<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number: 0-15895
December 31, 1998
- ------------------
DIGITAL MICROWAVE CORPORATION
------------------------------
(Exact name of registrant specified in its charter)
Delaware 77-0016028
- --------------------------------- --------------------------
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
170 Rose Orchard Way
San Jose, CA 95134
- ---------------------------------------- -------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408) 943-0777
---------------
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
-------- -------
The number of outstanding shares of the Registrant's common stock, par value
$.01 per share, was 61,795,083 on January 31, 1999.
<PAGE>
INDEX
PAGE
<TABLE>
<CAPTION>
<S> <C>
COVER PAGE 1
INDEX 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-11
Item 2 - Management's Discussion and Analysis of 12-19
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4 - Other Matters 20
Item 5 - Other Information 20
Item 6 - Exhibits and Reports on Form 8-K 20-21
SIGNATURE 22
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS 12/31/98 03/31/98
- ------ -------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 17,372 $ 46,904
Short-term investments 10,569 15,221
Accounts receivable, net 53,824 86,061
Inventories 55,018 73,029
Deferred tax asset 6,765 6,685
Other current assets 6,221 9,145
-------- --------
Total current assets 149,769 237,045
PROPERTY AND EQUIPMENT, NET 43,831 43,662
OTHER ASSETS 7,389 16,489
-------- --------
Total assets $200,989 $297,196
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 920 $ 1,342
Notes payable 410 -
Accounts payable 22,877 39,572
Income taxes payable 570 1,298
Accrued liabilities 42,061 27,211
-------- --------
Total current liabilities 66,838 69,423
LONG-TERM LIABILITIES:
Capital lease obligations, net of current maturities 452 1,174
-------- --------
Total liabilities 67,290 70,597
STOCKHOLDERS' EQUITY
Common stock and paid-in capital 250,134 249,057
Accumulated other comprehensive income (3,671) (1,959)
Accumulated deficit (112,764) (20,499)
-------- --------
Total stockholders' equity 133,699 226,599
Total liabilities and stockholders' equity $200,989 $297,196
-------- --------
-------- --------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------ ------------
1998 1997 1998 1997
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net sales $ 58,278 $93,885 $176,774 $251,271
Cost of sales 84,252 58,514 179,230 160,396
--------- --------- --------- --------
Gross profit (loss) (25,974) 35,371 (2,456) 90,875
--------- --------- --------- --------
Operating expenses:
Research and development 5,231 6,334 18,118 17,454
Selling, general and administrative 12,611 17,096 43,881 47,984
Merger and restructuring charges 22,728 0 29,941 0
--------- --------- --------- --------
Total operating expenses 40,570 23,430 91,940 65,438
--------- --------- --------- --------
Operating income (loss) (66,544) 11,941 (94,396) 25,437
Other income (expense):
Interest and other
income (expense), net (342) 591 1,047 2,805
Interest expense (163) (23) (199) (581)
--------- --------- --------- --------
Income (loss) before provision for
income taxes (67,049) 12,509 (93,548) 27,661
Provision for income taxes 425 1,754 522 4,461
--------- --------- --------- --------
Net income (loss) $(67,474) $10,755 $(94,070) $ 23,200
--------- --------- --------- --------
--------- --------- --------- --------
Basic earnings (loss) per share $ (1.09) $ 0.20 $ (1.53) $ 0.48
--------- --------- --------- --------
--------- --------- --------- --------
Diluted earnings (loss) per share $ (1.09) $ 0.19 $ (1.53) $ 0.46
--------- --------- --------- --------
--------- --------- --------- --------
Basic weighted average shares
outstanding 61,713 53,908 61,519 48,210
Diluted stock options 0 2,697 0 2,311
--------- --------- --------- --------
Diluted weighted average shares
outstanding 61,713 56,605 61,519 50,521
--------- --------- --------- --------
--------- --------- --------- --------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
---- ----
<S> <C> <C>
Net income (loss) $(94,070) $ 23,200
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Adjustment to conform year-end of pooled company 1,804 -
Depreciation and amortization 20,738 8,557
Provision for valuation reserves 22,135 7,361
Provision for warranty reserves 6,257 3,511
Compensation expense on employee stock options - 1,070
Changes in assets and liabilities, net of effect of acquisition:
Decrease (increase) in accounts receivable 26,849 (29,806)
Increase in inventories (1,160) (20,369)
Decrease (increase) in other assets 10,723 (4,718)
Increase (decrease) in accounts payable (16,262) 7,181
Decrease in income tax payable (728) (385)
Increase (decrease) in other accrued liabilities 9,247 (8,344)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (14,467) (12,742)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (13,457) (12,137)
Proceeds from available-for-sale securities 18,084 10,873
Acquisition of businesses, net of cash acquired (2,412) (11,913)
Investment in Granger Associates Ltd. - (4,000)
Proceeds from the sale of investments 601 -
Proceeds from disposal of fixed assets 1,166 9
Purchases of property and equipment (18,805) (14,880)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (14,823) (32,048)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to bank - (6,352)
Borrowings from banks 410 -
Payment of capital lease obligations (1,144) (1,486)
Payment of assumed acquisition debt - (3,286)
Sale of common and preferred stock 1,077 75,028
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 343 63,904
Effect of exchange rate changes on cash (585) 1,899
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (29,532) 21,013
Cash and cash equivalents at beginning of period 46,904 40,546
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,372 $ 61,557
--------- ---------
--------- ---------
SUPPLEMENTAL DATA
Interest paid $ 388 $ 254
Income taxes paid $ 1,233 $ 3,340
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
DIGITAL MICROWAVE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Digital Microwave Corporation and its wholly owned subsidiaries.
Intercompany accounts and transactions have been eliminated. Prior year
reported results have been restated to include MAS Technology Limited (MAS)
which merged with the Company in March 1998 and Innova Corporation (Innova)
which merged with the Company in October 1998.
While the financial information furnished is unaudited, the financial
statements included in this report reflect all adjustments (consisting only
of normal recurring adjustments) which the Company considers necessary for
a fair presentation of the results of operations for the interim periods
covered and of the financial condition of the Company at the date of the
interim balance sheet. The results for interim periods are not necessarily
indicative of the results for the entire year. The condensed consolidated
financial statements should be read in connection with the Digital
Microwave Corporation financial statements included in the Company's annual
report and Form 10-K for the fiscal year ended March 31, 1998.
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 Company is required to
segregate and maintain certain cash balances as security for letters of
credit provided to secure performance or bid bonds under certain of the
Company's revenue contracts. As of December 31, 1998, this amounted to
$700,760 and was included in cash and cash equivalents in the accompanying
Consolidated Balance Sheet. There was no restricted cash as of March 31,
1998.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
where cost includes material, labor and manufacturing overhead.
Inventories consist of:
<TABLE>
<CAPTION>
(In thousands)
December 31, 1998 March 31, 1998
----------------- --------------
(Unaudited)
<S> <C> <C>
Raw materials $ 27,599 $ 25,183
Work in process 12,719 19,104
Finished goods 14,700 28,742
---------- ---------
$ 55,018 $ 73,029
---------- ---------
---------- ---------
</TABLE>
6
<PAGE>
OTHER ASSETS
Included in other assets are goodwill and other intangibles which are being
amortized on a straight line basis over their useful lives ranging from 5
to 10 years.
COST OF SALES
In the third quarter ended December 31, 1998, the Company recorded $37.7
million of inventory valuation and related charges which are reflected in
cost of sales. These inventory valuation charges consisted primarily of
two main components, an excess and obsolescence adjustment, and recognition
of liabilities to vendors on purchase commitments. The merger with Innova
and planned introduction of new product lines accelerated the obsolescence
of the Spectrum II-TM- product line. Accordingly, inventory related
charges of $30.3 million were recorded. The reduction in the Company's
sales volume compared to the prior year has had an adverse affect on
purchase order commitments to vendors. Accordingly, liabilities of $7.4
million were recognized to account for vendor cancellation charges on
purchase order commitments.
MERGER AND RESTRUCTURING CHARGES
Merger and restructuring charges of $22.7 million were recorded in the
third quarter ended December 31, 1998. These charges consisted of $2.7
million for merger costs related to the Innova merger, $2.8 million for
severance costs, $4.1 million for facility termination costs, and an
impairment loss of $13.1 million resulting from the reduction of the
carrying value of goodwill and other assets related to Granger Inc., a
subsidiary of the Company. Due to a change in business conditions, the
Company is pursuing the sale of the assets related to the Granger
operations.
In addition, restructuring costs of $7.2 million were recorded in the
quarter ended June 30, 1998. These costs consisted of a $5.8 million
write-off related to the discontinuance of internal information technology
systems projects and a write-off of $1.4 million related to severance and
other related costs associated with a reduction in the Company's workforce.
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'
7
<PAGE>
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.
FINANCIAL INSTRUMENTS
The Company enters into forward foreign exchange contracts to hedge some of
its firm committed backlog and certain assets and liabilities denominated
in foreign currencies. At December 31, 1998, the Company had forward
foreign exchange contracts to exchange various foreign currencies for U.S.
dollars in the gross amount of $10.2 million. Market value gains and
losses on forward foreign exchange contracts are recognized as offsets to
the exchange gains or losses on the hedged transactions.
NET INCOME PER SHARE
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, were restated for all prior periods presented.
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.
MERGERS AND ACQUISITIONS
In March 1998, the Company's 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
8.6 million shares to MAS Technology share and option holders. The
combination qualified as a tax-free reorganization and was accounted for as
a pooling-of-interests transaction. Accordingly, the historical financial
statements
8
<PAGE>
of the Company have been restated to reflect the results of MAS Technology
for all periods presented.
On October 8, 1998, after receiving approval from its stockholders, the
Company completed its merger with Innova Corporation, a Washington
corporation, which designs, manufactures, markets and supports millimeter
wave radios for use as low-to-medium capacity wireless communication links
in developed and developing telecommunications markets. Under the terms of
the merger agreement, the Company exchanged 1.05 shares of its Common Stock
for each outstanding share of common stock of Innova. The Company issued
approximately 14.7 million shares to Innova shareholders, representing
approximately 24% of the Company's outstanding Common Stock following
consummation of the merger. In addition, the Company assumed and converted
Innova stock options and warrants into stock options and warrants to
purchase approximately 3.8 million shares of Digital Microwave Corporation
Common Stock using the same exchange ratio. The merger qualified as a
tax-free reorganization and has been accounted for as a
pooling-of-interests transaction. Accordingly, the historical financial
statements of the Company have been restated to reflect the results of
Innova 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 the three and nine months ended December 31, 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, 1997 December 31, 1997
------------------ -----------------
<S> <C> <C>
Revenue: Digital Microwave $ 71,950 $195,790
MAS Technology 13,536 38,846
Innova Corporation 10,418 22,986
Intercompany sales (2,019) (6,351)
-------- --------
Total $ 93,885 $251,271
-------- --------
Net Income (loss):
Digital Microwave $ 8,863 $ 22,067
MAS Technology 1,468 3,770
Innova Corporation 390 (2,623)
Intercompany profit
eliminations 34 (14)
Total $ 10,755 $ 23,200
-------- --------
-------- --------
</TABLE>
LITIGATION AND CONTINGENCIES
The Company is subject to legal proceedings and claims that arise in the
normal course of its business. In the opinion of management, these
proceedings will not have a material adverse effect on the financial
position and results of operations of the Company.
9
<PAGE>
CONCENTRATION OF CREDIT RISK
Trade receivables concentrated with certain customers primarily in the
telecommunications industry and in certain geographic locations potentially
subject the Company to concentration of credit risk. In addition to sales
in Western Europe and North America, the Company actively markets and sells
products in Asia, Eastern Europe, South America, the Middle East and
Africa. The Company performs on-going credit evaluations of its customers'
financial conditions and generally requires no collateral, although certain
sales to Asia, Eastern Europe, South America, the Middle East and Africa
are primarily paid through letters of credit. During the second quarter
ended September 30, 1998, the Company wrote off a $2.7 million receivable
related to an Asian customer that filed for bankruptcy protection.
The Company will continue to be affected, for the foreseeable future, by
the unstable economies in Asia. Further, it is not possible to determine
the future effect a continuation of the economic crisis may have on the
Company's liquidity and earnings. Related effects will be reported in the
financial statements as they become known and estimable.
CREDIT ARRANGEMENTS
On October 30, 1998, an amended and restated agreement was executed with a
bank to provide for the issuance of standby letters of credit on a cash
collateralized basis. The letters of credit, which totaled $0.6 million as
of December 31, 1998, are issued in conjunction with bid and performance
bond requirements under certain contracts with the Company's customers.
In November 1998, the Company signed a credit facility agreement with a
U.S. lender for a new $40 million asset-based borrowing facility. The
working capital line of credit, which includes a $5.0 million term loan, is
secured by certain receivables, inventory and fixed assets of the Company.
This credit facility provides borrowings at prime plus 1.5% per annum.
There is a minimum monthly interest requirement of $20,000. As of December
31, 1998, approximately $20.8 million was available for borrowing under
this facility of which $0.4 million was outstanding.
COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement on Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income,"
10
<PAGE>
which establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains and losses) in a full
set of general-purpose financial statements. The following table
reconciles comprehensive income under the provisions of SFAS 130 for the
three and nine months ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ (67,474) $ 10,755 $ (94,070) $23,200
Other comprehensive income (loss), net of tax
Unrealized currency gain (loss) 1,294 (504) (1,999) (895)
Unrealized holding gain on short-
term investments 12 51 (46) 37
--------- -------- --------- --------
Comprehensive income (loss) $ (66,168) $ 10,302 $ (96,115) $22,342
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Financial Accounting Standards No. 131 ("SFAS
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. SFAS 131 is
effective for companies with fiscal years beginning after December 15,
1997. Interim reporting is not required in the initial year of adoption.
The Company believes that the adoption of this new pronouncement will not
have a material effect on the Company's financial statements.
In June 1998, the FASB issued Statement on Financial Accounting Standards
No. 133 ("SFAS 133") "Accounting for Derivative and Similar Financial
Instruments and for Hedging Activities" which requires companies to value
derivative financial instruments, including those used for hedging foreign
currency exposures, at current market value with the impact of any changes
in market value being charged against earnings. The Company must adopt
SFAS 133 in the first quarter of the fiscal year ended March 31, 2000. The
Company has not determined the effect that SFAS 133 will have on its
financial statements.
11
<PAGE>
ITEM 2 -MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of certain items
from the Company's Condensed Consolidated Statements of Operations as
percentages of net sales:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------- ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 144.6 62.3 101.4 63.8
------- ----- ----- -----
Gross profit (loss) (44.6) 37.7 (1.4) 36.2
Research & development 9.0 6.7 10.2 6.9
Selling, general & administrative 21.6 18.2 24.8 19.1
Restructuring costs 39.0 - 17.0 -
------- ----- ----- -----
Operating income (loss) (114.2) 12.8 (53.4) 10.2
Other income, net (0.9) 0.6 0.5 0.8
------- ----- ----- -----
Income (loss) before provision
for income taxes (115.1) 13.4 (52.9) 11.0
Provision for income taxes 0.7 1.9 0.3 1.8
------- ----- ----- -----
Net income (loss) (115.8)% 11.5% (53.2)% 9.2%
------- ----- ----- -----
------- ----- ----- -----
</TABLE>
Net sales for the third quarter of Fiscal 1999 were $58.3 million, compared to
$93.9 million reported in the same quarter of Fiscal 1998. Net sales for the
first nine months of Fiscal 1999 were $176.8 million, compared to $251.3 million
in the first nine months of Fiscal 1998. The decrease in net sales was
primarily due to a slowdown in demand for the Company's products in Asia, which
began with the downturn in Asian economies. However, such decrease in the
Company's net sales has been accelerated by the heightened pricing and
competitive pressures of the telecommunications market in other regions of the
world. As a result, revenues from Asia and Europe in the third quarter and
first nine months of Fiscal 1999 significantly decreased from the comparable
periods of the prior year.
During the third quarter of Fiscal 1999, the Company received $56.3 million in
new orders shippable over the next twelve months, compared to $104.9 million in
the third quarter of Fiscal 1998. Twelve month backlog at December 31, 1998 was
$61.3 million, compared to $102.2 million at March 31, 1998. During the quarter,
the Company deleted from its backlog $12 million in orders of which $3.3 million
were previously recorded in the second quarter of Fiscal 1999, with the balance
in prior years, as customers could not provide a firm delivery schedule.
The Company includes in its backlog purchase orders with respect to which a
delivery schedule has been specified for product shipment within one year.
Orders in the Company's
12
<PAGE>
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.
Gross profit (loss) as a percentage of net sales for the third quarter of Fiscal
1999 was (44.6%) compared to 37.7% in the same quarter of Fiscal 1998. Gross
profit (loss) as a percentage of net sales for the first nine months of Fiscal
1999 was (1.4%) compared to 36.2% in the same period in Fiscal 1998. Inventory
valuation charges during the quarter totaled $37.7 million and are included in
cost of sales. These inventory valuation charges consisted primarily of two main
components, an excess and obsolescence adjustment, and recognition of
liabilities to vendors on purchase commitments. The merger with Innova and
planned introduction of new product lines accelerated the obsolescence of the
Spectrum II-TM- product line. Accordingly, inventory related charges of $30.3
million were recorded. The reduction in the Company's sales volume compared to
the prior year has had an adverse affect on purchase order commitments to
vendors. Accordingly, liabilities of $7.4 million were recognized to account
for vendor cancellation charges on purchase order commitments. Excluding these
inventory valuation charges, gross profit in the third quarter and first nine
months of Fiscal 1999 was 20.2% and 20.0%, respectively. The decline in gross
profit excluding the inventory valuation charges was primarily the result of
under-utilization of the Company's manufacturing capacity due to the Company's
lower sales volume and lower average selling prices. The Company reduced its
workforce at the end of the first quarter of Fiscal 1999 and in the third
quarter of Fiscal 1999 to reduce the impact of the unfavorable capacity
utilization. The Company believes that its sales volume has stabilized during
the past six months; however, management cannot provide assurance that the
continuing economic and political instability in Asia and recent economic
instability in Latin America will not have a material adverse effect on the
Company's business, financial condition and results of operations. SEE "FACTORS
THAT MAY AFFECT FUTURE FINANCIAL RESULTS."
Research and development expenses of $5.2 million in the third quarter of Fiscal
1999 decreased from $6.3 million from the same period in Fiscal 1998. As a
percentage of net sales, research and development expenses were 9.0% in the
third quarter of Fiscal 1999 compared to 6.7% in the third quarter of Fiscal
1998. Such increase was due primarily to the decrease in net sales over the
comparable period. The increase in research and development expenses from $17.5
million in the first nine months of Fiscal 1998 to $18.1 million in the first
nine months of Fiscal 1999 was primarily attributable to the Company's
development of its XP4 and XP2 product offerings and its new Altium-TM-
high-capacity wireless product platform. The Company believes research and
development expenses will be slightly lower in absolute dollars in the second
half of Fiscal 1999 compared to the first half of Fiscal 1999 due to the
Company's workforce reductions as described above. The Company remains
committed to continuing its new product rollouts in order to maintain and
enhance its competitive position.
Selling, general and administrative expenses decreased to $12.6 million in the
third quarter of Fiscal 1999 from $17.1 million in the third quarter of Fiscal
1998. As a percentage of net sales, selling, general and administrative
expenses were 21.6% in the third quarter of Fiscal 1999 compared to 18.2% in the
comparable quarter of Fiscal 1998. Such increase in percentage was due
primarily to the decrease in net sales over the comparable period. The
13
<PAGE>
decrease in selling, general and administrative expenses in absolute dollars was
mostly attributable to the workforce reductions in the first and third quarters
of Fiscal 1999. Selling, general and administrative expenses of $43.9 million in
the first nine months of Fiscal 1999 decreased from $48.0 million in the first
nine months of Fiscal 1998. The decrease in selling, general and administrative
expenses between these periods is due to the workforce reduction in the first
and third quarters of Fiscal 1999. Partially offsetting this decrease is an
increase in the provision for bad debts which is included in selling, general
and administrative expenses. The provision for bad debts included in the first
nine months of Fiscal 1999 was $4.3 million compared to $1.2 million in the
first nine months of Fiscal 1998.
Merger and restructuring charges of $22.7 million were recorded in the third
quarter ended December 31, 1998. These charges consisted of $2.7 million for
merger costs related to the Innova merger, $2.8 million for severance costs,
$4.1 million for facility termination costs, and an impairment loss of $13.1
million resulting from the reduction of the carrying value of goodwill and other
assets related to Granger Inc., a subsidiary of the Company. The Company is
pursuing the sale of assets related to the Granger operations due to a change in
business conditions. Approximately $9.6 million of the $22.7 million in merger
and restructuring charges will be a cash outflow, of which $3.7 million has been
paid as of December 31, 1998. The remaining amounts are expected to be paid
during Fiscal 2000.
In the first quarter of Fiscal 1999, restructuring costs of $7.2 million were
recorded. These charges consisted of a write off of $5.8 million related to the
discontinuance of several internal information technology ("IT") systems
projects and $1.4 million for severance and related costs associated with a
reduction in the Company's workforce. At December 31, 1998, the remaining
restructuring reserve related to the first quarter of Fiscal 1999 was comprised
primarily of $0.8 million for the discontinuance of IT systems projects.
Interest and other income, net decreased in the third quarter of Fiscal 1999
compared to the similar quarter of Fiscal 1998 due to a $0.4 million decrease in
interest income resulting from lower cash balances and $0.5 million of foreign
exchange related losses. The $0.1 million increase in interest expense in the
third quarter of Fiscal 1999 was primarily attributable to higher debt balances
as compared to the same quarter of the prior year.
The Company did not record a tax benefit in the first nine months of Fiscal 1999
due to the uncertainty of realizing this benefit in the future. Tax provisions
recorded in the third quarter and first nine months of Fiscal 1999 relate to
taxable income at certain of the Company's foreign subsidiaries. The majority
of the deferred tax asset balance at December 31, 1998 will be realized through
the carry back of current year net operating losses. In the first nine months
of Fiscal 1998, the Company recorded a provision for income taxes at an
effective rate of 16%. This was less than the statutory rate primarily due to
the utilization of net operating loss carry forwards.
FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS
The statements in this Form 10-Q 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
14
<PAGE>
and financial results within the meaning of Section 27A of the Securities Act
and Section 21E of the Exchange Act. 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.
Sales of the Company's products are concentrated in a small number of customers.
For the third quarter of Fiscal 1999, the top three customers accounted for 25%
of the net sales. As of December 31, 1998, three of the Company's customers
accounted for approximately 20% of the backlog. The worldwide
telecommunications industry is dominated by a small number of large
corporations, and the Company expects that a significant portion of its future
product sales will continue to be concentrated in a limited number of customers.
In addition, the financing available to the Company's customers for microwave
interconnection and access equipment has decreased currently, which has
adversely affected the ability of the Company's customers to purchase equipment
from the Company. 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. In addition, a
substantial portion of shipments may occur near the end of each quarter.
Accordingly, the Company's results are difficult to predict and delays in
product delivery or closing of a sale can cause revenues and net income to
fluctuate significantly from anticipated levels and from quarter to quarter.
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 ability to maintain its gross profit margins is
dependent upon its ability to continue 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, Siemens AG, Microwave Communications Division of Harris Corporation,
P-COM, Alcatel, Nokia, 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.
15
<PAGE>
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 relationships. In
addition, recent events in Asia and Latin America, including depreciation of
certain 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 those markets. There can be no
assurance that currency fluctuations, changes in the rate of inflation or any of
the aforementioned factors will not continue to 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. In addition, some of the Company's products being shipped
today are not Year 2000 ready. If not corrected, the Company's computer
programs and products could fail or create erroneous results by or at the Year
2000.
16
<PAGE>
The Company is taking steps to ensure its products and computer programs will
continue to operate on and after January 1, 2000. The Company has formed a
project team consisting of staff from Manufacturing, Customer Service, Finance,
Human Resources, Sales, Marketing, Legal, Engineering and Information Technology
departments and is lead by a project manager. A five phase solution process
has been established consisting of (1) awareness, (2) assessment, (3)
renovation, (4) validation, and (5) implementation. The Company is currently
in the renovation stage with respect to most of its Year 2000 issues. The
Company estimates that it will complete this five phase process for all of its
significant systems by the summer of 1999. The Company's Year 2000 project team
identified its manufacturing IT system as its highest priority and has
implemented Year 2000 upgrades to its manufacturing systems. The Company's
network operating systems also are Year 2000 ready. Most of the Company's
personal computers have been evaluated and have been found to be non-compliant
and software upgrades have been purchased. The Company is currently installing
these upgrades to correct the non-compliance. Some older personal computers
will be replaced or taken out of service.
The Company has completed an assessment of most of its products. Most of its
hardware products are not affected by the Year 2000 issue because no internal
clock exists in these products. Year 2000 readiness testing is in process for
the Company's newer products, such as Altium and network software products.
Some older network software products are not Year 2000 ready and the Company has
developed an upgrade plan for customers who are using this software.
The Company has mailed letters to its primary suppliers and subcontractors to
determine whether they are developing plans to address processing transactions
in the Year 2000 and to monitor their progress toward Year 2000 capability.
Less than a third of the vendors contacted have responded and the Year 2000 team
is currently following up with vendors who have not responded. In addition,
responses from vendors who have responded are being evaluated to ensure the
readiness plans of the vendors are adequately addressing the Year 2000 issue.
The Company believes that it will expend approximately $0.5 million
investigating and remedying issues related to Year 2000 readiness involving
internal operations. Approximately $70,000 has been expensed to date for
purchases of software test tools, software upgrades and upgrading a security
system related to Year 2000 readiness. In addition, the Company estimates that
$100,000 of internal personnel costs have been incurred to date supporting the
Company's Year 2000 readiness plan.
If systems material to the Company's operations have not been made Year 2000
ready by the completion of the project, the Year 2000 issue could have a
material adverse effect on the Company's financial statements. The Company is
currently developing a contingency plan to operate in the event that any
non-compliant critical systems are not remedied by January 1, 2000. The Company
expects to finalize its contingency plan by August 31, 1999.
Based on the steps being taken to address this issue and the progress to date,
the Company's management believes that the Year 2000 readiness expenses will not
have a material adverse effect on the Company's earnings. However, there can be
no assurance that Year 2000
17
<PAGE>
problems will not occur with respect to the Company's computer systems.
Furthermore, 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 or the resulting effect on the Company. As a
result, if preventative and/or corrective actions by the Company or those the
Company does business with are not made in a timely manner, the Year 2000 issue
could have a material adverse effect on the Company's business, financial
condition and results of operations.
In January 1999, a new currency called the "euro" was introduced in certain
Economic and Monetary Union ("EMU") countries. During 2002, all EMU countries
are expected to be operating with the euro as their single currency.
Uncertainty exists as to the effect the euro currency will have on the
marketplace. Additionally, all of the rules and regulations have not yet been
defined and finalized by the European Commission with regard to the euro
currency. The Company has assessed the effect the euro formation will have on
its internal systems and the sale of its products. The Company's European sales
and operating transactions are based primarily in U.S. dollars or U.K. pounds
sterling, neither of which are subject to the euro conversion. In addition, the
Company plans to upgrade its internal computer systems in early 1999 to convert
the European currency to euro. The Company's management believes that the cost
of upgrading the Company's systems in connection with the euro conversion will
not be material and that such conversion will not have a material adverse effect
on the Company's business, financial condition and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities in the first nine months of Fiscal 1999
was $14.5 million, compared to net cash used for operating activities of $12.7
million in the first nine months of Fiscal 1998. The increase in cash used in
operations was primarily the result of the net loss for the period. Accounts
receivable decreased proportionately with the decrease in revenues during the
period. Inventory purchases during the first nine months of Fiscal 1999 were
significantly less than the same period of the prior year due to the lower
revenue level. The decrease in other assets in Fiscal 1999 relates to an
impairment loss of $13.1 million resulting from reduction of the carrying value
of goodwill and other assets related to Granger Inc., a subsidiary of the
Company. Other accrued liabilities increased during the first nine months of
Fiscal 1999 due to the accrual for merger costs and restructuring costs in the
third quarter of Fiscal 1999. Accounts payable decreased due to reduced
inventory purchases.
To partially offset the cash used by operations, the Company received over $4.6
million in net proceeds from the maturities of its short-term investments during
the first nine months of Fiscal 1999. Purchases of property and equipment
increased by $3.9 million in the first nine months of Fiscal 1999 compared to
the first nine months of Fiscal 1998 and were mostly attributable to payments on
the Company's new facility in the United Kingdom and test equipment for Altium
production. In Fiscal 1998, the Company acquired Granger, Inc. for a total
consideration of $14.7 million and purchased a minority interest in Granger
Associates, Ltd., a UK company, for $4.0 million.
18
<PAGE>
In the first nine months of Fiscal 1998, MAS Technology, a subsidiary of the
Company, sold approximately $23.2 million of ordinary shares in a public
offering. In the first nine months of Fiscal 1998, Innova Corporation, a
subsidiary of the Company, sold $45.8 million of common and preferred stock in a
public offering and private placement. Proceeds from the sale of stock to
employees in the first nine months of Fiscal 1999 and 1998 were $1.1 million and
$6.1 million, respectively.
On October 30, 1998, an amended and restated agreement was executed with a bank
to provide for the issuance of standby letters of credit on a cash
collateralized basis. The letters of credit, which totaled $0.6 million as of
December 31, 1998, are issued in conjunction with bid and performance bond
requirements under certain contracts with the Company's customers.
In November 1998, the Company signed a credit facility agreement with a U.S.
lender for a new $40 million asset-based borrowing facility. The working
capital line of credit, which includes a $5.0 million term loan, is secured by
certain receivables, inventory and fixed assets of the Company. This credit
facility provides borrowings at prime plus 1.5% per annum. There is a minimum
monthly interest requirement of $20,000. As of December 31, 1998, approximately
$21.2 million was available for borrowing under this agreement of which $0.4
million was outstanding. The new credit facility does not require the
maintenance of financial covenants.
In addition, the Company may require 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. Management has implemented 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 will be able to implement these plans or
that it will be able to do so without a material adverse effect on the Company's
business, financial results or results of operations.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held a special meeting of stockholders on October 7, 1998.
(b) At the Special Meeting of Stockholders, the following matter was voted
upon:
1. A proposal to approve the issuance of shares of the Company's Common
Stock in connection with the Agreement and Plan of Reorganization and
Merger, dated as of July 22, 1998, by and among the Company, Iguana
Merger Corp. and Innova Corporation.
<TABLE>
<S> <C>
Affirmative votes: 26,746,376
Negative Votes: 305,811
Abstentions: 80,848
Non-Votes: 0
</TABLE>
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
For a list of exhibits to this Form 10-Q, see the exhibit index located on
page 21.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on October 20, 1998 relating the
Company's completion of its merger with Innova Corporation, a Washington
corporation, on October 8, 1998.
20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
3.1 Amended and Restated Bylaws, dated as of October 8, 1998.
4.1 Amended and Restated Rights Agreement, dated as of November 3, 1998,
between the Company and ChaseMellon Shareholder Services, L.L.C.,
including the form of the Certificate of Designations for the Series A
Junior Participating Stock.
*10.1 Purchase Agreement by and between the Company and Microelectronics
Technology, Inc., dated as of January 15, 1998.
*10.2 Purchase Agreement by and between the Company and REMEC Inc., dated
as of January 15, 1998.
*10.3 Business Agreement by and between the Company and MTI, dated as of
January 26, 1998.
10.4 Loan and Security Agreement dated as of October 1, 1998 between the
Company and Greyrock Capital and related (a) Schedule to Loan and
Security Agreement and (b) Secured Promissory Note, each as of the
same date.
10.5 Employment Agreement dated as of October 8, 1998 between the Company
and Jean Francois Grenon.
10.6 Amended and Restated Agreement dated as of October 30, 1998 between
the Company and Bank of America National Trust and Savings
Association.
27.1 Financial Data Schedule for the quarter ended December 31, 1998.
27.2 Restated Financial Data Schedule for the quarter ended December 31,
1997.
</TABLE>
* Portions of this exhibit have been omitted and have been filed separately
with an amended request for confidential treatment.
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGITAL MICROWAVE CORPORATION
Date: February 16,1999 By /s/ Carl A. Thomsen
-----------------------------------
Carl A. Thomsen
Vice President, Chief Financial Officer
and Secretary
22
<PAGE>
AMENDED AND RESTATED
BYLAWS OF
DIGITAL MICROWAVE CORPORATION
(Amended and Restated as of October 8, 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
1
<PAGE>
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.
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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
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
5
<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.
6
<PAGE>
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
7
<PAGE>
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 nine (9). 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 right to vote as a single class may be filled by a
majority of the directors then in office,
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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 the newly elected
Board of Directors, or in the event such meeting is not held at the time
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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 of the Board of Directors or committee thereof,
as the case may be, consent thereto in
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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 certificate of incorporation, adopting an
agreement of merger or consolidation,
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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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- --------------------------------------------------------------------------------
DIGITAL MICROWAVE CORPORATION
AND
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
RIGHTS AGENT
AS SUCCESSOR TO
MANUFACTURERS HANOVER TRUST COMPANY OF CALIFORNIA
RIGHTS AGREEMENT
DATED AS OF OCTOBER 24, 1991
AMENDED AND RESTATED AS OF NOVEMBER 3, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. CERTAIN DEFINITIONS.........................................1
Section 2. APPOINTMENT OF RIGHTS AGENT.................................8
Section 3. ISSUE OF RIGHT CERTIFICATES.................................8
Section 4. FORM OF RIGHT CERTIFICATES.................................11
Section 5. COUNTERSIGNATURE AND REGISTRATION..........................11
Section 6. TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT
CERTIFICATES...............................................12
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS.....................................................14
Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES.........16
Section 9. AVAILABILITY OF PREFERRED SHARES...........................16
Section 10. PREFERRED SHARES RECORD DATE...............................19
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER
OF RIGHTS..................................................20
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.34
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER..............................................35
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES....................39
Section 15. RIGHTS OF ACTION...........................................41
Section 16. AGREEMENT OF RIGHT HOLDERS.................................41
Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER..........42
Section 18. CONCERNING THE RIGHTS AGENT................................43
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT..44
Section 20. DUTIES OF RIGHTS AGENT.....................................45
Section 21. CHANGE OF RIGHTS AGENT.....................................49
Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES.........................51
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Section 23. REDEMPTION.................................................52
Section 24. EXCHANGE...................................................54
Section 25. NOTICE OF CERTAIN EVENTS...................................57
Section 26. NOTICES....................................................58
Section 27. SUPPLEMENTS AND AMENDMENTS.................................59
Section 28. SUCCESSORS.................................................61
Section 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS.......61
Section 30. BENEFITS OF THIS AGREEMENT.................................61
Section 31. SEVERABILITY...............................................62
Section 32. GOVERNING LAW..............................................62
Section 33. COUNTERPARTS...............................................62
Section 34. DESCRIPTIVE HEADINGS.......................................63
</TABLE>
Exhibit A - Form of Certificate of Designations of Series A Junior
Participating Preferred Stock of Digital Microwave
Corporation
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
ii
<PAGE>
RIGHTS AGREEMENT
Rights Agreement, dated as of October 24, 1991, as amended and restated as
of November 3, 1998 (the "Agreement"), between Digital Microwave Corporation, a
Delaware corporation (the "Company"), and ChaseMellon Shareholder Services,
L.L.C. as successor to Manufacturers Hanover Trust Company of California (the
"Rights Agent"). For purposes of clarification, this amendment and restatement
does not reflect the effect of the Company's two-for-one stock split of November
1997.
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
(as hereinafter defined) of the Company outstanding as of the Close of Business
(as hereinafter defined) on November 7, 1991 (the "Record Date") each Right
representing the right to purchase one one-hundredth of a Preferred Share (as
hereinafter defined) upon the terms and subject to the conditions herein set
forth, and has further authorized and directed the issuance of one Right with
respect to each Common Share that shall become outstanding between the Record
Date and the earliest of the Distribution Date, the Redemption Date or the Final
Expiration Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is
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hereinafter defined) of 15% or more of the Common Shares of the Company then
outstanding, but shall not include the Company, any Subsidiary (as such term is
hereinafter defined) of the Company, any employee benefit plan of the Company or
any Subsidiary of the Company, or any entity holding Common Shares for or
pursuant to the terms of any such plan. Acquiring Person shall not include any
Person who has reported or is required to report beneficial ownership of Common
Shares on Schedule 13G under the Exchange Act (or any comparable or successor
report), but only so long as (x) such Person is eligible to report such
ownership on Schedule 13G under the Exchange Act (or any comparable or successor
report), (y) such Person has not reported and is not required to report such
ownership on Schedule 13D under the Exchange Act (or any comparable or successor
report) and such Person does not hold Company Common Shares on behalf of any
other Person who is required to report Beneficial Ownership of such Company
Common Shares on such Schedule 13D, and (z) such Person does not beneficially
own 20% or more of the Company Common Shares then outstanding. Notwithstanding
the foregoing, no Person shall become an "Acquiring Person" as the result of an
acquisition of Common Shares by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 15% or more of the Common Shares of the Company then
outstanding; PROVIDED, HOWEVER, that if a Person shall become the Beneficial
Owner of 15% or more of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and shall, after such share purchases
by the Company, become the Beneficial Owner of any additional Common Shares of
the Company, then such Person shall be deemed to be an "Acquiring Person."
Notwithstanding the foregoing, if the
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Board of Directors of the Company determines in good faith that a Person who
would otherwise be an Acquiring Person, as defined pursuant to the foregoing
provisions of this paragraph (a), has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of Common Shares so that
such Person would no longer be an Acquiring Person, as defined pursuant to the
foregoing provisions of this paragraph (a), then such Person shall not be deemed
to be an "Acquiring Person" for any purpose of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act (as such term is hereinafter defined).
(c) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights (other than these Rights), warrants or options, or otherwise;
PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, (1) securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's Affiliates or
Associates until
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such tendered securities are accepted for purchase or exchange or (2) securities
which a Person or any Person's Affiliates or Associates may be deemed to have
the right to acquire pursuant to any merger or other acquisition agreement
between the Company and such Person (or one or more of such Person's Affiliates
or Associates) if such agreement has been approved by the Board of Directors of
the Company prior to there being an Acquiring Person; or (B) the right to vote
pursuant to any agreement, arrangement or understanding; PROVIDED, HOWEVER, that
a Person shall not be deemed the Beneficial Owner of, or to beneficially own,
any security if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given to such
Person in response to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable rules and regulations promulgated under
the Exchange Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with respect
to a bona fide public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso to
Section 1(c)(ii)(B)) or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when used with
reference to a Person's Beneficial Ownership of securities of the Company, shall
mean the number of
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such securities then issued and outstanding together with the number of such
securities not then actually issued and outstanding which such Person would be
deemed to own beneficially hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in the State of California are
authorized or obligated by law or executive order to close.
(e) "Company" shall have the meaning set forth in the first paragraph
at the beginning of this Agreement.
(f) "Close of Business" on any given date shall mean 5:00 P.M., San
Francisco, California time, on such date; PROVIDED, HOWEVER, that if such date
is not a Business Day it shall mean 5:00 P.M., San Francisco, California time,
on the next succeeding Business Day.
(g) "Common Shares" when used with reference to the Company shall
mean the shares of common stock, par value $.01 per share, of the Company.
"Common Shares" when used with reference to any Person other than the Company
shall mean the capital stock (or other equity interest) with the greatest voting
power of such other Person or, if such other Person is a Subsidiary of another
Person, the Person or Persons which ultimately control such first-mentioned
Person.
(h) "common stock equivalents" shall have the meaning set forth in
Section 11 hereof.
(i) "current per share market price" shall have the meaning set forth
in Section 11 hereof.
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(j) "Current Value" shall have the respective meanings set forth in
Section 11 hereof and Section 24 hereof.
(k) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(l) "equivalent preferred shares" shall have the meaning set forth in
Section 11 hereof.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, as in effect on the date of this Agreement.
(n) "Exchange ratio" shall have the meaning set forth in Section 24
hereof.
(o) "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
(p) "issuer" shall have the meaning set forth in Section 13 hereof.
(q) "NASDAQ" shall have the meaning set forth in Section 11 hereof.
(r) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
(s) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Shares par value $.01 per share, of the Company having
the rights and preferences set forth in the Form of Certificate of Designations
attached to this Agreement as Exhibit A.
(t) "Purchase Price" shall have the meaning set forth in Section 4
hereof.
(u) "Record Date" shall have the meaning set forth in the second
paragraph at the beginning of this Agreement.
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(v) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(w) "Redemption Price" shall have the meaning set forth in Section 23
hereof.
(x) "Right" shall have the meaning set forth in the second paragraph
at the beginning of this Agreement.
(y) "Right Certificate" shall have the meaning set forth in Section 3
hereof.
(z) "Rights Agent" shall have the meaning set forth in the first
paragraph at the beginning of this Agreement.
(aa) "Securities Act" shall have the meaning set forth in Section 9
hereof.
(bb) "Security" shall have the meaning set forth in Section 11 hereof.
(cc) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Company or an Acquiring Person that an Acquiring Person has become such.
(dd) "Spread" shall have the meaning set forth in Section 11 hereof.
(ee) "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
(ff) "Substitution Period" shall have the meaning set forth in Section
11 hereof.
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(gg) "Summary of Rights" shall have the meaning set forth in Section 3
hereof.
(hh) "Trading Day" shall have the meaning set forth in Section 11
hereof.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints
the Rights Agent to act as agent for the Company in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3. ISSUE OF RIGHT CERTIFICATES.
(a) Until the earlier of (i) the tenth day after the Shares
Acquisition Date or (ii) the tenth business day (or such later date as any be
determined by action of the Board of Directors prior to such time as any Person
becomes an Acquiring Person) after the date of the commencement by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company or any entity holding
Common Shares for or pursuant to the terms of any such plan) of, or of the first
public announcement of the intention of any Person (other than the Company, any
subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the terms of any such plan) to commence, a tender or exchange offer the
consummation of which would result in any Person becoming the Beneficial Owner
of Common Shares aggregating 15% or more of the then outstanding Common Shares
(including any such date which is after the date of this Agreement and prior to
the
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issuance of the Rights; the earlier of such dates being herein referred to as
the "Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common Shares
registered in the names of the holders thereof (which certificates shall also be
deemed to be Right Certificates) and not by separate Right Certificates, and (y)
the right to receive Right Certificates will be transferable only in connection
with the transfer of Common Shares. As soon as practicable after the
Distribution Date, the Company will notify the Rights Agent thereof and the
Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send) by first-class, insured, postage-prepaid mail, to each record holder of
Common Shares as of the Close of Business on the Distribution Date, at the
address of such holder shown on the records of the Company, a Right Certificate,
in substantially the form of Exhibit B hereto (a "Right Certificate"),
evidencing one Right for each Common Share so held. As of the Distribution
Date, the Rights will be evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the Close of Business on the Record Date, at the address of such holder shown on
the records of the Company. With respect to certificates for Common Shares
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates registered in the names of the holders thereof
together with a copy of the Summary of Rights attached thereto. Until the
Distribution Date (or the earlier of the Redemption Date or the Final
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Expiration Date), the surrender for transfer of any certificate for Common
Shares outstanding on the Record Date, with or without a copy of the Summary of
Rights attached thereto, shall also constitute the transfer of the Rights
associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date shall
have impressed on, printed on, written on or otherwise affixed to them the
following legend:
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between Digital Microwave
Corporation and Manufacturers Hanover Trust Company of California dated as
of October 24, 1991 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of Digital Microwave Corporation. Under
certain circumstances, as set forth in the Rights Agreement, such Rights
will be evidenced by separate certificates and will no longer be evidenced
by this certificate. Digital Microwave Corporation will mail to the holder
of this certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor. Under certain circumstances, as set
forth in the Rights Agreement, Rights issued to any Person who becomes an
Acquiring Person (as defined in the Rights Agreement) may become null and
void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
In the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that the
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Company shall not be entitled to exercise any Rights associated with the Common
Shares which are no longer outstanding.
Section 4. FORM OF RIGHT CERTIFICATES. The Right Certificates (and the
forms of election to purchase Preferred Shares and of assignment to be printed
on the reverse thereof) shall be substantially the same as Exhibit B hereto and
may have such marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or transaction
reporting system on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of Section 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of one
one-hundredths of a Preferred Share as shall be set forth therein at the price
per one one-hundredth of a Preferred Share set forth therein (the "Purchase
Price"), but the number of such one one-hundredths of a Preferred Share and the
Purchase Price shall be subject to adjustment as provided herein.
Section 5. COUNTERSIGNATURE AND REGISTRATION. The Right Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
President, any of its Vice Presidents, or its Treasurer, either manually or by
facsimile signature, shall have affixed thereto the Company's seal or a
facsimile thereof, and shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. In case any officer of the
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Company who shall have signed any of the Right Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Right Certificates, nevertheless, may
be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its office designated for such purpose, books for registration and
transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right Certificates, the
number of Rights evidenced on its face by each of the Right Certificates and the
date of each of the Right Certificates.
Section 6. TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. Subject
to the provisions of Section 14 hereof, at any time after the Close of Business
on the Distribution Date, and at or prior to the Close of Business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the
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registered holder to purchase a like number of one one-hundredths of a Preferred
Share (or other securities or property) as the Right Certificate or Right
Certificates surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Right Certificate
or Right Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the principal office of the
Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the
person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS.
(a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time
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<PAGE>
after the Distribution Date upon surrender of the Right Certificate, with the
form of election to purchase and certification on the reverse side thereof duly
executed, to the Rights Agent at the office of the Rights Agent designated for
such purpose, together with payment of the Purchase Price for each one
one-hundredth of a Preferred Share as to which the Rights are exercised, at or
prior to the earliest of (i) the Close of Business on October 23, 2001 (the
"Final Expiration Date"), (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof (the "Redemption Date"), (iii) the time at which
such Rights are exchanged as provided in Section 24 hereof, or (iv) the
consummation of any merger or other acquisition involving the Company pursuant
to an agreement described in Section 1(c)(ii)(A)(2) hereof.
(b) The Purchase Price for each one one-hundredth of a Preferred
Share pursuant to the exercise of a Right shall initially be $50.00, shall be
subject to adjustment from time to time as provided in Sections 11 and 13 hereof
and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly (i) (A) requisition from any transfer agent of the Preferred
Shares certificates for the number of Preferred Shares to be purchased and the
Company hereby irrevocably authorizes its transfer agent to comply with all such
requests, or (B) requisition from a depositary agent properly appointed by
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the Company depositary receipts representing such number of one
one-hundredths of a Preferred Share as are to be purchased (in which case
certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the Company
hereby directs the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in
lieu of issuance of fractional shares in accordance with Section 14 hereof,
(iii) after receipt of such certificates or depositary receipts, cause the
same to be delivered to or upon the order of the registered holder of such
Right Certificate, registered in such name or names as may be designated by
such holder and (iv) when appropriate, after receipt deliver such cash to or
upon the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14 hereof.
(e) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued Preferred Shares
or any Preferred Shares held in its treasury, the number of Preferred Shares
that will be sufficient to permit the exercise in full of all outstanding Rights
in accordance with this Section 7.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate
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contained in the form of election to purchase set forth on the reverse side of
the Right Certificate surrendered for such exercise, and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all cancelled Right Certificates to the Company, or shall, at the
written request of the Company, destroy such cancelled Right Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.
Section 9. AVAILABILITY OF PREFERRED SHARES.
(a) The Company covenants and agrees that it will use its best
efforts to cause to be reserved and kept available out of and to the extent
of its authorized and unissued shares of Preferred Stock not reserved for
another purpose (and, following the occurrence of an event described in
Section 11(a)(ii) or Section 13(a), out of its authorized and unissued shares
of Common Stock and/or other securities), the number of Preferred Shares
(and, following the occurrence of any such event, Common Stock and/or
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other securities) that will be sufficient to permit the exercise in full of
all outstanding Rights.
(b) If the Preferred Shares (or, following the occurrence of an event
described in Section 11(a)(ii) or Section 13(a), the Common Shares and/or other
securities) are at any time listed on a national securities exchange or included
for quotation on any transaction reporting system, then so long as the Preferred
Shares (and, following the occurrence of any such event, Common Shares and/or
other securities) issuable and deliverable upon exercise of the Rights may be
listed on such exchange or included for quotation on any such transaction
reporting system, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable (but only to the extent that it
is reasonably likely that the Rights will be exercised), all shares reserved for
such issuance to be listed on such exchange or included for quotation on any
such transaction reporting system upon official notice of issuance upon such
exercise.
(c) The Company shall use its best efforts to file, as soon as
practicable following the earliest date after the first occurrence of an event
described in Section 11(a)(ii) in which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iv) hereof, or as soon as is required by law following the
Distribution Date, as the case may be, a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities purchasable upon exercise of the Rights on an appropriate form, (ii)
cause such registration statement to become effective as soon as practicable
after such filing and (iii) cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the
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earlier of (A) the date as of which the Rights are no longer exercisable for
such securities or (B) the date of expiration of the Rights. The Company may
temporarily suspend, for a period not to exceed ninety (90) days after the date
set forth in clause (i) of the first sentence of this Section 9(c), the
exercisability of the Rights in order to prepare and file such registration
statement and permit it to become effective. Upon any such suspension, the
Company shall issue a public announcement stating, and notify the Rights Agent,
that the exercisability of the Rights has been temporarily suspended, as well as
a public announcement and notification to the Rights Agent at such time as the
suspension is no longer in effect. The Company will also take such action as
may be appropriate under, or to ensure compliance with, the securities or "blue
sky" laws of the various states in connection with the exercisability of the
Rights. Notwithstanding any provision of this Agreement to the contrary, the
Rights shall not be exercisable in any jurisdiction, unless the requisite
qualification in such jurisdiction shall have been obtained, or an exemption
therefrom shall be available and until a registration statement has been
declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Preferred Shares delivered upon
exercise of Rights shall, at the time of delivery of the certificates for such
Preferred Shares (subject to payment of the Purchase Price), be duly and validly
authorized and issued and fully paid and nonassessable shares.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay
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any transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the Preferred Shares in a name other
than that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or to deliver any certificates or
depositary receipts for Preferred Shares upon the exercise of any Rights until
any such tax shall have been paid (any such tax being payable by the holder of
such Right Certificate at the time of surrender) or until it has been
established to the Company's reasonable satisfaction that no such tax is due.
Section 10. PREFERRED SHARES RECORD DATE. Each person in whose name any
certificate for Preferred Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Preferred
Shares represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made;
PROVIDED, HOWEVER, that if the date of such surrender and payment in a date upon
which the Preferred Shares transfer books of the Company are closed, such person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares transfer books of the Company are open. Prior to the exercise
of the Rights evidenced thereby, the holder of a Right Certificate shall not be
entitled to any rights of a holder of Preferred Shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
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Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF
RIGHTS. The Purchase Price, the number of Preferred Shares covered by each
Right and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, such holder would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification; PROVIDED, HOWEVER, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. If an event occurs which would require an
adjustment under both Section 11(a)(i) and Section 11(a)(ii), the adjustment
provided for in this Section 11(a)(i)
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shall be in addition to, and shall be made prior to any adjustment required
pursuant to Section 11(a)(ii).
(ii) Subject to Section 24 of this Agreement, in the event that any
Person becomes an Acquiring Person, each holder of a Right shall thereafter have
a right to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred Shares, such number of Common Shares of
the Company as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable and dividing that product by (y) 50% of
the then current per share market price of the Company's Common Shares
(determined pursuant to Section 11(d) hereof) on the date of the occurrence of
such event. In the event that any Person shall become an Acquiring Person and
the Rights shall then be outstanding, the Company shall not take any action
which would eliminate or diminish the benefits intended to be afforded by the
Rights.
Notwithstanding anything in this Agreement to the contrary, from and after
the first occurrence of an event in which any Person shall become an Acquiring
Person, any Rights beneficially owned by (A) an Acquiring Person or an Associate
or Affiliate of an Acquiring Person, (B) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such, or (C) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(1) a transfer (whether or not for consideration) from the
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Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (2) a transfer
which the Board of Directors has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 11(a)(ii), shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. No Right
Certificate shall be issued pursuant to Section 3 that represents Rights
beneficially owned by an Acquiring Person whose Rights would be void pursuant to
the preceding sentence or any Associate or Affiliate thereof; no Right
Certificate shall be issued at any time upon the transfer of any Rights to an
Acquiring Person whose Rights would be void pursuant to the preceding sentence
or any Associate or Affiliate thereof or to any nominee of such Acquiring
Person, Associate or Affiliate; and any Right Certificate delivered to the
Rights Agent for transfer to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence shall be cancelled. The Company shall use
all reasonable efforts to ensure that the provisions of this Section 11(a)(ii)
are complied with, but shall have no liability to any holder of Right
Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring person or its Affiliates, Associates
or transferees hereunder.
(iii) The right to buy Common Shares of the Company pursuant to
subparagraph (ii) of this paragraph (a) shall not arise if the event causing
such Person to become an Acquiring Person (A) is a consolidation, merger, sale,
transfer or similar transaction subject to Section 13 hereof, or (B) is an
acquisition of shares of Common
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Stock pursuant to a tender offer or an exchange offer for all outstanding Common
Shares at a price and on terms determined by the Board of Directors, and after
receiving advice from one or more investment banking firms, to be (1) at a price
which is fair to stockholders (taking into account all factors which such
members of the Board of Directors deem relevant including, without limitation,
prices which could reasonably be achieved if the Company or its assets were sold
in an orderly basis designed to realize maximum value) and (2) otherwise in the
best interests of the Company and its stockholders.
(iv) In lieu of issuing Common Shares in accordance with Section
11(a)(ii) hereof, the Company may, if the Board of Directors of the Company
determines that such action is necessary or appropriate and not contrary to the
interest of holders of Rights (and, in the event that the number of Common
Shares which are authorized by the Company's Restated Certificate of
Incorporation but not outstanding or reserved for issuance for purposes other
than upon exercise of the Rights are not sufficient to permit the exercise in
full of the Rights, or if any necessary regulatory approval for such issuance
has not been obtained by the Company, the Company shall): (A) determine the
excess of (1) the value of the Common Shares issuable upon the exercise of a
Right (the "Current Value") over (2) the Purchase Price (such excess being
referred to as the "Spread") and (B) with respect to each Right, make adequate
provision to substitute for such Common Shares, upon exercise of the Rights, (1)
cash, (2) a reduction in the Purchase Price, (3) other equity securities of the
Company (including, without limitation, shares or units of shares of any series
of preferred stock which the Board of Directors of the Company has deemed to
have the same value as Common
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Shares (such shares or units of shares of preferred stock are herein called
"common stock equivalents")), except to the extent that the Company has not
obtained any necessary regulatory approval for such issuance, (4) debt
securities of the Company, except to the extent that the Company has not
obtained any necessary regulatory approval for such issuance, (5) other assets
or (6) any combination of the foregoing, having an aggregate value equal to the
Current Value, where such aggregate value has been determined by the Board of
Directors of the Company based upon the advice of a nationally recognized
investment banking firm selected by the Board of Directors of the Company;
PROVIDED, HOWEVER, if the Company shall not have made adequate provision to
deliver value pursuant to clause (B) above within thirty (30) days following the
occurrence of an event described in Section 11(a)(ii), then the Company shall be
obligated to deliver, upon the surrender for exercise of a Right and without
requiring payment of the Purchase Price, Common Shares (to the extent
available), except to the extent that the Company has not obtained any necessary
regulatory approval for such issuance, and then, if necessary, cash, which
shares and/or cash have an aggregate value equal to the Spread. If the Board of
Directors shall determine in good faith that it is likely that sufficient
additional Common Shares could be authorized for issuance upon exercise in full
of the Rights or that any necessary regulatory approval for such issuance will
be obtained, the thirty (30) day period set forth above may be extended to the
extent necessary, but not more than ninety (90) days after the occurrence of an
event described in Section 11(a)(ii), in order that the Company may seek
stockholder approval for the authorization of such additional shares or take
action to obtain such regulatory approval (such period, as it may be extended,
the "Substitution Period"). To the extent that the Company determines that
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some action need be taken pursuant to the first and/or second sentences of this
Section 11(a)(iv), the Company (x) shall provide that such action shall apply
uniformly to all outstanding Rights held by holders entitled to receive Common
Shares or other securities or property upon exercise of such Rights and (y) may
suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares, to
take any action to obtain any required regulatory approval and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence and
to determine the value thereof. In the event of any such suspension, the
Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect and shall promptly notify the
Rights Agent of such suspension. For purposes of this Section 11(a)(iv), the
value of the Common Shares shall be the current per share market price (as
determined pursuant to Section 11(d) hereof) of the Common Shares at the Close
of Business on the date of the occurrence of one of the events described in
Section 11(a)(ii) and the value of any "common stock equivalents" shall be
deemed to have the same value as the Common Shares on such date.
(b) In the event that the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within forty five (45) calendar days after
such record date) to subscribe for or purchase Preferred Shares (or shares
having the same rights, privileges and preference as the Preferred Shares
("equivalent preferred shares")) or securities convertible into Preferred Shares
or equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
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convertible into Preferred Shares or equivalent preferred shares) less than the
then current per share market price of the Preferred Shares (as defined in
Section 11(d)) on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of Preferred Shares which the aggregate offering price of the total
number of Preferred Shares and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current market price and the denominator
of which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); PROVIDED, HOWEVER, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be
paid in a consideration part or all of which shall be in a form other than cash,
the value of such consideration shall be as determined in good faith by the
Board of Directors of the Company whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights. Preferred Shares owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights, options or warrants are
not so issued, the Purchase Price shall be
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adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
current per share market price of the Preferred Shares; PROVIDED, HOWEVER, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
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(d) (i) For the purpose of any computation hereunder, the "current
per share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the thirty (30) consecutive
Trading Days (as such term is hereinafter defined) immediately prior to such
date; PROVIDED, HOWEVER, that in the event that the current per share market
price of the Security is determined during a period following the announcement
by the issuer of such Security of (A) a dividend or distribution on such
Security payable in shares of such Security or securities convertible into such
shares, or (B) any subdivision, combination or reclassification of such Security
and prior to the expiration of thirty (30) Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading on,
if the Security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of
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Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other
system then in use, or, if on any such date the Security is not quoted by any
such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Security
selected by the Board of Directors of the Company. If on any such date no
market maker is making a market in the Security, the "current per share
market price" of such Security on such date as determined in good faith by
the Board of Directors of the Company as provided for above shall be used.
The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to trading is
open for the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "current
per share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by one hundred. If
neither the Common Shares nor the Preferred Shares are publicly held or so
listed or traded, "current per share market price" shall mean the fair value per
share as determined in good faith by the Board of Directors of the Company whose
determination shall be described in a statement filed with the Rights Agent.
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<PAGE>
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
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(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share (calculated to the nearest one one-millionth of a Preferred
Share) obtained by (i) multiplying (x) the number of one one-hundredths of a
share covered by a Right immediately prior to this adjustment by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any
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day thereafter, but, if the Right Certificates have been issued, shall be at
least 10 days later than the date of the public announcement. If Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Company shall, as promptly as practicable,
cause to be distributed to holders of record of Right Certificates on such
record date Right Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Right
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Right Certificates evidencing
all the Rights to which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein and shall be registered in the
names of the holders of record of Right Cerificates on the record date specified
in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a Preferred Share issuable upon the exercise
of the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-hundredths of a
Preferred Share which were expressed in the initial Right Certificates issued
hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may
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validly and legally issue fully paid and nonassessable Preferred Shares at such
adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; PROVIDED,
HOWEVER that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, dividends on
Preferred Shares payable in Preferred Shares or issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such stockholders.
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(n) In the event that at any time after the date of this Agreement
and prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Sections 11 and 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof. Notwithstanding the foregoing sentence, the
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<PAGE>
failure by the Company to make such certification or give such notice shall not
affect the validity of or the force or effect of the requirement for such
adjustment. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment contained therein and shall not be deemed to
have knowledge of such adjustment unless and until it shall have received such
certificate.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(a) Except as provided in Section 13(b) hereof, in the event,
directly or indirectly, (1) the Company shall consolidate with, or merge with
and into, any other Person, (2) any Person shall consolidate with the Company,
or merge with and into the Company and the Company shall be the continuing or
surviving corporation of such consolidation or merger and, in connection with
such consolidation or merger, all or part of the Common Shares shall be changed
into or exchanged for stock or other securities of any other Person (or the
Company) or cash or any other property, or (3) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, directly or indirectly, assets or
earning power aggregating 50% or more of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person other than
the Company or one or more of its wholly-owned subsidiaries, then, and in each
such case, proper provision shall be made so that (i) each holder of a Right
(except as otherwise provided herein) shall thereafter have the right to
receive, upon the exercise thereof at a price equal to the then current Purchase
Price multiplied by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable, in accordance with the terms of this
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Agreement and in lieu of Preferred Shares, such number of Common Shares of such
other Person (including the Company as successor thereto or as the surviving
corporation) as shall equal the result obtained by (A) multiplying the then
current Purchase Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable and dividing that product by (B) 50% of
the than current per share market price of the Common Shares or such other
Person (determined pursuant to Section 11(d) hereof) on the date of consummation
of such consolidation, merger, sale or transfer; (ii) the issuer of such Common
Shares shall thereafter be liable for, and shall assue, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to such issuer; and (iv) such issuer shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares in accordance with Section 9 hereof) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to the
Common Shares thereafter deliverable upon the exercise of the Rights. The
Company shall not consummate any such consolidation, merger, sale or transfer
unless prior thereto the Company and such issuer shall have executed and
delivered to the Rights Agent a supplemental agreement so providing. The
Company shall not enter into any transaction of the kind referred to in this
Section 13 if at the time of such transaction there are any rights, warrants,
instruments or securities outstanding or any agreements or arrangements which,
as a result of the consummation of such transaction, would eliminate or
substantially diminish the benefits intended to be afforded by the Rights.
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The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers.
The supplemental agreement referred to above in this Section 13(a) to be
entered into by the Company and the Rights Agent shall also provide that, as
soon as practicable after the date of any of the events described in Section
11(a), such issuer shall:
(i) prepare and file a registration statement under the
Securities Act with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, use its best efforts to cause
such registration statement to become effective as soon as practicable after
such filing and use its best efforts to cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the Final Expiration Date, and similarly comply with
applicable state securities laws;
(ii) use its best efforts to list (or continue the listing of)
the Rights and the securities purchasable upon exercise of the Rights on a
national securities exchange or to meet the eligibility requirements for
quotation on NASDAQ; and
(iii) deliver to holders of the Rights historical financial
statements for such issuer which comply in all respects with the requirements
for registration on Form 10 (or any successor form) under the Exchange Act.
(b) In the event of any merger or other acquisition transaction
involving the Company pursuant to an agreement described in Section
1(C)(ii)(A)(2), the provisions of Section 13(a) hereof shall not be applicable
to such transaction and this Rights Agreement and the rights of holders of
Rights hereunder shall be terminated in accordance with Section 7(a) hereof.
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(c) The term "issuer," for purposes of this Section 13, shall refer
to the Person (or Affiliate or Associate) referred to in Section 13(a);
PROVIDED, HOWEVER, that (i) if such Person (or Affiliate or Associate) is a
direct or indirect Subsidiary of another Person, the term "issuer" shall refer
to such other Person, and (ii) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, the term "issuer" shall refer to whichever
of such Persons is the issuer of such Common Shares having the greatest
aggregate value.
(d) If, for any reason, the Rights cannot be exercised for Common
Shares of such issuer as provided in Section 13(a), then each holder of Rights
shall have the right to exchange its Rights for cash from such issuer in an
amount equal to the number of Common Shares that it would otherwise be entitled
to purchase multiplied by 50% of the current per share market price, as
determined pursuant to Section 11(d) hereof, of such Common Shares of such
issuer. If, for any reason, the foregoing provision cannot be applied to
determine the cash amount into which the Rights are exchangeable, then the Board
of Directors of the Company, based upon the advice of one or more nationally
recognized investment banking firms, shall determine such amount reasonably and
with good faith to the holders of Rights. Any such determination shall be final
and binding on the Rights Agent and the holders of Rights.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to
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the same fraction of the current market value of a whole Right. For the
purposes of this Section 14(a), the current market value of a whole Right
shall be the closing price of the Rights for the Trading Day immediately
prior to the date on which such fractional Rights would have been otherwise
issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading or, if the
Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by
NASDAQ or such other system then in use or, if on any such date the Rights
are not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in
the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights, the fair value of
the Rights on such date as determined in good faith by the Board of Directors
of the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence
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fractional Preferred Shares (other then fractions which are integral multiples
of one one-hundredth of a Preferred Share). Fractions of Preferred Shares in
integral multiples of one one-hundredth of a Preferred Share may, at the
election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by it;
PROVIDED, that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are
entitled as Beneficial Owners of the Preferred Shares represented by such
depositary receipts. In lieu of fractional Preferred Shares that are not
integral multiples of one one-hundredth of a Preferred Share, the Company shall
pay to the registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one Preferred Share. For the purposes of this Section
14(b), the current market value of a Preferred Share shall be the closing price
of a Preferred Share (as determined pursuant to the second sentence of Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise.
(c) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date of the Common Shares),
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without the consent of the Rights Agent or of the holder of any other Right
Certificate (or prior to the Distribution Date, of the Common Shares), may, in
such holder's own behalf and for such holder's own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, such holder's right to exercise the
Rights evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations hereunder, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to this Agreement.
Section 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) subject to Sections 6 and 7(f) hereof, the Company and the Rights
Agent may deem and treat the person in whose name the Right Certificate (or,
prior to the Distribution Date, the associated Common Shares certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of
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ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; PROVIDED, HOWEVER, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as
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provided in Section 25 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Right Certificate
shall have been exercised in accordance with the provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT. The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for and to hold
it harmless against, any loss, liability, suit, action, proceeding or expense,
incurred without gross negligence, bad faith or willful misconduct on the part
of the Rights Agent, for any action taken, suffered or omitted by the Rights
Agent in connection with the execution, acceptance and administration of this
Agreement and the exercise and performance hereunder of its duties, including
the costs and expenses of defending against and appealing any claim of liability
arising therefrom. The indemnity provided herein shall survive the termination
of this Agreement and the expiration of the Rights.
The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement or the exercise and performance of its duties
hereunder in reliance upon any Right Certificate or certificate for the
Preferred Shares or Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
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necessary, verified or acknowledged, by the proper person or persons, or
otherwise upon the advice of counsel as set forth in Section 20 hereof.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for appointment
as a successor Rights Agent under the provisions of Section 21 hereof. In case
at the time such successor Rights Agent shall succeed to the agency created by
this Agreement any of the Right Certificates shall have been countersigned but
not delivered, any such successor Rights Agent may adopt the countersignature of
the predecessor Rights Agent and deliver such Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall not
have been countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right
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Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, the Rights Agent may countersign
such Right Certificates either in its prior name or in its changed name; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel of its choice
(who may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent as
to any action taken, suffered or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the administration, exercise and performance of its
duties under this Agreement the Rights Agent shall deem it necessary or
desirable that any fact or matter be proved or established by the Company prior
to taking, suffering or omitting any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Treasurer or the Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken, suffered or omitted in good faith by
it under the provisions of this Agreement in reliance upon such certificate.
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(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the representations, warranties, or statements of fact or recitals contained in
this Agreement or in the Right Certificates (except its countersignature
thereof) or be required to verify the same, but all such representations
warranties, or statements and recitals are and shall be deemed to have been made
by the Company only.
(e) The Rights Agent shall not be under any liability or
responsibility in respect of the legality, validity or enforceability of this
Agreement or the execution and delivery hereof (except the due execution hereof
by the Rights Agent) or in respect of the legality, validity or enforceability
or the execution of any Right Certificate (except its countersignature thereof);
nor shall it be liable or responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be liable or responsible for any change in the exercisability of
the Rights (including the Rights becoming void pursuant to Section 11(a)(ii)
hereof) or any adjustment in the terms of the Rights (including the manner,
method or amount thereof) provided for in Section 3, 11, 13, 23 or 24, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after receipt of the certificate described in Section 12 hereof);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Preferred Shares to be
issued pursuant to this Agreement or any Right Certificate or as to whether any
Preferred Shares will, when issued, be validly authorized and issued, fully paid
and nonassessable.
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(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the administration, exercise and performance of its
duties hereunder from any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Secretary or the Treasurer of
the Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be responsible or liable for any
action taken, suffered or omitted by it in good faith in accordance with
instructions of any such officer or for any delay in acting while waiting for
those instructions. Any application by the Rights Agent for written
instructions from the Company may, at the option of the Rights Agent, set forth
in writing any action proposed to be taken or omitted by the Rights Agent under
this Rights Agreement and the date on and/or after which such action shall be
taken or such omission shall be effective. The Rights Agent shall not be liable
for any action taken by, or omission of, the Rights Agent in accordance with a
proposal included in any such application on or after the date specified in such
application which date shall not be less than five (5) Business Days after the
date any officer of the Company actually received such application, unless any
such officer shall have consented in writing to an earlier date) unless prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have
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received written instructions in response to such application specifying the
action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be liable or
accountable for any act, default, omission, neglect or misconduct of any such
attorneys or agents or for any loss to the Company resulting from any such act,
default, omission, neglect or misconduct, provided reasonable care was exercised
in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, split-up, combination or exchange, the
certification on the
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form of assignment or form of election to purchase, as the case may be, that the
Rights evidenced by the Right Certificate are not owned by an Acquiring Person,
or an Affiliate or Associate thereof, has either not been completed or in any
manner indicates any other response thereto, the Rights Agent shall not take any
further action with respect to such requested exercise, transfer, split-up,
combination or exchange, without first consulting with the Company.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares or Preferred Shares (as to which the Rights
Agent has received prior written notice) by registered or certified mail, and
the Company shall mail notice thereof to the holders of the Right Certificates
by first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon thirty (30) days' notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to each transfer agent
of the Common Shares or Preferred Shares (as to which the Rights Agent has
received prior written notice) by registered or certified mail, and to the
holders of the Right Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of thirty (30) days after giving
notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Right Certificate (who shall, with such notice, submit such
holder's Right Certificate for inspection by the Company), then the registered
holder of any Right
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Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be a corporation organized and doing business
under the laws of the United States or of any state of the United States so long
as such corporation is authorized to do business as a banking institution, is in
good standing, and is authorized under such laws to exercise corporate trust or
stock transfer powers and is subject to supervision or examination by federal or
state authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares or Preferred Shares, and mail a
notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved
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by its Board of Directors to reflect any adjustment or change in the Purchase
Price and the number or kind or class of shares or other securities or property
purchasable under the Right Certificates made in accordance with the provisions
of this Agreement. In addition, in connection with the issuance or sale of
Common Shares following the Distribution Date and prior to the redemption or
expiration of the Rights, the Company (a) shall, with respect to Common Shares
so issued or sold pursuant to the exercise of stock options or under any
employee benefit plan or arrangement or upon the exercise, conversion or
exchange of securities of the Company currently outstanding or issued at any
time in the future by the Company and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Right
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; PROVIDED, HOWEVER, that (i) no such Right Certificate
shall be issued and this sentence shall be null and void AB INITIO if, and to
the extent that, such issuance or this sentence would create a significant risk
of or result in material adverse tax consequences to the Company or the Person
to whom such Right Certificate would be issued or would create a significant
risk of or result in such options' or employee plans' or arrangements' failing
to qualify for otherwise available special tax treatment and (ii) no such Right
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
Section 23. REDEMPTION.
(a) The Company may, at its option, upon approval by the Board of
Directors, at any time prior to the earliest of (i) the tenth business day
following the Shares Acquisition Date, or (ii) such date or dates on or after
the tenth business day
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following the Shares Acquisition Date to which such option may be extended by
the Board of Directors (for one or more successive 10 day periods) by vote(s)
first taken or written consent(s) first given prior to the tenth business day
following the Shares Acquisition Date and, thereafter, prior to the completion
of any such 10 day extension or extensions (or, if the Shares Acquisition Date
shall have occurred prior to the Record Date, prior to (A) the tenth business
day following the Record Date or (B) such date or dates on or after the tenth
business day after the Record Date to which such option may be extended by the
Board of Directors (for one or more successive 10 day periods) by vote(s) first
taken or written consent(s) first given prior to the tenth business day
following the Record Date and, thereafter, prior to the completion of any such
10 day extension or extensions), redeem all but not less than all the then
outstanding Rights at a redemption price of $.01 per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"), and the Company may, at its option, pay
the Redemption Price either in cash, Common Shares (based on the current per
share market price thereof (as determined pursuant to Section 11(d) hereof) at
the time of redemption), or any other form of consideration deemed appropriate
by the Board of Directors. The redemption of the Rights by the Board of
Directors may be made effective at such time on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights will
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terminate and the only right thereafter of the holders of Rights shall be to
receive the Redemption Price. The Company shall promptly give public notice of
any such redemption; PROVIDED, HOWEVER, that the failure to give, or any defect
in, any such notice shall not affect the validity of such redemption. Within 10
days after such action of the Board of Directors ordering the redemption of the
Rights, the Company shall give notice of such redemption to the Rights Agent and
shall mail a notice of redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Shares. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made. Neither the Company nor any of
its Affiliates or Associates may redeem, acquire or purchase for value any
Rights at any time in any manner other than that specifically set forth in this
Section 23 or in Section 24 hereof, and other than in connection with the
purchase of Common Shares prior to the Distribution Date.
Section 24. EXCHANGE.
(a) The Company, at its option, upon approval by the Board of
Directors, at any time after any Person becomes an Acquiring Person, may
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have become void pursuant to the provisions of Section
11(a)(ii) hereof) for Common Shares at an exchange ratio of one Common Share per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such
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exchange ratio being hereinafter referred to as the "Exchange Ratio").
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any such
Subsidiary, or any entity holding Common Shares for or pursuant to the terms of
any such plan), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to subsection (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; PROVIDED,
HOWEVER that the failure to give, or any defect in, such notice shall not affect
the validity of such exchange. The Company promptly shall mail a notice of any
such exchange to all of the holders of such Rights at their last addresses as
they appear upon the registry books of the Rights Agent. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of exchange will state the method
by which the exchange of the Common Shares for Rights will be effected and, in
the event of any partial exchange, the number of Rights which will be exchanged.
Any partial exchange shall be affected pro rata based on the number of Rights
(other than Rights which have become void pursuant to the provisions of Section
11(a)(ii) hereof) held by each holder of Rights.
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(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Shares (or equivalent preferred shares, as such
term is defined in Section 11(b) hereof) for Common Shares exchangeable for
Rights, at the initial rate of one one-hundredth of a Preferred Share (or
equivalent preferred share) for each Common Share, as appropriately adjusted to
reflect adjustments in the voting rights of the Preferred Shares pursuant to the
terms thereof, so that the fraction of a Preferred Share delivered in lieu of
each Common Share shall have the same voting rights as one Common Share.
(d) In the event that there shall not be sufficient Common Shares or
Preferred Shares issued but not outstanding or authorized but unissued to permit
any exchange of Rights as contemplated in accordance with Section 24(a), the
Company shall either take such action as may be necessary to authorize
additional Common Shares or Preferred Shares for issuance upon exchange of the
Rights or alternatively, at the option of the Board of Directors, with respect
to each Right (i) pay cash in an amount equal to the Purchase Price, in lieu of
issuing Common Shares or Preferred Shares in exchange therefor, or (ii) issue
debt or equity securities, or a combination thereof, having a value equal to the
Current Value (as hereinafter defined) of the Common Shares or Preferred Shares
exchangeable for each such Right, where the value of such securities shall be
determined by a nationally recognized investment banking firm selected by the
Board of Directors, or (iii) deliver any combination of cash, property, Common
Shares, Preferred Shares and/or other securities having a value equal to the
Current Value in exchange for each Right. The term "Current Value", for the
purposes of this Section 24, shall mean the product of the current per share
market price of Common Shares (determined
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pursuant to Section 11(d) on the date of the occurrence of the event described
above in subparagraph (a)) multiplied by the number of Common Shares for which
the Right otherwise would be exchangeable if there were sufficient shares
available. To the extent that the Company determines that some action need be
taken pursuant to clauses (i), (ii) or (iii) of this Section 24(d), the Board of
Directors may temporarily suspend the exercisability of the Rights for a period
of up to sixty (60) days following the date on which the event described in
Section 24(a) shall have occurred, in order to seek any authorization of
additional Common Shares or Preferred Shares and/or to decide the appropriate
form of distribution to be made pursuant to the above provision and to determine
the value thereof. In the event of any such suspension, the Company shall issue
a public announcement stating that the exercisability of the Rights has been
temporarily suspended.
(e) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares.
In lieu of such fractional Common Shares, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to
the same fraction of the current market value of a whole Common Share. For the
purposes of this paragraph (e), the current market value of a whole Common Share
shall be the closing price of a Common Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.
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Section 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose (i) to pay any dividend payable
in stock of any class to the holders of its Preferred Shares or to make any
other distribution to the holders of its Preferred Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares
rights or warrants to subscribe for or to purchase any additional Preferred
Shares or shares of stock of any class or any other securities, rights or
options, (iii) to effect any reclassification of its Preferred Shares (other
than a reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, or to effect
any sale or other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer) in one or more transactions, of 50% or more
of the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to, any other Person, (v) to effect the liquidation, dissolution or
winding up of the Company, or (vi) to declare or pay any dividend on the Common
Shares payable in Common Shares or to effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares), then, in each such case, the Company
shall give to each holder of a Right Certificate, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record date
for the purposes of such stock dividend, or distribution of rights or warrants,
or the date on which such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution, or winding up is to take place and the date
of participation therein by the holders of the Common Shares and/or Preferred
Shares, if any such date is to be fixed, and such notice shall be so given in
the case of any action covered by clause (i) or (ii) above at least ten (10)
days
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prior to the record date for determining holders of the Preferred Shares for
purposes of such action, and in the case of any such other action, at least ten
(10) days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, whichever shall be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii) hereof
shall occur, then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate, in accordance with Section 26 hereof a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
hereof. In the event any Person becomes an Acquiring Person, the Company will
promptly notify the Rights Agent thereof.
Section 26. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Digital Microwave Corporation
170 Rose Orchard Way
San Jose, California 95134
Attention: Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
ChaseMellon Shareholder Services, L.L.C.
235 Montgomery Street
23rd Floor
San Francisco, CA 94104
58
<PAGE>
Attention: Asa Drew
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution Date,
the Company may supplement or amend this Agreement in any respect, without the
approval of any holders of Rights, by action of its Board of Directors, and the
Rights Agent shall, if the Company so directs, execute such supplement or
amendment. From and after the Distribution Date, the Company may from time to
time supplement or amend this Agreement without the approval of any holders of
Rights, by action of its Board of Directors, in order to cure any ambiguity, to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, or to make any other provisions
with respect to the Rights which the Company may deem necessary or desirable and
which shall be consistent with, and for the purpose of fulfilling, the
objectives of the Board of Directors in adopting this Agreement, including,
without limitation, to change the Purchase Price, the Redemption Price, any time
periods herein specified, and any other term hereof, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; PROVIDED, HOWEVER, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights. Upon receipt of a
certificate from an appropriate officer of the Company that the proposed
supplement or amendment is consistent with this Section 27 and, after such time
as any Person has become an Acquiring Person, that
59
<PAGE>
the proposed supplement or amendment does not adversely affect the interests of
the holders of Rights, the Rights Agent shall execute such supplement or
amendment. Without limiting the foregoing, the Company may at any time prior to
such time as any Person becomes an Acquiring Person, by action of its Board of
Directors, amend this Agreement to lower the thresholds set forth in Sections
1(a) and 3(a) to not less than the greater of (i) any percentage greater than
the largest percentage of the outstanding Common Shares then known by the
Company to be beneficially owned by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any
Subsidiary of the Company, or any entity holding Common Shares for or pursuant
to the terms of any such plan) and (ii) 10%.
Section 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS. For
all purposes of this Agreement, any calculation of the number of Common Shares
outstanding at any particular time, including for purposes of determining the
particular percentage of such outstanding Common Shares of which any Person is
the Beneficial Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The
Board of Directors of the Company shall have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to the Board, or the Company, or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement and (ii)
60
<PAGE>
make all determinations deemed necessary or advisable for the administration of
this Agreement (including a determination to redeem or not redeem the Rights or
to amend the Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing), which are done or made by the Board of Directors in
good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Right Certificates and all other parties and
(y) not subject the Board of Directors to any liability to the holders of the
Rights.
Section 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).
Section 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
PROVIDED, HOWEVER, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language
61
<PAGE>
from this Agreement would adversely affect the purpose or effect of this
Agreement, the right of redemption set forth in Section 23 hereof shall be
reinstated and shall not expire until the tenth business day following the date
of such determination by the Board of Directors of the Company.
Section 32. GOVERNING LAW. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 33. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
62
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
ATTEST: DIGITAL MICROWAVE CORPORATION
By: /s/ CARL A. THOMSEN By: /s/ CHARLES D. KISSNER
------------------- ----------------------
Name: Carl A. Thomsen Name: Charles D. Kissner
Title: Vice President, Chief Title: Chairman of the Board
Financial Officer and and Chief Executive Officer
Secretary
ATTEST: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By: /s/ JOSEPH W. THATCHER By: /s/ ASA DREW
---------------------- ------------
Name: Joseph W. Thatcher Name: Asa Drew
Title: Assistant Vice President Title: Assistant Vice President
63
<PAGE>
EXHIBIT A
FORM
OF
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,
A-1
<PAGE>
quarterly dividends payable in cash on the first day of March, June, September
and December in each year (each such referred to herein as a "Quarterly Dividend
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 an 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
A-2
<PAGE>
Preferred Stock entitled to receive payment of a dividend or distribution
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 Cannon 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 or 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
A-3
<PAGE>
paid ratably on the Series A Preferred Stock and all such parity stock on
which 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
A-4
<PAGE>
the Series A Preferred Stock and all such parity stock in proportion to the
total amounts 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 uch 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 lessor 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.
A-5
<PAGE>
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.
-----------------------------------
Name: P. Michael Friedenbach
Title: Chairman of the Board
and Chief Executive Officer
(SEAL]
Attest:
- --------------------------------
Secretary
A-6
<PAGE>
EXHIBIT B
Form of Right Certificate
Certificate No. R- __________ Rights
NOT EXERCISABLE AFTER OCTOBER 23, 2001 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT THE OPTION OF THE COMPANY AT $.01 PER RIGHT
AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY
OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF
AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHT
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO
WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED
IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHT
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME
NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SUCH
AGREEMENT.](1)
Right Certificate
DIGITAL MICROWAVE CORPORATION
This certifies that __________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of October 24, 1991 (the "Rights Agreement"), between
Digital Microwave Corporation, a Delaware corporation (the "Company"), and
Manufacturers Hanover Trust Company of California (the "Rights Agent"), to
purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Agreement) and prior to 5:00 P.M., San Francisco,
California time, on October 23, 2001 at the office of the Rights Agent
designated for such purpose, or at the office of its successor as Rights Agent,
one one-hundredth of a fully paid non-assessable share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Preferred Shares")
of the Company, at a purchase price of $50.00 per one one-hundredth of a
Preferred Share (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Right Certificate (and the number of one
one-hundredths or a Preferred Share which may be purchased upon exercise hereof)
set forth above, and the Purchase Price set forth above,
- ---------------
(1) The portion of the legend in bracket shall be inserted only if applicable
and shall replace the preceding sentence.
B-1
<PAGE>
are the number and Purchase Price as of October 24, 1991 based an the Preferred
Shares as constituted at such date. As provided in the Rights Agreement, the
Purchase Price and the number of one one-hundredths of a Preferred Share which
may be purchased upon the exercise of the Rights evidenced by this Right
Certificate are subject to modification and adjustment upon the happening of
certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate (i) may be redeemed by the Company at a redemption price of
$.01 per Right or (ii) may be exchanged in whole or in part for Preferred
Shares, shares of the Company's Common Stock, par value $.01 per share, or
substantially equivalent rights or other consideration as determined by the
Company.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash
Payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
B-2
<PAGE>
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the signature of the proper officers of the Company and its
corporate seal. Dated as of _______________, 19__.
[SEAL]
ATTEST: DIGITAL MICROWAVE CORPORATION
By:
- -------------------------- ------------------------------
Countersigned:
MANUFACTURERS HANOVER TRUST
COMPANY OF CALIFORNIA
- ------------------------------------
as Rights Agent
By:
-------------------------------
Authorized signature
B-3
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ______________________________________ hereby sells,
assigns and transfers unto _____________________________________________
________________________________________________________________________
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ______________________ Attorney,
to transfer the within Right Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ________________________, 19__
----------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
- -------------------------------------------------------------------------------
CERTIFICATION
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
----------------------------------
Signature
- -------------------------------------------------------------------------------
B-4
<PAGE>
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Right Certificate.)
To DIGITAL MICROWAVE CORPORATION
The undersigned hereby irrevocably elects to exercise ____________________
Rights represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number ______________________________________
- ------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
---------------------------------------
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
Dated: _________________, 19__
---------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
B-5
<PAGE>
Form of Reverse Side of Right Certificate -- continued
- -------------------------------------------------------------------------------
CERTIFICATION
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
---------------------------------------
Signature
- -------------------------------------------------------------------------------
NOTICE
The signature in the foregoing Forms of Assignment and Election to Purchase
must conform to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the Form of Assignment or
the Form of Election to Purchase, as the came may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.
B-6
<PAGE>
EXHIBIT C
DIGITAL MICROWAVE CORPORATION
SUMMARY OF RIGHTS TO
PURCHASE SHARES
On October 24, 1991, the Board of Directors of Digital Microwave
Corporation (the "Company") declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of common stock, par
value $.01 per share (the "Common Shares"), of the Company. The dividend is
payable on November 7, 1991 (the "Record Date") to the stockholders of record
on that date. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Junior Participating
Preferred Stock, par value $.01 per share (the "Preferred Shares") of the
Company at a price of $50.00 per one one-hundredth of a Preferred Share (the
"Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement dated as of October 24, 1991 (the
"Rights Agreement") between the Company and Manufacturers Hanover Trust
Company of California, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 15% or more of the outstanding
Common Shares or (ii) 10 business days (or such later date as may be determined
by action of the Board of Directors prior to such time as any Person becomes an
Acquiring Person) following the commencement of or announcement of an intention
to make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 15% or more of such
outstanding Common Shares (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Share certificates outstanding as of the Record Date, by such Common
Share certificate with a copy of this Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date, upon transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares, outstanding as of the Record Date, even without such notation or
a copy of this Summary of Rights being attached thereto, will also constitute
the transfer of the Rights associated with the Common Shares represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the Close of Business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
C-1
<PAGE>
The Rights are not exercisable until the Distribution Date. The Rights
will expire on October 23, 2001 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed by the
Company, in each case as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per Common Share. In the
event of liquidation, the holders of the Preferred Shares will be entitled to a
minimum preferential liquidation payment of $1.00 per share but will be entitled
to an aggregate payment of 100 times the par payment made per Common Share.
Each Preferred Share will have 100 votes voting together with the Common Share.
Finally in the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preferred Share will be entitled to receive
100 times the amount received per Common Share. These rights are protected by
customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a Preferred Share
purchasable upon exercise of each Right should approximate the value of one
Common Share.
In the event that, after the Rights become exercisable, the Company is
acquired in a merger or other business combination transaction with an Acquiring
Person or an affiliate thereof, or 50% or more of its consolidated assets or
earning power are sold to an Acquiring Person or an affiliate thereof, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon exercise thereof at the then current exercise price of
the Right, that number of shares of common stock of the acquiring company which
at the time of such transaction will have a market value of two times the
exercise price of the Right.
C-2
<PAGE>
In the event that any person or group of affiliated or associated persons
becomes the beneficial owner of 15% or more of the outstanding Common Shares
(except pursuant to a tender offer for all of the Common Shares at a price and
on terms determined by the Board of Directors of the Company to be fair to and
otherwise in the best interests of the Company and its stockholders) proper
provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of Common Shares
(or cash, other securities or property) having a market value of two times the
exercise price of the Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Common Shares and prior to the acquisition by such person or group of 50% or
more of the outstanding Common Shares, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such person or group which have
become void), in whole or in part, at an exchange ratio of one Common Share (or
a fraction of a Preferred Share having equivalent market value) per Right
(subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and, in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time within ten (10) days after a person or group of affiliated or
associated persons acquire beneficial ownership of 15% or more of the
outstanding Common Shares (unless the Board of Directors extends such ten-day
period), the Board of Directors of the Company may redeem, the Rights in whole,
but not in part, at a price of $.01 per Right (the "Redemption Price"). The
redemption of the rights may be made effective at such time on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price. The Rights are also redeemable under other circumstances
as specified in the Rights Agreement.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to lower certain thresholds described above to not less than the greater of
(i) any percentage greater than the largest percentage of the outstanding Common
Shares then known to the Company to be beneficially owned by any person or group
of affiliated or associated persons and (ii) 10%, except that from and after
such time as any person becomes an Acquiring Person no such amendment may
adversely affect the interests of the holders of the Rights.
C-3
<PAGE>
Until a Right is exercised, the holder thereof as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is hereby
incorporated herein by reference.
C-4
<PAGE>
PURCHASE AGREEMENT
ALTIUM TECHNOLOGY
The following exhibit, which was previously filed as Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1998, represents an amended request for confidential treatment.
<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
7/8 GHz Out-Door Units per technical documentation provided by DMC. In
addition to the Work related to the 7/8 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 7/8 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 7/8 Ghz Out Door
Units and [*] ([*]) 7/8 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 7/8 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
[*] 7/8 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 7/8 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
- -------------------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<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
- -----------------------------------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
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
23 [*] [*]
6 [*] [*]
18 [*] [*]
13 [*] [*]
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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:
PRICING
A: Unit price for Altium 7/8 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.
[*]
[*]
- ---------------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
EXHIBIT E
ALTIUM ODU BETA UNIT FREQUENCY REQUIREMENTS
7 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 [*] [*] [*]
8 GHZ
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 [*] [*] [*]
- ---------------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
PURCHASE AGREEMENT
ALTIUM TECHNOLOGY
The following exhibit, which was previously filed as Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1998, represents an amended request for confidential treatment.
<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 7/8 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 7/8 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 7/8 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.
- --------------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
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 [*] 7/8 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 7/8 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.
- --------------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
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 7/8 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.
- --------------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
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
[*] [*] 7 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.
- -----------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
PRODUCTION DELIVERABLES
[*] complete and tested 7/8 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>
7/8 GHz $[*]
10/11 GHz $[*]
15 GHz $[*]
Total $[*]
STE Band/Division
7/8 GHz $[*]
10/11 GHz $[*]
15 GHz $[*]
STE + NRE $[*]
</TABLE>
- ---------------
[*] 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. 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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[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
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>
7/8 RESPONSIBLE: [*] [*] [*] [*] [*] [*] [*] [*]
BY (Date): [*] [*] [*] [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------------------------------------------------------
10/11 RESPONSIBLE: [*] [*] [*] [*] [*] [*] [*] [*]
BY (Date): [*] [*] [*] [*] [*] [*] [*]
- --------------------------------------------------------------------------------------------------------------------------------
15 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
- ---------------
[*] 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>
BUSINESS AGREEMENT
The following exhibit, which was previously filed as Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1998, represents an amended request for confidential treatment.
<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
- ---------------
[*] 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
- ---------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS
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
- ---------------
[*] 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
- ---------------
[*] 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
- ---------------
[*] OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. THE MATERIAL HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
[GREYROCK CAPITAL LOGO]
LOAN AND SECURITY AGREEMENT
BORROWER: DIGITAL MICROWAVE CORPORATION
ADDRESS: 170 ROSE ORCHARD WAY
SAN JOSE, CALIFORNIA 95134
DATE: AS OF OCTOBER 1, 1998
This Loan and Security Agreement is entered into on the above date between
GREYROCK CAPITAL, a Division of NationsCredit Commercial Corporation (GREYROCK),
whose address is 10880 Wilshire Blvd. Suite 950, Los Angeles, CA 90024 and the
borrower named above (BORROWER), whose chief executive office is located at the
above address (BORROWER'S ADDRESS). The Schedule to this Agreement (the
SCHEDULE) being signed concurrently is an integral part of this Agreement.
(Definitions of certain terms used in this Agreement are set forth in Section 8
below.)
1. LOANS.
1.1 LOANS. Greyrock will make loans to Borrower (the LOANS), in amounts
determined by Greyrock in its good faith business judgment, up to the amounts
(the CREDIT LIMIT) shown on the Schedule, provided no Default or Event of
Default has occurred and is continuing. If at any time or for any reason the
total of all outstanding Loans and all other Obligations exceeds the Credit
Limit, Borrower shall immediately pay the amount of the excess to Greyrock,
without notice or demand.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement or in another written agreement signed by
Greyrock and Borrower. Interest shall be payable monthly, on the last day of the
month. Unless requested otherwise by Borrower in writing, interest shall be
charged to Borrower's loan account, and the same shall thereafter bear interest
at the same rate as the other Loans.
1.3 FEES. Borrower shall pay Greyrock the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Greyrock and are not
refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Greyrock a security interest in
all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the COLLATERAL): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, all money, all collateral in which Greyrock
is granted a security interest pursuant to any other present or future
agreement, all property now or at any time in the future in Greyrock's
possession, and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products of the
foregoing, and all books and records related to any of the foregoing provided
that Collateral shall not include (i) Equipment and Inventory of Borrower which
is located outside the United States in the ordinary course of business of
Borrower and which has a value in the aggregate of less than $4,000,000, or (ii)
deposit accounts maintained outside the United States in the ordinary course of
business of Borrower and deposits therein made in the ordinary course of
business.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Greyrock to enter into this Agreement and to make Loans,
Borrower represents and warrants to Greyrock as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will continue
to be qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), (iii) do not violate Borrower's articles or certificate of
incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
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GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
constitute grounds for acceleration of any material indebtedness or
obligation under any material agreement or instrument which is binding upon
Borrower or its property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Greyrock 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Greyrock at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule provided
that such notice shall not be required for (i) sales of Inventory in the
ordinary course of business, (ii) disposal in the ordinary course of business of
items of Collateral which have become worn out or obsolete or which are promptly
being replaced, (iii) disposal of Equipment outside the ordinary course of
business not exceeding in the aggregate $250,000 in value in any fiscal year,
and (iv) movement of Equipment within any of the states specified in the
Schedule or within any other jurisdiction notified to Greyrock hereunder in
which Greyrock has taken all necessary action in order to protect and perfect
its security interest therein, and (iv) any and all mobile goods which are of a
type normally used in more than one jurisdiction, and (v) movement of Equipment
outside any of the states specified in the Schedule in the ordinary course of
business and not exceeding in the aggregate $250,000 in value in any fiscal
year.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Greyrock now has, and will
continue to have, a first-priority perfected and enforceable security interest
in all of the Collateral, subject only to the Permitted Liens, and Borrower will
at all times defend Greyrock and the Collateral against all claims of others. So
long as any Loan is outstanding which is a term loan, none of the Collateral now
is or will be affixed to any real property in such a manner, or with such
intent, as to become a fixture. Borrower is not and will not become a lessee
under any real property lease pursuant to which the lessor may obtain any rights
in any of the Collateral and no such lease now prohibits, restrains, impairs or
will prohibit, restrain or impair Borrower's right to remove any Collateral from
the leased premises. Whenever any Collateral is located upon premises in which
any third party has an interest (whether as owner, mortgagee, beneficiary under
a deed of trust, lien or otherwise), Borrower shall, whenever reasonably
requested by Greyrock, use its best efforts to cause such third party to execute
and deliver to Greyrock, in form acceptable to Greyrock, such waivers and
subordinations as Greyrock shall specify, so as to ensure that Greyrock's rights
in the Collateral are, and will continue to be, superior to the rights of any
such third party in all material respects. Borrower will keep in full force and
effect, and will comply in all material respects with all the terms of, any
lease of real property where any of the Collateral now or in the future may be
located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good
working condition, ordinary wear and tear excepted, and Borrower will not use
the Collateral for any unlawful purpose. Borrower will immediately advise
Greyrock in writing of any material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to Greyrock have been, and will be, prepared
in conformity with generally accepted accounting principles and now and in
the future will completely and fairly reflect the financial condition of
Borrower, at the times and for the periods therein stated. Between the last
date covered by any such statement provided to Greyrock and the date hereof,
there has been no material adverse change in the financial condition or
business of Borrower. Borrower is now solvent. If, in the future, Borrower
fails to be solvent, the same shall constitute an Event of Default.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by applicable
law, and Borrower has timely paid, and will timely pay, all applicable taxes,
assessments, deposits and contributions now or in the future owed by Borrower.
Borrower may, however, defer payment of any contested taxes, provided that
Borrower (i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (ii)
notifies Greyrock in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a lien upon any of the
Collateral. Borrower is unaware of any claims or adjustments proposed for any of
Borrower's prior tax years which could result in additional taxes becoming due
and payable by Borrower. Borrower has paid, and shall continue to pay all
amounts necessary to fund all present and future pension, profit sharing and
deferred compensation plans in accordance with their terms, and Borrower has not
and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
such plan which could result in any material liability of Borrower, including
any liability to the Pension Benefit Guaranty Corporation or any other
governmental agency.
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<PAGE>
GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Borrower shall, at all times, utilize the services of an outside payroll
service providing for the automatic deposit of all payroll taxes payable by
Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all applicable laws and regulations,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which is
reasonably likely to result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of Borrower, or
in any material impairment in the ability of Borrower to carry on its business
in substantially the same manner as it is now being conducted. Borrower will
promptly inform Greyrock in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted by or against Borrower
involving any single claim of $200,000 or more, or involving $500,000 or more in
the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes.
3.12 YEAR 2000 COMPLIANCE. The Borrower has (i) initiated a review and
assessment of all areas within its and each of its subsidiaries' business and
operations (including those affected by suppliers and vendors) that could be
materially adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by the Borrower or any of its subsidiaries (or its
suppliers and vendors) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999), (ii) developed a plan and timeline for addressing the Year
2000 Problem on a timely basis, and (iii) to date, implemented that plan in
accordance with that timetable. The Borrower reasonably believes that all
computer applications (including those of its suppliers and vendors) that are
material to its or any of its subsidiaries' business and operations will on a
timely basis be able to perform properly date-sensitive functions for all dates
before and after January 1, 2000 (that is, be "Year 2000 compliant"), except to
the extent that a failure to do so could not reasonably be expected to have
material adverse effect. The Borrower will promptly notify Greyrock in the event
the Borrower discovers or determines that any computer application (including
those of its suppliers and vendors) that is material to its or any of its
subsidiaries' business and operations will not be Year 2000 compliant on a
timely basis, except to the extent that such failure could not reasonably be
expected to have a material adverse effect.
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants
to Greyrock as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed, bona fide, existing, unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services, in the ordinary course of Borrower's business and meet
the Minimum Eligibility Requirements set forth in Section 8 below.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Greyrock as follows: to the best of Borrower's
knowledge (after reasonable inquiry) All statements made and all unpaid balances
appearing in all invoices, instruments and other documents evidencing the
Receivables are and shall be true and correct and all such invoices, instruments
and other documents and all of Borrower's books and records are and shall be
genuine and in all respects what they purport to be, and to the best of
Borrower's knowledge (after reasonable inquiry) all signatories and endorsers
have the capacity to contract. All sales and other transactions underlying or
giving rise to each Receivable shall comply with all applicable laws and
governmental rules and regulations. to the best of Borrower's knowledge (after
reasonable inquiry) All signatures and indorsements on all documents,
instruments, and agreements relating to all Receivables are and shall be
genuine, and all such documents, instruments and agreements are and shall be
legally enforceable in accordance with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. While the
Non-Streamlined Facility (as defined in the Schedule) is in effect Borrower
shall deliver to Greyrock transaction reports and loan requests, schedules and
assignments of all Receivables, and schedules of collections, all on Greyrock's
standard forms; provided, however, that Borrower's failure to execute and
deliver the same shall not affect or limit Greyrock's security interest and
other rights in all of Borrower's Receivables, nor shall Greyrock's failure to
advance or lend against a specific Receivable affect or limit Greyrock's
security interest and other rights therein. If requested by Greyrock, Borrower
shall furnish Greyrock with copies (or, at Greyrock's request, originals) of all
contracts, orders, invoices, and other similar documents, and all original
shipping instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Receivables, and Borrower warrants to the best of its knowledge the genuineness
of all of the foregoing. Borrower shall also furnish to Greyrock an aged
accounts receivable trial balance in such form and at such intervals as Greyrock
shall request. In addition, Borrower shall deliver to Greyrock the originals of
all material instruments, chattel paper, security agreements, guarantees and
other documents and property evidencing or securing any Receivables, immediately
upon receipt thereof and in the same form as received, with all necessary
indorsements.
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<PAGE>
GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
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4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has occurred.
While the Non-Streamlined Facility (as defined in the Schedule) is in effect
Borrower shall hold all payments on, and proceeds of, Receivables in trust
for Greyrock, and Borrower shall deliver all such payments and proceeds to
Greyrock, within one business day after receipt of the same, by wire transfer to
be applied to the Obligations in such order as Greyrock shall determine and
Borrower shall provide Greyrock with a list of all checks and remittances so
received within one Business Day after receipt of the same (and, if requested by
Greyrock, copies of the checks).
4.5 DISPUTES. Borrower shall notify Greyrock promptly of all disputes or
claims known to Borrower relating to Receivables on the regular reports to
Greyrock. Borrower shall not forgive, or settle any Receivable for less than
payment in full, or agree to do any of the foregoing, except that Borrower may
do so, provided that: (i) Borrower does so in good faith, in a commercially
reasonable manner, in the ordinary course of business, and in arm's length
transactions, which are reported to Greyrock on the regular reports provided to
Greyrock; (ii) no Default or Event of Default has occurred and is continuing;
and (iii) taking into account all such settlements and forgiveness, the total
outstanding Loans and other Obligations will not exceed the Credit Limit.
4.6 RETURNS. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Greyrock if requested by Greyrock). In the event any
attempted return occurs after the occurrence of any Event of Default, Borrower
shall (i) not accept any return without Greyrock's prior written consent, (ii)
hold the returned Inventory in trust for Greyrock, (iii) segregate all returned
Inventory from all of Borrower's other property, (iv) conspicuously label the
returned Inventory as Greyrock's property, and (v) immediately notify Greyrock
of the return of any Inventory, specifying the reason for such return, the
location and condition of the returned Inventory, and on Greyrock's request
deliver such returned Inventory to Greyrock.
4.7 VERIFICATION. Greyrock may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Greyrock or such other name as Greyrock may choose, and Greyrock or
its designee may, at any time, notify Account Debtors that it has a security
interest in the Receivables.
4.8 NO LIABILITY. Greyrock shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Greyrock be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Greyrock from liability for
its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 INSURANCE. Borrower shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Greyrock, in amounts and on forms customary in
Borrower's business, and Borrower shall provide evidence of such insurance to
Greyrock, so that Greyrock is satisfied that such insurance is, at all times, in
full force and effect. All such insurance policies shall name Greyrock as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Greyrock. Upon receipt of the proceeds of any such
insurance, Greyrock shall apply such proceeds in reduction of the Obligations as
Greyrock shall determine in its sole discretion, except that, provided no
Default or Event of Default has occurred and is continuing, Greyrock shall
release to Borrower insurance proceeds with respect to Equipment totaling less
than $100,000, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Greyrock may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Greyrock may, but
is not obligated to, obtain the same at Borrower's expense. Borrower shall
promptly deliver to Greyrock copies of all reports made to insurance companies
relating to losses over $100,000.
5.2 REPORTS. Borrower, at its expense, shall provide Greyrock with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Greyrock shall from time to time reasonably
specify.
5.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one
business day's notice, Greyrock, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's books and records.
Greyrock shall take reasonable steps to keep confidential all information
obtained in any such inspection or audit, but Greyrock shall have the right to
disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $600 per person per day (or such higher amount as shall represent
Greyrock's then current standard charge for the same), plus reasonable
out-of-pockets expenses. Borrower shall not be charged more than $5,000 per
fiscal quarter of Borrower (plus reasonable out-of-pockets expenses), nor shall
audits be done more frequently than four times per calendar year, provided that
the foregoing
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<PAGE>
GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
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limits shall not apply after the occurrence of a Default or Event
of Default, nor shall they restrict Greyrock's right to conduct audits at its
own expense (whether or not a Default or Event of Default has occurred).
Borrower will not enter into any agreement with any accounting firm, service
bureau or third party to store Borrower's books or records at any location other
than Borrower's Address, without first obtaining Greyrock's written consent,
which may be conditioned upon such accounting firm, service bureau or other
third party agreeing to give Greyrock the same rights with respect to access to
books and records and related rights as Greyrock has under this Agreement.
5.4 REMITTANCE OF PROCEEDS. Except for the proceeds of Receivables
collected on payment of the same while the Streamlined Facility is in effect,
and except for the proceeds of sales of Receivables permitted by Section 7(3)
of the Schedule, and except for proceeds of Equipment with sold in good faith
arm's length transactions for an aggregate purchase price of less than
$250,000 in any fiscal year. All proceeds arising from the sale or other
disposition of any Collateral shall be delivered, in kind, by Borrower to
Greyrock in the original form in which received by Borrower or by wire
transfer not later than the following business day after receipt by Borrower,
to be applied to the Obligations in such order as Greyrock shall determine.
Notwithstanding the foregoing, if an Event of Default or an event which, with
notice or passage of time or both, would constitute an Event of Default, has
occurred and is continuing, all proceeds of Receivables and Equipment shall
be delivered, in kind, by Borrower to Greyrock in the original form in which
received by Borrower or by wire transfer not later than the following
business day after receipt by Borrower, to be applied to the Obligations in
such order as Greyrock shall determine, without limiting Greyrock's other
rights and remedies. Borrower shall not commingle proceeds of Collateral
with any of Borrower's other funds or property, and shall hold such proceeds
separate and apart from such other funds and property and in an express trust
for Greyrock. Nothing in this Section limits the restrictions on disposition
of Collateral set forth elsewhere in this Agreement.
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule,
Borrower shall not, without Greyrock's prior written consent, which shall be a
matter of Greyrock's good faith business judgment, do any of the following: (i)
merge or consolidate with another corporation or entity; (ii) acquire any
assets, except in the ordinary course of business; (iii) enter into any other
transaction outside the ordinary course of business; (iv) sell or transfer any
Collateral, except that, provided no Default or Event of Default has occurred
and is continuing, Borrower may (a) sell finished Inventory in the ordinary
course of Borrower's business, and (b) if no term loan is outstanding hereunder,
sell Equipment in the ordinary course of business, in good-faith arm's length
transactions; (v) store any Inventory or other Collateral with any warehouseman
or other third party except for (a) temporary storage of Inventory in the
ordinary course of business with a warehouse which has executed and delivered a
bailee agreement in favor of Greyrock in such form as it shall require, (b)
temporary storage of obsolete or unusable equipment preparatory to its sale if
the sale is permitted under this Loan Agreement, (c) temporary storage of
Inventory in the ordinary course of business in connection with sales of such
Inventory in the ordinary course of business for delivery outside the United
States, and (d) temporary storage of Inventory in the ordinary course of
business with vendors to the Borrower, but no Inventory outside the possession
of Borrower under clauses (a) through (d) above shall be deemed to be Eligible
Inventory; (vi) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis; (vii) make any loans of any money or
other assets except for loans in connection with employee benefit plans and
other loans to employees in the ordinary course of business, in an aggregate
amount at any time outstanding not to exceed $500,000; (viii) incur any debts,
outside the ordinary course of business, which would have a material, adverse
effect on Borrower or on the prospect of repayment of the Obligations; (ix)
except for (a) obligations to indemnify others incurred by Borrower in the
ordinary course of business, (b) obligations to indemnify officers, directors
and employees of Borrower, and (c) guaranties of the obligations of subsidiaries
of Borrower guarantee or otherwise become liable with respect to the obligations
of another party or entity; (x) pay or declare any dividends on Borrower's stock
(except for dividends payable solely in stock of Borrower); (xi) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower's stock
except for repurchases of stock in connection with employee stock purchase plans
in an aggregate amount not to exceed $100,000 in any fiscal year;
(xii) make any change in Borrower's capital structure which would have a
material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or (xiii) dissolve or elect to dissolve; or (xiv) agree to do any
of the foregoing.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Greyrock with respect to any Collateral or in any
manner relating to Borrower, Borrower shall, without expense to Greyrock, make
available Borrower and its officers, employees and agents, and Borrower's books
and records, without charge, to the extent that Greyrock may deem them
reasonably necessary in order to prosecute or defend any such suit or
proceeding.
5.7 NOTIFICATION OF CHANGES. Borrower will promptly notify Greyrock in
writing of any change in its chief financial officer or other executive officers
officers or directors, the opening of any new bank account or other deposit
account, and any material adverse change in the business or financial affairs of
Borrower.
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GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
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5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Greyrock, to execute all documents and take all actions, as Greyrock may deem
reasonably necessary or useful in order to perfect and maintain Greyrock's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
5.9 INDEMNITY. Borrower hereby agrees to indemnify Greyrock and hold Greyrock
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
attorneys' fees), of every nature, character and description, which Greyrock may
sustain or incur based upon or arising out of any of the Obligations, any actual
or alleged failure to collect and pay over any withholding or other tax relating
to Borrower or its employees, any relationship or agreement between Greyrock and
Borrower, any actual or alleged failure of Greyrock to comply with any writ of
attachment or other legal process relating to Borrower or any of its property,
or any other matter, cause or thing whatsoever occurred, done, omitted or
suffered to be done by Greyrock relating to Borrower or the Obligations (except
any such amounts sustained or incurred as the result of the gross negligence or
willful misconduct of Greyrock or any of its directors, officers, employees,
agents, attorneys, or any other person affiliated with or representing
Greyrock). Notwithstanding any provision in this Agreement to the contrary, the
indemnity agreement set forth in this Section shall survive any termination of
this Agreement and shall for all purposes continue in full force and effect.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the MATURITY DATE); provided that the Maturity
Date shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than sixty days prior to the
next Maturity Date, that such party elects to terminate this Agreement effective
on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity
Date as follows: (i) by Borrower, effective three business days after written
notice of termination is given to Greyrock; or (ii) by Greyrock at any time
after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower Borrower shall pay to
Greyrock a termination fee (the TERMINATION Fee) in the amount shown on the
Schedule. The Termination Fee shall be due and payable on the effective date of
termination and thereafter shall bear interest at a rate equal to the highest
rate applicable to any of the Obligations.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date (as it may be extended under
Section 6.1) or on any earlier effective date of termination, Borrower shall pay
and perform in full all Obligations, whether evidenced by installment notes or
otherwise, and whether or not all or any part of such Obligations are otherwise
then due and payable. Without limiting the generality of the foregoing, if on
the Maturity Date, or on any earlier effective date of termination, there are
any outstanding letters of credit issued based upon an application, guarantee,
indemnity or similar agreement on the part of Greyrock, then on such date
Borrower shall provide to Greyrock cash collateral in an amount equal to 110% of
the face amount of all such letters of credit plus all interest, fees and costs
due or (in Greyrock's estimation) likely to become due in connection therewith,
to secure all of the Obligations relating to said letters of credit, pursuant to
Greyrock's then standard form cash pledge agreement. Notwithstanding any
termination of this Agreement, all of Greyrock's security interests in all of
the Collateral and all of the terms and provisions of this Agreement shall
continue in full force and effect until all Obligations have been paid and
performed in full; provided that, without limiting the fact that Loans are
subject to the discretion of Greyrock, Greyrock may, in its sole discretion,
refuse to make any further Loans after termination. No termination shall in any
way affect or impair any right or remedy of Greyrock, nor shall any such
termination relieve Borrower of any Obligation to Greyrock, until all of the
Obligations have been paid and performed in full. Upon payment and performance
in full of all the Obligations and termination of this Agreement, Greyrock shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be reasonably required to terminate Greyrock's
security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an EVENT OF DEFAULT under this Agreement, and Borrower shall give
Greyrock immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Greyrock by Borrower or
any of Borrower's officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect when made; or (b) Borrower shall fail
to pay when due any Loan or any interest thereon or any other monetary
Obligation; or (c) the total Loans and other Obligations outstanding at any time
shall exceed the Credit Limit; or (d) Borrower shall fail to perform any
non-monetary Obligation which by its nature cannot be cured; or (e) Borrower
shall fail to perform any other non-monetary Obligation, which failure is not
cured within 5 business days after the date performance is due; or (f) any levy,
assessment, attachment, seizure, lien or encumbrance (other than a Permitted
Lien) is made on all or any part of the Collateral which is not cured within 10
days after the occurrence of the same (or, in the case of a levy or attachment
not consented to by Borrower, which is not bonded against within 20 days); or
(g) any default or event of default occurs under any obligation in an amount in
excess of $100,000 secured by a Permitted Lien, which is not cured within any
applicable cure period or waived in writing by the holder of the Permitted Lien;
or (h) Borrower breaches any material contract or obligation, which has or may
reasonably be expected to have a material adverse effect on Borrower's business
or financial condition; or (i) dissolution except for dissolution of
subsidiaries of a Borrower, termination of existence, insolvency or business
failure of Borrower or any Guarantor; or appointment of a receiver, trustee or
custodian, for all or any part of the property of, assignment for the benefit of
creditors by, or the commencement of any proceeding by Borrower or any Guarantor
under any reorganization, bankruptcy, insolvency, arrangement, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction, now or in
the future in effect; or (j) the commencement of any proceeding against Borrower
or any Guarantor under any reorganization, bankruptcy,
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insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within 45 days after the date commenced; or (k)
revocation or termination of, or limitation or denial of liability upon, any
guaranty of the Obligations or any attempt to do any of the foregoing; or (l)
revocation or termination of, or limitation or denial of liability upon, any
pledge of any certificate of deposit, securities or other property or asset
pledged by any third party to secure any or all of the Obligations, or any
attempt to do any of the foregoing, or commencement of proceedings by or against
any such third party under any bankruptcy or insolvency law; or (m) Borrower
makes any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations other than as permitted in the applicable
subordination agreement, or if any Person who has subordinated such indebtedness
or obligations terminates or in any way limits or terminates its subordination
agreement; or (n) any person or persons acting individually or in concert with
others shall acquire beneficial ownership of securities in Borrower representing
40% or more of the combined voting power of all securities entitled to vote in
the election of directors; or (o) Borrower shall generally not pay its debts as
they become due, or Borrower shall conceal, remove or transfer any part of its
property, with intent to hinder, delay or defraud its creditors, or make or
suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or (p) there shall be a
material adverse change in Borrower's business or financial condition. Greyrock
may cease making any Loans hereunder during any of the above cure periods, and
thereafter if an Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence and during the continuance of any Event of
Default, and at any time thereafter, Greyrock, at its option, and without notice
or demand of any kind (all of which are hereby expressly waived by Borrower),
may do any one or more of the following: (a) Cease making Loans or otherwise
extending credit to Borrower under this Agreement or any other document or
agreement; (b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation; (c) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Borrower hereby authorizes Greyrock without
judicial process to enter onto any of Borrower's premises without interference
to search for, take possession of, keep, store, or remove any of the Collateral,
and remain on the premises or cause a custodian to remain on the premises in
exclusive control thereof, without charge for so long as Greyrock deems it
reasonably necessary in order to complete the enforcement of its rights under
this Agreement or any other agreement; provided, however, that should Greyrock
seek to take possession of any of the Collateral by Court process, Borrower
hereby irrevocably waives: (i) any bond and any surety or security relating
thereto required by any statute, court rule or otherwise as an incident to such
possession; (ii) any demand for possession prior to the commencement of any suit
or action to recover possession thereof; and (iii) any requirement that Greyrock
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (d) Require Borrower to assemble any or all of the Collateral
and make it available to Greyrock at places designated by Greyrock which are
reasonably convenient to Greyrock and Borrower, and to remove the Collateral to
such locations as Greyrock may deem advisable; (e) Complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and,
for such purpose and for the purpose of removal, Greyrock shall have the right
to use Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all
other property without charge; (f) Sell, lease or otherwise dispose of any of
the Collateral, in its condition at the time Greyrock obtains possession of it
or after further manufacturing, processing or repair, at one or more public
and/or private sales, in lots or in bulk, for cash, exchange or other property,
or on credit, and to adjourn any such sale from time to time without notice
other than oral announcement at the time scheduled for sale. Greyrock shall have
the right to conduct such disposition on Borrower's premises without charge, for
such time or times as Greyrock deems reasonable, or on Greyrock's premises, or
elsewhere and the Collateral need not be located at the place of disposition.
Greyrock may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and if permissible under applicable
law, at any private disposition. Any sale or other disposition of Collateral
shall not relieve Borrower of any liability Borrower may have if any Collateral
is defective as to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes Greyrock to endorse or sign Borrower's name on all collections,
receipts, instruments and other documents, to take possession of and open mail
addressed to Borrower and remove therefrom payments made with respect to any
item of the Collateral or proceeds thereof, and, in Greyrock's sole discretion,
to grant extensions of time to pay, compromise claims and settle Receivables,
General Intangibles and the like for less than face value; and (h) Demand and
receive possession of any of Borrower's federal and state income tax returns and
the books and records utilized in the preparation thereof or referring thereto.
All reasonable attorneys' fees, expenses, costs, liabilities and obligations
incurred by Greyrock with respect to the foregoing shall be added to and become
part of the Obligations, shall be due on demand, and shall bear interest at a
rate equal to the highest interest rate applicable to any of the Obligations.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Greyrock agree that a
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sale or other disposition (collectively, SALE) of any Collateral which complies
with the following standards will conclusively be deemed to be commercially
reasonable: (i) Notice of the sale is given to Borrower at least 10 days prior
to the sale, and, in the case of a public sale, notice of the sale is published
at least 10 days before the sale in a newspaper of general circulation in the
county where the sale is to be conducted; (ii) Notice of the sale describes the
collateral in general, non-specific terms; (iii) The sale is conducted at a
place designated by Greyrock, with or without the Collateral being present; (iv)
The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of
the purchase price in cash or by cashier's check or wire transfer is required;
(vi) With respect to any sale of any of the Collateral, Greyrock may (but is not
obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same. Greyrock shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence and during the continuance of any
Event of Default, without limiting Greyrock's other rights and remedies,
Borrower grants to Greyrock an irrevocable power of attorney coupled with an
interest, authorizing and permitting Greyrock (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise, but Greyrock
agrees to exercise the following powers in a commercially reasonable manner: (a)
Execute on behalf of Borrower any documents that Greyrock may, in its sole
discretion, deem advisable in order to perfect and maintain Greyrock's security
interest in the Collateral, or in order to exercise a right of Borrower or
Greyrock, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements; (b) Execute
on behalf of Borrower any document exercising, transferring or assigning any
option to purchase, sell or otherwise dispose of or to lease (as lessor or
lessee) any real or personal property which is part of Greyrock's Collateral or
in which Greyrock has an interest; (c) Execute on behalf of Borrower, any
invoices relating to any Receivable, any draft against any Account Debtor and
any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice
of Lien, claim of mechanic's, materialman's or other lien, or assignment or
satisfaction of mechanic's, materialman's or other lien; (d) Take control in any
manner of any cash or non-cash items of payment or proceeds of Collateral;
endorse the name of Borrower upon any instruments, or documents, evidence of
payment or Collateral that may come into Greyrock's possession; (e) Endorse all
checks and other forms of remittances received by Greyrock; (f) Pay, contest or
settle any lien, charge, encumbrance, security interest and adverse claim in or
to any of the Collateral, or any judgment based thereon, or otherwise take any
action to terminate or discharge the same; (g) Grant extensions of time to pay,
compromise claims and settle Receivables and General Intangibles for less than
face value and execute all releases and other documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to secure the
release of any liens therefor, or both; (i) Settle and adjust, and give releases
of, any insurance claim that relates to any of the Collateral and obtain payment
therefor; (j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Greyrock the same rights
of access and other rights with respect thereto as Greyrock has under this
Agreement; and (k) Take any action or pay any sum required of Borrower pursuant
to this Agreement and any other present or future agreements. Any and all
reasonable sums paid and any and all reasonable costs, expenses, liabilities,
obligations and reasonable attorneys' fees incurred by Greyrock with respect to
the foregoing shall be added to and become part of the Obligations, shall be
payable on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations. In no event shall Greyrock's
rights under the foregoing power of attorney or any of Greyrock's other rights
under this Agreement be deemed to indicate that Greyrock is in control of the
business, management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
or other disposition of the Collateral shall be applied by Greyrock first to the
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by Greyrock in the exercise of its rights under this Agreement, second
to the interest due upon any of the Obligations, and third to the principal of
the Obligations, in such order as Greyrock shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; Borrower shall remain liable to Greyrock for any deficiency.
If Greyrock, in its sole discretion, directly or indirectly enters into a
deferred payment or other credit transaction with any purchaser at any sale of
Collateral, Greyrock shall have the option, exercisable at any time, in its sole
discretion, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the actual
receipt by Greyrock of the cash therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, Greyrock shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Greyrock and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Greyrock of one or more of its rights or remedies shall not be deemed an
election, nor bar Greyrock from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Greyrock to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
ACCOUNT DEBTOR means the obligor on a Receivable.
AFFILIATE means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
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AGREEMENT and THIS AGREEMENT means this Loan and Security Agreement and all
modifications and amendments thereto, extensions thereof, and replacements
therefor.
BUSINESS DAY means a day on which Greyrock is open for business.
CODE means the Uniform Commercial Code as adopted and in effect in the State
of California from time to time.
COLLATERAL has the meaning set forth in Section 2.1 above.
DEFAULT means any event which with notice or passage of time or both, would
constitute an Event of Default.
DEPOSIT ACCOUNT has the meaning set forth in Section 9105 of the Code.
ELIGIBLE INVENTORY means Inventory which Greyrock, in its good faith business
judgment, deems eligible for borrowing, based on such considerations as Greyrock
may from time to time deem appropriate. Without limiting the fact that the
determination of which Inventory is eligible for borrowing is a matter of
Greyrock's discretion, Inventory which does not meet the following requirements
will not be deemed to be Eligible Inventory: Inventory which (i) consists of
finished goods or raw materials or subassemblies, in good, new and salable
condition which is not perishable, not obsolete or unmerchantable, and is not
comprised of, work in process, packaging materials or supplies; (ii) meets all
applicable governmental standards; (iii) has been manufactured in compliance
with the Fair Labor Standards Act; (iv) conforms in all respects to the
warranties and representations set forth in this Agreement; (v) is at all times
subject to Greyrock's duly perfected, first priority security interest; and
(vii) is situated at Borrower's Address or at one of Borrower's other locations
set forth on the Schedule. Greyrock may, from time to time, in its discretion,
revise the requirements for Eligible Inventory, upon written notice to the
Borrower.
ELIGIBLE RECEIVABLES means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
Greyrock, in its good faith business judgment, shall deem eligible for
borrowing, based on such considerations as Greyrock may from time to time deem
appropriate. Without limiting the fact that the determination of which
Receivables are eligible for borrowing is a matter of Greyrock's good faith
business judgment, the following (the "MINIMUM ELIGIBILITY REQUIREMENTS") are
the minimum requirements for a Receivable to be an Eligible Receivable: (i) the
Receivable must not be more than 30 days past due, and must not be outstanding
for more than 120 days from its invoice date (except that, in the case of a
Receivable secured by a letter of credit such Receivable may be outstanding for
up to 360 days from its invoice date and in the case of a Receivable as to which
credit insurance acceptable to Greyrock is in effect, such Receivable may be
outstanding for up to 180 days from its invoice date), and (ii) the Receivable
must not represent progress billings, or be due under a fulfillment or
requirements contract with the Account Debtor, (iii) the Receivable must not be
subject to any contingencies (including Receivables arising from sales on
consignment, guaranteed sale or other terms pursuant to which payment by the
Account Debtor may be conditional), (iv) the Receivable must not be owing from
an Account Debtor with whom the Borrower has any dispute (whether or not
relating to the particular Receivable) but in that event the Receivable may be
an Eligible Receivable to the extent it exceeds the amount in dispute, (v) the
Receivable must not be owing from an Affiliate of Borrower, (vi) the Receivable
must not be owing from an Account Debtor which is subject to any insolvency or
bankruptcy proceeding, or whose financial condition is not acceptable to
Greyrock, or which, fails or goes out of a material portion of its business,
(vii) the Receivable must not be owing from the United States or any department,
agency or instrumentality thereof (unless there has been compliance, to
Greyrock's satisfaction, with the United States Assignment of Claims Act),
(viii) the Receivable must not be owing from an Account Debtor located outside
the United States or Canada (unless pre-approved by Greyrock in its good-faith
business judgment in writing, or backed by a letter of credit satisfactory to
Greyrock, or credit-insured satisfactory to Greyrock, or owing to one of
Borrower's Foreign Affiliates and Borrower is permitted to include the
Receivable as an Eligible Receivable under in Section 1(f) of the Schedule),
(ix) the Receivable must not be owing from an Account Debtor to whom Borrower is
or may be liable for goods purchased from such Account Debtor or otherwise (but
in that event the amount of the Receivable in excess of the amount owing from
the Borrower to the Account Debtor may be an Eligible Receivable). If more than
50% of the Receivables owing from an Account Debtor are not Eligible
Receivables, then all Receivables owing from that Account Debtor will be deemed
ineligible for borrowing. Greyrock may, from time to time, in its discretion,
revise the Minimum Eligibility Requirements, upon written notice to the
Borrower.
EQUIPMENT means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
EVENT OF DEFAULT means any of the events set forth in Section 7.1 of this
Agreement.
GENERAL INTANGIBLES means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications,
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trademarks and the goodwill of the business symbolized thereby, names, trade
names, trade secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, security and other deposits, rights in all litigation presently
or hereafter pending for any cause or claim (whether in contract, tort or
otherwise), and all judgments now or hereafter arising therefrom, all claims of
Borrower against Greyrock, rights to purchase or sell real or personal property,
rights as a licensor or licensee of any kind, royalties, telephone numbers,
proprietary information, purchase orders, and all insurance policies and claims
(including life insurance, key man insurance, credit insurance, liability
insurance, property insurance and other insurance), tax refunds and claims,
computer programs, discs, tapes and tape files, claims under guaranties,
security interests or other security held by or granted to Borrower, all rights
to indemnification and all other intangible property of every kind and nature
(other than Receivables).
GUARANTOR means any Person who has guaranteed any of the Obligations.
INVENTORY means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including all raw materials,
work in process, finished goods and goods in transit), and all materials and
supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
OBLIGATIONS means all present and future Loans, advances, debts, liabilities,
obligations, guaranties, covenants, duties and indebtedness at any time owing by
Borrower to Greyrock, whether evidenced by this Agreement or any note or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by Greyrock in Borrower's debts
owing to others), absolute or contingent, due or to become due, including,
without limitation, all interest, charges, expenses, fees, attorney's fees,
expert witness fees, audit fees, letter of credit fees, loan fees, termination
fees, minimum interest charges and any other sums chargeable to Borrower under
this Agreement or under any other present or future instrument or agreement
between Borrower and Greyrock.
PERMITTED LIENS means the following: (i) purchase money security interests
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens which are subordinate to the security interest in favor of Greyrock and
are consented to in writing by Greyrock (which consent shall not be
unreasonably withheld); (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course
of business and securing obligations which are not delinquent; (vii) liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by liens of the type described above in clauses (i) or
(ii) above, provided that any extension, renewal or replacement lien is
limited to the property encumbered by the existing lien and the principal
amount of the indebtedness being extended, renewed or refinanced does not
increase; (viii) Liens in favor of customs and revenue authorities which
secure payment of customs duties in connection with the importation of goods
(ix) Liens on Equipment which were in existence when the Equipment was
acquired by Borrower and which do not extend to any other Collateral, (x)
Liens in favor of Bank of America NT&SA on collateral accounts specifically
pledged to said bank, which secure Borrower's reimbursement obligations in
connection with letters of credit. Greyrock will have the right to require,
as a condition to its consent under subparagraph (iv) above, that the holder
of the additional security interest or lien sign an intercreditor agreement
on Greyrock's then standard form, acknowledge that the security interest is
subordinate to the security interest in favor of Greyrock, and agree not to
take any action to enforce its subordinate security interest so long as any
Obligations remain outstanding, and that Borrower agree that any uncured
default in any obligation secured by the subordinate security interest shall
also constitute an Event of Default under this Agreement.
PERSON means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
RECEIVABLES means all of Borrower's now owned and hereafter acquired accounts
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
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OTHER TERMS. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Greyrock
(including proceeds of Receivables and payment of the Obligations in full) shall
be deemed applied by Greyrock on account of the Obligations two Business Days
after receipt by Greyrock of immediately available funds. Greyrock shall not,
however, be required to credit Borrower's account for the amount of any item of
payment which is unsatisfactory to Greyrock in its discretion, and Greyrock may
charge Borrower's Loan account for the amount of any item of payment which is
returned to Greyrock unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may
be applied, and in Greyrock's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Greyrock shall determine in its sole
discretion.
9.3 CHARGES TO ACCOUNT. Greyrock may, in its discretion, require that
Borrower pay monetary Obligations in cash to Greyrock, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans.
9.4 MONTHLY ACCOUNTINGS. Greyrock shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Greyrock), unless Borrower
notifies Greyrock in writing to the contrary within sixty days after each
account is rendered, describing the nature of any alleged errors or admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested, or by
fax (with concurrent sending of a copy by regular first-class mail, or certified
mail return receipt requested) addressed to Greyrock or Borrower at the
addresses shown in the heading to this Agreement, or at any other address
designated in writing by one party to the other party. All notices shall be
deemed to have been given upon delivery in the case of notices personally
delivered or sent by fax, or at the expiration of one business day following
delivery to the private delivery service, or two business days following the
deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.7 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and Greyrock and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE PARTIES
IN CONNECTION HEREWITH.
9.8 WAIVERS. The failure of Greyrock at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Greyrock shall not waive or
diminish any right of Greyrock later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Greyrock shall be deemed to have been
waived by any act or knowledge of Greyrock or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Greyrock and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Greyrock on which Borrower is or may in any way be liable, and notice of any
action taken by Greyrock, unless expressly required by this Agreement.
9.9 AMENDMENT. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of Greyrock.
9.10 TIME OF ESSENCE. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.
9.11 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Greyrock for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Greyrock, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Greyrock incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books
-11-
<PAGE>
GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
and records; protect, obtain possession of, lease, dispose of, or otherwise
enforce Greyrock's security interest in, the Collateral; and otherwise represent
Greyrock in any litigation relating to Borrower. If either Greyrock or Borrower
files any lawsuit against the other predicated on a breach of this Agreement,
the prevailing party in such action shall be entitled to recover its reasonable
costs and attorneys' fees, including (but not limited to) reasonable attorneys'
fees and costs incurred in the enforcement of, execution upon or defense of any
order, decree, award or judgment. All attorneys' fees and costs to which
Greyrock may be entitled pursuant to this Paragraph shall immediately become
part of Borrower's Obligations, shall be due on demand, and shall bear interest
at a rate equal to the highest interest rate applicable to any of the
Obligations.
9.12 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Greyrock; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Greyrock, and any prohibited assignment
shall be void. No consent by Greyrock to any assignment shall release Borrower
from its liability for the Obligations.
9.13 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.14 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower against
Greyrock, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Greyrock,
its directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based, and the service of a
summons and complaint on an officer of Greyrock, or on any other person
authorized to accept service on behalf of Greyrock, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Greyrock in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Greyrock acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Greyrock or Borrower under any
rule of construction or otherwise.
9.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Greyrock and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Greyrock to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Greyrock's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Los Angeles County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.16A CONFIDENTIALITY. Greyrock covenants and agrees, on a continuing basis,
to use reasonable efforts to maintain the confidentiality of and not to disclose
to any person other than its officers, directors, attorneys and accountants,
affiliates, and participants and such other persons to whom Greyrock shall at
any time be required to make such disclosure in accordance with applicable law,
any and all proprietary, trade secret or confidential information provided to or
received by Greyrock from or on account of Borrower or any affiliate of
Borrower, including business plans and forecasts, non-public financial
information, confidential or secret processes, formulae, devices or contractual
information, customer lists, employee relation matters, and any other
information the disclosure of which could reasonably be expected to have a
material adverse impact on the business, finances or operations of Borrower or
its affiliates, PROVIDED, HOWEVER, the foregoing provisions shall not be
effective regarding the disposition of Collateral after an Event of Default.
9.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND GREYROCK EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN GREYROCK AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF GREYROCK OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GREYROCK OR
BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
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<PAGE>
GREYROCK CAPITAL LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
BORROWER:
DIGITAL MICROWAVE CORPORATION
BY /S/ CARL A. THOMSEN
--------------------------------
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
GREYROCK:
GREYROCK CAPITAL,
A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION
BY /S/ LISA NAGANO
-----------------------------
TITLE SENIOR VICE PRESIDENT
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<PAGE>
----------------------------------------------------------------------
[GREYROCK CAPITAL LOGO]
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: DIGITAL MICROWAVE CORPORATION
ADDRESS: 170 ROSE ORCHARD WAY
SAN JOSE, CALIFORNIA 95134
DATE: AS OF OCTOBER 1, 1998
This Schedule is an integral part of the Loan and Security Agreement between
GREYROCK CAPITAL, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION (GREYROCK)
and DIGITAL MICROWAVE CORPORATION (BORROWER) of even date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. CREDIT LIMIT
(Section 1.1):
(a) CREDIT LIMIT. The Credit Limit will be determined by whether or not
the "Streamlined Facility" or the "Non-Streamlined Facility," (as
defined below) is in effect.
(b) CREDIT LIMIT--NON-STREAMLINED FACILITY. If the Non-Streamlined
Facility is in effect, the Credit Limit shall be as follows: An amount
not to exceed the lesser of (1) or (2) below:
(1) $40,000,000 (the "Dollar Credit Limit") at any one time
outstanding; or
(2) an amount equal to the sum of the following:
(A) RECEIVABLE LOANS. 80% of the amount of Borrower's
Eligible Receivables (as defined in Section 8 above),
plus
(B) INVENTORY LOANS. The lesser of 25% of the Value
of Borrower's Eligible Inventory (as defined in
Section 8 above) or $7,500,000. (VALUE, as used
herein, means the lower of cost or wholesale market
value.)
plus
(C) TERM LOAN. The unpaid principal balance of the
term loan provided for below (the "Term Loan"),
plus
(D) UNDRAWN TERM LOAN. An amount equal to the portion
of the Term Loan which the Borrower is entitled to
draw on under Section 1(g) below, but which has not
yet been disbursed.
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GREYROCK CAPITAL SCHEDULE TO LOAN AND SECURITY AGREEMENT
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(c) CREDIT LIMIT--STREAMLINED FACILITY. If the Streamlined Facility is in
effect, the Credit Limit shall be an amount equal to the sum of the
following:
(1) RECEIVABLE LOANS. The lesser of (A) 50% of the amount of
Borrower's Eligible Receivables (as defined in Section 8 above),
or (B) $15,000,000,
plus
(2) TERM LOAN. The unpaid principal balance of the Term Loan,
plus
(3) UNDRAWN TERM LOAN. An amount equal to the portion of the Term
Loan which the Borrower is entitled to draw on under Section 1(g)
below, but which has not yet been disbursed.
(d) SELECTING A FACILITY. Throughout the term of this Agreement, either
the "Streamlined Facility" or the "Non-Streamlined Facility" shall be
in effect. Borrower shall give Greyrock written notice, at least two
weeks prior to the date Borrower desires to change from the
Streamlined Facility to the Non-Streamlined Facility or from the
Non-Streamlined Facility to the Streamlined Facility. The Facility in
effect as of the date hereof shall be the Streamlined Facility. If
Borrower desires to change from the Streamlined Facility to the
Non-Streamlined Facility, then at least two weeks prior to the date
the change is to go into effect, Borrower shall provide Greyrock with
all schedules, reports, assignments, agings and the like which would
be required under the Non-Streamlined Facility, current as of the date
of the change, and shall allow Greyrock access to Borrower's books and
records to conduct Greyrock's normal pre-funding audit. If Borrower
desires to change from the Non-Streamlined Facility to the Streamlined
Facility, then, on the date the change is to go into effect, Borrower
shall pay to Greyrock, in immediately available funds, an amount
sufficient to reduce the outstanding Obligations to the amount of the
Credit Limit under the Streamlined Facility.
(e) STREAMLINED FACILITY PROVISIONS. While the Streamlined Facility is in
effect, the following provisions (the "Streamlined Facility
Provisions") shall apply:
(1) Daily reporting of transactions and daily schedules and
assignments of Receivables and schedules of collections, called
for by Section 4.3 of this Loan Agreement, will not be required.
Instead, the Borrower shall provide Greyrock with a monthly
Borrowing Base Certificate, in such form as Greyrock shall from
time to time specify, within 10 Business Days after the end of
each month. In the event, as of the end of any month, the total
of all Loans and all other Obligations exceeds the Credit Limit
permitted under the Streamlined Facility, Borrower shall
immediately pay the amount of the excess to Greyrock.
(2) Delivery of the proceeds of Receivables and other Collateral
within one business day after receipt, as called for by Sections
4.4 and 5.4 of the Loan Agreement will not be required.
(3) The Streamlined Provisions shall immediately terminate if any
Event of Default or any event which, with notice or passage of
time or both, would constitute an Event of Default, occurs and is
continuing.
(4) Upon termination of the Streamlined Provisions for any
reason, the Borrower shall, then and thereafter, provide Greyrock
with the daily reporting of transactions and daily schedules and
assignments of Receivables and schedules of collections, as
called for by Section 4.3 of this Agreement, and Borrower shall
deliver all proceeds
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<PAGE>
GREYROCK CAPITAL SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
of Receivables and other Collateral to Greyrock, within one
business day after receipt, as called for by Sections 4.4 and 5.4
of this Agreement.
(f) NEW ZEALAND AND UK RECEIVABLES. Receivables of Borrower's
affiliates, MAS Technology Limited, a New Zealand corporation, and DMC
Telecom U.K. Ltd., a Delaware corporation (jointly and severally, the
"Foreign Affiliates") may be included as Eligible Receivables, provided
that (i) they meet the other requirements for Eligible Receivables and
are acceptable to Greyrock in its sole discretion, and (ii) the
Guaranties and Security Agreements referred to in Section 7(1) below
have been executed and delivered and are in full force and effect, and
(iii) Greyrock has a first-priority, perfected security interest in all
such Receivables, and (iv) all documents, instruments and actions
recommended by Greyrock's attorneys in the UK and in New Zealand in
connection with the foregoing have been executed, delivered and taken,
and (v) Greyrock has confirmed all of the foregoing with its attorneys.
(g) TERM LOAN.
(1) AMOUNT. The amount of the Term Loan shall be in a total
amount not to exceed $5,000,000.
(2) DISBURSEMENTS. The Term Loan shall be made in an initial
disbursement of not less than $2,500,000 and subsequent
disbursements of not less than $1,000,000. No Term Loans will be
disbursed after November 30, 1999. Prior to any disbursement of
the Term Loan, Greyrock shall have completed its analysis of the
UCC-1 Financing Statements filed by other lenders with respect to
Borrower relating to Borrower's equipment, and Borrower shall
cause any such Financing Statements which, in the judgment of
Greyrock, cover equipment which Greyrock included in its
calculation of the borrowing base in determining the amount of
the Term Loan to be terminated of record. The disbursements of
the Term Loan shall be further conditioned on no Event of Default
and no event which, with notice or passage of time or both, would
constitute an Event of Default having occurred and continuing at
the date the disbursement is to be made and after giving effect
thereto. Borrower shall give Greyrock a written request for the
disbursement of the Term Loan at least two Business Days prior to
the desired date of the disbursement. Term Loans available
hereunder shall be reduced by the amount of any Loans outstanding
under Sections 1(b)(2)(D) or 1(c)(3) relating to undrawn Term
Loans.
(3) PRINCIPAL INSTALLMENTS. Each Term Loan shall be repaid in 48
equal monthly installments of principal (the "Monthly Principal
Installments"), commencing on the first day of the first month
after the date of the disbursement of the Term Loan and
continuing on the same day of each succeding month thereafter
until the earlier of (i) the date the Term Loans have been paid
in full, or (ii) the date this Loan Agreement terminates by its
terms or is terminated by either party in accordance with its
terms, at which date the entire unpaid principal balance of the
Term Loan plus all accrued interest thereon shall be paid in
full; provided that the 48 monthly principal installments of any
Term Loans disbursed in November, 1998 shall commence on January
1, 1999.
(4) NOTE. The Term Loan shall be evidenced by a Secured
Promissory Note of even date herewith made by Borrower to the
order of Greyrock.
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<PAGE>
GREYROCK CAPITAL SCHEDULE TO LOAN AND SECURITY AGREEMENT
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2. INTEREST.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTEREST RATE (Section 1.2):
A rate equal to the "Prime Rate" plus
1.5% per annum, calculated on the basis
of a 360-day year for the actual number
of days elapsed, provided that the
interest rate in effect in each month
shall not be less than 8% per annum, and
provided that the interest charged for
each calendar month, beginning December
1, 1998, shall be a minimum of $20,000,
regardless of the amount of the
Obligations outstanding. The interest
rate applicable to all Loans shall be
adjusted monthly as of the first day of
each month, and the interest to be
charged for each month shall be based on
the highest "Prime Rate" in effect
during said month. "Prime Rate" means
the actual "Reference Rate" or the
substitute therefor of the Bank of
America NT & SA whether or not that rate
is the lowest interest rate charged by
said bank. If the Prime Rate, as
defined, is unavailable, "Prime Rate"
shall mean the highest of the prime
rates published in the Wall Street
Journal on the first business day of the
month, as the base rate on corporate
loans at large U.S. money center
commercial banks.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. FEES (Section 1.3/Section 6.2):
Loan Fee: $400,000, payable concurrently herewith.
Termination Fee: $20,000 per month for each month (or
portion thereof) from the effective
date of termination to the Maturity Date
NSF Check Charge: $15.00 per item.
Wire Transfers: $15.00 per transfer.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. MATURITY DATE
(Section 6.1): NOVEMBER 30, 1999, subject to automatic
renewal as provided in Section 6.1
above, and early termination as provided
in Section 6.2 above.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. REPORTING.
(Section 5.2):
Borrower shall provide Greyrock with the
following:
1. Annual financial statements, as soon as
available, and in any event within 95
days following the end of Borrower's
fiscal year, certified by independent
certified public accountants acceptable
to Greyrock.
2. Quarterly unaudited financial
statements, as soon as available, and in
any event within 50 days after the end
of each fiscal quarter of Borrower.
3. Monthly unaudited financial statements,
as soon as available, and in any event
within 30 days after the end of each
month.
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<PAGE>
GREYROCK CAPITAL SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
4. Monthly Receivable agings, aged by
invoice date, within 10 Business Days
after the end of each month.
5. Monthly accounts payable agings, aged by
invoice date, and outstanding or held
check registers within 10 Business Days
after the end of each month.
6. Monthly perpetual inventory reports for
the Inventory valued on a first-in,
first-out basis at the lower of cost or
market (in accordance with generally
accepted accounting principles) or such
other inventory reports as are
reasonably requested by Greyrock, all
within 30 days after the end of each
month.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): See Exhibit A hereto.
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): None
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): None
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): See Exhibit A hereto
MATERIAL ADVERSE
LITIGATION (Section 3.10): None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. ADDITIONAL PROVISIONS:
(1) FOREIGN AFFILIATES. In the event Borrower wishes
to include the Receivables of the Foreign
Affiliates as Eligible Receivables, Borrower shall
give Greyrock five Business Days notice thereof,
and Borrower shall cause the Foreign Affiliates to
execute and deliver to Greyrock Continuing
Guaranties, in such form as Greyrock shall
specify, with respect to all of the Obligations,
and security agreements granting Greyrock a
first-priority, perfected security interest in all
of their assets (other than real property), in
such form as Greyrock shall specify, and Borrower
shall thereafter cause such Guaranties and
Security Agreements to continue in full force and
effect throughout the term of this Loan Agreement
and so long as any portion of the Obligations
remains outstanding.
(2) DOMESTIC AFFILIATES. Within 60 days after the date
hereof, Borrower shall cause its domestic
affiliates, Granger, Inc. and Innova Corporation
to execute and deliver to Greyrock Continuing
Guaranties, in such form as Greyrock shall
specify, with respect to all of the Obligations,
and security agreements granting Greyrock a
first-priority, perfected security interest in all
of their assets (other
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<PAGE>
GREYROCK CAPITAL SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
than real property), and UCC-1 Financing Statements,
all in such form as Greyrock shall specify, and
Borrower shall cause such Guaranties and Security
Agreements and Financing Statements to continue in
full force and effect throughout the term of this
Loan Agreement and so long as any portion of the
Obligations remains outstanding.
(3) RIGHT TO SELL CERTAIN RECEIVABLES. Borrower shall
have the right, from time to time, to sell, in
good-faith arm's length transactions, Receivables
evidencing the sale of goods which were sold by
Borrower on terms of 90 days or longer, provided
that the following conditions are met: (i) No
Loans are outstanding with respect to the
Receivables to be sold, (ii) Copies of all
documentation relating to the sale are provided to
Greyrock at least four Business Days prior to
consummation of the sale of the Receivables,
including a schedule listing the Receivables to be
sold, (iii) no Event of Default and no event
which, with notice or passage of time or both,
would constitute an Event of Default under the
Loan Agreement, has occurred and is continuing,
both before, and after giving effect to, the sale
of the Receivables.
(4) INSURANCE. Borrower represents and warrants that
it has insurance in effect as called for by
Section 5.1 above of this Loan Agreement; provided
that Borrower shall have until December 15, 1998
to provide to Greyrock the lenders loss payee
endorsement in form reasonably acceptable to
Greyrock called for by Section 5.1.
Borrower: Greyrock:
Digital Microwave Corporation Greyrock Capital,
a Division of NationsCredit
Commercial Corporation
By /s/ CARL A. THOMSEN By /s/ LISA NAGANO
----------------------------------- ------------------------------
Vice President, Chief Financial Title Senior Vice President
Officer and Secretary
Version -5
-6-
<PAGE>
LEVY, SMALL & LALLAS
TRANSMITTAL NOTE
- --------------------------------------------------------------------------------
PAGE 1
[GREYROCK CAPITAL LOGO]
SECURED PROMISSORY NOTE
$5,000,000 Los Angeles, California OCTOBER 1, 1998
FOR VALUE RECEIVED, the undersigned (the BORROWER) promises to pay to
the order of Greyrock Capital, a division of NationsCredit Commercial
Corporation (GREYROCK), at 10880 Wilshire Blvd. Suite 950, Los Angeles, CA
90024, or at such other address as the holder of this Note shall direct, the
principal sum of $5,000,000 (or such lesser or greater amount as shall
constitute the unpaid principal balance of the Term Loan made pursuant to the
Loan and Security Agreement between the Borrower and Greyrock dated as of
OCTOBER 1, 1998 (the LOAN AGREEMENT).
The principal amount of this Note shall be repaid as provided in the
Loan Agreement.
This Note shall bear interest on the unpaid principal balance hereof
from time to time outstanding at a rate equal to the following: A rate equal to
the "Prime Rate" (as defined in the Loan Agreement) plus 1.5% per annum,
calculated on the basis of a 360-day year for the actual number of days elapsed,
provided that the interest rate in effect in each month shall not be less than
8% per annum. The interest rate applicable to all Loans shall be adjusted
monthly as of the first day of each month, and the interest to be charged for
each month shall be based on the highest "Prime Rate" in effect during said
month.
Accrued interest on this Note shall be payable monthly, in addition to
the principal payments provided above, commencing on NOVEMBER 30, 1998 and
continuing on the last day of each succeeding month. Any accrued interest not
paid when due shall bear interest at the same rate as the principal hereunder.
Principal of and interest on this Note shall be payable in lawful money
of the United States of America. If a payment hereunder becomes due and payable
on a Saturday, Sunday or legal holiday, the due date thereof shall be extended
to the next succeeding business day, and interest shall be payable thereon
during such extension.
In the event any payment of principal or interest on this Note is not
paid in full when due, or if any other default or event of default occurs
hereunder, under the Loan Agreement or under any other present or future
instrument, document, or agreement between the Borrower and Greyrock
(collectively, EVENTS OF DEFAULT), Greyrock may, at its option, at any time
thereafter, declare the entire unpaid principal balance of this Note plus all
accrued interest to be immediately due and payable, without notice or demand.
The acceptance of any installment of principal or interest by Greyrock after the
time when it becomes due, as herein specified, shall not be held to establish a
custom, or to waive any rights of Greyrock to enforce payment when due of any
further installments or any other rights, nor shall any failure or delay to
exercise any rights be held to waive the same.
All payments hereunder are to be applied first to costs and fees
referred to hereunder, second to the payment of accrued interest and the
remaining balance to the payment of principal. Any principal prepayment
hereunder shall be applied against principal payments in the inverse order of
maturity. Greyrock shall have the continuing and exclusive right to apply or
reverse and reapply any and all payments hereunder.
<PAGE>
LEVY, SMALL & LALLAS
TRANSMITTAL NOTE
- --------------------------------------------------------------------------------
PAGE 2
The Borrower agrees to pay all costs and expenses (including without
limitation attorney's fees) incurred by Greyrock in connection with or related
to this Note, or its enforcement, whether or not suit be brought. The Borrower
hereby waives presentment, demand for payment, notice of dishonor, notice of
nonpayment, protest, notice of protest, and any and all other notices and
demands in connection with the delivery, acceptance, performance, default, or
enforcement of this Note, and the Borrower hereby waives the benefits of any
statute of limitations with respect to any action to enforce, or otherwise
related to, this Note.
This Note is secured by the Loan Agreement and all other present and
future security agreements between the Borrower and Greyrock. Nothing herein
shall be deemed to limit any of the terms or provisions of the Loan Agreement or
any other present or future document, instrument or agreement, between the
Borrower and Greyrock, and all of Greyrock's rights and remedies hereunder and
thereunder are cumulative.
In the event any one or more of the provisions of this Note shall for
any reason be held to be invalid, illegal or unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
No waiver or modification of any of the terms or provisions of this
Note shall be valid or binding unless set forth in a writing signed by a duly
authorized officer of Greyrock, and then only to the extent therein specifically
set forth. If more than one person executes this Note, their obligations
hereunder shall be joint and several.
GREYROCK AND BORROWER EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS
NOTE; OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
GREYROCK AND BORROWER; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF GREYROCK OR
BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
ANY OTHER PERSONS AFFILIATED WITH GREYROCK OR BORROWER; IN EACH OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
This Note is payable in, and shall be governed by the laws of, the
State of California.
DIGITAL MICROWAVE CORPORATION
By /s/ CARL A. THOMSEN
------------------------------------------
Vice President, Chief Financial
Officer and Secretary
<PAGE>
EMPLOYMENT AGREEMENT
The Agreement, dated as of October 8, 1998 , is between Digital Microwave
Corporation, a California corporation ("Employer"), and Jean Francois Grenon,
("Employee").
RECITALS
* Employee was the President and CEO of Innova Corporation, a wholly owned
subsidiary of Digital Microwave Corporation and has been employed by Innova
Corporation prior to the acquisition of Innova Corporation and is currently
serving as the President of the newly formed Medium Capacity Systems Division, a
division of Digital Microwave Corporation.
* Employer desires to continue to employ Employee and to assure itself of the
continued services of Employee for the Period of Employment provided for in the
Employment Agreement, and Employee desires to be employed by Employer for such
period, upon the following terms and conditions.
* Should the proposed merger of Digital Microwave Corporation and Innova
Corporation fail to be culminated, then this Employment Agreement and its terms
and conditions of employment will be declared null and void. Such declaration
will not obligate either party of this agreement to perform any of the
commitments, responsibilities nor cause one party to be obligated to pay damages
to the other party.
ACCORDINGLY, the parties agree as follows:
1. Period of Employment.
(a) Basic Term. Employer shall employ Employee to render services to Employer
in the position and with the duties and responsibilities described in Section 2
for the period (the "Period of Employment" commencing on the date of this
Agreement and ending on the date which the Period of Employment is terminated in
accordance with Section 4.
(b) Initial Term. For a one year period commencing on the date of this
Agreement (the "Initial Term"), neither Employer nor Employee may terminate the
Period of Employment Not for Cause (pursuant to Sections 4(c) and 4(d). During
the Initial Term, this Agreement may be terminated for the following reasons
only: By Death (pursuant to Section 4(a)), By Disability (pursuant to Section
4(b)), By Employer For Cause (pursuant to Section 4(d)), and By Employee for
Good Reason Upon Change of Control (pursuant to Section 4(f)). The Initial Term
will end one year after the date of this Agreement, unless terminated sooner
pursuant to Sections 4(a), 4(b), 4(d), or 4(f).
2. Position and Responsibilities.
(a) Position. Employee shall continue employment with Employer as President of
the Medium Capacity Systems Division and shall perform all services appropriate
to that position as well as other duties that may be assigned by Employer.
Employee shall devote his best efforts and full-time attention to the
performance of his duties. Employee shall be subject to the direction of
Employer, which shall retain full control of the means and methods by which he
performs the above services and of the place(s) at which all services are
rendered. Employee shall report to the Chairman and CEO of the parent company.
Employee shall be expected to travel if necessary or advisable in order to meet
the obligations of his position.
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(b) Other Activity. Except upon the prior written consent of Employer,
Employee (during the Period of Employment) shall not (i) accept any other
employment; or (ii) engage, directly or indirectly, in any other business,
commercial, or professional activity (whether or not pursued for pecuniary
advantage) that is or may be competitive with Employer, that might create a
conflict of interest with Employer, or that otherwise might interfere with the
business of Employer, or any Affiliate. An "Affiliate" shall mean any person or
entity that directly or indirectly controls, is controlled by, or is under
common control with Employer. Notwithstanding the foregoing, upon reasonable
notice to Employer, Employee may serve as a director of one for profit entity
and one not for profit entity so long as such entity is not competitive with
Employer or any Affiliate and where such service does not otherwise create a
conflict of interest.
(c) Employee shall be bound by the Non-Compete Agreement which is attached as
Exhibit A, and by reference is incorporated into this Employment Agreement.
3. Compensation and Benefits.
(a) Compensation. In consideration of the services to be rendered under the
Agreement, Employer shall pay Employee a base salary of $235,000.00 per year,
payable semi-monthly, pursuant to the procedures regularly established, and as
they may be amended, by Employer in its sole discretion, during the Period of
Employment. Employer shall review annually Employee's compensation and shall
determine, in its sole discretion, whether and how much the existing
compensation shall be adjusted, without regard to any policy or practice
Employer may have for adjusting salaries. There will not be a salary deduction
to the base salary during the life of this Agreement. In addition to base
salary, Employee shall be eligible to participate in the Employer's executive
management incentive bonus and stock option plans according to the terms of
those plans. The initial target bonus for the balance of Digital Microwave's
1999 fiscal year will be $100,000.00. The criteria for receiving the award will
be the accomplishment of the Medium Capacity Systems Division's business and
financial goals that were agreed on during the business planning that resulted
in the merger of Digital Microwave and Innova.
(a-2) Thereafter, Employee shall participate in Employer's Key Employee
Incentive Plan. The target bonus award will be 50% of Employee's base salary at
the beginning of the fiscal year, to be paid annually following the
certification of the business results of Digital Microwave Corporation. The
criteria for receiving an award under this Plan will be based on the successful
accomplishment of the Medium Capacity Systems Division's business objectives,
(75% of the target award) and the degree of success that Digital Microwave has
in achieving its financial goals for the fiscal year. (25% of the target
award.) The Plan is capped at 150% of the target award. A minimum threshold
achievement of target goals must be met in order to receive any bonus award
under the Plan. (See Exhibit A for a description of the Plan.)
The initial stock option grant of the right to purchase shares of Digital
Microwave Corporation Common Stock shall be 300,000 shares with 60,000 shares
vesting on the first anniversary of the date this agreement becomes effective,
and the balance vesting in 20% increments on each anniversary of your date of
hire. This option will be granted under the provisions of the 1994 Digital
Microwave Stock Option Plan which includes "Change of Control" language
protection in the option agreement. The share price will be determined by the
Compensation Committee of the Board at a special meeting on the day the
acquisition takes effect.
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<PAGE>
(b) Benefits. Employee shall be entitled to vacation leave in accordance with
Innova Corporation's standard policies. As Employee becomes eligible thereof,
Employee shall have the right to participate in and to receive benefits from all
present and future benefit plans specified in Employer's policies and generally
made available to similarly situated employees of Employer. The amount and
extent of benefits to which Employee is entitled shall be governed by the
specific benefit plans, as amended. Employee also shall be entitled to any
benefits or compensation tied to termination as described in Section 4. Nothing
stated in the Agreement shall prevent Employer from changing or eliminating any
benefit during the Period of Employment as Employer, in its sole discretion, may
deem necessary or desirable. No statement concerning benefits or compensation
to which Employee is entitled shall alter in any way the term of the Agreement,
any renewal thereof, or its termination. All compensation and comparable
payments to be paid to Employee under the Agreement shall be less withholdings
required by law.
(c) Expenses. Employer shall reimburse Employee for reasonable travel and
other business expenses incurred by Employee in the performance of his duties,
in accordance with Employer's policies, as they may be amended in Employer's
sole discretion.
4. Termination of Employment.
(a) By Death. The Period of Employment shall terminate automatically upon the
death of Employee. Employer shall pay to Employee's beneficiaries or estate, as
appropriate, any, compensation then due and owing, including payment for accrued
unused vacation, if any, and will when due make a payment of any incentive bonus
to which the Employee would have been entitled prorated based on the number of
months the Employee was employed during the incentive bonus period. Thereafter,
all obligations of Employer under the Agreement shall cease. Nothing in the
Section shall affect any entitlement of Employee's heirs to the benefits of any
life insurance plan or other applicable benefits.
(b) By Disability. If, by reason of any physical or mental incapacity,
Employee has been or will be prevented from properly performing his duties under
the Agreement for more than ninety (90) consecutive days, then, to the extent
permitted by law, Employer may terminate the Period of Employment without any
advance notice. Employer shall pay Employee all compensation to which he is
entitled up through the day notice of termination is provided, and, in addition,
Employee shall be entitled to the following benefits provided in subparagraph
4(c): severance, health insurance premium payments, prorated incentive bonus,
and continued vesting of stock options; thereafter, all obligations of Employer
under this Agreement shall cease. Nothing in this Section shall affect
Employee's rights under any applicable Employer disability plan; provided,
however, that the severance benefits to which Employee is entitled shall be
offset by any disability income payments received by Employee so that the total
monthly severance and disability income benefit payments for the severance
period shall not exceed Employee's then current salary.
(c) By Employer Not For Cause. At any time following the Initial Term,
Employer may terminate the Period of Employment Not for Cause for any reason, by
providing Employee thirty (30) days' advance written notice, provided that
Employee shall be paid, in addition to all compensation due and owing through
the last day actually worked, severance in an amount equal to twelve (12) months
the Employee's then current base salary. Such severance shall be paid by
Employer to Employee in 12 equal monthly installments, commencing one month from
the date of termination, or, at Employer's discretion, in a single lump sum on
the termination date. Employer shall also pay the Employer's share of health
insurance premiums for a period of up to 12 months, or until Employee is
eligible to participate in another employer's plan, whichever comes first,
should Employee elect to convert his health insurance benefits under COBRA.
Employer shall also pay when due any incentive bonus to which the Employee would
have been entitled prorated based on the number of months the Employee was
employed during the incentive bonus period and will permit Employee's stock
options, if any, to continue to vest for 6 months following the termination
date. If Employer terminates the Period of Employment Not for Cause within
eighteen (18) months following a Change of Control as defined in subparagraph
4(g), Employee shall receive the severance benefits set forth in subparagraph
4(g)(i)-(iv) rather than the severance benefits set forth in the subparagraph
4(c).
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<PAGE>
Employer shall have the option, in its complete discretion, to terminate the
Period of Employment at any time prior to the end of such notice period,
provided Employer pays Employee all compensation due and owing through the last
day actually worked plus an amount equal to the base salary Employee would have
earned through the balance of the above notice period in addition to the
severance benefits described above; thereafter, all of Employer's obligations
under the Agreement shall cease. Employer may dismiss Employee without cause
notwithstanding anything to the contrary contained in or arising from any
statements, policies, or practices of Employer relating to the employment,
discipline, or termination of its employees.
(d) By Employer For Cause. At any time, and without prior notice, Employer may
terminate the Period of Employment for Cause (as defined below). Employer shall
pay Employee all compensation then due and owing; thereafter, all of Employer's
obligations under the Agreement shall cease. Termination shall be for "Cause"
if Employee: (i) acts in bad faith and to the detriment of Employer;
(ii) exhibits in regard to his employment willful misconduct, dishonesty,
habitual neglect of duties, or any willful act or omission that may materially
and adversely affect the Employer's business or that involves fraud,
embezzlement or misappropriation of any property or proprietary information of
the Employer; (iv) is convicted of a crime involving dishonesty, breach of
trust, or physical or emotional harm to any person; or (v) breaches any material
term of the Agreement. If termination is due to Employee's disability, Section
4(b) above shall control, and not the subsection on termination for Cause.
(e) By Employee Not for Cause. At any time following the Initial Term,
Employee may terminate the Period of Employment for any reason, with or without
cause, by providing Employer thirty (30) days' advance written notice. Employer
shall have the option, in its complete discretion, to make termination of the
Period of Employment effective at any time prior to the end of such notice
period, provided Employer pays Employee all compensation due and owing through
the last day actually worked, plus an amount equal to the base salary Employee
would have earned through the balance of the above notice period, not to exceed
one thirty (30) days; thereafter, all of Employer's obligations under the
Agreement shall cease.
(f) By Employee for Good Reason. At any time following the Initial Term,
Employee may terminate, without liability, the Period of Employment for Good
Reason provided Employee gives Employer sixty (60) days' advance written notice
of the reason for termination and his intent to terminate the Agreement. During
the period, Employer shall have an opportunity to correct the condition
constituting Good Reason. If the condition is remedied within the period,
Employee's notice to terminate shall be rescinded automatically; if not
remedied, termination of the Period of Employment shall become effective upon
expiration of the above notice period. In the event, Employer shall pay
Employee all compensation due and owing through the last day actually worked.
Employee shall receive the severance benefits set forth in subparagraph 4(c)
rather than the severance benefits set forth in the subparagraph 4(e).
(g) By Employee for Good Reason Upon a Change of Control at anytime. Employee
may terminate, without liability, the Period of Employment for Good Reason upon
a Change of Control (as defined below), provided Employee gives Employer sixty
(60) days' advance written notice of the reason for termination and his intent
to terminate the Agreement. During the period, Employer shall have an
opportunity to correct the condition constituting Good Reason. If the condition
is remedied within the period, Employee's notice to terminate shall be rescinded
automatically; if not remedied, termination of the Period of Employment shall
become effective upon expiration of the above notice period. In the event,
Employer shall pay Employee all compensation due and owing through the last day
actually worked.
Employer shall also have the option, in its complete discretion, to make
termination effective at any time prior to the end of the notice period,
provided that Employer pays Employee all compensation due and owing through the
balance of the notice period (not to exceed sixty (60) days). Employee shall be
entitled to exercise his right to terminate the Agreement for Good Reason only
if he gives the required notice not more than forty-five (45) days after the
occurrence of the event that is the basis for the Good Reason. If Employee
terminates the Period of Employment for Good Reason upon a Change of Control,
Employee shall receive the following:
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<PAGE>
(i) A severance payment equal to twenty-four (24) month's of the
Employee's then base salary. At the discretion of the Employer, the severance
payment may be made in the form of salary continuation over the equivalent pay
periods that the severance covers or in a lump sum payment.
(ii) A payment when due of the incentive bonus to which the Employee
would have been entitled prorated based on the number of months the Employee was
employed during the incentive bonus period.
(iii) A payment equal to the annual incentive bonus payments received by
Employee, if any, for the previous two years, divided by two.
(iv) Payment of the Employee's share of health insurance premiums for a
period of up to twenty-four (24) months, or until Employee is eligible to
participate in another Employer's plan, whichever comes first, should Employee
elect to convert his/her health insurance benefits under COBRA.
"Change of Control" shall mean the occurrence of any of the following events as
used herein, after the Effective Date: (i) any "person" (as such term is used
in Sections 13 (d) and 14 (d) of the Securities Exchange Act of 1934, as
amended) other than Digital Microwave or its affiliates (a "Third Party") is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Employer representing fifty percent
(50%) or more of the total voting power represented by the Employer's then
outstanding voting securities; (ii) the stockholders of the Employer approve a
merger or consolidation of the Employer with any other corporation that is a
Third Party, other than a merger or consolidation which would result in the
voting securities of the Employer outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Employer or
such surviving entity outstanding immediately after such merger or
consolidation;
or (iii) the stockholders of the Employer approve a plan of complete
liquidation or dissolution of the Employer or an agreement for the sale or
disposition by the Employer of all or substantially all the Employer's assets
to a Third Party. "Change of Control" shall also mean a change in the
composition of the Board over a period of thirty-six (36) months or less such
that a majority of the Board members (rounded up to the next whole number)
ceases, by reason of one or more contested elections for Board membership, to
be comprised of individuals who either (i) have been Board members
continuously since the beginning of such period or (ii) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (i) who were still in
office at the time such election or nomination was approved by the Board.
Termination shall be for "Good Reason" if: (i) there is a material and
adverse change in Employee's position, duties, responsibilities, or status with
Employer; (ii) there is a reduction in Employee's salary then in effect, other
than a reduction comparable to reductions generally applicable to similarly
situated employees of Employer; (iii) there is a material reduction in
Employee's benefits, other than a reduction comparable to reductions generally
applicable to similarly situated employees of Employer; (iv) the Employer
involuntarily relocates the Employee; or (v) Employer materially breaches the
Agreement.
(h) Termination Obligations.
(i) Employee agrees that all property, including, without limitation, all
equipment, tangible Proprietary Information (as defined below), documents,
books, records, reports, notes, contracts, lists, computer disks (and other
computer-generated files and data), and copies thereof, created on any medium
and furnished to, obtained by, or prepared by Employee in the course of or
incident to his employment, belongs to Employer and shall be returned promptly
to Employer upon termination of the Period of Employment.
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(ii) All benefits to which Employee is otherwise entitled shall cease upon
Employee's termination of the Period of Employment, unless explicitly continued
either under the Agreement or under any specific written policy or benefit plan
of Employer.
(iii) Upon termination of the Period of Employment, Employee shall be deemed
to have resigned from all offices and directorships then held with Employer or
any Affiliate.
(iv) The representations and warranties contained in the Agreement and
Employee's obligations under the Section 4(h) on Termination Obligations and
Section 5 on Proprietary Information shall survive the termination of the Period
of Employment and the expiration of the Agreement.
(v) Following any termination of the Period of Employment, Employee shall
fully cooperate with Employer in all matters relating to the winding up of
pending work on behalf of Employer and the orderly transfer of work to other
employees of Employer. Employee shall also cooperate in the defense of any
action brought by any third party against Employer that relates in any way to
Employee's acts or omissions while employed by Employer.
5. Proprietary Information.
(a) Defined. "Proprietary Information" is all information and any idea in
whatever form, tangible or intangible, pertaining in any manner to the business
of Employer, or any Affiliate, or its employees, clients, consultants, or
business associates, which was produced by any employee of Employer, or any
Affiliate, in the course of his or his employment or otherwise produced or
acquired by or on behalf of Employer, or any Affiliate. All Proprietary
Information not generally known outside of Employer's organization, and all
Proprietary Information so known only through improper means, shall be deemed
"Confidential Information." Without limiting the foregoing definition,
Proprietary and Confidential Information shall include, but not be limited to:
(i) formulas, teaching and development techniques, processes, trade secrets,
computer programs, electronic codes, inventions, improvements, and research
projects; (ii) information about costs, profits, markets, sales, and lists of
customers or clients; (iii) business, marketing, and strategic plans; and (iv)
employee personnel files and compensation information. Employee should consult
any Employer procedures instituted to identify and protect certain types of
Confidential Information, which are considered by Employer to be safeguards in
addition to the protection provided by the Agreement. Nothing contained in
those procedures or in the Agreement is intended to limit the effect of the
other.
(b) General Restrictions on Use. During the Period of Employment, Employee
shall use Proprietary Information, and shall disclose Confidential Information,
only for the benefit of Employer and as is necessary to carry out his
responsibilities under the Agreement. Following termination, Employee shall
neither, directly or indirectly, use any Proprietary Information nor disclose
any Confidential Information, except as expressly and specifically authorized in
writing by Employer. The publication of any Proprietary Information through
literature or speeches must be approved in advance in writing by Employer.
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<PAGE>
6. Arbitration.
(a) Arbitrable Claims. All disputes between Employee (and his attorneys,
successors, and assigns) and Employer (and its Affiliates, shareholders,
directors, officers, employees, agents, successors, attorneys, and assigns)
relating in any manner whatsoever to the employment or termination of Employee,
including, without limitation, all disputes arising under the Agreement,
("Arbitrable Claims") shall be resolved by arbitration. All persons and
entities specified in the preceding sentence (other than Employer and Employee)
shall be considered third-party beneficiaries of the rights and obligations
created by the Section on Arbitration. Arbitrable Claims shall include, but are
not limited to, contract (express or implied) and tort claims of all kinds, as
well as all claims based on any federal, state, or local law, statute, or
regulation, excepting only claims under applicable workers' compensation law and
unemployment insurance claims. By way of example and not in limitation of the
foregoing, Arbitrable Claims shall include any claims arising under Title VII of
the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the
Americans with Disabilities Act, and the California Fair Employment and Housing
Act, as well as any claims asserting wrongful termination, breach of contract,
breach of the covenant of good faith and fair dealing, negligent or intentional
infliction of emotional distress, negligent or intentional misrepresentation,
negligent or intentional interference with contract or prospective economic
advantage, defamation, invasion of privacy, and claims related to disability.
Arbitration shall be final and binding upon the parties and shall be the
exclusive remedy for all Arbitrable Claims, except that Employer may, at its
option, seek injunctive relief and damages in court for any breach of Section 5
of the Agreement. Subject to the foregoing sentence, THE PARTIES HEREBY WAIVE
ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS.
(b) Procedure. Arbitration of Arbitrable Claims shall be in accordance with
the Employment Dispute Resolution Rules of the American Arbitration Association
("AAA Employment Rules"), except as provided otherwise in the Agreement.
Arbitration shall be initiated by providing written notice to the other party
with a statement of the claim(s) asserted, the facts upon which the claim(s) are
based, and the remedy sought. The burden of proof in any arbitration shall be
allocated as provided by applicable law, unless otherwise specified in the
Agreement. Either party may bring an action in court to compel arbitration
under the Agreement and to enforce an arbitration award. Otherwise, neither
party shall initiate or prosecute any lawsuit or administrative action in any
way related to any Arbitrable Claim. The Federal Arbitration Act shall govern
the interpretation and enforcement of the Section 6.
(c) Arbitrator Selection and Authority. All disputes involving Arbitrable
Claims shall be decided by a single arbitrator. The arbitrator shall be
selected by mutual agreement of the parties within thirty (30) days of the
effective date of the notice initiating the arbitration. If the parties cannot
agree on an arbitrator, then the complaining party shall notify the AAA and
request selection of an arbitrator in accordance with the AAA Employment Rules.
The arbitrator shall have only such authority to award equitable relief,
damages, costs, and fees as a court would have for the particular claim(s)
asserted. The fees of the arbitrator shall be split between both parties
equally. The arbitrator shall have exclusive authority to resolve all
Arbitrable Claims, including, but not limited to, any claim that all or any part
of the Agreement is void or unenforceable.
(d) Confidentiality. All proceedings and all documents prepared in connection
with any Arbitrable Claim shall be confidential and, unless otherwise required
by law, the subject matter thereof shall not be disclosed to any person other
than the parties to the proceedings, their counsel, witnesses and experts, the
arbitrator, and, if involved, the court and court staff. All documents filed
with the arbitrator or with a court shall be filed under seal. The parties
shall stipulate to all arbitration and court orders necessary to effectuate
fully the provisions of the subsection concerning confidentiality.
(e) Continuing Obligations. The rights and obligations of Employee and
Employer set forth in the Section on Arbitration shall survive the termination
of Employee's employment and the expiration of the Agreement.
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7. Notices.
Any notice under the Agreement must be in writing and shall be effective upon
delivery by hand, upon facsimile transmission to the number provided below (if
one is provided), or three (3) business days after deposit in the United States
mail, postage prepaid, certified or registered, and addressed to Employer or to
Employee at the corresponding address below. Employee shall be obligated to
notify Employer in writing of any change in his address. Notice of change of
address shall be effective only when done in accordance with the Section.
Employer's Notice Address:
Vice President, Personnel
Digital Microwave Corporation
170 Rose Orchard Way
San Jose, California 95134
Fax Phone No.: (408)944-1701
Employee's Notice Address:
Jean Francois Grenon
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8. Action by Employer.
All actions required or permitted to be taken under the Agreement by Employer,
including, without limitation, exercise of discretion, consents, waivers, and
amendments to the Agreement, shall be made and authorized only by the President
or by his or his representative specifically authorized to fulfill these
obligations under the Agreement.
9. Integration.
The Agreement is intended to be the final, complete, and exclusive statement of
the terms of Employee's employment by Employer. The Agreement supersedes all
other prior and contemporaneous agreements and statements pertaining in any
manner to the employment of Employee, and it may not be contradicted by evidence
of any prior or contemporaneous statements or agreements. To the extent that
the practices, policies, or procedures of Employer, now or in the future, apply
to Employee and are inconsistent with the terms of the Agreement, the provisions
of the Agreement shall control.
10. Amendments; Waivers.
The Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by each of the parties. No failure to exercise
and no delay in exercising any right, remedy, or power under the Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power under the Agreement preclude any other or further
exercise thereof, or the exercise of any other right, remedy, or power provided
herein or by law or in equity.
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11. Assignment; Successors and Assigns.
Employee agrees that he will not assign, sell, transfer, delegate, or otherwise
dispose of, whether voluntarily or involuntarily, or by operation of law, any
rights or obligations under the Agreement. Any such purported assignment,
transfer, or delegation shall be null and void. Nothing in the Agreement shall
prevent the consolidation of Employer with, or its merger into, any other
entity, or the sale by Employer of all or substantially all of its assets, or
the otherwise lawful assignment by Employer of any rights or obligations under
the Agreement. Subject to the foregoing, the Agreement shall be binding upon
and shall inure to the benefit of the parties and their respective heirs, legal
representatives, successors, and permitted assigns, and shall not benefit any
person or entity other than those specifically enumerated in the Agreement.
12. Severability.
If any provision of the Agreement, or its application to any person, place, or
circumstance, is held by an arbitrator or a court of competent jurisdiction to
be invalid, unenforceable, or void, such provision shall be enforced to the
greatest extent permitted by law, and the remainder of the Agreement and such
provision as applied to other persons, places, and circumstances shall remain in
full force and effect.
13. Attorneys' Fees.
In any legal action, arbitration, or other proceeding brought to enforce or
interpret the terms of the Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees and costs.
14. Governing Law. The Agreement shall be governed by and construed in
accordance with the law of the State of California.
15. Interpretation.
The Agreement shall be construed as a whole, according to its fair meaning, and
not in favor of or against any party. By way of example and not in limitation,
the Agreement shall not be construed in favor of the party receiving a benefit
nor against the party responsible for any particular language in the Agreement.
Captions are used for reference purposes only and should be ignored in the
interpretation of the Agreement.
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16. Employee Acknowledgment.
Employee acknowledges that he has had the opportunity to consult legal counsel
in regard to the Agreement, that he has read and understands the Agreement, that
he is fully aware of its legal effect, and that he has entered into it freely
and voluntarily and based on his own judgment and not on any representations or
promises other than those contained in the Agreement.
The parties have duly executed the Agreement as of the date first written above.
/s/ Jean-Francois Grenon 10/7/98
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Jean Francois Grenon
Digital Microwave Corporation
/s/ Charles D. Kissner
- -----------------------------------
By: Charles D. Kissner
Its: Chairman and Chief Executive Officer
10
<PAGE>
AMENDED AND RESTATED
AGREEMENT
Dated as of October 30, 1998
between
DIGITAL MICROWAVE CORPORATION
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . .1
1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . .1
1.02 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE II THE LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . .6
2.01 Existing Letters of Credit. . . . . . . . . . . . . . . . . . . . . .6
2.02 New Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . .6
2.03 Issuance, Amendment and Renewal of Letters of Credit. . . . . . . . .6
2.04 Drawings Under the Letters of Credit. . . . . . . . . . . . . . . . .7
2.05 Role of the Bank. . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.06 Obligations Absolute. . . . . . . . . . . . . . . . . . . . . . . . .8
2.07 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . .9
2.08 Uniform Customs and Practice. . . . . . . . . . . . . . . . . . . . .9
2.09 Payments by the Company . . . . . . . . . . . . . . . . . . . . . . .9
2.10 European Economic and Monetary Union. . . . . . . . . . . . . . . . 10
(a) Definitions . . . . . . . . . . . . . . . . . . . . . . . . 10
(b) Effectiveness of Provisions . . . . . . . . . . . . . . . . 10
(c) Redenomination and Alternative Currencies . . . . . . . . . 10
(d) Letters of Credit . . . . . . . . . . . . . . . . . . . . . 11
(e) Banking Days. . . . . . . . . . . . . . . . . . . . . . . . 11
(f) Payments to the Bank. . . . . . . . . . . . . . . . . . . . 11
(g) Deliberately left blank . . . . . . . . . . . . . . . . . . 11
(h) Payments by the Bank Generally. . . . . . . . . . . . . . . 11
(i) Basis of Accrual. . . . . . . . . . . . . . . . . . . . . . 12
(j) Rounding and Other Consequential Changes. . . . . . . . . . 12
(k) Increased Costs . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE III TAXES AND YIELD PROTECTION. . . . . . . . . . . . . . . . . 12
3.01 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.02 Increased Costs and Reduction of Return . . . . . . . . . . . . . . 13
3.03 Certificates of the Bank. . . . . . . . . . . . . . . . . . . . . . 14
3.04 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IV CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . 14
4.01 Conditions to Effectiveness of this Agreement . . . . . . . . . . . 14
(a) Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) Collateral. . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) Collateral Value. . . . . . . . . . . . . . . . . . . . . . 14
(d) Agreements with Third Persons . . . . . . . . . . . . . . . 14
(e) Evidence of Perfection. . . . . . . . . . . . . . . . . . . 14
</TABLE>
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(f) Other Documents . . . . . . . . . . . . . . . . . . . . . . 14
4.02 Conditions to All Issuances of Letters of Credit. . . . . . . . . . 14
(a) Notice, Application . . . . . . . . . . . . . . . . . . . . 15
(b) Continuation of Representations and Warranties. . . . . . . 15
(c) No Existing Default . . . . . . . . . . . . . . . . . . . . 15
(d) Collateral. . . . . . . . . . . . . . . . . . . . . . . . . 15
(e) Collateral Value. . . . . . . . . . . . . . . . . . . . . . 15
(f) Agreements with Third Persons . . . . . . . . . . . . . . . 15
(g) Evidence of Perfection. . . . . . . . . . . . . . . . . . . 15
(h) Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 16
(i) Other Documents, Etc. . . . . . . . . . . . . . . . . . . . 16
ARTICLE V REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . 16
5.01 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . 15
5.02 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.03 Enforceability. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.04 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . 16
5.05 Permits, Franchises . . . . . . . . . . . . . . . . . . . . . . . . 16
5.06 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.07 No Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 16
5.08 Other Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.09 Tax Returns.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.10 Information Submitted . . . . . . . . . . . . . . . . . . . . . . . 17
5.11 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . 17
5.12 Chief Place of Business . . . . . . . . . . . . . . . . . . . . . . 17
5.13 Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.14 Regulated Entities. . . . . . . . . . . . . . . . . . . . . . . . . 17
5.15 The Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . 18
6.01 Notices of Certain Events . . . . . . . . . . . . . . . . . . . . . 18
6.02 Financial and Other Information . . . . . . . . . . . . . . . . . . 18
6.03 Books, Records, Audits and Inspections. . . . . . . . . . . . . . . 18
6.04 Use of Facility . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.05 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . 19
6.06 Change in Name, Structure or Location . . . . . . . . . . . . . . . 19
6.07 Existence and Properties. . . . . . . . . . . . . . . . . . . . . . 19
6.08 Financing Statements, Etc . . . . . . . . . . . . . . . . . . . . . 19
6.09 Collateral Value. . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.10 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.11 Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.12 Delivery of Payments and Other Distributions. . . . . . . . . . . . 21
6.13 Delivery of Legal Opinion; Greyrock Financing; Etc. . . . . . . . . 22
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ARTICLE VII NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . 22
7.01 Business Activities . . . . . . . . . . . . . . . . . . . . . . . . 22
7.02 Regulations T, U, and X . . . . . . . . . . . . . . . . . . . . . . 22
7.03 Transfer or Encumbrance . . . . . . . . . . . . . . . . . . . . . . 22
7.04 Impairment of Security Interest . . . . . . . . . . . . . . . . . . 23
7.05 Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.06 Possession of Certificates, Etc. Evidencing Collateral. . . . . . . 23
ARTICLE VIII SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . 23
8.01 Grant of Security Interest. . . . . . . . . . . . . . . . . . . . . 23
8.02 Deposit Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.03 Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.04 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.05 Powers of the Bank. . . . . . . . . . . . . . . . . . . . . . . . . 25
8.06 The Bank Appointed Attorney-in-Fact . . . . . . . . . . . . . . . . 26
8.07 Waivers by the Company. . . . . . . . . . . . . . . . . . . . . . . 27
8.08 No Responsibility for Certain Actions . . . . . . . . . . . . . . . 27
8.09 Custody of Collateral . . . . . . . . . . . . . . . . . . . . . . . 28
8.10 Conflict of Interest. . . . . . . . . . . . . . . . . . . . . . . . 28
8.11 Return of Collateral. . . . . . . . . . . . . . . . . . . . . . . . 28
8.12 Transfer of Collateral. . . . . . . . . . . . . . . . . . . . . . . 29
8.13 Continuing Agreement. . . . . . . . . . . . . . . . . . . . . . . . 29
8.14 Continuing Security Interests . . . . . . . . . . . . . . . . . . . 29
ARTICLE IX EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . 29
9.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) Failure to Pay. . . . . . . . . . . . . . . . . . . . . . . 29
(b) Breach of Representation or Warranty. . . . . . . . . . . . 29
(c) Specific Defaults . . . . . . . . . . . . . . . . . . . . . 29
(d) Other Defaults. . . . . . . . . . . . . . . . . . . . . . . 30
(e) Judgments . . . . . . . . . . . . . . . . . . . . . . . . . 30
(f) Failure to Pay Debts; Voluntary Bankruptcy. . . . . . . . . 30
(g) Involuntary Bankruptcy. . . . . . . . . . . . . . . . . . . 30
(h) Default of Other Financial Obligations. . . . . . . . . . . 30
(i) Default of Other Bank Obligations . . . . . . . . . . . . . 31
(j) Material Adverse Effect . . . . . . . . . . . . . . . . . . 31
(k) Change of Control . . . . . . . . . . . . . . . . . . . . . 31
(l) Collateral. . . . . . . . . . . . . . . . . . . . . . . . . 31
9.02 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.03 Application of Cash Collateral; Cash Proceeds . . . . . . . . . . . 33
9.04 Rights and Powers Are Cumulative. . . . . . . . . . . . . . . . . . 34
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ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 34
10.01 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 34
10.02 Consents and Waivers. . . . . . . . . . . . . . . . . . . . . . . . 34
10.03 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.04 Costs and Attorney Costs. . . . . . . . . . . . . . . . . . . . . . 34
10.05 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.06 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.07 General Indemnification . . . . . . . . . . . . . . . . . . . . . . 35
10.08 Arbitration; Reference Proceeding . . . . . . . . . . . . . . . . . 35
10.09 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.10 Headings; Interpretation. . . . . . . . . . . . . . . . . . . . . . 37
10.11 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.12 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.13 Effect of Amendment and Restatement . . . . . . . . . . . . . . . . 37
10.14 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
Exhibit A: Summary of Outstanding Standby Letters of Credit
iv
<PAGE>
AMENDED AND RESTATED
AGREEMENT
This Amended and Restated Agreement is entered into as of October 30,
1998, between Digital Microwave Corporation (the "COMPANY") and Bank of America
National Trust and Savings Association (the "BANK").
WHEREAS, the Company and the Bank entered into a Credit Agreement dated
as of June 30, 1997, amended by first, second, and third amendments dated June
1, 1998, July 22, 1998, and September 30, 1998 respectively (as so amended, the
"EXISTING AGREEMENT");
WHEREAS, under the Existing Agreement the Company is required to provide
cash collateral for the Existing Letters of Credit by October 30, 1998;
WHEREAS, the Company and the Bank have agreed to amend and restate the
representations, warranties, covenants, agreements and obligations of the
Company in this Amended and Restated Agreement in order to provide for (1) the
agreement of the Bank to accept cash and collateral other than cash, as
specified in this Agreement, (2) the grant of a security interest in all such
collateral to secure the Obligations of the Company, (3) the terms and
provisions applicable to all such collateral, and (4) clarification and
modification of certain other terms and provisions of the Existing Agreement;
WHEREAS, the Company and the Bank wish to set forth their agreement that
this Amendment and Restated Agreement completely amends, restates, and replaces
the Existing Agreement, all upon the terms and provisions and subject to the
conditions set forth in this Amended and Restated Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 CERTAIN DEFINED TERMS. The following terms have the following meanings:
"AFFILIATE" means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.
"AGREEMENT" means this Amended and Restated Agreement.
"ATTORNEY COSTS" means and includes all fees and disbursements of any
law firm or other external counsel, the allocated cost of internal legal
services and all disbursements of internal counsel.
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"BANK-RELATED PERSONS" means the Bank together with its Affiliates and
the officers, directors, employees, counsel, agents and attorneys-in-fact of
such Persons and Affiliates.
"BANK'S PAYMENT OFFICE" means the address for payments set forth on the
signature pages to this Agreement or such other address as the Bank may from
time to time specify.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. Section 101, ET SEQ.).
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which commercial banks in San Francisco, California are authorized or
required by law to close.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or directive
of any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of the Bank or of any corporation controlling the Bank.
"CODE" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
"COLLATERAL" has the meaning specified in Section 8.01 of this
Agreement.
"DEFAULT" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"DOLLARS", "DOLLARS" and "$" each mean lawful money of the United
States.
"EFFECTIVE AMOUNT" means with respect to any outstanding L/C Obligations
on any date, the amount of such L/C Obligations on such date after giving effect
to any Issuance of Letters of Credit occurring on such date and any other
changes in the aggregate amount of the L/C Obligations as of such date,
including as a result of any reimbursements of outstanding unpaid drawings under
any Letters of Credit or any reductions in the maximum amount available for
drawing under Letters of Credit taking effect on such date.
"EQUIVALENT AMOUNT" means (a) whenever this Agreement requires or
permits a determination on any date of the equivalent in dollars of an amount
expressed in a currency other than dollars, the equivalent amount in dollars of
any amount expressed in a currency other than dollars as determined by the Bank
on such date on the basis of the Spot Rate for the purchase of dollars with such
other currency on the relevant date; or (b) whenever this Agreement requires or
permits a determination on any date of the equivalent in a currency other than
dollars of an amount expressed in dollars, the equivalent amount in a currency
other than dollars of an amount expressed in dollars as determined by the Bank
on such date on the basis of the Spot Rate for the purchase of such other
currency with dollars on the relevant date. The relevant date shall be (a) the
Issuance Date if a Letter of Credit is to be Issued and (b) for all other
purposes, the date on which the required computation is made.
"EXISTING LETTERS OF CREDIT" means the letters of credit described in
Exhibit A.
2
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"EVENT OF DEFAULT" means any of the events or circumstances specified in
Section 9.01.
"FURTHER TAXES" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar charges
(including, without limitation, net income taxes and franchise taxes), and all
liabilities with respect thereto, imposed by any jurisdiction on account of
amounts payable or paid pursuant to Section 3.01.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"GREYROCK FINANCING" means the $40,000,000 credit facilities extended by
Greyrock Capital, a division of NationsCredit Commercial Corporation, pursuant
to an agreement dated as of October 1, 1998 between the Company and Greyrock
Capital, a division of NationsCredit Commercial Corporation.
"INDEMNIFIED LIABILITIES" has the meaning specified in Section 10.07.
"INSOLVENCY PROCEEDING" means, with respect to any Person, (a) any case,
action or proceeding with respect to such Person before any court or other
Governmental Authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up or relief of debtors, or
(b) any general assignment for the benefit of creditors, composition,
marshalling of assets for creditors, or other, similar arrangement in respect of
its creditors generally or any substantial portion of its creditors; undertaken
under U.S. Federal, state or foreign law, including the Bankruptcy Code.
"ISSUANCE DATE" of a Letter of Credit means the date a Letter of Credit
is Issued.
"ISSUE" means, with respect to any Letter of Credit (including, for the
avoidance of doubt, any Existing Letters of Credit) to issue or to extend the
expiry of, or to renew or increase the amount of or otherwise amend the
provisions of, such Letter of Credit; and the terms "ISSUED," "ISSUING" and
"ISSUANCE" have corresponding meanings.
"L/C AMENDMENT APPLICATION" means an application form for amendment of
outstanding standby letters of credit as shall at any time be in use at the
Bank, as the Bank shall request.
"L/C APPLICATION" means an application form for issuance of standby
letters of credit in the form as shall at the relevant time be in use at the
Bank.
"L/C OBLIGATIONS" means at any time the sum of (a) the aggregate undrawn
amount of all Letters of Credit then outstanding, plus (b) the amount of all
unreimbursed drawings under all Letters of Credit.
"L/C-RELATED DOCUMENTS" means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document relating to
any Letter of Credit, including any of the Bank's standard form documents for
issuance of letters of credit.
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"LETTERS OF CREDIT" means the Existing Letters of Credit and any standby
letters of credit Issued by the Bank pursuant to this Agreement.
"LIEN" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising under
or evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease, any financing lease having
substantially the same economic effect as any of the foregoing, or the filing of
any financing statement naming the owner of the asset to which such lien relates
as debtor, under the UCC or any comparable law) and any contingent or other
agreement to provide any of the foregoing, but not including the interest of a
lessor under an operating lease.
"LOAN DOCUMENTS" means this Agreement, the L/C-Related Documents, and
all other security agreements, deeds of trust, and other similar agreements
between the Company and the Bank now or hereafter delivered to the Bank pursuant
to this Agreement, and all financing statements (or comparable documents now or
hereafter filed in accordance with the UCC or comparable law) or notices against
the Company as debtor in favor of the Bank as secured party, or the Bank's
records reflecting, acknowledging, or identifying the Collateral, and any
amendments, supplements, modifications, renewals, replacements, consolidations,
substitutions, and extensions of any of the foregoing and all other documents
delivered to the Bank in connection herewith.
"MARGIN STOCK" means "margin stock" as such term is defined in
Regulation G, T, U or X of the Board of Governors of the Federal Reserve
System.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) of the Company or the Company and its Subsidiaries
taken as a whole (b) a material impairment of the ability of the Company to
perform under any Loan Document and to avoid any Event of Default; or (c) a
material adverse effect upon the legality, validity, binding effect or
enforceability against the Company of any Loan Document.
"OBLIGATIONS" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by the Company to the
Bank or any Bank-Related Person, whether direct or indirect (including those
acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising.
"OTHER TAXES" means any present or future stamp, court or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery,
performance, enforcement or registration of, or otherwise with respect to, this
Agreement or any other Loan Documents.
"PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture or Governmental Authority.
"PLEDGED DEPOSITS" means:
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(a) each deposit account opened by the Company with the Bank
that the Company and the Bank agree in writing is part of the Collateral subject
to this Agreement;
(b) each deposit account opened by the Bank for the account of
the Company to which the Bank credits proceeds of other Collateral;
(c) any renewals or rollovers of the deposit accounts described
in clauses (a), (b),and (c) of this definition; and
(d) proceeds of any of the foregoing.
A Pledged Deposit may be of any type of deposit account of the Company with the
Bank, including but not limited to a demand deposit, time deposit, or deposit
represented by a negotiable certificate of deposit issued by the Bank.
"REFERENCE RATE" means for any day, the rate of interest in effect for
such day as publicly announced from time to time by the Bank in San Francisco,
California, as its "reference rate." It is a rate set by the Bank based upon
various factors including the Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate. Any change
in the Reference Rate announced by the Bank shall take effect at the opening of
business on the day specified in the public announcement of such change.
"REQUIREMENT OF LAW" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"RESPONSIBLE OFFICER" means the chief executive officer, the president,
the chief financial officer, or the treasurer of the Company or any other
officer having substantially the same authority and responsibility.
"SPOT RATE" for a currency means the rate quoted by the Bank as the spot
rate for the purchase by the Bank of such currency with another currency through
in San Francisco, California, or such other of the Bank's offices as it may
designate from time to time, at approximately 8:00 a.m. (San Francisco,
California time) on the date two Business Days prior to the date as of which the
foreign exchange computation is made.
"SUBSIDIARY" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which more than 50% of the voting stock, membership interests or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of the Company.
"TAXES" means any and all present or future taxes, levies, assessments,
imposts, duties, deductions, fees, withholdings or similar charges, and all
liabilities with respect thereto, excluding, in the case of the Bank, taxes
imposed on or measured by its net income by the jurisdiction (or any political
subdivision thereof) under the laws of which the Bank is organized or maintains
a lending office.
"UCC" means the Uniform Commercial Code of California.
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1.02 ACCOUNTING PRINCIPLES.
(a) Unless the context otherwise clearly requires, all accounting
terms not expressly defined herein shall be construed, and all financial
computations required under this Agreement shall be made, in accordance with
GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter" refer to
such fiscal periods of the Company.
ARTICLE II
THE LETTERS OF CREDITS
2.01 EXISTING LETTERS OF CREDIT. The Bank agrees to continue the Existing
Letters of Credit and to honor drafts drawn under the Existing Letters of
Credit. The Bank shall be under no obligation to amend any of the Existing
Letters of Credit.
2.02 NEW LETTERS OF CREDIT.
(a) The Bank is not committed to Issue any new Letters of Credit.
The Company may, from time to time, ask the Bank to Issue a Letter of Credit.
If the Bank agrees (in its sole discretion) to Issue a Letter of Credit
requested by the Company, such Issuance shall be subject to the terms and
conditions of this Agreement and such other terms and conditions as may be
agreed upon on such time between the Bank and the Company.
(b) The Letters of Credit Issued by the Bank and the Company's
reimbursement obligation relating to such Letters of Credit shall be evidenced
by one or more accounts or records maintained by the Bank in the ordinary course
of business. The accounts or records maintained by the Bank shall be rebuttable
presumptive evidence of the amount of the Letters of Credit Issued for the
account of the Company, the Company's corresponding reimbursement obligations,
and the interest and payments thereon. Any failure so to record or any error in
doing so shall not, however, limit or otherwise affect the obligation of the
Company hereunder to pay any amount owing with respect to any Letter of Credit.
2.03 ISSUANCE, AMENDMENT AND RENEWAL OF LETTERS OF CREDIT. If the Bank
decides (in its sole discretion) to Issue a Letter of Credit:
(a) Each Letter of Credit shall be issued upon the irrevocable
written request of the Company received by the Bank at least three Business Days
(or such shorter time as the Bank may agree in a particular instance in its sole
discretion) prior to the proposed date of issuance. Each such request for
issuance of a Letter of Credit shall be in writing, which may be transmitted by
facsimile transmission, confirmed immediately in an original writing, in the
form of an L/C Application, and shall specify in form and detail satisfactory to
the Bank: (i) the proposed date of issuance of the Letter of Credit (which shall
be a Business Day); (ii) the face amount of the Letter of Credit; (iii) the
expiry date of the Letter of Credit; (iv) the name and address of the
beneficiary thereof; (v) the documents to be presented by the beneficiary of the
Letter of Credit in case of any drawing thereunder; (vi) the full text of any
certificate to be presented by the beneficiary in case of any drawing
thereunder; and (vii) such other matters as the Bank may require.
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(b) Subject to the terms and conditions hereof and such other terms
and conditions as may be agreed on between the Bank and the Company, the Bank
shall, on the requested date, issue a Letter of Credit for the account of the
Company in accordance with the Bank's usual and customary business practices.
(c) From time to time while a Letter of Credit is outstanding, the
Bank may, upon the written request of the Company received by the Bank at least
three Business Days (or such shorter time as the Bank may agree in a particular
instance in its sole discretion) prior to the proposed date of amendment, amend
any Letter of Credit. Each such request for amendment of a Letter of Credit
shall be made in writing, which may be by facsimile transmission, confirmed
immediately in an original writing, made in the form of an L/C Amendment
Application and shall specify in form and detail satisfactory to the Bank:
(i) the Letter of Credit to be amended; (ii) the proposed date of amendment of
the Letter of Credit (which shall be a Business Day); (iii) the nature of the
proposed amendment; and (iv) such other matters as the Bank may require. The
Bank shall be under no obligation to amend any Letter of Credit.
(d) The Bank may, at its election, deliver any notices of
termination or other communications to any Letter of Credit beneficiary or
transferee, and take any other action as necessary or appropriate, at any time
and from time to time, in order to cause the expiry date of such Letter of
Credit to be a date not later than 13 months after its Issuance Date.
(e) This Agreement shall control in the event of any conflict with
any L/C-Related Document (other than any Letter of Credit).
2.04 DRAWINGS UNDER THE LETTERS OF CREDIT.
(a) In case of a drawing or payment by the Bank under a Letter of
Credit, the Bank will notify the Company. The Company will promptly reimburse
the Bank on demand and without demand on the date of such drawing or payment, in
the currency in which the Letter of Credit is payable, except that the Bank may,
at its option, require payments to be made in Dollars. The Equivalent Amount in
Dollars of each payment to be made by the Company to reimburse the Bank for a
payment made by the Bank for a Letter of Credit payable in a currency other than
dollars shall be determined by as of the date of payment by the Bank under such
Letter of Credit.
(b) Each such reimbursement obligation and other sums payable
hereunder (including but not limited to the obligation to furnish collateral) if
not paid when due shall bear interest, payable on demand from the date of such
drawing or payment or due date at an interest rate per annum equal to the
Reference Rate plus 2.00%.
(c) Interest based on the Reference Rate shall be computed on the
basis of a 365/366-day year and actual days elapsed. All other interest and
fees payable to the Bank under this Agreement shall be computed on the basis of
a 360 day year and actual days elapsed, which results in more interest or a
larger fee than if a 365-366 day year were used.
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2.05 ROLE OF THE BANK.
(a) The Company agrees that, in paying any drawing under a Letter of
Credit, the Bank shall not have any responsibility to obtain any document (other
than any sight draft and certificates expressly required by the Letter of
Credit) or to ascertain or inquire as to the validity or accuracy of any such
document or the authority of the Person executing or delivering any such
document.
(b) The Company hereby assumes all risks of the acts or omissions of
any beneficiary or transferee with respect to its use of any Letter of Credit;
PROVIDED, however, that this assumption is not intended to, and shall not,
preclude the Company's pursuing such rights and remedies as it may have against
the beneficiary or transferee at law or under any other agreement. No
Bank-Related Person, nor any of the respective correspondents, participants or
assignees of the Bank, shall be liable or responsible for any of the matters
described in clauses (i) through (vii) of Section 2.06; PROVIDED, however,
anything in such clauses to the contrary notwithstanding, that the Company may
have a claim against the Bank, and the Bank may be liable to the Company, to the
extent, but only to the extent, of any direct, as opposed to consequential or
exemplary, damages suffered by the Company which the Company proves were caused
by the Bank's willful misconduct or gross negligence or the Bank's willful
failure to pay under any Letter of Credit after the presentation to it by the
beneficiary of a sight draft and certificate(s) strictly complying with the
terms and conditions of a Letter of Credit. In furtherance and not in
limitation of the foregoing: (i) the Bank may accept documents that appear on
their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary; and (ii) the Bank shall
not be responsible for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign a Letter of Credit
or the rights or benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason.
2.06 OBLIGATIONS ABSOLUTE. The obligations of the Company under this
Agreement and any L/C-Related Document to reimburse the Bank for a drawing under
a Letter of Credit, and to repay any drawing under a Letter of Credit, shall be
unconditional and irrevocable, and shall be paid strictly in accordance with the
terms of this Agreement and each such other L/C-Related Document under all
circumstances, including the following:
(i) any lack of validity or enforceability of this Agreement or any
L/C-Related Document;
(ii) any change in the time, manner or place of payment of, or in any
other term of, all or any of the obligations of the Company in respect of any
Letter of Credit or any other amendment or waiver of or any consent to departure
from all or any of the L/C-Related Documents;
(iii) the existence of any claim, set-off, defense or other right that
the Company may have at any time against any beneficiary or any transferee of
any Letter of Credit (or any Person for whom any such beneficiary or any such
transferee may be acting), the Bank or any other Person, whether in connection
with this Agreement, the transactions contemplated hereby or by the L/C-Related
Documents or any unrelated transaction;
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(iv) any draft, demand, certificate or other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect; or any loss or delay in the transmission or otherwise of any document
required in order to make a drawing under any Letter of Credit;
(v) any payment by the Bank under any Letter of Credit against
presentation of a draft or certificate that does not strictly comply with the
terms of any Letter of Credit; or any payment made by the Bank under any Letter
of Credit to any Person purporting to be a trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of creditors, liquidator,
receiver or other representative of or successor to any beneficiary or any
transferee of any Letter of Credit, including any arising in connection with any
Insolvency Proceeding;
(vi) any exchange, release or non-perfection of any collateral, or
any release or amendment or waiver of or consent to departure from any other
guarantee, for all or any of the obligations of the Company in respect of any
Letter of Credit; or
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including any other circumstance that might
otherwise constitute a defense available to, or a discharge of, the Company or a
guarantor.
2.07 LETTER OF CREDIT FEES.
The Company shall pay to the Bank, quarterly in arrears, a non-refundable Letter
of Credit fee on each Letter of Credit. This fee shall be the greater of
(a) 0.35% per annum on the undrawn amount of such Letter of Credit or (b) $400
per annum.
The Company shall also pay the standard fees and commissions charged to Bank
customers at the times and in the amounts the Bank advises the Company from time
to time as being applicable to the Company's standby letters of credit.
2.08 UNIFORM CUSTOMS AND PRACTICE. The Uniform Customs and Practice for
Documentary Credits as published by the International Chamber of Commerce most
recently at the time of issuance of any Letter of Credit shall (unless otherwise
expressly provided in the Letters of Credit) apply to the Letters of Credit.
2.09 PAYMENTS BY THE COMPANY.
(a) All payments to be made by the Company shall be made without
set-off, recoupment or counterclaim. All payments by the Company shall be made
to the Bank at the Bank's Payment Office or such branch of the Bank as the Bank
may select, and shall be made in dollars or in such currency as the Bank may
specify and in immediately available funds. Any payment received by the Bank
later than the time specified by the Bank shall be deemed to have been received
on the following Business Day and any applicable interest or fee shall continue
to accrue.
(b) Whenever any payment is due on a day other than a Business Day,
such payment shall be made on the following Business Day, and such extension of
time shall in such case be included in the computation of interest or fees, as
the case may be.
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2.10 EUROPEAN ECONOMIC AND MONETARY UNION.
(a) DEFINITIONS.
In this Section and in each other provision of this Agreement to which
reference is made in this Section expressly or impliedly, the following terms
have the following meanings:
"COMMENCEMENT OF THE THIRD STAGE OF EMU" means the date of commencement
of the third stage of EMU (at the date of this Agreement expected to be January
1, 1999) or the date on which circumstances arise which (in the opinion of the
Bank) have substantially the same effect and result in substantially the same
consequences as commencement of the third stage of EMU as contemplated by the
Treaty on European Union.
"EMU" means economic and monetary union as contemplated in the Treaty on
European Union.
"EMU LEGISLATION" means legislative measures of the European Council for
the introduction of, changeover to or operation of a single or unified European
currency (whether known as the euro or otherwise), being in part the
implementation of the third stage of EMU;
"EURO" means the single currency of participating member states of the
European Union;
"EURO UNIT" means the currency unit of the euro;
"NATIONAL CURRENCY UNIT" means the unit of currency (other than a euro
unit) of a participating member state;
"PARTICIPATING MEMBER STATE" means each state so described in any EMU
legislation; and
"TREATY ON EUROPEAN UNION" means the Treaty of Rome of March 25, 1957,
as amended by the Single European Act 1986 and the Maastricht Treaty (which was
signed at Maastricht on February 7, 1992, and came into force on November 1,
1993), as amended from time to time.
(b) EFFECTIVENESS OF PROVISIONS.
The provisions of subsections (c) through (j) of this Section shall be
effective at and from the commencement of the third stage of EMU; provided, that
if and to the extent that any such provision relates to any state (or the
currency of such state) that is not a participating member state on the
commencement of the third stage of EMU, such provision shall become effective in
relation to such state (and the currency of such state) at and from the date on
which such state becomes a participating member state.
(c) REDENOMINATION AND ALTERNATIVE CURRENCIES.
Each obligation under this Agreement of a party to this Agreement which
has been denominated in the national currency unit of a participating member
state shall be redenominated into the euro unit in accordance with EMU
legislation; provided, that if and to the extent that any EMU legislation
provides that following the commencement of the third stage of EMU an amount
denominated either in the euro or in the national currency unit of a
participating member
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state and payable within that participating member state by crediting an account
of the creditor can be paid by the debtor either in the euro unit or in that
national currency unit, each party to this Agreement shall be entitled to pay or
repay any such amount either in euro unit or in such national currency unit.
(d) LETTERS OF CREDIT.
Any Letter of Credit denominated in the currency of a participating
member state shall be made in the euro unit.
(e) BANKING DAYS.
With respect to any amount denominated or to be denominated in the euro
or a national currency unit, any reference to a "Banking Day" shall be construed
as a reference to a day (other than a Saturday or Sunday) on which banks are
generally open for business in (i) London and New York City, and (ii) Frankfurt
am Main, Germany (or such principal financial center or centers in such
participating member state or states as the Bank may from time to time nominate
for this purpose).
(f) PAYMENTS TO THE BANK.
Each provision of this Agreement calling for payments in a specified
currency shall be construed so that, in relation to the payment of any amount of
euro units or national currency units, such amount shall be made available to
the Bank in immediately available, freely transferable, cleared funds to such
account with such bank in Frankfurt am Main, Germany (or such other principal
financial center in such participating member state as the Bank may from time to
time nominate for this purpose) as the Bank shall from time to time nominate for
this purpose.
(g) DELIBERATELY LEFT BLANK.
(h) PAYMENTS BY THE BANK GENERALLY.
With respect to the payment of any amount denominated in the euro or in
a national currency unit, the Bank shall not be liable to the Borrower in any
way whatsoever for any delay, or the consequences of any delay, in the crediting
to any account of any amount required by this Agreement to be paid by the Bank
if the Bank shall have taken all relevant steps to achieve, on the date required
by this Agreement, the payment of such amount in immediately available, freely
transferable, cleared funds (in the euro unit or, as the case may be, in a
national currency unit) to the account with the bank in the principal financial
center in the participating member state which the Borrower or, as the case may
be, the Bank shall have specified for such purpose. In this subsection, "all
relevant steps" means all such steps as may be prescribed from time to time by
the regulations or operating procedures of such clearing or settlement system as
the Bank may from time to time determine for the purpose of clearing or settling
payments of the euro.
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(i) BASIS OF ACCRUAL.
If the basis of accrual of interest or fees expressed in this Agreement
with respect to the currency of any state that becomes a participating member
state shall be inconsistent with any convention or practice in the London
interbank market or, as the case may be, another applicable interbank market for
the basis of accrual of interest or fees in respect of the euro, such convention
or practice shall replace such expressed basis effective as of and from the date
on which such state becomes a participating member state; provided, that if any
reimbursement or other Obligation in the currency of such state is outstanding
immediately prior to such date, such replacement shall take effect, with respect
to such Obligation, at the end of the then applicable period.
(j) ROUNDING AND OTHER CONSEQUENTIAL CHANGES.
Without prejudice and in addition to any method of conversion or
rounding prescribed by any EMU legislation and without prejudice to the
respective liabilities for Obligations of the Borrower to the Bank or the Bank
to the Borrower under or pursuant to this Agreement: (i) each reference in this
Agreement to a minimum amount (or an integral multiple thereof) in a national
currency unit to be paid to or by the Bank shall be replaced by a reference to
such reasonably comparable and convenient amount (or an integral multiple
thereof) in the euro unit as the Bank may from time to time specify; and
(ii) except as expressly provided in this Section, each provision of this
Agreement shall be subject to such reasonable changes of construction as the
Bank may from time to time specify to be necessary or appropriate to reflect the
introduction of or changeover to the euro in participating member states.
(k) INCREASED COSTS.
The Borrower shall from time to time, at the request of the Bank, pay to
the Bank the amount of any cost or increased cost incurred by, or of any
reduction in any amount payable to or in the effective return on its capital to,
or of interest or other return foregone by, such Bank or any holding company of
such Bank as a result of the introduction of, changeover to or operation of the
euro in any participating member state, other than any such cost or reduction or
amount foregone reflected in any interest rate hereunder.
ARTICLE III
TAXES AND YIELD PROTECTION
3.01 TAXES.
(a) Any and all payments by the Company to the Bank under this
Agreement and any other Loan Document shall be made free and clear of, and
without deduction or withholding for, any Taxes. In addition, the Company shall
pay all Other Taxes.
(b) If the Company shall be required by law to deduct or withhold
any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable
hereunder to the Bank, then:
(i) the sum payable shall be increased as necessary so that,
after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable under
this Section), the Bank receives and retains an amount
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equal to the sum it would have received and retained had no such
deductions or withholdings been made;
(ii) the Company shall make such deductions and withholdings;
(iii) the Company shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) the Company shall also pay to the Bank, at the time
interest is paid, Further Taxes in the amount that the Bank specifies as
necessary to preserve the after-tax yield the Bank would have received
if such Taxes, Other Taxes or Further Taxes had not been imposed.
(c) The Company agrees to indemnify and hold harmless the Bank for
the full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes in the
amount that the Bank specifies as necessary to preserve the after-tax yield the
Bank would have received if such Taxes, Other Taxes or Further Taxes had not
been imposed, and any liability (including penalties, interest, additions to tax
and expenses) arising therefrom or with respect thereto, whether or not such
Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment
under this indemnification shall be made within 30 days after the date the Bank
makes written demand therefor.
(d) Within 30 days after the date of any payment by the Company of
Taxes, Other Taxes or Further Taxes, the Company shall furnish to the Bank the
original or a certified copy of a receipt evidencing payment thereof, or other
evidence of payment satisfactory to the Bank.
3.02 INCREASED COSTS AND REDUCTION OF RETURN.
(a) If the Bank determines that, due to either (i) the introduction
of or any change in or in the interpretation of any law or regulation or
(ii) the compliance by the Bank with any guideline or request from any central
bank or other Governmental Authority (whether or not having the force of law),
there shall be any increase in the cost to the Bank of agreeing to issue,
issuing or maintaining any Letter of Credit or of agreeing to make or making,
funding or maintaining any unpaid drawing under any Letter of Credit, then the
Company shall be liable for, and shall from time to time, upon demand pay to the
Bank, additional amounts as are sufficient to compensate the Bank for such
increased costs.
(b) If the Bank shall have determined that (i) the introduction of
any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Governmental Authority
charged with the interpretation or administration thereof, or (iv) compliance by
the Bank (or the Bank's Payment Office) or any corporation controlling the Bank
with any Capital Adequacy Regulation, affects or would affect the amount of
capital required or expected to be maintained by the Bank or any corporation
controlling the Bank and (taking into consideration the Bank's or such
corporation's policies with respect to capital adequacy and the Bank's desired
return on capital) determines that the amount of such capital is increased as a
consequence of its commitment, Letters of Credit, or obligations under this
Agreement, then, upon demand of the Bank to the Company, the Company shall pay
to the Bank,
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from time to time as specified by the Bank, additional amounts sufficient to
compensate the Bank for such increase.
3.03 CERTIFICATES OF THE BANK. If the Bank claims reimbursement or
compensation under this Article it shall deliver to the Company a certificate
setting forth in reasonable detail the amount payable to the Bank hereunder and
such certificate shall be conclusive and binding on the Company in the absence
of manifest error.
3.04 SURVIVAL. The agreements and obligations of the Company in this Article
shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall
take effect as of October 30, 1998, provided that the Bank shall have received,
on or before such date, all of the following, in form and substance satisfactory
to the Bank:
(a) AGREEMENT. This Agreement executed by each party thereto.
(b) COLLATERAL. All certificates and instruments representing the
Collateral as to which possession is a method of perfecting a Lien, stock
transfer powers (or other appropriate instruments of transfer) executed in blank
with signatures guaranteed as the Bank may specify.
(c) COLLATERAL VALUE. Evidence, satisfactory to the Bank, that the
market value of the Collateral in which the Bank has a first priority fully
perfected security interest (in both cases as determined by the Bank in its sole
discretion) is not less than the sum of (1) $100,000 PLUS (2) the aggregate
Dollar amount (including the Equivalent Amount in Dollars of the L/C Obligations
denominated in a currency other than Dollars) of the then Effective Amount of
all L/C Obligations.
(d) AGREEMENTS WITH THIRD PERSONS. Such agreements and other
documents and instruments executed by such Persons party to contracts relating
to any Collateral as to which the Bank shall be granted a security interest as
requested by the Bank.
(e) EVIDENCE OF PERFECTION. Evidence that all other actions
necessary or, in the opinion of the Bank, desirable to fully perfect and protect
the first priority security interest created by the Loan Documents, and to
enhance the Bank's ability to preserve and protect its interests in and access
to the Collateral, have been taken.
(f) OTHER DOCUMENTS. Such other approvals, opinions, documents or
materials as the Bank may request.
4.02 CONDITIONS TO ALL ISSUANCES OF LETTERS OF CREDIT. The obligation of the
Bank to Issue any Letter of Credit (including the initial Letter of Credit under
this Agreement) is subject to the satisfaction (in form and substance
satisfactory to the Bank) of the following conditions precedent on the relevant
Issuance Date:
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(a) NOTICE, APPLICATION. The Bank shall have received an L/C
Application or L/C Amendment Application, as required under Section 2.03.
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in Article V shall be true and correct on and as
of such Issuance Date with the same effect as if made on and as of such Issuance
Date (except to the extent such representations and warranties expressly refer
to an earlier date, in which case they shall be true and correct as of such
earlier date).
(c) NO EXISTING DEFAULT. No Default or Event of Default shall exist
or shall result from such Issuance.
(d) COLLATERAL. All certificates and instruments representing the
Collateral as to which possession is a method of perfecting a Lien, stock
transfer powers (or other appropriate instruments of transfer) executed in blank
with signatures guaranteed as the Bank may specify.
(e) COLLATERAL VALUE. Evidence, satisfactory to the Bank, that the
market value of the Collateral in which the Bank has a first priority fully
perfected security interest (in both cases as determined by the Bank in its sole
discretion) is not less than the sum of (1) $100,000 PLUS (2) aggregate Dollar
amount (including the Equivalent Amount in Dollars of the L/C Obligations
denominated in a currency other than Dollars) of the then Effective Amount of
all L/C Obligations, after giving effect to the requested Issuance of a Letter
of Credit.
(f) AGREEMENTS WITH THIRD PERSONS. Such agreements and other
documents and instruments executed by such Persons party to contracts relating
to any Collateral as to which the Bank shall be granted a security interest as
requested by the Bank.
(g) EVIDENCE OF PERFECTION. Evidence that all other actions
necessary or, in the opinion of the Bank, desirable to fully perfect and protect
the first priority security interest created by the Loan Documents, and to
enhance the Bank's ability to preserve and protect its interests in and access
to the Collateral, have been taken.
(h) PAYMENTS. Evidence that all fees and other sums then due and
owing to the Bank has been received by the Bank in immediately available funds.
(i) OTHER DOCUMENTS, ETC. Such other approvals, opinions,
documents, or materials as the Bank may request.
Each L/C Application or L/C Amendment Application submitted by the Company
hereunder shall constitute a representation and warranty by the Company
hereunder, as of the date of each such notice and as of each Issuance Date that
the conditions in this Section are satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Bank that:
5.01 CORPORATE EXISTENCE AND POWER. The Company and each of its
Subsidiaries: (a) is a corporation duly organized and existing under the laws
of the jurisdiction of its organization;
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(b) has the power and authority and all governmental licenses, authorizations,
consents, and approvals to own its assets, carry on its business, and to
execute, deliver, and perform its obligations under, the Loan Documents to which
it is a party; and (c) is duly qualified and properly licensed and in good
standing under the laws of each jurisdiction where the failure to so qualify
would have a Material Adverse Effect.
5.02 AUTHORIZATION. The execution, delivery, and performance by the Company
of this Agreement and any other Loan Document to which it is a party, have been
duly authorized by all necessary corporate action, and do not and will not:
(a) contravene the terms of any organizational or charter documents;
(b) conflict with or result in any breach or contravention of, or
the creation of any Lien under any material agreement, contract, indenture,
document, or instrument to which the Company is a party or by which any property
is bound, or any order, injunction, writ, or decree of any governmental
authority to which the Company or any property is subject; or
(c) violate any material law, rule, regulation, or determination of
an arbitrator or of a court or other governmental authority, in each case
applicable to or binding upon the Company or any property.
5.03 ENFORCEABILITY. This Agreement is a legal, valid, and binding agreement
of the Company, enforceable against the Company in accordance with its terms,
and the other Loan Documents and any other instrument or agreement required
under this Agreement, when executed and delivered, will be legal, valid,
binding, and enforceable in accordance with its terms against the Company;
except as enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability.
5.04 COMPLIANCE WITH LAWS. The Company and each of its Subsidiaries is in
compliance with all foreign, federal, state and local laws, rules, regulations
and determinations of arbitrators, courts and other governmental authorities
materially affecting the business, operations or property of the Company and its
Subsidiaries.
5.05 PERMITS, FRANCHISES. The Company and its Subsidiaries possess all
material permits, memberships, franchises, contracts, and licenses required and
all trademark rights, trade name rights, patent rights, and fictitious name
rights necessary to enable the Company and its Subsidiaries to conduct the
businesses in which they are now engaged.
5.06 LITIGATION. There is no litigation, tax claim, proceeding, governmental
or administrative action, investigation, arbitration proceeding or dispute
pending, or, to the knowledge of the Company, threatened, against or affecting
the Company or any of its Subsidiaries or any of their properties, the adverse
determination of which would result in a Material Adverse Effect.
5.07 NO EVENT OF DEFAULT. There exists no Default or Event of Default.
5.08 OTHER OBLIGATIONS. As of the date of this Agreement, the Company and
its Subsidiaries are not in default under any other material agreement involving
the borrowing of money, the extension of credit, or the lease of real or
personal property, to which the Company or any of its
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Subsidiaries is a party as borrower, guarantor, installment purchaser, or
lessee, except as disclosed in writing to the Bank prior to the date of this
Agreement.
5.09 TAX RETURNS. The Company has no knowledge of any material pending
assessments or adjustments with respect to its or its Subsidiaries' income tax
liabilities for any year, except as disclosed in writing to the Bank prior to
the date of this Agreement.
5.10 INFORMATION SUBMITTED. All financial and other information that has
been submitted by the Company or any of its Subsidiaries to the Bank in
connection with this Agreement, including the Company's financial statement
delivered to the Bank most recently prior to the date of this Agreement: (a) in
the case of financial statements, is prepared in accordance with generally
accepted accounting principles consistently applied; and (b) is true and correct
in all material respects and is complete insofar as may be necessary to give the
Bank true and accurate knowledge of the subject matter thereof.
5.11 NO MATERIAL ADVERSE EFFECT. Since September 30, 1998, there has been no
Material Adverse Effect.
5.12 CHIEF PLACE OF BUSINESS. The Company's chief executive office and
principal place of business, and all books and records concerning the Collateral
are located at 170 Rose Orchard Way, San Jose, California. The Company does not
do business under any other trade name, trade style, or fictitious business name
except as previously disclosed in writing to the Bank.
5.13 LOAN DOCUMENTS.
(a) The provisions of each of the Loan Documents are effective to
create in favor of the Bank, a legal, valid, enforceable and fully perfected
first priority security interest in all right, title and interest of the Company
in the Collateral covered by the Loan Document; and financing statements have
been filed in the offices in all of the jurisdictions and/or other filings or
agreements have been entered into with or notices given to all other Persons as
may be required to fully perfect a first priority security interest in favor of
the Bank in such Collateral;
(b) All representations and warranties of the Company in the Loan
Documents are true and correct.
(c) The Company has not acknowledged or given to any Person notice
of a Lien, security interest or pledge on any of the Collateral other than the
security interest in favor of the Bank hereunder.
5.14 REGULATED ENTITIES. None of Company, any Person controlling the
Company, or any subsidiary or Affiliate of the Company is subject to any federal
or state statute or regulation limiting its ability to incur indebtedness.
5.15 THE COLLATERAL. The Company owns the Collateral free and clear of any
and all Liens of any third parties other than the security interest of the Bank
and will keep the Collateral free of all Liens except the security interest of
the Bank.
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ARTICLE VI
AFFIRMATIVE COVENANTS
So long as credit is available under this Agreement and until full and final
payment of all of the Company's obligations under this Agreement and any other
Loan Document:
6.01 NOTICES OF CERTAIN EVENTS. The Company shall promptly give written
notice to the Bank of:
(a) all litigation, proceedings or actions affecting the Company or
its Subsidiaries where the amount claimed is $1,000,000 or more;
(b) any substantial dispute which may exist between the Company or
its Subsidiaries and any governmental regulatory body or law enforcement
authority;
(c) any Default or Event of Default;
(d) any of the representations and warranties in Article V which
ceases to be true and correct in all material respects; and
(e) any other matter which has resulted or could reasonably be
expected to result in a Material Adverse Effect.
6.02 FINANCIAL AND OTHER INFORMATION. The Company shall deliver to the Bank
in form and detail satisfactory to the Bank, and in such number of copies as the
Bank may request:
(a) within 105 days after the end of each fiscal year, the Company's
consolidated financial statements for such year audited by a certified public
accountant together with an unqualified opinion of such certified public
accountant and including, at a minimum, the Company's balance sheet and
statements of income, retained earnings, and cash flow;
(b) within 60 days after the end of each fiscal quarter, the
Company's consolidated financial statements for such period prepared by the
Company and including, at a minimum, the Company's balance sheet and statements
of income, retained earnings, and cash flow;
(c) within 15 days after the date of filing with the Securities and
Exchange Commission, copies of any of the Company's Form 10-K Annual Reports,
Form 10-Q Quarterly Reports and Form 8-K Current Reports;
(d) within 15 days after the end of each month, the monthly
borrowing base certificate delivered by the Company pursuant to the Greyrock
Financing, the borrowing base certificate to be delivered in summary form;
(e) Promptly upon request, such other materials and information
relating to the Company or its Subsidiaries as the Bank may reasonably request.
6.03 BOOKS, RECORDS, AUDITS AND INSPECTIONS. The Company shall, and shall
cause its Subsidiaries to, maintain adequate books, accounts and records, and
prepare all financial statements required hereunder in accordance with generally
accepted accounting principles
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consistently applied, and in compliance with the regulations of any governmental
regulatory body having jurisdiction over the Company or its Subsidiaries, or the
Company's or its Subsidiaries' businesses, and permit employees or agents of the
Bank at any reasonable time to inspect the Company's and its Subsidiaries'
properties, and to examine or audit the Company's and its Subsidiaries' books,
accounts, and records and make copies and memoranda thereof.
6.04 USE OF FACILITY. The Company shall use the credit facility provided
herein solely for general corporate purposes not in contravention of any
Requirement of Law.
6.05 COMPLIANCE WITH LAWS. The Company shall at all times comply in all
material respects with, and cause its Subsidiaries to comply with, all laws,
statutes (including any fictitious name statute), rules, regulations, orders,
and directions of any governmental authority having jurisdiction over the
Company or any of its Subsidiaries or the business of the Company or any of its
Subsidiaries.
6.06 CHANGE IN NAME, STRUCTURE OR LOCATION. The Company shall notify the
Bank in writing prior to any change in (a) the Company's name (b) the Company's
business or legal structure, or (c) the Company's place of business or chief
executive office if the Company has more than one place of business.
6.07 EXISTENCE AND PROPERTIES. The Company shall, and shall cause each of
its Subsidiaries to, maintain and preserve its existence and all rights,
privileges, and franchises necessary to conduct its business, conduct its
business in an orderly, efficient, and customary manner, keep all its properties
in good working order and condition, and from time to time make all needed
repairs, renewals, or replacements thereto and thereof so that the efficiency of
such property shall be fully maintained and preserved. The Company may merge a
Subsidiary into another Subsidiary or a Subsidiary into the Company, provided
that the Company is the surviving corporation.
6.08 FINANCING STATEMENTS, ETC. The Company shall execute and deliver to the
Bank, at any time and from time to time, all financing statements, continuation
statements, termination statements, notices, and all other documents and
instruments which the Bank may request (including without limitation any custody
or other agreements with other Persons who might hold the Collateral or any part
of the Collateral), in form satisfactory to the Bank, and the Company hereby
agrees to, and authorizes the Bank to, take such other steps as shall be
requested by the Bank to perfect and continue perfected, maintain the priority
of or provide notice of the pledge of and security interest in the Collateral
and to accomplish the purposes of this Agreement. Without limiting the
generality of the foregoing, the Company acknowledges that the Bank will mark
its records to reflect that the deposits that are subject to the security
interest of the Bank on or prior to the date such deposits are created.
6.09 COLLATERAL VALUE.
(a) (1) The Company shall at all times keep and maintain in the
possession of the Bank or the Bank's designee, Collateral in which the Bank has
a first priority fully perfected security interest with a market value (in both
cases as determined by the Bank in its sole discretion) of not less than the sum
of (y) $100,000 PLUS (z) the aggregate Dollar amount (including the Equivalent
Amount in Dollars of the L/C Obligations denominated in a currency other than
Dollars) of the Effective Amount of all L/C Obligations.
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(2) The Bank shall, from time to time in its sole discretion,
determine the priority of its security interest and the market value of the
Collateral and the Company shall, within three Business Days after each demand
by the Bank, furnish the Bank with additional Collateral, of a type and in an
amount satisfactory to the Bank in its sole discretion, such that the market
value (as determined by the Bank in its sole discretion) of the Collateral in
which the Bank has a first priority fully perfected security interest (as
determined by the Bank in its sole discretion) is not less than the sum of (y)
$100,000 PLUS (z) the aggregate Dollar amount (including the Equivalent Amount
in Dollars of the L/C Obligations denominated in a currency other than Dollars)
of the Effective Amount of all L/C Obligations.
(3) If an item of Collateral does not exist as an instrument or in
certificated form in the physical possession of the Bank, possession as used in
this subsection (a) means that such item of Collateral has been designated as
Collateral in which the Bank has a first priority fully perfected security
interest, such designation appearing on the books and records of the Person
party to contracts relating to such Collateral.
(4) If a Letter of Credit expires by its terms and at such time no
Default or an Event of Default has occurred and is continuing, the Bank shall
return to the Company, within two Business Days after a demand by the Company,
an amount of Collateral such that the market value of the remaining Collateral
in which the Bank has a first priority fully perfected security interest (in
each case as determined by the Bank in its sole discretion) is greater than,
but is as close as is reasonably practicable to, the sum of (y) $100,000 PLUS
(z) the aggregate Dollar amount (including the Equivalent Amount in Dollars of
the L/C Obligations denominated in a currency other than Dollars) of the
Effective Amount of all L/C Obligations.
(b) The Company agrees that the Bank shall have no responsibility to
the Company with respect to any losses sustained on any item of, or investment
in, the Collateral or for any failure to realize any yields desired by the
Company.
6.10 COOPERATION. The Company shall perform, at the request of the Bank and
at the expense of the Company, such acts as may be reasonably necessary or
advisable to perfect any Lien provided for in this Agreement or in any other
Loan Document or otherwise to carry out the intent of this Agreement and the
other Loan Documents.
6.11 COLLATERAL. The Company:
(a) Shall keep the Collateral free of all Liens and claims of any
kind or nature except the security interest of the Bank and shall maintain such
security interest as a first priority fully perfected security interest. The
Company (1) shall not sell, assign, transfer, surrender, or otherwise dispose
of, or grant any option, warrant or other right or interest with respect to all
or any part of the Collateral, except as permitted by this Agreement or the
other Loan Documents; and (2) shall not cause or permit any instruments,
certificates or other documents or writings representing or evidencing any
Collateral to be, at any time, in the actual or constructive possession or
control of any Person other than the Bank (or a bailee selected by the Bank) who
is holding such Collateral for the benefit of the Bank;
(b) Shall pay, prior to delinquency, all taxes, charges, Liens, and
assessments against the Collateral; and upon any failure of Company to do so,
the Bank at its option may pay any of
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them and shall be the sole judge of the legality or validity thereof and the
amount necessary to discharge the same. The Company agrees that it will
reimburse the Bank for all such amounts paid by the Bank, and such obligation to
reimburse shall be a part of the Obligations secured by this Agreement;
(c) Shall promptly notify the Bank, or shall cause the Bank to be
notified, in writing (1) prior to any change in the Company's name or any change
in its identity, or business structure, which might make any financing statement
filed hereunder incorrect or misleading, (2) of any event of which a Responsible
Officer becomes aware causing loss or depreciation in the value of the
Collateral in any material respect, and (3) of all notices and reports not
received from the Bank with respect to the Collateral, together with copies of
such notices and reports. The Company shall give the Bank at least 30 days
notice before changing its chief executive office;
(d) Shall promptly deliver to the Bank any Collateral now or
hereafter in the possession of the Company. Such Collateral shall be received
in trust by the Company for the benefit of the Bank and shall be segregated from
the other property of Company prior to its delivery to the Bank;
(e) Shall, from time to time, take any action (including but not
limited to appearing in and defending any action or proceeding which may affect
the Company's title to or the Bank's security interest in the Collateral) which
the Bank may from time to time reasonably determine to be necessary or desirable
in order (1) to create, preserve, protect, perfect, confirm or validate the
Collateral (or any portion thereof) or the security interest in the Collateral
(or any portion thereof), (the Company may, in lieu of the Bank's taking any
such action described in this clause, by agreement with the Bank furnish the
Bank with substitute collateral (A) which meets the requirements in this
Agreement relating to Collateral and (B) in which the Bank has a first priority
perfected security interest); (2) to enable the Bank to obtain the full benefits
of the Loan Documents or (3) to enable the Bank to exercise and enforce any of
its rights, powers, and remedies under the Loan Documents;
(f) Shall, at the request of the Bank, use reasonable efforts to
obtain the consent of any Person that is necessary or desirable to effect the
grant of security interests in any right, title, claims, and benefits now owned
or hereafter acquired by the Company in and to any item of Collateral.
6.12 DELIVERY OF PAYMENTS AND OTHER DISTRIBUTIONS. If the Company shall
become entitled to receive or shall receive in connection with the Collateral
any payment or other distribution, the Company shall accept such payment or
distribution as the agent for the Bank, shall hold the same in trust for the
benefit of the Bank, shall segregate the same from other property or funds of
the Company, and shall deliver all such payments and distributions in exact form
received, forthwith to or for the account of the Bank at the address and to the
Person or Persons to be designated by the Bank, with any necessary endorsements
and other instruments of transfer or assignment, all in form and substance
satisfactory to the Bank, as the Bank shall request, to be held by the Bank or
its designee, subject to the terms hereof, as part of the Collateral.
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6.13 DELIVERY OF LEGAL OPINION; GREYROCK FINANCING; ETC. The Company shall
deliver to the Bank not later than November 30, 1998, each of the following in
form and substance satisfactory to the Bank:
(a) An opinion of Morrison & Foerster, outside counsel to the
Company, covering matters set forth in Sections 5.01, 5.02, 5.03, 5.13(a), and
5.14, and such other legal matters relating hereto as the Bank may reasonably
request. The opinion may be qualified to the extent approved by the Bank.
(b) Evidence that the Greyrock Financing has been closed and that
all conditions precedent to the lender's commitment thereunder to extend credit
have been met.
(c) Copies of the resolutions of the board of directors of the
Company authorizing the transactions contemplated hereby, certified as in effect
by the Secretary or an Assistant Secretary of the Company.
(d) A certificate of the Secretary or Assistant Secretary of the
Company certifying the names and true signatures of the officers of the Company
authorized to execute, deliver and perform, as applicable, this Agreement, and
all other Loan Documents to be delivered by it hereunder.
ARTICLE VII
NEGATIVE COVENANTS
So long as credit is available under this Agreement and until full and final
payment of all of the Company's obligations under this Agreement and any other
Loan Document:
7.01 BUSINESS ACTIVITIES. The Company shall not, and shall not suffer or
permit any of its Subsidiaries to, engage in any business activities or
operations substantially different from or unrelated to present business
activities and operations.
7.02 REGULATIONS T, U, AND X. The Company shall not, and shall not suffer or
permit any of its Subsidiaries to, use any portion of the proceeds of any Letter
of Credit or other extensions of credit under this Agreement, directly or
indirectly, (i) to purchase or carry margin stock (within the meanings of
Regulations T, U, and X of the Board of Governors of the Federal Reserve
System), (ii) to repay or otherwise refinance indebtedness of the Company or
others incurred to purchase or carry any such margin stock, (iii) to extend
credit for the purpose of purchasing or carrying any such margin stock, or (iv)
to acquire any security in any transaction that is subject to Section 13 or 14
of the Securities Exchange Act of 1934, as amended.
7.03 TRANSFER OR ENCUMBRANCE. The Company will not sell, assign (by
operation of law or otherwise), transfer, exchange, lend, lease or otherwise
dispose of any of the Collateral, except as otherwise expressly provided in this
Agreement, nor will the Company grant a security interest in or execute, file or
record any financing statement with respect to the Collateral or otherwise
identify the Collateral as being subject to a Lien other than that created
hereby, nor will the Company allow any such Lien, financing statement or other
identification to exist or deliver actual or constructive possession of the
Collateral to any other Person, other than the Bank or a bailee selected by the
Bank who is holding such Collateral for the benefit of the Bank.
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7.04 IMPAIRMENT OF SECURITY INTEREST. The Company will not take or fail to
take any action which would in any manner impair the value or enforceability of
the Bank's security interest in any of the Collateral.
7.05 VOTING. The Company will not cast any vote, give or grant any consent,
waiver or ratification or take any action with respect to the Collateral which
would have the effect of impairing the position or interest of the Bank in
respect of the Collateral or would be inconsistent with or violate any
provisions of this Agreement or any other Loan Document.
7.06 POSSESSION OF CERTIFICATES, ETC. EVIDENCING COLLATERAL. The Company
will not cause or permit any document, instrument, or certificate constituting
or evidencing Collateral to at any time be in the actual or constructive
possession or control of any Person other than the Bank or a designee or bailee
selected by the Bank who is holding such Collateral for the benefit of the Bank.
ARTICLE VIII
SECURITY INTEREST
8.01 GRANT OF SECURITY INTEREST. As security for the payment in full in cash
when due, whether at stated maturity, by acceleration or otherwise, and
performance of the Obligations, the Company hereby irrevocably and
unconditionally grants a security interest in and assigns and transfers to the
Bank a security interest in all of the Company's right, title and interest in,
to and under the following, whether now existing or owned or hereafter acquired
or arising (collectively the "COLLATERAL"):
(a) All Horizon Service Shares of the Prime, Treasury, Treasury
Only, Government, Tax Exempt and California Tax Exempt money market funds and
any other mutual funds shares now or hereafter owned by the Company (the
"Shares"); which Shares are now or hereafter held in account number 781-992317
maintained with Bank of America National Trust and Savings Association and all
successor and replacement accounts (the "ACCOUNTS").
(b) All investment property, security entitlements, financial
assets, certificated securities, uncertificated securities, money, deposit
accounts, instruments, general intangibles, and all other investments or
property of any sort now or hereafter held, maintained or administered in the
Accounts.
(c) All Pledged Deposits.
(d) All rollovers, renewals or reinvestments of any of the foregoing
property.
(e) All stock or conversion rights, rights to subscribe, liquidation
dividends or preferences, stock dividends, dividends, rights to interest,
interest payments, dividends paid in stock, new securities or other property
which the Company is or may hereafter become entitled to receive on account of
any of the foregoing property.
(f) The proceeds, increase and products of any of the foregoing or
replacements thereof or substitutions therefor.
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The Collateral includes all certificates and other instruments representing the
Collateral and any interest of the Company in the books of any financial
intermediary, clearing house, custodian, or broker pertaining to the Collateral.
8.02 DEPOSIT ACCOUNTS. Pledged Deposits shall be special purpose restricted
accounts opened by the Company with the Bank or opened by the Bank for the
account of Company pursuant to this Agreement, in which the Company has granted
the Bank a security interest for the purposes of securing the Obligations, and
in which the Bank has exclusive control and the sole right of withdrawal. Such
a deposit account may be a demand deposit or may accrue interest at a rate equal
to the rates payable from time to time with respect to similar accounts held by
the Bank. Such a deposit account may not accrue interest at a rate in violation
of applicable law. The Company agrees to pay the Bank such fees for services
rendered by the Bank in connection with such deposit accounts as may be
separately agreed upon between the Bank and the Company.
8.03 COLLATERAL.
(a) The Collateral shall be held in the name of the Bank or any
nominee designated by it, and except to the extent specifically provided herein
the Company shall have no right to the release or withdrawal thereof.
(b) The Bank is hereby authorized to sell all or any designated part
of the Collateral held by it under this Agreement:
(1) so long as no Event of Default exists, upon receipt by
the Bank of a request from the Company ordering such sale, or
(2) subject to the provisions of Section 9.02(e)(5), upon a
determination by the Bank, after the occurrence and during the
continuance of an Event of Default, that such sale is necessary
to reimburse the Bank for the nonpayment of any Obligation when
required to be paid under this Agreement or other Loan Document.
(c) Any request for sale of the Collateral or part thereof as
provided in subclause (1) of subsection (b) of this Section must be received
by the Bank no later than 10:00 a.m. (San Francisco, California time) one
Business Day (or such earlier time as the Bank may agree in a particular
instance in its sole discretion) prior to the proposed date of the sale. The
Bank shall not have any responsibility or liability to the Company for any
penalties, breakage costs, or losses (whether resulting from a fluctuation in
interest rates, market values, or otherwise) in connection with any sales.
(d) Except to the extent the Company has designated the specific
items of Collateral which are the subject of any such sale (which the Company
may do so long as no Default or Event of Default exists), the Bank shall be
entitled in its sole discretion to designate the items of Collateral held by it
which is the subject of any such sale.
(e) The net proceeds of the sale of any part of the Collateral shall
be held in a Pledged Deposit pending reinvestment or, if in a Pledged Deposit
that is a time account for the
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period of such time account, released under Section 8.04(a), or credited to the
payment of Obligations due and payable.
(f) Any notices from Company to the Bank relating to the Collateral
shall be in writing or by telephone (promptly confirmed in writing). The Bank
shall not incur any liability for acting in accordance with any telephonic
instructions reasonably believed by the Bank in good faith to have been given by
an individual authorized by the Company.
8.04 INTEREST.
(a) The Company shall be entitled to the release of the Bank's
security interest in the interest on and gains realized on sales of the
Collateral so long as (y) there exists no Default or Event of Default, and (z)
the collateral value requirements of Section 6.09 are met. Such release, if
any, shall take place after such interest or gain is realized by payment by the
Bank to the Company of such interest and gains.
(b) Upon the occurrence and during the continuance of a Default or
an Event of Default, all rights of the Company to receive interest and gains
realized which it would otherwise be authorized to receive and retain as
provided in subsection (a) of this Section shall immediately, automatically and
without notice cease, and all such interest and gains shall be held by the Bank
as Collateral. In such event, all interest and gains shall be deposited in a
Pledged Deposit on the payment date thereof.
8.05 POWERS OF THE BANK. At any time, without notice and at the expense of
the Company, the Bank (in its name or in the name of the Company) may, but shall
not be obligated to:
(a) collect by legal proceedings or otherwise, endorse, receive and
receipt for all interest, principal payments, and other sums now or hereafter
payable upon or on account of the Collateral;
(b) make any compromise or settlement it deems desirable or proper
with reference to the Collateral;
(c) insure, process, and preserve the Collateral;
(d) accept money or other property in exchange for the Collateral,
and take such action as it deems proper in connection therewith, and any money
or property received on account of or in exchange for the Collateral shall be
applied to the Obligations or held by the Bank thereafter as Collateral pursuant
to the provisions of this Agreement and the other Loan Documents;
(e) hold Collateral in its own name or in the name of its nominee or
cause Collateral to be transferred to its name or to the name of a depositary or
its nominee;
(f) obtain from any custodian or bailee holding the Collateral any
and all information with respect to the Collateral, without any further consent
of or notice to Company; and
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(g) exercise as to the Collateral all the rights, powers and
remedies of an owner necessary to exercise its rights under this Section, but
prior to an Event of Default, the Bank shall not vote any securities
constituting Collateral except as instructed by the Company.
The Bank agrees that, if an Event of Default has not occurred and is
continuing, it shall (unless requested to do so by the Company or in connection
with delivery or payment of all or part of the Collateral to the Company) notify
the Company of its decision to transfer all or part of the Collateral out of any
of the accounts in which Collateral is held.
8.06 THE BANK APPOINTED ATTORNEY-IN-FACT. The Company hereby irrevocably
appoints the Bank and any of the Bank's officers, employees or agents designated
by the Bank as the Company's true and lawful attorney-in-fact with full
authority in the place and stead of the Company and in the name of the Company
or the Bank or otherwise, from time to time in the Bank's discretion to take any
action and to execute any instrument that the Bank may reasonably deem necessary
or advisable to exercise its rights under and in accordance with this Agreement
and the other Loan Documents, including without limitation:
(a) to make any deposit or withdrawal or order any transfer of funds
to or from any Pledged Deposit;
(b) to sign the name of the Company on any pledge instructions in
the case of Collateral held by a designee of the Bank, notices, UCC financing or
continuation statements which must be executed and sent or executed and filed to
perfect or continue perfected, maintain the priority of or provide notice of the
Bank's security interest in the Collateral or on UCC termination statements, and
file any such financing or continuation statements by electronic means with or
without a signature as authorized or required by applicable law or filing
procedures;
(c) to execute any and all notices, endorsements, assignments,
documents or other instruments of conveyance or transfer with respect to all or
any of the Collateral;
(d) to endorse any checks, drafts, money orders and other
instruments relating to all or any of the Collateral;
(e) to sue for, collect, receive and give acquittance for all moneys
due or to become due in connection with the Collateral; and
(f) to file any claims, take any action or institute, defend, settle
or adjust any actions, suits or proceedings with respect to the Collateral,
which the Bank may reasonably deem necessary or desirable to exercise its rights
under and in accordance with this Agreement or any other Loan Document,
including without limitation:
(1) to receive, endorse and collect all instruments made
payable to the Company representing any interest payment or
other distribution in respect of the Collateral or any part
thereof and to give full discharge for the same;
(2) to perfect or continue perfected, maintain the priority
of or provide notice of the Bank's security interest in the
Collateral; or
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(3) to maintain, protect, sell, assign, convey or otherwise
transfer title in or dispose of the Collateral.
The foregoing power of attorney is coupled with an interest and irrevocable so
long as any Obligation remains indefeasibly unpaid and not performed in full.
The Company hereby ratifies all that the Bank shall lawfully and in good faith
do or cause to be done by virtue of and in compliance with this Section.
The Bank agrees that, if an Event of Default has not occurred and is continuing,
it shall (unless any other provision of this Agreement does not require such
notice) notify the Company of its intention to exercise the power of attorney as
specified in clauses (b), (e), and (f) of this Section if such exercise is, in
the sole discretion of the Bank, appropriate.
8.07 WAIVERS BY THE COMPANY.
(a) The Bank shall be under no duty or obligation whatsoever:
(1) to make or give any presentment, demands for
performances, notices of nonperformance, protests, notices of
protest or notices of dishonor in connection with any
obligations or evidences of indebtedness held by the Bank as
Collateral, or in connection with any obligation or evidences of
indebtedness which constitute in whole or in part the
Obligations, or
(2) except as may be specifically provided in the agreement
with the Bank establishing the account number 781-992317 or in
the agreement establishing any other account with the Bank in
which the Collateral (or any part thereof) is held, to give the
Company notice of, or to exercise, any subscription rights or
privileges, any rights or privileges to exchange, convert or
redeem or any other rights or privileges relating to or
affecting any Collateral.
(b) The Company waives any right to require the Bank:
(1) to proceed against any Person;
(2) to proceed against or exhaust any Collateral; or
(3) to pursue any other remedy in the Bank's power.
(c) The Company waives any defense arising by reason of any
disability or other defense of the Company or any other Person, or by reason of
the cessation from any cause whatsoever of the liability of the Company or any
other Person. The Company waives any right to enforce any remedy which the Bank
now has or may hereafter have against any other Person and waives any benefit of
and any right to participate in any Collateral or security whatsoever now or
hereafter held by the Bank.
8.08 NO RESPONSIBILITY FOR CERTAIN ACTIONS.
(a) The powers conferred on the Bank by this and the other Loan
Documents are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise
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any such powers. Except for the custody, safekeeping, and physical preservation
of any Collateral in its possession (if the Collateral is evidenced by
certificates or other physical writing) and the accounting for moneys actually
received by it hereunder, the Bank shall have no duty as to any Collateral, it
being understood that the Bank shall have no responsibility for:
(1) ascertaining or taking action with respect to calls,
conversions, exchanges, tenders or other matters relating to any
item of Collateral, whether or not the Bank has or is deemed to
have knowledge of such matters;
(2) taking any necessary steps to preserve rights against
any Persons with respect to any item of Collateral; or
(3) initiating any action to protect the Collateral against
the possibility of a decline in market value.
(b) The Bank shall have no duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession (if
the Collateral is evidenced by certificates or other physical writing) other
than as set forth in Section 9207 of the UCC.
8.09 CUSTODY OF COLLATERAL. The Bank may, in its discretion, hold some or
all of the Collateral in an account with a custody unit of the Bank. The
Company shall reimburse the Bank for the usual custody charges and expenses of
the Bank's custody unit. The Bank may, in its sole discretion, retain the
Collateral in physical form or with a depository. The Bank shall not be
required to segregate the Collateral from other securities owned by third
parties. The Company agrees to be bound by the rules, procedures, practices,
liens and assessments of each depository used by the Bank. The Bank shall not
be liable for any loss to the Collateral resulting from acts of God, war, civil
commotion, fire, earthquake, or other disaster beyond the reasonable control of
the Bank, or for any other loss or damage to the Collateral unless shown to have
arisen from the Bank's intentional misconduct or lack of reasonable care.
8.10 CONFLICT OF INTEREST. In some cases, some or all of the Collateral may
be held by the Bank pursuant to another agreement, other than this Agreement,
between the Bank and the Company (the "ACCOUNT AGREEMENT"). The Company
acknowledges that a conflict may arise between the Bank's obligations under the
Account Agreement, including any obligations to direct the Company's investments
or to provide investment advice, and the Bank's rights under this Agreement. In
such event, the Company expressly agrees that the Bank's rights under this
Agreement shall take precedence over the Bank's obligations under the Account
Agreement insofar as they relate to the Collateral. The Company agrees that all
provisions of the Account Agreement that directly or indirectly prohibit any
extension of credit or the grant of a security interest in the Collateral are
hereby amended to the extent necessary to permit this Agreement to be fully
effective according to its terms. In the event of any conflict or inconsistency
between the terms and provisions of this Agreement and the terms and provisions
of the Account Agreement insofar as they relate to the Collateral, the terms and
provisions of this Agreement shall control.
8.11 RETURN OF COLLATERAL. The Bank may at any time deliver all or part of
the Collateral to the Company and the receipt of the Company shall be a complete
and full acquittance for the
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Collateral so delivered, and the Bank shall thereafter be discharged from any
liability or responsibility therefor.
8.12 TRANSFER OF COLLATERAL. Upon the transfer of all or any part of the
Obligations, the Bank may transfer all or any part of the Collateral and shall
be fully discharged thereafter from all liability and responsibility with
respect to such Collateral so transferred, and the transferee shall be vested
with all the rights and powers of the Bank hereunder with respect to such
Collateral so transferred; but with respect to any Collateral not so transferred
the Bank shall retain all rights and powers hereby given.
8.13 CONTINUING AGREEMENT. This is a continuing security agreement and all
the rights, powers and remedies hereunder shall apply to all past, present and
future Obligations of Company to the Bank, including that arising under
successive transactions which shall either continue the Obligations, increase or
decrease it, or from time to time create new Obligations after all or any prior
Obligations has been satisfied, and notwithstanding the incapacity, cessation of
business, dissolution or Insolvency Proceeding of the Company or any other event
or proceeding affecting the Company.
8.14 CONTINUING SECURITY INTERESTS. The security interests created by this
Agreement and the other Loan Documents are continuing security interests and:
(a) shall remain in full force and effect until payment in full of
all the Obligations;
(b) shall be binding upon the Company, its successors and assigns;
(c) may be exercised by the Bank irrespective of the fact that the
Obligations or any part thereof or any Loan Document may have become barred by
any statute of limitations or that the personal liability of the Company may
have ceased; and
(d) shall inure, together with the rights and remedies of the Bank,
to the benefit of the Bank, its successors, transferees, and assigns.
ARTICLE IX
EVENTS OF DEFAULT
9.01 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "EVENT OF DEFAULT" under this Agreement:
(a) FAILURE TO PAY. The Company fails to pay when due any amount
of principal, or the Company fails to pay within three Business Days after
the date when due any interest, fee or any other sum due under this Agreement
or any other Loan Document in accordance with the terms hereof or thereof.
(b) BREACH OF REPRESENTATION OR WARRANTY. Any representation or
warranty herein or in any other Loan Document proves to have been false or
misleading in any material respect when made.
(c) SPECIFIC DEFAULTS. The Company fails to perform or observe any
term, covenant or agreement contained in Sections 6.08 and 6.09 and Article VII.
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(d) OTHER DEFAULTS. The Company fails to perform or observe any
other term or covenant contained in this Agreement or any Loan Document, and
such default shall continue unremedied for a period of 30 days after the earlier
of (i) the date upon which the chief executive or chief financial officer of the
Company knew or should have known of such failure and the term or covenant
involved is a material term or covenant or (ii) the date upon which written
notice thereof is given to the Company by the Bank, whether or not the term or
covenant involved is a material term or covenant.
(e) JUDGMENTS. (i) One or more non-interlocutory judgments or
arbitration awards are entered against the Company or any of its Subsidiaries
and the same shall remain unsatisfied, unvacated and unstayed for a period of 30
days after the entry thereof, or (ii) the Company or any of its Subsidiaries
enters into any settlement agreement with respect to any litigation or
arbitration, and the aggregate amount of such judgments, arbitration awards and
settlements which are not covered by third-party insurance exceeds $2,000,000.
(f) FAILURE TO PAY DEBTS; VOLUNTARY BANKRUPTCY. The Company or any
of its Subsidiaries (i) ceases or fails to be solvent, or generally fails to
pay, or admits in writing its inability to pay, its debts as they become due,
subject to applicable grace periods, if any, whether at stated maturity or
otherwise; (ii) voluntarily ceases to conduct its business in the ordinary
course; (iii) commences any Insolvency Proceeding with respect to itself; or
(iv) takes any action to effectuate or authorize any of the foregoing.
(g) INVOLUNTARY BANKRUPTCY. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Company or any Subsidiary, or any
writ, judgment, warrant of attachment, execution or similar process, is issued
or levied against a substantial part of the Company's or any Subsidiary's
properties, and any such proceeding or petition shall not be dismissed, or such
writ, judgment, warrant of attachment, execution or similar process shall not be
released, vacated or fully bonded within 60 days after commencement, filing or
levy; (ii) the Company or any Subsidiary admits the material allegations of a
petition against it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or
(iii) the Company or any Subsidiary acquiesces in the appointment of a receiver,
trustee, custodian, conservator, liquidator, mortgagee in possession (or agent
therefor), or other similar Person for itself or a substantial portion of its
property or business.
(h) DEFAULT OF OTHER FINANCIAL OBLIGATIONS. Any default occurs
under any other agreement or agreements involving the borrowing of money or the
extension of credit having an aggregate principal amount (including undrawn
committed or available amounts and including amounts owing to all creditors
under any combined or syndicated credit arrangement) of (a) $1,000,000 or more
for any one such agreement, or (b) a total amount of $5,000,000 for all such
agreements (regardless of the amount involved in any one such agreement), to
which the Company or any Subsidiary may be a party as borrower, guarantor, or
installment purchaser, if such default consists of the failure to pay any
obligation or obligations when due and such failure continues after the
applicable grace or notice period, if any, specified in the relevant document or
documents or if such default gives to the holder of the obligation or
obligations concerned the right to accelerate the obligation or obligations.
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(i) DEFAULT OF OTHER BANK OBLIGATIONS. Any default occurs under any
other material obligation of the Company or any Subsidiary to the Bank or to any
Affiliate of the Bank and such default continues after the applicable grace or
notice period.
(j) MATERIAL ADVERSE EFFECT. There occurs a Material Adverse
Effect.
(k) CHANGE OF CONTROL. (i) any Person or two or more Persons acting
in concert shall acquire beneficial ownership, directly or indirectly, of
securities of the Company (or other securities convertible into such securities)
representing 40% or more of the combined voting power of all securities of the
Company entitled to vote in the election of directors; or (ii) during any period
of up to 12 consecutive months, commencing after the date of this Agreement,
individuals who at the beginning of such 12-month period were directors of the
Company shall cease for any reason to constitute a majority of the Board of
Directors of the Company unless the persons replacing such individuals were
nominated by the Board of Directors of the Company; or (iii) any Person or two
or more Persons acting in concert acquiring by contract or otherwise, or
entering into a contract or arrangement which upon consummation will result in
its or their acquisition of, or control over, securities of the Company (or
other securities convertible into such securities) representing 40% or more of
the combined voting power of all securities of the Company entitled to vote in
the election of directors.
(l) COLLATERAL.
(1) Any voluntary or involuntary Lien of any kind or
character attaches to the Collateral or any part of the Collateral other
than the security interest granted to the Bank under this Agreement and
the other Loan Documents and such Lien remains undischarged or is not
released within 10 days after its attachment.
(2) The Company fails to deliver additional Collateral when
required to pursuant to Section 6.09.
(3) Any deterioration or impairment of the Collateral or any
part thereof or any decline or depreciation in the value or market price
thereof (whether actual or reasonably anticipated), which causes the
Collateral in the good faith judgment of the Bank to become
unsatisfactory as to character or value.
(4) (A) Any provision of any Loan Document shall for any
reason cease to be valid and binding on or enforceable against the
Company or the Company shall so state in writing or bring an action to
limit its obligations or liabilities thereunder; or
(B) Any Loan Document shall for any reason (other than
pursuant to the terms thereof) cease to create a valid security interest
in the Collateral purported to be covered thereby or such security
interest shall for any reason cease to be a first priority fully
perfected security interest.
9.02 REMEDIES. If any Event of Default occurs,
(a) Any indebtedness of the Company under any of the Loan Documents,
any term thereof to the contrary notwithstanding, shall at the Bank's option
(but automatically upon the occurrence of an Event of Default described in
subsection 9.01(f)(iii) or subsection 9.01(g))
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and without notice become immediately due and payable without presentment,
demand, protest, or notice of dishonor, or any other notice, all of which are
hereby expressly waived by the Company to the full extent permitted by law, and
the Bank may declare an amount equal to the maximum aggregate amount that is or
at any time thereafter may become available for drawing under any
then-outstanding Letters of Credit, (whether or not any beneficiary shall have
presented, or be entitled at such time to present, the drafts or other documents
required to draw under such letters of credit) to be immediately due and
payable.
(b) The obligation, if any, of the Bank to Issue Letters of Credit
or to make further extensions of credit hereunder shall immediately cease and
terminate.
(c) The Bank shall have all rights, powers, and remedies available
under each of the Loan Documents, or accorded by law, including the right to
resort to any or all security for any credit accommodation described herein, and
to exercise any or all of the rights of a beneficiary or secured party pursuant
to applicable law.
(d) The Bank may exercise in respect of the Collateral, in addition
to other rights and remedies provided for in this Agreement or other Loan
Documents, (1) all the rights and remedies of a secured party under the UCC and
any other applicable law or regulation (including without limitation 31 C.F.R.
Sections 306.115 through 306.122) and/or (2) all the rights, powers, and
remedies of an owner with respect to the Collateral.
(e) The Bank may enforce the security interest in the Collateral
pursuant to the UCC and any other applicable law including but not limited to
the sale of all or any part of the Collateral at public or private sale, without
demand, advertisement, or notice, in such manner and order as the Bank may elect
(including the right to vote any securities constituting Collateral).
(1) The Bank may purchase the Collateral for its own account
at any such sale.
(2) The Company acknowledges and agrees that any sale or
disposition of the Collateral may result in the liquidation of items
constituting all or a portion of the Collateral, whether or not such
items have matured and notwithstanding the fact that such liquidation
may give rise to penalties or other breakage costs as a result of an
early withdrawal of funds or the like.
(3) The Company acknowledges that sale of all or part of the
Collateral may result in a loss to the Company and that, in such event,
the Bank shall have no liability or responsibility to the Company for
such loss.
(4) Without limiting the generality of the foregoing, the
Company also agrees that any of the Collateral may be sold for cash or
other value in any number of lots at the same or different times, at any
exchange, brokers' board or elsewhere, by public or private sale, and at
such times and on such terms as the Bank shall determine; PROVIDED,
HOWEVER, that the Company shall be credited with the net proceeds of
sale only when such proceeds are finally collected by the Bank.
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(5) The Company hereby agrees that the sending of notice by
ordinary mail, postage prepaid, to the address of the Company set forth
in this Agreement, of the place and time of any public sale or of the
time after which any private sale or other intended disposition is to be
made, shall be deemed reasonable notice thereof if such notice is sent
10 days prior to the date of such sale or other disposition or the date
on or after which such sale or other disposition may occur, PROVIDED
that the Bank may provide the Company shorter notice or no notice, to
the extent permitted by the UCC or other applicable law.
(6) The Company recognizes that the Bank may be unable to
make a public sale of any or all of the Collateral, by reason of
prohibitions contained in applicable securities laws or otherwise, and
expressly agrees that a private sale to a restricted group of purchasers
for investment and not with a view to any distribution thereof shall be
considered a commercially reasonable sale.
(7) At any sale or sales of the Collateral, the Bank or any
Person acting on behalf of the Bank or its assigns may bid for and
purchase the whole or any part of the Collateral so sold and upon
compliance with the terms of such sale may hold and dispose of such
Collateral without further accountability to the Company, except for the
proceeds of such sale or sales.
(8) The Company acknowledges and agrees that it shall be
liable for any deficiency should the net proceeds from the sale of the
Collateral be insufficient to pay the full amount of the Obligations.
(9) The Company waives any claims against the Bank arising
solely by reason of the fact that the price at which any Collateral may
have been sold at a private sale was less than the price which might
have been obtained at a public sale.
(10) The Bank may enforce the security interest of the Bank
in any Pledged Deposit by applying all or part of such deposit account
to the Obligations.
9.03 APPLICATION OF CASH COLLATERAL; CASH PROCEEDS. Any cash held by the
Bank as Collateral and all cash proceeds received by the Bank in respect of any
sale of, collection from, or other realization upon all or any part of the
remainder of the Collateral shall be applied by the Bank as follows:
FIRST, to the payment of the costs and expenses of such sale, including
all expenses (including, without limitation, Attorney Costs),
liabilities and advances made or incurred by the Bank in connection
therewith;
NEXT, to the Bank in respect of all costs, expenses and fees (including,
without limitation, Attorney Costs) due the Bank under this Agreement or
any of the other Loan Documents;
NEXT, to the Bank to be applied to prepayment of the Obligations or to
be held as cash collateral for the Obligations until the Obligations
have been paid in full; and
FINALLY, after payment in full in cash of all of the Obligations, to the
Person or Persons entitled thereto.
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9.04 RIGHTS AND POWERS ARE CUMULATIVE. All rights, powers, and remedies of
the Bank may be exercised at any time by the Bank and from time to time after
the occurrence of an Event of Default. All rights, powers, and remedies of the
Bank in connection with each of the Loan Documents are cumulative and not
exclusive and shall be in addition to any other rights, powers, or remedies
provided by law or equity.
ARTICLE X
MISCELLANEOUS
10.01 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that the Company shall not assign this Agreement or any other
Loan Document or any of the rights, duties or obligations of the Company
hereunder without the prior written consent of the Bank.
10.02 CONSENTS AND WAIVERS. No failure to exercise and no delay in
exercising, on the part of the Bank any right, remedy, power, or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power, or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power,
or privilege. No consent or waiver under this Agreement shall be effective
unless in writing. No waiver of any breach or default shall be deemed a waiver
of any breach or default thereafter occurring.
10.03 GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of California.
10.04 COSTS AND ATTORNEY COSTS. The Company shall, whether or not the
transactions contemplated hereby shall be consummated, pay or reimburse the Bank
on demand for all reasonable costs and expenses incurred by the Bank in
connection with the development, preparation, delivery, administration, and
execution of, and any amendment, supplement, waiver or modification to, this
Agreement and any other Loan Document and the consummation of the transactions
contemplated hereby and thereby, including reasonable Attorney Costs and
disbursements, incurred by the Bank with respect thereto; and in connection with
the enforcement, attempted enforcement or preservation of any rights or remedies
hereunder or under any Loan Document, including any "workout" or restructuring
under this Agreement, including Attorney Costs. The agreements and obligations
of the Company under this Section shall survive the expiration or termination of
the commitment to extend credit hereunder and the payment of all other
obligations of the Company.
10.05 AMENDMENT. This Agreement may be amended or modified only in writing,
signed by the Company and the Bank.
10.06 CONFIDENTIALITY. The Bank agrees to take normal and reasonable
precautions and to exercise due care to maintain the confidentiality of all
information identified as "confidential" or "secret" by the Company and
provided to it by the Company or any of its Subsidiaries under this Agreement or
any other Loan Document, and neither it nor any of its Affiliates shall use any
such information other than in connection with or in enforcement of this
Agreement and the other Loan Documents or in connection with other business now
or hereafter existing or contemplated with the Company or any Subsidiary; except
to the extent such information
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(i) was or becomes generally available to the public other than as a result of
disclosure by the Bank, or (ii) was or becomes available on a non-confidential
basis from a source other than the Company, provided that such source is not
bound by a confidentiality agreement with the Company known to the Bank;
PROVIDED, HOWEVER, that the Bank may disclose such information (A) at the
request or pursuant to any requirement of any governmental authority to which
the Bank is subject or in connection with an examination of the Bank by any such
authority; (B) pursuant to subpoena or other court process; (C) when required to
do so in accordance with the provisions of any applicable requirement of law;
(D) to the extent reasonably required in connection with any litigation or
proceeding to which the Bank may be party; (E) to the extent reasonably required
in connection with the exercise of any remedy hereunder or under any other Loan
Document; (F) to the Bank's independent auditors and other professional
advisors; (G) to any participant or assignee, actual or potential, provided that
such person agrees in writing to keep such information confidential to the same
extent required of the Bank hereunder; (H) as to the Bank or its Affiliate, as
expressly permitted under the terms of any other document or agreement regarding
confidentiality to which the Company or any Subsidiary is party or is deemed
party with the Bank or such Affiliate; and (I) to its Affiliates which have a
need to know such information in connection with the evaluation or
administration of this Agreement or any other Loan Document and which shall keep
such information confidential to the same extent required of the Bank hereunder.
10.07 GENERAL INDEMNIFICATION. The Company shall pay and indemnify each
Bank-Related Person harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses, or disbursements (including Attorney Costs) of any kind or
nature whatsoever with respect to the execution, delivery, enforcement,
performance, and administration of this Agreement and any other Loan Documents,
or the transactions contemplated hereby and thereby, and with respect to any
investigation, litigation, or proceeding related to this Agreement, any
violation of any environmental law by the Company or its Subsidiaries, any use,
generation, manufacture, production, storage, release, threatened release,
discharge, disposal or presence (whether actual or alleged) of a hazardous
substance on, under or about the property or operations of or property leased to
the Company or any of its Subsidiaries, any transportation from or other
off-site management of any hazardous substance generated or used by the Company
or any of its Subsidiaries, or the loans and other extensions of credit
hereunder or the use of the proceeds thereof, whether or not any Bank-Related
Person is a party thereto (all the foregoing, collectively, the "INDEMNIFIED
LIABILITIES"); PROVIDED, that the Company shall have no obligation hereunder to
any Bank-Related Person with respect to Indemnified Liabilities arising from the
gross negligence or willful misconduct of such Bank-Related Person. The
agreements and obligations of the Company under this Section shall survive the
expiration or termination of the commitment to extend credit hereunder and the
payment of all other obligations of the Company hereunder.
10.08 ARBITRATION; REFERENCE PROCEEDING.
(a) Any controversy or claim between or among the parties arising
out of or relating to this Agreement or any other Loan Document or other
agreements or instruments relating hereto or delivered in connection herewith
and any claim based on or arising from an alleged tort, shall at the request of
any party be determined by arbitration. The arbitration shall be conducted in
accordance with the United States Arbitration Act (Title 9, U.S. Code),
notwithstanding any choice of law provision in this Agreement, and under the
Commercial
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Rules of the American Arbitration Association ("AAA"). The arbitration shall be
conducted within the following California county or counties: San Francisco.
The arbitrator(s) shall give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy shall
not constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
(b) Notwithstanding the provisions of subsection (a) of this
Section, no controversy or claim shall be submitted to arbitration without the
consent of all parties if, at the time of the proposed submission, such
controversy or claim arises from or relates to an obligation to the Bank which
is secured by real property collateral located in California. If all parties do
not consent to submission of such a controversy or claim to arbitration, the
controversy or claim shall be determined as provided in subsection (c) of this
Section.
(c) A controversy or claim which is not submitted to arbitration as
provided and limited in subsections (a) and (b) of this Section shall, at the
request of any party, be determined by a reference in accordance with California
Code of Civil Procedure Sections 638 ET SEQ. If such an election is made, the
parties shall designate to the court a referee or referees selected under the
auspices of the AAA in the same manner as arbitrators are selected in
AAA-sponsored proceedings. The presiding referee of the panel, or the referee
if there is a single referee, shall be an active attorney or retired judge.
Judgment upon the award rendered by such referee or referees shall be entered in
the court in which such proceeding was commenced in accordance with California
Code of Civil Procedure Sections 644 and 645.
(d) No provision of this paragraph shall limit the right of any
party to this Agreement to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or security,
or to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party
to resort to arbitration or reference. At the Bank's option, foreclosure under
a deed of trust or mortgage may be accomplished either by exercise of power of
sale under the deed of trust or mortgage or by judicial foreclosure.
10.09 NOTICES.
(a) All notices, requests and other communications provided for
hereunder shall be in writing and mailed or delivered to a party at its address
specified on the signature pages hereof, or to such other address as shall be
designated by such party in a written notice to the other parties.
(b) All such notices and communications shall, when transmitted by
overnight delivery, be effective when delivered for overnight delivery, or if
personally delivered, upon such personal delivery, except that notices pursuant
to Article II and Sections 8.03(b), or 8.03(c), or 8.03(f) shall not be
effective until actually received by the Bank at the address specified for
notices in the signature pages to this Agreement.
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(c) The Company acknowledges and agrees that any agreement of the
Bank to receive notices by telephone or facsimile transmission is solely for the
convenience and at the request of the Company. Telephone requests may be made
by any individual identified in writing to the Bank on a form acceptable to the
Bank as being authorized to make such requests. The Bank shall be entitled to
rely upon any written (including by facsimile transmission) or telephone request
from persons it reasonably believes to be authorized by the Company to make such
requests without making independent inquiry. The Company assumes the full risk
of, and the Bank shall not be responsible for, any delays or errors in
transmission, and the obligation of the Company to repay the extensions of
credit hereunder shall not be affected in any way or to any extent by any
failure by the Bank to receive written confirmation of any telephonic or
facsimile notice or the receipt by the Bank of a confirmation which is at
variance with the terms understood by the Bank to be contained in the telephonic
or facsimile notice.
10.10 HEADINGS; INTERPRETATION. Article, section, and section headings are
for reference only and shall not affect the interpretation or meaning of any
provisions of this Agreement. The meaning of defined terms shall be equally
applicable to the singular and plural forms of the defined terms. The words
"hereof", "herein", "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement; and Article, subsection, section, schedule and
exhibit references are to this Agreement unless otherwise specified. The term
"including" is not limiting and means "including without limitation." In the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including"; the words "to" and "until" each mean
"to but excluding", and the word "through" means "to and including."
10.11 SEVERABILITY. The illegality or unenforceability of any provision of
this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
10.12 COUNTERPARTS. This Agreement may be executed in as many counterparts as
may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
10.13 EFFECT OF AMENDMENT AND RESTATEMENT. This Agreement is intended to
completely amend and restate the Existing Agreement, without novation. The
Company hereby acknowledges and agrees that the Company's obligations to
reimburse the Bank with respect to drawings under the Existing Letters of Credit
is not subject to any defense, counterclaim, set-off, right of recoupment,
abatement, or other claim and the Existing Letters of Credit shall continue and
constitute Letters of Credit under and subject to the terms and provisions of
this Agreement.
10.14 WAIVER OF JURY TRIAL. THE COMPANY AND THE BANK EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE
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BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY BANK-RELATED
PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. THE COMPANY AND THE BANK EACH AGREE THAT ANY SUCH CLAIM
OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO
A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS.
The rest of the page is deliberately left blank.
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
DIGITAL MICROWAVE CORPORATION
By: /s/ CARL A. THOMSEN
--------------------------------------
Name: Carl A. Thomsen
Title: Vice President, Chief Financial
Officer and Secretary
Address where notices to
Company are to be sent:
Digital Microwave Corporation
170 Rose Orchard Way
San Jose, CA 95134
Attention: Carol A. Goudey, Treasurer
Phone: 408/944-1830
Facsimile: 408/944-1880
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ MICHAEL J. MCCUTCHIN
--------------------------------------
Name: Michael J. McCutchin
Title: Managing Director
Address where notices to Bank are to be sent:
CD-HI Tech - NT&SA #3697
Bank of America National Trust and Savings Association
555 California Street - 41st floor
San Francisco, CA 94104
Attention: Michael McCutchin
Phone: 415/622-4589
Facsimile: 415/622-2514
Bank's Payment Office
-------------------------------------------
Signature Page
for
Amended and Restated Agreement
October 30, 1998
between
Digital Microwave Corporation
and
Bank of America National Trust and Savings Association
<PAGE>
Exhibit A
DIGITAL MICROWAVE CORPORATION
SUMMARY OF OUTSTANDING STANDBY LETTERS OF CREDIT
AS OF 10/30/98
<TABLE>
<CAPTION>
STANDBY
L/C CURRENCY EXPIRY
NUMBER BENEFICIARY COUNTRY AMOUNT DATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3009119 CYPRUS POPULAR BANK CYPRUS EUROPEAN 4/6/99
CURRENCY UNIT
33,260
3010390 ROMGAZ, R.A. ROMANIA U.S. DOLLARS 11/15/98
1,100,000
3010636 BANCA ROMANA DE ROMANIA U.S. DOLLARS 1/30/99
COMERT EXTERIOR 500,000
3011666 CYPRUS POPULAR BANK CYPRUS EUROPEAN 9/21/99
CURRENCY UNIT
34,000
3012177 BANK OF AMERICA, New INDIA U.S. DOLLARS
Delhi 12,970 10/19/99
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q
OF DIGITAL MICROWAVE CORPORATION FOR THE FISCAL QUARTER ENDED DECEMBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 17,372
<SECURITIES> 10,569
<RECEIVABLES> 58,596
<ALLOWANCES> 4,772
<INVENTORY> 55,018
<CURRENT-ASSETS> 149,769
<PP&E> 95,112
<DEPRECIATION> 51,281
<TOTAL-ASSETS> 200,989
<CURRENT-LIABILITIES> 66,838
<BONDS> 0
0
0
<COMMON> 470
<OTHER-SE> 133,229
<TOTAL-LIABILITY-AND-EQUITY> 200,989
<SALES> 176,774
<TOTAL-REVENUES> 176,774
<CGS> 179,230
<TOTAL-COSTS> 179,230
<OTHER-EXPENSES> 91,940
<LOSS-PROVISION> 4,282
<INTEREST-EXPENSE> 199
<INCOME-PRETAX> (93,548)
<INCOME-TAX> 522
<INCOME-CONTINUING> (94,070)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94,070)
<EPS-PRIMARY> (1.53)
<EPS-DILUTED> (1.53)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q
OF DIGITAL MICROWAVE CORPORATION FOR THE QUARTER ENDED DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 61,558
<SECURITIES> 19,211
<RECEIVABLES> 91,951
<ALLOWANCES> 4,663
<INVENTORY> 68,006
<CURRENT-ASSETS> 245,317
<PP&E> 71,167
<DEPRECIATION> 39,589
<TOTAL-ASSETS> 293,176
<CURRENT-LIABILITIES> 65,444
<BONDS> 0
0
0
<COMMON> 381
<OTHER-SE> 226,179
<TOTAL-LIABILITY-AND-EQUITY> 293,176
<SALES> 251,271
<TOTAL-REVENUES> 251,271
<CGS> 160,396
<TOTAL-COSTS> 160,396
<OTHER-EXPENSES> 65,348
<LOSS-PROVISION> 1,217
<INTEREST-EXPENSE> 581
<INCOME-PRETAX> 27,661
<INCOME-TAX> 4,461
<INCOME-CONTINUING> 23,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,200
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.46
</TABLE>
