research and development 19,879 13,225 12,885
Selling, general and administrative 58,053 43,513 31,707
Merger and restructuring 14,602 - -
----------------------------------------
Total operating expenses 92,534 56,738 44,592
----------------------------------------
Income (loss) from operations 20,908 17,338 (5,786)
Other income (expense):
Interest income 2,486 371 538
Interest expense (310) (1,333) (1,968)
Other income (expense), net 652 49 1,569
----------------------------------------
Total other income (expense) 2,828 (913) 139
----------------------------------------
Income (loss) before provision (credit) for income taxes 23,736 16,425 (5,647)
Provision (credit) for income taxes 3,858 2,635 (1,175)
----------------------------------------
NET INCOME (LOSS) $ 19,878 $ 13,790 $ (4,472)
----------------------------------------
----------------------------------------
Basic earnings (loss) per share $ 0.44 $ 0.36 $ (0.12)
Diluted earnings (loss) per share $ 0.42 $ 0.35 $ (0.12)
Basic weighted average shares outstanding 45,361 38,611 37,944
Dilutive stock options 1,968 1,276 -
----------------------------------------
Diluted weighted average shares outstanding 47,329 39,887 37,944
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended March 31, 1998, 1997, and 1996
- --------------------------------------------------------------------------------------------------------
Common Additional Unrealized
Stock Paid-in Holding
Shares Amount Capital Gain (Loss)
-------------------------------------------------
(In thousands, except share amounts)
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1995 26,935,386 $269 $ 46,101 $ -
Sale of stock to private investors 4,127,964 41 19,051 -
Stock options exercised 578,216 6 2,096 -
Tax benefits related to employee stock
transactions - - 55 -
Net loss - - - -
-------------------------------------------------
BALANCE, MARCH 31, 1996 31,641,566 316 67,303 -
Sale of stock in secondary offering 4,400,000 44 51,546 -
Stock options exercised 979,572 10 4,765 -
Tax benefit related to employee stock transactions - - 285 -
Unrealized holding loss on available-for-sale
securities - - - (63)
Net income - - - -
Translation adjustment - - - -
-------------------------------------------------
BALANCE, MARCH 31, 1997 37,021,138 370 123,899 (63)
Proceeds from sale of stock 8,327,894 83 24,786 -
Stock options exercised 1,314,549 13 7,830 -
Tax benefit related to employee stock transactions - - 2,192 -
Unrealized holding gain on available-for-sale
securities - - - 46
Net income - - - -
Translation adjustment - - - -
-------------------------------------------------
BALANCE, MARCH 31, 1998 46,663,581 $466 $158,707 $(17)
-------------------------------------------------
-------------------------------------------------
<CAPTION>
Years Ended March 31, 1998, 1997, and 1996
- -------------------------------------------------------------------------------------------------
Retained Cumulative Total
Earnings Translation Stockholders'
(Deficit) Adjustment Equity
-------------------------------------------
(In thousands, except share amounts)
<S> <C> <C> <C>
BALANCE, MARCH 31, 1995 $ (8,260) $ - $ 38,110
Sale of stock to private investors - - 19,092
Stock options exercised - - 2,102
Tax benefits related to employee stock
transactions - - 55
Net loss (4,472) - (4,472)
-------------------------------------------
BALANCE, MARCH 31, 1996 (12,732) - 54,887
Sale of stock in secondary offering - - 51,590
Stock options exercised - - 4,775
Tax benefit related to employee stock transactions - - 285
Unrealized holding loss on available-for-sale
securities - - (63)
Net income 13,790 - 13,790
Translation adjustment - 43 43
-------------------------------------------
BALANCE, MARCH 31, 1997 1,058 43 125,307
Proceeds from sale of stock - - 24,869
Stock options exercised - - 7,843
Tax benefit related to employee stock transactions - - 2,192
Unrealized holding gain on available-for-sale
securities - - 46
Net income 19,878 - 19,878
Translation adjustment - (1,641) (1,641)
-------------------------------------------
BALANCE, MARCH 31, 1998 $ 20,936 $(1,598) $ 178,494
-------------------------------------------
-------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended March 31,
- -------------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 19,878 $ 13,790 $ (4,472)
Adjustments to reconcile net
income (loss) to net cash provided
by (used for) operating activities: 356 1,400 580
Depreciation and amortization 12,862 4,271 8,795
Provision for uncollectable accounts 5,310 2,385 1,678
Provision for inventory reserves 2,192 285 -
Provision for warranty reserves
Tax benefit of disqualifying dispositions
Changes in assets and liabilities:
Increase in accounts receivable (18,320) (19,818) (3,464)
Increase in inventories (23,510) (17,147) (128)
Increase in deferred taxes (6,496) (193) (351)
Decrease in tax refund receivable - - 1,820
(Increase) decrease in other current assets (3,444) (548) 1,441
Increase (decrease) in accounts payable 5,556 8,272 (2,580)
Increase (decrease) in income tax payable (1,065) 1,072 (96)
Increase (decrease) in other
accrued liabilities (5,810) 4,594 523
---------------------------------------
Net cash provided by
(used for) operating activities (1,604) 5,080 10,481
</TABLE>
<TABLE>
<CAPTION>
Years Ended March 31,
- -------------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities (8,671) (17,947) -
Maturity/sale of available-for-sale securities 11,327 - -
Purchase of property and equipment (22,576) (9,255) (4,922)
Acquisition of business, net of cash received (11,491) (374) -
Investment in Granger Associates, Ltd. (4,000) - -
Proceeds from disposal of fixed assets - 61 -
Net cash used for investing activities (35,411) (27,515) (4,922)
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from banks - 20,245 16,188
Repayments to banks (6,159) (21,561) (29,682)
Exchange gains (losses) from currency hedging 1,070 (10) 637
Payment of assumed Granger, Inc. debt (3,286) - -
Payments of capital lease obligations (1,056) (1,025) (1,119)
Sale of common stock 32,712 55,329 15,812
---------------------------------------
Net cash provided by financing activities 23,281 52,978 1,836
Effect of exchange rate changes on cash (1,510) (72) (559)
---------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (15,244) 30,471 6,836
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 40,374 9,903 3,067
---------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 25,130 $ 40,374 $ 9,903
---------------------------------------
---------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
Digital Microwave Corporation (the "Company") designs, manufactures, and markets
advanced wireless solutions for worldwide telephone network interconnection and
access. Transmitting and receiving multiple digital lines, the Company's
high-performance digital microwave systems carry voice, data, and digitized
video signals across a full spectrum of frequencies and capacities. The Company
has sold over 95,000 radios, which operate in nearly every kind of environment
around the world. The Company was founded in January 1984, and is traded under
the symbol DMIC on the Nasdaq National Market.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of Digital Microwave Corporation and its wholly owned subsidiaries.
Intercompany accounts and transactions have been eliminated. Prior year
information has been restated to reflect the merger with MAS Technology Limited
("MAS Technology"), a New Zealand company which designs, manufactures, markets,
and supports digital microwave radio links for the worldwide telecommunications
market.
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, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS. For purposes of the Consolidated Statements of Cash
Flows, the Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
The following is a summary of cash and cash equivalents as of March 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
-------------------
(In thousands)
<S> <C> <C>
Cash and money market funds $ 25,130 $ 16,583
U.S. Treasuries and government agencies - 4,844
Commercial paper - 18,947
-------------------
Total cash and cash equivalents $ 25,130 $ 40,374
-------------------
-------------------
</TABLE>
SHORT-TERM INVESTMENTS. The Company invests its excess cash in high-quality and
easily marketable instruments to ensure cash is readily available for use in its
current operations. Accordingly, all of the Company's marketable securities are
classified as "available-for-sale" in accordance with the provisions of the
Statement of Financial Accounting Standards No. 115. At March 31, 1998, the
Company's available-for-sale securities had contractual maturities ranging from
1 month to 19 months, with a weighted average maturity of 5 months.
All short-term investments are reported at fair market value with the related
unrealized holding gains and losses reported as a component of stockholders'
equity. Unrealized holding losses on the portfolio of approximately $17,000 and
$63,000 were recorded as of March 31, 1998 and 1997, respectively. There were
realized gains of approximately $6,000 on the sale of securities during Fiscal
1998, and no realized gains or losses on sales of securities during Fiscal 1997
and Fiscal 1996.
The following is a summary of short-term investments as of March 31:
<TABLE>
<CAPTION>
1998
- -----------------------------------------------------------------------------------------
MARKET
VALUE AT UNREALIZED
COST AT BALANCE SHEET HOLDING
EACH ISSUE DATE GAIN (LOSS)
----------------------------------------
(In thousands)
<S> <C> <C> <C>
CORPORATE NOTES $13,737 $ 13,720 $(17)
MUNICIPAL NOTES 500 500 -
AUCTION RATE PREFERRED NOTES 1,000 1,000 -
----------------------------------------
TOTAL $15,237 $ 15,220 $(17)
----------------------------------------
----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997
- -----------------------------------------------------------------------------------------
Market
Value at Unrealized
Cost at Balance Sheet Holding
Each Issue Date Gain (Loss)
----------------------------------------
(In thousands)
<S> <C> <C> <C>
Corporate notes $15,010 $14,947 $ (63)
Auction rate preferred notes 3,000 3,000 -
----------------------------------------
Total $18,010 $17,947 $ (63)
----------------------------------------
----------------------------------------
</TABLE>
20
<PAGE>
SUPPLEMENTAL STATEMENTS OF CASH FLOWS DISCLOSURES. Cash paid for interest and
income taxes for each of the three fiscal years presented in the consolidated
statements of cash flows was as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
- --------------------------------------------------------------------------------
1998 1997 1996
-----------------------------
(In thousands)
<S> <C> <C> <C>
Interest $ 310 $1,324 $ 1,864
Income taxes $ 8,885 $1,754 $ 813
</TABLE>
The following non-cash transactions occurred during the fiscal years:
<TABLE>
<CAPTION>
Years Ended March 31,
- --------------------------------------------------------------------------------
1998 1997 1996
-----------------------------
(In thousands)
<S> <C> <C> <C>
Tax benefit related to employee
stock transactions $ 2,192 $ 285 $ 55
Property purchased under capital leases $ - $ - $ 1,324
Reduction of accounts payable to vendor
in connection with the sale of stock $ - $ - $ 5,000
</TABLE>
INVENTORIES. Inventories are stated at the lower of cost (first-in, first-out)
or market, where cost includes material, labor, and manufacturing overhead.
Inventories consisted of:
<TABLE>
<CAPTION>
Years Ended March 31,
1998 1997
---------------------
(In thousands)
<S> <C> <C>
Raw materials $ 23,524 $ 20,132
Work-in-process 18,545 16,753
Finished goods 18,912 14,584
---------------------
$ 60,981 $ 51,469
---------------------
---------------------
</TABLE>
Inventories contained components and assemblies in excess of the Company's
current estimated requirements and were, therefore, reserved at March 31, 1998
and 1997. In Fiscal 1998, the Company charged $7.1 million to cost of sales due
to ongoing inventory valuation analysis and approximately $5.8 million to
restructuring costs for excess and obsolete inventories as a result of product
transitions.
PROPERTY AND EQUIPMENT. Property and equipment is stated at cost. Depreciation
and amortization are calculated using the straight-line method over the shorter
of the estimated useful lives of the assets (ranging from three to five years
for equipment and furniture, and forty years for buildings) or the lease term.
Included in property and equipment are assets held under capital leases with a
cost of $1,303,000 and $2,691,000 for Fiscal 1998 and 1997, respectively.
Accumulated amortization on leased assets was $594,000 and $1,016,000 as of
March 31, 1998 and 1997, respectively.
OTHER ASSETS. Other assets include goodwill and other intangible assets which
are being amortized on a straight line basis over their useful lives ranging
from five to ten years, as well as minority investments accounted for using the
cost method of accounting. Goodwill is the excess of the purchase price over the
fair value of net assets acquired. At March 31, 1998 and 1997, goodwill amounted
to $12,574,000 and $767,000, respectively, gross of accumulated amortization.
Accumulated amortization of goodwill amounted to $1,215,000 and $25,000 at March
31, 1998 and 1997, respectively.
Effective April 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," which did not have a material effect on
the Company's financial condition or results of operations.
ACCRUED LIABILITIES. Accrued liabilities included the following:
<TABLE>
<CAPTION>
Years Ended March 31,
- ---------------------------------------------------------------------------------
1998 1997
--------------------
(In thousands)
<S> <C> <C>
Customer deposits $ 3,387 $ 9,954
Accrued contract obligations (See Note 7) 1,038 1,632
Accrued payroll and benefits 5,079 4,810
Accrued commissions 6,162 4,131
Accrued warranty 3,097 2,923
Accrued restructuring 4,520 -
Accrued professional fees 1,108 1,982
Other 1,982 2,756
--------------------
$ 26,373 $ 28,188
--------------------
</TABLE>
21
<PAGE>
FOREIGN CURRENCY TRANSLATION. The functional currency of the Company's
subsidiaries located in the United Kingdom and Latin America is the U.S. dollar.
Accordingly, all of the monetary assets and liabilities of these subsidiaries
are remeasured into U.S. dollars at the current exchange rate as of the
applicable balance sheet date, and all non-monetary assets and liabilities are
remeasured at historical rates. Sales and expenses are remeasured at the average
exchange rate prevailing during the period. Gains and losses resulting from the
remeasurement of the subsidiaries' financial statements are included in the
Consolidated Statements of Operations. The Company's other international
subsidiaries use their local currency as their functional currency. Assets and
liabilities of these subsidiaries are translated at the exchange rates in effect
at the balance sheet date, and income and expense accounts are translated at the
average exchange rates during the year. The resulting translation adjustments
are recorded directly to a separate component of stockholders' equity.
Gains and losses resulting from foreign exchange transactions are included in
other income (expense) in the accompanying Consolidated Statements of
Operations. The net foreign exchange gain was $1,070,000 in Fiscal 1998, a loss
of $10,000 in Fiscal 1997, and a $637,000 gain in Fiscal 1996.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS. The Company hedges certain portions of
its exposure to foreign currency fluctuations through the use of forward foreign
exchange contracts. The Company enters into foreign exchange contracts for
purposes other than trading, but not to engage in any foreign currency
speculation. Forward foreign exchange contracts represent agreements to buy or
sell a specified amount of foreign currency at a specified price in the future.
These contracts generally have maturities that do not exceed one month. At March
31, 1998, the Company had forward foreign exchange contracts to exchange various
foreign currencies for U.S. dollars in the aggregate amount of $36.9 million.
Gains and losses associated with currency rate changes on forward foreign
exchange contracts are recorded currently in income as they offset corresponding
gains and losses on the foreign currency-denominated assets and liabilities
being hedged. Therefore, the carrying value of forward foreign exchange
contracts approximates their fair value. The Company believes that the credit
risk with respect to its forward foreign exchange contracts is minimal because
the Company enters into contracts with very large financial institutions. Market
risk with respect to forward foreign exchange contracts is offset by the
corresponding exposure related to the underlying assets and liabilities.
CONCENTRATION OF CREDIT RISK. Financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of temporary cash
investments and trade receivables. The Company has cash investment policies that
limit the amount of credit exposure to any one financial institution and
restrict placement of investments with financial institutions evaluated as
highly credit worthy. Trade receiv-ables concentrated with certain customers
primarily in the telecommunications industry and in certain geographic locations
potentially subject the Company to concentration of credit risk. The Company
actively markets and sells products in North America, Europe, the Far East, the
Pacific, Africa, the Middle East, and Central and South America. The Company
performs ongoing credit evaluations of its customers' financial conditions and
generally requires no collateral.
REVENUE RECOGNITION. Revenue from product sales is generally recognized upon
shipment and is net of third-party commissions, freight, and duty charges.
Service revenue, which is less than 10% of net sales for each of the three
fiscal years presented, is recognized when the related services are performed.
PRODUCT WARRANTY. The Company provides, at the time of sale, for the estimated
cost to repair or replace products under warranty.
RESEARCH AND DEVELOPMENT. All research and development costs are expensed as
incurred.
NET INCOME (LOSS) PER SHARE. Stockholders approved a two-for-one stock split
paid in the form of a stock dividend in November 1997. Accordingly, all share
and earnings per share data for all periods presented have been adjusted to
reflect the stock split.
In February 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement on Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share," which became effective on December 15, 1997. As a result, the Company's
reported earnings per share, after adjustment for the November 1997 stock split,
for the prior two years were restated. Under the new requirements, primary
earnings per share have been replaced with basic earnings per share, and fully
diluted earnings per share have been replaced with diluted earnings per share.
Under SFAS 128, basic earnings per share are computed by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share are computed by dividing net income by the weighted
average number of common shares and dilutive stock options outstanding during
the period. Net loss per share is computed using only the weighted average
number of common shares outstanding during the period, as the inclusion of
common equivalent shares would be anti-dilutive.
As of March 31, 1998 and 1997, there were 151,000 and 429,000 weighted average
options outstanding, respectively, to purchase shares of Common Stock that were
not included in the computation of diluted earnings per share as the options'
exercise prices
22
<PAGE>
were greater than the average market price of the shares of Common Stock for the
respective years. Additionally, as of March 31, 1996, there were 1,588,000
weighted average options outstanding to purchase shares of Common Stock that
were not included in the computation of diluted earnings per share because they
were anti-dilutive as a result of the net loss incurred in Fiscal 1996.
STOCK COMPENSATION. Effective April 1, 1996, the Company adopted the disclosure
provisions of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation." In accordance with the provisions of SFAS 123,
the Company applies APB Opinion 25 and related interpretations in accounting for
its stock option plans. Note 6 of the Notes to Consolidated Financial Statements
contains a summary of the pro forma effects on reported net income and earnings
per share for Fiscal 1998, 1997, and 1996 based on the fair market value of the
options granted at the grant date as prescribed by SFAS 123.
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1997, the FASB issued Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components in general purpose financial statements. Also, in June
1997, the FASB issued Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures About Segments of an Enterprise and Related Information," which
establishes annual and interim reporting standards for business segments of a
company and related disclosures. Both SFAS No. 130 and SFAS No. 131 are
effective for companies with fiscal years beginning after December 15, 1997. The
Company believes that the adoption of these new pronouncements will not have a
material effect on the Company's financial statements.
NOTE 3. CREDIT ARRANGEMENTS
At March 31, 1998, the Company had an unsecured $20 million credit facility with
a major U.S. bank that expires on June 30, 1998. The facility provides
borrowings at either (a) the greater of the bank's prime reference rate or the
federal funds rate plus 0.5% per annum (8.50% at March 31, 1998) or (b) the
applicable London Interbank Offering Rate plus 1% per annum. At March 31, 1998,
there were no borrowings outstanding under this credit facility, and $19.6
million of credit was available net of outstanding letters of credit. The credit
facility agreement requires the Company to maintain certain financial covenants,
including various liquidity and debt ratios, minimum tangible net worth, and
profitability requirements. The Company is currently negotiating an increase in
and extension of this credit facility.
On June 30, 1997, the Company repaid in full all of the outstanding borrowings
under a $25 million credit facility with a U.S. bank and a credit company, which
credit facility expired on that date. In April 1997, the Company had exercised
its option to terminate the facility as of June 30, 1997 and notified the
lenders of its intent. The facility was secured by certain assets of the Company
and had required minimum borrowings of $2 million.
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment, as well as its headquarters
and manufacturing facilities, under noncancelable operating and capital leases
which expire at various periods through 2018. At March 31, 1998, future minimum
payment obligations under these leases were as follows:
<TABLE>
<CAPTION>
Years Ending March 31,
- -----------------------------------------------------------------------------------
Capital Operating
-----------------------
(In thousands)
<S> <C> <C>
1999 $ 265 $ 3,837
2000 103 3,466
2001 82 3,192
2002 30 1,886
2003 11 125
2004 and beyond - 1,626
-----------------------
Future minimum lease payments 491 $14,132
----------
----------
Less amount representing interest (9% to 12%) (49)
---------
Present value of future minimum lease payments 442
Less current maturities (238)
---------
Long-term lease obligations $ 204
---------
---------
</TABLE>
Rent expense under operating leases was approximately $5,540,000, $3,628,000 and
$3,736,000 for the years ended March 31, 1998, 1997, and 1996, respectively.
LEGAL CONTINGENCIES. The Company is a party to various legal proceedings which
arise in the normal course of business. In the opinion of management, the
ultimate disposition of these proceedings will not have a material adverse
effect on the consolidated financial position, liquidity or results of
operations of the Company.
CONTINGENCIES IN MANUFACTURING AND SUPPLIERS. The Company's manufacturing
operations are highly dependent upon the timely delivery of materials and
components by outside suppliers. In addition, the Company depends in part upon
subcontractors
23
<PAGE>
to assemble major components and subsystems used in its products in a timely and
satisfactory manner. The Company does not generally enter into long-term or
volume purchase agreements with any of its suppliers, and no assurance can be
given that such materials, components, and subsystems will be available in the
quantities required by the Company, if at all. The inability of the Company to
develop alternative sources of supply quickly and on a cost-effective basis
could materially impair the Company's ability to man-ufacture and deliver its
products in a timely manner. There can be no assurance that the Company will not
experience component delays or other supply problems in the future.
NOTE 5. INCOME TAXES
The Company provides for income taxes using an asset and liability approach,
under which deferred income taxes are provided based upon enacted tax laws and
rates applicable to periods in which the taxes become payable.
The domestic and foreign components of income (loss) before provision for income
taxes were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Years Ended March 31,
1998 1997 1996
--------------------------------
(In thousands)
<S> <C> <C> <C>
Domestic $ 20,922 11,962 (9,845)
Foreign 2,814 4,463 4,198
--------------------------------
$ 23,736 $16,425 $(5,647)
--------------------------------
--------------------------------
</TABLE>
The provision (credit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
Years Ended March 31,
- ---------------------------------------------------------------------------------
1998 1997 1996
-------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 6,770 $1,118 $(2,018)
State 365 44 -
Foreign 3,047 1,473 843
-------------------------------
Total current $10,182 $2,635 $(1,175)
Deferred (6,324) - -
-------------------------------
$ 3,858 $2,635 $(1,175)
-------------------------------
-------------------------------
</TABLE>
The provision (credit) for income taxes differs from the amount computed by
applying the statutory Federal income tax rate as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Years Ended March 31,
1998 1997 1996
-------------------------------
(In thousands)
<S> <C> <C> <C>
Expected tax provision (credit) $ 8,191 $5,749 $(1,920)
State taxes net of Federal benefit 565 367 (343)
Change in valuation allowance (4,956) (3,079) 3,346
Non-deductible acquisition costs 2,704 - -
Reversal of previously provided taxes upon
settlement of the IRS audit - - (2,018)
FSC commission (1,657) (581) -
Other (989) 179 2,110
-------------------------------
$3,858 $2,635 $ 1,175
-------------------------------
-------------------------------
</TABLE>
The major components of the net deferred tax asset consisted of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Years Ended March 31,
---------------------
1998 1997
(In thousands)
<S> <C> <C>
Inventory reserves $ 9,461 $ 4,583
Warranty reserves 1,154 1,023
Bad debt reserves 1,408 696
Accrued commissions 1,163 893
Net operating loss carry-forwards 651 2,942
Tax credits 901 5,084
Other 2,806 955
---------------------
17,544 16,176
Less: Valuation reserve - operations (10,859) (15,815)
---------------------
Net deferred tax asset $ 6,685 $ 361
---------------------
---------------------
</TABLE>
24
<PAGE>
The valuation allowance provides a reserve against deferred tax assets that may
expire or go unutilized by the Company. In accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," the
Company believes it is more likely than not that the Company will not fully
realize these benefits and, accordingly, has continued to provide a valuation
allowance for them. Net operating loss carry-forwards are all foreign losses
that total $1,925,000 and carry forward indefinitely. Tax credits are all state
credits that total $1,390,000 and carry forward indefinitely.
NOTE 6. COMMON STOCK
The Company's stockholders approved a two-for-one stock split paid in the form
of a stock dividend in November 1997, and in March 1998, the stockholders
approved an increase in the total number of authorized shares of Common Stock
from 60,000,000 shares to 95,000,000 shares.
STOCK OPTION PLANS. The Company's 1984 Stock Option Plan (the "1984 Plan")
provides for the grant of both incentive and nonqualified stock options to key
employees and certain independent contractors of the Company. At March 31, 1998,
the options to purchase 303,410 shares of Common Stock were outstanding under
the 1984 Plan, of which 183,970 shares were exercisable at prices ranging from
$2.63 to $12.44 per share. Upon the adoption of the Company's 1994 Stock
Incentive Plan (the "1994 Plan"), the Company terminated future grants under the
1984 Plan.
In July 1994, the stockholders approved 2,366,660 shares of Common Stock to be
reserved for issuance under the 1994 Plan over a ten-year term, as adjusted for
a two-for-one stock split in November 1997. In August 1996, the stockholders
approved the reservation for issuance of 2,000,000 additional shares of Common
Stock under the 1994 Plan, as adjusted for the two-for-one stock split. In March
1998, the stockholders approved the reservation for issuance of 2,500,000
additional shares of Common Stock under the 1994 Plan. The terms of the 1994
Plan also provide for an automatic increase on the first trading day of each
calendar year for five years after the adoption of the 1994 Plan, beginning
January 1995, of an amount equal to one percent (1%) of the number of shares of
Common Stock outstanding, but in no event is such annual increase to exceed
300,000 shares. The total number of shares of Common Stock reserved for issuance
under the 1994 Plan is 7,166,660. At March 31, 1998, options to purchase
3,538,866 shares were outstanding, of which 884,613 were exercisable at prices
ranging from $4.00 to $23.31 per share. At March 31, 1998, the number of shares
available for future grants was 2,830,535.
The 1994 Plan contains: (i) a discretionary grant program for key employees and
con-sultants whereby options generally vest over five years and expire after 10
years, (ii) an automatic grant program for non-employee Board members, whereby
options vest over three years and expire after 10 years, (iii) a salary
reduction grant program under which key employees may elect to have a portion of
their base salary reduced each year in return for stock options, (iv) a stock
fee program under which the non-employee Board members may elect to apply all or
a portion of their annual retainer fee to the acquisition of shares of Common
Stock, and (v) a stock issuance program under which eligible individuals may be
issued shares of Common Stock as a bonus tied to their performance of services
or the Company's attainment of financial milestones, or pursuant to their
individual elections to receive such shares in lieu of base salary. The
implementation and use of any of these equity incentive programs (other than the
automatic grant program and the stock fee program) is within the sole discretion
of the Compensation Committee of the Board of Directors of the Company.
On April 18, 1996, the Company adopted the 1996 Non-Officer Employee Stock
Option Plan (the "1996 Plan"). The 1996 Plan authorizes 1,000,000 shares of
Common Stock to be reserved for issuance to non-officer key employees as an
incentive to continue in the service of the Company, as adjusted for the
two-for-one stock split. The 1996 Plan will terminate on the date on which all
shares available have been issued. At March 31, 1998, 868,810 shares were
outstanding, of which 63,600 were exercisable, at prices ranging from $4.13 to
$13.19, and 37,010 shares were available for future grants.
On November 11, 1997, the Company adopted the 1998 Non-Officer Employee Stock
Option Plan (the "1998 Plan") which became effective on January 2, 1998. The
1998 Plan authorizes 500,000 shares of Common Stock to be reserved for issuance
to non-officer key employees as an incentive to continue in the service of the
Company. The 1998 Plan will terminate on the date on which all shares available
have been issued. At March 31, 1998, there were no shares outstanding, and
500,000 shares were available for future grants.
In connection with the Company's merger with MAS Technology (see Note 9), the
Company assumed the MAS Technology 1997 Stock Option Plan (the "1997 MAS Plan")
under the same terms and conditions as were applicable under the 1997 MAS Plan
prior to the merger. Each outstanding option to purchase MAS ordinary shares,
whether vested or unvested, was assumed and converted into an option to receive
1.20 shares of the Company's Common Stock. The 1997 MAS Plan provided for the
grant of stock options to employees and certain independent contractors of MAS.
Options granted under the 1997 MAS Plan vest from one to three years from date
of grant. Additionally, options granted under the 1997 MAS Plan automatically
vest upon the involuntary termination of the employment of an option holder
within 18 months of the change in ownership of the Company. At March 31, 1998,
options to purchase 496,560 shares of Common Stock were outstanding under the
1997 MAS Plan, of which 70,800 were exercisable at exercise prices ranging from
$11.67 to $17.92 per share. The 1997 MAS Plan has been terminated as to future
grants.
25
<PAGE>
At March 31, 1998, the Company had reserved 8,575,191 shares for future issuance
under the 1984, 1994, 1996, and 1998 Plans, as well as the 1997 MAS Plan.
The following table summarizes the Company's stock option activity under all of
its Plans:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------------------
WEIGHTED Weighted Option
AVERAGE Average Price
SHARES EXERCISE PRICE Shares Exercise Price Shares Per Share
-----------------------------------------------------------------------
(Shares in thousands)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 4,621 $ 7.13 3,620 $ 5.75 2,927 $ 5.24
Granted 2,282 14.63 2,235 8.19 1,795 6.15
Exercised (1,315) 5.97 (919) 4.36 (541) 3.22
Expired or canceled (380) 7.92 (315) 6.47 (561) 6.88
-----------------------------------------------------------------------
Options outstanding at
end of year 5,208 $ 10.79 4,621 $ 7.13 3,620 $ 5.75
-----------------------------------------------------------------------
Exercisable at end of year 1,203 1,383 1,208
Weighted average
fair value of
options granted $ 7.62 $ 4.51 $ 2.94
-----------------------------------------------------------------------
</TABLE>
The following summarizes the stock options outstanding at March 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------------------------------
ACTUAL NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES 3/31/98 CONTRACTUAL LIFE EXERCISE PRICE 3/31/98 EXERCISE PRICE
- -------------------------------------------------------------------------------------------------------
(Shares in thousands)
<S> <C> <C> <C> <C> <C>
$2.625 -7.813 1,720 7.25 $ 5.98 760 $ 5.80
$7.875 -11.875 1,523 9.03 10.52 301 10.55
$12.438 -23.313 1,965 9.31 15.22 142 17.02
- -------------------------------------------------------------------------------------------------------
$2.625 -23.313 5,208 8.55 $10.79 1,203 $ 7.57
- -------------------------------------------------------------------------------------------------------
</TABLE>
In accordance with the disclosure requirements of SFAS 123, if the Company had
elected to recognize compensation cost based on the fair market value of the
options granted at grant date as prescribed, income and earnings per share would
have been reduced to the pro forma amounts indicated in the table below. The pro
forma effect on net income for Fiscal 1998 and 1997 is not representative of the
pro forma effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
Fiscal 1996.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net income - as reported $ 19,878 $ 13,790 $ (4,472)
Net income - pro forma $ 10,806 $ 9,927 $ (6,799)
Basic net income per share - as reported $ 0.44 $ 0.36 $ (0.12)
Basic net income per share - pro forma $ 0.24 $ 0.25 $ (0.18)
Diluted net income per share - as reported $ 0.42 $ 0.35 $ (0.12)
Diluted net income per share - pro forma $ 0.25 $ 0.24 $ (0.18)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1998 1997 and 1996
---------------------------------
<S> <C> <C>
Expected dividend yield 0.0% 0.0%
Expected stock volatility 74.7% 74.3%
Risk-free interest rate 5.5% - 6.4% 5.3% - 7.1%
Expected life of options from vest date 0.8 YEARS 0.7 years
Forfeiture rate ACTUAL actual
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN. In August 1996, the Company adopted an Employee
Stock Purchase Plan (the "Purchase Plan") and reserved 600,000 shares of Common
Stock for issuance under the Purchase Plan, as adjusted for a two-for-one stock
split in November 1997. Employees, subject to certain restrictions, may purchase
Common Stock under the Purchase Plan through payroll withholding at a price per
share of 85% of the fair market value at the beginning or end of the purchase
period,
26
<PAGE>
as defined under the terms of the Purchase Plan. The Company sold 166,597 and
60,626 shares under the Purchase Plan in Fiscal 1998 and Fiscal 1997,
respectively. At March 31, 1998, 372,777 shares remained available for future
issuance under the Purchase Plan.
STOCKHOLDERS' RIGHTS AGREEMENT. In October 1991, the Company adopted a
Stockholders' Rights Agreement pursuant to which one Preferred Share Purchase
Right (a "Right") was distributed for each outstanding share of Common Stock.
Each Right, as adjusted to give effect to a stock dividend, which effected a
two-for-one stock split in November 1997, entitles stockholders to buy one
two-hundredth of a share of Series A Junior Participating Preferred Stock at an
exercise price of $50.00 upon certain events. The Rights expire on October 23,
2001, unless earlier redeemed by the Company.
The Rights become exercisable if a person acquires 15% or more of the Company's
Common Stock or announces a tender offer that would result in such person owning
15% or more of the Company's Common Stock, other than a person who has reported
or is required to report beneficial ownership of the Company's Common Stock on
Schedule 13G under the Securities Exchange Act of 1934, as amended, with respect
to whom the threshold is 20%. If the Rights become exercisable, the holder of
each Right (other than the person whose acquisition triggered the exercisability
of the Rights) will be entitled to purchase, at the Right's then-current
exercise price, a number of shares of the Company's Common Stock having a market
value of twice the exercise price. In addition, if the Company were to be
acquired in a merger or business combination after the Rights became
exercisable, each Right will entitle its holder to purchase, at the Right's
then-current exercise price, stock of the acquiring company having a market
value of twice the exercise price. The Rights, as adjusted to give effect to a
stock dividend, which effected a two-for-one stock split, in November 1997, are
redeemable by the Company at a price of $0.005 per Right at any time within ten
days after a person has acquired 15% (or 20% in the case of a Schedule G filer)
or more of the Company's Common Stock.
NOTE 7. CUSTOMER AGREEMENT
In November 1993, the Company entered into an agreement with Siemens AG to
supply SPECTRUM II digital microwave radios to E-Plus Mobilfunk GmbH. As of
March 31, 1995, the Company had not met its product acceptance or delivery
schedule, and, as a result, recorded significant reserves for product discounts
on interim equipment, equipment returns, and other related costs. In July 1995,
the Company received product acceptance from E-Plus, and began delivery and
installation of the SPECTRUM II equipment. During the third quarter of Fiscal
1996, the Company provided additional reserves of approximately $1.0 million
related to the final resolution of other remaining open issues on this contract.
NOTE 8. INDUSTRY SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
The Company operates in a single industry segment, the design and manufacture of
short- and medium-haul digital transmission products.
One customer (Siemens AG) accounted for 5%, 12%, and 19% of net sales for Fiscal
1998, 1997, and 1996, respectively. No other customers accounted for more than
10% of net sales during Fiscal 1998, 1997, or 1996.
Geographic information for Fiscal 1998, 1997, and 1996 is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
United United New
States Kingdom Zealand Others Eliminations Total
-----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
1998
SALES TO UNAFFILIATED
CUSTOMERS $ 187,832 $58,961 $ 50,256 $13,441 $ - $ 310,490
INTERCOMPANY SALES 54,135 - - - (54,135) -
-----------------------------------------------------------------------------------
NET SALES $ 241,967 $58,961 50,256 $13,441 $(54,135) $ 310,490
OPERATING
INCOME (LOSS) $ 22,775 $ 1,444 (1,912) $ 235 $ (1,634) $ 20,908
IDENTIFIABLE ASSETS $ 168,016 $24,033 44,693 $10,174 $ (6,516) $ 240,400
1997
Sales to unaffiliated
customers $ 147,575 $22,416 $ 35,300 $ 6,046 $ - $ 211,337
Intercompany sales 24,540 - - - (24,540) -
-----------------------------------------------------------------------------------
Net sales $ 172,115 $22,416 $ 35,300 $ 6,046 $(24,540) $ 211,337
Operating income $ 12,533 $ 2,893 3,520 $ 141 $ (1,749) $ 17,338
Identifiable assets $ 155,341 $15,858 23,850 $ 759 $ (2,609) $ 193,199
1996
Sales to unaffiliated
customers $ 128,667 $13,935 $ 26,702 $ 3,114 $ - $ 172,418
Intercompany sales 14,684 - - - (14,684) -
-----------------------------------------------------------------------------------
Net sales $ 143,351 $13,935 $ 26,702 $ 3,114 $(14,684) $ 172,418
Operating
income (loss) $ (10,138) $ 1,767 2,237 $ 220 $ 128 $ (5,786)
Identifiable assets $ 92,760 $ 6,539 11,527 $ 2,016 $ (5,992) $ 106,850
</TABLE>
27
<PAGE>
Intercompany sales to the Company's foreign subsidiaries are transacted at
prices comparable to those offered to unaffiliated customers, after taking into
account the value added to products and services by the subsidiaries.
The following table represents export sales from the United States to
unaffiliated customers by geographic region:
<TABLE>
<CAPTION>
Years Ended March 31,
- -----------------------------------------------------------------------------
1998 1997 1996
----------------------------------------
(In thousands)
<S> <C> <C> <C>
Canada and South America $ 39,393 $ 28,718 $ 14,876
Europe 44,622 54,594 59,732
Asia/Pacific 86,750 53,431 35,867
----------------------------------------
Total export sales $170,765 $136,743 $110,475
----------------------------------------
----------------------------------------
Export sales as a % of net sales 71% 80% 77%
</TABLE>
NOTE 9. MERGERS AND ACQUISITIONS
In May 1997, the Company acquired all of the outstanding shares of Granger,
Inc., a U.S. manufacturer of wireless products and provider of installation
services. The purchase price of Granger, Inc., including the assumption of debt
and the purchase of certain product rights, totaled $14.7 million. A portion of
the purchase price was allocated to the net assets acquired based on their
estimated fair values. The fair value of the tangible assets acquired and
liabilities assumed was $5.8 million and $1.9 million, respectively. The
purchase price in excess of the net assets acquired of $10.8 million is recorded
as goodwill on the balance sheet and is being amortized over 10 years. The
acquisition has been accounted for using the purchase method of accounting.
Accordingly, the accompanying financial statements include the results of
Granger, Inc. since the date of acquisition. No pro forma financial statements
for periods prior to the acquisition have been provided due to the amounts being
immaterial.
In addition, concurrent with the acquisition of Granger, Inc., the Company made
a minority investment in Granger Associates, Ltd., a privately held company
based in the United Kingdom, for $4.0 million. This minority investment has been
accounted for using the cost method of accounting. Subsequent to March 31, 1998,
the Company sold approximately 10% of this investment for approximately
$470,000, net of selling costs.
In March 1998, stockholders approved the issuance of Common Stock of the Company
pursuant to an agreement to merge with MAS Technology Limited ("MAS
Technology"), a New Zealand company, which designs, manufactures, markets and
supports digital microwave radio links for the worldwide telecommunications
market. Under the terms of the agreement, the Company exchanged 1.2 shares of
its Common Stock for each outstanding share of MAS Technology stock and stock
options. The Company issued approximately 8.2 million shares to MAS Technology
share and option holders. The combination is intended to qualify as a tax-free
reorganization accounted for as a pooling-of-interests transaction. Accordingly,
the historical financial statements of the Company have been restated to reflect
the results of MAS Technology for all periods presented.
The following table shows the reconciliation of the historical results of the
Company to the results presented in the accompanying Statements of Operations
for Fiscal 1997 and Fiscal 1996.
<TABLE>
<CAPTION>
Years Ended March 31,
- ----------------------------------------------------------------------------
1997 1996
--------------------------
<S> <C> <C>
REVENUE: Digital Microwave $178,344 $ 150,419
MAS Technology 35,300 26,702
Intercompany sales (2,307) (4,703)
--------------------------
Total $211,337 $ 172,418
--------------------------
--------------------------
NET INCOME: Digital Microwave $ 11,707 $ (5,955)
MAS Technology 2,165 1,483
Intercompany profit
eliminations (82) -
--------------------------
Total $ 13,790 $ (4,472)
--------------------------
--------------------------
</TABLE>
Merger and restructuring expenses for Fiscal 1998 primarily included payments to
the Company's investment bankers of $3.4 million for brokering the Company's
merger with MAS Technology, legal and accounting fees of $0.9 million, asset
valuation reserves for inventory, receivables, and warranty totaling $7.1
million, as well as various other costs of $3.2 million, which included office
closures and contract terminations. As of March 31, 1998, the remaining
restructuring reserve was comprised principally of $7.1 million for asset
valuation reserves, and $3.2 million for other restructuring costs.
28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Digital Microwave Corporation:
We have audited the accompanying consolidated balance sheets of Digital
Microwave Corporation (a Delaware corporation) and subsidiaries as of March 31,
1998 and 1997, and the related Consolidated Statements of Operations,
Stockholders' Equity and Cash Flows for each of the three years in the period
ended March 31, 1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Digital Microwave Corporation
and subsidiaries as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1998 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
San Jose, California
April 21, 1998
29
<PAGE>
STOCK INFORMATION
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol DMIC. The following table sets forth the high and low closing sales
prices of the Company's Common Stock as reported by Nasdaq for the periods
indicated. The prior year per share amounts have been restated to give effect
retroactively to a stock dividend, which effected a two-for-one stock split, in
November 1997.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
- --------------------------------------------------------------------------------
1998 1997
-----------------------------------------
HIGH LOW High Low
-----------------------------------------
<S> <C> <C> <C> <C>
1st Quarter $ 16.00 $ 9.63 $9.13 $ 4.00
2nd Quarter 22.63 13.63 11.94 6.13
3rd Quarter 25.50 12.63 14.59 10.06
4th Quarter 21.63 12.44 18.81 9.63
</TABLE>
The Company has not paid cash dividends on its Common Stock and does not intend
to pay cash dividends in the foreseeable future in order to retain earnings for
use in its business. At March 31, 1998, there were approximately 199
stockholders of record.
30
<PAGE>
EXHIBIT 21.1
DIGITAL MICROWAVE CORPORATION
LIST OF SUBSIDIARIES
DMC Telecom U.K. Ltd.
East Kilbride, Scotland
DMC Telecom Canada, Inc.
Etobicoke, Ontario, Canada
DMC do Brazil Ltda.
Campinas, Brazil
DMC de Mexico, S.A. de C.V.
Mexico City, Mexico
Digital Microwave India Private Limited
New Delhi, India
DMC Telecom Philippines, Inc.
Metro Manila, Philippines
Granger, Inc.
San Antonio, Texas
MAS Technology Limited
Wellington, New Zealand
NZ Telecoms (Proprietary) Limited
South Pretoria, Republic of South Africa
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE ANNUAL REPORT ON FORM 10-K OF DIGITAL MICROWAVE
CORPORATION FOR THE FISCAL YEAR ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 25,130
<SECURITIES> 15,220
<RECEIVABLES> 78,692
<ALLOWANCES> 3,795
<INVENTORY> 60,981
<CURRENT-ASSETS> 191,809
<PP&E> 72,514
<DEPRECIATION> 39,986
<TOTAL-ASSETS> 240,400
<CURRENT-LIABILITIES> 61,702
<BONDS> 0
0
0
<COMMON> 466
<OTHER-SE> 178,028
<TOTAL-LIABILITY-AND-EQUITY> 240,400
<SALES> 310,490
<TOTAL-REVENUES> 310,490
<CGS> 197,048
<TOTAL-COSTS> 197,048
<OTHER-EXPENSES> 92,534
<LOSS-PROVISION> 356
<INTEREST-EXPENSE> 310
<INCOME-PRETAX> 23,736
<INCOME-TAX> 3,858
<INCOME-CONTINUING> 19,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,878
<EPS-PRIMARY> .44
<EPS-DILUTED> .42
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE ANNUAL REPORT ON FORM 10-K OF DIGITAL MICROWAVE
CORPORATION FOR THE FISCAL YEAR ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 40,374
<SECURITIES> 17,947
<RECEIVABLES> 61,235
<ALLOWANCES> 3,362
<INVENTORY> 51,469
<CURRENT-ASSETS> 173,256
<PP&E> 52,957
<DEPRECIATION> 33,757
<TOTAL-ASSETS> 193,199
<CURRENT-LIABILITIES> 67,734
<BONDS> 0
0
0
<COMMON> 370
<OTHER-SE> 124,937
<TOTAL-LIABILITY-AND-EQUITY> 193,199
<SALES> 211,337
<TOTAL-REVENUES> 211,337
<CGS> 137,261
<TOTAL-COSTS> 137,261
<OTHER-EXPENSES> 56,738
<LOSS-PROVISION> 1,400
<INTEREST-EXPENSE> 1,333
<INCOME-PRETAX> 16,425
<INCOME-TAX> 2,635
<INCOME-CONTINUING> 13,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,790
<EPS-PRIMARY> .36
<EPS-DILUTED> .35
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE ANNUAL REPORT ON FORM 10-K OF DIGITAL MICROWAVE
CORPORATION FOR THE FISCAL YEAR ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 9,903
<SECURITIES> 0
<RECEIVABLES> 40,280
<ALLOWANCES> 1,373
<INVENTORY> 38,550
<CURRENT-ASSETS> 90,709
<PP&E> 49,848
<DEPRECIATION> 33,706
<TOTAL-ASSETS> 106,850
<CURRENT-LIABILITIES> 48,207
<BONDS> 0
0
0
<COMMON> 316
<OTHER-SE> 54,571
<TOTAL-LIABILITY-AND-EQUITY> 106,850
<SALES> 172,418
<TOTAL-REVENUES> 172,418
<CGS> 133,612
<TOTAL-COSTS> 133,612
<OTHER-EXPENSES> 44,592
<LOSS-PROVISION> 580
<INTEREST-EXPENSE> 1,968
<INCOME-PRETAX> (5,647)
<INCOME-TAX> (1,175)
<INCOME-CONTINUING> (4,472)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,472)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
