<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
------------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INNOVA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
WASHINGTON 3663 91-1453311
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
GATEWAY NORTH, BUILDING 2
3325 SOUTH 116TH STREET
SEATTLE, WASHINGTON 98168-1974
(206) 439-9121
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN M. HEMINGWAY, SECRETARY AND CHIEF FINANCIAL OFFICER
GATEWAY NORTH, BUILDING 2
3325 SOUTH 116TH STREET
SEATTLE, WASHINGTON 98168-1974
(206) 439-9121
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
JOHN M. STEEL, ESQ. H. JOHN MICHEL JR., ESQ.
BENJAMIN F. STEPHENS, ESQ. RACHEL GIULIANO, ESQ.
ALEJANDRO C. TORRES, ESQ. DRINKER BIDDLE & REATH LLP
GRAHAM & JAMES LLP PHILADELPHIA NATIONAL BANK BUILDING
1001 FOURTH AVENUE PLAZA, SUITE 4500 1345 CHESTNUT STREET
SEATTLE, WASHINGTON 98154 PHILADELPHIA, PENNSYLVANIA 19107-3426
</TABLE>
------------------------
Approximate date of commencement of proposed sale to public: As soon as
possible after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
=========================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
Common Stock, without par value........ $30,000,000 $10,345
=========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INNOVA CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF PART 1 ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
---------------------------------------- ----------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front and Outside Back Cover Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Outside Front Cover Page; Prospectus Summary;
Forward-Looking Statements; Risk Factors
4. Use of Proceeds......................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price......... Outside Front Cover Page; Underwriting
6. Dilution................................ Dilution
7. Selling Security Holders................ Not Applicable
8. Plan of Distribution.................... Outside and Inside Front Cover Pages;
Underwriting
9. Description of Securities to be
Registered.............................. Description of Capital Stock; Shares Eligible
for Future Sale
10. Interests of Named Experts and
Counsel................................. Not Applicable
11. Information With Respect to
the Registrant.......................... Outside and Inside Front Cover Pages;
Prospectus Summary; Risk Factors; Use of
Proceeds; Capitalization; Dividend Policy;
Dilution; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Principal Shareholders;
Certain Transactions; Description of Capital
Stock; Shares Eligible for Future Sale;
Underwriting; Additional Information;
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities............................. Not Applicable
</TABLE>
<PAGE> 3
EXPLANATORY NOTE
Unless otherwise indicated or the context requires otherwise, this
Registration Statement has been prepared on the assumption that, among other
things, (i) the Shareholders of the Company have approved the Articles of
Incorporation and Bylaws to be in the form presented in the Exhibits filed with
this Registration Statement; (ii) the Company's Directors' Stock Option Plan
described under the caption "Management -- Directors' Compensation" and an
amendment to the Company's 1990 Stock Option Plan have been approved by the
Company's shareholders; and (iii) the Company has effected a 24:1 reverse stock
split. Because there can be no assurances as to such matters, the Company
intends to amend this Registration Statement prior to the time it becomes
effective to reflect any material changes to the information contained herein.
The information contained in this Registration Statement should not be relied
upon for any purpose unless and until it becomes effective.
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 18, 1997
2,500,000 SHARES
[LOGO]
COMMON STOCK
------------------------
All of the 2,500,000 shares of Common Stock offered hereby (the "Offering")
are being sold by Innova Corporation ("Innova" or the "Company"). Prior to this
Offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$10.00 and $12.00 per share. See "Underwriting" for a discussion of factors
considered in determining the initial public offering price. Application has
been made for quotation of the Common Stock on the Nasdaq National Market under
the symbol "INVA."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
=================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------------------------
Per Share...................... $ $ $
- -------------------------------------------------------------------------------------------------
Total(3)....................... $ $ $
=================================================================================================
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $800,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 375,000 additional Shares of
Common Stock on the same terms set forth above, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ . See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of the shares of Common Stock will be
made through the office of UBS Securities LLC, 299 Park Avenue, New York, New
York, on or about August , 1997.
------------------------
UBS SECURITIES
HAMBRECHT & QUIST
WESSELS, ARNOLD & HENDERSON
August , 1997
<PAGE> 5
[Photograph of Company's XP4 Indoor and Outdoor Units]
[The artwork for the inside front cover of the Prospectus is a color photograph
of the Company's millimeter wave radio system, depicting the Indoor (IDU) and
Outdoor (ODU) units.]
[The artwork for the gate-fold within the front cover of the Prospectus is a
copy of the Company's XP4 radio system installation manual, which is two pages
in its entirety, and illustrates installation of the Company's radio systems.]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 103 OF REGULATION M UNDER THE SECURITIES ACT. SEE "UNDERWRITING."
2
<PAGE> 6
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus and the information under "Risk Factors." Unless
otherwise indicated, all information in this Prospectus (i) assumes that the
Underwriters' over-allotment option will not be exercised; (ii) reflects a 24:1
reverse stock split to be effected by the Company prior to consummation of the
Offering; and (iii) reflects the conversion of all outstanding shares of the
Company's Preferred Stock into 8,682,310 shares of Common Stock upon
consummation of the Offering.
THE COMPANY
Innova designs, manufactures and supports millimeter wave radios for use as
short- to medium-distance wireless communication links in telecommunications
networks in both developed and developing markets. Innova's products enable
telecommunications service providers to establish reliable and cost-effective
voice, data and video communications links within their networks. Innova's
products operate in frequencies ranging from 15-38 GHz and may be used in
various applications, including cellular and PCS/PCN networks, broadband
communications, local loop services, and long distance networks.
In recent years, growing demand for telecommunications services has been
driven by the emergence of improved technologies and by the recognition that
effective communications enhance business productivity and can accelerate
economic growth. Regulatory changes, including the privatization of state-run
telephone monopolies, allocation of additional radio spectrum and licensing of
new entrants to the telecommunications market, have created a competitive
environment in which an increasing number of service providers are seeking to
meet this demand and capture market share by rapidly establishing new networks
and expanding existing networks.
Millimeter wave radios have become an increasingly critical component of
telecommunications networks. As a result, telecommunications service providers
have focused on the quality and lifetime ownership cost of these systems. Innova
has combined its expertise in radio frequency ("RF") systems architecture and
software design to create reliable, cost-effective, intelligent and feature-rich
millimeter wave radio systems that are easy to install, maintain and upgrade.
Innova's millimeter wave radio systems are designed to operate at multiple
E1/T1 rates in the high frequency bands used for the transmission of voice, data
and video traffic. Innova's XP4 products are based on a common system
architecture and are software configurable. Innova's radio systems consist of an
Indoor Unit ("IDU"), which interfaces with the user's network and is digitally
linked to an Outdoor Unit ("ODU"), which transmits and receives the RF signal.
The common embedded software platform in the IDU and ODU is simple network
management protocol ("SNMP") compatible and provides the ability to remotely
monitor and manage Innova's radios within a network using the service provider's
network management system.
Innova's objective is to be a leading provider of digital millimeter wave
radios. Innova's strategy is to: (i) continue its focus on enhancing existing
and developing new solutions for the point-to-point millimeter wave radio
market; (ii) expand the geographic coverage and increase the market penetration
of its products by strengthening existing and establishing new strategic
distribution relationships; (iii) leverage its existing system architecture to
be first-to-market with high-quality, cost-effective radios; and (iv) further
automate its product calibration and test processes to promote quality control
and cost-effective manufacturing, and further reduce dependence on skilled
labor.
Innova markets its products principally to systems integrators with a
strong regional presence in Europe, Latin America and Asia. Innova seeks to
develop strategic relationships with these systems integrators, which provide
field engineering, installation, project financing and support to service
providers. To date, Innova has entered into distribution agreements with MAS
Technology Limited ("MAS"), NERA ASA ("NERA") and Societe Anonyme de
Telecommunications ("SAT"). Innova also markets its products directly to service
providers in the U.S. and internationally. To date, the Company has supplied
products, either through distribution relationships or directly, to
Alestra(Mexico), Associated Communications(U.S.), Avantel(Mexico), Bouygues
Telecom (France), Globtel(Slovakia), Northern Telecom Limited ("Nortel")
(Canada), PacBell Mobile Services (U.S.) and Telcel (Venezuela), among others.
3
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock Offered by the Company........... 2,500,000 Shares of Common Stock
Shares of Common Stock Outstanding after the Offering... 12,124,012 Shares of Common
Stock(1)
Use of Proceeds......................................... Repayment of indebtedness,
equipment purchases, working
capital and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.................. INVA
</TABLE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTH FISCAL THREE MONTHS ENDED
YEAR ENDED MARCH 31, PERIOD ENDED MARCH 31,
------------------------------------- DECEMBER 31, ---------------------
1993 1994 1995 1996 1996 1996 1997
------- ------- ------- ------- ------------------ ------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................... $ 200 $ 877 $ 2,358 $ 1,962 $ 2,104 $ 137 $ 4,910
Gross profit (loss).............. (464) (1,186) (2,157) (1,980) (1,635) (973) 829
Loss from operations............. (3,903) (5,234) (6,116) (8,816) (7,186) (3,345) (1,920)
Net loss......................... $(5,099) $(5,400) $(6,318) $(9,061) $ (7,329) $(3,415) $ (2,119)
Pro forma net loss per
share(3)....................... $ (0.73) $ (0.21)
Shares used in computing pro
forma net loss per share
calculation(3)................. 10,086,535 10,094,815
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
ACTUAL AS ADJUSTED(2)
------- --------------
(in thousands)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................... $ 67 $ 27,070
Working capital................................................................. 2,658 30,933
Total assets.................................................................... 13,687 40,690
Redeemable preferred stock(1)................................................... 44,299 --
Total stockholders' equity (deficit)(1)......................................... (38,855) 33,719
</TABLE>
- ---------------
(1) Based on shares outstanding as of March 31, 1997. Excludes: (i) 1,539,460
shares of Common Stock issuable upon exercise of stock options issued
pursuant to the Company's 1990 Stock Option Plan outstanding at March 31,
1997, at a weighted average exercise price of $1.62 per share; (ii) an
additional 7,687 shares of Common Stock reserved for future issuance under
the Company's 1990 Stock Option plan; (iii) 2,445,659 shares of Common Stock
issuable upon exercise of Warrants to Purchase Common Stock outstanding at
March 31, 1997, and (iv) 481,978 shares of Preferred Stock issuable upon
exercise of warrants to purchase Preferred Stock outstanding as of March 31,
1997. See "Management -- Benefit Plans" and "-- Certain Transactions",
"Description of Capital Stock" and Notes to Consolidated Financial
Statements.
(2) As adjusted to give effect to the (i) conversion of all outstanding shares
of Preferred Stock into shares of Common Stock upon consummation of the
Offering, (ii) sale of the shares of Common Stock being offered hereby at an
assumed initial public offering price of $11.00 per share (after deducting
the underwriting discounts and commissions and estimated expenses of the
Offering), (iii) the issuance of 502,866 shares of Series F Preferred Stock
in June, 1997 at $6.96 per share, for total cash consideration of
$3,500,000, before issuance costs and (iv) application of the estimated net
proceeds of the Offering. See "Use of Proceeds."
(3) See Note 1(q) to the Consolidated Financial Statements.
4
<PAGE> 8
RISK FACTORS
An investment in the shares of Common Stock being offered by this
Prospectus involves a high degree of risk. In addition, this Prospectus contains
forward-looking statements that involve risks and uncertainties. Discussions
containing such forward-looking statements may be found in the material set
forth under "Prospectus Summary," "Risk Factors," "The Company," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business," as well as in this Prospectus generally. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of many factors, including those set forth in the
following risk factors and elsewhere in this Prospectus. Accordingly,
prospective investors should consider carefully the following risk factors, in
addition to the other information concerning the Company and its business
contained in this Prospectus before purchasing the shares of Common Stock
offered hereby.
LIMITED OPERATING HISTORY; HISTORY OF SIGNIFICANT LOSSES
The Company was incorporated in 1989 and was in the development stage until
mid-1996, when it began shipment of XP4 products, its first line of millimeter
wave radios to be shipped in commercial quantities. From inception through the
quarter ended March 31, 1997, the Company generated a cumulative net loss of
approximately $42.5 million. From April 1, 1996 through March 31, 1997, the
Company generated sales of approximately $7.0 million, of which $6.6 million, or
94%, was generated in the quarter ended December 31, 1996 and the quarter ended
March 31, 1997. During these two quarters, the Company's net losses were $2.5
million and $2.1 million, respectively. Due to the Company's limited operating
history, among other things, there can be no assurance that revenues will not
decline. In addition, the Company intends to continue to invest significant
amounts in its operations, particularly to support existing and new product
development, increased manufacturing capacity, and sales and marketing of its
recently introduced product line. Thus, the Company may continue to generate
losses even if revenues increase, and there can be no assurance that the Company
will become profitable. In view of its limited operating history, the Company
remains vulnerable to a variety of business risks generally associated with
rapidly growing companies. The likelihood of success of the Company must be
considered in light of the problems, expenses, complications and delays
frequently encountered in connection with the development of new products,
markets and operations. As a result of the Company's net losses and limited
operating and sales history, period-to-period comparisons of operating results
may not be meaningful and results of operations from prior periods may not be
indicative of future results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SIGNIFICANT CUSTOMER CONCENTRATION; DEPENDENCE ON LARGE CONTRACTS
The Company is dependent, in large part, on significant contracts from a
limited number of customers. Such contracts are often with systems integrators,
which in turn provide the Company's products to service providers as part of
larger telecommunications infrastructure initiatives. To date, approximately
fourteen customers have accounted for all of the Company's sales. In 1996 and
the first quarter of 1997, three customers, Associated Communications, Nortel
and SAT, accounted for approximately 81% of the Company's sales of XP4 products
and six customers accounted for over 91% of XP4 sales. Similarly, as of March
31, 1997, two customers, Nortel and SAT, accounted for over 75% of the Company's
backlog. Historically, a significant percentage of the Company's products have
been purchased by customers for use in single large-scale projects. For example,
virtually all of the Company's sales to Nortel (or approximately 55% of the
Company's total XP4 sales through March 31, 1997) were for use in a single
large-scale project undertaken by Globtel in Slovakia. Due to the Company's
limited operating history and limited number of customers to date, it is
difficult, if not impossible, for the Company to accurately predict the mix or
nature of infrastructure projects which could be the basis for its product sales
to systems integrators. However, the Company anticipates that revenue derived
from current and future large customers and large-scale projects will continue
to represent a significant proportion of its total revenues. Because of the
small size of the Company's customer base, the loss of, or reduced demand for
products from any customer for any reason, including business failure of the
customer, abandonment or delay of the underlying project, change in government
policy or general economic conditions, could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Customers."
5
<PAGE> 9
DEPENDENCE ON DISTRIBUTION RELATIONSHIPS
The Company's product distribution strategy is to rely principally on
developing relationships with wireless systems integrators for international
sales, with direct sales to service providers in North and Central America and
certain other countries on a case-by-case basis. To date, the Company has
established relationships with MAS, NERA and SAT. See "Business -- Distribution
Relationships." There can be no assurance that the Company will be able to
establish distribution relationships with other systems integrators or that
existing relationships will be successful. Thus, the loss of one or more major
distribution relationships, or any significant reduction of orders by or the
business failure of a significant customer or distributor, could have a material
adverse effect on the Company's business, financial condition and results of
operations. If the Company is unable to establish additional distribution
relationships, it will be unable to implement its distribution strategy and be
required to seek other distribution channels. There can be no assurance that the
Company will be able to successfully implement such alternative distribution
channels or that the costs of doing so, or the result of any delays on
establishing such channels, will not have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
if the Company is unable to produce its products at margins that permit it to
provide systems integrators with a sufficient financial incentive to distribute
the Company's products without adversely affecting the Company's profitability,
the Company's distribution strategy could adversely affect the Company's net
income.
There are a number of other risks inherent in the Company's distribution
strategy. Agreements with systems integrators are typically terminable on short
notice and may not prohibit the systems integrators from distributing products
competitive with those manufactured by the Company. Thus, there can be no
assurance that such distributors will promote the Company's products
aggressively or achieve greater market penetration for the Company's products
than for those of competing products, that such relationships will not be
terminated prior to achievement of the Company's marketing objectives, or that
the establishment of multiple relationships will not result in excessive
competition among authorized distributors, resulting in price erosion or
interference with service provider relationships, or other distribution
arrangements. In addition, because of its distribution strategy, the Company is
dependent upon the financial viability, reputation and success of its
distributors, with the result that the Company's business, financial condition
and results of operations could be adversely affected by factors unrelated to
the Company's performance.
The Company has granted SAT exclusive distribution rights with respect to
France, Hungary, Poland, Italy, Monaco and Andorra. To the extent that the
Company grants such exclusive rights to other distributors in the future, it
will be solely dependent upon the success of its chosen distributor for sales
into a particular territory. In certain instances, even the establishment of
non-exclusive distribution relationships may preclude or make it more difficult
to establish similar relationships with other systems integrators who compete
directly with the Company's distributors, or prevent the Company from marketing
the product directly. In certain instances, the Company may grant its
distributors rights to produce the Company's products. See "-- Risks Associated
with Grants of Limited Manufacturing Rights."
SIGNIFICANT FLUCTUATIONS IN RESULTS OF OPERATIONS
The Company has experienced, and may in the future experience, significant
fluctuations in sales, gross margins and operating results. In connection with
its efforts to ramp-up production of recently introduced products, the Company
expects to continue to make substantial capital investments in equipment,
recruit and train additional personnel, and possibly increase outsourcing of
components or invest in additional manufacturing facilities. The Company
anticipates that these expenditures may be made in advance of, and in
anticipation of, increased sales and, therefore, that its gross margins will be
adversely affected from time-to-time due to short-term inefficiencies associated
with addition of equipment, personnel or facilities, and that each cost category
may increase as a percentage of revenues from time-to-time on a periodic basis.
As a result, the Company's operating results will vary. Because of the
relatively small size of the Company's customer base and the large-scale nature
of the projects in which the Company's products are typically used, revenues
derived from current and future large customers and large-scale projects will
likely represent a significant portion of revenue in any given period. Thus, a
decrease in demand for products from any customer for any reason, including the
business failure of the customer or abandonment of a particular project, may
result in significant periodic fluctuations in sales. Similarly, revenues
derived from large-scale projects are often difficult to forecast due to a
relatively long time frame for implementing such projects. Delays can be caused
by delays
6
<PAGE> 10
in site acquisition by service providers, late deliveries by other vendors,
changes in implementation priorities, slower than anticipated growth and
declining demand for the services that the Company's products support, and
delays in obtaining regulatory approvals for installation of such systems.
Delays and reductions in the planned deployment of systems utilizing the
Company's products can also be caused by declines in the local economy or
capital availability and by new import controls.
The Company has at times failed to fill orders on a timely basis due
principally to capacity constraints. The Company's operating results for a
particular period may also be materially adversely affected by a delay,
rescheduling or cancellation of one or more purchase orders. Moreover, purchase
orders are often received and accepted substantially in advance of shipment, and
the failure to reduce costs to the extent anticipated, or an increase in
anticipated costs before shipment, could materially adversely affect the gross
margins for such order, and as a result, the Company's business, financial
condition and results of operations. Much of the anticipated growth in
telecommunications infrastructure results from the entrance of new service
providers, many of whom do not have the financial resources of existing service
providers. To the extent these new service providers are unable to adequately
finance their operations, they may cancel orders. A delay in a shipment near the
end of a particular quarter, due to, for example, an unanticipated shipment
rescheduling, a cancellation or deferral by a customer, competitive or economic
factors, unexpected manufacturing or other difficulties, delays in deliveries of
components, subassemblies or services by suppliers, or the failure to receive an
anticipated order, may cause sales in a particular period to fall significantly
below the Company's expectations and may materially adversely affect the
Company's business, financial condition and results of operations for such
period.
A large portion of the Company's expenses are fixed and difficult to reduce
should revenues not meet the Company's expectations, thus magnifying the
material adverse effect of any revenue shortfall. Furthermore, announcements by
the Company or its competitors of new products and technologies could cause
customers to defer or cancel purchases of the Company's systems, which would
materially adversely affect the Company's business, financial condition and
results of operations. Additional factors that have caused or may cause the
Company's sales, gross margins and results of operations to vary significantly
from period-to-period include: new product introductions and enhancements,
including related costs; the Company's ability to manufacture and produce
sufficient products to meet customer requirements; limitations on manufacturing
capacity; the Company's ability to reduce costs; gain or loss by the Company of
significant customers; existing and new product development expenses; changes in
pricing by the Company, its customers or suppliers; inventory obsolescence;
market acceptance and the timing of availability of new products by the Company
or its customers; use of different distribution and sales channels; natural
disasters or adverse weather; fluctuations in foreign currency exchange rates;
delays or changes in regulatory approval of the Company's products; warranty and
customer support expenses; and general economic and political conditions. In
addition, the Company's results of operations have been, and will continue to
be, influenced significantly by competitive factors including the pricing and
availability of, and demand for, competitive products. All of the above factors
could materially adversely affect the Company's business, financial condition
and results of operations. As a result, the Company believes that
period-to-period comparisons are not necessarily meaningful and should not be
relied upon as indications of future performance. Due to all the foregoing
factors, it is likely that in some future quarter the Company's operating
results will be below the expectations of public market analysts and investors.
In such event, the price of the Company's Common Stock may be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE ON SINGLE PRODUCT LINE
Substantially all of the Company's product sales since mid-1996 have been
derived from sales of its 18GHz, 23 GHz and 38 GHz XP4 radio systems. The
Company's business strategy includes efforts to reduce its reliance on revenues
from its existing products by developing new products and product enhancements,
including a lower cost product line targeted at picocell applications and a high
capacity system targeted at high bandwidth applications in the U.S. There can be
no assurance that the Company will be able to reduce its reliance on sales of
its current XP4 products by developing new products that achieve market
acceptance or enhancing its existing products. As a result, any factor adversely
affecting the sales of such products would have a material adverse effect on the
Company's business, financial condition, and results of operations. See
"Business -- Products."
7
<PAGE> 11
UNCERTAINTY OF MARKET ACCEPTANCE
The Company's success will be substantially dependent upon market
acceptance of its recently developed XP4 radio systems. The Company believes
that this acceptance is dependent upon its products' ability to successfully
compete on the basis of performance, reliability, cost, ease of installation,
adaptability and upgradeability. The Company must, among other things, offer
products with superior price/performance characteristics, supply its products on
a timely and cost-effective basis in sufficient volume to satisfy prospective
customers' requirements and otherwise overcome any reluctance on the part of
system integrators or service providers to transition to new products. There can
be no assurance that service providers or system integrators will design
telecommunications networks to include the Company's products, or will continue
to include the Company's systems in their networks in the future, or that the
Company's products will replace existing products or achieve widespread
acceptance in the wireless telecommunications market.
Any failure of the XP4 radio systems to gain and maintain market
acceptance, or of the Company to improve upon its current market position or to
achieve acceptable gross margins would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LIMITED PRODUCTION CAPACITY; NO ASSURANCE OF SUCCESSFUL EXPANSION OF OPERATIONS
During the quarter ended December 31, 1996, and the quarter ended March 31,
1997, demand for the Company's products exceeded its production capacity. This
resulted in some delays in delivery of products and some lost orders. The
Company believes that its present manufacturing capacity continues to be
inadequate to meet anticipated demand on a timely basis. The Company's business
plan is to continue to expand its manufacturing capacity by purchasing
additional equipment, hiring additional personnel, further developing its
proprietary test software to reduce its reliance on skilled labor, increasing
the efficiency of its production processes, and, in certain instances,
externally subcontracting additional assembly, calibration and testing
processes. In addition, if the Company is to achieve its objectives, it will be
required to significantly expand its sales, marketing and customer support
capabilities. Due to the Company's limited experience with large scale
operations, there can be no assurance that the Company will be able to develop
internally or contract with third parties for additional manufacturing capacity
on acceptable terms, that it will be able to maintain the quality of its
products as production increases, or that it will develop the administrative and
other structures necessary to support expanded operations. If the Company is
unable to increase its production capacity significantly, it will not realize
its business plan.
The Company's arrangements with its customers typically require that orders
be shipped not more than 60 days after the order. There can be no assurance that
the Company will be able to increase its production capacity at an acceptable
cost or rapidly enough to fill its orders. The failure to assemble and ship
products on a timely basis could damage relationships with customers and result
in cancellation of orders or lost orders, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Manufacturing" and "-- Distributor Relationships."
The Company currently conducts its manufacturing operations for all of its
products in a single facility in Seattle, Washington. If the Company's
facilities or the facilities of its suppliers were incapable of operating, even
temporarily, or were unable to operate at or near full capacity for any extended
period, the Company's business, financial condition and results of operations
could be materially adversely affected. In connection with the expansion of its
capacity, the Company may seek to develop one or more additional manufacturing
facilities, including, possibly, facilities located outside the Seattle,
Washington area. The development of any such facilities would significantly
increase the complexity of the Company's operations.
NO ASSURANCE OF PRODUCT QUALITY, PERFORMANCE AND RELIABILITY
The Company's ability to achieve sales will depend in significant part upon
its ability to obtain and fulfill orders from, maintain good relationships with,
and provide support to existing and new customers and manufacture products on a
timely and cost-effective basis to meet stringent customer performance
requirements, and shipment and delivery dates. From its inception in 1989 until
July 1996, the Company did not develop or manufacture products that enabled it
to obtain a market presence. In addition, some early shipments of XP4 products
experienced some problems
8
<PAGE> 12
with a power source component produced by a third party. Because of the
Company's short operating history and the short time that the XP4 products have
been in production, there can be no assurance that problems will not occur with
respect to the quality, performance and reliability of the Company's products.
If such problems occur, the Company could experience increased costs or delays
in, cancellations of or rescheduling of orders or shipments, any of which may
have a material adverse effect on the Company's business, financial condition
and results of operations.
REQUIREMENT FOR RESPONSES TO RAPID TECHNOLOGICAL CHANGE AND REQUIREMENT FOR
FREQUENT NEW PRODUCT INTRODUCTIONS
The wireless communications market is subject to rapid technological
change, frequent new product introductions and enhancements, product
obsolescence, changes in customer requirements and evolving industry standards.
To be competitive, the Company must successfully develop, introduce and sell new
products or product enhancements that respond to changing customer requirements
on a timely and cost-effective basis. Any success of the Company in developing
new and enhanced products will depend on a variety of factors including: timely
and efficient completion of system design; timely and efficient implementation
of assembly, calibration, and test processes; development and completion of
related software; the reliability, cost and quality of its products; market
acceptance; and development and introduction of competitive products by
competitors. The Company has experienced and may experience delays from
time-to-time in completing development and introduction of new products.
Moreover, there can be no assurance that the Company will be successful in
selecting, developing, manufacturing and marketing new products or product
enhancements. The inability of the Company to introduce in a timely manner new
products or product enhancements that contribute to sales could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, changes in manufacturing operations to incorporate new
products and processes could cause disruptions in production, which, in turn,
could adversely affect customer relationships and the market's acceptance of the
Company's products, and have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Manufacturing" and "-- Research and Development."
MANAGEMENT OF GROWTH
The growth of the Company's operations since the introduction of the XP4
product line has imposed, and will continue to impose, a significant strain on
the Company's financial, manufacturing and other resources. To alleviate the
impact of the strain, the Company must successfully manage the transition to
higher manufacturing volume, the establishment of additional facilities, the
control of overhead expenses and inventories, the development, introduction,
marketing and sales of new products and product enhancements, the management and
training of its employees, and the monitoring of third-party contractors and
suppliers. Accordingly, the Company will need to significantly expand its
internal management systems and implement necessary procedures and controls.
Failure to develop and implement these systems, procedures and controls
efficiently to effectively manage the Company's growth in operations could have
a material adverse effect on the Company's business, financial condition and
results of operations.
The principal means by which the Company maintains its books and records as
well as the bulk of its purchasing and manufacturing data is a relatively simple
PC-network based system. To the extent that the Company continues to grow, this
system may need to be replaced or upgraded.
NO ASSURANCE OF COST REDUCTIONS
To compete successfully, the Company believes that it needs to achieve
significant reductions in production costs. The Company's objective is to
achieve these reductions through engineering improvements and economies of scale
in production and purchasing. There can be no assurance that the Company will be
able to achieve the desired cost savings. Its failure to do so would have a
material adverse effect on its business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
POSSIBLE DECLINE IN PRICES
The Company believes that average selling prices and gross margins for its
products will decline in the long-term as such products mature, as volume price
discounts in contracts take effect, and as competition intensifies, among other
factors. To offset declining selling prices, the Company believes that it must
successfully reduce the costs of
9
<PAGE> 13
production of its existing products, introduce and sell new products and product
enhancements on a timely basis at a lower cost or that incorporate features that
enable them to be sold at higher average selling prices. To the extent that the
Company is unable to reduce costs sufficiently to offset declining average
selling prices, the Company's gross margins will decline, and such decline would
have a material adverse effect on the Company's business, financial condition,
results of operations and particularly on the Company's ability to profitably
pursue its distribution strategy. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Research and
Development" and "-- Distribution Relationships".
SINGLE OR LIMITED SOURCES OF SUPPLY
Certain parts and components used in the Company's products, including
field programmable gate arrays and monolithic microwave integrated circuits
("MMICs"), are only available from a single source or limited number of sources.
The Company's reliance on these single source or limited source suppliers
involves certain risks and uncertainties, including the possibility of a
shortage or discontinuation of certain key components and reduced control over
delivery schedules, manufacturing capability, quality and cost. Any reduced
availability of such parts or components when required could materially impair
the Company's ability to manufacture and deliver its products on a timely basis
and result in the cancellation of orders which could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the purchase of certain key components involves long lead times
and, in the event of unanticipated increases in demand for the Company's
products, the Company may be unable to obtain such components in sufficient
quantities to meet its customers' requirements. The Company does not have
guaranteed supply arrangements with many of its single or limited source
suppliers, does not maintain an extensive inventory of parts or components and
customarily purchases single or limited source parts and components pursuant to
purchase orders. Business disruptions, production shortfalls or financial
difficulties of a single or limited source supplier could materially and
adversely impact the Company by increasing product costs, or reducing or
eliminating the availability of such parts or components. In such event, 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 on a timely basis and could have a material
adverse effect on its business, financial condition and results of operations.
See "Business -- Manufacturing."
DEPENDENCE ON KEY PERSONNEL
The Company's future operating results depend in significant part upon the
continued contributions of its key technical and senior management personnel,
many of whom would be difficult to replace. The development and manufacturing of
millimeter wave radios is extremely complicated, and the knowledge and
experience of any of these key technical and management personnel is critical to
the Company's ability to develop new products and product enhancements. The
Company has not entered into long-term employment or non-competition agreements
with any of its employees, and the Company does not maintain key-man life
insurance on any of its key technical or senior management personnel. In
addition, the Company anticipates that it will need additional management
personnel if it is to be successful in increasing production capacity and the
scale of its operations. There can be no assurance that it will be able to
obtain such personnel on acceptable terms.
The Company's future operating results also depend in significant part upon
its ability to attract and retain qualified engineering, manufacturing, quality
assurance, sales, marketing and customer support personnel. Competition for such
personnel is intense. The Company has experienced difficulties over the past
nine months in recruiting sufficient qualified engineering and manufacturing
personnel in the Seattle area, and there can be no assurance that the Company
will be successful in attracting or retaining such personnel. There may be only
a limited number of persons with the requisite skills to serve in these
positions, and it may be increasingly difficult for the Company to hire such
personnel over time. The loss of any key employee, the failure of any key
employee to perform in his or her current position, the Company's inability to
attract and retain skilled employees as needed or the inability of the officers
and key employees of the Company to expand, train and manage the Company's
employee base could materially adversely affect the Company's business,
financial condition and results of operations. See "Business -- Employees" and
"-- Management."
10
<PAGE> 14
RISKS ASSOCIATED WITH INTERNATIONAL SALES
Approximately 91% of the Company's XP4 sales through March 31, 1997 were
made to customers located outside of the United States. The Company anticipates
that international sales will continue to account for at least a majority of its
sales for the foreseeable future. The Company's international sales may be
denominated in foreign or United States currencies. The Company does not
currently engage in foreign currency hedging transactions as all sales to date
have been in U.S. dollars. However, if a material amount of future sales are
denominated in foreign currency, a decrease in the value of foreign currencies
relative to the United States dollar could result in losses from such
transactions. With respect to the Company's international sales that are United
States dollar denominated, such a decrease could make the Company's systems less
price-competitive, or could cause distributors or customers to renegotiate
prices for subsequent purchases, both of which could have a material adverse
effect upon the Company's business, financial condition and results of
operations. Additional risks inherent in the Company's international business
activities include changes in regulatory requirements, tariffs and other trade
barriers, political and economic instability, difficulties in staffing and
managing foreign operations, difficulties in managing distributors, customs
requirements, potentially adverse tax consequences, the burden of complying with
a wide variety of complex foreign laws and treaties, difficulties in obtaining
necessary equipment authorizations and the possibility of difficulty in accounts
receivable collections. Distribution and sales agreements entered into with
foreign customers may be governed by foreign laws which may differ significantly
from U.S. laws. Therefore, the Company may be limited in its ability to enforce
its rights under such agreements and to collect damages, if awarded. There can
be no assurance that any of these factors will not have a material adverse
effect on the Company's business, financial condition and results of operations.
If service providers in developing markets do not construct wireless
telecommunications systems, or construction of such systems is delayed for a
variety of reasons, demand for the Company's products in those markets will be
also limited or delayed. In relying on direct or indirect sales to service
providers in developing markets, the Company may also face economic, political
and foreign currency fluctuations that are more volatile than those commonly
experienced in the United States and other areas.
DEPENDENCE ON GROWTH OF WIRELESS COMMUNICATIONS MARKET
The future operating results of the Company depend to a significant extent
upon the continued growth and increased availability and acceptance of cellular
and PCS/PCN and wireless local loop access telecommunications services
internationally and, to a lesser extent, in the United States. There can be no
assurance that the volume and variety of wireless telecommunications services or
the markets for and acceptance of such services will grow, or that such services
will create a demand for the Company's systems. If the millimeter wave wireless
radio market for the Company's systems fails to grow, or grows more slowly than
anticipated, the Company's business, financial condition and results of
operations would be materially adversely affected. Certain sectors of the
communications market will require the development and deployment of an
extensive and expensive communications infrastructure. In particular, the
establishment of cellular and PCS/PCN networks in the U.S. and other countries
will require very large capital expenditures. There can be no assurance that
communications providers have the ability to, or will, make the necessary
investment in such infrastructure, or that the creation of this infrastructure
will occur in a timely manner. Moreover, purchase of the Company's systems for
local loop service is dependent on the pricing of wireless telecommunications
services at rates competitive with those charged by wireline telephone
companies. In the U.S., rates for wireless access are currently substantially
higher than those charged by wireline companies, and there can be no assurance
that rates for wireless access will be competitive with rates charged by
wireline companies in the U.S. or elsewhere. If wireless access rates are not
competitive, demand for wireless access may be materially adversely affected. If
the Company allocates its resources, or relies heavily on a system provider that
allocates it resources to any market segment that does not grow as rapidly as
projected, it may be unable to reallocate its resources to other market segments
in a timely manner, which may curtail or eliminate its ability to enter such
market segments, and may have a material adverse effect on the Company's
business, financial condition and results of operations.
INTENSELY COMPETITIVE INDUSTRY
The wireless communications market is intensely competitive. The Company's
millimeter wave radio systems compete with other wireless telecommunications
products and alternative telecommunications transmission services.
11
<PAGE> 15
The principal competitive factors in this market include product performance and
reliability, ability to meet delivery requirements, price, ease of installation,
adaptability and upgradeability and other product features. The Company
experiences intense competition worldwide from a number of leading
telecommunications companies that offer a variety of competitive products and
broader telecommunications product lines, including Alcatel Network Systems,
California Microwave, Inc., Digital Microwave Corporation, Ericsson Limited,
Harris Corporation -- Farinon Division, Nokia Telecommunications and P-COM,
Inc., all of which have substantially greater installed bases, financial
resources and production, marketing, manufacturing, engineering and other
capabilities than the Company. The Company may also face competition in the
future from new market entrants offering competing technologies. In addition,
the Company's current and prospective customers and distributors have developed,
are currently developing or could develop the capability to manufacture products
competitive with those that have been or may be developed or manufactured by the
Company. Certain of such customers and distributors have access to the Company's
technology or have been granted the right to use the technology for purposes of
manufacturing under defined circumstances. The Company's future results of
operations may depend in part upon the extent to which these customers elect to
purchase rather than develop and manufacture their own radio systems. The
Company expects that its competitors will continue to improve the performance
and lower the price of their current products and to introduce new products or
new technologies that may be comparable or superior to the Company's current
products, which could cause a significant decline in sales or loss of market
acceptance of the Company's products or cause the Company's technologies to be
obsolete or non-competitive. The Company expects to continue to experience
significant price competition that may materially adversely affect its gross
margins and its business, financial condition and results of operations. The
Company believes that to be competitive, it will be required to expend
significant resources on, among other items, new product development and
enhancements and to reduce the costs of its products. As a result there can be
no assurance that the Company will be able to compete successfully. See
"Business -- Competition."
POSSIBLE NEED FOR ADDITIONAL CAPITAL
The Company's future capital requirements will depend upon many factors,
including the success or failure of the Company's efforts to expand its
production, sales and marketing efforts, the status of competitive products, and
the requirements of the Company's efforts to develop new products and product
enhancements. The Company believes that current and future available capital
resources are adequate to fund its operations for at least twelve months. There
can be no assurance, however, that the Company will not require additional
financing prior to such date. In such event, there can be no assurance that
additional financing will be available to the Company on acceptable terms, or at
all, or that such financing may not result in further dilution to existing
stockholders. The Company may be required to obtain funds through its
arrangements with partners or others that may require the Company to relinquish
rights to certain of its technologies or potential products or other assets. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate its expansion of production and its research and development
programs. Any inability to obtain needed financing by the Company could have a
material adverse effect on its business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
POTENTIAL FLUCTUATIONS IN BACKLOG
The Company's current backlog consists of a relatively small number of
large orders for XP4 equipment, principally from SAT for use by Bouygues Telecom
and Nortel for use by Globtel, and is attributable largely to limitations in the
Company's current production capacity. Purchase orders are often received and
accepted substantially in advance of shipment and are generally cancelable prior
to shipment. As a result, backlog may not result in revenues. Furthermore, the
Company's business strategy is to reduce the period between receipt and shipment
of orders by increasing production capacity. Thus, it should not be expected
that the Company's backlog will remain at current levels. Furthermore, due to
the many factors affecting decisions by customers to place orders and the
relative impact of a small number of large orders, backlog may fluctuate
significantly. Such fluctuations may adversely affect the price of the Common
Stock. See "Business -- Backlog."
12
<PAGE> 16
RISKS ASSOCIATED WITH GRANTS OF LIMITED MANUFACTURING RIGHTS
Some of the Company's existing and anticipated distribution relationships
with systems integrators involve or may involve the granting of rights enabling
the systems integrators to manufacture millimeter wave radios using the
Company's proprietary designs and technologies. In some instances, these rights
arise only upon the occurrence of specified conditions, such as a material
failure by the Company to perform its contractual obligations as a supplier. In
other instances, such manufacturing rights may be immediately effective but
limited to the manufacture of products within a specified range of frequencies,
a particular geographic area or a certain percentage of the systems integrator's
total product requirements. See "Business -- Distribution Relationships." The
negotiation of limited manufacturing rights typically involves highly sensitive
business issues such as sharing of the Company's proprietary information, rights
to Company developed and jointly developed improvements, preservation of rights
to next-generation product designs, conditions and limitations under which such
manufacturing rights may be utilized and compensation for the use of proprietary
information and technologies. Because the negotiated compensation to the Company
from third-party manufactured units results in lower margins than those earned
on Company manufactured units, the Company attempts to negotiate limits on the
amount of third-party manufacturing and to contractually protect its business
interests. There can be no assurance that the negotiated limitations on the
exercise of such rights will be sufficient to prevent such exercise from having
a material adverse effect on the Company's business, financial condition and
results of operations. Nor is there any assurance that contractual provisions
and related legal remedies will in all cases be adequate to prevent distributors
from making unauthorized disclosures, or excessive or unanticipated uses of the
Company's proprietary designs and technologies or sales of such products.
Granting of manufacturing rights, in general may also create competition between
the Company and its distributors over access to critical components that may be
in limited or short supply. See "Business -- Manufacturing".
EXTENSIVE GOVERNMENT REGULATION
Radio communications are subject to extensive regulation by United States
and foreign laws and international treaties. The Company's systems must conform
to a variety of domestic and international requirements established to, among
other things, avoid interference among users of radio frequencies and to permit
interconnection of equipment. In order for the Company's radios to be used in a
foreign jurisdiction, regulatory approval for its systems must be obtained and
end users must comply with such regulations. Regulatory bodies worldwide are
continuing the process of adopting new standards for wireless communication
products. The delays inherent in this governmental approval process may cause
the cancellation, postponement or rescheduling of the installation of
communications systems by the Company's customers, which in turn may have a
material adverse effect on the sale of systems by the Company to such customers.
The failure to comply with current or future regulations could result in
suspension or cessation of operations. Such regulations could require the
Company to change the features of its radio systems and incur substantial costs
to comply with such time-consuming regulations. Equipment to support new
services can be marketed only if permitted by suitable frequency allocations,
auctions and regulations, and the process of establishing new regulations is
complex and lengthy. To the extent service providers are delayed in deploying
these systems, the Company could experience delays in orders. These delays could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The regulatory environment in which the Company operates is subject to
significant change. Regulatory changes, which are affected by political,
economic and technical factors, could significantly impact the Company's
operations by restricting network development efforts by the Company's customers
or end users, making current systems obsolete or increasing the opportunity for
additional competition. Any such regulatory changes could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company might deem it necessary or advisable to modify its
systems to operate in compliance with such regulations. Such modifications could
be extremely expensive and time-consuming. See "Business -- Government
Regulation."
UNCERTAINTY REGARDING PROTECTION OF PROPRIETARY RIGHTS
The Company does not hold any patents regarding the technology and
expertise involved in the assembly, calibration and testing of its XP4 products.
The Company relies on technological innovations, trade secrets and expertise to
develop and maintain its competitive position, and upon confidentiality
procedures, common-law remedies and contractual provisions to protect its
proprietary rights. The Company's agreements with its distributors
13
<PAGE> 17
generally contain non-competition and non-disclosure provisions prohibiting the
distributor from manufacturing products based on the Company's designs for the
term of the agreement and for a short period thereafter. In general, the Company
has not entered into non-competition agreements with its management and other
employees or into confidentiality and non-disclosure agreements with system
integrators or service providers. Furthermore, it is likely that the Company's
competitors can obtain samples of the Company's products and, through reverse
engineering, obtain access to proprietary knowledge regarding the Company's
product designs.
The Company's success will depend in part on its ability to protect its
technology and preserve its trade secrets through common law and contractual
restrictions. There can be no assurance that the trade secrecy or other measures
taken by the Company will be adequate to prevent misappropriation of its
technology, or that competitors will not be able to independently develop
technologies having similar or better functions or performance characteristics.
In addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States. There
can be no assurance that the Company will have adequate legal remedy to prevent
or seek redress for future unauthorized misappropriation of the Company's
technology.
The telecommunications industry is characterized by rapid technological
change, with frequent introductions of new products and technologies. As a
result, industry participants often find it necessary to develop products and
features similar to those introduced by others, increasing the risk that their
products and processes may give rise to claims that they infringe the patents of
others. Accordingly, the Company's current and future products and processes, or
uses thereof, may conflict with patents that have been granted or may be granted
to competitors or others. Such competitors or others could bring legal actions
against the Company or its customers, claiming damages and seeking to enjoin
manufacturing, marketing or use of the affected product or processes. Similarly,
the Company may in the future find it necessary to commence litigation in order
to enforce and protect its proprietary rights. If the Company becomes involved
in any such litigation, it could consume a substantial portion of the Company's
resources and result in a significant diversion of management's attention. If
the outcome of any such litigation were adverse to the Company or its customers,
its business, financial condition and results of operations could be materially
adversely affected. In addition to any potential liability for damages, the
Company or its customers could be enjoined from continuing to manufacture,
market or use the affected product or process, and could be required to obtain a
license in order to continue such manufacture, marketing or use. There can be no
assurance that the Company or its customers would prevail in any such action or
that any license required under any such patent would be made available on
acceptable terms, if at all.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be determined
by negotiations between the Company and the Representatives of the Underwriters
and may not be indicative of the market price for the Common Stock in the
future. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. There can be no assurance that an
active trading market will develop or be sustained after this Offering. The
Company believes that factors such as announcements of developments related to
the Company's business; announcements of technological innovations or new
products or enhancements by the Company or its competitors; sales by
competitors, including sales to the Company's customers; sales of the Company's
Common Stock into the public market, including by members of management;
developments in the Company's relationships with its customers, partners,
distributors and suppliers; shortfalls or changes in revenues, gross margins,
earnings or losses or other financial results from analysts' expectations;
regulatory developments; fluctuations in results of operations; and general
conditions in the Company's market, or the markets served by the Company's
customers, or the economy could cause the price of the Company's Common Stock to
fluctuate, perhaps substantially. In addition, in recent years the stock market,
in general, and the market for shares of small capitalization and technology
stocks in particular, have experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected companies. Many
companies in the telecommunications industry have recently experienced historic
highs in the market price of their common stock. There can be no assurance that
the market price of the Company's Common Stock will not experience significant
fluctuations in the future, including fluctuations that are unrelated to the
Company's performance. Such fluctuations could materially adversely affect the
market price of the Company's Common Stock.
14
<PAGE> 18
SHARES ELIGIBLE FOR FUTURE SALE AFTER THE OFFERING
Upon completion of this Offering, 12,139,029 shares of Common Stock will be
outstanding (12,514,029 shares if the Underwriters' over-allotment option is
exercised in full) of which the 2,500,000 shares offered hereby (2,875,000 if
the Underwriters over-allotment is exercised in full) will be freely tradable on
the public market, except to the extent that such shares are held by an
affiliate of the Company. Of the remaining 9,639,029 outstanding shares,
8,123,262 shares are eligible for public sales immediately after this Offering
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), 50,231 shares will become eligible for public sale 90 days
after the date of this Offering pursuant to Rule 701 under the Securities Act
and 8,384,076 shares will become eligible for public sale 180 days after the
date of this Offering upon the expiration of lock-up agreements entered into by
holders of substantially all of the Common Stock not being sold in this Offering
(the "Lock-Up Agreements"). All officers, directors and significant shareholders
and substantially all of the other shareholders of the Company have agreed not
to sell, offer to sell, solicit an offer to buy, contract to sell, grant any
option to purchase, contract to require any other person to purchase, or
otherwise transfer or dispose of any interest in, any shares of capital stock of
the Company, or any securities convertible into or exercisable or exchangeable
for capital stock of the Company, for a period of 180 days after the date of
this Prospectus without the prior written consent of UBS Securities LLC,
Hambrecht & Quist LLC and Wessels, Arnold & Henderson, L.L.C., with certain
limited exceptions, and the Company has agreed that it will not, until 180 days
following the date of this Prospectus, without the prior written consent of UBS
Securities LLC, sell, offer or agree to sell, contract to sell, grant any option
to purchase, make any short sale or otherwise dispose of any shares of Common
Stock, except that the Company may grant additional options and issue stock
under the 1990 Stock Option Plan and the Director Plan or issue shares of Common
Stock upon the exercise of outstanding stock options and warrants. As of March
31, 1997, an additional 1,539,460 shares were issuable upon exercise of
outstanding stock options, 82% of which are subject to Lock-Up Agreements, with
the remainder eligible for public sale 90 days after the date of this Offering
pursuant to Rule 701, subject to vesting.
An additional 2,949,169 shares of Common Stock are issuable upon exercise
of warrants. Of the shares issuable upon exercise of the warrants, 2,462,947
shares are subject to Lock-Up Agreements.
Shareholders who will hold an aggregate of 9,546,995 shares of Common Stock
after this Offering have the right to require the Company to register their
shares for sale under the Securities Act, beginning 180 days after the closing
of this Offering. Sales of substantial numbers of shares of Common Stock in the
public market following this Offering could materially adversely affect the
market price for the Common Stock. See "Shares Eligible for Future Sale" and
"Descriptions of Common Stock -- Registration Rights."
CONTROL BY EXISTING SHAREHOLDERS; EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
Following the completion of this Offering, members of the Board of
Directors and the officers of the Company, together with entities that may be
deemed affiliates of or related to such persons or entities, will beneficially
own approximately 63.1% of the outstanding shares of Common Stock of the
Company. Accordingly, these stockholders are able to significantly influence the
election of the members of the Company's Board of Directors and significantly
influence the outcome of corporate actions requiring stockholder approval, such
as mergers and acquisitions. This level of ownership, together with certain
provisions of the Company's certificate of incorporation, equity incentive
plans, bylaws and Washington law, may have a significant effect in delaying,
deferring or preventing a change in control of the Company and may adversely
affect the voting and other rights of other holders of Common Stock. See
"Management -- Directors and Executive Officers," "-- Principal Stockholders"
and "Description of Capital Stock."
DILUTION
Investors in Common Stock in the Offering will experience immediate
dilution in the net tangible book value of their shares. Assuming an initial
public offering price of $11.00 per share, dilution to new investors would be
$8.22 per share. Additional dilution will occur upon exercise of outstanding
stock options and warrants. If the Company seeks additional capital in the
future, the issuance of shares or convertible debt to obtain such capital may
lead to further dilution. See "Dilution."
15
<PAGE> 19
LIMITATIONS ON USE OF NET OPERATING LOSS CARRYFORWARDS
Section 382 of the Internal Revenue Code of 1986 (the "Code") imposes
certain limitations on the ability of a "loss corporation" to use its net
operating losses ("NOLs") to offset its future taxable income in taxable years
following an "ownership change" (including an ownership change resulting from
the issuance of stock). In general, an ownership change occurs if the percentage
(as measured by value) of the loss corporation's stock (other than certain
preferred stock) which is owned, directly or indirectly, by one or more 5%
shareholders (or certain groups of shareholders collectively treated as a 5%
shareholder) is increased by more than 50 percentage points over the lowest
percentage of stock owned by such 5% shareholders at any time during the
applicable "testing period". In the event of an ownership change, the amount of
pre-change NOLs that the loss corporation can use to offset its taxable income
in a post-change taxable year will be limited to an amount equal to the product
of the "long-term tax-exempt rate" then in effect and the value of the loss
corporation's stock immediately prior to the ownership change (without taking
into account for such valuation purposes certain capital contributions received
by the loss corporation during the two-year period preceding the ownership
change) (the "Section 382 limitation"). The long-term tax-exempt rate is an
interest rate based upon certain specified U.S. Treasury debt obligations and
announced on a monthly basis by the Internal Revenue Service. In addition, if
the loss corporation does not continue its historic business or continue to use
a substantial portion of its historic assets in its business for a two-year
period following an ownership change, the Section 382 limitation would be
reduced to zero, with the effect that no portion of the pre-change NOLs would be
available to offset future taxable income (except in certain very limited
circumstances).
The Company has reviewed past issuances of stock, grants of options and
warrants to acquire Company stock and issuances of debt instruments convertible
into Company stock, as well as share transfers among its shareholders, to
determine the effect of such events under Section 382 of the Code. Based on such
review, the Company believes that an ownership change occurred on February 13,
1995, and that as a result, the NOLs incurred by the Company prior to that date
are subject to the Section 382 limitation. Thus, to the extent that the
Company's taxable income in a post-change taxable year exceeds the amount of the
Section 382 limitation, the Company's federal income tax liability for such
taxable year would be greater than it would otherwise be if the pre-change NOLs
were fully available to offset such taxable income. The Company further believes
that its issuance of Common Stock pursuant to the Offering, when combined with
other events subsequent to February 13, 1995, should not result in another
ownership change. However, there can be no assurance that future events, such as
the Company's issuance of additional shares of Common Stock or transfers of
outstanding shares of Common Stock by the Company's shareholder, will not cause
an ownership change to occur in the future. In the event of any such future
ownership change, the Company's ability to use some or all of its NOLs incurred
after February 13, 1995 to offset its future taxable income would also become
subject to the Section 382 limitation.
16
<PAGE> 20
THE COMPANY
The Company was incorporated on June 30, 1989 as a Delaware corporation and
reincorporated as a Washington corporation through a merger with a wholly-owned
subsidiary on May 31, 1991. Unless the context otherwise requires, the term
"Company" refers to Innova Corporation and its subsidiaries, Innova Europe
Limited and Techinnova S.A. de C.V. The Company's principal executive offices
are located at Gateway North, Building 2, 3325 South 116th Street, Seattle,
Washington 98168-1974, and its telephone number is (206) 439-9121.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby based on the assumed initial public offering price
of $11.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company, are
estimated to be $24,775,000 ($28,611,250 if the Underwriters' over-allotment
option is exercised in full).
The Company intends to use a portion of the net proceeds from the Offering
to retire the outstanding principal and accrued interest of its credit line with
Greyrock Business Credit, a Division of NationsCredit Commercial Corporation
("Greyrock Business Credit"). As of March 31, 1997, the outstanding balance of
this credit line was approximately $1.3 million. The Company will also use a
portion of the net proceeds of this offering to repay the Company's outstanding
principal balance and accrued interest on its term loan with Greyrock Business
Credit. As of March 31, 1997, there was no outstanding balance on this term
loan. The credit line and the term loan each bear interest at the greater of
4.75% above LIBOR or 8% per annum. The Company has used both the credit line and
the term loan for inventory, supplies and equipment in the manufacturing of XP4
products and for general working capital purposes. The Company expects to use
the balance of the proceeds from the Offering for general corporate purposes,
including the acquisition of equipment and the hiring of additional personnel in
connection with the Company's efforts to increase its production capacity and
scope of operations and for other working capital purposes, including to support
growth in inventory and receivables and research and development and sales and
marketing activities.
Pending their application, the Company intends to invest the net proceeds
from this Offering in government securities or short-term, interest- or
dividend-bearing investment-grade securities.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain earnings, if any, to finance the growth and
development of its business and does not anticipate paying any cash dividends or
other distributions on its Common Stock in the foreseeable future.
17
<PAGE> 21
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company at March 31, 1997 (after giving effect to a 24:1 reverse stock split
to be effective immediately prior to the closing of the Offering) and the
short-term debt and capitalization of the Company as adjusted to give effect to
the: (i) conversion of all outstanding shares of Preferred Stock upon
consummation of the offering; (ii) sale by the Company of the 2,500,000 shares
of Common Stock offered hereby at an assumed initial public offering price of
$11.00 per share, after deducting the underwriting discounts and commissions and
estimated Offering expenses; and (iii) the issuance of 502,866 shares of Series
F Preferred Stock in June 1997 at $6.96 per share, for total cash consideration
of $3,500,000, before issuance costs and (iv) application of the estimated net
proceeds of the Offering. See "Use of Proceeds" and Note 17 of Notes to
Consolidated Financial Statements. The information set forth below is unaudited
and should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------
ACTUAL AS ADJUSTED
-------- ------------
(in thousands)
<S> <C> <C>
Notes payable......................................................... $ 1,271 $ --
Current installments of obligations under capital leases.............. 750 750
-------- --------
Total short-term debt............................................... 2,021 750
Obligations under capital leases, excluding current installments...... 1,318 1,318
Redeemable preferred stock, no par value.
12,874,998 shares authorized; 8,179,444 shares issued and
outstanding; 5,000,000 shares authorized and 0 shares issued and
outstanding, as adjusted(1)...................................... 44,299 --
Stockholders' equity (deficit)
Common Stock, no par value: 15,625,000 shares authorized; 941,702
shares issued and outstanding; 30,000,000 authorized and
12,124,012 shares issued and outstanding, as adjusted(2)......... 1,378 73,952
Additional paid-in capital.......................................... 2,885 2,885
Deferred stock option compensation expense.......................... (663) (663)
Cumulative translation adjustment................................... 38 38
Accumulated deficit................................................. (42,493) (42,493)
Total stockholders' equity (deficit)............................. (38,855) 33,719
-------- --------
Total capitalization............................................. $ 6,762 $ 35,037
======== ========
</TABLE>
- ---------------
(1) At March 31, 1997, the Company had 12,874,998 shares of preferred stock
authorized, of which 4,166,666 shares were designated as Series A Preferred
Stock, 2,083,333 shares were designated Series B Preferred Stock, 833,333
shares were designated Series C Preferred Stock, 625,000 shares were
designated Series C1 Preferred Stock, 4,166,666 shares were designated as
Series D Preferred Stock and 1,000,000 shares were designated as Series E
Preferred Stock.
(2) Based on shares outstanding as of March 31, 1997. Excludes: (i) 1,539,460
shares of Common Stock issuable upon exercise of stock options issued
pursuant to the Company's 1990 Stock Option Plan outstanding at March 31,
1997, at a weighted average exercise price of $1.62 per share; (ii) an
additional 7,687 shares of Common Stock reserved for future issuance under
the Company's 1990 Stock Option Plan and (iii) 2,445,659 shares of Common
Stock issuable upon exercise of Warrants to Purchase Common Stock
outstanding at March 31, 1997, and (iv) 481,978 shares of Preferred Stock
issuable upon exercise of warrants to purchase Preferred Stock outstanding
as of March 31, 1997. See "Management -- Benefit Plans" and "-- Certain
Transactions", "Description of Capital Stock" and Notes to Consolidated
Financial Statements.
18
<PAGE> 22
DILUTION
As of March 31, 1997, the pro forma net tangible book value of the
Company's Common Stock was approximately $8,944,000, or $0.93 per share. Pro
forma net tangible book value per share represents the amount of total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding, after giving effect to pro forma adjustments consisting of the
conversion of the Redeemable Preferred Stock into Common Stock and the issuance
of Series F Preferred Stock. Additionally, after giving effect to the sale by
the Company of the shares of Common Stock offered hereby and after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company, the pro forma net tangible book value of the Company as of March
31, 1997 would have been approximately $33,719,000 or $2.78 per share. This
represents an immediate increase in net tangible book value of $1.85 per share
to existing shareholders and an immediate dilution of $8.22 per Common Share to
new investors purchasing the Common Shares in this Offering. Dilution is
determined by subtracting pro forma net tangible book value per share after the
Offering from the amount of cash paid by a new investor for a Common Share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Public Offering price per share......................... $ 11.00
Pro forma net tangible book value per share as of March
31, 1997.............................................. $ 0.93
Increase per share attributable to the Offering......... $ 1.85
------
Pro forma net tangible book value per share after this
Offering.............................................. $ 2.78
-------
Dilution per share to investors......................... $ 8.22
=======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1997,
the number of Common Shares purchased from the Company, the total consideration
paid to the Company and the average price per share paid by existing
shareholders and by new investors purchasing the Common Shares offered hereby
(before deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE PER
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)(2)......... 9,624,012 79% $49,510,598 64% $ 5.14
Investors(1)........................ 2,500,000 21 $27,500,000 36 $11.00
---------- --- ----------- --- ------
Total..................... 12,124,012 100% $77,010,598 100% $ 6.35
========== === =========== ===
</TABLE>
- ---------------
(1) The foregoing table reflects ownership at March 31, 1997, giving effect to
the conversions of all outstanding shares of Preferred Stock into Common
Stock, the issuance of Series F Preferred Stock and a 24:1 reverse stock
split to be effective immediately prior to the closing of the offering, and
assumes no exercise of the Underwriters' overallotment option. Exercise of
the Underwriters' over-allotment option in full would reduce the proportion
of shares held by existing shareholders to 77% of the total number of Shares
of Common Stock outstanding after the Offering and increase the number of
shares held by investors in the offering to 2,875,000 shares or 23% of such
total number of shares.
(2) Based on shares outstanding as of March 31, 1997. Excludes: (i) 1,539,460
shares of Common Stock issuable upon exercise of stock options issued
pursuant to the Company's 1990 Stock Option Plan outstanding at March 31,
1997, at a weighted average exercise price of $1.62 per share; (ii) an
additional 7,687 shares of Common Stock reserved for future issuance under
the Company's 1990 Stock Option Plan; (iii) 2,445,659 shares of Common Stock
issuable upon exercise of Warrants to Purchase Common Stock outstanding at
March 31, 1997, and (iv) 481,978 shares of Preferred Stock issuable upon
exercise of warrants to purchase Preferred Stock outstanding as of March 31,
1997. See "Management -- Benefit Plans" and "-- Certain Transactions",
"Description of Capital Stock" and Notes to Consolidated Financial
Statements. To the extent such stock options and warrants are exercised,
there will be further dilution to new investors in the Offering. See
"Management -- Stock Options," "-- Benefit Plans" and "Risk
Factors -- Dilution."
19
<PAGE> 23
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The selected financial data
for fiscal periods ended March 31, 1993, 1994, 1995 and 1996, and December 31,
1996 are derived from the Consolidated Financial Statements of the Company
audited by KPMG Peat Marwick LLP, independent accountants. The selected
financial data as of March 31, 1997 and for the three months ended March 31,
1996 and 1997 are derived from unaudited financial statements prepared by the
Company on a basis consistent with the Company's audited Consolidated Financial
Statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the results for such periods. Operating results for the three months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for any other interim period or for the year ending December 31, 1997.
<TABLE>
<CAPTION>
NINE MONTH
FISCAL PERIOD THREE MONTHS ENDED
YEARS ENDED MARCH 31, ENDED MARCH 31,
---------------------------------------- DECEMBER 31, ----------------------
1993 1994 1995 1996 1996 1996 1997
------- ------- ------- ------- ------------- ------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Revenues:
Net product sales........................ $ 200 $ 877 $ 1,151 $ 445 $ 2,051 $ 12 $ 4,910
Manufacturing contract service
revenues............................... -- -- 1,207 1,517 53 125 --
------- ------- ------- ------- ------- ------- -------
200 877 2,358 1,962 2,104 137 4,910
Total cost of products sold:
Cost of products sold.................... 664 2,063 3,703 2,425 3,686 985 4,081
Manufacturing contract service
expenses............................... -- -- 812 1,517 53 125 --
------- ------- ------- ------- ------- ------- -------
664 2,063 4,515 3,942 3,739 1,110 4,081
Gross profit (loss)........................ (464) (1,186) (2,157) (1,980) (1,635) (973) 829
Operating expenses:
Selling, general and administrative
expenses............................... 1,132 1,566 2,067 2,317 2,585 796 1,638
Research and development expenses........ 2,307 2,482 1,892 4,519 2,966 1,576 1,111
------- ------- ------- ------- ------- ------- -------
Loss from operations....................... (3,903) (5,234) (6,116) (8,816) (7,186) (3,345) (1,920)
Other income (expense)..................... (13) (166) (202) (245) (143) (70) (199)
Loss from discontinued operations.......... (591) -- -- -- -- -- --
Loss on disposal of discontinued
operations............................... (592) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net loss................................... $(5,099) $(5,400) $(6,318) $(9,061) $ (7,329) $(3,415) $ (2,119)
======= ======= ======= ======= ======= ======= =======
Pro forma net loss per share(1).......... $ (0.73) $ (0.21)
======= =======
Shares used in computing pro forma net
loss per share(1)...................... 10,086,535 10,094,815
------- -------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, 1997
----------------------------------------- DECEMBER 31, -------------------------
1993 1994 1995 1996 1996 ACTUAL AS ADJUSTED(2)
-------- -------- -------- -------- ------------ -------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 713 $ 527 $ 1,922 $ 287 $ 173 $ 67 $ 27,070
Working capital (deficit).............. (1,763) (2,388) 1,815 2,156 (289) 2,658 30,933
Total assets........................... 1,968 2,798 5,093 6,747 7,305 13,687 40,690
Current liabilities.................... 2,916 4,353 1,206 2,156 4,809 6,925 5,653
Long term obligations.................. 150 -- 443 330 542 1,318 1,318
Mandatorily convertible notes payable
for preferred stock.................. -- -- -- 6,984 -- -- --
Redeemable preferred stock............. 9,540 13,198 24,497 27,362 39,313 44,299 --
Common stock........................... 6 1,290 1,302 1,330 1,377 1,378 73,952
Additional paid-in capital............. 1,605 1,605 1,605 1,605 1,605 2,885 2,885
Accumulated deficit.................... (12,267) (17,667) (23,985) (33,046) (40,375) (42,493) (42,493)
Total stockholders' equity (deficit)... (10,558) (14,753) (21,052) (30,085) (37,360) (38,855) 33,719
</TABLE>
- ---------------
(1) See Note 1(q) to Consolidated Financial Statements.
(2) As adjusted to give effect to the (i) conversion of all outstanding shares
of Preferred Stock into shares of Common Stock upon consummation of the
Offering, (ii) sale of the shares of Common Stock being offered hereby at an
assumed initial public offering price of $11.00 per share (after deducting
the underwriting discounts and commissions and estimated expenses of the
Offering), (iii) the issuance of 502,866 shares of Series F Preferred Stock
in June, 1997 at $6.96 per share, for total cash consideration of
$3,500,000, before issuance costs and (iv) application of the estimated net
proceeds of the Offering. See "Use of Proceeds."
20
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.
OVERVIEW
Innova designs, manufactures and supports millimeter wave radios for use as
short- to medium-distance wireless communications links in developed and
developing telecommunications markets. The Company began shipping the 23, 26 and
38 GHz models of its XP4 radio systems in the quarter ended September 30, 1996.
As of March 31, 1997 the Company had sold its XP4 radios to a total of 14
customers, generating $5.4 million in total revenues, $3.9 million of which
occurred in the quarter ended March 31, 1997. Approximately 81% of XP4 sales
through March 31, 1997 have been to three customers. The Company was a
development stage company from its incorporation in 1989 through March 31, 1996.
As of March 31, 1997, the Company had an accumulated deficit of approximately
$42.5 million. See "Risk Factors -- Limited Operating History; History of
Significant Losses." After March 31, 1996 the Company changed its fiscal
year-end to December 31.
The Company's net sales consist primarily of sales of point-to-point
millimeter wave radios to system integrators, other equipment resellers and
service providers, principally for installation outside the U.S. See "Risk
Factors -- Dependence on Distribution Relationships" and "-- Risks Associated
With International Sales." Other revenues are generated from the resale of
related telecommunications equipment such as antennas, cables and enclosures.
The Company recognizes revenue upon shipment.
In the period from 1989 to 1992 the Company developed and manufactured a
line of TVRO (Television Receive Only) antennas. Approximately $4 million of
these antennas were sold, primarily to a single customer in Europe, before the
product line was discontinued in 1992. The Company began developing millimeter
wave radios early in calendar 1992. The Company generated its first revenue from
the shipment of radios, based on its initial XP3 architecture, in late calendar
1993. The Company subsequently determined that the technology and architecture
upon which the XP3 product line was based was not suitable to meet the evolving
needs of the target market. In late calendar 1994, the Company decided to
curtail further development of the XP3 product line and concentrate its
development efforts on a new product architecture, which it believed would be
more reliable and would incorporate features that would be more attractive to
customers. In November 1994, the Company ceased marketing XP3 products, and for
approximately the next year, its only material revenues consisted of
subcontractor fees for manufacturing a revised model of the XP3 for SAT. See
"Certain Transactions -- XP3 Product Arrangements." During this period, research
and development efforts were devoted to the development of the XP4 product line.
In calendar 1995, the Company began making significant additions of
experienced management in the engineering, manufacturing, sales and
administrative areas, including a new Chief Executive Officer who took office in
early calendar 1996. From late calendar 1995 to the latter part of calendar
1996, the Company continued to invest in product development and manufacturing
infrastructure, in anticipation of the launch of the XP4 product line, which
occurred in the quarter ended September 30, 1996. After an initial evaluation
period, orders for XP4 radios increased late in the final quarter of calendar
1996 and continued to increase in the first quarter of 1997. Since launching the
XP4 product line, the Company has increased expenditures in an effort to
increase sales and expand manufacturing capacity. In light of the fundamental
changes in the character of the Company's operations during the past three
years, as well as various other reasons, the Company believes that
period-to-period comparisons of its financial results should not be relied upon
as an accurate indicator of future performance. See "Risk Factors -- Significant
Fluctuations in Results of Operations."
Since introduction of the XP4 product line, orders have increased more
rapidly than the Company has been able to expand its manufacturing capacity,
resulting in delayed shipping dates and lost orders. The Company's backlog was
approximately $6.1 million as of March 31, 1997. The Company includes in backlog
only customer commitments for which it has received signed purchase orders and
assigned shipment dates within the following 180 days. The Company's
distribution agreements generally provide that products are to be shipped not
more than 60 days after the order and that orders may be cancelled prior to
shipment. The Company believes the current level of backlog, as a percentage of
sales, is due to inadequate manufacturing capacity and anticipates that the
backlog will decrease as a
21
<PAGE> 25
percentage of sales as manufacturing capacity increases and delivery times
decrease. The Company intends to continue its efforts to increase manufacturing
capacity but expects that sales may continue to be constrained by capacity
limitations through 1997 and into 1998. See "Risk Factors -- Potential
Fluctuation in Backlog."
As sales have increased since introduction of the XP4 in the quarter ended
September 30, 1996, the Company's gross margins have improved, due to the
Company's ability to absorb fixed and semivariable operating costs over larger
manufacturing volumes. The Company's gross profits over the past two quarters
have also been favorably affected by lower component costs, particularly
fabricated metal parts and transmit and receive hybrids. These component cost
savings are principally a result of higher volume purchasing, the substitution
of lower cost parts and the redesign of components and circuits. In addition to
component cost savings, the Company is pursuing programs to simplify and reduce
the cost of its assembly, test and manufacturing processes. Realization of
further planned savings is necessary if the Company is to improve gross margins.
There can be no assurance, however, that the Company will be successful in
achieving further cost reductions. The Company also expects that its gross
margins will continue to be affected by a variety of other factors, such as:
increases in lower-margin sales through large distributors; increased investment
in manufacturing facilities or equipment; changes in labor costs resulting from
increasing manufacturing capacity; increased manufacturing or testing
arrangements with distributors; changes in product mix; receipt of royalties
under limited manufacturing licenses; increased sourcing of components and
subassemblies from third-party manufacturers; and potential increased price
competition. See "Risk Factors -- No Assurance of Cost Reductions" and
"-- Possible Decline in Prices."
Continued expansion of the Company's manufacturing capacity will be
required for the Company to achieve its business plan. Such expansion will
require substantial investments in additional capital equipment, the recruiting
and training of additional personnel, and possibly increased sourcing of
components from third-parties or investment in additional manufacturing
facilities. Addition of a new facility and increased manufacturing capacity,
particularly if located in another state or country, is likely to add
significant amounts of fixed overhead to the Company's manufacturing costs and
to appreciably increase the complexity of the Company's operations. See "Risk
Factors -- Limited Production Capacity; No Assurance of Successful Expansion of
Operations" and "-- Management of Growth."
To the extent sales volumes continue to grow, the accounting and other
systems used by the Company may not be suitable to handle the volume and
complexity of the resulting transactions. At present, the principal means by
which the Company maintains its books and records, as well as the bulk of its
purchasing and manufacturing data, is a relatively simple PC-network based
system. To the extent the Company continues to grow, this system may need to be
replaced or upgraded. The Company is currently in the process of upgrading its
current information management software; however, this upgrade may prove to be
only a first step in dealing with the anticipated needs of the Company. See
"Risk Factors -- Management of Growth."
The Company has entered into distribution agreements whereby it has agreed
to sell XP4 products at various fixed prices. Certain of these distribution
agreements include "Most Favored Customer" pricing commitments which require the
Company to offer lower prices to such distributors in the event such prices are
offered under like terms and conditions to other customers. In addition, under
certain conditions some of these agreements grant limited manufacturing licenses
or impose penalties for late delivery. The Company anticipates that certain of
its distributors will manufacture a portion of the XP4 radios they sell. To the
extent such manufacturing by the Company's distributors decreases the number of
XP4 units built by the Company, the Company's manufacturing gross profit will be
reduced. As of March 31, 1997, no XP4 products have been manufactured by any of
the Company's distributors. See "Risk Factors -- Dependence on Distribution
Relationships" and "Business -- Distribution Relationships."
The Company's sales may also be affected by a variety of other factors
including the establishment of new distribution relationships, the addition of
direct sales personnel or sales offices, the introduction of new products by the
Company or its competitors, and competitive and other conditions affecting the
telecommunications industry generally. The Company remains dependent on
significant contracts from a limited number of customers. Such contracts are
often with systems integrators, which in turn provide the Company's products to
service providers as part of larger telecommunication system infrastructure
buildouts. Due to the Company's limited operating history and limited number of
customers to date, it is difficult, if not impossible for the Company to
accurately predict the mix or nature of infrastructure projects that provide the
basis for its product sales to systems integrators. However, the
22
<PAGE> 26
Company anticipates that revenue derived from current and future large customers
and large-scale projects will continue to represent a significant portion of its
total revenues. Because of the small size of the Company's customer base, the
loss of or reduced demand for products from any customer for any reason,
including business failure of the customer, abandonment of the underlying
project, or changes in government policy or general economic conditions, for
example, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Significant
Customer Concentration; Dependence on Large Contracts," "-- Intensely
Competitive Industry," and "Business -- Customers." The Company believes that
price competition among manufacturers of millimeter wave radios is likely to
increase over time, which could adversely affect the Company's sales or margins.
See "Risk Factors -- Possible Decline in Prices."
In addition to expanding the XP4 product line with additional frequencies
and data rates, the Company is also developing point-to-point millimeter wave
radios with different architectures that are designed to address different
market needs than the XP4. To maintain current or target additional market
opportunities, the Company will need to undertake additional development
programs and to produce new products and product enhancements on a timely and
cost-effective basis. Accordingly, research and development costs are expected
to increase over time.
The Company has granted non-qualified stock options to its employees which
in some cases have required attainment of performance goals prior to vesting.
Generally, these options have been granted at exercise prices which the Company
believed to be no less than the fair market value of the underlying Common Stock
as of the date of grant. In 1997, the Company amended previously granted options
to eliminate performance-related vesting criteria. In connection with these
amendments, the Company recorded a non-cash charge to operations of $617,380 for
the three months ended March 31, 1997, which is due primarily to the estimated
fair market value of these amended options exceeding the exercise price on the
amendment date. Additional compensation expense totaling $662,520 will be
recorded over the next 4 years as these options vest.
The Company accrues for warranty expenses on an estimated basis, based on a
fixed dollar amount for each radio system shipped. Due to the limited operating
history of the Company, this estimate is based in part on experience with the
XP4 and, to a greater extent, on management's experience in the millimeter wave
radio industry generally. Actual warranty expenses for XP4 sales may vary
significantly from the Company's estimates.
The fifth, sixth, seventh, eighth, ninth, tenth and eleventh paragraphs of
this "Overview" Section contain forward looking statements ("Forward Looking
Statements") within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results could
differ materially from those projected in the Forward Looking Statements, as a
result of a number of factors, including those set forth in the section entitled
"Risk Factors." In particular, note the "Risk Factors" entitled "Potential
Significant Fluctuations in Results of Operations," "Significant Customer
Concentration; Dependence on Large Customers," "Intensely Competitive Industry"
and "Limited Production Capacity; No Assurance of Successful Expansion of
Operation."
23
<PAGE> 27
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected items
from the Company's Consolidated Statements of Operations expressed as a
percentage of total revenues.
<TABLE>
<CAPTION>
NINE MONTH
FISCAL THREE MONTHS
PERIOD ENDED
YEAR ENDED MARCH 31, ENDED MARCH 31,
----------------------------------------- DECEMBER 31, -----------------
1993 1994 1995 1996 1996 1996 1997
-------- ------ ------ ------ ------------ -------- -----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total Revenues:
Net product sales.............................. 100.0% 100.0% 48.8% 22.7% 97.5% 8.7% 100.0%
Manufacturing contract service
revenues..................................... -- -- 51.2 77.3 2.5 91.3 --
100.0 100.0 100.0 100.0 100.0 100.0 100.0
Total cost of products sold:
Cost of products sold.......................... 332.0 235.2 157.0 123.6 175.2 719.1 83.1
Manufacturing contract service
expenses..................................... -- -- 34.4 77.3 2.5 91.3 --
332.0 235.2 191.4 200.9 177.7 810.4 83.1
Gross margin (deficit)........................... (232.0) (135.2) (91.4) (100.9) (77.7) (710.4) 16.9
Operating expenses:
Selling, general and administrative............ 566.0 178.6 87.6 118.1 122.9 581.4 33.4
Research and development....................... 1,153.5 283.0 80.2 230.3 141.0 1,150.8 22.6
Loss from operations............................. (1,951.5) (596.8) (259.2) (449.3) (341.6) (2,442.6) (39.1)
Other income (expense)........................... (6.5) (18.9) (8.7) (12.5) (6.8) (51.4) (4.1)
Loss from discontinued operations................ (295.5) -- -- -- -- -- --
Loss on disposal of discontinued operations...... (2,960) -- -- -- -- -- --
------ ------ ------ ------ ------ -------- -----
Net loss......................................... (2,549.5)% (615.7)% (267.9)% (461.8)% (348.4)% (2,494.0)% (43.2)%
====== ====== ====== ====== ====== ======== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1996
TOTAL REVENUES. Net product sales increased to $4.9 million for the three
months ended March 31, 1997, as compared to minimal levels for the three months
ended March 31, 1996. The increase is attributable to sales of XP4 radios, which
were not sold until the quarter ended September 30, 1996. International sales
represented 91% of total net product sales for the three months ended March 31,
1997. Manufacturing contract service revenues, which consisted of fees received
for manufacturing a revised XP3 for SAT, were eliminated due to SAT's decision
to discontinue production of XP3 radios in Innova's facilities for the quarter
ended March 31, 1996.
GROSS PROFIT (LOSS). Gross profit increased to $829,000 for the three
months ended March 31, 1997, as compared to a loss of $973,000 for the three
months ended March 31, 1996. The increase in gross profit was attributable to
the sales of XP4 radios, increased manufacturing volumes and reduced unit
material and outside processing costs resulting from higher-volume purchases and
lower, negotiated prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $1.6 million for the three months ended
March 31, 1997 as compared to $796,000 for the three months ended March 31,
1996. The increase was due primarily to a charge to compensation expense in
connection with amendments to stock options granted in calendar 1996 and
increased compensation expense associated with the addition of sales and
marketing staff in the U.S. and U.K. offices to support the launch of the XP4
product line. The Company may incur additional compensation expense in
connection with opening additional sales offices, particularly in certain
international markets. The Company anticipates that selling, general and
administrative expenses will continue to increase.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased to
$1.1 million for the three months ended March 31, 1997 as compared to $1.6
million for the three months ended March 31, 1996. The decrease in research and
development expenses was primarily due to a reduction in consulting expenses,
which was partially offset by an increase in employee compensation costs due to
increased headcount. Research and development expenses incurred for the three
months ended March 31, 1997 were related to refinements and expansion of the XP4
product line and development of other products.
24
<PAGE> 28
OTHER INCOME (EXPENSE). Other expense increased to $198,000 for the three
months ended March 31, 1997 as compared to $70,000 for the three months ended
March 31, 1996. The increase was due primarily to increases in interest expense
resulting from additional capitalized leases. The Company anticipates that net
interest expense will continue to increase due to increased balances outstanding
on the Company's working capital line.
INCOME TAXES. No provision for income taxes has been recorded, as the
Company incurred net operating losses through March 31, 1997. As of March 31,
1997, the Company had remaining net operating loss carryforwards of $35 million
and additional loss carryovers relating to its U.K. subsidiary. The U.S. net
operating loss carryforwards will expire in various amounts from 2005 to 2012.
The application of these amounts is subject to certain annual limitations under
the Internal Revenue Code of 1986, as amended. The Company anticipates that its
effective income tax rate will approach the statutory rate after these amounts
are applied or expire. The Company has provided a full valuation allowance on
the deferred tax assets because of the uncertainty regarding realizability. See
Note 11 of Notes to Consolidated Financial Statements.
NINE MONTH FISCAL PERIOD ENDED DECEMBER 31, 1996 COMPARED TO THE FISCAL YEARS
ENDED MARCH 31, 1996 AND 1995
TOTAL REVENUE. Net product sales increased to $2.1 million for the nine
month fiscal period ended December 31, 1996, as compared to $445,000 and $1.2
million for the fiscal years ended March 31, 1996 and March 31, 1995,
respectively. The increase in net product sales for the nine month fiscal period
ended December 31, 1996 was due to the launch of the XP4 product line in the
quarter ended September 30, 1996. International sales during this nine month
period represented 69% of net product sales. The decrease for the fiscal year
ended March 31, 1996, as compared to the fiscal year ended March 31, 1995, was
due to the decision to discontinue production of XP3 radios. Manufacturing
contract service revenues increased to $1.5 million for the fiscal year ended
March 31, 1996, as compared to $1.2 million for the fiscal year ended March 31,
1995. Manufacturing contract service revenues in each of these periods related
to manufacture of the XP3 radios for SAT, which was substantially discontinued
in the quarter ended March 31, 1996.
GROSS PROFIT (LOSS). The Company's gross profit increased to a loss of $1.6
million for the nine month fiscal period ended December 31, 1996, as compared to
a loss of $2.0 million and $2.2 million for the fiscal years ended March 31,
1996 and March 31, 1995, respectively. The increase in gross profit for the nine
month fiscal period ended December 31, 1996 was due to increased revenue
resulting from sales of the XP4 products, which more than offset increased
expenses and the decrease in manufacturing contract sales revenue and related
costs resulting from termination of subcontracting services. Losses in the
fiscal years ended March 31, 1996 and March 31, 1995 were the result of the
ramp-up of production capabilities for the XP3 and fixed manufacturing costs
associated therewith. Due to the planned introduction of the XP4, these fixed
costs were not reduced after the decision to end XP3 production.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $2.6 million for the nine month fiscal
period ended December 31, 1996, as compared to $2.3 million and $2.1 million for
the fiscal years ended March 31, 1996 and March 31, 1995, respectively. The
increase for the nine month fiscal period ended December 31, 1996 was due to
increased staffing, both in the U.S. and U.K. offices, associated with launch of
the XP4 product line. Selling, general and administrative expenses for the
fiscal years ended March 31, 1996 and March 31, 1995 reflect continued
investment in marketing and other staff in anticipation of the launch of the XP4
after ending production of XP3 radios. Selling, general and administrative
expenses are anticipated to continue to increase.
RESEARCH AND DEVELOPMENT. Research and development expenditures were $3.0
million for the nine month fiscal period ended December 31, 1996 as compared to
$4.5 million and $1.9 million for the fiscal years ended March 31, 1996 and
March 31, 1995, respectively. The decrease for the nine month fiscal period
ended December 31, 1996, was due to the shorter period and to the Company's
decision to reduce consulting expenses, which were partially offset by increases
in internal research and development headcount. Research and development
expenses for the nine month fiscal period ended December 31, 1996 were devoted
to development of the XP4 product line, including the development of several
frequency and data rate product variations. The Company anticipates research and
development expenses will increase as the Company focuses on new products in
addition to the XP4 product line. The increase in expenses for the fiscal year
ended March 31, 1996 as compared to the fiscal year ended March 31, 1995 was
25
<PAGE> 29
attributable to increased efforts associated with development of the XP4 product
line, and increased expenditures for engineering consulting services.
OTHER INCOME (EXPENSE). Other expense for the nine month fiscal period
ended December 31, 1996 decreased as compared to the fiscal year ended March 31,
1996. Other expense decreased due to offsetting interest income from investment
of proceeds of equity financing. The increase in interest expense for the fiscal
year ended March 31, 1996 as compared to the fiscal year ended March 31, 1995
was due primarily to higher average borrowings in anticipation of equity
financings. The Company anticipates that interest charges may increase
substantially over time if sales and, therefore, eligible accounts receivable
and working capital line borrowings, increase. However, the Company intends to
use the proceeds from the Offering to pay down working capital borrowings and
reduce interest expense.
The paragraphs entitled "Selling, General and Administrative Expenses,"
"Research and Development," and "Other Income (Expense)" in the Section entitled
"Three Months Ended March 31, 1997 Compared to the Three Months Ended March 31,
1996," and the paragraphs entitled "Selling, General and Administrative
Expenses," "Research and Development," and "Other Income (Expense)" in the
Section entitled "Nine Month Fiscal Period Ended December 31, 1996 Compared to
the Fiscal Years Ended March 31, 1996 and 1995," contain Forward Looking
Statements. Actual results could differ materially from those anticipated or
projected in the Forward Looking Statements as a result of a number of factors,
including those set forth in the Section entitled "Risk Factors." In particular,
note the Risk Factors entitled "Significant Fluctuations in Results of
Operations," "Significant Customer Concentration; Dependence on Large
Contracts," "Limited Production Capacity; No Assurance of Successful Expansion
of Operations" and "Intensely Competitive Industry."
QUARTERLY RESULTS OF OPERATIONS
The significant fluctuations in the Company's historical quarterly
operating results are principally a function of the fact that the Company was,
until mid-1996, a development stage company. In consequence, these fluctuations
are largely explained by variation in expenses incurred in connection with the
development of the Company's XP4 systems. In addition, the historical quarterly
operating results have been affected by the launch and subsequent
discontinuation of the XP3 radio line, along with the fluctuation in revenues
received by the Company under its agreement with SAT for the subcontract
manufacture for SAT of XP3 products. The discontinuation of XP3 manufacture or
subcontract manufacture did not result in a corresponding decrease in expenses
as the Company maintained staffing levels in anticipation of the launch of the
XP4 product line. The Company may continue to experience significant quarterly
fluctuations in sales, gross margins and operating results; however, these
fluctuations are likely to be caused by different factors than those that
existed in the past, making prediction of the Company's performance difficult,
if not impossible.
In connection with its efforts to ramp-up production of recently introduced
products, the Company expects to continue to make substantial capital
investments in equipment, recruit and train additional personnel, and may
increase outsourcing of components, or invest in additional manufacturing
facilities. The Company anticipates that these expenditures may be made in
advance of, and in anticipation of, increased sales and, therefore, that its
gross margins will be adversely affected from time-to-time due to short term
inefficiencies associated with addition of equipment, personnel or facilities,
and that each cost category will increase as a percentage of revenues from
time-to-time on a periodic basis. As a result, the Company's operating results
will vary. Because of the relatively small size of the Company's customer base
and large-scale nature of the projects in which the Company's products are
typically used, revenues derived from current and future large customers and
large-scale projects will likely represent a significant portion of revenue in
any given period. Thus, a decrease in demand for products from any customer for
any reason, including the business failure of the customer or abandonment of a
particular project, may result in significant periodic fluctuations in sales.
Similarly, revenues derived from large-scale projects are often difficult to
forecast due to a relatively long time frame for implementing such projects.
Delays can be caused by late deliveries by other vendors, changes in
implementation priorities, slower than anticipated growth and declining demand
for the services that the Company's products support, and delays in obtaining
regulatory approvals for installation of such systems. Delays and reductions in
the planned deployment of systems utilizing the Company's products can also be
caused by fluctuations in the local economy, capital availability, and changes
in import controls.
26
<PAGE> 30
The Company has at times failed to fill orders on a timely basis due
principally to capacity constraints. Delay in a shipment near the end of a
particular quarter, for any reason, may cause sales in that quarter to fall
significantly below the Company's expectations and materially adversely effect
the Company's operating results for that quarter.
Additional factors that may cause the Company's sales, gross margins and
results of operations to vary significantly from period-to-period include: new
product introductions and enhancements, including related costs; the Company's
ability to manufacture and produce sufficient products to meet customer
requirements; limitations on the Company's manufacturing capacity; the Company's
ability to reduce costs; gain or loss by the Company of significant customers;
existing and new product development expenses; pricing changes by the Company,
its customers or suppliers; inventory obsolescence; natural disasters or adverse
weather; market acceptance and the timing of availability of new products by the
Company or its customers; use of different distribution and sales channels;
fluctuations in foreign currency exchange rates; delays or changes in regulatory
approval of the Company's products; warranty and customer support expenses; and
general economic and political conditions.
Because of the many factors which may effect the Company's performance in
any particular period, the Company believes that period-to-period comparisons
are not necessarily meaningful and should not be relied upon as indications of
future performance.
The following table sets forth the unaudited results of operations for each
of the five fiscal quarters beginning January 1, 1996 and ending March 31, 1997.
In the opinion of the Company's management, these unaudited financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the information set forth therein, when read in
conjunction with the Company's audited Consolidated Financial Statements and the
Notes thereto appearing elsewhere in this Prospectus.
Results of operations for any quarter are not necessarily indicative of the
results that may be expected for any future period. There can be no assurance
that the Company will not experience significant variations in its future
results of operations. See "Risk Factors -- Significant Fluctuation in Operating
Results."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------
1996 1997
--------------------------------------------- --------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
-------- ------- -------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Total Revenues:
Net product sales......................................... $ 12 $ 21 $ 373 $1,657 $ 4,910
Manufacturing contract service revenues................... 125 42 4 7 --
------- ------- ------- ------- -------
137 63 377 1,664 4,910
Total cost of products sold:
Cost of products sold..................................... 985 900 1,097 1,689 4,081
Manufacturing contract service expenses................... 125 42 4 7 --
------- ------- ------- ------- -------
1,110 942 1,101 1,696 4,081
Gross profit (loss)......................................... (973) (879) (724) (32) 829
Operating expenses:
Selling, general and administrative....................... 796 737 754 1,094 1,638
Research and development.................................. 1,576 798 814 1,354 1,111
------- ------- ------- ------- -------
Loss from operations........................................ (3,345) (2,414) (2,292) (2,480) (1,920)
Other income (expense)...................................... (70) (59) (19) (65) (199)
------- ------- ------- ------- -------
Net loss.................................................... $(3,415) $(2,473) $(2,311) $(2,545) $(2,119)
======= ======= ======= ======= =======
</TABLE>
27
<PAGE> 31
The following table sets forth, for the periods indicated, the unaudited
results of operations as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------
1996 1997
------------------------------------------------- --------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
---------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Total Revenues:
Net product sales....................................... 8.8% 33.3% 98.9% 99.6 % 100.0%
Manufacturing contract service revenues................. 91.2 66.7 1.1 0.4 --
------- ------- ------- ------- -------
100.0 100.0 100.0 100.0 100.0
Total cost of products sold:
Cost of products sold................................... 719.0 1,428.6 291.0 101.5 83.1
Manufacturing contract service expenses................. 91.2 66.7 1.1 0.4 --
------- ------- ------- ------- -------
Gross profit (loss)....................................... (710.2) (1,395.3) (192.1) (1.9) 16.9
Operating expenses:
Selling, general and administrative..................... 581.0 1,169.8 200.0 65.7 33.4
Research and development................................ 1,150.4 1,266.7 215.9 81.4 22.6
------- ------- ------- ------- -------
Loss from operations...................................... (2,441.6) (3,831.8) (608.0) (149.0) (39.1)
Other income (expense).................................... (51.1) (93.6) (5.0) (3.9) (4.1)
------- ------- ------- ------- -------
Net loss.................................................. (2,492.7)% (3,925.4)% (613.0)% (152.9)% (43.2)%
======= ======= ======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital principally for capital equipment, investment
in product development activities and more recently for financing accounts
receivable and inventory. To date, the Company has financed its operations
primarily from private placements of equity securities, and, more recently, bank
borrowings. During the fiscal period ended December 31, 1996, and the fiscal
years ended March 31, 1996, 1995 and 1994, the Company raised $9,735,000,
$6,790,000, $9,143,000 and $16,274,000, respectively from the sale of debt and
equity securities. Since December 31, 1996, the Company has raised an additional
$8.5 million from the private placement of equity securities. Investing
activities were minimal during these periods.
The Company has a credit facility with a commercial bank, which provides
for a revolving credit line and a term loan. Outstanding balances on the credit
line bear interest at the greater of the LIBOR rate in effect each month plus
4.875% per annum or 8% per annum, and matures on October 31, 1997. The term loan
accrues interest at the same rate and is payable upon the consummation of the
Offering. The Company has used both the credit line and the term loan for
inventory, supplies and equipment in the manufacturing of XP4 products, and for
general working capital purposes.
The Company's cash and cash equivalents decreased to $67,000 at March 31,
1997 as compared to $173,000 at December 31, 1996. Working capital increased to
$2.7 million at March 31, 1997 as compared to a negative ($300,000) at December
31, 1996. This increase was partly due to receipt of $3.5 million in proceeds
from equity financing closed during the period. Accounts receivable increased to
$3.6 million at March 31, 1997, as compared to $1.7 million at December 31,
1996. This was the result of increased sales volumes in the quarter ended March
31, 1997. Inventories also increased to $5.8 million at March 31, 1997, as
compared to $2.5 million at December 31, 1996. This increase was related to the
increase in manufacturing levels necessary to support increased sales.
Outstanding working capital line increased to $1.3 million at March 31, 1997
compared to $506,000 at December 31, 1996. Notes payable to stockholders of $3.0
million were converted to redeemable preferred stock at March 31, 1997. Accounts
payable increased to $4.4 million at March 31, 1997 as compared to $1.9 million
at December 31, 1996 largely due to the ramp-up related to the XP4 product.
Expenditures for obligations under capital leases, excluding current
installments, equipment and leasehold improvements in the fiscal years ended
March 31, 1996 and the nine months fiscal period ended December 31, 1996 were
$1.0 million in both periods. Investment in equipment and leasehold improvements
in the quarter ended March 31, 1997 was $1.4 million.
Accounts receivable increased to $3.6 million at March 31, 1997, from $1.7
million at December 31, 1996. This increase resulted from the addition of
receivables from sales of the Company's XP4 products. While the Company
28
<PAGE> 32
anticipates that the proceeds from the Offering together with cash generated
from operations will be sufficient to finance an anticipated increase in
inventory and receivables, should receivables and inventories increase faster
than anticipated, the Company could be required to incur additional
indebtedness.
The Company intends to use a portion of the proceeds of this Offering to
retire outstanding borrowings under its credit facilities. Under the revolving
credit line, outstanding balances as of March 31, 1997 were $1.3 million. There
were no outstanding balances under the term loan. The Company believes that the
net proceeds of this Offering and financings since March 31, 1997, together with
funds provided by operations and bank borrowings, will be sufficient to meet its
liquidity requirements for at least the next 12 months. To the extent additional
capital is necessary, the Company could be required to sell additional equity,
debt or convertible securities, or obtain additional credit facilities. There
can be no assurance that additional financing will be available at the time or
in the amounts that may be needed, or that any financing which is available will
be on terms favorable to the Company and its shareholders.
29
<PAGE> 33
BUSINESS
OVERVIEW
Innova designs, manufactures and supports millimeter wave radios for use as
short- to medium-distance wireless communication links in telecommunications
networks in both developed and developing markets. Innova's products enable
telecommunications service providers to establish reliable and cost-effective
voice, data and video communications links within their networks. Innova's
products operate in frequencies ranging from 15-38 GHz and may be used in
various applications, including cellular and PCS/PCN networks, broadband
communications, local loop services, and long distance networks.
Innova's millimeter wave radio systems are designed to operate at multiple
E1/T1 rates, are based on a common system architecture and are software
configurable. Innova's radio systems consist of an Indoor Unit, which interfaces
with the user's network and is digitally linked to an Outdoor Unit, which
transmits and receives the RF signal. The common embedded software platform in
the IDU and ODU is SNMP compatible and provides the ability to remotely monitor
and manage Innova's radios within a network using the service provider's network
management system.
Innova markets its products principally to systems integrators with a
strong regional presence in Europe, Latin America and Asia. Innova seeks to
develop strategic relationships with these systems integrators, which provide
field engineering, installation, project financing and support to service
providers. To date, Innova has entered into distribution agreements with MAS,
NERA and SAT. Innova also markets its products directly to certain service
providers in the U.S. and internationally. To date, the Company has supplied
products, either through distribution relationships or directly, to Alestra
(Mexico), Associated Communications (U.S.), Avantel (Mexico), Bouygues Telecom
(France), Globtel (Slovakia), Nortel (Canada), PacBell Mobile Services (U.S.)
and Telcel (Venezuela), among others.
INDUSTRY BACKGROUND
In recent years, worldwide demand for telecommunications services has
increased dramatically. In developed countries, much of the demand has been for
mobile services, while in developing countries demand has been principally for
basic voice service. This demand has been driven by the recognition that
effective communications enhance business productivity and can accelerate
economic growth. Demand has also been driven by the emergence of technologies
that allow the development and deployment of cost-effective, reliable
telecommunications systems.
Changes in the regulatory environment in many countries, including the
ending of monopolies for public telecommunications services, privatization of
government-owned telecommunications organizations and allocation and licensing
of radio frequency spectrum by regulatory authorities, have led to an increase
in the number of telecommunications service providers seeking to meet this
demand. In Europe, for example, recent EU directives prohibit each member
country from restricting competitive access to mobile and local service after
January 1, 1998. In the U.S., the Telecommunications Act of 1996 mandated
competitive access to local telephone networks, and spectrum has been allocated
for five wireless carriers per market. Similar trends are occurring in
developing countries, creating significant opportunities for new entrants in the
telecommunications markets.
Telecommunications service providers are seeking to rapidly capture market
share by establishing new networks and expanding existing networks which respond
to the opportunities created by deregulation, technological advances and
increasing consumer demand. As demand for telecommunications services has
increased, mobile and local service providers have committed significant amounts
of capital to the installation of network infrastructure. In developed
countries, new service providers have the option to lease network capacity from
existing service providers, but often choose not to do so since such leasing
arrangements might often be with competitors, may be comparatively expensive and
would not allow control of the network by the service provider. As a result,
many new service providers are seeking to build their own networks to provide
new or improved service. In addition, existing service providers have continued
to upgrade and expand their networks to respond to customer demand, and
increased competition. In developing countries, both new and existing service
providers are investing heavily to build out network infrastructure to respond
to the demand for basic service.
Telecommunications links are a critical element of network infrastructure.
Service providers must choose between wireline or wireless equipment for each of
the many telecommunications links that connect various parts of their networks.
Wireless links are frequently used within telecommunications networks to
interconnect cell sites, switching systems, wireline transmission systems and
other fixed facilities. Wireless links generally involve relatively low initial
30
<PAGE> 34
capital costs, and may be quickly deployed, especially in urban areas, as no
terrestrial rights of way need to be acquired or cables installed. In addition,
new wireless links can be rapidly added to upgrade or expand existing
telecommunications networks and installed links can be quickly relocated to
respond to shifts in demand.
Millimeter wave radio systems have been increasingly used for short- to
medium-distance wireless links. The narrower antenna beam width of millimeter
wave frequencies allows a higher density of links in a given geographic area as
compared to lower frequencies. The atmospheric attenuation of millimeter wave
frequencies also allows these frequencies to be re-used after relatively short
distances. As a result, millimeter wave radios are particularly well-suited to
providing wireless transmission over short- to medium-distances. The general
structure of a mobile telecommunications network and possible applications for
millimeter wave radios within such networks are illustrated in the following
diagram:
[DIAGRAM]
The diagram depicts a mobile telecommunications network as denoted by a
Mobile Telephone Switching Office ("MTSO") with an antenna tower. Mobile network
users are connected to the MTSO through the use of a cellular or PCS/PCN
telephone. The MTSO is in turn connected to a telephone exchange central office
via a millimeter wave radio system.
31
<PAGE> 35
The general structure of a local loop network and possible applications for
millimeter wave radios within such networks are illustrated in the following
diagram:
[DIAGRAM]
The diagram depicts a Wireless Local Loop ("WLL") telecommunications
network as denoted by a local telephone exchange office with an antenna tower.
Users' homes and offices are connected local exchange via wireless telephones.
The central office is in turn connected to a telephone exchange central office
via a millimeter wave radio system.
32
<PAGE> 36
As millimeter wave radios have become an increasingly critical component of
telecommunications networks, service providers have focused on the quality and
lifetime ownership cost of these systems. Thus, service providers now demand
more reliable millimeter wave radios in order to reduce costly service
interruptions resulting from the failure of critical links within their
telecommunications networks. Due to increased sensitivity to aesthetic concerns,
congestion in urban environments and use of wireless systems in developing
countries, base stations are becoming smaller and being placed in less suitable
locations. As a result, service providers now seek radio systems which are, in
turn, smaller and which perform reliably under adverse conditions. In addition,
larger and more complex telecommunications networks require millimeter wave
radios which can be easily integrated with other parts of the network, avoiding
the need for multiple network management systems. Moreover, the need to rapidly
deploy and upgrade networks requires millimeter wave radios which can be easily
installed without sophisticated tools or special skills, and which can be easily
and quickly reconfigured or field upgraded.
INNOVA SOLUTION
Innova's millimeter wave radio systems are reliable, intelligent,
feature-rich and easy to install, maintain and upgrade. The Company's XP4 radio
systems have been selected for deployment by a number of new service providers
and major systems integrators since their introduction in 1996. The Company
believes its products provide the following benefits:
Reliability. The Company develops and manufactures radio systems capable of
performing reliably under extreme temperatures. The Company believes the low
parts count, low power consumption and high tolerance to temperature extremes of
its XP4 radio systems make them inherently more reliable than competing
products. In addition, the all-digital communications interface between the XP4
radio systems' Indoor Unit and Outdoor Unit provides greater immunity to high
electromagnetic and radio-frequency-induced interference.
Ease of Installation and Maintenance. The lightweight XP4 can be easily
installed by a single technician without a PC, additional software, specialized
tools or test equipment. The comprehensive embedded software program facilitates
accurate installation by alerting the installer to configuration mistakes with
blinking LEDs. The diagnostic features of the embedded software platform
simplify maintenance by permitting field technicians to determine proper
operation of an installed terminal without disconnecting the radio unit from the
antenna. The XP4 software platform allows control of the entire radio link from
either end of the link, or from a single remote location. In addition, the SNMP
interface allows operation of the entire system from a central, common network
management center. XP4 radio systems also feature a very high degree of modular
commonality across frequency bands and data rates. The common architecture
reduces spare parts inventory and training costs.
Adaptability. The Company believes it is the first to provide millimeter
wave radio systems which provide an open network management capability,
facilitating inclusion of the systems into a variety of telecommunications
networks. Innova's compact XP4 radio systems are designed to occupy less space
and are well-suited to operate in various settings where small size and
resistance to temperature extremes are necessary. The high immunity to
interference provided by the digital communications link between the indoor unit
and the outdoor unit also allows the XP4 to be deployed in less suitable sites
currently prevalent in developing countries and congested urban areas.
Ease of Reconfiguration and Upgradeability. Common hardware and a common
software platform across all XP4 radio systems facilitate integration into
network management systems and provide remote reconfiguration and upgrade
capabilities. The comprehensive embedded software platform common to all of
Innova's XP4 radio systems allows network operators to download new code into
the radio units without interrupting traffic or upgrading each unit on-site. The
ability to easily reconfigure and upgrade the XP4 system allows service
providers to enhance and expand their networks without having to replace the
Company's products.
33
<PAGE> 37
INNOVA STRATEGY
Innova's objective is to be a leading provider of digital millimeter wave
radios. Innova intends to address the needs of major systems integrators using
millimeter wave radios for wireless connectivity solutions in mobile and local
loop networks, including broadband capability. Innova's strategy includes the
following key elements:
Continue To Focus on Millimeter Wave Radio Market. The Company intends to
continue to focus its product development efforts on new and existing
point-to-point millimeter wave radios, and to maintain its competitive advantage
by developing small, lightweight systems which perform reliably at extreme
temperatures and can be produced, installed and maintained on a cost-effective
basis. The Company believes it was the first to provide millimeter wave radio
systems with a SNMP-compatible architecture, and that it was the first to
develop, produce and deliver 24 GHz equipment for use in the U.S. market in
response to allocation of 24 GHz spectrum by the FCC. The Company intends to
further expand the frequency range and traffic capacity of its systems, and is
currently developing a lower cost system targeted at picocell applications and a
high capacity system targeted at high bandwidth applications in the U.S.
Expand Distribution Through Strategic Relationships. The Company intends to
expand the geographic coverage and increase the market penetration of its
products by strengthening existing and establishing new strategic relationships
with major systems integrators with strong regional presences throughout the
world. The Company believes that the cost-effective architecture of its products
provides a competitive advantage in developing relationships with major systems
integrators. The Company intends to focus on further reducing the cost of its
radio systems to maintain that advantage. The Company also believes its
relationships with major systems integrators will become increasingly important
as service providers more often rely on third parties to supply and build their
network infrastructure. The Company believes the ability of many major systems
integrators to offer financing on larger projects, and supply complementary
products and services necessary to build telecommunications networks,
facilitates sales of the Company's products.
Leverage System Architecture. The Company intends to leverage its system
architecture to realize efficiencies in its product design, assembly and test
processes. The Company believes these attributes will enable the Company to be
first to market with new, reliable products that are cost-effective and meet the
evolving demands of systems integrators and service providers. The Company plans
to continue to design its system architecture to minimize the number of
components in each system and to maximize the use of common components across
the full range of the Company's products. The Company believes its use of common
modules, components and a field-proven common software platform facilitates
product enhancement and new product development by reducing the number of
components that need to be re-engineered.
Simplify Product Assembly and Test Processes. The Company continually seeks
to refine and simplify its product design and assembly, calibration and test
processes, which are the most significant components of production cost. The
Company believes its rigorous testing processes, including operation of radio
systems at extreme temperatures and use of proprietary software and test
stations, provide a significant competitive advantage. The Company intends to
continue to develop software that increases automation and process reliability
and reduces dependence on skilled labor. The Company believes the reduced
dependence on skilled labor will enable it to establish additional manufacturing
facilities in locations which maximize market opportunity.
PRODUCTS
The Company's radio systems are designed to operate in millimeter wave
bands used for the transmission of voice, data and video traffic over short- to
medium- distances. The Company's XP4 products are based on a common system
architecture and are software configurable. The Company's XP4 systems operate at
data rates up to and including 4E1 and 4T1, and have been certified for use in
the Czech Republic, France, Germany, Mexico, Slovakia, the U.K. and the U.S.
34
<PAGE> 38
The following table provides transmission distances and the number of
access lines offered by the 15 GHz, 18 GHz, 23 GHz, 24 GHz, 26 GHz and 38 GHz
systems currently being marketed by the Company.
XP4 PRODUCT LINE
<TABLE>
<CAPTION>
NUMBER OF ACCESS LINES
-----------------------------
FREQUENCY IN 2E1/4E1 AND 4T1 OR OPERATIONAL
GHZ 4E1/8E1(1) 4T1/8T1(1) RANGE IN MILES
- ------------ ----------- ------------- --------------
<S> <C> <C> <C>
15 (2) Yes Yes 15
18 Yes Yes 10
23 Yes Yes 6
24 No Yes 5
26 Yes No 5
38 Yes Yes 3
</TABLE>
- ---------------
(1) The Company expects that the 8E1 and 8T1 configurations will be available
for volume shipments in July 1997.
(2) Available for shipment on July 1, 1997.
The Company's products are designed to connect to the end user's network
through multiple high capacity lines. In transmission mode, the Company's Indoor
Unit accepts the customer's traffic from these multiple lines. The
microprocessors in the IDU then combine the multiple signals into a single,
digital signal, which is combined with data used to control functions and
parameters of the radio link, and digitally transmitted over a single coaxial
cable to the Outdoor Unit. The frequency shift key ("FSK")
modulator/demodulator, housed in the ODU, converts the digital signal into the
appropriate radio frequency. The RF signal is then fed into the hybrid
"transmit" module, which increases the signal to the transmitting frequency. The
high frequency, millimeter wave signal is then passed through a diplexer filter
to the antenna and broadcast to the receiving unit. In receive mode, the signal
is passed from the antenna through the diplexer filter to the hybrid "receive"
module, where the signal is amplified and stepped down to a lower frequency. The
signal is then passed through the demodulator and converted into a digital
signal, before being routed down the coaxial cable to the IDU. In the IDU, the
end user's traffic is separated from the system control data and delivered to
multiple lines for transmission to the end user's network.
[DIAGRAM]
The diagram depicts the Company's millimeter wave radio system with a graphical
representation of an Indoor Unit ("IDU") and an Outdoor Unit ("ODU") as
described in the paragraphs below the diagram.
Indoor Unit. The IDU is the interface to the user's network. It is an
assembly mounted indoors or in a base station, that contains digital signal
processing electronics, including line interface and digital multiplexing
circuitry. The IDU also includes the alarm and diagnostic ports, service channel
and SNMP-compatible network management capability. The IDU provides for the
ability to set capacity, frequency and power output of the radio link through
software configuration without requiring access to the outdoor unit.
Configuration of the Company's radio systems, including frequency
selection, power output setting, capacity and link ID, along with alarm
monitoring and receive signal level indications, are performed using the
five-button keypad located on the front panel of the IDU, or by using a PC and
the Company's proprietary XPView software interface. In
35
<PAGE> 39
contrast, many competing millimeter wave systems require mechanical adjustment
and manual tuning, which involve sending maintenance personnel with test
equipment to the radio's installed location. Software embedded in the Company's
radio system also facilitates upgrades of system capacity, with minimal hardware
changes.
Outdoor Unit. The ODU consists of a lightweight, compact, integrated RF
electronics enclosure that attaches directly to an antenna. The RF enclosure
contains electronics that, when transmitting, convert, modulate and amplify the
digital signal received from the IDU. Typically, the ODU is installed outdoors
on a tower or rooftop. A simple latch secures the ODU to the antenna, allowing
for vertical or horizontal installation, and permits removal of the ODU without
tools and without affecting antenna alignment.
Software. The Company's embedded software platform is common to all XP4
frequency bands and capacity models. It enables control of user configurable
features from the five-button keypad on the IDU. The embedded software code is
also compatible with the Company's custom manufacturing test and calibration
software. This approach facilitates automation of the final test process by
enabling adjustments to equipment parameters through software commands, rather
than the traditional method of manual dip-switch or pods.
The Company's XPView software provides a remote means of configuring the
Company's radio systems, as well as providing for advanced diagnostics and
maintenance capabilities, including code downloading.
The optional SNMP feature is implemented via a small plug card in the IDU
which provides Ethernet, RS232, and RS422 communication ports for remote link
control and remote collection of status and alarm data.
[ARCHITECTURE DESIGN]
The diagram depicts the internal system architecture of the Company's millimeter
wave radio system, as described in the paragraphs below the diagram.
SYSTEM ARCHITECTURE
The Company's system architecture is designed to achieve advantages in
reliability, cost, installation and maintenance when compared to competitive
systems. The Company employs a common set of modules and components for all data
rates and frequencies with the exception of the transmit and receive modules and
diplexer filters. This substantially simplifies the logistics of customer
support, purchasing, and manufacturing. The Company incorporates the four-level
FSK modulator/demodulator into the ODU, rather than including it in the IDU. The
Company believes this results in a more reliable design by permitting digital
communications between the IDU and ODU, thereby reducing interference from EMI
or ground loop by permitting filtering of undesirable noise and eliminating
cable equalization circuitry completely. This also reduces the electronics
contained in the IDU, resulting in a compact indoor unit which occupies only one
rack unit mounting space in telecom cabinets or base stations.
The Company's ODU uses advanced miniature, multifunction transmit or
receive hybrid modules which provide for lower power consumption, smaller size
and fewer interconnection cables or assemblies than conventional millimeter wave
radio systems. In addition the Company's proprietary compact diplexer filter
design eliminates the need for bulky separate transmit and receive filters and
an associated circulator. This design approach results in a lighter, more
compact ODU than competing systems.
36
<PAGE> 40
The embedded software platform reduces the number of manufacturing models
by facilitating production of radio systems for use with varying frequency plans
in different countries. In contrast, traditional systems require hardware
variations to adjust to different frequency plans in each country. In addition,
each ODU will support multiple traffic capacities without any hardware changes,
as these modifications are also governed by software. Transmit power level is
also controlled electronically from the IDU. As a result, no field adjustments,
switch settings or other modifications are required to operate an ODU within its
designated tuning range regardless of frequency plan, traffic capacity or
transmitter output power. The intuitive built-in software interface permits
terminal configuration without extensive training or special tests using the
five button keypad on the face of the IDU. The embedded software platform also
facilitates accurate installation by alerting the installer to mistakes with
blinking LEDs. Software configurability enables the provision of advanced field
diagnostic tools such as RF terminal loopback. In this mode, the transmitter is
tuned to the frequency of the local receiver, enabling operation of the terminal
in RF loopback and verification of proper, error-free performance. In order to
perform similar functions, competing systems require either the use of a bulky,
external turnaround oscillator or the use of complex, internal mechanical
assemblies.
CUSTOMERS
The Company's customers consist principally of systems integrators, which
incorporate XP4 radio systems into a variety of telecommunications networks to
be sold to telecommunications service providers. Systems integrators provide
engineering and installation services and project financing for service
providers. These systems integrators develop the network design and provide the
field effort necessary to install, commission and maintain the Company's
systems. Systems integrators are extensively used by local and mobile service
providers in Europe, Asia and developing countries. The Company also sells its
products directly to service providers, principally in North America. Service
providers can use the Company's products for various applications, including
cellular and PCS/PCN networks, broadband communications, local loop services,
and access to long distance networks.
The systems integrators and service providers set forth below have each
accounted for more than 1% of gross revenues from sales of the XP4 product line
since its introduction in the quarter ended September 30, 1996. The Company has
also sold lesser quantities, principally for use as demonstration units, to
Bosch Telecom, Lucent Technologies, MAS and Mitec.
<TABLE>
<CAPTION>
SYSTEMS INTEGRATORS SERVICE PROVIDERS
---------------------------- -------------------------------------
<S> <C>
Ericsson Alestra (Mexico)
NERA Associated Communications (U.S.)
Nortel Avantel (Mexico)
SAT Bachow Communications
Simtel Bouygues Telecom (France)*
Globtel (Slovakia)
Iusacel (Mexico)
Infocom (Philippines)*
PacBell Mobile Services (U.S.)
Smartcom (Philippines)*
Telcel (Venezuela)*
Telefonica Movil (Spain)*
</TABLE>
- ---------------
* Indicates service providers that purchased equipment from a systems
integrator.
To date, approximately fourteen customers have accounted for all of the
Company's sales of XP4 systems. Sales to Associated Communications, Bachow
Communications and Nortel accounted for approximately 15%, 12% and 44% of the
Company's XP4 sales, respectively, in calendar 1996. For the three months ended
March 31, 1997, Associated Communications, Nortel and SAT accounted for 10%, 59%
and 22%, respectively, of the Company's sales, and as of March 31, 1997, two
customers, Nortel and SAT, accounted for 75% of the Company's backlog scheduled
for shipment in the six months subsequent to March 31, 1997. Paul Bachow, a
director and greater-than-10% beneficial owner of the Company's Common Stock, is
the only shareholder and the President of Bachow Communications. SAT is a
greater-than-5% beneficial owner of the Company's Common Stock. See "Principal
Shareholders and Certain
37
<PAGE> 41
Transactions." The Company has entered into agreements with SAT for exclusive
distribution in France, Italy, Poland, Hungary, Andorra and Monaco and
non-exclusive distribution in other countries; NERA for sales to Asia, Latin
America and parts of Europe; and MAS for distribution in New Zealand and
Southeast Asia. The Company has also sold a significant portion of its products
to Nortel. The Company anticipates that its sales will continue to be to a
relatively small group of customers, consisting principally of international
systems integrators and, in North America, service providers.
The Company's ability to achieve or increase its sales in the future will
depend in significant part upon its ability to obtain and fulfill orders from
existing and new customers and maintain relationships with and provide support
to existing and new customers, its ability to manufacture systems on a timely
and cost-effective basis and to meet stringent customer performance and other
requirements and shipment delivery dates. As a result, any cancellation,
reduction or delay in orders by or shipments to any customer, as a result of
manufacturing difficulties or otherwise may have a material adverse effect upon
the Company's business, financial condition and results of operations. There can
be no assurance that the Company's sales will increase in the future or that the
Company will be able to retain and support existing customers or to attract new
customers.
DISTRIBUTION RELATIONSHIPS
The Company markets its products principally to systems integrators with a
strong regional presence in countries in Europe, Latin America and Asia. The
Company believes these relationships are a critical component of its ability to
include its systems in major network buildout projects. To date, the Company has
entered into agreements with NERA and SAT as well as other system integrators.
NERA Arrangements. The Company has entered into an OEM Purchase and Limited
Licensing Agreement with NERA ASA (the "NERA Agreement") to purchase at least $5
million of XP4 product kits and components prior to May 30, 1998. The NERA
Agreement authorizes NERA and its affiliated companies to purchase products from
the Company on most-favored-customer pricing and terms and to distribute such
products on a non-exclusive basis in all countries other than the SAT
Territories, where sales by NERA are to be coordinated with SAT on a
case-by-case basis. Under the NERA Agreement, the Company and NERA have
committed to cooperative development of certain new XP4 products and features,
and the Company has granted NERA certain design approval rights, as well as
testing rights on XP4 kits purchased from the Company. The Company has also
granted NERA a royalty-free right to manufacture and test XP4 indoor units
solely for sale with the Company's outdoor units; and a royalty-bearing
conditional right to use the Company's designs and technologies for the purpose
of manufacturing XP4 products, effective only upon the occurrence of certain
restrictive conditions, such as the failure of the Company to timely deliver
products for over two months or the bankruptcy of the Company. The NERA
Agreement provides for the Company to pay penalties for late delivery, to the
extent NERA is obligated to make penalty payments to its customers due to the
late delivery. The NERA Agreement has a five-year term expiring May 30, 2002, at
which time all distribution, manufacturing and other rights will terminate.
However, the Company's warranty, maintenance and repair obligations survive
termination. NERA is obligated, during the term of the agreement and for a
two-year period following its termination, not to develop, manufacture or sell
any product based on the Company's products or technologies. The Company also
intends to outsource some circuit board assembly to NERA's Singapore facility.
SAT Arrangements. Under a Cooperation Agreement entered into in late 1996,
the Company granted distribution rights to SAT for its XP4 products, including
exclusive rights in France, Hungary, Poland, Italy, Monaco and Andorra
collectively, the "SAT Territories"), and non-exclusive rights in all other
countries except in North America, Australia and New Zealand. The Cooperation
Agreement prohibits the Company from selling XP4 products directly or indirectly
in any of the SAT Territories. The Cooperation Agreement also grants
distribution rights to the Company with respect to certain SAT products; assures
each of the parties most-favored-customer pricing and terms; specifies the
maximum production capacity required to be allocated to SAT by the Company;
assures SAT access to the Company's supply relationships for custom design parts
and components, on comparable commercial terms; and provides for cooperation in
the development of certain features of the Company's XP4 product line, and
sharing of technical data on an ongoing basis, subject to confidentiality and
other restrictions on use.
The Cooperation Agreement also grants SAT a right to immediate use of the
Company's XP4 designs and technologies for the purpose of developing and
manufacturing certain products solely for sale and installation in
38
<PAGE> 42
France, subject to quantity limitations, and the right to advertise such
products as its own. SAT is also granted certain conditional rights to use the
Company's designs and technologies for the purpose of manufacturing certain
other XP4 products in France, without quantity limitations, effective only upon
the occurrence of certain restrictive conditions. SAT is required to pay
specified royalties to the Company on products manufactured pursuant to these
rights. The Cooperation Agreement has an initial term of 5 years, expiring
October 31, 2001, but is automatically renewed for another five year term unless
terminated by either party with one year's notice. Upon expiration, all
manufacturing rights which are at that time effective will become irrevocable
and fully paid, and SAT will thereafter be entitled to manufacture certain XP4
products free of any royalties or other compensation to the Company.
RESEARCH AND DEVELOPMENT
The Company has an ongoing research and development program to enhance its
existing products and to introduce new products. The Company invested
approximately $4.5 million and $2.5 million in the fiscal years ended March 31,
1996 and 1995, respectively, and $3 million in the nine month fiscal period
ended December 31, 1996 in research and development efforts. The Company expects
to continue to invest significant resources in product research and development.
The Company's research and development efforts focus on using existing
product architectures and technology to maintain commonality and minimize
time-to-market for new products and enhancements. The Company's research and
development efforts are currently focused on developing additional models of the
Company's XP4 product line to address higher capacity applications and greater
modulation efficiency and on leveraging the Company's temperature resistant
technology to develop a low-cost, all-outdoor radio. The common architecture of
the Company's XP4 products, by limiting the number of new components needed to
develop products or new frequencies, also allows the Company to react quickly to
changing regulatory environments. The Company was the first manufacturer to
develop and ship radios operating in the 24 GHz range in response to the recent
licensing of the 24 GHz spectrum in the United States. The Company's research
and development efforts continually strive to enhance software features
contained in its products, and to develop products which can be manufactured in
a simple and cost effective manner.
The wireless communications market is subject to rapid technological
change, frequent new product introductions and enhancements, product
obsolescence, changes in customer requirements and evolving industry standards.
To be competitive, the Company must successfully develop, introduce and sell new
products or product enhancements that respond to changing customer requirements
on a timely and cost-effective basis. Any success of the Company in developing
new and enhanced products will depend on a variety of factors including: timely
and efficient completion of system design; timely and efficient implementation
of assembly, calibration, and test processes; development and completion of
related software; the reliability, cost and quality of its products; market
acceptance; and development and introduction of competitive products by
competitors. The Company has experienced and may experience delays from
time-to-time in completing development and introduction of new products.
Moreover, there can be no assurance that the Company will be successful in
selecting, developing, manufacturing and marketing new products or product
enhancements. The inability of the Company to introduce in a timely manner new
products or product enhancements that contribute to sales could have a material
adverse effect on the Company's business, financial condition and results of
operations.
MANUFACTURING
The Company performs final assembly and test, quality assurance, packaging
and shipping at its facility in Seattle, Washington. The Company purchases all
of the circuit boards, integrated circuits and other components used in its
products from third-party suppliers. The Company inspects these components for
quality, groups the components into kits by production order and ships the kits
to its subcontractors for initial assembly. As a result of the use of common
components across the full range of XP4 products, the Company's manufacturing
process is extremely flexible and can accommodate significant changes in the
frequency or data rate of radios produced on a daily basis. This flexibility
also reduces the Company's need to maintain a large inventory of finished goods,
as radios may be produced to meet specific customer requirements without the
need for significant lead times, setup costs or changes to the manufacturing
process.
39
<PAGE> 43
The Company designs its products to provide a high degree of reliability.
The Company thoroughly inspects and tests its product during the assembly
process and tests finished products using internally developed procedures. The
Company believes its testing procedures at extreme temperatures are among the
most rigorous in the industry. The Company's quality inspection and testing also
include "burn-in" procedures throughout the assembly process to ensure the
quality and reliability of the Company's products. The Company has extensively
invested in computerized test stations reducing dependency on skilled labor and
enabling a gradual increase in capacity. The Company believes that its practice
of conducting all testing and calibration internally has contributed to the
reliability of its products and its low-cost structure. To date, the Company's
installed base of XP4 radio systems have achieved a field failure rate of less
than 2%. The Company believes that this reliability is the result of its careful
quality assurance procedures. The Company received ISO 9001 certification in May
1996.
Certain parts and components used in the Company's products, including
field programmable gate arrays and MMICs, are only available from a single
source or limited number of sources. The Company's reliance on these single
source or limited source suppliers involves certain risk and uncertainties,
including the possibility of a shortage or discontinuation of certain key
components and reduced control over delivery schedules, manufacturing
capability, quality and cost. Any reduced availability of such parts or
components when required could materially impair the Company's ability to
manufacture and deliver its products on a timely basis and result in the
cancellation of orders which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the purchase of certain key components involves long lead times and, in the
event of unanticipated increases in demand for the Company's products, the
Company may be unable to obtain such components in sufficient quantities to meet
its customers' requirements. The Company has established dual sources for
transmit and receive hybrids with Hewlett-Packard Company ("Hewlett-Packard"),
among others, through blanket order arrangements covering estimated requirements
for 1997 and 1998. The Company does not have guaranteed supply arrangements with
many of its single or limited source suppliers, does not maintain an extensive
inventory of parts or components and customarily purchases single or limited
source parts and components pursuant to purchase orders. Business disruptions,
production shortfalls or financial difficulties of a single or limited source
supplier could materially and adversely impact the Company by increasing product
costs, or reducing or eliminating the availability of such parts or components.
In such event, the inability of the Company to establish alternative sources of
supply quickly and on a cost-effective basis could materially impair the
Company's ability to manufacture and deliver its products on a timely basis and
could have a material adverse effect on its business, financial condition and
results of operations.
SALES, MARKETING AND CUSTOMER SUPPORT
Innova's sales and marketing efforts are headquartered in the Company's
executive offices in Seattle, Washington. The Company has also established and
staffed a sales, service and customer support facility in Shirley, England. In
addition, the Company has sales and customer support personnel in Nashua, New
Hampshire and Dallas, Texas. The Company has recently opened a service and
support facility in Mexico City, Mexico. The Company may increase its overseas
presence by opening sales and support offices in countries not served by its
distribution partners. The Company markets its products directly to service
providers in North America and certain other countries. The Company believes
that the contact it achieves with service providers through such direct sales
provides valuable feedback on product performance and customer needs, which
assists the Company in developing new and enhanced products. The Company
promotes its products through participation and exhibition at trade shows in
North America and through promotion of its products by its system integrators in
Europe and Asia.
The Company believes that the ability of its customer service personnel to
work with system integrators in resolving any technical problems experienced by
service providers is fundamental to its success. Although system integrators are
responsible for providing customer support to the service providers, the
Company's technical support team must work closely with the system integrator's
support personnel to promptly and efficiently identify and resolve technical
issues.
If the Company is selected to submit a proposal or bid by a new customer,
the Company may also be required to conduct system trials or provide units for
customer type approval. If system trials or testing are required and
successfully completed, the Company then negotiates a contract with the customer
to set technical and commercial terms of sale. The Company generally targets
system integrators that are involved in multiple projects including large
quantities of radios. Once a radio system has been tested by a system
integrator, determined to meet its specification
40
<PAGE> 44
and designed into a service integrator's network, further testing or contract
negotiations are generally not required for successive orders from that system
integrators, substantially shortening the sales cycle. The process for sales
directly to service providers by the Company is similar to the sales process for
the first sale to a system integrator, in that it may involve field trials,
contract negotiation, and take from three to six months to complete.
COMPETITION
The wireless communications market is intensely competitive. The Company's
millimeter wave radio systems compete with other wireless telecommunications
products and alternative telecommunications transmission media. The principal
competitive factors in this market include product performance and reliability,
ability to meet delivery requirements, price, and product features. The Company
experiences intense competition worldwide from a number of leading
telecommunications companies that offer a variety of competitive products and
broader telecommunications product lines, including Alcatel Network Systems,
California Microwave, Inc., Digital Microwave Corporation, Ericsson Limited,
Harris Corporation -- Farinon Division, Nokia Telecommunications and P-COM,
Inc., most of which have substantially greater installed bases, financial
resources and production, marketing, manufacturing, engineering and other
capabilities than the Company. The Company may also face competition in the
future from new market entrants offering competing technologies. In addition,
the Company's current and prospective customers, including Nortel, and certain
others which have access to the Company's technology or under some circumstances
are granted the right to use the technology for purposes of manufacturing, could
develop or manufacture products competitive with those that have been or may be
developed or manufactured by the Company. The Company's future results of
operations may depend in part upon the extent to which the Company's customers
elect to purchase from outside sources rather than develop and manufacture their
own radio systems. There can be no assurance that such customers will rely on or
expand their reliance on the Company as an external source of supply for their
radio systems.
The Company's future results of operations may depend in part upon the
extent to which these customers elect to purchase from outside sources rather
than develop and manufacture their own radio systems. Recently, certain of the
Company's competitors have announced the introduction of competitive products,
and the acquisition of other competitors and competitive technologies. Within
the near future, the Company expects its competitors to continue to improve the
performance and lower the price of their current products and to introduce new
products or new technologies that provide added functionality and other features
that may or may not be comparable to the Company's products, which could cause a
significant decline in sales or loss of market acceptance of the Company's
systems, or make the Company's systems or technologies obsolete or
noncompetitive. The Company expects to continue to experience significant price
competition that may materially adversely affect its gross margins and its
business, financial condition and other results of operations. The Company
believes that to be competitive, it will continue to be required to expend
significant resources on, among other items, new product development and
enhancements and to reduce the costs of its systems. There can be no assurance
that the Company will be able to compete successfully.
GOVERNMENT REGULATION
Radio communications are subject to extensive regulation by United States
and foreign laws and international treaties. The Company's systems must conform
to a variety of domestic and international requirements established to, among
other things, avoid interference among users of radio frequencies and to permit
interconnection of equipment. In order for the Company's radios to be used in a
foreign jurisdiction, regulatory approval for its systems must be obtained and
end users must comply with such regulations. Regulatory bodies worldwide are
continuing the process of adopting new standards for wireless communication
products. The delays inherent in this governmental approval process may cause
the cancellation, postponement or rescheduling of the installation of
communications systems by the Company's customers, which in turn may have a
material adverse effect on the sale of systems by the Company to such customers.
The failure to comply with current or future regulations could result in
suspension or cessation of operations. Such regulations could require the
Company to change the features of its radio systems and incur substantial costs
to comply with such time-consuming regulations. Equipment to support new
services can be marketed only if permitted by suitable frequency allocations,
auctions and regulations, and the process of establishing new regulations is
complex and lengthy. To the extent PCS/PCN operators and others are delayed in
deploying these systems, the Company could experience delays in orders. These
delays could have a material adverse effect on the Company's business, financial
condition and results of operations.
41
<PAGE> 45
The regulatory environment in which the Company operates is subject to
significant change. Regulatory changes, which are affected by political,
economic and technical factors, could significantly impact the Company's
operations by restricting network deployment efforts by the Company's customers
or end users, making current systems obsolete or increasing the opportunity for
additional competition. Any such regulatory changes could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company might deem it necessary or advisable to modify its
systems to operate in compliance with such regulations. Such modifications could
be extremely expensive and time-consuming.
INTELLECTUAL PROPERTY
The Company does not hold any patents regarding the technology and
expertise involved in the assembly, calibration and testing of its XP4 products.
The Company relies on technological innovations, trade secrets and expertise to
develop and maintain its competitive position, and upon confidentiality
procedures, common-law remedies and contractual provisions to protect its
proprietary rights. The Company's agreements with its distributors generally
contain non-competition and non-disclosure provisions prohibiting the
distributor from manufacturing products based on the Company's designs for the
term of the agreement and for a short period thereafter. In general, the Company
has not entered into non-competition agreements with its management and other
employees or into confidentiality and non-disclosure agreements with system
integrators or service providers. Furthermore, it is likely that the Company's
competitors can obtain samples of the Company's products and, through reverse
engineering, obtain access to proprietary knowledge regarding the Company's
product designs.
The Company's success will depend in part on its ability to protect its
technology and preserve its trade secrets through common law and contractual
restrictions. There can be no assurance that the trade secrecy or other measures
taken by the Company will be adequate to prevent misappropriation of its
technology, or that competitors will not be able to independently develop
technologies having similar or better functions or performance characteristics.
In addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States. There
can be no assurance that the Company will have adequate legal remedy to prevent
or seek redress for future unauthorized misappropriation of the Company's
technology.
The telecommunications industry is characterized by rapid technological
change, with frequent introductions of new products and technologies. As a
result, industry participants often find it necessary to develop products and
features similar to those introduced by others, increasing the risk that their
products and processes may give rise to claims that they infringe the patents of
others. Accordingly, the Company's current and future products and processes, or
uses thereof, may conflict with patents that have been granted or may be granted
to competitors or others. Such competitors or others could bring legal actions
against the Company or its customers, claiming damages and seeking to enjoin
manufacturing, marketing or use of the affected product or processes. Similarly,
the Company may in the future find it necessary to commence litigation in order
to enforce and protect its proprietary rights. If the Company becomes involved
in any such litigation, it could consume a substantial portion of the Company's
resources and result in a significant diversion of management attention. If the
outcome of any such litigation were adverse to the Company or its customers, its
business, financial condition and results of operations could be materially
adversely affected. In addition to any potential liability for damages, the
Company or its customers could be enjoined from continuing to manufacture,
market or use the affected product or process, and could be required to obtain a
license in order to continue such manufacture, marketing or use. There can be no
assurance that the Company or its customers would prevail in any such action or
that any license required under any such patent would be made available on
acceptable terms, if at all.
EMPLOYEES
As of March 28, 1997, the Company employed 122 full-time and temporary
employees. None of the Company's employees is represented by a collective
bargaining agreement. The Company's future performance will depend in large
measure on its ability to attract and retain highly skilled employees. The
Company has never experienced a work stoppage and believes its relationship with
its employees to be good.
42
<PAGE> 46
FACILITIES
The Company's corporate offices and research, development and manufacturing
facilities are located in Seattle, Washington, in two leased buildings
aggregating approximately 60,000 square feet. The Company also leases 2,200
square feet of office space in Shirley, England.
BACKLOG
The Company's backlog was approximately $6.1 million as of March 31, 1997.
The Company includes in backlog only customer commitments for which it has
received signed purchase orders and assigned shipment dates within the following
180 days. The Company's experience has been that customers generally request
shipment within 60 days of their order date. Backlog is not necessarily
indicative of future sales for any particular period. Customer orders have
exceeded the Company's ability to manufacture radio systems. The Company intends
to increase its manufacturing capacity and believes that backlog will decrease,
as a percentage of sales, as the Company becomes able to fill orders on a more
timely basis. Moreover, a majority of the Company's backlog scheduled for
shipment in the next six months can be canceled since orders are often made
substantially in advance of shipment, and the Company's contracts typically
provide that orders may be canceled with limited or no penalties up to a
specified period (typically 30 to 90 days) before shipment, and in some cases at
any time.
43
<PAGE> 47
MANAGEMENT
The members of the Board of Directors, executive officers and other key
employees of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------------------- --- ------------------------------------------------
<S> <C> <C>
Jean-Francois Grenon.................... 41 President, Chief Executive Officer and Director
V. Frank Mendicino(1)................... 58 Chairman of the Board of Directors
Colin J.R. Pallemaerts.................. 67 Executive Vice President -- Sales and Marketing
Barbara J. Williams..................... 53 Chief Operating Officer
John M. Hemingway....................... 50 Secretary and Chief Financial Officer
Randy J. Karr........................... 40 Vice President -- Manufacturing
Paul H. Lemson.......................... 50 Director of Engineering
Patric W. McDonald...................... 59 Chief Technical Officer
William J. Meighan...................... 50 Director of Quality Assurance
Paul S. Bachow(1)....................... 46 Director
Frances N. Janis(2)..................... 38 Director
Harold O. Shattuck(1)(2)................ 60 Director
Bernard D. Tarr, Jr.(2)................. 37 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
EXECUTIVE OFFICERS AND DIRECTORS
JEAN-FRANCOIS GRENON joined the Company in February 1996 as its President
and Chief Executive Officer and has served as a Director of the Company since
June 1996. From March 1994 to December 1995, Mr. Grenon served as President of
Microwave Radio Corporation, Digital Radio Group, a division of California
Microwave Radio that he helped found, which develops and manufactures digital
millimeter radios. From April 1990 to March 1994, Mr. Grenon served as Vice
President and General Manager of Microwave Radio Corporation, a developer of
microwave radio transmission equipment. Mr. Grenon holds an MBA from Harvard
Business School and a BSEE from Ecole Polytechnique, Universite de Montreal.
V. FRANK MENDICINO has served as a Director of the Company since July 1989
and as its Chairman since February 1992. Since 1983, Mr. Mendicino has served as
a General Partner of Woodside Fund, Woodside Fund II and Woodside Fund III, each
of which is a private investment fund. He has also served as a director of over
15 private companies.
COLIN J.R. PALLEMAERTS joined the Company as Vice President of Sales and
Marketing -- Telecommunications in April 1992, and now serves as Executive Vice
President -- Sales and Marketing since April 1992. He also served as Chief
Operating Officer of the Company for approximately six months in 1995. From
November 1991 to April 1992, Mr. Pallemaerts served as Vice President of
Marketing at P-Com, Inc., a manufacturer of millimeter wave radio equipment. Mr.
Pallemaerts holds a Higher National Certificate in Electrical Engineering from
Mid Essex Technical College and is a Graduate Member of the British Institute
for Electrical Engineers, which is a BSEE equivalent.
BARBARA J. WILLIAMS has served as the Company's Chief Operating Officer
since November 1995. From May 1995 to November 1995, she served as the XP4
Project Manager and from November 1994 to May 1995 as the Company's
Manufacturing Information Systems Manager. From June 1984 to November 1994, she
held various product manager positions at Hewlett-Packard, an electronics
manufacturer, including (1) Project Manager of Research and Development, (2)
Manager of Customer Support, Surface Mount Technology Center and (3) Production
Manager, Surface Mount Technology Center. Ms. Williams holds a Ph.D. in
Biostatistics from the University of Washington, an M.S. in Mathematics from the
University of Alaska and a B.A. in Microbiology from the University of Missouri.
44
<PAGE> 48
JOHN M. HEMINGWAY has served as the Company's Secretary and Chief Financial
Officer since joining the Company in June 1991. From September 1988 to December
1990, Mr. Hemingway served as a consultant to Disenos Industriales Plasticus, a
manufacturer of video cassettes and similar products located in Mexico and a
wholly-owned subsidiary of Grupo Televisa. From April 1978 to September 1988,
Mr. Hemingway served as Chief Financial Officer and a director of Shape, Inc., a
manufacturer of audio and video cassettes, computer tape and diskettes, compact
disks and automatic assembly equipment. Mr. Hemingway holds a B.A. degree from
Yale University in Latin American Studies and an M.B.A. from Dartmouth College.
He is a Certified Public Accountant.
RANDY J. KARR has served as Vice President-Manufacturing of the Company
since January 1997. He joined the Company as Director of Manufacturing in
December 1995. From December 1992 to December 1995, Mr. Karr served as Director
of Operations for MRC-Digital, a position he held since the inception of
MRC-Digital in 1992, in which he, inter alia, developed production plans and
various testing procedures in connection with the manufacture of a 40 GHz
digital microwave system. From August 1982 to December 1992, Mr. Karr managed
the design and development of the Micro-Beam broad-band microwave link business
at Channel Master, a division of AVNET Corporation, a distributor of electronic
components. Mr. Karr holds a BSEE from Missouri State University.
PAUL S. BACHOW has served as a Director of the Company since January 1993.
He has been President of Bachow & Associates, Inc. ("Bachow & Associates"),
since its formation in December 1989. Mr. Bachow also acts as President of the
General Partner of each of Paul S. Bachow Co-Investment Fund, L.P., and Bachow
Investment Partners III, L.P. Mr. Bachow serves as a director of Deb Shops,
Inc., a publicly traded company in the women's clothing business, Anadigics,
Inc., a publicly traded manufacturer of gallium arsenide chips for use in a
broad array of communications devices, and several private companies. He has a
B.A. from American University, a J.D. from Rutgers University and a Masters
Degree in tax law from New York University, and is a C.P.A.
FRANCES N. JANIS has served as a Director of the Company since April 1996.
Since February 1994, Ms. Janis has been the Executive Vice President of Pomona
Partners Inc., which is the General Partner of Pomona Capital II, L.P., where
she is responsible for making direct investments in private companies and
purchasing limited partnership interests in Venture Capital/Leveraged Buyout
funds. From 1983 to 1994 she served as General Partner in Hambro International
Venture Fund II, a private investment firm, where Ms. Janis' responsibilities
included investing in early-stage private companies.
HAROLD O. SHATTUCK has served as a Director of the Company since February
1992. Since May 1991, he has been President of MC Tecinvest Inc., a consulting
company specializing in operations, executive consulting and financial advising
to early- and growth-stage companies in the computer, software and
communications industries. In that capacity, he has advised such clients as
Xerox Venture Capital and MC Partners I and II, offshore funds investing in U.S.
venture capital funds.
BERNARD D. TARR, JR. has served as a Director of the Company since February
1995. Since April 1997, Mr. Tarr has served as a Managing Director of Arete
Ventures, Inc. and as a Managing Director of Arete Ventures, LLC. From September
1990 to April 1997 he served as a Vice President of Arete Ventures, Inc. Arete
Ventures, Inc. is the Managing Partner of the UVCC Funds. Arete Ventures, LLC is
the Managing Member of the Utility Competitive Advantage Fund, LLC, which
invests in private telecommunications, information technology and customer
service companies.
Directors of the Company serve one-year terms or until their successors
have been elected and qualified. Officers are elected annually and serve at the
discretion of the Board of Directors, subject to the terms of any employment
agreements with the Company.
The Board of Directors has a standing Audit Committee and Compensation
Committee. The Audit Committee, currently composed of Messrs. Tarr and Shattuck,
and Ms. Janis, reviews the Company's internal accounting procedures and consults
with and reviews the services provided by the Company's independent accountants.
The Compensation Committee, currently composed of Messrs. Bachow, Mendicino and
Shattuck, reviews and makes recommendations to the full Board of Directors with
respect to the compensation and benefits to be provided to the Company's
officers and directors and general policy matters relating to employee
compensation and benefits.
45
<PAGE> 49
OTHER KEY EMPLOYEES
PAUL H. LEMSON joined the Company in January 1997 as Director of
Engineering. From March 1995 to October 1996, he served as Engineering Manager
and then Senior Scientist at AT&T Wireless Services, Inc. (formerly McCaw
Cellular), a provider of cellular telephone services, where he supervised RF and
digital hardware engineers, realtime embedded software engineers and
administrative staff. From January 1989 to March 1995, Mr. Lemson served as
Senior Technologist and then as Principal Member of Technical Staff at
Southwestern Bell Technology Resources, Inc., a technology development
subsidiary of the Southwestern Bell family of companies, where he worked in
development of Southwestern Bell's technology for PCS and wireless local loop.
Mr. Lemson holds a BSEE from the University of Houston.
WILLIAM J. MEIGHAN joined the Company in May 1996 as Director of Quality
Assurance. From June 1995 to May 1996 he served as a consultant to the Company
as Director at Rainday Professional Services, a consulting service specializing
in ISO 9000 implementation, continuous improvement training and quality auditing
services. From September 1990 to May 1993, Mr. Meighan served as
Operations/Program Manager at BP Chemicals Advanced Materials Division, an
aerospace composites company. Mr. Meighan holds a B.S. in Physics from the
University of Washington and a M.S. in Applied Statistics from Utah State
University.
PATRIC W. MCDONALD has served as Chief Technical Officer since joining the
Company in July 1991. From February 1988 to July 1991, Mr. McDonald served as
Chief Executive Officer of Sierra Digital Communications Incorporated, a
designer and manufacturer of digital and analog microwave communication systems,
a company he co-founded. From December 1985 to February 1988, Mr. McDonald
served as Engineering Manager at the Transmission Systems Division of Avantek,
Inc., a designer and manufacturer of millimeter-wave digital communications
equipment. He was also employed by General Electric in the Microwave Products
Department for over 20 years. Mr. McDonald holds a BSEE from the University of
Evansville.
DIRECTOR COMPENSATION
All directors of the Company are reimbursed for out-of-pocket expenses
incurred attending meetings of the Board of Directors.
The Board of Directors granted Mr. Shattuck, as compensation for his
service as a director during 1996, (i) $1,000.00 in cash for each regularly
scheduled Board meeting attended and (ii) options to purchase 1,420 shares of
Common Stock, with an exercise price of $1.968 per share and, as compensation
for his service as a director during 1997, $1,000.00 in cash for each regularly
scheduled Board meeting attended, and options to purchase 1,736 shares of Common
Stock, with an exercise price of $2.88 per share of Common Stock.
The Company's Director Stock Option Plan (the "Director Plan") was
implemented in June 1997. In connection with the adoption of the Director Plan,
each non-employee director was eligible to receive options to purchase 10,000
shares of Common Stock at an exercise price of $10.00 per share. The Director
Plan provides for additional grants to non-employee directors of options to
purchase 4,000 shares of Common Stock. The exercise price of options granted
under the Director Plan is determined by a formula based on the trading price of
the Common Stock for the 20 trading days preceding the grant. One quarter of the
options granted vest after one year, with the remainder vesting in 36 equal
monthly increments. Unvested options under the Director Plan expire upon
termination of service other than by death or disability to the extent not
exercised. The options are granted automatically without further action from the
Board of Directors, except to the extent necessary to determine the fair market
value of the Common Stock on the date of grant. As of June 17, 1997, there were
48,263 outstanding options to purchase Common Stock of the Company pursuant to
the Director Plan.
46
<PAGE> 50
EXECUTIVE COMPENSATION
Compensation Summary. The following table sets forth information regarding
compensation earned during calendar 1996 by the Chief Executive Officer and the
four next most highly compensated executive officers during that year (the
"named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION(1) ------------------
-------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- --------------------------------------- -------- ------- ------------------ ------------
<S> <C> <C> <C> <C>
Jean-Francois Grenon................... $131,539 611,750 --
President, Chief Executive Officer,
and Director
Colin J.R. Pallemaerts................. 137,198 $10,000 67,198 --
Executive Vice President -- Sales and
Marketing
Barbara J. Williams.................... 119,246 -- 90,294 --
Chief Operating Officer
John M. Hemingway...................... 117,692 -- 62,318 --
Secretary and Chief Financial Officer
Randy J. Karr.......................... 88,561 20,000(3) 89,702 --
Vice President -- Manufacturing
</TABLE>
- ---------------
(1) In January 1996, the Board of Directors of the Company changed the fiscal
year end from March 31 to December 31. Fiscal year 1996 commenced on April
1, 1996 and ended December 31, 1996. Accordingly, amounts reported are for
the calendar year ended December 31, 1996.
Option Grants. The following table shows information concerning stock
options granted to the named executive officers in calendar 1996.
OPTION GRANTS DURING THE CALENDAR YEAR 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------- POTENTIAL REALIZABLE
NUMBER VALUE AT ASSUMED ANNUAL
OF RATES OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED EXERCISE TERM(3)
OPTIONS TO EMPLOYEES IN PRICE(2) EXPIRATION ------------------------
NAME GRANTED(1) CALENDAR YEAR ($/SHARE) DATE 5% 10%
- ------------------------- -------- ---------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jean-Francois Grenon 611,750 58.7 1.968 2/20/2016 $1,990,445 $6,895,475
Colin J.R. Pallemaerts 67,198 6.5 1.968 12/17/2016 218,641 757,437
John M. Hemingway 62,318 6.0 1.968 12/17/2016 202,763 702,431
Barbara J. Williams 90,294 8.7 1.968 12/17/2016 293,789 1,017,767
Randy J. Karr 89,702 8.6 1.968 12/17/2016 291,862 1,011,096
</TABLE>
47
<PAGE> 51
- ---------------
(1) All of the options granted to the named executive officers in calendar year
1996 were non-qualified stock options. Half of these options vest over 48
months beginning January 1, 1997. Twenty-five percent of the options held by
Mr. Grenon vested in February 1997; the remaining options vest monthly for
36 months commencing March 9, 1997. The vesting of half of the granted
options for the above named executive officers were subject to performance
criteria. In April 1997, the options were amended to eliminate performance
criteria.
(2) The exercise price of each option was not less than the estimated fair value
of the Common Stock on the date of grant.
(3) Based upon the estimated fair value of the Common Stock on the date of grant
and assumed appreciation over the term of the options at the respective
annual rates of stock appreciation shown. Potential gains are net of the
exercise price but before taxes associated with the exercise. The 5% and 10%
assumed annual rates of compounded stock appreciation are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future price of the Common Stock.
Actual gains, if any, on stock option exercises are dependent on the future
financial performance of the Company and overall market conditions. The
actual value realized may be greater or less than the potential realizable
value set forth in the table.
Year-End Option Values. None of the named executive officers exercised any
stock options during calendar year 1996. The following table sets forth certain
information regarding the number and value of unexercised options held by the
named executive officers at December 31, 1996.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL YEAR-
YEAR-END(1)(#) END(2)($)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jean-Francois Grenon -- 611,750 -- 5,525,326
Colin J.R. Pallemaerts 56,515 85,827 510,443 775,189
John M. Hemingway 35,000 65,115 316,120 588,119
Barbara J. Williams 10,611 114,536 95,839 1,034,489
Randy J. Karr 2,604 97,514 23,519 880,746
</TABLE>
- ---------------
(1) Does not include options granted in 1997.
(2) Represents the value of the shares of Common Stock subject to outstanding
options, based on an assumed initial public offering price of $11.00 per
share, less the aggregate option exercise price.
BENEFIT PLANS
Stock Options. The Company's 1990 Stock Option Plan (Amended and Restated
July 31, 1992) (the "Plan") permits options to purchase up to an aggregate of
2,083,333 shares of Common Stock to be granted to employees and nonemployees of
the Company. The Plan is administered by the Board of Directors, which has the
authority to select individuals who are to receive options and to specify the
terms and conditions of each option so granted, including the number of shares
covered by the option, the type of option (incentive stock option or
nonqualified option), the exercise price (which, in case of options granted
after the effective date of the Offering, must be at least 100% of the fair
market value of the Common Stock), vesting provisions, and the overall option
term. At March 31, 1997, options to purchase an aggregate of 1,539,460 shares of
Common Stock were outstanding under the Plan.
401(k) Plan. The Company maintains a 401(k) plan that covers all employees
who satisfy certain eligibility requirements relating to minimum age, length of
service and hours worked. Under the profit sharing portion of the plan, the
Company may make an annual contribution for the benefit of eligible employees in
an amount determined by the Board of Directors, but no such contributions have
been made to date. Under the 401(k) portion of the plan, eligible employees may
make pre-tax elective contributions of up to 10% of their compensation, subject
to maximum limits on contributions prescribed by law.
48
<PAGE> 52
CERTAIN TRANSACTIONS
Series A Financings and Related Bridge Financings. In April 1994, the
Company issued 338,187 shares of Series A Preferred Stock pursuant to the
antidilution rights of certain holders of Series A Preferred Stock. Woodside
Fund, Woodside Fund II and Woodside Fund III (collectively, "Woodside Funds")
and UVCC Fund II and UVCC II Parallel Fund, L.P. (collectively, "UVCC") were
issued 96,100 and 23,936 shares of Series A Preferred Stock, respectively. The
Company issued $246,934 in promissory notes convertible into shares of Series A
Preferred Stock and granted the right to receive warrants to purchase shares of
Common Stock based on the amount invested, at an exercise price of $0.84 per
share to Woodside Funds, and three other investors. Woodside Funds were issued
$46,934 in convertible promissory notes. In May 1994, the right to receive
warrants to purchase common stock was amended to the right to receive either
warrants to purchase Common Stock at an exercise price of $0.84 or warrants to
purchase Series A Preferred Stock at an exercise price of $0.84 per share.
In May 1994, $1,700,000 of outstanding convertible promissory notes issued
in connection with the Series A Financings were converted into Series A
Preferred Stock at a price of $7.9168 per share, and warrants were issued to
purchase a total of 462,640 shares of Series A Preferred Stock with an exercise
price of $0.84 per share, to 17 investors. Woodside Funds and Woodside Fund III
together, and UVCC, purchased $757,852 and $131,386 of Series A Preferred Stock,
respectively, and warrants to purchase 177,429 and 37,540 shares of Series A
Preferred Stock, respectively. In December 1994, the remaining convertible
promissory notes issued in connection with the Series A Financings were
converted into $500,000 of Series A Preferred Stock at a price of $7.9168 per
share and warrants were issued to purchase a total of 19,338 shares of Series A
Preferred Stock at an exercise price of $0.84 per share.
In May 1994, the Company issued to Tregor Electronique, S.A. ("Tregor"), a
holding company of SAT, a warrant to purchase 56,378 shares of Series A
Preferred Stock pursuant to the Company's contractual obligation to adjust SAT's
percentage ownership of the Company to 10% in connection with the Series A
financing.
The Company has granted certain registration rights for the shares of
Common Stock issuable upon the conversion of the Series A Preferred Stock. All
shares of Series A Preferred Stock will be automatically converted into
1,574,155 shares of Common Stock upon consummation of the offering and all
material contractual covenants by the Company in favor of the Series A Preferred
Stock investors will automatically terminate, other than the registration
rights. See "Shares Eligible for Future Sales -- Outstanding Registration
Rights."
Series B Financing. In April 1994, the Company issued a single $1,000,000
convertible promissory note (the "Bachow Note") payable to Bachow Investment
Partners III, L.P. ("Bachow Investment Partners"), Paul S. Bachow Co-Investment
Fund, L.P. ("Bachow Co-Investment Fund"), and Paul S. Bachow ("Bachow")
(collectively, the "Bachow Entities"), the total amount due under which,
including interest of $20,135, was converted into Series B Preferred Stock at a
price of $6.0850 per share in May 1994 in connection with the closing of the
Series B Financing. In May 1994, the Company sold an additional $1,199,997 of
Series B Preferred Stock at a price of $6.0850 per share to the Bachow Entities
along with three options to purchase additional shares of Series B Preferred
Stock, at a price of $1 per option. In July and August of 1994, the first of the
three options was fully exercised. Pursuant to the exercise, the Bachow Entities
purchased a total of $2,800,000 of Series B Preferred Stock at $6.3679 per
share. The second and third options were not exercised and have expired.
The Company has granted certain registration rights for the shares of
Common Stock issuable upon the conversion of the Series B Preferred Stock. All
shares of Series B Preferred Stock will be automatically converted into 804,553
shares of Common Stock upon consummation of the offering and all material
contractual covenants of the Company in connection with the Series B Financing
will terminate upon consummation of the offering, other than the registration
rights. See "Shares Eligible for Future Sales -- Outstanding Registration
Rights."
Bridge Notes. In September 1994, the Company issued a $178,650 promissory
note to Woodside Fund III. In October 1994, the Company issued $500,000 in
nonconvertible promissory notes, payable on or before October 31, 1994 and
bearing interest at the rate of 10.75% per annum, with a default interest rate
of 15% per annum, to the Bachow Entities. The amount due under the note was used
to purchase Series C Preferred Stock at a price of $6.3672 per share in
connection with the Series C financing described below.
49
<PAGE> 53
SAT Note. In October 1994, the Company issued a promissory note in the
amount of $300,000, payable on demand on or after December 31, 1994, to Societe
Anonyme de Telecommunications. This note has been paid in full and is no longer
outstanding.
Series C and C1 Financing. In February and April 1995, the Company sold
$4,229,792 of Series C Preferred Stock at a price of $6.3672 per share, $11,957
of Common Stock at a price of $.024 per share, and issued warrants to purchase a
total of 1,204,050 shares of Common Stock at an exercise price of $.024 per
share to the Bachow Entities, Tregor, UVCC, Woodside Fund III, Brian Flynn,
former Acting CEO, Daniel Nelson, former Vice President of Manufacturing and 13
other investors. The Bachow Entities, Tregor, UVCC, Woodside Funds, Brian Flynn
and Daniel Nelson purchased $997,181, $1,495,771, $159,549, $944,225, $29,915
and $7,579 of Series C Preferred Stock, respectively, $2,819, $4,229, $451,
$2,669, $85 and $21 of Common Stock, respectively, and received warrants to
purchase 283,859 shares, 425,789 shares, 45,416 shares, 268,784 shares, 8,515
shares and 2,157 shares, of Common Stock, respectively.
All shares of Series C and C1 Preferred Stock will be automatically
converted into 1,121,543 shares of Common Stock upon consummation of the
offering and all contractual covenants by the Company in favor of the Series C
and C1 Preferred Stock investors will automatically terminate, other than the
registration rights. See "Shares Eligible for Future Sales -- Outstanding
Registration Rights."
In September and November 1995, the Company sold $2,890,428 of Series C1
Preferred Stock at a price of $6.3672 per share, $8,171 of Common Stock at a
price of $.024 per share, and issued warrants to purchase a total of 680,917
shares of Common Stock at an exercise price of $.024 per share to the Bachow
Investment Partners, Bachow, UVCC, Woodside Funds, and 14 other investors.
Bachow Investment Partners and Bachow, UVCC and Woodside Funds purchased
$1,520,661, $249,296, and $648,168 of Series C1 Preferred Stock, respectively,
$4,229, $705, and $1,832 shares of Common Stock, respectively, and received
warrants to purchase 358,239, 58,728, and 152,695 shares of Common Stock,
respectively. The holders of the Series C and C1 Preferred Stock have the same
registration rights as holders of previously issued Preferred Stock.
Bridge Loan Financing. In November 1995 through January 1996 the Company
issued promissory notes in the aggregate principal amount of $1,000,000 to
Bachow Investment Partners, UVCC, Woodside Fund III, and nine other investors.
Bachow Investment Partners, UVCC and Woodside Fund III were issued notes in the
principal amount of $491,921, $87,828, and $291,922, respectively. These notes
were payable on demand on or after April 1, 1996, bearing interest at a rate of
16% per year for 90 days from the date of issuance and at the rate of 21% per
year thereafter until paid in full. The investors to whom these notes were
issued were also granted the right to receive warrants to purchase Common Stock
based on the amount invested and the terms of a future financing.
In March and April 1996, the Company issued promissory notes in the
aggregate principal amount of $6,069,869 to Bachow Investment Partners, Bachow,
UVCC, Woodside Fund III, and 13 other investors to reflect advances for
purchases of Series D Preferred Stock. Bachow Investment Partners and Bachow,
UVCC, and Woodside Fund III were issued notes in the principal amount of
$3,543,263, $350,000, and $1,258,078, respectively. The investors to whom the
notes were issued were also granted a right to receive warrants to purchase
Common Stock based on the amount invested and the terms of a future financing.
In April 1996, the principal amount due under all the notes, except
$69,869, was converted into Series D Preferred Stock at a per share price of
$3.228. Upon the closing of the Series D financing, as described below, warrants
to purchase 193,611 shares of common stock of the Company at an exercise price
per share of $2.5824 were issued. Bachow Investment Partners, UVCC, and Woodside
Fund III were issued warrants to purchase 95,244, 17,004, and 56,521 shares of
the Common Stock of the Company, respectively. Warrants to purchase 367,082
shares of Common Stock at an exercise price of $.024 per share were issued.
Bachow Investment Partners and Bachow, UVCC, and Woodside Fund III were issued
$4,035,184, $437,828, and $1,550,000 Series D Preferred Stock, respectively,
upon conversion of their notes. Bachow Investment Partners and Bachow, UVCC, and
Woodside Fund III were issued warrants to purchase 211,610, 22,960 and 81,284
shares of common stock, respectively. The $155,931 due in interest on the notes
was paid in cash. The $69,869 of notes that was not converted was paid in cash.
All notes have been paid in full and are no longer outstanding.
50
<PAGE> 54
Series D Financing. In April 1996, the Company sold $5,000,000 Series D
Preferred Stock at a price of $3.228 per share to Pomona Capital II, LP
("Pomona") and Baupost Limited Partnership 1983 C-1 ("Baupost"). The holders of
the Series D Preferred stock have the same registration rights as holders of
other Preferred Stock.
All shares of Series D Preferred Stock will be automatically converted into
3,717,463 shares of Common Stock upon consummation of the offering, and all
contractual covenants by the Company in favor of the Series D Preferred Stock
investors will automatically terminate, other than the registration rights. See
"Shares Eligible for Future Sales -- Outstanding Registration Rights."
November 1996 Through March 1997 Bridge Financing. In November 1996 and
December 1996, the Company issued $1,500,000 in promissory notes to Bachow
Investment Partners, Baupost and Pomona, Brian Flynn, UVCC and Woodside Fund III
in the amounts of $572,513, $326,535, $6,507, $71,114 and $282,450,
respectively. The notes bore interest at 12% per year and payable on demand 90
days after issuance. The notes were convertible into Series D Preferred Stock at
the option of the holder 90 days from the date of issuance if not repaid by the
Company prior to 91 days from the date of issuance. The conversion price was
$.1345 per share. An additional $3,000,000 in convertible promissory notes were
issued in March 1997, $1,500,000 of which retired the notes issued in November
and December. Notes in the remaining $1,500,000 were converted into Series E
Preferred Stock in connection with the Series E financing described below. Of
the $3,000,000 issuance, Bachow Investment Partners and Bachow received notes in
the amount of $1,541,395, Baupost and Pomona received notes in the amount of
$371,303, UVCC received notes in the amount of $172,902 and Woodside Fund III
received notes in the amount of $686,739.
Series E Financing. In March 1997, the Company sold $4,999,999 of Series E
Preferred Stock at a price of $5.19384 per share, to the Bachow Investment
Partners, Bachow, UVCC, Woodside Fund III, Pomona, Baupost and 14 other
investors. The Bachow Investment Partners and Bachow, UVCC, Woodside Fund III,
Pomona and Baupost purchased $2,336,581, $287,314, $1,141,171 and $618,838 of
Series E Preferred Stock, respectively. The holders of the Series E Preferred
stock have the same registration rights as holders of other Preferred Stock.
All shares of Series E Preferred Stock will be automatically converted into
962,669 shares of Common Stock upon consummation of the offering, and all
contractual covenants by the Company in favor of the Series E Preferred Stock
investors will automatically terminate, other than the registration rights. See
"Shares Eligible for Future Sales -- Outstanding Registration Rights."
Bridge Notes. In May 1997, Bachow & Associates and Woodside Fund III each
advanced the Company $250,000 in anticipation of the Series F Financing
described below. These amounts were repaid in full at the closing of the Series
F Financing.
Series F Financing. In June 1997, the Company sold $3,500,000 of Series F
Preferred Stock at a price per share of $6.96 to V. Frank Mendicino and the V.
Frank Mendicino Defined Benefit Pension Plan (the "Benefit Plan") and 10 other
investors. Mr. Mendicino and the Benefit Plan purchased $87,355 of Series F
Preferred Stock. The holders of the Series F Preferred Stock have the same
registration rights as holders of other Preferred Stock.
All shares of Series F Preferred Stock will be automatically converted into
502,866 shares of Common Stock upon consummation of the offering, and all
contractual covenants by the Company in favor of the Series F Preferred Stock
investors will automatically terminate, other than the registration rights.
Additional Note Issuances. In October and November 1994, and November 1995,
the Company issued promissory notes in an aggregate amount of $470,000 to
Woodside Fund III. In November and December 1994, the Company issued promissory
notes in an aggregate amount of $1,300,000 to SAT. In February 1996, the Company
issued a promissory note in the amount of $135,000 to Brian Flynn, who was
Acting Chief Executive Officer at the time.
Societe Anonyme de Telecommunications. The Company has entered into several
agreements with Societe Anonyme de Telecommunications ("SAT") concerning
technical cooperation in the development of the Company's products, and the
purchase, distribution and manufacture of such products by SAT.
XP3 Product Arrangements. In October 1992, the Company entered into a
Master Agreement which provided for cooperative development of certain products
based on the Company's XP3 architecture, payment by SAT of $800,000 to the
Company upon achievement of certain development milestones, and the granting to
SAT of certain marketing and manufacturing rights as to XP3 products. In June
1993, the Company and SAT entered into an OEM Distributor Agreement pertaining
to the XP3 product line (as modified by four subsequent amendments, the "XP3 OEM
Agreement"), which granted SAT a right to purchase XP3 products on most-favored
customer terms, and a right to
51
<PAGE> 55
distribute such products on an exclusive basis in France and certain other
European countries and on a non-exclusive basis elsewhere; imposed certain
limits on the Company's sales of XP3 products; granted SAT a right to
manufacture XP3 products in France subject to certain conditions, limitations
and royalty obligations; provided for cooperation in product development and
access to component suppliers; and granted SAT a right of first refusal as to
XP4 distribution and manufacturing rights in France and certain other countries.
In December 1994, following a decision by the Company to concentrate development
efforts on its new XP4 product architecture, the Company and SAT executed a
Processor For Hire Agreement (as modified by subsequent amendments, the
"Processing Agreement"), under which SAT acquired the Company's inventory of XP3
parts and work in process for approximately $2.6 million (paid for in part by
satisfying approximately $1.9 million of advances made to the Company by SAT),
and the Company agreed to continue manufacturing XP3 products for SAT in return
for a processing fee based on the Company's actual costs of manufacturing.
The Company's sales of XP3 products to SAT constituted substantially all of
the Company's sales of $1,151,605 and $445,229 in the years ended March 31, 1995
and 1996, respectively, and were $3,000 and $833,000 in the nine month fiscal
period ended December 31, 1996 and the three months ended March 31, 1997,
respectively. Processing fees received by the Company from SAT under the
Processing Agreement amounted to $1,206,894, $1,516,870, $53,257, and $0 in the
years ended March 31, 1995 and 1996, the nine month fiscal period ended December
31, 1996, and the three months ended March 31, 1997, respectively. The
Processing Agreement was terminated by mutual agreement of the parties in April
1997. Upon expiration of the XP3 OEM Agreement at the end of 1999, SAT's
manufacturing rights as to XP3 products will become unlimited and fully paid up.
Having transitioned its product development, sales and marketing, and strategic
focus to the XP4 product line, the Company does not believe that SAT's
continuing distribution and manufacturing rights as to XP3 products pose either
a competitive threat or a significant impediment to the Company's ability to
distribute its XP4 products through SAT.
XP4 Product Arrangements. In November 1995, the Company and SAT entered
into a Memorandum of Understanding providing for joint development of a product
specification for the Company's XP4 product line, joint ownership of an XP4
interface specification subject to certain transfer limitations, efforts by both
parties to develop compatible and complementary product lines, and development
of a plan for purchases of products by each party from the other. This
Memorandum of Understanding has terminated. On October 31, 1996, the Company and
SAT entered into a more detailed Cooperation Agreement, which provides for
cooperative development of XP4 products, and grants SAT certain exclusive and
nonexclusive distribution rights as to XP4 products, as well as certain
unconditional and conditional limited rights to manufacture certain XP4
products. See "Business -- Sales and Marketing -- Distribution
Relationships -- SAT Arrangements." Simultaneously with the Cooperation
Agreement, the Company and SAT entered into a Master Purchase Agreement, which
includes a confidential conditional commitment by SAT to purchase a fixed number
of XP4 products in various frequencies and configurations from the Company, as
well as other provisions regarding product acceptance testing procedures
applicable to SAT's purchase commitment. Orders satisfying SAT's purchase
commitment have been placed and shipments are expected to have been completed by
the fourth quarter. The Company's sales of XP4 products to SAT were $833,000 in
the three months ended March 31, 1997.
XP4 Sales to Bachow Communications
During the fiscal period ended December 31, 1996, the Company sold XP4
radios with an aggregate purchase price of $194,560 to Bachow Communications,
Inc. Paul S. Bachow, a director of the Company, is the sole shareholder and
President of Bachow Communications.
Compensation to Bachow & Associates for Acting CEO's Services. In May 1996,
Bachow & Associates received $217,500 for the services provided by Mr. Brian
Flynn, formerly Managing Director of Bachow & Associates, who served as the
acting Chief Executive Officer of the Company from January 1995 to February
1996. Mr. Paul S. Bachow is Senior Managing Director of Bachow & Associates.
The Company has adopted a policy prohibiting transactions with its
directors, officers or controlling shareholders or their affiliates other than
those that result from competitive bidding or that a majority of the Company's
disinterested directors conclude are expected to benefit the Company and are on
terms no less favorable to the Company than could be obtained in arm's-length
transactions with unaffiliated third parties. See "Executive
Compensation -- Compensation Committee Interlocks and Insider Participation."
52
<PAGE> 56
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 17, 1997, and as adjusted to reflect
the sale of shares of Common Stock in the Offering for (i) each person known to
the Company to own beneficially more than 5% of the Common Stock, (ii) each of
the Company's directors, (iii) each of the Company's named executive officers
and (iv) all of the Company's executive officers and directors as a group.
Except as otherwise noted, the named beneficial owner has sole voting and
investment power with respect to the shares indicated as beneficially owned by
such person.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT PERCENT
NAME AND ADDRESS(1) BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ---------------------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
DIRECTORS, OFFICERS AND SHAREHOLDERS
Paul S. Bachow(2) 4,145,455 39.2 31.7
c/o Bachow & Associates
3 Bala Plaza, Suite 502
Bala Cynwyd, PA 19004
V. Frank Mendicino(3) 2,307,028 22.3 17.9
c/o Woodside Funds
4133 Mohr Avenue, Suite H
Pleasanton, CA 94566
Frances N. Janis(4) 1,668,094 17.3 13.7
c/o Pomona Capital II, L.P.
780 Third Avenue, 23rd Floor
New York, NY 10017-7076
Societe Anonyme de Telecommunications(5) 1,083,402 10.7 8.6
c/o Tregor Electronique S.A.
11 Rue Watt, B.P. 370
75626 Paris, CEDEX13
France
Bernard D. Tarr, Jr.(6) 574,300 5.9 4.7
c/o Arete Ventures, Inc.
6110 Executive Blvd., Suite 1040
Rockville, MD 20852
Jean-Francois Grenon(7)(8) 216,660 2.2 1.18
Harold O. Shattuck[(7)] 11,014 * *
Colin J.R. Pallemaerts(7)(9) 61,229 * *
John M. Hemingway(7)(10) 46,885 * *
Barbara J. Williams(7)(12) 28,997 * *
Randy J. Karr(7)(11) 17,203 * *
All Directors and Executive Officers
as a Group (10 persons)(13) 9,076,865 76.4 63.1
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes shares over which the
indicated beneficial owner exercises voting and/or investment power. Shares
of Common Stock subject to options currently exercisable or exercisable
within 60 days are deemed outstanding for computing the percentage
ownership of the person holding the options but are not deemed outstanding
for computing the percentage ownership of any other person. Except as
indicated, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
(2) Includes 2,615,091 shares held by Bachow Investment Partners III, L.P.
("Bachow Investment Partners"), and 277,457 shares held by Paul S. Bachow
Co. - Investment Fund, L.P. ("Bachow Co-Investment Fund"), both limited
partnerships. Mr. Bachow is the President of the General Partner of the
General Partner of each of Bachow Investment Partners and Bachow
Co-Investment Fund. Also includes 786,889 shares issuable upon exercise of
warrants to purchase Common Shares held by Bachow Investment Partners, and
73,052 shares issuable upon exercise of warrants to purchase Common Shares
held by Bachow Co-Investment Fund.
(3) Represents 9,000 shares held by V. Frank Mendicino Defined Benefit Pension
Plan, 243,212 shares held by Woodside Fund, 130,912 shares held by Woodside
Fund II, and 1,185,414 shares held by Woodside Fund III. Also represents
294,006 shares
53
<PAGE> 57
issuable upon exercise of warrants to purchase Common Shares held by
Woodside Fund, 149,509 shares issuable upon exercise of warrants to
purchase Common Shares held by Woodside Fund II, and 293,200 shares
issuable upon exercise of warrants to purchase Common Shares held by
Woodside Fund III. Mr. Mendicino is a General Partner of Woodside Funds and
has shared investment power and shared voting power over such shares with
the two other General Partners, Vincent M. Occhipinti and Robert E. Larson.
(4) Represents 1,202,529 shares held by Pomona Capital II, L.P. ("Pomona
Capital") and 465,565 shares held by Baupost Limited Partnership 1983 C-1
("Baupost"), both limited partnerships. Ms. Janis is Executive Vice
President of Pomona Partners, Inc., the General Partner of Pomona Capital,
and Executive Vice President of Pomona Management Co., Inc.,
attorney-in-fact of Baupost. Ms. Janis has shared investment power and
shared voting power over such shares with each of (i) Michael D. Granoff,
President of Pomona Partners, Inc., and Pomona Management Co., Inc., and
(ii) Stephen Fotrell, Treasurer of Pomona Partners, Inc., and Pomona
Management Co., Inc.
(5) Tregor Electronique S.A. is a company organized under the laws of France,
and a holding company of Societe Anonyme de Telecommunications, a company
organized under the laws of France.
(6) Represents 196,324 shares held by UVCC Fund II ("UVCC Fund II") and 196,324
shares held by UVCC II Parallel Fund, L.P. ("UVCC Parallel Fund"). Also
includes 90,826 shares issuable upon exercise of warrants to purchase
Common Shares held by UVCC Fund II, and 90,826 shares issuable upon
exercise of warrants to purchase Common Shares held by UVCC Parallel Fund.
Mr. Tarr is Managing Director of Arete Ventures, the General Partner of the
UVCC funds.
(7) The address for each of these shareholders is that of the Company.
(8) Represents options to purchase 216,660 Common Shares exercisable within 60
days of June 17, 1997. Excludes options to purchase 395,088 Common Shares
exercisable more than 60 days after June 12, 1997.
(9) Represents options to purchase 61,229 Common Shares exercisable within 60
days of June 17, 1997. Excludes options to purchase 62,662 Common Shares
exercisable more than 60 days after June 12, 1997.
(10) Represents options to purchase 46,885 Common Shares exercisable within 60
days of June 17, 1997. Excludes options to purchase 53,230 Common Shares
exercisable more than 60 days after June 12, 1997.
(11) Represents options to purchase 28,997 Common Shares exercisable within 60
days of June 17, 1997. Excludes options to purchase 96,150 Common Shares
exercisable more than 60 days after June 12, 1997.
(12) Represents options to purchase 17,203 Common Shares exercisable within 60
days of June 17, 1997. Excludes options to purchase 82,913 Common Shares
exercisable more than 60 days after June 12, 1997.
(13) Includes options to purchase an aggregate of 370,974 Common Shares
exercisable within 60 days of June 17, 1997, and an aggregate of 1,867,322
Common Shares issuable upon exercise of warrants to purchase Common Shares.
54
<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
Upon completion of the Offering, the authorized capital stock of the
Company will consist of 30,000,000 shares of Common Stock and 5,000,000 shares
of Preferred Stock.
COMMON STOCK
As of June 17, 1997, 9,632,819 shares of Common Stock were outstanding and
were held of record by 82 shareholders. Holders of Common Stock are entitled to
one vote per share on all matters submitted to a vote of the shareholders and do
not have the right to cumulate votes with respect to elections of directors.
Accordingly, holders of a majority of the shares of Common Stock voting in any
election of directors will have the ability to elect all of the directors
standing for election. All directors hold office until the next annual meeting
of shareholders and until their successors have been duly elected and qualified.
Directors may be removed with or without cause by the holders of a majority of
the outstanding shares of Common Stock.
Holders of Common Stock are entitled to receive ratably any dividends as
may be declared by the Board of Directors out of legally available funds,
subject to any preferences that may be afforded to any outstanding preferred
stock. In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preference of any outstanding
preferred stock. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. All of the outstanding shares of Common Stock
are, and all shares of Common Stock to be outstanding upon consummation of the
Offering will be, when issued and paid for, fully paid and nonassessable. The
Company's Articles of Incorporation and Bylaws provide for release and
indemnification of the Company's directors and officers as to certain
liabilities arising from their actions in such capacities to the fullest extent
permitted by law.
PREFERRED STOCK
The Board of Directors has the authority to issue 5,000,000 shares of
preferred stock in one or more series and to fix the relative rights,
preferences and privileges thereof, including dividend rights, conversion
rights, voting rights, redemption terms, liquidation preferences and number of
shares constituting any series up to the maximum number of preferred stock. The
market price for the Common Stock, and the voting and other rights of the
holders thereof, may be adversely affected by the rights, preferences and
privileges accorded to any preferred stock issued by the Company. Issuances of
preferred stock in certain circumstances may also have the effect of delaying,
deferring or preventing a change in control of the Company, or discouraging bids
for the Company's Common Stock at a premium over the market price. Upon
consummation of the Offering, the Company will have no shares of preferred stock
outstanding. The Company has no present plans to issue any preferred stock.
WARRANTS TO PURCHASE COMMON STOCK
As of June 17, 1997, warrants to purchase 2,949,169 shares of Common Stock
were outstanding. Of these, (i) warrants to purchase 481,978 shares of Common
Stock at an exercise price of $.84 per share expire May 31, 1999, (ii) warrants
to purchase 1,204,050 shares of Common Stock expire on February 13, 2000, (iii)
warrants to purchase 680,917 shares of Common Stock expire on September 5, 2000,
(iv) warrants to purchase 193,611 shares of Common Stock at an exercise price of
$2.5824 per share and warrants to purchase 367,082 shares of Common Stock at an
exercise price of $.024 per share, expire on April 26, 2001 and (v) a warrant to
purchase 21,500 shares of Common Stock at an exercise price of $6.96 per share
expire on April 30, 2002. All warrants are currently exercisable. See "Shares
Eligible for Future Sale."
CERTAIN VOTING AND OTHER MATTERS
Under the Washington Business Corporation Act (the "Act"), shareholder
approval is required in order for the Company to participate in certain mergers
and share exchanges or to sell substantially all of its assets, and for certain
other actions. Within certain limits, the Act permits a corporation's articles
of incorporation to specify the level of shareholder approval required for such
transactions. The Company's Articles of Incorporation generally require any such
transaction to be approved by the holders of a majority of the outstanding
shares of Common Stock.
55
<PAGE> 59
Under the Company's Articles of Incorporation and Bylaws, special meetings
of the shareholders may be called only by the Board of Directors, the Chairman
of the Board, or the President, or the holders of at least 25% of all the votes
entitled to be cast on any issues proposed to be considered at such special
meeting. Amendments to the Articles of Incorporation must generally be approved
by the Board of Directors and the holders of a majority of the outstanding
shares of Common Stock.
The Company's Bylaws provide that shareholders seeking to bring business
before, or to nominate directors at, any meeting of shareholders must provide
timely notice thereof in writing. To be timely, a shareholder's notice must be
delivered to, or mailed and received at, the principal executive office of the
Company not less than 70 days prior to the date of the meeting, or the tenth day
after notice of the meeting is first given to shareholders, whichever is later
if the meeting is an annual meeting or if a special meeting at which directors
are to be elected. The Bylaws also contain specific requirements for the form of
a shareholder's notice. These provisions may preclude or may make it difficult
for some shareholders from bringing matters before the shareholders or from
making nominations for directors. The Bylaws may be amended or repealed by the
Board of Directors or by the majority of the holders of the outstanding shares
of Common Stock.
Holders of shares of preferred or other capital stock hereafter issued by
the Company may also be entitled to vote in connection with the matters
described above, and separate approval may be required to the extent of any
class voting rights accorded to the holders of such other stock. It is possible
that the provisions of the Company's Articles of Incorporation and Bylaws
described above may have the effect of delaying, deterring or preventing a
change in control of the Company.
ANTITAKEOVER RESTRICTIONS
Washington law contains certain provisions that may have the effect of
delaying, deferring or preventing a takeover or change of control of the Company
which is not supported by the Board of Directors. Chapter 23B.19 of the
Washington Business Corporation Act prohibits the Company, with certain
exceptions, from engaging in certain significant business transactions with an
"acquiring person" (defined as a person who acquires 10% or more of the
Company's voting securities without the prior approval of the Company's Board of
Directors) for a period of five years after such acquisition. The prohibited
transactions include, among others, a merger with, disposition of assets to, or
issuance or redemption of stock to or from, the acquiring person, or otherwise
allowing the acquiring person to receive any disproportionate benefit as a
shareholder. The Company may not exempt itself from coverage of this statute.
These statutory provisions may have the effect of delaying, deferring or
preventing a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, 12,139,029 shares of Common Stock will
be outstanding (10,014,028 shares if the Underwriters' over-allotment option is
exercised in full), of which the 2,500,000 shares offered hereby (2,875,000
shares if the Underwriters' over-allotment option is exercised in full) will be
freely tradable on the public market without restriction or further registration
under the Securities Act, except to the extent such shares are held by an
affiliate of the Company. The remaining 9,639,029 shares were issued and sold by
the Company in private transactions, and public sale thereof is restricted
except to the extent they are registered under the Securities Act or sold in
accordance with an exemption from such registration. Of these 9,639,029
remaining shares, 8,123,262 will be eligible for public sale immediately after
this offering pursuant to Rule 144, 50,231 shares will be eligible for public
sale 90 days after the date of this offering pursuant to Rule 701 under the
Securities Act of 1933, as amended (the "Securities Act"), and 962,669 and
502,867 shares will be eligible for sale to the public on March 19, 1998 and
June 16, 1998, respectively, pursuant to Rule 144, or earlier if registered
under the Securities Act pursuant to certain contractual rights. Shareholders
who will hold an aggregate of 9,546,995 shares of Common Stock after this
offering have the right to require the Company to register their shares for sale
under the Securities Act. Sales of substantial numbers of shares of Common Stock
in the public market following this offering could materially adversely affect
the market price for the Common Stock. See "Shares Eligible for Future Sale."
The Company and the holders of 8,384,076
56
<PAGE> 60
of the 9,639,029 "restricted" shares have entered into Lock-up Agreements with
the Underwriters. As of June 16, 1997, an additional 545,526 shares were
issuable upon exercise of outstanding stock options. Of these shares, 373,449
are subject to Lock-up Agreements and the remaining will be eligible for public
sale 90 days after the date of this Offering pursuant to Rule 701, subject to
vesting.
An additional 2,949,169 shares of Common Stock are issuable upon exercise
of warrants, and will be eligible for sale to the public one year after the date
of exercise or earlier if registered under the Securities Act pursuant to
contractual rights. Of the shares issuable upon exercise of the warrants,
2,462,947 shares are subject to Lock-up Agreements.
In general, Rule 144 as currently in effect provides that any person who
has beneficially owned shares for at least one year, including an "affiliate"
(as defined in Rule 144), is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of 1% of the shares of Common
Stock then outstanding or the reported average weekly trading volume of the
Common Stock during the four calendar weeks immediately preceding the date on
which notice of the sale is sent to the Securities and Exchange Commission (the
"SEC"). Sales under Rule 144 are subject to certain manner of sale restrictions,
notice requirements and availability of current public information concerning
the Company. A person who is not an affiliate of the Company, and who has not
been an affiliate within three months prior to the sale, generally may sell
shares without regard to the limitations of Rule 144 provided that the person
has held such shares for a period of at least two years.
Any employee, director or officer of, or consultant to, the Company holding
shares purchased pursuant to a written compensatory plan or contract (including
options) entered into prior to the Offering is entitled to rely on the resale
provisions of Rule 701, which permit nonaffiliates to sell such shares without
having to comply with the public information, holding period, volume limitation
or notice requirements of Rule 144 and permit affiliates to sell their Rule 701
shares without having to comply with the holding period restrictions of Rule
144, in each case commencing 90 days after the date of this Prospectus.
Prior to the Offering, there has been no public market for the Common Stock
of Company and no prediction can be made of the effect, if any, that the sale or
availability for sale of shares of Common Stock will have on the market price of
the Common Stock. Nevertheless, sales of substantial amounts of such shares in
the public market could adversely affect the market price of the Common Stock.
OUTSTANDING REGISTRATION RIGHTS
Under a Registration Agreement dated as of May 26, 1994, as amended on
April 26, 1996, April 30, 1997, and June 13, 1997 (the "Registration Rights
Agreement"), the holders of an aggregate of 9,546,995 shares of Common Stock
issuable upon the conversion of the Preferred Stock at the closing of the
Offering ("Registrable Securities") have certain rights as to the registration
of their shares of Common Stock under the Securities Act of 1933 (the
"Securities Act"). Holders of Registrable Securities have the right at any time
and from time to time after the consummation of the Offering: (i) to demand
registrations under the Securities Act of all or a part of the Registrable
Securities held by them on Form S-1 or any similar form; (ii) to an unlimited
number of demand registrations on Form S-2 or Form S-3 (or any equivalent
successor form) if the anticipated aggregate offering price of the Registrable
Securities covered by such form exceeds $1,000,000; (iii) in the case of any
demand registration, to select the investment bankers and managers of the
offering, subject to the Company's approval; and (iv) to have shares of Common
Stock comprising Registrable Securities held by them included in any
registration statement filed by the Company, subject to certain limitations, and
provided that such shares cannot be sold publicly without registration or
compliance with Rule 144 and to the pro rata exclusion of their shares from a
primary offering by the Company if the managing underwriters for the primary
offering advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering.
The Registration Rights Agreement requires the Company to pay all expenses
incident to its performance of or compliance with the Agreement other than
underwriting discounts and commissions allocable to the sale of a holder's
securities and the fees and expenses of the holder's own counsel, accountants
and other professional advisors.
Registrable Securities cease to be Registrable Securities when they have
been distributed to the public pursuant to an offering registered under the
Securities Act or sold to the public through a broker, dealer or market maker in
compliance with Rule 144 under the Securities Act (or any similar rule then in
force). No holders of registration rights under the Registration Rights
Agreement have exercised their registration rights with respect to the Offering.
57
<PAGE> 61
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC,
Hambrecht & Quist LLC and Wessels, Arnold & Henderson, L.L.C. are acting as
representatives (the "Representatives"), have agreed to purchase from the
Company the following respective number of shares of Common Stock.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
------------------------------------------------------------- -----------------
<S> <C>
UBS Securities, LLC..........................................
Hambrecht & Quist LLC........................................
Wessels, Arnold & Henderson, L.L.C...........................
-------
Total..............................................
=======
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligations are
subject to certain conditions precedent, including the absence of any material
adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel. The nature
of the Underwriters' obligation is such that they are committed to purchase all
of the shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are purchased.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public at the offering price
set forth on the cover page of this Prospectus, and to certain dealers at such
price less a commission not exceeding $ per share. The Underwriters may
allow and such dealers may reallow, a concession not in excess of $ per
share to certain other dealers. After the public offering of the shares of
Common Stock the offering price and other selling terms may be changed by the
Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell such shares to
the Underwriters to the extent the option is exercised.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
All officers, directors and significant shareholders and substantially all
other shareholders of the Company, have agreed not to sell, offer to sell,
solicit an offer to buy, contract to sell, grant any option to purchase,
contract to require any other person to purchase, or otherwise transfer or
dispose of any interest in, any shares of capital stock of the Company, or any
securities convertible into or exercisable or exchangeable for capital stock of
the Company, for a period of 180 days after the date of this Prospectus without
the prior written consent of UBS Securities LLC, Hambrecht & Quist LLC and
Wessels, Arnold & Henderson, L.L.C., except for (i) securities donated as
charitable contributions which qualify as such under Section 170 of the Internal
Revenue Code of 1986, as amended, (ii) securities given by a shareholder to
members of such shareholder's "immediate family" (as such term is defined under
Item 404 of Regulation S-K under the Securities Act of 1933, as amended), or
transferred by such shareholder to one or more trusts established for the
benefit of members of such shareholder's immediate family, and (iii) securities
disposed of by the laws of testamentary or intestate descent or pursuant to a
final and non-appealable order of a court or other body of competent
jurisdiction; provided that, the shareholder may exercise presently outstanding
options, warrants or rights so long as he does not transfer the shares obtained
in violation of the Lock Up Agreement. The Company has agreed that it will not,
until 180 days following the date of this Prospectus, without the prior written
consent of the UBS Securities LLC, sell, offer or agree to sell, contract to
sell, grant any option to purchase, make any short sale or otherwise dispose of
any shares of Common Stock, except that the Company may grant additional options
58
<PAGE> 62
and issue stock under the 1990 Stock Option Plan and the Director Plan or issue
shares of Common Stock upon the exercise of outstanding stock options and
warrants.
The Representatives have informed the Company that the Underwriters do not
intend to make sales to any accounts over which they exercise discretionary
authority.
Prior to this Offering, there has been no public market for the Common
Stock. The initial price to public will be determined by agreement between the
Company and the Representatives. In determining the initial price to public, the
Company and the Representatives will consider, among other things, the history
of and prospects for the industry in which the Company operates, past and
present operations and earnings of the Company and the trend of such earnings,
the qualifications of the Company's management, the general condition of the
securities markets at the time of the Offering and the market prices for other
publicly traded companies.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid or the purchase of the Common Stock on behalf of the Underwriters for the
purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the Offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the Offering
if the Common Stock originally sold by such underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Graham & James LLP, Seattle, Washington. Certain legal
matters in connection with the Offering will be passed upon for the Underwriters
by Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania.
EXPERTS
The consolidated balance sheets at December 31, 1996 and March 31, 1996 and
the consolidated statements of operations, stockholders' deficit and cash flows
for each of the years in the two-year period ended March 31, 1996 and the nine
month fiscal period ended December 31, 1996 included in this Prospectus and in
the Registration Statement have been included herein in reliance on the reports
of KPMG Peat Marwick LLP, independent auditors, given on the authority of that
firm as experts in accounting and auditing.
59
<PAGE> 63
ADDITIONAL INFORMATION
The Company intends to furnish to its shareholders of record annual reports
containing financial statements audited and reported upon by independent public
accountants and quarterly reports containing unaudited financial information for
each of the first three quarters of each fiscal year.
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement (the "Registration Statement") on Form S-1 under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Common Stock offered hereby. This Prospectus, which constitutes part of the
Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
SEC pursuant to the Securities Act and the rules and regulations of the SEC
thereunder. Statements contained in this Prospectus concerning the provisions or
contents of any contract or other document referred to in this Prospectus are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including exhibits and schedules thereto,
may be inspected and copied at the Public Reference Section maintained by the
SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549-1004, and at
the SEC's regional offices at 7 World Trade Center, Suite 1300, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials may also be obtained at prescribed
rates from the Public Reference Section of the SEC at its principal office in
Washington, D.C. The SEC maintains a web site at http://www.sec.gov that
contains registration statements, and other information regarding registrants,
like the Company, that file electronically with the SEC. The Company has applied
for quotation of the Common Stock on the Nasdaq National Market. If such
application is approved, reports and other information concerning the Company
will be available for inspection at the National Association of Securities
Dealers, Inc. located at 9513 Key West Avenue, Rockville, Maryland 20850.
60
<PAGE> 64
INNOVA CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets as of March 31, 1996 and 1997, and December 31, 1996.... F-3
Consolidated Statements of Operations for the Years Ended March 31, 1995 and 1996,
the
Nine Month Fiscal Period Ended December 31, 1996, and the Three Months Ended
March 31, 1996 and March 31, 1997................................................ F-4
Consolidated Statements of Stockholders' Deficit for the Years Ended March 31, 1995
and 1996, the Nine Month Fiscal Period Ended December 31, 1996 and the Three
Months Ended March 31, 1997...................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended March 31, 1995 and 1996,
the
Nine Month Fiscal Period Ended December 31, 1996, and the Three Months Ended
March 31, 1996 and 1997.......................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 65
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Innova Corporation:
We have audited the accompanying consolidated balance sheets of Innova
Corporation and subsidiary as of March 31, 1996 and December 31, 1996, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the years in the two-year period ended March 31, 1996 and for
the nine month fiscal period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Innova
Corporation and subsidiary as of March 31, 1996 and December 31, 1996, and the
results of their operations and their cash flows for each of the years in the
two-year period ended March 31, 1996 and for the nine month fiscal period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
April 30, 1997, except as to note 17,
which is as of June 17, 1997
F-2
<PAGE> 66
INNOVA CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1996 1996 1997
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 287,193 $ 172,764 $ 66,593
Accounts receivable................................. 78,027 1,740,383 3,643,342
Inventories......................................... 608,165 2,533,970 5,833,212
Stock subscriptions receivable...................... 3,281,871 -- --
Other current assets................................ 56,755 73,157 40,167
------------ ------------ ------------
Total current assets........................ 4,312,011 4,520,274 9,583,314
Equipment and leasehold improvements, net............. 2,323,188 2,647,361 3,886,997
Other assets.......................................... 112,204 137,230 216,458
------------ ------------ ------------
$ 6,747,403 $ 7,304,865 $ 13,686,769
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Notes payable....................................... $ -- $ 506,180 $ 1,271,503
Current installments of obligations under capital
leases........................................... 487,180 503,827 749,600
Notes payable to stockholders....................... 69,869 1,500,000 --
Accounts payable.................................... 1,258,741 1,944,073 4,362,515
Accrued liabilities................................. 340,129 355,282 541,345
------------ ------------ ------------
Total current liabilities................... 2,155,919 4,809,362 6,924,963
------------ ------------ ------------
Obligations under capital leases, excluding current
installments........................................ 330,338 542,259 1,317,760
Mandatorily convertible notes payable for preferred
stock, subject to stock subscriptions receivable.... 6,984,090 -- --
Redeemable preferred stock, no par value. Authorized
12,874,998 shares -- issued and outstanding
3,496,963 shares at March 31, 1996, 7,216,775 shares
at December 31, 1996 and 8,179,444 shares at March
31, 1997 (liquidation preference of $28,007,528 at
March 31, 1996, $40,022,486 at December 31, 1996 and
$45,022,481 at March 31, 1997 and redemption value
of $24,459,274 at March 31, 1996, $36,474,201 at
December 31, 1996 and $41,473,919 at March 31,
1997)............................................... 27,361,894 39,312,836 44,299,301
Stockholders' equity (deficit):
Common stock, no par value. Authorized 15,625,000
shares; issued and outstanding 881,900 shares at
March 31, 1996, 940,392 shares at December 31,
1996 and 941,702 shares at March 31, 1997........ 1,329,869 1,376,715 1,378,178
Additional paid-in capital.......................... 1,604,997 1,604,997 2,884,897
Deferred stock option compensation expense.......... -- -- (662,520)
Cumulative translation adjustment................... 26,363 33,599 37,636
Accumulated deficit................................. (33,046,067) (40,374,903) (42,493,446)
------------ ------------ ------------
Total stockholders' deficit................. (30,084,838) (37,359,592) (38,855,255)
------------ ------------ ------------
Commitments, contingency and subsequent events
$ 6,747,403 $ 7,304,865 $ 13,686,769
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 67
INNOVA CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTH
FISCAL
YEARS PERIOD THREE MONTHS
ENDED MARCH 31, ENDED ENDED MARCH 31,
------------------------ DECEMBER 31, ------------------------
1995 1996 1996 1996 1997
----------- ----------- ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net product sales................... $ 1,151,605 $ 445,229 $ 2,050,245 $ 11,868 $ 4,909,810
Manufacturing contract service
revenues.......................... 1,206,894 1,516,870 53,257 125,066 --
----------- ---------- ---------- ---------- ----------
Total revenues............ 2,358,499 1,962,099 2,103,502 136,934 4,909,810
----------- ---------- ---------- ---------- ----------
Cost of products sold............... 3,703,624 2,425,473 3,685,395 984,725 4,080,411
Manufacturing contract service
expenses.......................... 811,621 1,516,870 53,257 125,066 --
----------- ---------- ---------- ---------- ----------
Total cost of products
sold and manufacturing
contract service
expenses................ 4,515,245 3,942,343 3,738,652 1,109,791 4,080,411
----------- ---------- ---------- ---------- ----------
Gross profit (loss)....... (2,156,746) (1,980,244) (1,635,150) (972,857) 829,399
----------- ---------- ---------- ---------- ----------
Operating expenses:
Selling, general and
administrative............... 2,067,077 2,316,302 2,584,423 796,102 1,637,806
Research and development....... 1,891,918 4,519,095 2,965,933 1,575,784 1,111,719
----------- ---------- ---------- ---------- ----------
Total operating
expenses................ 3,958,995 6,835,397 5,550,356 2,371,886 2,749,525
----------- ---------- ---------- ---------- ----------
Loss from operations...... (6,115,741) (8,815,641) (7,185,506) (3,344,743) (1,920,126)
Other income (expense):
Interest income................ 17,380 37,962 102,422 1,412 401
Interest expense............... (211,048) (287,253) (249,294) (71,813) (198,818)
Other income (expense)......... (8,970) 3,754 3,542 -- --
----------- ---------- ---------- ---------- ----------
(202,638) (245,537) (143,330) (70,401) (198,417)
----------- ---------- ---------- ---------- ----------
Net loss.................. $(6,318,379) $(9,061,178) $ (7,328,836) $(3,415,144) $(2,118,543)
=========== ========== ========== ========== ==========
Pro forma net loss per share........ $ (0.73) $ (0.21)
========== ==========
Shares used in computing pro forma
net loss per share................ 10,086,535 10,094,815
</TABLE>
See accompanying notes to consolidated Financial Statements.
F-4
<PAGE> 68
INNOVA CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
DEFERRED
COMMON STOCK ADDITIONAL STOCK OPTION CUMULATIVE
PRICE PER ------------------------- PAID-IN COMPENSATION TRANSLATION
DESCRIPTION SHARE SHARES AMOUNT CAPITAL EXPENSE ADJUSTMENT
- ----------------------------------- ------------- ----------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1994......... $ - 24,636 $1,290,062 $1,604,997 $ -- $ 18,119
Sale of common stock for cash...... 0.024 498,232 11,958 -- -- --
Net loss........................... - -- -- -- -- --
Translation adjustment............. - -- -- -- -- 7,417
-------- ------- ---------- ---------- ----------- --------
Balances at March 31, 1995......... - 522,868 1,302,020 1,604,997 -- 25,536
Sale of common stock for cash...... 0.024 340,467 8,171 -- -- --
Common stock issued upon exercise
of stock options................. 0.792- 18,565 19,678 -- -- --
2.880
Net loss........................... - -- -- -- -- --
Translation adjustment............. - -- -- -- -- 827
-------- ------- ---------- ---------- ----------- --------
Balances at March 31, 1996......... - 881,900 1,329,869 1,604,997 -- 26,363
Common stock issued upon exercise
of employee options.............. - 10,684 11,900 -- -- --
Stock issued to vendors for
services......................... - 47,808 34,946 -- -- --
Net loss........................... - -- -- -- -- --
Translation adjustment............. - -- -- -- -- 7,236
-------- ------- ---------- ---------- ----------- --------
Balances at December 31, 1996...... - 940,392 1,376,715 1,604,997 -- 33,599
Deferred compensation expense
related to common stock options
(unaudited)...................... - -- -- 1,279,900 (1,279,900) --
Amortization of deferred stock
option compensation
(unaudited)...................... - -- -- -- 617,380 --
Common stock issued upon exercise
of stock options (unaudited)..... 0.792- 1,310 1,463 -- -- --
2.880
Net loss for the three months ended
March 31, 1997 (unaudited)....... - -- -- -- -- --
Translation adjustment
(unaudited)...................... - -- -- -- -- 4,037
-------- ------- ---------- ---------- ----------- --------
Balances at March 31, 1997
(unaudited)...................... $ - 941,702 $1,378,178 $2,884,897 $ (662,520) $ 37,636
======== ======= ========== ========== =========== ========
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DESCRIPTION DEFICIT DEFICIT
- ----------------------------------- ------------ -------------
<S> <C> <C>
Balances at March 31, 1994......... $(17,666,510) $ (14,753,332)
Sale of common stock for cash...... -- 11,958
Net loss........................... (6,318,379) (6,318,379)
Translation adjustment............. -- 7,417
------------ -------------
Balances at March 31, 1995......... (23,984,889) (21,052,336)
Sale of common stock for cash...... -- 8,171
Common stock issued upon exercise
of stock options................. -- 19,678
Net loss........................... (9,061,178) (9,061,178)
Translation adjustment............. -- 827
------------ -------------
Balances at March 31, 1996......... (33,046,067) (30,084,838)
Common stock issued upon exercise
of employee options.............. -- 11,900
Stock issued to vendors for
services......................... -- 34,946
Net loss........................... (7,328,836) (7,328,836)
Translation adjustment............. -- 7,236
------------ -------------
Balances at December 31, 1996...... (40,374,903) (37,359,592)
Deferred compensation expense
related to common stock options
(unaudited)...................... -- --
Amortization of deferred stock
option compensation
(unaudited)...................... -- 617,380
Common stock issued upon exercise
of stock options (unaudited)..... -- 1,463
Net loss for the three months ended
March 31, 1997 (unaudited)....... (2,118,543) (2,118,543)
Translation adjustment
(unaudited)...................... -- 4,037
------------ -------------
Balances at March 31, 1997
(unaudited)...................... $(42,493,446) $ (38,855,255)
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 69
INNOVA CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTH
YEARS FISCAL PERIOD THREE MONTHS
ENDED MARCH 31, ENDED ENDED MARCH 31,
------------------------- DECEMBER 31, -------------------------
1995 1996 1996 1996 1997
----------- ----------- ------------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(6,318,379) $(9,061,178) $(7,328,836) $(3,415,144) $(2,118,543)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 771,390 759,273 633,616 185,124 201,843
Stock issued to vendors for services.............. -- -- 48,677 -- --
Compensation expense recorded on stock options to
employees....................................... -- -- -- -- 617,380
Change in certain assets and liabilities:
(Increase) decrease in accounts receivable...... (12,068) 159,999 (1,662,356) (47,083) (1,902,959)
Decrease (increase) in inventories.............. 606,533 (22,048) (1,925,805) 307,256 (3,299,242)
(Increase) decrease in other current assets..... (39,891) 3,173 (16,402) 1,223 32,990
Increase (decrease) in accounts payable and
accrued liabilities.......................... (1,393,515) 797,900 700,485 584,243 2,604,505
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities........ (6,385,930) (7,362,881) (9,550,621) (2,384,381) (3,864,026)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements.... (1,147,417) (549,426) (324,944) (88,241) (220,879)
Increase in other assets............................ (16,043) (42,694) (25,026) 3,751 (79,228)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities........ (1,163,460) (592,120) (349,970) (84,490) (300,107)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Repayments of obligations under capital leases...... -- (560,602) (404,277) (162,715) (199,326)
Net proceeds from notes payable..................... -- -- 506,180 -- 765,323
Net repayment of notes payable to vendor............ (205,900) -- -- (994,937) --
Proceeds from (repayments of) notes payable to
stockholders...................................... -- 69,869 (69,869) 69,869 --
Net proceeds from issuance of convertible notes
payable........................................... 246,934 3,702,219 4,781,871 3,702,219 1,500,000
Proceeds from sale of redeemable preferred stock.... 8,884,234 3,079,829 4,953,121 -- 1,986,465
Proceeds from sale of common stock.................. 11,958 8,171 -- -- --
Proceeds from exercise of common stock options...... -- 19,678 11,900 13,191 1,463
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities.... 8,937,226 6,319,164 9,778,926 2,627,627 4,053,925
----------- ----------- ----------- ----------- -----------
Effect of translation and exchange rate changes on
cash flows.......................................... 7,417 827 7,236 778 4,037
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................ 1,395,253 (1,635,010) (114,429) 159,534 (106,171)
Cash and cash equivalents at beginning of period...... 526,950 1,922,203 287,193 127,659 172,764
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period............ $ 1,922,203 $ 287,193 $ 172,764 $ 287,193 $ 66,593
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flow
information -- cash paid during the period for
interest............................................ $ 191,594 $ 17,273 $ 364,227 $ -- $ 170,803
=========== =========== =========== =========== ===========
Supplemental schedule of noncash financing activities:
Notes payable to stockholders converted into
redeemable preferred stock........................ $ 2,200,000 $ -- $ 6,984,090 $ -- $ 3,000,000
Notes payable to stockholders converted into
manditorily convertible notes payable............. -- 1,000,000 -- -- --
Capital lease obligations incurred to acquire
equipment......................................... 847,604 530,516 632,845 132,629 1,220,600
Stock subscriptions receivable...................... 214,506 3,281,871 -- 3,281,871 --
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 70
INNOVA CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF BUSINESS
Innova Corporation (Company) was formed to develop, manufacture and market
communication systems utilizing conical horn technology. In November 1993, the
Company shipped the first production units of the point-to-point radios. In
November 1994, the Company discontinued manufacture for its own account of the
original radio line; however, production of this product was continued under a
"Processor For Hire Agreement" for the account of one of Innova's stockholders
[see note 7(a), Related Party Transactions] until approximately March 31, 1996.
Also in 1994, a program to redesign the original radios was launched. The
redesign program was undertaken due to changing market demands. For the period
from January 17, 1989 (inception) through March 31, 1996, the Company was
considered to be in the development stage as the Company had not generated
significant revenues from its research and development efforts and "Processor
For Hire Agreement" and operations had been financed primarily through the
issuance of equity securities. Subsequent to March 31, 1996, the Company
effected a change in its year-end to December 31. During the nine month fiscal
period ended December 31, 1996, the Company began manufacturing and selling
redesigned radios and emerged from the development stage.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company and its
wholly-owned subsidiary, Innova Europe Limited.
Innova Europe Limited was formed to sell products developed and
manufactured by the Company to customers in Europe. All significant intercompany
balances and transactions have been eliminated in consolidation.
(C) CASH EQUIVALENTS
The Company considers all short-term investments with a maturity of three
months or less at date of purchase to be cash equivalents.
(D) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).
(E) DEPRECIATION AND AMORTIZATION
Depreciation of equipment and amortization of leasehold improvements is
provided on the straight-line method over the estimated useful lives of the
assets which range from two to five years, not to exceed lease terms for
leasehold improvements.
(F) PATENTS
The Company has filed several patent applications in the United States and
other countries. Costs associated with filing patent applications are expensed
as incurred.
(G) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility.
F-7
<PAGE> 71
INNOVA CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
Based on the Company's product development process, software development
costs incurred by the Company between the establishment of technological
feasibility and the point at which the product is ready for general release have
not been significant.
(H) REVENUE RECOGNITION
The Company recognizes revenue on product sales upon shipment. The Company
provides certain service and support for its products and accrues for the
estimated amount of these costs at the time of sale. These costs have not been
significant through December 31, 1996. Under the Processor For Hire
Agreement -- (PFHA) as discussed in note 7(a), manufacturing contract service
revenues were recognized as the services were performed.
(I) INCOME TAXES
Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established for deferred tax
assets to the extent there is uncertainty regarding the Company's ability to
generate taxable income in the future and when it is more likely than not that
such deferred tax assets will not be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in net deferred tax assets and liabilities.
(J) FOREIGN CURRENCY TRANSLATION
Assets and liabilities of Innova Europe Limited have been translated to
U.S. dollars using rates of exchange in effect at the end of the fiscal year.
Income and expense accounts have been translated to U.S. dollars using annual
average rates of exchange. The net gain or loss resulting from translation is
shown as a cumulative translation adjustment in stockholders' equity.
(K) RECLASSIFICATIONS
Certain reclassification amounts have been made to the March 31, 1995 and
1996 balances to conform to the December 31, 1996 presentation.
(L) CONCENTRATION OF CREDIT RISK AND SUPPLIER CONCENTRATION
The Company currently purchases an important component of its products from
two principal suppliers. Although there are a limited number of potential
manufacturers of such component, management believes that other suppliers could
provide similar components on comparable terms. A change in suppliers, however,
could cause a delay in manufacturing and a possible loss of sales, which could
have a material adverse effect on the manufacturing and delivery of the
Company's products. Purchases from these principal suppliers were as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, NINE MONTH FISCAL
--------------------- PERIOD ENDED
1995 1996 DECEMBER 31, 1996
------- ------- -----------------
<S> <C> <C> <C>
Supplier A........................... $ -- $64,000 $ 945,000
Supplier B........................... -- -- 131,000
</TABLE>
Credit is extended to customers based on an evaluation of their financial
condition and collateral is generally not required. The Company's customers
consist principally of telecommunications service providers and system
integrators. The Company will maintain an allowance for doubtful accounts to
reduce the effects of credit losses. As of
F-8
<PAGE> 72
INNOVA CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
December 31, 1996, actual credit losses have not been significant and,
therefore, no allowance for doubtful accounts has been recorded.
The Company actively markets its products in numerous geographical
locations, including North America, Europe, Asia, and South America. As of
December 31, 1996, two customers individually account for more than 10% of
accounts receivable as shown below:
<TABLE>
<CAPTION>
CUSTOMER PERCENT
-------- -------
<S> <C> <C> <C>
A 60
B 15
</TABLE>
(M) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, on April 1, 1996. This Statement requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
held and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement did not have
a material impact on the consolidated financial statements.
(N) PRODUCT WARRANTIES
The Company provides warranties which generally last for two years, on the
products that it sells. The provision for warranty expense is based on
historical industry and Company experience and is accrued when products are
sold.
(O) STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation arrangement in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense under fixed plans would be recorded on the date of
grant only if the fair value of the underlying stock at the date of grant
exceeded the exercise price. Statement of Financial Accounting Standard (SFAS)
No. 123, Accounting for Stock-Based Compensation, requires entities that
continue to apply the provisions of APB Opinion No. 25 for transactions with
employees to provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS No. 123 had been applied to these
transactions.
(P) UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of the Company's management, the March 31, 1997 and 1996
unaudited interim financial statements include all adjustments consisting only
of normal recurring adjustments, necessary for a fair presentation.
(Q) PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share is computed by dividing net loss by the
weighted average number of shares of common stock and common stock equivalents
outstanding during each period. Common stock equivalents include all warrants
and stock options which would have a dilutive effect, applying the treasury
stock method. Additionally,
F-9
<PAGE> 73
INNOVA CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
common and common equivalent shares issued during the twelve months immediately
preceding the initial filing of the Company's initial public offering have been
included in the calculation of common and common equivalent shares as if they
were outstanding for all periods presented, including loss years where the
impact of the incremental shares is antidilutive, using the treasury stock
method and an assumed initial public offering price of $11 per share. Due to the
significant impact of the assumed conversion of the redeemable preferred stock
upon closing of the IPO, historical net loss per share is not meaningful and is
therefore not presented.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share, (Statement 128).
This statement establishes standards for the computation, presentation and
disclosure of earnings per share (EPS), replacing the presentation of currently
required Primary EPS with a presentation of Basic EPS. It also requires dual
presentation of Basic EPS and Diluted EPS on the face of the income statement
for entities with complex capital structures. Basic EPS is based on the
weighted-average number of common shares outstanding during the period. Diluted
EPS is based on the potential dilution that would occur, upon exercise or
conversion of securities into common stock using the treasury stock method.
Statement 128 is effective for financial statements for periods ending after
December 15, 1997, including interim periods, and earlier application is not
permitted. When adopted, the Company will be required to restate its EPS data
for all prior periods presented. The Company does not expect the impact of the
adoption of this statement to be material to previously reported EPS amounts.
(2) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1996 1996 1997
--------- ------------ ----------
(unaudited)
<S> <C> <C> <C>
Raw materials......................... $ 608,165 $1,874,765 $4,782,468
Work-in-progress...................... -- 503,984 683,967
Finished goods........................ -- 155,221 366,777
---------- ---------- ----------
$ 608,165 $2,533,970 $5,833,212
========== ========== ==========
</TABLE>
F-10
<PAGE> 74
INNOVA CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(4) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1996 1996 1997
---------- ------------ ----------
(unaudited)
<S> <C> <C> <C>
Equipment and molds................. $4,221,195 $5,152,170 $6,578,934
Leasehold improvements.............. 114,026 140,840 155,555
---------- ---------- ----------
4,335,221 5,293,010 6,734,489
Less accumulated depreciation and
amortization...................... 2,012,033 2,645,649 2,847,492
---------- ---------- ----------
$2,323,188 $2,647,361 $3,886,997
========== ========== ==========
</TABLE>
Included in equipment and leasehold improvements are the gross amount of
equipment and related accumulated amortization recorded under capital leases as
follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1996 1996 1997
---------- ------------ ----------
(unaudited)
<S> <C> <C> <C>
Equipment............................. $2,054,332 $2,632,721 $3,853,321
Less accumulated amortization....... 829,852 1,181,895 1,280,243
---------- ---------- ----------
$1,224,480 $1,450,826 $2,573,078
========== ========== ==========
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense.
(5) NOTES PAYABLE
In October 1996, the Company entered into a $5 million revolving credit
agreement which bears interest at the LIBOR rate plus 4.875% with a minimum of
8% per annum (10.545% at December 31, 1996 and 10.505% at March 31, 1997).
Amounts outstanding were $0, $506,180, and $1,271,503 at March 31, 1996,
December 31, 1996 and March 31, 1997, respectively. Under the terms of the
agreement, advances under the credit facility are limited to 80% of billed trade
receivables outstanding. The agreement is subject to automatic renewals for
successive one-year terms. In April 1997, the Company amended the credit
agreement to include an additional term loan for $1,500,000 due on the earlier
of:
(a) April 30, 1998;
(b) the date the initial October 1996 revolving credit agreement
terminates; or
(c) the date the Company first issues equity, debt or other
securities, other than the Series F financing discussed in note 17,
subsequent to April 1997.
Interest is payable monthly with interest at the LIBOR rate plus 4.875%
with a minimum of 8% per annum. In connection with the term loan, the Company
issued to the lender a warrant to purchase 21,500 shares of the Company's common
stock, at $6.96 per share. The warrant expires in April 2003. The value of the
warrant will be recorded as debt discount and amortized to interest expense over
the period that the debt is outstanding.
F-11
<PAGE> 75
INNOVA CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(6) ACCRUED LIABILITIES
A summary of accrued liabilities is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1996 1996 1997
--------- ------------ -----------
(unaudited)
<S> <C> <C> <C>
Accrued compensation expense............. $ 171,954 $288,965 $ 400,608
Provision for warranty................... -- 20,479 82,978
Other accruals........................... 168,175 45,838 57,759
-------- -------- --------
$ 340,129 $355,282 $ 541,345
======== ======== ========
</TABLE>
(7) RELATED PARTY TRANSACTIONS
(A) SALES, MANUFACTURING AND SERVICE REVENUES
Sales totaling approximately $212,000 were made to a stockholder during the
nine month fiscal period ended December 31, 1996.
Substantially all of the total revenues recorded in the year ended March
31, 1996 were to a stockholder of the Company, Societe Anonyme de
Telecommunications (SAT). In November 1994, the Company entered into an
agreement [Processor For Hire Agreement -- (PFHA)] with SAT whereby SAT
purchased substantially all of the Company's inventories as of November 1994 for
cash. The PFHA called for the Company to continue to manufacture radios for SAT;
however, SAT was responsible for supplying the materials used in the manufacture
of these radios. Under the PFHA, SAT reimbursed the Company for the costs
incurred by the Company in the assembly and testing of the radios. In addition,
SAT paid to the Company a fee to cover administrative costs plus a profit. This
fee was based on the volume of materials purchased for SAT for the production of
the radios. The Company managed all of the manufacturing and purchasing
functions associated with the manufacture of radios and the purchase of radio
components. The PFHA was substantially terminated as of March 31, 1996.
The reimbursement of the costs of manufacture along with the administration
fee during the fiscal year ended March 31, 1995 and 1996 and the nine month
fiscal period ended December 31, 1996 have been recorded as manufacturing
contract service revenues in the consolidated statements of operations. The
identifiable costs associated with the manufacture of the radios covered by the
PFHA have been summarized in the consolidated statements of operations as
manufacturing contract service expenses.
Product sales made to SAT for the nine month fiscal period ended December
31, 1996 were approximately $3,000 and for the three months ended March 31, 1997
were approximately $833,000.
(B) ACCOUNTS RECEIVABLE
Accounts receivable due from SAT were $76,523, $58,283 and $868,787 at
March 31, 1996, December 31, 1996 and March 31, 1997, respectively.
(C) MANDATORILY CONVERTIBLE NOTES PAYABLE FOR PREFERRED STOCK, STOCK
SUBSCRIPTIONS RECEIVABLE AND RELATED EQUITY TRANSACTIONS
On March 27, 1996, the Company entered into stock subscription agreements
with certain existing stockholders for the purpose of selling Series D preferred
stock for an aggregate price of $7,000,000. As of March 31, 1996, proceeds of
$3,702,219 net of offering costs of $15,910, had been received by the Company
related to the stock subscription agreements. The remaining $3,281,871 was
received during the nine month fiscal period ended Decem-
F-12
<PAGE> 76
INNOVA CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
ber 31, 1996. Mandatorily convertible notes payable were issued as the cash was
received by the Company. Mandatorily convertible notes payable accrued interest
at 16% annually and were convertible into Series D preferred shares at the
earlier of a "qualified financing" event or April 26, 1996. A "qualified
financing" event, as defined in the stock subscription agreements, was
consummated on April 26, 1996 when the Company issued 1,548,940 shares of Series
D preferred stock, at $3.228 per share to a new stockholder for proceeds of
$4,953,121. The mandatorily convertible notes payable outstanding at April 26,
1996 were then converted into 2,168,523 shares of Series D preferred stock at
$3.228 per share, and contingent common stock purchase warrants (contingent upon
the pricing of the "qualified financing" event) totaling 367,082 with an
exercise price of $0.024 per share, were issued to the former holders of the
mandatorily convertible notes payable. No separate value has been assigned to
the warrants as the value was not significant at the date of issuance.
Unsecured notes payable to stockholders were issued in November and
December 1995 totaling $1,000,000, bearing interest at rates ranging from
16%-21%. In connection with these notes, 193,611 warrants were issued to
purchase common stock for $2.5824 per share which expire April 26, 2001. No
separate value has been assigned to the warrants as the value was not
significant at the date of issuance. On March 27, 1996, these unsecured notes
payable were exchanged for mandatorily convertible notes payable as part of the
stock subscription agreements described above.
Interest expense on unsecured borrowings from stockholders amounted to
$79,357, $107,648, $70,101 and $62,934 for the years ended March 31, 1995 and
1996, the nine month fiscal period ended December 31, 1996 and the three months
ended March 31, 1997, respectively.
In November 1996, the Company issued $1,500,000 in unsecured 12%
convertible promissory notes payable to stockholders, which were subsequently
repaid by notes which in turn were converted into Series E preferred stock in
March 1997.
(D) COMPENSATION EXPENSE
In May 1996, the Company paid a representative of a stockholder $217,500
for services rendered from January 1995 to February 1996, who served as the
acting Chief Operating Officer of the Company.
(8) COMMON AND REDEEMABLE PREFERRED STOCK
The Company has authorized issuance of common and redeemable preferred
stock as follows:
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING LIQUIDATION
SHARES --------------------------------- PREFERENCE
TYPE SERIES AUTHORIZED 3/31/96 12/31/96 3/31/97 PER SHARE
- ------------------------------------ ------- ---------- ------- --------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Common.............................. 15,625,000 881,900 940,392 941,702 None
A Preferred......................... A.1 833,333 667,125 667,125 667,125 $ 13.2360
A Preferred......................... A.2 833,333 -- -- -- 0.8400
A Preferred......................... A.3 2,500,000 907,030 907,030 907,030 7.9176
B Preferred......................... B 2,083,333 804,553 804,553 804,553 6.0600
C Senior Preferred.................. C 833,333 664,305 664,305 664,305 6.3672
C Senior Preferred.................. C1 625,000 453,950 456,299 456,299 6.3672
D Preferred......................... D 4,166,666 -- 3,717,463 3,717,463 3.2280
E Preferred......................... E 1,000,000 -- -- 962,669 5.1936
</TABLE>
F-13
<PAGE> 77
INNOVA CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
The following table summarizes activity of the Company's preferred stock
for the years ended March 31, 1995 and 1996, the nine month fiscal period ended
December 31, 1996 and the three months ended March 31, 1997:
<TABLE>
<CAPTION>
PREFERRED STOCK
PRICE --------------------------
DESCRIPTION PER SHARE SHARES AMOUNT
- ------------------------------------------------------ --------- ------------ -----------
<S> <C> <C> <C>
Balances at March 31, 1994............................ $ -- 958,077 $13,197,831
Issuance of Series A.1 preferred stock pursuant to
antidilution agreements............................. -- 324,143 --
Issuance of Series A.3 preferred stock pursuant to
antidilution agreements............................. -- 14,045 --
Conversion of notes payable to Series A.3 preferred
stock............................................... 7.916808 214,733 1,700,000
Sale of B preferred stock for cash, net of issuance
costs of $120,430................................... 6.084984 364,854 2,099,707
Sale of B preferred stock for cash.................... 6.367992 439,699 2,800,000
Conversion of notes payable to Series A.3 preferred
stock............................................... 7.916808 63,157 500,000
Sale of Series C senior preferred stock for cash, net
of issuance costs of $30,759........................ 6.367992 664,305 4,199,033
--------- ---------- -----------
Balances at March 31, 1995............................ -- 3,043,013 24,496,571
Sale of Series C1 senior preferred stock, net of
issuance costs of $21,633........................... 6.3672 422,628 2,669,359
Sale of Series C1 senior preferred stock, net of
issuance costs of $3,472............................ 6.3672 31,322 195,964
--------- ---------- -----------
Balances at March 31, 1996............................ -- 3,496,963 27,361,894
Sale of Series D preferred stock for cash, net of
issuance costs of $46,879........................... 3.228 1,548,940 4,953,121
Conversion of convertible notes for Series D preferred
stock............................................... 3.228 2,168,523 6,984,090
Series C1 preferred stock issued to vendors for
services............................................ -- 2,349 13,731
--------- ---------- -----------
Balances at December 31, 1996......................... -- 7,216,775 39,312,836
Conversion of notes payable to Series E preferred
stock (unaudited) .................................. 5.19384 288,799 1,500,000
Sale of Series E preferred stock for cash, net of
issuance costs of $13,530 (unaudited)............... 5.19384 673,870 3,486,465
--------- ---------- -----------
Balances at March 31, 1997 (unaudited)................ $ -- 8,179,444 $44,299,301
========= ========== ===========
</TABLE>
The shares of preferred stock are convertible into an equal number of
common shares at any time, are automatically convertible upon the consummation
of an initial public offering (IPO), have certain liquidation and dividend
preferences over common shares, and also have certain antidilution rights. The
preferred shares are redeemable, at the holder's option (subject to approval by
50% of all preferred shares then outstanding), at any time after October 1,
1997. The redemption value is $7.9176 per share for the A preferred shares. The
redemption value is equal to the liquidation preference for all other preferred
shares (appropriately adjusted for stock splits, stock dividends, combinations,
recapitalizations, reclassification and similar corporate rearrangements) plus
the amount of all declared and unpaid dividends thereon. All C Senior Preferred
and D Preferred shares have preference to other preferred shares with regard to
liquidation. Holders of all preferred shares have the right as a group to elect
three members of the Company's Board of Directors. The remaining directors are
elected by the holders of all outstanding preferred and common shares. The
voting rights are the same for all preferred and common shares. Pursuant to the
rules of the Securities and Exchange Commission, the Company has classified
redeemable preferred stock outside stockholders' equity (deficit).
F-14
<PAGE> 78
INNOVA CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
In March 1997, the Company revised its Articles of Incorporation,
increasing the authorized number of preferred shares to 12,874,998 of which
1,000,000 shares are designated as Series E Preferred stock which have identical
preferences as the Series C Senior Preferred and D Preferred, except that the
liquidation preference is $5.1936 per share.
In conjunction with various financing rounds, warrants have been issued. No
separate value has been assigned to the warrants as the values were not
significant at the date of issuance, other than the 21,500 warrants with an
exercise price of $6.96 per share issued in connection with the debt financing
in April 1997. Outstanding warrants at March 31, 1996 and December 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
WARRANTS OUTSTANDING
------------------------ EXERCISE PRICE
ISSUED IN CONJUNCTION WITH: 3/31/96 12/31/96 OF WARRANT EXPIRE
- ---------------------------------- ----------- ----------- -------------- --------------------------
<S> <C> <C> <C> <C>
Series A.2 preferred stock........ 481,978 481,978 $ 0.8400 May 31, 1999
Series C and D preferred stock.... 2,252,048 2,252,048 0.0240 February 13, 2000
through April 26, 2001
Series D preferred stock.......... 193,611 193,611 2.5824 April 26, 2001
----------- -----------
Total...................... 2,927,637 2,927,637
=========== ===========
</TABLE>
(9) STOCK OPTION PLAN
The Company has a stock option plan (Plan) to compensate key employees,
consultants and vendors for past and future services and has authorized a total
of 1,458,333 shares of common stock to be reserved for grants. In the first
quarter of 1997, a plan amendment was approved increasing shares available for
grant by 125,000 bringing the total authorized to 1,583,333. Options may be
granted under the Plan as either incentive stock options or as nonqualified
stock options.
Incentive stock options may be granted at prices not less than fair market
value of the stock, generally are exercisable based on continued employment over
a five-year period in equal increments each year beginning one year from the
date of grant, and expire ten years from the date of grant. The Company has
granted no incentive stock options to date.
Nonqualified options may be granted at prices determined by the Company and
generally expire twenty years from the date of grant. The options vest and
become exercisable over one to four years in cumulative increments beginning one
year from the date of grant. A distinction is made between nonqualified time
vesting and nonqualified time and performance vesting options. Nonqualified time
and performance vesting options require the attainment of certain performance
goals in addition to the passage of time prior to vesting.
In accounting for the options requiring the attainment of certain
performance goals, the Company must include a determination of compensation cost
at the end of each period if the market value of the shares of the Company's
stock exceeds the exercise price. Any compensation cost shall be charged to
expense over the periods the employee performs the related service. During the
first quarter in 1997, the Company amended the terms of 460,633 stock options by
eliminating the performance criteria. The table below reflects these performance
options as being amended to time vesting. The Company has recorded deferred
stock option compensation totaling $1,279,900 and has recognized a charge
against operations of $617,380 during the first quarter in 1997. The deferred
stock option compensation relates principally to the 460,633 options with
performance goals outstanding prior to the elimination of the performance
criteria. In addition, the deferred stock option compensation includes some
amounts recorded for nonqualified time vesting grants where the estimated market
value of the shares of the Company's stock exceeded the exercise price at the
date of the grant. The estimated market value of the Company's common stock used
in calculating the majority of the deferred stock option compensation was
approximately $4.32 per share.
F-15
<PAGE> 79
INNOVA CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
A summary of nonqualified time vesting and time and performance vesting
stock options is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------
NUMBER OF SHARES
SHARES --------------------------
AVAILABLE TIME AND WEIGHTED
FOR FUTURE TIME PERFORMANCE AVERAGE
GRANT VESTING VESTING EXERCISE PRICE
----------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Balances at March 31, 1995.............. 64,006 347,033 -- $ 1.0584
Options granted......................... (1,235,293) 602,780 632,513 1.5840
Options expired......................... 299,657 (136,338) (163,319) 0.8736
Options exercised....................... -- (18,565) -- 1.0608
Plan amendment.......................... 1,041,667 -- -- --
----------- ---------- -----------
Balances at March 31, 1996.............. 170,037 794,910 469,194 1.5120
Options granted......................... (409,896) 255,138 154,758 1.7280
Options expired......................... 238,753 (75,434) (163,319) 0.7560
Options exercised....................... -- (10,684) -- 1.1136
----------- ---------- -----------
Balances at December 31, 1996........... (1,106) 963,930 460,633 1.6128
Options granted (unaudited)............. (142,874) 142,874 -- 1.7472
Options canceled (unaudited)............ 26,667 (26,667) -- 0.9936
Options exercised (unaudited)........... -- (1,310) -- 1.1160
Options amended (unaudited)............. -- 460,633 (460,633) 1.9680
Plan amendment (unaudited).............. 125,000 -- -- --
----------- ---------- -----------
Balances at March 31, 1997
(unaudited)........................... 7,687 1,539,460 -- $ 1.6248
=========== ========== ===========
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its Plans, and no
compensation cost for the years ended March 31, 1995 and 1996 and the nine month
fiscal period ended December 31, 1996 has been recognized for its employee stock
options in the consolidated financial statements. Had the Company determined
compensation cost of employee stock options based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's pro forma net loss
would not have been significantly different than the reported net loss.
The weighted-average fair value per share of the grants made during the
year ended March 31, 1996 and the nine month fiscal period ended December 31,
1996 was approximately $0.02 and $0.054 respectively. The fair value of the
stock options granted was estimated on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions: for the
year ended March 31, 1996 -- expected dividend yield 0%, risk-free interest rate
averaging approximately 6.1%, and an expected life ranging from two to six
years; for the nine month fiscal period ended December 31, 1996 -- expected
dividend yield 0%, risk-free interest rate averaging approximately 6.3%, and an
expected life ranging from two to six years.
F-16
<PAGE> 80
INNOVA CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING --------------------------------
--------------------------------------------------------------- WEIGHTED-
EXERCISE NUMBER WEIGHTED-AVERAGE REMAINING WEIGHTED- AVERAGE NUMBER AVERAGE EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
- -------------- ----------- -------------------------- ---------------- ----------- ----------------
<C> <S> <C> <C> <C> <C> <C>
$ 0.024 -0.144 4,224 1.5 years $ 0.096 4,224 $ 0.096
0.240 -0.288 10,832 1 year 0.240 10,832 0.240
0.792 452,640 1.5 years 0.792 225,158 0.792
1.968 921,265 2 years 1.968 -- --
2.880 -6.360 35,602 1.5 years 2.976 34,876 2.976
---------- ----------
1,424,563 1.75 years $ 1.613 275,090 $ 1.037
========== ==========
</TABLE>
(10) EMPLOYEE BENEFIT PLAN
In January 1996, the Company implemented a 401(k) plan that covers all
employees who satisfy certain eligibility requirements relating to minimum age,
length of service and hours worked. Under the profit sharing portion of the
plan, the Company may make an annual contribution for the benefit of eligible
employees in an amount determined by the Board of Directors. As of March 31,
1997, the Company had not made any contributions to the plan. Under the 401(k)
portion of the plan, eligible employees may make pretax elective contributions
of up to 10% of their compensation, subject to maximum limits on contributions
prescribed by law.
(11) INCOME TAXES
The Company has not recorded an income tax benefit for the years ending
March 31, 1995 and 1996, and the nine month fiscal period ended December 31,
1996 due to the recording of a valuation allowance as an offset to net deferred
tax assets. A valuation allowance is provided due to uncertainties relating to
the realization of deferred tax assets.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets are presented below:
<TABLE>
<CAPTION>
DECEMBER
MARCH 31, 31, MARCH 31,
1996 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Writedown of inventories, deductible in different
years for tax purposes............................ $ 203,000 $ 158,500 $ 207,000
Equipment and leasehold improvements, principally
due to differences in depreciation and
amortization...................................... 230,000 236,700 168,000
Accrued liabilities deductible in different years
for tax purposes.................................. 219,000 199,600 136,300
Amortization of stock option expense deductible in
different years for tax purposes.................. 292,600 292,600 502,000
Net operating loss carryforwards.................... 10,147,000 12,544,900 13,138,000
----------- ----------- -----------
Total gross deferred tax assets........... 11,091,600 13,432,300 14,151,300
Less valuation allowance.......................... 11,091,600 13,432,300 14,151,300
----------- ----------- -----------
Net deferred tax assets................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
F-17
<PAGE> 81
INNOVA CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
The valuation allowance for deferred tax assets increased $1,826,500 for
the year ended March 31, 1995, $3,616,600 for the year ended March 31, 1996,
$2,340,700 for the nine month fiscal period ended December 31, 1996 and $719,000
for the three months ended March 31, 1997.
At December 31, 1996, the Company had tax net operating loss carryforwards
available to offset future Federal taxable income, if any, of approximately $35
million expiring in 2005 through 2012. At December 31, 1996, the Company also
has net operating tax loss carryforwards available to offset future United
Kingdom taxable income, if any, of approximately $1.8 million expiring in 2006
through 2011.
The utilization of the tax net operating loss carryforwards may be limited
due to ownership changes that have occurred as a result of the sale of common
and preferred stock.
(12) LEASE COMMITMENTS
The Company is obligated under various capital leases for certain equipment
that expire at various dates during the next three years. The Company also has
certain noncancelable operating leases that expire over the next two years and
require the Company to pay certain executory costs such as maintenance and
taxes. Future minimum lease payments under noncancelable operating leases and
future minimum capital lease payments as of December 31, 1996 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- -------
<S> <C> <C>
Years ending December 31:
1997................................................ $ 611,455 $63,335
1998................................................ 356,654 21,934
1999................................................ 178,575 --
---------- -------
Total minimum lease payments................ 1,146,684 $85,269
=======
Less amount representing interest (at rates averaging
15%)................................................ 100,598
----------
Present value of net minimum capital lease
payments.................................. 1,046,086
Less current installments of obligations under capital
leases.............................................. 503,827
----------
Obligations under capital leases, excluding
current installments...................... $ 542,259
==========
</TABLE>
Rental expense for these operating leases totaled $235,003 for the year
ended March 31, 1996, $240,917 for the nine month fiscal period ended December
31, 1996 and $75,494 for the three months ended March 31, 1997.
Subsequent to December 31, 1996, the Company entered into certain capital
leases with terms of three years for manufacturing and test equipment. Lease
payments over the next three years for this equipment will total approximately
$548,000 per year.
F-18
<PAGE> 82
INNOVA CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(13) MAJOR CUSTOMERS AND SEGMENT INFORMATION
The Company currently operates in a single segment selling millimeter wave
radio systems. Product sales during the nine month fiscal period ended December
31, 1996 to individual customers and by geographic region accounting for more
than 10% of total revenues are shown below:
<TABLE>
<CAPTION>
GEOGRAPHIC
CUSTOMER REGION PERCENT
------------------------------- ---------- -------
<C> <S> <C>
A Canada 50
B Mexico 13
C U.S. 10
</TABLE>
Manufacturing contract service revenues for all periods presented were to a
single customer.
(14) OPERATIONS AND FINANCING
The Company's consolidated financial statements have been prepared on a
going concern basis.
The Company incurred a net loss of $7,328,836, had negative cash flows from
operations of $9,550,621, and an accumulated deficit of $40,374,903 as of and
for the nine month fiscal period ended December 31, 1996. The Company has
expended a significant amount of cash in developing its technology and
redesigned radios and during the nine month fiscal period ended December 31,
1996, the Company commenced principal operations. The Company expects to expand
its manufacturing and sales efforts during 1997 and to reach profitable levels
during 1997. Although, as of April 1997, the Company has a significant sales
order backlog, and is successfully manufacturing its redesigned radios,
management recognizes that to sustain the rate of growth projected and to meet
working capital requirements, additional resources may be necessary.
Accordingly, in March 1997, the Company closed a Series E preferred stock
financing transaction totaling $5 million. Included in the $5 million financing
was the conversion of unsecured convertible promissory notes payable to
stockholders. Additional financing is discussed in note 17. In addition, the
Company has retained investment banking counsel to advise it on the possible
sale of additional equity securities in connection with a proposed IPO. The
Company intends to offer for sale, as part of the IPO, 2,500,000 shares of
common stock at a price ranging from $10 to $12 per share.
Management expects that these efforts will result in adequate near term
financing. No assurances can be given that the Company will achieve
profitability or positive cash flow.
(15) CONTINGENCIES
The Company is subject to various legal proceedings and claims which have
arisen in the ordinary course of its business. These actions when ultimately
concluded and determined will not, in the opinion of management, have a material
effect on results of operations or the financial condition of the Company.
(16) FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities,
obligations under capital leases, notes payable and notes payable to
stockholders. The fair value of obligations under capital leases, notes payable
and notes payable to stockholders estimates their recorded values based on
current rates available to the Company. The remaining financial instruments have
a short-term until maturity or settlement in cash and, therefore, the carrying
value approximates fair value.
F-19
<PAGE> 83
INNOVA CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
(17) SUBSEQUENT EVENTS
In June 1997:
- - The Board of Directors authorized the increase in the number of preferred
shares to 13,379,164 of which 504,166 shares are designated as Series F
Preferred Stock which have identical preferences as the Series C Senior
Preferred, D and E Preferred, except that the liquidation preference is $6.96
per share. Also in June 1997, the Company issued 502,866 shares of Series F
Preferred Stock at $6.96 per share, for total cash consideration of
$3,500,000, before issuance costs.
- - The Company effected a 24:1 reverse stock split on its common and preferred
stock and eliminated the par values related thereto. These consolidated
financial statements and notes thereto have been restated for these actions.
- - A plan amendment to the Company's Stock Option Plan was approved increasing
shares available for grant by 500,000 bringing the total authorized to
2,083,333.
- - The Board of Directors authorized a Stock Option Plan for Nonemployee
Directors for which 120,000 shares of common stock were reserved for sale and
issuance under the plan. Under the provisions of the plan, 48,263 options were
granted with an exercise price of $10 per share and a vesting period of 4
years.
- - Subsequent to March 31, 1997, the Board of Directors granted 122,729
non-qualified stock options to employees with exercise prices averaging
approximately $9.60 per share. In addition, the Board of Directors authorized
for future grant 56,250 options that vest upon the attainment of certain
performance goals. The exercise price of these performance options range from
$3.60 to $6.00 per share.
F-20
<PAGE> 84
[PHOTOGRAPH OF COMPANY'S LOGO AND MISSION STATEMENT]
The artwork for the inside back cover of the Prospectus is a color photograph of
the Company's logo (which is the word Innova with an inverted triangle over the
"I" in "Innova"), and the Company's mission statement ("Dramatically Changing
the Economics of Wireless Networks").
<PAGE> 85
======================================================
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained herein and, if given
or made, such information or representation must not be relied upon as having
been authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the Common Shares offered hereby, nor does it constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
to any person in any jurisdiction in which it is unlawful to make such an offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any date subsequent to the date
hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 5
The Company............................ 17
Use of Proceeds........................ 17
Dividend Policy........................ 17
Capitalization......................... 18
Dilution............................... 19
Selected Financial Data................ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 21
Business............................... 30
Management............................. 44
Certain Transactions................... 49
Principal Shareholders................. 53
Description of Capital Stock........... 55
Shares Eligible for Future Sale........ 56
Underwriting........................... 58
Legal Matters.......................... 59
Experts................................ 59
Additional Information................. 60
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
------------------------------
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in this
Offering, may be required to deliver a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
======================================================
======================================================
2,500,000 SHARES
[LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
August , 1997
---------------------------
UBS SECURITIES
HAMBRECHT & QUIST
WESSELS, ARNOLD & HENDERSON
======================================================
<PAGE> 86
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission.................... $ 10,345
NASD Filing Fee........................................................... 3,500
Nasdaq National Market Listing Fee........................................ 47,848
Accountants' Fees and Expenses............................................ 105,000
Blue Sky Filing and Counsel Fees and Expenses............................. 15,000
Printing and Engraving Expenses........................................... 125,000
Legal Fees and Expenses................................................... 200,000
Transfer Agent and Registration Fees...................................... 5,000
Miscellaneous Expenses.................................................... 288,307
--------
TOTAL........................................................... $800,000
========
</TABLE>
- ---------------
* All expenses other than the Securities and Exchange Commission Registration
Fee, the NASD Filing Fee and the Nasdaq National Market Fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article V, Section 5.1, of the Registrant's Second Restated
Articles of Incorporation (Exhibit 3.1 hereto) and Article X of the Registrant's
Amended and Restated Bylaws (Exhibit 3.2 hereto) provide for mandatory
indemnification of the Registrant's directors, officers, employees and agents to
the maximum extent permitted by law. (The directors and officers of the
Registrant also may be indemnified against liability they may incur for serving
in that capacity pursuant to a liability insurance policy maintained by the
Company for such purpose.)
Section 23B.08.320 of the Washington Business Corporation Act authorizes a
corporation to limit a director's liability to the corporation or its
shareholders for monetary damages for acts or omissions as a director, except in
certain circumstances involving intentional misconduct, self-dealing or illegal
corporate loans or distributions, or any transaction from which the director
personally receives a benefit in money, property or services to which the
director is not legally entitled. Article V, Section 5.2, of the Registrant's
Amended and Restated Articles of Incorporation contains provisions implementing,
to the fullest extent permitted by Washington law, such limitations on a
director's liability to the Registrant and its shareholders.
Reference is made to the Registrant's Second Restated Articles of
Incorporation, filed as Exhibit 3.1 to this Registration Statement, and the
Registrant's Amended and Restated Bylaws, filed as Exhibit 3.2 to this
Registration Statement.
Reference is also made to the form of Underwriting Agreement filed as
Exhibit 1.1 to this Registration Statement for certain provisions regarding the
indemnification of officers and directors of the Registrant by the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 31, 1994, the Registrant has issued the following unregistered
securities (all share amounts have been adjusted as necessary to reflect a 24:1
reverse stock split to be effected prior to the offering):
(1) An aggregate of 214,724 shares of Series A Preferred Stock were
issued in May 1994 at $7.9168 per share to seventeen investors, all of whom
were venture funds and other accredited investors, for an aggregate
consideration of $1,700,000 in outstanding promissory notes. In addition,
warrants for 462,640 shares of Series
II-1
<PAGE> 87
A Preferred Stock, exercisable at $0.84 per share were issued in May 1994
and warrants for 19,338 shares of Series A Preferred Stock, exercisable at
$0.84 per share, were issued in December 1994.
(2) An aggregate of 364,855 shares of Series B Preferred Stock were
issued in May 1994 upon (i) the conversion of a $1,000,000 promissory note
plus $20,135 in accrued interest and (ii) the payment of $1,999,997 in
cash, at a price per share of $6.0850 to three investors, all of whom were
venture funds and other accredited investors. In addition, the Company sold
three options exercisable for an aggregate of 882,286 shares at various
exercise prices. Only the first of these options was exercised, for 439,698
shares at an exercise price of $6.3679 per share, in July and August 1996.
(3) An aggregate of 63,156 shares of Series A Preferred Stock issued
in December 1994 at $7.9168 per share to a venture fund and another
accredited investor, pursuant to the conversion of promissory notes.
(4) In February 1995, 253,084 shares of Series C Senior Preferred
Stock were issued at $6.3672 per share and 189,810 shares of Common Stock
were issued at $0.024 per share to twelve investors, all of whom were
venture funds and other accredited investors. In April 1995, 411,221 shares
of Series C Senior Preferred Stock were issued at $6.3672 per share and
308,410 shares of Common Stock were issued at $0.024 per share, to fifteen
investors, all of whom were venture funds and other accredited investors.
In addition, warrants for 1,204,050 shares of Common Stock, exercisable at
$0.024 per share, were issued in connection with these financings.
(5) In September 1995, 422,630 shares of Series C1 Senior Preferred
Stock were issued at $6.3672 per share, and 316,965 shares of Common Stock
were issued at $0.024 per share, to seventeen investors, all of whom were
venture funds and other accredited investors. In November 1995, 31,320
shares of Series C1 Senior Preferred Stock were issued at $6.3672 per
share, and 23,488 shares of Common Stock were issued at $0.024 per share,
to seven investors, all of whom were venture funds and other accredited
investors. In addition, warrants for 680,917 shares of Common Stock,
exercisable at $0.024 per share, were issued in connection with the Series
C1 Senior Preferred Stock financing.
(6) In April 1996, an aggregate of 3,717,463 shares of Series D
Preferred Stock were issued at $3.228 per share to 21 investors, all of
whom were venture funds and other accredited investors. In addition,
warrants for 193,611 shares of Common Stock, exercisable at $2.5824 per
share, and warrants for 367,082 shares of Common Stock, exercisable at
$0.024 per share, were issued.
(7) In May 1996, 2,349 shares of Series C1 Senior Preferred Stock, and
5,285 shares of Common Stock, were issued to William C. Eatherly, a
consultant to the Company, in consideration for his services.
(8) In June 1996, 42,521 shares of Common Stock were issued to Berson
& Associates and the Berson & Associates Employee Retirement Trust in
consideration for consulting services rendered to the Company by Berson &
Associates.
(9) In March 1997, 962,669 shares of Series E Preferred Stock were
issued at $5.1938 per share to 21 investors, all of whom were venture funds
and other accredited investors, for cash and upon conversion of various
promissory notes issued in the period of November 1996 through March 1997.
(10) In April 1997, the Company issued a warrant to purchase 21,500
shares of Common Stock to Greyrock Capital, a commercial lending
institution, in connection with the execution of a credit facility made
available to the Company.
(11) In June 1997, 502,867 shares of Series F Preferred Stock were
issued at a price of $6.96 per share to ten investors, all of whom were
venture funds and other accredited investors.
(12) Employees exercised compensatory stock options received pursuant
to Innova Corporation 1990 Stock Option Plan (Amended and Restated 1992)
for an aggregate of 50,231 shares of Common Stock issued at prices ranging
from $0.144 to $6.36 per share.
No underwriters were engaged in connection with the sale of securities
described above. The issuance of stock to Mr. Eatherly and Berson & Associates
in compensation for services rendered to the Company were made in reliance upon
the exemption from registration set forth in Section 3(b) of the Securities Act
of 1933 (the "Securities Act") and
II-2
<PAGE> 88
Rule 701 promulgated thereunder. All other sales of securities described above
were made in reliance upon the exemption from registration set forth in Section
4(2) of the Securities Act relating to sales by an issuer not involving a public
offering. Upon consummation of the Offering, all shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Senior Preferred Stock, Series C1
Senior Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock will automatically convert into an equal number of
shares of Common Stock. Each of the investors in such financings represented
that the shares were being purchased with investment intent and that they were
accredited investors, and agreed to placement of a legend on the securities
restricting transfer.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------- ------------
<S> <C> <C>
1.1 Proposed Form of Underwriting Agreement.........................
3.1 Proposed Form of Second Restated Articles of Incorporation......
3.2 Proposed Form of Amended and Restated Bylaws....................
4.1 Specimen Stock Certificate*.....................................
5.1 Opinion of Graham & James LLP*..................................
10.1 Innova Corporation 1990 Stock Option Plan (Amended and Restated
July 31, 1992), as amended......................................
10.2 Director Stock Option Plan*.....................................
10.3 Form of Stock Option Agreement..................................
10.4 Form of Warrant to Purchase Common Stock........................
10.5 Form of Warrant to Purchase Series A Preferred Stock............
10.6 Warrant to Purchase 516,000 shares of the Company's Common Stock
issued to Greyrock Capital (including Antidilution
Agreement)......................................................
10.7 Registration Rights Agreement dated as of May 26, 1994, by and
among the Registrant, Bachow Investment Partners III, L.P., Paul
S. Bachow Co-Investment Fund, L.P., and Paul S. Bachow, as
amended April 26, 1996, and further amended April 30, 1997......
10.8 Business Park Net Lease, dated April 16, 1996, between Gateway
Corporate Properties, L.L.C., a Delaware limited liability
corporation, as lessor, and Innova Corporation, as lessee
(amended by Exhibit 10.9).......................................
10.9 Lease Amendment No. 1, dated January 28, 1997, between Gateway
North Properties, L.L.C., a Delaware limited liability
corporation, as lessor, and Innova Corporation, as lessee.......
10.10 Sublease Agreement, dated January 21, 1997, between Yamato
Transport USA, Inc., a New York corporation, as sublessor, and
Innova Corporation, as sublessee................................
10.11 Cooperation Agreement, dated October 31, 1996, between SAT
(Societe Anonyme de Telecomunications) Networks and
Telecommunications Division and Innova Corporation**............
10.12 Master Purchase Agreement, dated October 31, 1996, between SAT
(Societe Anonyme de Telecomunications) Networks and
Telecommunications Division and Innova Corporation**............
</TABLE>
II-3
<PAGE> 89
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------- ------------
<S> <C> <C>
10.13 OEM Purchase and Limited Licensing Agreement, dated May 30,
1997, between NERA ASA and Innova Corporation**.................
10.14 Memorandum of Understanding, dated November 17, 1995 between SAT
Telecommunications Division and Innova Corporation..............
10.15 Heads of Agreement, Slovtel OEM Purchase Agreement, dated
November 29, 1996, between Northern Telecom Limited and Innova
Corporation (as amended on February 27, 1997, and further
amended on April 24, 1997)**....................................
11.1 Statement re Computation of Per Share Earnings..................
21.1 Subsidiaries of the Registrant..................................
23.1 Consent of Graham & James LLP (included in its opinion filed as
Exhibit 5.1 hereto).............................................
23.2 Consent of KPMG Peat Marwick LLP................................
24.1 Power of Attorney (included on page II-[5]).....................
27.1 Financial Data Schedule.........................................
</TABLE>
- ---------------
* To be filed by amendment
** Confidential treatment requested
(B) FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Seattle, State of
Washington, on June 18, 1997.
INNOVA CORPORATION
By JEAN-FRANCOIS GRENON
------------------------------------
Jean-Francois Grenon
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby constitutes and
appoints Jean-Francois Grenon and John M. Hemingway, and each of them severally,
as his true and lawful attorney-in-fact, with full power of substitution, to
execute in the name and on behalf of such person, individually and in each
capacity stated below, and to file, any and all amendments to this Registration
Statement, including any and all post-effective amendments, and any related
registration statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------------ -------------
<S> <C> <C>
JEAN-FRANCOIS GRENON President and Chief Executive June 12, 1997
- ----------------------------------------------- Officer (Principal Executive
Jean-Francois Grenon Officer)
and Director
JOHN M. HEMINGWAY Chief Financial Officer June 14, 1997
- ----------------------------------------------- (Principal Financial and
John M. Hemingway Accounting Officer)
V. FRANK MENDICINO Chairman of the Board June 17, 1997
- -----------------------------------------------
V. Frank Mendicino
PAUL S. BACHOW Director June 17, 1997
- -----------------------------------------------
Paul S. Bachow
FRANCES N. JANIS Director June 17, 1997
- -----------------------------------------------
Frances N. Janis
HAROLD O. SHATTUCK Director June 17, 1997
- -----------------------------------------------
Harold O. Shattuck
BERNARD D. TARR, JR. Director June 17, 1997
- -----------------------------------------------
Bernard D. Tarr, Jr.
</TABLE>
II-5
<PAGE> 91
INNOVA CORPORATION AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
NINE MONTH FISCAL PERIOD ENDED DECEMBER 31, 1996 AND
YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING CHARGED TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------------------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Nine month fiscal period ended December 31, 1996:
Valuation accounts deducted from assets:
Lower of cost or market reserve on
inventories................................. $ 596,256 -- -- $(130,077) $ 466,179
======== ======== ======== ========= ========
Year ended March 31, 1996:
Valuation accounts deducted from assets:
Lower of cost or market reserve on
inventories................................. $ 426,631 $169,625 -- -- $ 596,256
======== ======== ======== ========= ========
Year ended March 31, 1995:
Valuation accounts deducted from assets:
Lower of cost or market reserve on
inventories................................. $ 149,344 $277,287 -- -- $ 426,631
======== ======== ======== ========= ========
</TABLE>
S-1
<PAGE> 92
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------- ------------
<S> <C> <C>
1.1 Proposed Form of Underwriting Agreement.........................
3.1 Proposed Second Restated Articles of Incorporation (As will be
effective on closing of the Offering)...........................
3.2 Proposed Form of Amended and Restated Bylaws....................
4.1 Specimen Stock Certificate*.....................................
5.1 Opinion of Graham & James LLP*..................................
10.1 Innova Corporation 1990 Stock Option Plan (Amended and Restated
July 31, 1992), as amended......................................
10.2 Director Stock Option Plan*.....................................
10.3 Form of Stock Option Agreement..................................
10.4 Form of Warrant to Purchase Common Stock........................
10.5 Form of Warrant to Purchase Series A Preferred Stock............
10.6 Warrant to Purchase 516,000 shares of the Company's Common Stock
issued to Greyrock (including Antidilution Agreement)...........
10.7 Registration Rights Agreement dated as of May 26, 1994, by and
among the Registrant, Bachow Investment Partners III, L.P., Paul
S. Bachow Co-Investment Fund, L.P., and Paul S. Bachow, as
amended April 26, 1996, April 30, 1997 and June 13, 1997 (All
holders of the Company's Preferred Stock and Greyrock were
granted the same registration rights as in the Registration
Rights Agreement as if deemed parties to the such agreement)....
10.8 Business Park Net Lease, dated April 16, 1996, between Gateway
Corporate Properties, L.L.C., a Delaware limited liability
corporation, as lessor, and Innova Corporation, as lessee
(amended by Exhibit 10.9).......................................
10.9 Lease Amendment No. 1, dated January 28, 1997, between Gateway
North Properties, L.L.C., a Delaware limited liability
corporation, as lessor, and Innova Corporation, as lessee.......
10.10 Sublease Agreement, dated January 21, 1997, between Yamato
Transport USA, Inc., a New York corporation, as sublessor, and
Innova Corporation, as sublessee................................
10.11 Cooperation Agreement, dated October 31, 1996, between SAT
(Societe Anonyme de Telecomunications) Networks and
Telecommunications Division and Innova Corporation**............
10.12 Master Purchase Agreement, dated October 31, 1996, between SAT
(Societe Anonyme de Telecomunications) Networks and
Telecommunications Division and Innova Corporation**............
10.13 OEM Purchase and Limited Licensing Agreement, dated May 30,
1997, between NERA ASA and Innova Corporation**.................
10.14 Memorandum of Understanding, dated November 17, 1995 between SAT
Telecommunications Division and Innova Corporation..............
10.15 Heads of Agreement, Slovtel OEM Purchase Agreement, dated
November 29, 1996, between Northern Telecom Limited and Innova
Corporation (as amended on February 27, 1997, and further
amended on April 24, 1997)**....................................
11.1 Statement re Computation of Per Share Earnings..................
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------- ------------
<S> <C> <C>
21.1 Subsidiaries of the Registrant..................................
23.1 Consent of Graham & James LLP (included in its opinion filed as
Exhibit 5.1 hereto).............................................
23.2 Consent of KPMG Peat Marwick LLP................................
24.1 Power of Attorney (included on page II-[5]).....................
27.1 Financial Data Schedule.........................................
</TABLE>
- ---------------
* To be filed by amendment
** Confidential treatment requested
<PAGE> 1
Exhibit 1.1
2,500,000 Shares
INNOVA CORPORATION
Common Stock
UNDERWRITING AGREEMENT
____________ __, 1997
UBS Securities LLC
Hambrecht & Quist LLC
Wessels, Arnold & Henderson, L.L.C
As Representatives of the Several Underwriters
c/o UBS Securities LLC
299 Park Avenue
New York, NY 10171
Ladies and Gentlemen:
INNOVA CORPORATION, a Washington corporation (the "Company"),
proposes to issue and sell 2,500,000 shares (the "Firm Shares") of its
authorized but unissued Common Stock, without par value (the "Common Stock"), to
the several underwriters listed on Schedule A to this Agreement (collectively,
the "Underwriters"). The Company also proposes to grant to the Underwriters an
option to purchase up to 375,000 additional shares (the "Option Shares") of
Common Stock on the terms and for the purposes set forth in Section 3(c). The
Firm Shares and the Option Shares are hereinafter collectively referred to as
the "Shares".
The Company wishes to confirm as follows its agreements with
you (the "Representatives") and the other Underwriters on whose behalf you are
acting in connection with the several purchases by the Underwriters of the
Shares.
<PAGE> 2
1. Registration Statement. A registration statement on Form S-1
(File No. 333-[ ]) including a prospectus relating to the Shares and each
amendment thereto has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. There have been delivered to you three signed copies of such
registration statement and amendments, together with three copies of each
exhibit filed therewith. Copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested for each
of the Underwriters. If such registration statement has not become effective,
a further amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become effective
will be filed promptly by the Company with the Commission. If such
registration statement has become effective, a final prospectus containing all
Rule 430A Information (as hereinafter defined) will be filed by the Company
with the Commission in accordance with Rule 424(b) of the Rules and Regulations
on or before the second business day after the date hereof (or such earlier
time as may be required by the Rules and Regulations).
The term "Registration Statement" as used in this Agreement
shall mean such registration statement (including all exhibits and financial
statements at the time such registration statement becomes or became effective
and, in the event any post-effective amendment thereto becomes effective prior
to the Closing Date (as hereinafter defined), shall also mean such registration
statement as so amended; provided, however, that such term shall include all
Rule 430A Information deemed to be included in such registration statement at
the time such registration statement becomes effective as provided by Rule 430A
of the Rules and Regulations and shall also mean any registration statement
filed pursuant to Rule 462(b) of the Rules and Regulations with respect to the
Shares. The term "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in the preceding paragraph and any preliminary
prospectus included in the Registration Statement at the time it becomes
effective that omits Rule 430A Information. The term "Prospectus" as used in
this Agreement shall mean the prospectus relating to the Shares in the form in
which it is first filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations or, if no filing pursuant to Rule 424(b) of the Rules and
Regulations is required, shall mean the form of final
2
<PAGE> 3
prospectus included in the Registration Statement at the time such Registration
Statement becomes effective. The term "Rule 430A Information" means
information with respect to the Shares and the offering thereof permitted to be
omitted from the Registration Statement when it becomes effective pursuant to
Rule 430A of the Rules and Regulations.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants as follows:
(a) The Company has not received, and has no notice of,
any order of the Commission preventing or suspending the use of any Preliminary
Prospectus, or instituted proceedings for that purpose, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material respects
to the requirements of the Act and the Rules and Regulations. When the
Registration Statement became or becomes, as the case may be, effective (the
"Effective Date") and at all times subsequent thereto up to and at the Closing
Date (as hereinafter defined), any later date on which Option Shares are to be
purchased (the "Option Closing Date") and when any post-effective amendment to
the Registration Statement becomes effective or any amendment or supplement to
the Prospectus is filed with the Commission, (i) the Registration Statement and
Prospectus, and any amendments or supplements thereto, will contain all
statements which are required to be stated therein by, and will comply with the
requirements of, the Act and the Rules and Regulations, and (ii) neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The foregoing representations and
warranties in this section 2(a) do not apply to any statements or omissions
made in reliance on and in conformity with the information contained in the
section of the Prospectus entitled "Underwriting" (except for the _____
paragraph thereof) and the information in the last paragraph on the front cover
page of the Prospectus. The Company has not distributed any offering material
in connection with the offering or sale of the Shares other than the
Registration Statement, the Preliminary Prospectus, the Prospectus or any other
materials, if any, permitted by the Act.
(b) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Washington, with full corporate power and authority to own, lease and operate
its properties and conduct its
3
<PAGE> 4
business as described in the Registration Statement. The Company is duly
qualified to do business as a foreign corporation in good standing in each
jurisdiction where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to so
qualify would not have a material adverse effect on the business, properties,
financial condition or results of operations of the Company and its
Subsidiaries (as hereinafter defined) taken as a whole (a "Material Adverse
Effect"). The Company has no subsidiaries (as defined in the Rules and
Regulations) other than Innova Europe Limited and Techinnova S.A. de C.V.
(collectively, the "Subsidiaries"). The Company owns 99% of the outstanding
common stock of each subsidiary. Other than the Subsidiaries, the Company does
not own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, joint venture, association or other entity. Complete and
correct copies of the certificates of incorporation and of the bylaws of the
Company and the Subsidiaries and all amendments thereto have been delivered to
the Representatives, and except as set forth in the exhibits to the
Registration Statement no changes therein will be made subsequent to the date
hereof and prior to the Closing Date or, if later, the Option Closing Date.
Each Subsidiary has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement. Each Subsidiary is duly qualified to do business as a
foreign corporation in good standing in each jurisdiction where the ownership
or leasing of the properties or the conduct of its business requires such
qualification, except where the failure to so qualify would not have a Material
Adverse Effect. All of the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable and are owned by the Company subject to no security interest,
other encumbrance or adverse claims. No options, warrants or other rights to
purchase, agreements or other obligation to issue or other rights to convert
any obligation into shares of capital stock or ownership interests in the
Subsidiaries are outstanding.
(c) The Company has full power and authority (corporate
and otherwise) to enter into this Agreement and to perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is
4
<PAGE> 5
a valid and binding agreement on the part of the Company, enforceable against
the Company in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by applicable laws or equitable
principles and except as enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles. The
performance of this Agreement by the Company and the consummation by the
Company of the transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any indenture, mortgage, deed of trust, loan agreement, bond, debenture,
note agreement or other evidence of indebtedness, or any lease, contract or
other agreement or instrument to which the Company or any Subsidiary is a party
or by which its properties are bound, or (ii) the certificate of incorporation
or bylaws of the Company or any Subsidiary or (iii) any law, order, rule,
regulation, writ, injunction or decree of any court or governmental agency or
body to which the Company or any Subsidiary is subject. The Company is not
required to obtain or make (as the case may be) any consent, approval,
authorization, order, designation or filing by or with any court or regulatory,
administrative or other governmental agency or body as a requirement for the
consummation by the Company of the transactions herein contemplated, except
such as may be required under the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or under state securities or blue sky ("Blue Sky")
laws or under the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD").
(d) There is not pending or, to the Company's knowledge,
threatened, any action, suit, claim, proceeding or investigation against the
Company or its Subsidiaries or any of their respective officers or any of their
respective properties, assets or rights before any court or governmental agency
or body or otherwise. There are no statutes, rules, regulations, agreements,
contracts, leases or documents that are required to be described in the
Prospectus, or to be filed as exhibits to the Registration Statement by the Act
or by the Rules and Regulations that have not been accurately and completely
described in the Prospectus or filed as exhibits to the Registration Statement.
(e) All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of
5
<PAGE> 6
any preemptive right, resale right, right of first refusal or similar right.
The authorized and outstanding capital stock of the Company conforms to the
description thereof contained in the Registration Statement and the Prospectus
(and such description correctly states the substance of the provisions of the
instruments defining the capital stock of the Company). The Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable. Except as set forth in the
Prospectus, no preemptive right, co-sale right, right of first refusal or other
similar rights of securityholders exists with respect to any of the Shares or
the issue and sale thereof other than those that have been expressly waived
prior to the date hereof. No holder of securities of the Company has the right
to cause the Company to include such holder's securities in the Registration
Statement. No further approval or authorization of any security holder, the
Board of Directors or any duly appointed committee thereof or others is
required for the issuance and sale or transfer of the Shares, except as may be
required under the Act, the Exchange Act or under state securities or Blue Sky
laws. Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company, and the related notes thereto, included in
the Prospectus, the Company does not have outstanding any options or warrants
to purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The description of the
Company's stock option and other plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights.
(f) KPMG Peat Marwick LLP (the "Accountants") who have
examined the financial statements, together with the related schedules and
notes, of the Company filed with the Commission as a part of the Registration
Statement, which are included in the Prospectus, are independent public
accountants within the meaning of the Act and the Rules and Regulations. The
financial statements of the Company, together with the related schedules and
notes, forming part of the Registration Statement and the Prospectus, fairly
present the financial position and the results of operations of the Company at
the respective dates and for the respective periods
6
<PAGE> 7
to which they apply. All financial statements, together with the related
schedules and notes, filed with the Commission as part of the Registration
Statement have been prepared in accordance with generally accepted accounting
principles as in effect in the United States consistently applied throughout
the periods involved except as may be otherwise stated in the Registration
Statement. The selected and summary financial and statistical data included in
the Registration Statement present fairly the information shown therein and
have been compiled on a basis consistent with the financial statements
presented therein. No other financial statements or schedules are required by
the Act or the Rules and Regulations to be included in the Registration
Statement.
(g) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, there has
not been (i) any material adverse change in the business, operations,
properties, assets, conditions (financial or otherwise), results of operations
or prospects of the Company and its Subsidiaries taken as a whole, whether or
not occurring in the ordinary course of business (a "Material Adverse Change"),
or any development involving, or which is likely to cause, a Material Adverse
Change, (ii) any transaction which is material to the Company or its
Subsidiaries, other than in the ordinary course of business, (iii) any
obligation, direct or contingent, which is material to the Company and its
Subsidiaries taken as a whole, incurred by the Company or its Subsidiaries,
except obligations incurred in the ordinary course of business, (iv) any
material change in the capital stock or outstanding indebtedness of the Company
or its Subsidiaries other than changes resulting from (i) the exercise of
employee stock options outstanding on the date hereof, (ii) the amendment and
restatement of the Company's Articles of Incorporation and Bylaws, (iii) the
conversion of all of the Company's outstanding Preferred Stock into Common Stock
and (iv) the effectiveness of the Company's 24 to 1 reverse stock split, in the
case of items (ii) through (iv) as set forth in the Registration Statement, or
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company. Neither the Company nor its Subsidiaries has any
material contingent obligation or liability which is not disclosed in the
Registration Statement.
(h) (i) the Company and each Subsidiary have good and
marketable title to all material properties and assets described in the
Prospectus as owned by them, free and clear of any pledge, lien, security
interest, charge, encumbrance, claim, equitable interest or restriction, (ii)
the agreements to which the Company or any Subsidiary is a party described in
the Prospectus are valid
7
<PAGE> 8
agreements, enforceable against the Company or such Subsidiary in accordance
with their terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles, and, to the Company's knowledge after due inquiry, the other
contracting party or parties thereto are not in material breach or default
under any of such agreements and (iii) the Company and each Subsidiary have
valid and enforceable leases for the properties described in the Prospectus as
leased by it, and such leases conform in all material respects to the
description thereof, if any, set forth in the Registration Statement.
(i) The Company and each Subsidiary, and to the knowledge
of the Company, each service provider deploying the Company's products, now
hold and at the Closing Date and any later Option Closing Date, as the case may
be, will hold, all licenses, certificates, approvals and permits from all
state, United States, foreign and other regulatory authorities, including but
not limited to the United States Federal Communications Commission (the "FCC")
and any foreign regulatory authorities performing functions similar to those
performed by the FCC, that are material to the conduct of the business of the
Company (as such business is currently conducted), all of which are valid and
in full force and effect (and there is no proceeding pending or, to the
knowledge of the Company, threatened which may cause any such license,
certificate, approval or permit to be withdrawn, cancelled, suspended or not
renewed). Neither the Company nor any Subsidiary is in violation of its
certificate of incorporation or bylaws or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in any
bond, debenture, note or other evidence of indebtedness or in any contract,
indenture, mortgage, loan agreement, joint venture or other agreement or
instrument to which it is a party or by which it or any of its properties are
bound, or in violation of any law, order, rule, regulation, writ, injunction or
decree of any court or governmental agency or body, including, but not limited
to, the FCC. All of the descriptions in the Registration Statement and
Prospectus of the legal and governmental proceedings by or before the FCC or
any foreign, state or local government body exercising comparable authority and
of the laws, rules and regulations applicable to the Company's products and
their use as presently used are true, complete and accurate in all material
respects.
(j) The Company and each Subsidiary have filed on a
timely basis all necessary federal, state and foreign income,
8
<PAGE> 9
franchise and other tax returns and has paid all taxes shown thereon as due,
and the Company has no knowledge of any tax deficiency which has been or might
be asserted against the Company or any Subsidiary. All material tax
liabilities are adequately provided for within the financial statements of the
Company.
(k) The Company and its Subsidiaries maintain insurance
of the types and in the amounts adequate for their business and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering product liability and real
and personal property owned or leased against theft, damage, destruction, acts
of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
(l) Neither the Company nor its Subsidiaries are involved
in any labor dispute or disturbance nor, to the knowledge of the Company, is
any such dispute or disturbance threatened.
(m) Except as described in the Prospectus, the Company
and each Subsidiary own or possess adequate licenses or other rights to use all
patents, patent applications, trademarks, trademark applications, service
marks, service mark applications, tradenames, copyrights, manufacturing
processes, formulae, trade secrets, know-how, franchises, and other material
intangible property and assets (collectively, "Intellectual Property")
necessary to the conduct of their businesses as conducted and as proposed to be
conducted as described in the Prospectus. The Company has no knowledge of any
facts which would preclude it from having rights to its patent applications
referenced in the Prospectus. The Company has no knowledge that it or any
Subsidiary lacks or will be unable to obtain any rights or licenses to use any
of the Intellectual Property necessary to conduct the business now conducted or
proposed to be conducted by it as described in the Prospectus, except as
described in the Prospectus. The Prospectus fairly and accurately describes
the Company's rights with respect to the Intellectual Property. The Company
has not received any notice of infringement or of conflict with rights or
claims of others with respect to any Intellectual Property. The Company is not
aware of any patents of others which are infringed upon by potential products
or processes referred to in the Prospectus in such a manner as to materially
and adversely affect the Company and its Subsidiaries taken as a whole, except
as described in the Prospectus.
9
<PAGE> 10
(n) The Company and each Subsidiary are conducting their
businesses in compliance with all of the laws, rules and regulations of the
jurisdictions in which it is conducting business, including, but not limited
to, the laws, rules and regulations administered or promulgated by the FCC.
(o) The Company is not an "investment company," or a
"promoter" or "principal underwriter" for a registered investment company, as
such terms are defined in the Investment Company Act of 1940, as amended.
(p) Neither the Company nor any of its Subsidiaries has
incurred any liability for a fee, commission, or other compensation on account
of the employment of a broker or finder in connection with the transactions
contemplated by this Agreement other than the underwriting discounts and
commissions contemplated hereby.
(q) The Company, each of its Subsidiaries and each of its
products, is (i) in compliance with any and all applicable United States and
foreign, state and local environmental laws, rules, regulations, treaties,
statutes and codes promulgated by any and all governmental authorities relating
to the protection of human health and safety, the environment or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
has received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business as currently conducted,
and (iii) is in compliance with all terms and conditions of any such permit,
license or approval. No action, proceeding, revocation proceeding, writ,
injunction or claim is pending or threatened relating to the Environmental Laws
or to the Company's or its Subsidiaries' activities involving Hazardous
Materials. "Hazardous Materials" means any material or substance (i) that is
prohibited or regulated by any environmental law, rule, regulation, order,
treaty, statute or code promulgated by any governmental authority, or any
amendment or modification thereto, or (ii) that has been designated or
regulated by any governmental authority as radioactive, toxic, hazardous or
otherwise a danger to health, reproduction or the environment.
(r) Neither the Company nor any of its Subsidiaries has
engaged in the generation, use, manufacture, transportation or storage of any
Hazardous Materials on any of the Company's or its Subsidiaries' properties or
former properties, except where such use, manufacture, transportation or
storage is in compliance with Environmental Laws. No Hazardous Materials have
been treated or
10
<PAGE> 11
disposed of on any of the Company's or its Subsidiaries properties or on
properties formerly owned or leased by the Company or any Subsidiary during the
time of such ownership or lease, except in compliance with Environmental Laws.
No spills, discharges, releases, deposits, emplacements, leaks or disposal of
any Hazardous Materials have occurred on or under or have emanated from any of
the Company's or its Subsidiaries' properties or former properties.
(s) Neither the Company nor any of its Subsidiaries has
at any time during the last five years (i) made any unlawful contribution to
any candidate for foreign office, or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any foreign, United States or
state governmental officer or official, or other person charged with similar
public of quasi-public duties, other than payments required or permitted by the
laws of the United States.
(t) The Common Stock is registered pursuant to Section
12(g) of the Exchange Act. The Shares have been duly authorized for quotation
on the National Association of Securities Dealers, Inc. Automated Quotation
System National Market System ("NASDAQ National Market"), subject to notice of
official issuance. The Company has taken no action designed to, or likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act or delisting the Common Stock from the NASDAQ National Market, nor
has the Company received any notification that the Commission or the NASDAQ
National Market is contemplating terminating such registration or listing.
(u) Neither the Company nor, to its knowledge, any of its
officers, directors or affiliates has taken, and at the Closing Date and at any
later Option Closing Date, neither the Company nor, to its knowledge, any of
its officers, directors or affiliates will have taken, directly or indirectly,
any action which has constituted, or might reasonably be expected to
constitute, the stabilization or manipulation of the price of sale or resale of
the Shares.
(v) The Company has timely and properly filed with the
Commission all documents and other materials required to have been filed by it
with the Commission pursuant to the Act and the Rules and Regulations. True
and complete copies of all such documents and materials have been delivered
to you.
11
<PAGE> 12
(w) The merger of Microbeam Corporation, a Delaware
corporation, into the Company on May 29, 1991, was legally effective under the
laws of the State of Delaware and the State of Washington. The merger
transferred all assets and liabilities of Microbeam Corporation to the Company.
(x) No transfer tax, stamp duty or other similar taxes are
payable by or on behalf of the Underwriters in connection with the issuance by
the Company or the purchase by the Underwriters of the Shares to be sold by the
Company or any resales of such Shares by the Underwriters. To the best
knowledge of the Company, after due investigation, none of the officers,
directors or shareholders of the Company has any affiliation with the NASD.
3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties
and subject to the terms and conditions herein set forth, the Company agrees to
issue and sell the Firm Shares to the several Underwriters, and each of the
Underwriters agrees to purchase from the Company the respective aggregate
number of Firm Shares set forth opposite its name on Schedule A, plus such
additional number of Firm Shares which such Underwriter may become obligated to
purchase pursuant to Section 3(b) hereof. The price at which such Firm Shares
shall be sold by the Company and purchased by the several Underwriters shall be
$_____ per share. In making this Agreement, each Underwriter is contracting
severally and not jointly; except as provided in paragraphs (b) and (c) of this
Section 3, the agreement of each Underwriter is to purchase only the respective
number of Firm Shares specified on Schedule A.
(b) If for any reason one or more of the Underwriters
shall fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 10 hereof) to
purchase and pay for the number of Shares agreed to be purchased by such
Underwriter or Underwriters, the non-defaulting Underwriters shall have the
right within twenty-four (24) hours after such default to purchase, or procure
one or more other Underwriters to purchase, in such proportions as may be
agreed upon between you and such purchasing Underwriter or Underwriters and
upon the terms herein set forth, all or any part of the Shares which such
defaulting Underwriter or Underwriters agreed to purchase. If the
non-defaulting Underwriters fail so to make such arrangements with respect to
all such Shares and portion, the number of Shares which each non-defaulting
Underwriter is otherwise obligated to purchase under this
12
<PAGE> 13
Agreement shall be automatically increased on a pro rata basis (as adjusted by
you in such manner as you deem advisable to avoid fractional shares) to absorb
the remaining Shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase; provided, however, that the non-defaulting
Underwriters shall not be obligated to purchase the Shares and portion which
the defaulting Underwriter or Underwriters agreed to purchase if the aggregate
number of such Shares exceeds 10% of the total number of Shares which all
Underwriters agreed to purchase hereunder. If the total number of Shares which
the defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within twenty-four (24) hours next succeeding the
24-hour period referred to above, to make arrangements with other underwriters
or purchasers reasonably satisfactory to you for purchase of such Shares and
portion on the terms herein set forth. In any such case, either you or the
Company shall have the right to postpone the Closing Date determined as
provided in Section 5 hereof for not more than seven business days after the
date originally fixed as the Closing Date pursuant to said Section 5 in order
that any necessary changes in the Registration Statement, the Prospectus or any
other documents or arrangements may be made. If the aggregate number of Shares
which the defaulting Underwriter or Underwriters agreed to purchase exceeds 10%
of the total number of Shares which all Underwriters agreed to purchase
hereunder, and if neither the non-defaulting Underwriters nor the Company shall
make arrangements within the 24-hour periods stated above for the purchase of
all the Shares which the defaulting Underwriter or Underwriters agreed to
purchase hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company to any non-defaulting
Underwriter and without any liability on the part of any non-defaulting
Underwriter to the Company. Nothing in this paragraph (b), and no action taken
hereunder, shall relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the several Underwriters to purchase all
or any portion of the Option Shares from the Company at the same price per
share as the Underwriters shall pay for the Firm Shares. Said option may be
exercised only to cover over- allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in
13
<PAGE> 14
part at any time (but not more than once) on or before the 30th day after the
date of this Agreement upon written or telegraphic notice by you to the Company
setting forth the aggregate number of shares of the Option Shares as to which
the several Underwriters are exercising the option. Delivery of certificates
for the shares of Option Shares, and payment therefor, shall be made as
provided in Section 5 hereof. Each Underwriter will purchase such percentage
of the Option Shares as is equal to the percentage of Firm Shares that such
Underwriter is purchasing, the exact number of shares to be adjusted by you in
such manner as you deem advisable to avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering of the
Shares by the Underwriters shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) You, on behalf of the Underwriters, represent and
warrant that (i) the information set forth in the last paragraph on the front
cover page and paragraph __ under the caption "Underwriting" in the
Registration Statement, any Preliminary Prospectus and the Prospectus relating
to the Shares (insofar as such information relates to the Underwriters)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in the Registration Statement, any Preliminary Prospectus, and
the Prospectus, and that the statements made therein are correct and do not
omit to state any material fact required to be stated therein or necessary to
make the statements made therein in light of the circumstances under which they
were made not misleading, and (ii) the Underwriters have not distributed and
will not distribute prior to the Closing Date or on any Option Closing Date, as
the case may be, any of offering material in connection with the offering and
sale of the shares other than the Preliminary Prospectus, the Prospectus, the
Registration Statement and other materials permitted by the Act.
5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the Firm Shares and the
Option Shares (if the option granted pursuant to Section 3(c) hereof shall have
been exercised not later than 1:00 p.m., New York time, on the date at least
two business days preceding the
14
<PAGE> 15
Closing Date), and payment therefor, shall be made at the offices of UBS
Securities LLC, 299 Park Avenue, New York, New York 10171 at 9:00 a.m. New
York time, on the fourth business day after the date of this Agreement, or at
such time on such other day, not later than seven full business days after such
fourth business day, as shall be agreed upon in writing by the Company and you
(the "Closing Date").
(b) If the option granted pursuant to Section 3(c) hereof
shall be exercised after 1:00 p.m., New York time, on the date two business
days preceding the Closing Date, and on or before the 30th day after the date
of this Agreement, delivery of certificates for the Option Shares, and payment
therefor, shall be made at the offices of UBS Securities LLC, 299 Park Avenue,
New York, New York 10171 at 9:00 a.m., New York time, on the third business day
after the exercise of such option.
(c) Payment for the Shares purchased from the Company
shall be made to the Company or its order, by [either a same day funds check or
Federal Funds wire transfer] [New York Clearing House Funds]. Such payment
shall be made upon delivery of certificates for the Shares to you for the
respective accounts of the several Underwriters against receipt therefor signed
by you. Certificates for the Shares to be delivered to you shall be registered
in such name or names and shall be in such denominations as you may request at
least three business days before the Closing Date, in the case of Firm Shares,
and at least two business days prior to the Option Closing Date, in the case of
the Option Shares. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at a location in New York,
New York, designated by the Underwriters not less than one full business day
prior to the Closing Date or, in the case of the Option Shares, by 3:00 p.m.,
New York time, on the business day preceding the Option Closing Date.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later Option Closing Date. Any such
payment by you shall not relieve such Underwriter from any of its obligations
hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and
agrees as follows:
15
<PAGE> 16
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto,
to become effective as promptly as possible; it will notify you, promptly after
it shall receive notice thereof, of the time when the Registration Statement or
any subsequent amendment to the Registration Statement has become effective or
any supplement to the Prospectus has been filed. If the Company omitted
information from the Registration Statement at the time it was originally
declared effective in reliance upon Rule 430A(a), the Company will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed, within the time period prescribed, with the Commission pursuant
to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as
part of a post-effective amendment to such Registration Statement as originally
declared effective which is declared effective by the Commission. If for any
reason the filing of the final form of Prospectus is required under Rule
424(b)(3) of the Rules and Regulations, it will provide evidence satisfactory
to you that the Prospectus contains such information and has been filed with
the Commission within the time period prescribed. The Company will notify you
promptly of any request by the Commission for the amending or supplementing of
the Registration Statement or the Prospectus or for additional information.
Promptly upon your request, it will prepare and file with the Commission any
amendments or supplements to the Registration Statement or Prospectus which, in
the reasonable opinion of counsel to the several Underwriters ("Underwriters'
Counsel"), may be necessary or advisable in connection with the distribution of
the Shares by the Underwriters. The Company will promptly prepare and file
with the Commission, and promptly notify you of the filing of, any amendments
or supplements to the Registration Statement or Prospectus which may be
necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act,
any event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. In case any Underwriter is required to deliver a
prospectus within the nine-month period referred to in Section 10(a)(3) of the
Act in connection with the sale of the Shares, the Company will prepare
promptly upon request, but at the expense of such Underwriter, such amendment
or amendments to the Registration Statement and such prospectus or prospectuses
as may
16
<PAGE> 17
be necessary to permit compliance with the requirements of Section 10(a)(3) of
the Act. The Company will file no amendment or supplement to the Registration
Statement or Prospectus that shall not previously have been submitted to you a
reasonable time prior to the proposed filing thereof or to which you shall
reasonably object in writing or which is not in compliance with the Act and
Rules and Regulations or the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or
the use of the Prospectus or of the initiation or threat of any proceeding for
that purpose; and it will promptly use its best efforts to prevent the issuance
of any such stop order or to obtain its withdrawal at the earliest possible
moment if such stop order should be issued.
(c) The Company will cooperate with you in endeavoring to
qualify the Shares for offering and sale under the securities laws of such
jurisdictions as you may designate and to continue such qualifications in
effect for so long as may be required for purposes of the distribution of the
Shares, except that the Company shall not be required in connection therewith
or as a condition thereof to qualify as a foreign corporation, or to execute a
general consent to service of process in any jurisdiction, or to make any
undertaking with respect to the conduct of its business. In each jurisdiction
in which the Shares shall have been qualified, the Company will make and file
such statements, reports and other documents in each year as are or may be
reasonably required by the laws of such jurisdictions so as to continue such
qualifications in effect for so long a period as you may reasonably request for
distribution of the Shares, or as otherwise may be required by law.
(d) The Company will furnish to you, as soon as
available, copies of the Registration Statement (three of which will be signed
and which will include all exhibits), each Preliminary Prospectus, the
Prospectus and any amendments or supplements to such documents, including any
prospectus prepared to permit compliance with Section 10(a)(3) of the Act, all
in such quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its
stockholders as soon as practicable, but in any event not later than the 45th
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the
17
<PAGE> 18
Registration Statement, an earnings statement (which will be in reasonable
detail but need not be audited) complying with the provisions of Section 11(a)
of the Act and Rule 158 of the Rules and Regulations and covering a
twelve-month period beginning after the effective date of the Registration
Statement, and will advise you in writing when such statement has been made
available.
(f) During a period of five years after the date hereof,
the Company, as soon as practicable after the end of each respective period,
will furnish to its stockholders annual reports (including financial statements
audited by independent certified public accountants) and will furnish to its
stockholders unaudited quarterly reports of operations for each of the first
three quarters of the fiscal year, and will, upon request, furnish to you and
the other several Underwriters hereunder (i) concurrently with making such
reports available to its stockholders, statements of operations of the Company
for each of the first three quarters in the form made available to the
Company's stockholders; (ii) concurrently with the furnishing thereof to its
stockholders, a balance sheet of the Company as of the end of such fiscal year,
together with statements of operations, of stockholders' equity and of cash
flow of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of nationally recognized independent certified
public accountants; (iii) concurrently with the furnishing of such reports to
its stockholders, copies of all reports (financial or other) mailed to
stockholders; (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the NASDAQ National Market by the Company (except for documents for
which confidential treatment is requested); and (v) every material press
release and every material news item or article in respect of the Company or
its affairs which was generally released to stockholders or prepared for
general release by the Company. During such five-year period, if the Company
shall have any active subsidiaries, the foregoing financial statements shall be
on a consolidated basis to the extent that the accounts of the Company are
consolidated with any subsidiaries, and shall be accompanied by similar
financial statements for any significant subsidiary that is not so
consolidated.
(g) Prior to or simultaneously with the execution and
delivery of this Agreement, the Company will obtain agreement from each
beneficial owner of the Company's Common Stock listed on Schedule B to this
Agreement providing that such person will not, for a period of 180 days after
the date of the Prospectus, without
18
<PAGE> 19
the prior written consent of UBS Securities LLC, directly or indirectly, offer
to sell, sell, hypothecate, contract to sell, grant any option to purchase, or
otherwise dispose of, any shares of Common Stock beneficially owned as of the
date such lockup agreement is executed (including, without limitation, shares
of Common Stock which may be deemed to be beneficially owned in accordance with
the Rules and Regulations and shares of Common Stock which may be issued upon
exercise of a stock option or warrant) or any securities convertible into or
exercisable or exchangeable for such Common Stock except as otherwise provided
in the pertinent executed Lock-Up Agreement. Each such person or entity shall
also agree and consent to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of shares of Common Stock held by
such person or entity, except in compliance with the foregoing restriction.
(h) The Company shall not, during the 180 days following
the effective date of the Registration Statement, except with your prior
written consent as Representatives, file a registration statement covering any
of its shares of capital stock, except that one or more registration statements
on Form S-8 may be filed at any time following the effective date of the
Registration Statement.
(i) The Company shall not, during the 180 days following
the effective date of the Registration Statement, except with your prior
written consent as Representatives, issue, sell, offer or agree to sell, grant,
distribute or otherwise dispose of, directly or indirectly, any shares of
Common Stock, or any options, rights or warrants with respect to shares of
Common Stock, or any securities convertible into or exchangeable for Common
Stock, other than (i) the sale of Shares hereunder, (ii) the grant of options
or the issuance of shares of Common Stock under the Company's stock option
plans or stock purchase plan, as the case may be, existing on the date hereof,
or (iii) the issuance of shares of Common Stock upon exercise of the currently
outstanding options or warrants described in the Registration Statement.
(j) The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use
of Proceeds" in the Prospectus.
(k) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company,
19
<PAGE> 20
a Registrar (which may be the same entity as the Transfer Agent) for its Common
Stock.
(l) The Company will use its best efforts to maintain
listing of its shares of Common Stock on the NASDAQ National Market.
(m) The Company is familiar with the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder, and has in
the past conducted its affairs, and will in the future conduct its affairs, in
such a manner so as to ensure that the Company was not and will not be an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
(n) If at any time during the 180-day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
reasonable opinion the market price of the Common Stock has been or is likely
to be materially affected (regardless of whether such rumor, publication or
event necessitates a supplement to or amendment of the Prospectus), the Company
will, after written notice from you advising the Company to the effect set
forth above consult with you in good faith regarding the necessity of
disseminating a press release or other public statement responding to or
commenting on such rumor, publication or event and, if the Company in its
reasonable judgment determines that such a press release or other public
statement is appropriate, the substance of any press release or other public
statement.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to Underwriters' Counsel in connection with the
execution and delivery of this Agreement, the Closing and the Option Closing
hereunder shall be deemed a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
7. EXPENSES.
The Company agrees with each Underwriter that:
(a) The Company will pay and bear all costs, fees and
expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the
20
<PAGE> 21
Prospectus and any amendments or supplements thereto; the reproduction of this
Agreement, the Agreement Among Underwriters, the Selected Dealer Agreement, the
Preliminary Blue Sky Memoranda and any Supplemental Blue Sky Memoranda and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any;
the cost of all stock certificates representing the Shares and Transfer Agents'
and Registrars' fees; the fees and disbursements of corporate, patent and
regulatory counsel for the Company; all fees and other charges of the Company's
independent public accountants; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including appropriate
exhibits), Preliminary Prospectuses and the Prospectus, and any amendments or
supplements to any of the foregoing; NASD filing fees and expenses incident to
securing any required review and the cost of qualifying the Shares under the
laws of such jurisdictions within the United States as you may designate
(including filing fees and fees and disbursements of Underwriters' Counsel in
connection with such NASD filings and Blue Sky qualifications); listing
application fees of the NASDAQ National Market; and all other expenses directly
incurred by the Company in connection with the performance of its obligations
hereunder.
(b) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, the Company
will, in addition to paying the expenses described in clause (a) above,
reimburse the several Underwriters for all out-of-pocket expenses (including
reasonable fees and disbursements of Underwriters' Counsel) incurred by the
Underwriters in reviewing the Registration Statement and the Prospectus and in
otherwise investigating, preparing to market or marketing the Shares. The
Company will in no event be liable to any of the several Underwriters for any
loss of anticipated profits from the sale by them of the Shares.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.
The obligations of the several Underwriters to purchase and pay for
the Shares, as provided herein, shall be subject to the accuracy, as of the
date hereof and the Closing Date and any later Option Closing Date, as the case
may be, of the representations and warranties of the Company herein, to the
performance by the
21
<PAGE> 22
Company of its obligations hereunder and to the following additional
conditions:
(a) The Registration Statement shall have become
effective not later than 9:00 a.m., New York time, on the date following the
date of this Agreement, or such later time or date as shall be consented to in
writing by you. If the filing of the Prospectus, or any supplement thereto, is
required pursuant to Rule 424(b) and Rule 430A of the Rules and Regulations,
the Prospectus shall have been filed in the manner and within the time period
required by Rule 424(b) and Rule 430A of the Rules and Regulations. No stop
order suspending the effectiveness of the Registration Statement shall have
been issued and no proceeding for that purpose shall have been initiated or, to
the knowledge of the Company or any Underwriter, threatened by the Commission,
and any request of the Commission for additional information (to be included in
the Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of
the Shares shall have been reasonably satisfactory to Underwriters' Counsel,
and such counsel shall have been furnished with such papers and information as
they may reasonably have requested to enable them to pass upon the matters
referred to in this subsection.
(c) You shall have received, at no cost to you, on the
Closing Date and on any later Option Closing Date, as the case may be, the
opinions of Graham & James LLP/Riddell Williams P.S., corporate counsel to the
Company, dated the Closing Date or such later Option Closing Date, in the form
attached hereto on Appendix A, addressed to the Underwriters and with
reproduced copies of signed counterparts thereof for each of the
Representatives.
(d) You shall have received from Drinker Biddle & Reath
LLP, Underwriters' Counsel, an opinion or opinions, dated the Closing Date or
on any later Option Closing Date, as the case may be, in form and substance
reasonably satisfactory to you, with respect to the sufficiency of all
corporate proceedings undertaken by the Company and other legal matters
relating to this Agreement and the transactions contemplated hereby as you may
reasonably require, and the Company shall have furnished to such counsel such
22
<PAGE> 23
documents as it may have reasonably requested for the purpose of enabling it to
pass upon such matters.
(e) You shall have received on the Closing Date and on
any later Option Closing Date, as the case may be, a letter from the
Accountants addressed to the Company and the Underwriters, dated the Closing
Date or such later Option Closing Date, as the case may be, confirming that it
is an independent certified public accountant with respect to the Company
within the meaning of the Act and the Rules and Regulations thereunder and
based upon the procedures described in its letter delivered to you concurrently
with the execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than three days prior to the Closing Date or any
such later Option Closing Date, as the case may be, (i) confirming that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later Option Closing Date, as the case may be; and
(ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter that are necessary to reflect any
changes in the facts described in the Original Letter since the date of such
letter, or to reflect the availability of more recent financial statements,
data or information. The letter shall not disclose any change, or any
development involving a prospective change, in or affecting the business or
properties of the Company which, in your reasonable judgment, makes it
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. In addition, you shall have received from
the Accountants a letter addressed to the Company and made available to you for
the use of the Underwriters stating that its review of the Company's system of
internal accounting controls, to the extent it deemed necessary in establishing
the scope of its latest examination of the Company's financial statements, did
not disclose any weaknesses in internal controls that it considered to be
material weaknesses. All such letters shall be in a form reasonably
satisfactory to the Representatives and their counsel.
(f) You shall have received on the Closing Date and on
any later Option Closing Date, as the case may be, a certificate of the
President and the Chief Financial Officer of the Company, dated the Closing
Date or such later date, to the effect that as of such date (and you shall be
satisfied that as of such date):
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on
and as of the Closing Date or any later Option
23
<PAGE> 24
Closing Date, as the case may be; and the Company has complied
with all of the agreements and satisfied all of the conditions
on its part to be performed or satisfied at or prior to the
Closing Date or any later Option Closing Date, as the case may
be;
(ii) The Registration Statement has become
effective under the Act and no stop order suspending the
effectiveness of the Registration Statement or preventing or
suspending the use of the Prospectus has been issued, and no
proceedings for that purpose have been instituted or are
pending or, to the best of their knowledge, threatened under
the Act;
(iii) They have carefully reviewed the Registration
Statement and the Prospectus; and, when the Registration
Statement became effective and at all times subsequent thereto
up to the delivery of such certificate, the Registration
Statement and the Prospectus and any amendments or supplements
thereto contained all statements and information required to
be included therein or necessary to make the statements
therein not misleading; and when the Registration Statement
became effective, and at all times subsequent thereto up to
the delivery of such certificate, none of the Registration
Statement, the Prospectus or any amendment or supplement
thereto included any untrue statement of a material fact or
omitted to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading; and, since the effective date of the Registration
Statement, there has occurred no event required to be set
forth in an amended or supplemented Prospectus that has not
been so set forth; and
(iv) Subsequent to the respective dates as of
which information is given in the Registration Statement and
the Prospectus, there has not been (A) any Material Adverse
Change or any prospective Material Adverse Change, (B) any
transaction which is material to the Company and its
Subsidiaries taken as a whole, (C) any obligation, direct or
contingent, incurred by the Company or its Subsidiaries, which
is material to the Company and its Subsidiaries taken as a
whole, (D) any change in the capital stock or outstanding
indebtedness of the Company or its Subsidiaries or in
24
<PAGE> 25
the outstanding indebtedness of the Company which is material
to the Company and its Subsidiaries taken as a whole or (E)
any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company.
(g) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request as to the accuracy
of the representations and warranties of the Company herein, as to the
performance by the Company of its obligations hereunder and as to the other
conditions concurrent and precedent to the obligations of the Underwriters
hereunder.
(h) The Firm Shares and the Option Shares, if any, shall
have been approved for designation upon notice of issuance on the NASDAQ
National Market.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) below, the
Company agrees to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Act from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Act, the Exchange Act, or
the common law or otherwise, and the Company agrees to reimburse each such
Underwriter and controlling person for any legal or other out-of-pocket
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any 462(b) registration
statement) or any post-effective amendment thereto (including any
25
<PAGE> 26
462(b) registration statement), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus or
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or the
omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that (1) the indemnity
agreements of the Company contained in this paragraph (a) shall not apply to
any such losses, claims, damages, liabilities or expenses if such statement or
omission is contained in the section of the Prospectus entitled "Underwriting"
(except for the ____ paragraph thereof) or the last paragraph of text on the
cover page of the Prospectus, and (2) the indemnity agreement contained in this
paragraph (a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages, liabilities or expenses purchased the Shares which is the
subject thereof (or to the benefit of any person controlling such Underwriter)
if at or prior to the written confirmation of the sale of such Shares a copy of
the Prospectus (or the Prospectus as amended or supplemented) was not sent or
delivered to such person and the untrue statement or omission of a material
fact contained in such Preliminary Prospectus was corrected in the Prospectus
(or the Prospectus as amended or supplemented) unless the failure is the result
of noncompliance by the Company with paragraph (a) of Section 6 hereof. The
indemnity agreements of the Company contained in this paragraph (a) and the
representations and warranties of the Company contained in Section 2 hereof
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of any payment for the Shares.
(b) Each Underwriter severally agrees to indemnify and
hold harmless the Company, each of its executive officers, each of its
directors, each other Underwriter and each person (including each partner or
officer thereof) who controls the Company or any such other Underwriter within
the meaning of Section 15 of the Act, from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Act, the Exchange Act, or
the common law or otherwise and to reimburse each of them for any legal or
other expenses including, except as otherwise
26
<PAGE> 27
hereinafter provided, reasonable fees and disbursements of counsel) incurred by
the respective indemnified parties in connection with defending against any
such losses, claims, damages or liabilities or in connection with any
investigation or inquiry of, or other proceeding which may be brought against,
the respective indemnified parties, in each case arising out of or based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any 462(b) registration statement) or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii) any
untrue statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus or the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that in the cases of clauses (i) and (ii) above, such statement or
omission is contained in the Section of the Prospectus entitled "Underwriting"
(except for the ____ paragraph thereof) or the last paragraph on the cover page
of the Prospectus. The indemnity agreement of each Underwriter contained in
this paragraph (b) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery of and payment for the Shares.
(c) Each party indemnified under the provision of
paragraphs (a) and (b) of this Section 9 agrees that, upon the service of a
summons or other initial legal process upon it in any action or suit instituted
against it or upon its receipt of written notification of the commencement of
any investigation or inquiry of, or proceeding against it, in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (a "Notice") of such service
or notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be
available to any party who shall fail so to give the Notice if the party to
whom such Notice was not given was unaware of the action, suit, investigation,
inquiry or proceeding to which the Notice would have related and was prejudiced
by the failure to give the Notice, but the omission so to notify such
indemnifying party or parties
27
<PAGE> 28
of any such service or notification shall not relieve such indemnifying party
or parties from any liability which it or they may have to the indemnified
party for contribution or otherwise than on account of such indemnity
agreement. Any indemnifying party shall be entitled at its own expense to
participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party
shall be entitled, if it so elects within a reasonable time after receipt of
the Notice by giving written notice (the "Notice of Defense") to the
indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or
parties shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party or parties and (ii) in any event, the indemnified party or
parties shall be entitled, at its or their own expense to have counsel chosen
by such indemnified party or parties participate in, but not conduct, the
defense. It is understood that the indemnifying parties shall not, in respect
of the legal defenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (a)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all of the Underwriters and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act, and (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who sign the Registration Statement
and each person, if any, who controls the Company within the meaning of Section
15 of the Act. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through
28
<PAGE> 29
(c) of this Section 9 for any legal or other expenses subsequently incurred by
the indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal and other expenses incurred in connection
with the conduct of the defense as referred to in clause (i) of the proviso to
the preceding sentence and (B) the indemnifying party or parties shall bear
such other expenses as it or they have authorized to be incurred by the
indemnified party or parties. If, within a reasonable time after receipt of
the Notice, no Notice of Defense has been given, the indemnifying party or
parties shall be responsible for any legal or other expenses incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding. The indemnifying party or parties
shall not be liable for any settlement of any proceeding effected without its
or their written consent, provided such consent has not been unreasonably
withheld.
(d) If the indemnification provided for in this Section 9
is unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 9, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 9 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party
in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company, on the one hand, and the Underwriters, on the other, shall be deemed
to be in the same respective proportions as the total net proceeds from the
offering of the Shares received by the Company and the total underwriting
discount received by the Underwriters, as set forth in the table on the cover
page of the Prospectus, bear to the aggregate public offering price of the
Shares. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by each indemnifying
29
<PAGE> 30
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this
paragraph (d). The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities, or actions in respect thereof, referred
to in the first sentence of this paragraph (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigation, preparation to defend or defense against any
action or claim which is the subject of this paragraph (d). Notwithstanding
the provisions of this paragraph (d), no Underwriter shall be required to
contribute any amount in excess of the underwriting discount applicable to the
Shares purchased by such Underwriter. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the
service of a summons or other initial legal process upon it in any action
instituted against it in respect of which contribution may be sought, it will
promptly give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
of any such service shall not relieve the party from whom contribution may be
sought from any obligation it may have hereunder or otherwise (except as
specifically provided in paragraph (c) of this Section 9).
(e) The Company will not, without the prior written
consent of each Underwriter, settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not such
Underwriter or any person who controls such Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act is a party to such
30
<PAGE> 31
claim, action, suit or proceeding) unless such settlement, compromise or
consent includes an unconditional release of such Underwriter and each such
controlling person from all liability arising out of such claim, action, suit
or proceeding.
(f) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel during
the negotiations regarding the provisions hereof, including without limitation
the provisions of this Section 9 and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 9
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is
made in the Registration Statement and Prospectus as required by the Act and
the Exchange Act.
10. TERMINATION. This Agreement may be terminated by you at any
time on or prior to the Closing Date or on or prior to any later Option Closing
Date, as the case may be, (i) if the Company shall have failed, refused or been
unable, at or prior to the Closing Date, or on or prior to any later Option
Closing Date, as the case may be, to perform any agreement on its part to be
performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company is not fulfilled, or (ii) if
trading on the New York Stock Exchange, the American Stock Exchange or the
NASDAQ National Market shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required on the New York Stock Exchange, the American Stock
Exchange or the NASDAQ National Market, by such trading exchanges or by order
of the Commission or any other governmental authority having jurisdiction, or
if a banking moratorium shall have been declared by federal or New York
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, accident or other calamity of such character as to have a Material
Adverse Effect regardless of whether or not such loss shall have been insured,
or (iv) if there shall have been a material adverse change in the general
political or economic conditions or financial markets in the United States as
in the judgment of the Representatives makes it inadvisable or impracticable
to proceed with the offering, sale and delivery of the Shares, or (v) if there
shall have occurred an outbreak or escalation of hostilities between the United
States and any foreign power or of any other insurrection or armed conflict
involving the United States or other national or international calamity,
hostilities or crisis or the declaration by the United
31
<PAGE> 32
States of a national emergency which, in the judgment of the Representatives,
adversely affects the marketability of the Shares, or (vi) if since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall have occurred any material adverse change or
any development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company or the business affairs,
management, or business prospects of the Company, whether or not arising in the
ordinary course of business, or (vii) if any foreign, federal or state statute,
regulation, rule or order of any court or other governmental authority shall
have been enacted, published, decreed or otherwise promulgated which in the
judgment of the Representatives materially and adversely affects or will
materially and adversely affect the business or operations of the Company, or
trading in the Common Stock shall have been suspended, or (viii) there shall
have occurred a material adverse decline in the value of securities generally
on the New York Stock Exchange, the American Stock Exchange or the NASDAQ
National Market or (ix) action shall be taken by any foreign, federal, state or
local government or agency in respect of its monetary or fiscal affairs which,
in the judgment of the Representatives, has a material adverse effect on the
securities markets in the United States. If this Agreement shall be terminated
in accordance with this Section 10, there shall be no liability of the Company
to the Underwriters and no liability of the Underwriters to the Company;
provided, however, that in the event of any such termination the Company agrees
to indemnify and hold harmless the Underwriters from all costs or expenses
incident to the performance of the obligations of the Company under this
Agreement, including all costs and expenses referred to in Section 7.
If you elect to terminate this Agreement as provided in this Section
10, the Company shall be notified promptly by you by telephone, telecopy or
telegram, confirmed by letter.
11. REIMBURSEMENT OF CERTAIN EXPENSES.
(a) In addition to their other obligations under Section
9 of this Agreement, the Company hereby agrees to reimburse on a quarterly
basis the Underwriters for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in paragraph (a) of
Section 9 of this Agreement, notwithstanding the absence of a
32
<PAGE> 33
judicial determination as to the propriety and enforceability of the
obligations under this Section 11 and the possibility that such payments might
later be held to be improper; provided, however, that (i) to the extent any
such payment is ultimately held to be improper, the persons receiving such
payments shall promptly refund them and (ii) such persons shall provide to the
Company, upon request, reasonable assurances of their ability to effect any
refund, when and if due.
(b) In addition to their other obligations under Section
9 of this Agreement, the Underwriters hereby agree to reimburse on a quarterly
basis the Company for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in paragraph (b) of
Section 9 of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 11 and the possibility that such payments might later be held to
be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the Company shall promptly refund it and (ii)
the Company shall provide to the Underwriter, upon request, reasonable
assurances of its ability to effect any refund, when and if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of the Company and the several Underwriters and,
with respect to the provisions of Section 9 hereof, the several parties (in
addition to the Company and the several Underwriters) indemnified under the
provisions of said Section 9, and their respective personal representatives,
successors and assigns. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any
provision herein contained. The term "successors and assigns" as herein used
shall not include any purchaser, as such purchaser, of any of the Shares from
any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters,
shall be mailed, telegraphed or delivered to UBS Securities LLC, 299 Park
Avenue, New York, New York 10171, Attention: Mr. Richard Messina; and if to
the Company, shall be mailed, telegraphed or delivered to it at its office,
Gateway
33
<PAGE> 34
North, Building 2, 3325 South 116th Street, Seattle, Washington 98168-1974,
Attention: John M. Hemingway, Secretary and Chief Financial Officer. All
notices given by telegraph shall be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and
effect regardless of (i) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its respective directors of officers, and (ii) delivery of and payment for the
Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
You will act as Representatives of the several Underwriters in all
dealings with the Company under this Agreement, and any action under or in
respect of this Agreement taken by you jointly or by UBS Securities LLC, as
Representatives, will be binding upon all of the Underwriters.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.
[INTENTIONALLY LEFT BLANK]
34
<PAGE> 35
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very truly yours,
INNOVA CORPORATION
By: __________________________________
Jean-Francois Grenon
President and Chief
Executive Officer
The foregoing Agreement
is hereby confirmed and
accepted as of the date
first above written.
UBS SECURITIES LLC
HAMBRECHT & QUIST LLC
WESSELS, ARNOLD & HENDERSON, LLC
By: UBS SECURITIES LLC
By: __________________________________
Title:____________________________
Acting on behalf of the several
Underwriters, including themselves,
named on Schedule A hereto.
35
<PAGE> 36
SCHEDULE A
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Shares
to be
Underwriters Purchased
------------ ---------
<S> <C>
UBS Securities LLC. . . . . . . . . . . . . . . .
Hambrecht & Quist LLC . . . . . . . . . . . . . .
Wessels, Arnold & Henderson L.L.C . . . . . . . .
Total [ ]
==========
</TABLE>
<PAGE> 37
SCHEDULE B
Lock-Up Agreements
[TO BE SUPPLIED]
<PAGE> 38
APPENDIX A
[TO BE SUPPLIED]
<PAGE> 1
SECOND RESTATED
ARTICLES OF INCORPORATION
OF
INNOVA CORPORATION
ARTICLE I.
Name.
The name of the corporation is Innova Corporation.
ARTICLE II.
Authorized Shares.
2.1 The corporation is authorized to issue a total of 25,000,000
shares of two classes of stock with a par value of $.01 per share: 20,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock. Holders of
Common Stock are entitled to one vote per share on any matter on which holders
of Common Stock are entitled to vote. On dissolution of the corporation, after
any preferential amount with respect to the Preferred Stock has been paid or
set aside, the holders of Common Stock and the holders of any series of
Preferred Stock entitled to participate further in the distribution of assets
are entitled to receive the net assets of the corporation.
2.2 The Board of Directors is authorized, subject to limitations
prescribed by the Washington Business Corporation Act (the "Act") and by the
provisions of this Article II, to provide for the issuance of shares of
Preferred Stock in series, to establish from time to time the number of shares
to be included in each series and to determine the designations, relative
rights, preferences and limitations of the shares of each series. The
authority of the Board of Directors with respect to each series includes
determination of the following:
2.2.1 The number of shares in and the distinguishing
designation of that series.
2.2.2 Whether shares of that series shall have full,
special, conditional, limited or no voting rights, except to the extent
otherwise provided by the Act.
2.2.3 Whether shares of that series shall be convertible
and the terms and conditions of the conversion, including provision for
adjustment of the conversion rate in circumstances determined by the Board of
Directors.
1
<PAGE> 2
2.2.4 Whether shares of that series shall be redeemable and
the terms and conditions of redemption, including the date or dates upon or
after which they shall be redeemable and the amount per share payable in case
of redemption, which amount may vary under different conditions or at different
redemption dates.
2.2.5 The dividend rate, if any, on shares of that series,
the manner of calculating any dividends and the preference of any dividends.
2.2.6 The rights of shares of that series in the event of
voluntary or involuntary dissolution of the corporation and the rights of
priority of that series relative to the Common Stock and any other series of
Preferred Stock on the distribution of assets on dissolution.
2.2.7 Any other rights, preferences and limitations of that
series that are permitted by the Act.
Within any limits stated in these Articles or in the resolution of the
Board of Directors establishing a series, the Board of Directors, after the
issuance of shares of a series, may amend the resolution establishing the
series to decrease (but not below the number of shares of such series then
outstanding) the number of shares of that series, and the number of shares
constituting the decrease shall thereafter constitute authorized but
undesignated shares, and the Board of Directors may amend the rights and
preferences of the shares of any series that has been established but is wholly
unissued.
The authority herein granted to the Board of Directors to determine
the relative rights and preferences of the preferred stock shall be limited to
unissued shares, and no power shall exist to alter or change the rights and
preferences of any shares that have been issued.
2.3 The Board of Directors shall have the authority to issue
shares of the capital stock of this corporation and the certificates therefor
subject to such transfer restrictions and other limitations as it may deem
necessary to promote compliance with applicable federal and state securities
laws, and to regulate the transfer thereof in such manner as may be calculated
to promote such compliance or to further any other reasonable purpose.
2.4 At any time when the corporation is subject to the reporting
requirements of Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended, special meetings of the shareholders for any purpose or
purposes may be called only by the Board of Directors or the Chairman of the
Board (if one be appointed) or the President or one or more shareholders
holding
2
<PAGE> 3
shares representing not less than twenty-five percent (25%) of all the votes
entitled to be cast on any issue proposed to be considered at that meeting.
A quorum shall exist at any meeting of shareholders if a majority of
the votes entitled to be cast is represented in person or by proxy. In the
case of any meeting of shareholders that is adjourned more than once because of
the failure of a quorum to attend, those who attend the third convening of such
meeting, although less than a quorum, shall nevertheless constitute a quorum
for the purpose of electing directors, provided that the percentage of shares
represented at the third convening of such meeting shall not be less than
one-third of the shares entitled to vote.
2.5 Except as otherwise specifically provided herein and subject
to the limitations set forth in RCW 23B.19.040, to the extent applicable:
2.5.1 The corporation may enter into contracts and
otherwise transact business as vendor, purchaser, lender, borrower, or
otherwise with its shareholders and with corporations, associations, firms, and
entities in which they are or may be or become interested as directors,
officers, shareholders, members, or otherwise.
2.5.2 Any such contract or transaction shall not be
affected or invalidated or give rise to liability by reason of the
shareholder's having an interest in the contract or transaction.
2.6 Subject to the requirements of RCW 23B.08.730 and RCW
23B.19.040, any contract, transaction, or act of the corporation or of any
director or officer of the corporation that shall be authorized, approved, or
ratified by the affirmative vote of a majority of shares represented at a
meeting at which a quorum is present shall, insofar as permitted by law, be as
valid and as binding as though ratified by every shareholder of the
corporation.
ARTICLE III.
Directors.
3.1 Subject to the provisions of Article II hereof, the number of
directors of the corporation and the manner in which such directors are to be
elected shall be as set forth in the Bylaws.
3.2 Subject to the limitation(s) of RCW 23B.10.210, and subject to
the power of the shareholders of the corporation to change or repeal the
Bylaws, the Board of Directors shall have the power to amend or repeal the
Bylaws, or adopt new Bylaws for this corporation, as provided in the Bylaws.
3
<PAGE> 4
3.3 Subject to the limitations set forth in RCW 23B.08.700 through
RCW 23B.08.730:
3.3.1 The corporation may enter into contracts and
otherwise transact business as vendor, purchaser, lender, borrower, or
otherwise with its directors and with corporations, associations, firms, and
entities in which they are or may be or become interested as directors,
officers, shareholders, members, or otherwise.
3.3.2 Any such contract or transaction shall not be
affected or invalidated or give rise to liability by reason of the director's
having an interest in the contract or transaction.
ARTICLE IV.
Shareholder Rights.
4.1 No Preemptive Rights. No shareholder of this corporation
shall have, solely by reason of being a shareholder, any preemptive or
preferential right or subscription right to any stock of this corporation or to
any obligations convertible into stock of this corporation, or to any warrant
or option for the purchase thereof, except to the extent provided by resolution
or resolutions of the Board of Directors establishing a series of Preferred
Stock or by written agreement with this corporation.
4.2 No Cumulative Voting. In any election for directors of the
corporation, a holder of shares of any class or series of stock then entitled
to vote has the right to vote in person or by proxy the number of shares of
stock held thereby for as many persons as there are directors to be elected.
No cumulative voting for directors shall be permitted.
4.3 Vote Required for Merger, Share Exchange, Sale of Assets and
Dissolution. The approval of any plan of merger, plan of share exchange, sale,
lease, exchange or other disposition of all, or substantially all, of the
corporation's property otherwise than in the usual and regular course of
business, or proposal to dissolve, shall require the affirmative vote of the
holders of not less than a majority of all outstanding shares of capital stock
of the corporation entitled to vote generally in the election of directors of
the corporation. At any time when the corporation is subject to the reporting
requirements of Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended, pursuant to the authority granted under RCW 23B.10.030, RCW
23B.11.030, RCW 23B.12.020, and RCW 23B.14.020, the vote of shareholders of
this corporation required in order to approve amendments to the Articles of
Incorporation, a plan of merger or share exchange, the sale, lease, exchange,
or other disposition of all or substantially all
4
<PAGE> 5
of the property of the corporation not in the usual and regular course of
business, or dissolution of the corporation shall be a majority of all of the
votes entitled to be cast by each voting group, regardless of whether or not
the corporation is a "public company," as that term is defined in Section
23B.01.400 of the Act.
ARTICLE V.
Indemnification and Liability of Officers,
Directors, Employees and Agents.
5.1 Indemnification. The corporation shall indemnify, in the
manner and to the full extent permitted by law, any person (or the estate of
any person) who was or is a party to, or is threatened to be made a party to
any threatened, pending or complete action, suit or proceeding, whether or not
by or in the right of the corporation, and whether civil, criminal,
administrative, investigative or otherwise, by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The corporation may, to the full extent permitted by law,
purchase and maintain insurance on behalf of any such person against any
liability which may be asserted against such person. To the full extent
permitted by law, the indemnification provided herein shall include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement,
and, in the manner provided by law, any such expenses may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding. The indemnification provided herein shall not be deemed to limit
the right of the corporation to indemnify any other person for any such
expenses to the full extent permitted by law, nor shall it be deemed exclusive
of any other rights to which any person seeking indemnification from the
corporation may be entitled under any agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
5.2 Limitation on Liability of Directors. No director of the
corporation shall be personally liable to the corporation or its shareholders
for monetary damages for his conduct as a director, except for (i) acts or
omissions that involve intentional misconduct or a knowing violation of law by
the director, (ii) approval of distributions or loans in violation of RCW
23B.08.310, or (iii) any transaction from which the director will personally
receive a benefit in money, property or services to which the director is not
legally entitled. If the Washington Business Corporation Act is hereafter
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted by
the Washington Business Corporation Act, as so amended. Any
5
<PAGE> 6
amendment to or repeal of this Article shall not adversely affect any right or
protection of a director of the corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
ARTICLE VI.
Executive Committee
If no Liquidity Event has occurred by May 20, 1998, an executive
committee (the "Executive Committee") shall be formed comprised of then members
of the Board of Directors, excluding (a) management, (b) management designees
and (c) family members or individuals having a business or professional
relationship with the corporation, management or any management designees. The
Executive Committee shall, by majority vote of its members have all he right
and authority of the Board of Directors to manage the sale process of the
corporation, whether by merger, sale of assets or otherwise. The Executive
Committee is not being created as a committee of the Board of Directors but
rather as an independent body pursuant to Section 23B.08.010 of the Washington
Business Corporation Act; accordingly, the Executive Committee shall have
exclusive authority for the matters described in the preceding sentence and the
Board of Directors shall have no authority for such matters.
ARTICLE VII.
Amendment of Articles.
These Articles of Incorporation may be amended with the approval of
each voting group entitled to vote separately thereon by a majority of all
votes entitled to be cast by that voting group. The holders of the outstanding
shares of a class are entitled to vote as a separate voting group on a proposed
amendment to these Articles of Incorporation if the amendment would:
7.1 Increase of decrease the aggregate number of authorized shares
of the class;
7.2 Effect an exchange or reclassification of all or part of the
shares of the class into shares of another class;
7.3 Effect an exchange or reclassification, or crease the right of
exchange, of all or part of the shares of another class into shares of the
class;
7.4 Change the designation, rights, preferences, or limitations of
all or part of the shares of the class;
6
<PAGE> 7
7.5 Change the shares of all or part of the class into a different
number of shares of the same class;
7.6 Create a new class of shares having rights or preferences with
respect to distributions or to dissolution that are prior, superior, or
substantially equal to the shares of the class;
7.7 Increase the rights, preferences, or number of authorized
shares of any class that, after giving effect to the amendment, have rights or
preferences with respect to distributions or to dissolution that are prior,
superior, or substantially equal to the shares of the class;
7.8 Limit or deny an existing preemptive right of all or part of
the shares of the class; or
7.9 Cancel or otherwise affect rights to distributions or
dividends that have accumulated but not yet been declared on all or part of the
shares of the class.
ARTICLE VIII.
OTHER MATTERS
8.1 Except as otherwise provided in these Articles, as amended
from time to time, the corporation reserves the right to amend, alter, change
or repeal any provisions contained in these Articles in any manner now or
hereafter prescribed or permitted by statute.
8.2 The corporation shall have authority to correct clerical
errors in any documents filed with the Secretary of State of Washington,
including these Articles or any amendments hereto, without the necessity of
special shareholder approval of such corrections.
DATED: ________________, 1997.
________________________________________
John M. Hemingway, Chief Financial
Officer and Secretary
7
<PAGE> 1
AMENDED AND RESTATED BYLAWS
OF
INNOVA CORPORATION
<PAGE> 2
AMENDED AND RESTATED BYLAWS
OF
INNOVA CORPORATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Special Meetings . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Notice of Meetings . . . . . . . . . . . . . . . . . . . . . 3
1.4 Quorum; Vote Requirement . . . . . . . . . . . . . . . . . . 5
1.5 Adjourned Meetings . . . . . . . . . . . . . . . . . . . . . 5
1.6 Fixing Record Date . . . . . . . . . . . . . . . . . . . . . 6
1.7 Shareholders' List for Meeting . . . . . . . . . . . . . . . 6
1.8 Ratification . . . . . . . . . . . . . . . . . . . . . . . . 6
1.9 Action by Shareholders Without a Meeting . . . . . . . . . . 7
1.10 Telephonic Meetings . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE II BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 Responsibility of Board of Directors . . . . . . . . . . . . 7
2.2 Number of Directors; Qualification . . . . . . . . . . . . . 8
2.3 Election of Directors; Nominations . . . . . . . . . . . . . 8
2.4 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6 Resignation . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.7 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . 11
2.8 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . 11
2.9 Special Meetings . . . . . . . . . . . . . . . . . . . . . . 11
2.10 Notice of Meeting . . . . . . . . . . . . . . . . . . . . . . 11
2.11 Quorum of Directors . . . . . . . . . . . . . . . . . . . . . 12
2.12 Dissent by Directors . . . . . . . . . . . . . . . . . . . . 13
2.13 Action by Directors Without a Meeting . . . . . . . . . . . . 13
2.14 Telephonic Meetings . . . . . . . . . . . . . . . . . . . . . 13
2.15 Compensation . . . . . . . . . . . . . . . . . . . . . . . . 13
2.16 Committees . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE III OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . 15
3.3 Officers Enumerated . . . . . . . . . . . . . . . . . . . . . 15
3.4 Delegation . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.5 Resignation . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.6 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.7 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.8 Other Officers and Agents . . . . . . . . . . . . . . . . . . 18
3.9 Compensation . . . . . . . . . . . . . . . . . . . . . . . . 18
3.10 General Standards for Officers . . . . . . . . . . . . . . . 18
ARTICLE IV CONTRACTS, CHECKS AND DRAFTS . . . . . . . . . . . . . . . . . . . 18
4.1 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.2 Checks, Drafts, Etc. . . . . . . . . . . . . . . . . . . . 18
4.3 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE V STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1 Issuance of Shares . . . . . . . . . . . . . . . . . . . . . 19
5.2 Certificates of Stock . . . . . . . . . . . . . . . . . . . . 19
5.3 Stock Records . . . . . . . . . . . . . . . . . . . . . . . . 20
5.4 Restrictions on Transfer . . . . . . . . . . . . . . . . . . 20
5.5 Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VI RECORDS OF CORPORATE MEETINGS . . . . . . . . . . . . . . . . . . . 21
ARTICLE VII FINANCIAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IX CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE X INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.2 Mandatory Indemnification . . . . . . . . . . . . . . . . . . 22
10.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.4 Changes in Law . . . . . . . . . . . . . . . . . . . . . . . 23
10.5 Exclusivity; Nature of Rights; Amendment . . . . . . . . . . 23
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE XI MISCELLANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.1 Communications by Facsimile . . . . . . . . . . . . . . . . . 24
11.2 Inspector of Elections . . . . . . . . . . . . . . . . . . . 24
11.3 Rules of Order . . . . . . . . . . . . . . . . . . . . . . . 24
11.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . 25
11.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE XII AMENDMENT OF BYLAWS . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XIII AUTHENTICATION . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
iii
<PAGE> 5
AMENDED AND RESTATED BYLAWS
OF
INNOVA CORPORATION
These Bylaws are promulgated pursuant to the Washington Business
Corporation Act, as set forth in Title 23B of the Revised Code of Washington
(the "Act").
ARTICLE I
SHAREHOLDERS
1.1 ANNUAL MEETING.
1.1.1 TIME AND PLACE OF MEETING. The annual meeting of
the shareholders of the corporation for the election of directors and for the
transaction of such other business as may properly come before the meeting
shall be held each year at a place, day, and time to be set by the Board of
Directors.
1.1.2 BUSINESS CONDUCTED AT MEETING.
(a) At an annual meeting of shareholders, an
item of business may be conducted, and a proposal may be considered and acted
upon, only if such item or proposal is brought before the meeting (i) by, or at
the direction of, the Board of Directors, or (ii) by any shareholder of the
corporation who is entitled to vote at the meeting and who complies with the
procedures set forth in the remainder of this Section 1.1.2. This Section 1.1.2
shall not apply to matters of procedure that, pursuant to Section 11.3(a) of
these Bylaws, are subject to the authority of the chairman of the meeting.
(b) For an item of business or proposal to be brought
before an annual meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a shareholder's notice must be delivered to, or mailed and received at,
the principal office of the corporation not less than seventy (70) days prior
to the date scheduled for the meeting (regardless of any postponements,
deferrals or adjournments of that meeting to a later date), or, if notice or
public disclosure of the date scheduled for the meeting is not given or made at
least eighty (80) days prior thereto, not more than ten (10) days following the
day on which notice of the date scheduled for the
1
<PAGE> 6
meeting is mailed or the day on which disclosure of that date is made,
whichever is earlier.
(c) A shareholder's notice to the Secretary under
Section 1.1.2(b) shall set forth, as to each item of business or proposal the
shareholder intends to bring before the meeting (i) a brief description of the
item of business or proposal and the reasons for bringing it before the
meeting, (ii) the name and address, as they appear on the corporation's books,
of the shareholder and of any other shareholders that the shareholder knows or
anticipates will support the item of business or proposal, (iii) the number and
class of shares of stock of the corporation that are beneficially owned on the
date of such notice by the shareholder and by any such other shareholders, and
(iv) any financial interest of the shareholder or any such other shareholders
in such item of business or proposal.
(d) The Board of Directors, or a designated committee
thereof, may reject a shareholder's notice that is not timely given in
accordance with the terms of Section 1.1.2(b). If the Board of Directors, or a
designated committee thereof, determines that the information provided in a
shareholder's notice does not satisfy the requirements of Section 1.1.2(c) in
any material respect, the Secretary of the corporation shall notify the
shareholder of the deficiency in the notice. The shareholder shall have an
opportunity to cure the deficiency by providing additional information to the
Secretary within such period of time, not to exceed five (5) days from the date
such deficiency notice is given to the shareholder, as the Board of Directors
or such committee shall reasonably determine. If the deficiency is not cured
within such period, or if the Board of Directors or such committee determines
that the additional information provided by the shareholder, together with
information previously provided, does not satisfy the requirements of Section
1.1.2(c) in any material respect, then the Board of Directors or such committee
may reject the shareholder's notice.
(e) Notwithstanding the procedures set forth in
Section 1.1.2(d), if a shareholder desires to bring an item of business or
proposal before an annual meeting, and neither the Board of Directors nor any
committee thereof has made a prior determination of whether the shareholder has
complied with the procedures set forth in this Section 1.1.2 in connection with
such item of business or proposal, then the chairman of the meeting shall
determine and declare at the meeting whether the shareholder has so complied.
If the chairman determines that the shareholder has so complied, then the
chairman shall so state and ballots shall be provided for use at the meeting
with respect to such item of business or proposal. If the chairman determines
that the shareholder has not so complied, then, unless the chairman, in his
sole and absolute discretion, determines to waive such compliance, the chairman
shall state that the shareholder has not so complied and the item of business
or proposal shall not be brought before the meeting.
2
<PAGE> 7
(f) This Section 1.1.2 shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors and committees of the Board of Directors, but, in
connection with such reports, no item of business may be conducted, and no
proposal may be considered and acted upon, unless there has been compliance
with the procedures set forth in this Section 1.1.2 in connection therewith.
1.2 SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes may be called at any time by the Board of Directors or by
the Chairman of the Board (if one be appointed) or by the President or by one
or more shareholders holding shares representing not less than one-tenth (1/10)
of all the votes entitled to be cast on any issue proposed to be considered at
that meeting, to be held at such time and place as the Board or the Chairman
(if one be appointed) or the President may prescribe; provided, that, at any
time when the corporation is subject to the reporting requirements of Section
13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), special meetings of the shareholders for any purpose or
purposes may be called at any time only by the Board of Directors or the
Chairman of the Board (if one be appointed) or the President or one or more
shareholders holding shares representing not less than twenty- five percent
(25%) of all the votes entitled to be cast on any issue proposed to be
considered at that meeting.
Subject to the requirements of Section 2.3.2 if the purpose of the
special meeting is the election of directors, if a special meeting is called by
any person or persons other than the Board of Directors or the Chairman of the
Board (if one be appointed) or the President, then a written demand, describing
with reasonable clarity the purpose or purposes for which the meeting is called
and specifying the general nature of the business proposed to be transacted,
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Secretary of the corporation. Upon receipt
of such a demand, the Secretary shall cause notice of such meeting to be given,
within thirty (30) days after the date the demand was delivered to the
Secretary, to the shareholders entitled to vote, in accordance with the
provisions of Section 1.3 of these Bylaws.
1.3 NOTICE OF MEETINGS. Except as otherwise provided below, the
Secretary, Assistant Secretary, or any transfer agent of the corporation shall
give, in any manner permitted by law, not less than ten (10) nor more than
sixty (60) days before the date of any meeting of shareholders, written notice
stating the place, day, and time of the meeting to each shareholder of record
entitled to vote at such meeting. If mailed, notice to a shareholder with
first-class postage prepaid, correctly addressed to the shareholder at the
shareholder's address as it appears on the current record of shareholders of
the corporation, shall be effective when mailed. Otherwise, written notice
shall be effective at the earliest of the following: (a) when received or (b)
on the date shown on the return receipt, if sent by
3
<PAGE> 8
registered or certified mail, return receipt requested, and the receipt is
signed by or on behalf of the addressee.
1.3.1 NOTICE OF SPECIAL MEETING. In the case of a special
meeting, the written notice shall also state with reasonable clarity the
purpose or purposes for which the meeting is called and the general nature of
the business proposed to be transacted at the meeting. No business other than
that within the purpose or purposes specified in the notice may be transacted
at a special meeting.
1.3.2 PROPOSED ARTICLES OF AMENDMENT, MERGER, EXCHANGE, SALE,
LEASE, OR DISPOSITION. If the business to be conducted at any meeting includes
any proposed amendment to the Articles of Incorporation or any proposed merger
or exchange of shares, or any proposed sale, lease, exchange, or other
disposition of all or substantially all of the property and assets (with or
without the goodwill) of the corporation not in the usual or regular course of
its business, then the written notice shall state that the purpose or one of
the purposes is to consider the proposed amendment or plan of merger, exchange
of shares, sale, lease, exchange, or other disposition, as the case may be,
shall describe the proposed action with reasonable clarity, and shall be
accompanied by a copy of the proposed amendment or plan. Written notice of such
meeting shall be given to each shareholder of record, whether or not entitled
to vote at such meeting, not less than twenty (20) days before such meeting, in
the manner provided in Section 1.3 above.
1.3.3 PROPOSED DISSOLUTION. If the business to be conducted
at any meeting includes the proposed voluntary dissolution of the corporation,
then the written notice shall state that the purpose or one of the purposes is
to consider the advisability thereof. Written notice of such meeting shall be
given to each shareholder of record, whether or not entitled to vote at such
meeting, not less than twenty (20) days before such meeting, in the manner
provided in Section 1.3 above.
1.3.4 DECLARATION OF MAILING. A declaration of the mailing or
other means of giving any notice of any shareholders' meeting, executed by the
Secretary, Assistant Secretary, or any transfer or other agent of the
corporation giving notice on its behalf, shall be prima facie evidence of the
giving of such notice.
1.3.5 WAIVER OF NOTICE. A shareholder may waive notice of any
meeting at any time, either before or after such meeting. Except as provided
below, the waiver must be in writing, be signed by the shareholder entitled to
the notice, and be delivered to the corporation for inclusion in the minutes or
filing with the corporate records. A shareholder's attendance at a meeting in
person or by proxy waives objection to lack of notice or defective notice of
the meeting unless the
4
<PAGE> 9
shareholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting on the ground that the meeting is not
lawfully called or convened. In the case of a special meeting, or an annual
meeting at which fundamental corporate changes are considered, a shareholder
waives objection to consideration of a particular matter that is not within the
purpose or purposes described in the meeting notice unless the shareholder
objects to considering the matter when it is presented.
1.4 QUORUM; VOTE REQUIREMENT. A quorum shall exist at any meeting of
shareholders if a majority of the votes entitled to be cast is represented in
person or by proxy. Once a share is represented for any purpose at a meeting
other than solely to object to holding the meeting or transacting business at
the meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is or
must be set for that adjourned meeting. Subject to the foregoing, the
determination of the voting groups entitled to vote (as required by law), and
the quorum and voting requirements applicable thereto, must be made separately
for each matter being considered at a meeting. In the case of any meeting of
shareholders that is adjourned more than once because of the failure of a
quorum to attend, those who attend the third convening of such meeting,
although less than a quorum, shall nevertheless constitute a quorum for the
purpose of electing directors, provided that the percentage of shares
represented at the third convening of such meeting shall not be less than
one-third of the shares entitled to vote.
If a quorum exists, action on a matter (other than the election of
directors) is approved by a voting group if the votes cast within the voting
group favoring the action exceed the votes cast within the voting group
opposing the action unless a greater number of affirmative votes is required by
law or by the Articles of Incorporation.
1.5 ADJOURNED MEETINGS. An adjournment or adjournments of any
shareholders' meeting, whether by reason of the failure of a quorum to attend
or otherwise, may be taken to such date, time, and place as the chairman of the
meeting may determine without new notice being given if the date, time, and
place are announced at the meeting at which the adjournment is taken. However,
if the adjournment is for more than one hundred twenty (120) days from the date
set for the original meeting, a new record date for the adjourned meeting shall
be fixed and a new notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting, in accordance
with the provisions of Section 1.3 of these Bylaws. At any adjourned meeting,
the corporation may transact any business which might have been transacted at
the original meeting. Any meeting at which directors are to be elected shall be
adjourned only from day to day until such directors are elected.
5
<PAGE> 10
1.6 FIXING RECORD DATE. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders (or, subject to
Section 1.5 above, any adjournment thereof), the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than seventy (70) days prior to the
meeting. If no such record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, then the day
before the first notice is delivered to shareholders shall be the record date
for such determination of shareholders. If no notice is given because all
shareholders entitled to notice have waived notice, then the record date for
the determination of shareholders entitled to notice of or to vote at a meeting
shall be the date on which the last such waiver of notice was obtained or the
date of the meeting, if earlier. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment thereof, except as
provided in Section 1.5 of these Bylaws. If no notice is given because all
shareholders entitled to notice have signed a consent as described in Section
1.9 below, the record date for determining shareholders entitled to take action
without a meeting is the date the first shareholder signs the consent.
1.7 SHAREHOLDERS' LIST FOR MEETING. The corporation shall cause to be
prepared an alphabetical list of the names of all of its shareholders on the
record date who are entitled to notice of a shareholders' meeting or any
adjournment thereof. The list must be arranged by voting group (and within each
voting group by class or series of shares) and show the address of and the
number of shares held by each shareholder. The shareholders' list must be
available for inspection by any shareholder, beginning ten (10) days prior to
the meeting and continuing through the meeting, at the principal office of the
corporation or at a place identified in the meeting notice in the city where
the meeting will be held. Such list shall be produced and kept open at the time
and place of the meeting. During such ten-day period, and during the whole time
of the meeting, the shareholders' list shall be subject to the inspection of
any shareholder, or the shareholder's agent or attorney. In cases where the
record date is fewer than ten (10) days prior to the meeting because notice has
been waived by all shareholders, the Secretary shall keep such record available
for a period from the date the first waiver of notice was delivered to the date
of the meeting. Failure to comply with the requirements of this section shall
not affect the validity of any action taken at the meeting.
1.8 RATIFICATION. Subject to the requirements of RCW 23B.08.730 and
23B.19.040, any contract, transaction, or act of the corporation or of any
director or officer of the corporation that shall be authorized, approved, or
ratified by the affirmative vote of a majority of shares represented at a
meeting at which a quorum is present shall, insofar as permitted by law, be as
valid and as binding as though ratified by every shareholder of the
corporation.
6
<PAGE> 11
1.9 ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action which may be
or which is required by law to be taken at any meeting of shareholders may be
taken, without a meeting or notice of a meeting, if one or more consents in
writing, setting forth the action so taken, are signed by all of the
shareholders entitled to vote or, in the place of any one or more of such
shareholders, by a person holding a valid proxy to vote with respect to the
subject matter thereof, and are delivered to the corporation for inclusion in
the minutes or filing with the corporate records. If notice of the proposed
action to be taken by unanimous consent of the voting shareholders is required
by law to be given to nonvoting shareholders, the corporation must give its
nonvoting shareholders written notice of the proposed action at least ten (10)
days before the action is taken. The notice must contain or be accompanied by
the same material that, by law, would have been required to be sent to
nonvoting shareholders in a notice of meeting at which the proposed action
would have been submitted to such shareholders for action. Action taken by
unanimous written consent is effective when all consents are in possession of
the corporation, unless the consent specifies a later effective date. Such
consent shall have the same force and effect as a meeting vote of shareholders
and may be described as such in any articles or other document filed with the
Secretary of State of the State of Washington.
1.10 TELEPHONIC MEETINGS. Shareholders may participate in a meeting by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time, and participation by such means shall constitute presence in person at a
meeting.
ARTICLE II
BOARD OF DIRECTORS
2.1 RESPONSIBILITY OF BOARD OF DIRECTORS. The business and affairs
and property of the corporation shall be managed under the direction of a Board
of Directors. A director shall discharge the duties of a director, including
duties as a member of a committee, in good faith, with the care an ordinarily
prudent person in a like position would exercise under similar circumstances,
and in a manner the director reasonably believes to be in the best interests of
the corporation. In discharging the duties of a director, a director is
entitled to rely on information, opinions, reports, or statements, including
financial statements and other financial data, if prepared or presented by:
(a) one or more officers or employees of the corporation whom the director
reasonably believes to be reliable and competent in the matters presented; (b)
legal counsel, public accountants, or other persons as to matters the director
reasonably believes are within the person's professional or expert competence;
or (c) a committee of the Board of Directors of which the
7
<PAGE> 12
director is not a member, if the director reasonably believes the committee
merits confidence. A director is not acting in good faith if the director has
knowledge concerning the matter in question that makes reliance otherwise
permitted above unwarranted. The creation of, delegation of authority to, or
action by a committee does not alone constitute compliance by a director with
the standards of conduct imposed by law upon directors. A director is not
liable for any action taken as a director, or any failure to take any action,
if the director performed the duties of the director's office in compliance
with this section.
2.2 NUMBER OF DIRECTORS; QUALIFICATION. The exact number of directors
of the corporation shall be six (6) until amended in accordance with these
Bylaws. No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
No director need be a shareholder of the corporation or a resident of
Washington. Each director must be at least eighteen (18) years of age.
2.3 ELECTION OF DIRECTORS; NOMINATIONS.
2.3.1 ELECTION AND TERM OF OFFICE. At each annual meeting of
shareholders, the shareholders shall elect directors. Directors may also be
elected at a special meeting of shareholders called specifically for that
purpose. Each director so elected shall hold office until the next annual
meeting of shareholders or, in the case of staggered terms as permitted by RCW
23B.08.060, for the term for which he is elected, and in each case until his
successor shall have been elected and qualified.
2.3.2 NOMINATIONS FOR DIRECTORS.
(a) Nominations of candidates for election as
directors at an annual or special meeting of shareholders may only be made (i)
by, or at the direction of, the Board of Directors, or (ii) by any shareholder
of the corporation who is entitled to vote at the meeting and who complies with
the procedures set forth in the remainder of this Section 2.3.2.
(b) If a shareholder proposes to nominate one or more
candidates for election as directors at an annual or special meeting, the
shareholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a shareholder's notice must be delivered to,
or mailed and received at, the principal office of the corporation not less
than seventy (70) days prior to the date scheduled for the meeting (regardless
of any postponements, deferrals or adjournments of that meeting to a later
date), or, if notice or public disclosure of the date scheduled for the meeting
is not given or made at least eighty (80) days prior thereto, not more than ten
(10) days following the day on
8
<PAGE> 13
which notice of the date scheduled for the meeting is mailed or the day on
which disclosure of that date is made, whichever is earlier.
(c) A shareholder's notice to the Secretary under
Section 2.3.2(b) shall set forth, as to each person whom the shareholder
proposes to nominate for 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 number and class of shares of stock of the
corporation that are beneficially owned on the date of such notice by such
person, and (iv) if the corporation at such time has any security registered
pursuant to Section 12 of the Exchange Act, any other information relating to
such person required to be disclosed in solicitations of proxies with respect
to nominees for election as directors pursuant to Regulation 14A under the
Exchange Act, including but not limited to information required to be disclosed
by Schedule 14A of Regulation 14A, and any other information that the
shareholder would be required to file with the Securities and Exchange
Commission in connection with the shareholder's nomination of such person as a
candidate for director or the shareholder's opposition to any candidate for
director nominated by, or at the direction of, the Board of Directors. In
addition to the above information, a shareholder's notice to the Secretary
under Section 2.3.2(b) shall (A) set forth (i) the name and address, as they
appear on the corporation's books, of the shareholder and of any other
shareholders that the shareholder knows or anticipates will support any
candidate or candidates nominated by the shareholder, and (ii) the number and
class of shares of stock of the corporation that are beneficially owned on the
date of such notice by the shareholder and by any such other shareholders, and
(B) be accompanied by a written statement, signed and acknowledged by each
candidate nominated by the shareholder, that the candidate agrees to be so
nominated and to serve as a director of the corporation if elected at the
meeting.
(d) The Board of Directors, or a designated committee
thereof, may reject any shareholder's nomination of one or more candidates for
election as directors if the nomination is not made pursuant to a shareholder's
notice timely given in accordance with the terms of Section 2.3.2(b). If the
Board of Directors, or a designated committee thereof, determines that the
information provided in a shareholder's notice does not satisfy the
requirements of Section 2.3.2(c) in any material respect, the Secretary of the
corporation shall notify the shareholder of the deficiency in the notice. The
shareholder shall have an opportunity to cure the deficiency by providing
additional information to the Secretary within such period of time, not to
exceed five (5) days from the date such deficiency notice is given to the
shareholder, as the Board of Directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the Board
of Directors or such committee determines that the additional information
provided by the shareholder, together with information previously provided,
does not satisfy the
9
<PAGE> 14
requirements of Section 2.3.2(c) in any material respect, then the Board of
Directors or such committee may reject the shareholder's notice.
(e) Notwithstanding the procedures set forth in
Section 2.3.2(d), if a shareholder proposes to nominate one or more candidates
for election as directors at an annual or special meeting, and neither the
Board of Directors nor any committee thereof has made a prior determination of
whether the shareholder has complied with the procedures set forth in this
Section 2.3.2 in connection with such nomination, then the chairman of the
meeting shall determine and declare at the meeting whether the shareholder has
so complied. If the chairman determines that the shareholder has so complied,
then the chairman shall so state and ballots shall be provided for use at the
meeting with respect to such nomination. If the chairman determines that the
shareholder has not so complied, then, unless the chairman, in his sole and
absolute discretion, determines to waive such compliance, the chairman shall
state that the shareholder has not so complied and the defective nomination
shall be disregarded.
2.4 VACANCIES. Except as otherwise provided by the Articles of
Incorporation or by law, any vacancy occurring in the Board of Directors
(whether caused by resignation, death, or otherwise) may be filled by the
affirmative vote of a majority of the directors present at a meeting of the
Board at which a quorum is present, or, if the directors in office constitute
less than a quorum, by the affirmative vote of a majority of all of the
directors in office. Notice shall be given to all of the remaining directors
that such vacancy will be filled at the meeting. However, if the vacant
director's position was held by a director elected by one or more voting groups
composed of less than all of the voting shareholders, such vacancy may only be
filled by (i) the remaining directors, if any, elected by the same voting group
or groups; or (ii) the shareholders in the voting group or groups that elected
the director who formerly held the vacant office. A director elected to fill
any vacancy shall hold office until the next meeting of shareholders at which
directors are elected, and until his successor shall have been elected and
qualified.
2.5 REMOVAL. One or more members of the Board of Directors (including
the entire Board) may be removed, with or without cause, at a special meeting
of shareholders called expressly for that purpose. A director (or the entire
Board) may be removed if the number of votes cast in favor of removing such
director (or the entire Board) exceeds the number of votes cast against
removal; provided that, if a director (or the entire Board) has been elected by
one or more voting groups, only those voting groups may participate in the vote
as to removal. However, if the Articles of Incorporation grant shareholders
the right to cumulate their votes in the election of directors, a director may
not be removed if a number of votes sufficient to elect such director under
cumulative voting (computed on the basis of the number of votes actually cast
at the meeting on the question of removal) is cast against such director's
removal.
10
<PAGE> 15
2.6 RESIGNATION. A director may resign at any time by delivering
written notice to the Board of Directors, its Chairman, the President, or the
Secretary. A resignation is effective when the notice is delivered unless the
notice specifies a later effective date.
2.7 ANNUAL MEETING. The first meeting of each newly elected Board of
Directors shall be known as the annual meeting thereof and shall be held
without notice immediately after the annual shareholders' meeting or any
special shareholders' meeting at which a Board of Directors is elected. Such
meeting shall be held at the same place as such shareholders' meeting unless
some other place shall be specified by resolution of the shareholders.
2.8 REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held at such place, day, and time as shall from time to time be fixed by
resolution of the Board without notice other than the delivery of such
resolution as provided in Section 2.10 below.
2.9 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the President or the Chairman of the Board (if one be appointed)
or any two or more directors, to be held at such place, day, and time as
specified by the person or persons calling the meeting.
2.10 NOTICE OF MEETING. Notice of the place, day, and time of any
meeting of the Board of Directors for which notice is required shall be given,
at least two (2) days preceding the day on which the meeting is to be held, by
the Secretary or an Assistant Secretary, or by the person calling the meeting,
in any manner permitted by law, including orally. Any oral notice given by
personal communication over the telephone or otherwise may be communicated
either to the director or to a person at the office of the director who, the
person giving the notice has reason to believe, will promptly communicate it to
the director. Notice shall be deemed to have been given on the earliest of (a)
the day of actual receipt, (b) the date notice is sent by facsimile
transmission, (c) three (3) days after the day on which written notice is
deposited in the United States mail, as evidenced by the postmark, with
first-class postage prepaid and correctly addressed, or (d) on the date shown
on the return receipt, if sent by registered or certified mail, return receipt
requested, and the receipt is signed by or on behalf of the addressee.
No notice of any regular meeting need be given if the place, day, and
time thereof have been fixed by resolution of the Board of Directors and a copy
of such resolution has been given to each director, either by personally
delivering the copy to the director at least two (2) days, or by depositing the
copy in the United States mail with first-class postage prepaid and correctly
addressed to the director at the director's address as it appears on the
records of the corporation at least five (5)
11
<PAGE> 16
days (as evidenced by the postmark), prior to the day of the first meeting held
in pursuance thereof.
Notice of a meeting of the Board of Directors need not be given to any
director if it is waived by the director in writing, whether before or after
such meeting is held. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting unless required by law, the
Articles of Incorporation, or these Bylaws.
A director's attendance at or participation in a meeting shall
constitute a waiver of notice of such meeting except when a director attends or
participates in a meeting for the express purpose of objecting on legal grounds
prior to or at the beginning of the meeting (or promptly upon the director's
arrival) to the holding of the meeting or the transaction of any business and
does not thereafter vote for or assent to action taken at the meeting. Any
meeting of the Board of Directors shall be a legal meeting without any notice
thereof having been given if all of the directors have received valid notice
thereof, are present without objecting, or waive notice thereof, or any
combination thereof.
2.11 QUORUM OF DIRECTORS. Except in particular situations where a
lesser number is expressly permitted by law, and unless a greater number is
required by the Articles of Incorporation, a majority of the number of
directors specified in or fixed in accordance with these Bylaws shall
constitute a quorum for the transaction of business, and the affirmative vote
of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors. If the number of directors
in office at any time is less than the number specified in or fixed in
accordance with these Bylaws, then a quorum shall consist of a majority of the
number of directors in office; provided that in no event shall a quorum consist
of fewer than one-third of the number specified in or fixed in accordance with
these Bylaws.
Directors at a meeting of the Board of Directors at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, provided such withdrawal does not reduce the number of
directors attending the meeting below the level of a quorum.
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting of the Board of Directors to another time and
place. If the meeting is adjourned for more than forty-eight (48) hours, then
notice of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 2.10 of these
Bylaws, to the directors who were not present at the time of the adjournment.
12
<PAGE> 17
2.12 DISSENT BY DIRECTORS. Any director who is present at any meeting
of the Board of Directors at which action on any corporate matter is taken
shall be presumed to have assented to the action taken unless the director
objects at the beginning of the meeting (or promptly upon the director's
arrival) to the holding of, or the transaction of business at, the meeting; or
unless the director's dissent or abstention shall be entered in the minutes of
the meeting; or unless the director delivers written notice of the director's
dissent or abstention to the presiding officer of the meeting before the
adjournment thereof or to the corporation within a reasonable time after the
adjournment of the meeting. Such right to dissent or abstention shall not be
available to any director who votes in favor of such action.
2.13 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required by law
to be taken or which may be taken at a meeting of the Board of Directors may be
taken without a meeting if one or more consents in writing, setting forth the
action so taken, shall be signed either before or after the action so taken by
all of the directors and delivered to the corporation for inclusion in the
minutes or filing with the corporate records. Such consent shall have the same
effect as a meeting vote. Action taken under this section is effective when the
last director signs the consent, unless the consent specifies a later effective
date.
2.14 TELEPHONIC MEETINGS. Except as may be otherwise restricted by the
Articles of Incorporation, members of the Board of Directors may participate in
a meeting of the Board by any means of communication by which all directors
participating in the meeting may simultaneously hear each other during the
meeting. Participation by such means shall constitute presence in person at a
meeting.
2.15 COMPENSATION. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, and may be paid a fixed sum or a
stated salary as a director, for attendance at each meeting of the Board. No
such payment shall preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
2.16 COMMITTEES. The Board of Directors, by resolution adopted by the
greater of (a) a majority of all of the directors in office, or (b) the number
of directors required by the Articles of Incorporation or these Bylaws to take
action may from time to time create, and appoint individuals to, one or more
committees, each of which must have at least two (2) members. If a committee is
formed for the purpose of exercising functions of the Board, the committee must
consist solely of directors. If the only function of a committee is to study
and make recommendations for action by the full Board, the committee need not
consist of directors. Members of a committee composed solely of directors, in
fulfilling their standard of conduct, may rely upon Section 2.1 above.
Committees of directors may exercise the authority of the Board of Directors to
the extent specified by such
13
<PAGE> 18
resolution or in the Articles of Incorporation or these Bylaws. However, no
committee shall:
(a) authorize or approve a distribution (as defined in
RCW 23B.01.400) except according to a general formula or method prescribed by
the Board of Directors;
(b) approve or propose to shareholders action that by
law is required to be approved by shareholders;
(c) fill vacancies on the Board of Directors or on any
of its committees;
(d) amend the Articles of Incorporation;
(e) adopt, amend, or repeal Bylaws;
(f) approve a plan of merger not requiring shareholder
approval; or
(g) authorize or approve the issuance or sale or
contract for sale of shares, or determine the designation and relative rights,
preferences, and limitations of a class or series of shares, except that the
Board of Directors may authorize a committee of directors (or a senior
executive officer of the corporation) to do so within limits specifically
prescribed by the Board of Directors.
Committees shall be governed by the same provisions as govern the
meetings, actions without meetings, notice and waiver of notice, quorum and
voting requirements, and standards of conduct of the Board of Directors. The
Executive Committee (if one be established) shall meet periodically between
meetings of the full Board. All committees shall keep regular minutes of their
meetings and shall cause them to be recorded in books kept for that purpose at
the office of the corporation.
ARTICLE III
OFFICERS
3.1 APPOINTMENT. The officers of the corporation shall be appointed
annually by the Board of Directors at its annual meeting held after the annual
meeting of the shareholders. If the appointment of officers is not held at such
meeting, such appointment shall be held as soon thereafter as a Board meeting
conveniently may be held. Except in the case of death, resignation, or removal,
each officer shall hold
14
<PAGE> 19
office until the next annual meeting of the Board of Directors and until his
successor is appointed and qualified.
3.2 QUALIFICATION. None of the officers of the corporation need be a
director, except as specified below. Any two or more of the corporate offices
may be held by the same person.
3.3 OFFICERS ENUMERATED. Except as otherwise provided by resolution
of the Board of Directors, the officers of the corporation and their respective
powers and duties shall be as follows:
3.3.1 CHAIRMAN OF THE BOARD. The Chairman of the Board (if
such an officer be appointed) shall be a director and shall perform such duties
as shall be assigned to him by the Board of Directors and in any employment
agreement. The Chairman shall preside at all meetings of the shareholders and
at all meetings of the Board at which he is present. The Chairman may sign
deeds, mortgages, bonds, contracts, and other instruments, except when the
signing thereof has been expressly delegated by the Board or by these Bylaws to
some other officer or agent of the corporation or is otherwise required by law
to be signed by some other officer or in some other manner. If the President
dies or becomes unable to act, the Chairman shall perform the duties of the
President, except as may be limited by resolution of the Board of Directors,
with all the powers of and subject to all the restrictions upon the President.
3.3.2 PRESIDENT. Subject to such supervisory powers as may be
given by the Board of Directors to the Chairman of the Board (if such an
officer be appointed), the President shall be the chief executive officer of
the corporation unless some other officer is so designated by the Board and,
subject to the control of the Board and the Executive Committee (if one be
established), shall supervise and control all of the assets, business, and
affairs of the corporation. If no Chairman of the Board has been appointed, the
President shall be a director. The President may sign certificates for shares
of the corporation, deeds, mortgages, bonds, contracts, and other instruments,
except when the signing thereof has been expressly delegated by the Board or by
these Bylaws to some other officer or agent of the corporation or is otherwise
required by law to be signed by some other officer or in some other manner. The
President shall vote the shares owned by the corporation in other corporations,
domestic or foreign, unless otherwise prescribed by law or resolution of the
Board. In general, the President shall perform all duties incident to the
office of President and such other duties as may be prescribed by the Board
from time to time. In the absence of the Chairman of the Board, the President,
if a director, shall preside over all meetings of the shareholders and over all
meetings of the Board of Directors. The President shall have the authority to
appoint one or more Assistant Secretaries and Assistant Treasurers, as he deems
necessary.
15
<PAGE> 20
3.3.3 VICE PRESIDENTS. If no Chairman of the Board has been
appointed, in the absence or disability of the President, the Vice Presidents,
if any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a Vice President designated by the Board shall perform all the duties
of the President and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the President; provided that no such Vice
President shall assume the authority to preside as Chairman of meetings of the
Board unless such Vice President is a member of the Board. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be respectively prescribed for them by the Board, these Bylaws, the
President, or the Chairman of the Board (if one be appointed).
3.3.4 SECRETARY. The Secretary shall:
(a) have responsibility for preparing minutes of
meetings of the shareholders and the Board of Directors and for authenticating
records of the corporation;
(b) see that all notices are duly given in accordance
with the provisions of Sections 1.3, 1.5, 2.8, and 2.10 of these Bylaws and as
required by law;
(c) be custodian of the corporate records and seal of
the corporation, if one be adopted;
(d) keep a register of the post office address of each
shareholder and director;
(e) attest certificates for shares of the corporation;
(f) have general charge of the stock transfer books of
the corporation;
(g) when required by law or authorized by resolution
of the Board of Directors, sign with the President, or other officer authorized
by the President or the Board, deeds, mortgages, bonds, contracts, and other
instruments; and
(h) in general, perform all duties incident to the
office of Secretary and such other duties as from time to time may be assigned
by the President or the Board of Directors.
In the absence of the Secretary, an Assistant Secretary may perform the
duties of the Secretary.
16
<PAGE> 21
3.3.5 TREASURER. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board shall determine. The
Treasurer shall:
(a) have charge and custody of and be responsible for all funds and
securities of the corporation;
(b) receive and give receipts for moneys due and
payable to the corporation from any source whatsoever and deposit all such
moneys in the name of the corporation in banks, trust companies, or other
depositories selected in accordance with the provisions of these Bylaws; and
(c) in general, perform all of the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned by the President or the Board of Directors.
In the absence of the Treasurer, an Assistant Treasurer may perform the
duties of the Treasurer.
3.4 DELEGATION. In case of the absence or inability to act of any
officer of the corporation and of each person herein authorized to act in his
place, the Board of Directors may from time to time delegate the powers and
duties of such officer to any other officer or other person whom it may select.
3.5 RESIGNATION. Any officer may resign at any time by delivering
notice to the corporation. Any such resignation shall take effect at the time
the notice is delivered unless the notice specifies a later effective date.
Unless otherwise specified therein, acceptance of such resignation by the
corporation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party.
3.6 REMOVAL. Any officer or agent may be removed by the Board with or
without cause. An officer empowered to appoint another officer or assistant
officer also has the power to remove any officer he would have the power to
appoint whenever in his judgment the best interests of the corporation would be
served thereby. The removal of an officer or agent shall be without prejudice
to the contract rights, if any, of the corporation or the person so removed.
Appointment of an officer or agent shall not of itself create contract rights.
3.7 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification, creation of a new office, or any other cause may be
filled by the Board of Directors for the unexpired portion of the term or for a
new term established by the Board.
17
<PAGE> 22
3.8 OTHER OFFICERS AND AGENTS. One or more Vice Presidents and such
other officers and assistant officers as may be deemed necessary or advisable
may be appointed by the Board of Directors or, to the extent provided in
Section 3.3.2 above, by the President. Such other officers and assistant
officers shall hold office for such periods, have such authorities, and perform
such duties as are provided in these Bylaws or as may be provided by resolution
of the Board. Any officer may be assigned by the Board any additional title
that the Board deems appropriate. The Board may delegate to any officer or
agent the power to appoint any such assistant officers or agents and to
prescribe their respective terms of office, authorities, and duties.
3.9 COMPENSATION. Compensation, if any, for officers and other agents
and employees of the corporation shall be determined by the Board of Directors,
or by the President to the extent such authority may be delegated to him by the
Board. No officer shall be prevented from receiving compensation in such
capacity by reason of the fact that he is also a director of the corporation.
3.10 GENERAL STANDARDS FOR OFFICERS. Officers with discretionary
authority shall discharge their duties under that authority in accordance with
the same standards of conduct applicable to directors as specified in Section
2.1 above (except for subsection (c) thereof).
ARTICLE IV
CONTRACTS, CHECKS AND DRAFTS
4.1 CONTRACTS. The Board of Directors may authorize any officer or
officers or agent or agents to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation. Such authority
may be general or confined to specific instances. Subject to the limitations
set forth in RCW 23B.08.700 through 23B.08.730 and 23B.19.040, to the extent
applicable, the corporation may enter into contracts and otherwise transact
business as vendor, purchaser, lender, borrower, or otherwise with its
directors and shareholders and with corporations, associations, firms, and
entities in which they are or may be or become interested as directors,
officers, shareholders, members, or otherwise. Any such contract or transaction
shall not be affected or invalidated or give rise to liability by reason of the
director's or shareholder's having an interest in the contract or transaction.
4.2 CHECKS, DRAFTS, ETC. All checks, drafts, and other orders for the
payment of money, notes, and other evidences of indebtedness issued in the name
of the corporation shall be signed by such officer or officers or agent or
agents of the
18
<PAGE> 23
corporation and in such manner as may be determined from time to time by
resolution of the Board of Directors.
4.3 DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies, or other depositories as the Treasurer, subject to the
direction of the Board of Directors, may select.
ARTICLE V
STOCK
5.1 ISSUANCE OF SHARES. No shares of the corporation shall be issued
unless authorized by the Board of Directors, which authorization shall include
the maximum number of shares to be issued, the consideration to be received for
each share, and, if the consideration is in a form other than cash, the
determination of the value of the consideration.
5.2 CERTIFICATES OF STOCK. All shares of the corporation shall be
represented by certificates in such form, not inconsistent with the Articles of
Incorporation, as the Board of Directors may from time to time prescribe.
Certificates of stock shall be issued in numerical order and shall be signed by
the President or a Vice President, attested to by the Secretary or an Assistant
Secretary, and sealed with the corporate seal, if any. If any certificate is
manually signed by a transfer agent or a transfer clerk and by a registrar, the
signatures of the President, Vice President, Secretary or Assistant Secretary
upon that certificate may be facsimiles that are engraved or printed. If any
person who has signed or whose facsimile signature has been placed on a
certificate no longer is an officer when the certificate is issued, the
certificate may nevertheless be issued with the same effect as if the person
were still an officer at the time of its issue. Every certificate of stock
shall state:
(a) The state of incorporation;
(b) The name of the registered holder of the shares
represented thereby;
(c) The number and class of shares, and the
designation of the series, if any, which such certificate represents;
(d) If the corporation is authorized to issue
different classes of shares or different series within a class, either a
summary of (on the face or back of the certificate), or a statement that the
corporation will furnish to any share-
19
<PAGE> 24
holder upon written request and without charge a summary of, the designations,
relative rights, preferences, and limitations applicable to each class and the
variations in rights, preferences and limitations determined for each series,
and the authority of the Board of Directors to determine variations for future
series; and
(e) If the shares are subject to transfer or other
restrictions under applicable securities laws or contracts with the
corporation, either a complete description of or a reference to the existence
and general nature of such restrictions on the face or back of the certificate.
5.3 STOCK RECORDS. The corporation or its agent shall maintain at the
registered office or principal office of the corporation, or at the office of
the transfer agent or registrar of the corporation, if one be designated by the
Board of Directors, a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders in
alphabetical order by class of shares showing the number and class of shares
held by each. The person in whose name shares stand on the books of the
corporation shall be deemed by the corporation to be the owner thereof for all
purposes.
5.4 RESTRICTIONS ON TRANSFER. The Board of Directors shall have the
authority to issue shares of the capital stock of this corporation and the
certificates therefor subject to such transfer restrictions and other
limitations as it may deem necessary to promote compliance with applicable
federal and state securities laws, and to regulate the transfer thereof in such
manner as may be calculated to promote such compliance or to further any other
reasonable purpose. Except to the extent that the corporation has obtained an
opinion of counsel acceptable to the corporation that transfer restrictions are
not required under applicable securities laws, all certificates representing
shares of the corporation shall bear the following legend (or a legend of
substantially the same import) on the face of the certificate or on the reverse
of the certificate if a reference to the legend is contained on the face:
NOTICE: RESTRICTIONS ON TRANSFER
The securities represented by this certificate have not been
registered under the Securities Act of 1933, or any state
securities laws, and may not be offered, sold, transferred,
encumbered, or otherwise disposed of except upon satisfaction of
certain conditions. Information concerning these restrictions may
be obtained from the corporation or its legal counsel. Any offer
or disposition of these securities without satisfaction of said
conditions will be wrongful and will not entitle the transferee to
register ownership of the securities with the corporation.
20
<PAGE> 25
5.5 TRANSFERS. Shares of stock may be transferred by delivery of the
certificates therefor, accompanied by:
(a) an assignment in writing on the back of the
certificate, or an assignment separate from certificate, or a written power of
attorney to sell, assign, and transfer the same, signed by the record holder of
the certificate; and
(b) such additional documents, instruments, and other
items of evidence as may be reasonably necessary to satisfy the requirements of
any transfer restrictions applicable to such shares, whether arising under
applicable securities or other laws, or by contract, or otherwise.
Except as otherwise specifically provided in these Bylaws, no shares of
stock shall be transferred on the books of the corporation until the
outstanding certificate therefor has been surrendered to the corporation. All
certificates surrendered to the corporation for transfer shall be canceled, and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that, in case
of a lost, destroyed, or mutilated certificate, a new one may be issued
therefor upon such terms (including indemnity to the corporation) as the Board
of Directors may prescribe.
ARTICLE VI
RECORDS OF CORPORATE MEETINGS
The corporation shall keep, as permanent records, minutes of all
meetings of its shareholders and Board of Directors, a record of all actions
taken by the shareholders or Board of Directors without a meeting, and a record
of all actions taken by a committee of the Board of Directors exercising the
authority of the Board of Directors on behalf of the corporation. The
corporation shall keep at its principal office a copy of the minutes of all
shareholders' meetings that have occurred, and records of all action taken by
shareholders without a meeting, within the past three (3) years. Any person
dealing with the corporation may rely upon a copy of any of the records of the
proceedings, resolutions, or votes of the Board or shareholders when certified
by the President or Secretary.
ARTICLE VII
FINANCIAL MATTERS
The corporation shall maintain appropriate accounting records at its
principal office and shall prepare the annual financial statements required by
RCW 23B.16.200. Except to the extent otherwise expressly determined by the
21
<PAGE> 26
Board of Directors or otherwise required by law, the accounting records of the
corporation shall be kept and prepared in accordance with generally accepted
accounting principles applied on a consistent basis from period to period. The
fiscal year of the corporation shall be the calendar year unless otherwise
expressly determined by the Board of Directors.
ARTICLE VIII
DISTRIBUTIONS
The Board of Directors may from time to time authorize, and the
corporation may make, distributions (as defined in RCW 23B.01.400) to its
shareholders to the extent permitted by RCW 23B.06.400, subject to any
limitation in the Articles of Incorporation. A director who votes for or
assents to a distribution made in violation of RCW 23B.06.400 is personally
liable to the corporation for the amount of the distribution that exceeds that
which could have been distributed without violating RCW 23B.06.400 if it is
established that the director did not perform the director's duties in
compliance with Section 2.1 above.
ARTICLE IX
CORPORATE SEAL
The Board of Directors may, but shall not be required to, adopt a
corporate seal for the corporation in such form and with such inscription as
the Board may determine. If such a corporate seal shall at any time be so
adopted, the application of or the failure to apply such seal to any document
or instrument shall have no effect upon the validity or invalidity of such
document or instrument under otherwise applicable principles of law.
ARTICLE X
INDEMNIFICATION
As provided by Section 6.5 of the Articles of Incorporation:
10.1 DEFINITIONS. The capitalized terms in this Article X shall have
the meanings set forth in RCW 23B.08.500.
10.2 MANDATORY INDEMNIFICATION. The Corporation shall indemnify and
hold harmless each individual who is or was serving as a Director or officer of
the Corporation or who, while serving as a Director or officer of the
Corporation, is or
22
<PAGE> 27
was serving at the request of the Corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
against any and all Liability incurred with respect to any Proceeding to which
the individual is or is threatened to be made a Party because of such service,
and shall make advances of reasonable Expenses with respect to such Proceeding,
to the fullest extent permitted by law, without regard to the limitations in
RCW 23B.08.510 through 23B.08.550; provided that no such indemnity shall
indemnify any Director or officer from or on account of (a) acts or omissions
of the Director or officer finally adjudged to be intentional misconduct or a
knowing violation of law; (b) conduct of the Director or officer finally
adjudged to be in violation of RCW 23B.08.310; or (c) any transaction with
respect to which it was finally adjudged that such Director or officer
personally received a benefit in money, property, or services to which the
Director or officer was not legally entitled.
10.3 INSURANCE. The Corporation may purchase and maintain insurance on
behalf of an individual who is or was a director, officer, employee, or agent
of the Corporation or, who, while a director, officer, employee, or agent of
the Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise against Liability asserted against or incurred by the
individual in that capacity or arising from the individual's status as a
director, officer, employee, or agent, whether or not the Corporation would
have power to indemnify the individual against such Liability under RCW
23B.08.510 or 23B.08.520.
10.4 CHANGES IN LAW. If, after the effective date of this Article X,
the Act is amended to authorize further indemnification of Directors or
officers, then Directors and officers of the Corporation shall be indemnified
to the fullest extent permitted by the Act as so amended.
10.5 EXCLUSIVITY; NATURE OF RIGHTS; AMENDMENT. To the extent permitted
by law, the rights to indemnification and advance of reasonable Expenses
conferred in this Article X shall not be exclusive of any other right which any
individual may have or hereafter acquire under any statute, provision of the
Bylaws, agreement, vote of shareholders or disinterested directors, or
otherwise. The right to indemnification conferred in this Article X shall be a
contract right upon which each Director or officer shall be presumed to have
relied in determining to serve or to continue to serve as such. Any amendment
to or repeal of this Article X shall not adversely affect any right or
protection of a Director or officer of the Corporation for or with respect to
any acts or omissions of such Director or officer occurring prior to such
amendment or repeal.
23
<PAGE> 28
ARTICLE XI
MISCELLANY
11.1 COMMUNICATIONS BY FACSIMILE. Whenever these Bylaws require
notice, consent, or other communication to be delivered for any purpose,
transmission by phone, wire, or wireless equipment which transmits a facsimile
of such communication shall constitute sufficient delivery for such purpose.
Such communication shall be deemed to have been received by or in the
possession of the addressee upon completion of the transmission.
11.2 INSPECTOR OF ELECTIONS. Before any annual or special meeting of
shareholders, the Board of Directors may appoint an inspector of elections to
act at the meeting and any adjournment thereof. If no inspector of elections is
so appointed by the Board, then the chairman of the meeting may appoint an
inspector of elections to act at the meeting. If any person appointed as
inspector fails to appear or fails or refuses to act, then the chairman of the
meeting may, and upon the request of any shareholder or a shareholder's proxy
shall, appoint a person to fill that vacancy.
Such inspector of elections shall:
(a) determine the number of shares outstanding and the
voting power of each, the number of shares represented at the meeting, the
existence of a quorum, and, with the advice of legal counsel to the
corporation, the authenticity, validity, and effect of proxies pursuant to RCW
23B.07.220 and 23B.07.240 and any procedure adopted by the Board of Directors
pursuant to RCW 23B.07.230;
(b) receive votes, ballots, or consents;
(c) hear and determine all challenges and questions in
any way arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine the result; and
(f) do any other acts that may be proper to conduct
the election or vote with fairness to all shareholders.
11.3 RULES OF ORDER. The rules contained in the most recent edition of
Robert's Rules of Order, Revised, shall govern all meetings of shareholders
where
24
<PAGE> 29
those rules are not inconsistent with the Articles of Incorporation or Bylaws,
subject to the following:
(a) The chairman of the meeting shall have absolute
authority over matters of procedure, and there shall be no appeal from the
ruling of the chairman. If the chairman in his absolute discretion deems it
advisable to dispense with the rules of parliamentary procedure for any meeting
or any part thereof, the chairman shall so state and shall clearly state the
rules under which the meeting or appropriate part thereof shall be conducted.
(b) If disorder should arise which prevents
continuation of the legitimate business of the meeting, the chairman may quit
the chair and announce the adjournment of the meeting; upon so doing, the
meeting shall be deemed immediately adjourned, subject to being reconvened in
accordance with Section 1.5 or 2.11 of these Bylaws, as the case may be.
(c) The chairman may ask or require that anyone not a
bona fide shareholder or proxy leave the meeting of shareholders.
(d) A resolution or motion at a meeting of
shareholders shall be considered for vote only if proposed by a shareholder or
duly authorized proxy and seconded by an individual who is a shareholder or
duly authorized proxy other than the individual who proposed the resolution or
motion.
11.4 CONSTRUCTION. Within these Bylaws, words of any gender shall be
construed to include any other gender, and words in the singular or plural
number shall be construed to include the plural or singular, respectively,
unless the context otherwise requires.
11.5 SEVERABILITY. If any provision of these Bylaws or any application
thereof shall be invalid, unenforceable, or contrary to applicable law, the
remainder of these Bylaws, and the application of such provisions to
individuals or circumstances other than those as to which it is held invalid,
unenforceable, or contrary to applicable law, shall not be affected thereby.
25
<PAGE> 30
ARTICLE XII
AMENDMENT OF BYLAWS
Subject to the requirements of RCW 23B.10.210 relating to supermajority
quorum provisions for the Board of Directors, the Bylaws of the corporation may
be amended or repealed, or new Bylaws may be adopted, by: (a) the
shareholders, even though the Bylaws may also be amended or repealed, or new
Bylaws may also be adopted, by the Board of Directors; or (b) subject to the
power of the shareholders of the corporation to change or repeal the Bylaws,
the Board of Directors, unless such power is reserved, by the Articles of
Incorporation or by law, exclusively to the shareholders in whole or in part,
or unless the shareholders, in amending or repealing a particular bylaw,
provide expressly that the Board of Directors may not amend or repeal that
bylaw.
ARTICLE XIII
AUTHENTICATION
The foregoing Amended and Restated Bylaws were read, approved and duly
adopted by the Board of Directors of Innova Corporation on June _____, 1997,
and by the shareholders of the Corporation on __________________, 1997,
effective as of _____________________, 1997, and the President and Secretary of
the corporation were empowered to authenticate such Bylaws by their signatures
below.
________________________________________
Jean-Francois Grenon,
President and Chief Executive
Officer
ATTEST:
________________________________
John M. Hemingway, Secretary and
Chief Financial Officer
26
<PAGE> 1
INNOVA CORPORATION
1990 STOCK OPTION PLAN
(AMENDED AND RESTATED JULY 31, 1992)
This Stock Option Plan (the "Plan") provides for the grant of options to
acquire shares of Common Stock, $.01 par value (the "Common Stock"), of INNOVA
CORPORATION, a Washington corporation (the "Company"). Stock options granted
under this Pian that qualify under Section 422A of the Internal Revenue Code of
1986, as amended (the "Code"), are referred to in this Plan as "Incentive Stock
Options." Incentive Stock Options and stock options that do not qualify under
Section 422A of the Code ("Non-Qualified Stock Options") granted under this Plan
are referred to as "Options."
1. PURPOSES.
The purposes of this Plan are to retain the services of valued key
employees and consultants of the Company and such other persons as the Plan
Administrator shall select in accordance with Section 3 below, to encourage such
persons to acquire a greater proprietary interest in the Company, thereby
strengthening their incentive to achieve the objectives of the shareholders of
the Company, and to serve as an aid and inducement in the hiring of new
employees, consultants and other persons selected by the Plan Administrator.
2. ADMINISTRATION.
This Plan shall be administered by the Board of Directors of the Company
(the "Board"), except that the Board may, in its discretion, establish a
committee composed of members of the Board or other persons to administer this
Plan, which committee (the "Committee") may be an executive, compensation or
other committee, including a separate committee especially created for this
purpose. The Committee shall have such of the powers and authority vested in the
Board hereunder as the Board may delegate to it (including the power and
authority to interpret any provision of this Plan or of any Option). The members
of any such Committee shall serve at the pleasure of the Board. The Board,
and/or the Committee if one has been established by the Board, are referred to
in this Plan as the "Plan Administrator." Following registration of any of the
Company's securities under Section 12 of the Securities Exchange Act of 1934, as
amended, no person shall serve as a member of the Plan Administrator if his or
her service would disqualify this Plan from eligibility under Securities and
Exchange Commission Rule 16b-3, as amended from time to time, or any successor
rule or regulatory requirements; provided, that the Plan Administrator shall
consist of at least the
1
<PAGE> 2
minimum number of persons required by Securities and Exchange Commission Rule
16b-3, as amended, or any successor rule or regulatory requirements.
Subject to the provisions of this Plan, and with a view to effecting its
purpose, the Plan Administrator shall have sole authority, in its absolute
discretion, to (a) construe and interpret this Plan; (b) define the terms used
in this Plan; (c) prescribe, amend and rescind rules and regulations relating to
this Plan; (d) correct any defect, supply any omission or reconcile any
inconsistency in this Plan; (e) determine the individuals to whom Options shall
be granted under this Plan and whether the Option is an Incentive Stock Option
or a Non-Qualified Stock Option; (f) determine the time or times at which
Options shall be granted under this Plan; (g) determine the number of shares of
Common Stock subject to each Option, the exercise price of each Option, the
duration of each Option and the times at which each Option shall become
exercisable; (h) determine all other terms and conditions of Options; and (i)
make all other determinations necessary or advisable for the administration of
this Plan. All decisions, determinations and interpretations made by the Plan
Administrator shall be binding and conclusive on all participants in this Plan
and on their legal representatives, heirs and beneficiaries.
3. ELIGIBILITY.
Incentive Stock Options may be granted to any individual who, at the
time the Option is granted, is an employee of the Company or any Related
Corporation (as defined below), including employees who are directors of the
Company ("Employees"). Non-Qualified Stock Options may be granted to Employees
and to such other persons or entities other than directors who are not Employees
as the Plan Administrator shall select. Options may be granted in substitution
for outstanding Options of another corporation in connection with the merger,
consolidation, acquisition of property or stock or other reorganization between
such other corporation and the Company or any subsidiary of the Company. Options
also may be granted in exchange for outstanding Options. Any person to whom an
Option is granted under this Plan is referred to as an "Optionee."
As used in this Plan, the term "Related Corporation," when referring to
a subsidiary corporation, shall mean any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
the granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock of one of the other
corporations in such chain. When referring to a parent corporation, the term
"Related Corporation" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of
granting of the Option, each of the corporations other than the Company owns
stock possessing
2
<PAGE> 3
50 percent or more of the total combined voting power of all classes of stock of
one of the other corporations in such chain.
4. STOCK.
The Plan Administrator is authorized to grant Options to acquire up to a
total of 2,000,000 shares of the Company's authorized but unissued, or
reacquired, Common Stock. The number of shares with respect to which Options may
be granted hereunder is subject to adjustment as set forth in Section 5(m)
hereof. In the event that any outstanding Option expires or is terminated for
any reason, the shares of Common Stock allocable to the unexercised portion of
such Option may again be subject to an Option to the same Optionee or to a
different person eligible under Section 3 of this Plan.
5. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under this Plan shall be evidenced by a written
agreement approved by the Plan Administrator (the "Agreement"). Agreements may
contain such additional provisions, not inconsistent with this Plan, as the Plan
Administrator in its discretion may deem advisable. All Options also shall
comply with the following requirements:
(a) Number of Shares and Type of Option.
Each Agreement shall state the number of shares of Common Stock to which
it pertains and whether the Option is intended to be an Incentive Stock Option
or a Non-Qualified Stock Option. In the absence of action to the contrary by the
Plan Administrator in connection with the grant of an Option, all Options shall
be Non-Qualified Stock Options. The aggregate fair market value (determined at
the Date of Grant, as defined below) of the stock with respect to which
Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year (granted under this Plan and all other Incentive Stock
Option plans of the Company, a Related Corporation or a predecessor corporation)
shall not exceed $100,000, or such other limit as may be prescribed by the Code
as it may be amended from time to time. Any Option which exceeds the annual
limit shall not be void but rather shall be a Non-Qualified Stock Option.
(b) Date of Grant.
Each Agreement shall state the date the Plan Administrator has deemed to
be the effective date of the Option for purposes of this Plan (the "Date of
Grant").
3
<PAGE> 4
(c) Option Price.
Each Agreement shall state the price per share of Common Stock at which
it is exercisable. The exercise price shall be fixed by the Plan Administrator
at whatever price the Plan Administrator may determine in the exercise of its
sole discretion; provided, that the per share exercise price for any Option
granted following the effective date of registration of any of the Company's
securities under Section 12 of the Securities Exchange Act of 1934 shall not be
less than the fair market value per share of the Common Stock at the Date of
Grant as determined by the Plan Administrator in good faith; provided further,
that the per share exercise price for an Incentive Stock Option shall not be
less than the fair market value per share of the Common Stock at the Date of
Grant as determined by the Plan Administrator in good faith; provided further,
that with respect to Incentive Stock Options granted to greater-than-10 percent
shareholders of the Company (as determined with reference to Section 424(d) of
the Code), the exercise price per share shall not be less than 110 percent of
the fair market value per share of the Common Stock at the Date of Grant; and,
provided further, that Incentive Stock Options granted in substitution for
outstanding Options of another corporation in connection with the merger,
consolidation, acquisition of property or stock or other reorganization
involving such other corporation and the Company or any subsidiary of the
Company may be granted with an exercise price equal to the exercise price for
the substituted Option of the other corporation, subject to any adjustment
consistent with the terms of the transaction pursuant to which the substitution
is to occur.
(d) Duration of Options.
At the time of the grant of the Option, the Plan Administrator shall
designate, subject to paragraph 5(g) below, the expiration date of the Option,
which date shall not be later than 10 years from the Date of Grant in the case
of Incentive Stock Options; provided, that the expiration date of any Incentive
Stock Option granted to a greater-than-10 percent shareholder of the Company (as
determined with reference to Section 424(d) of the Code) shall not be later than
five years from the Date of Grant. In the absence of action to the contrary by
the Plan Administrator in connection with the grant of a particular Option, and
except in the case of Incentive Stock Options as described above, all Options
granted under this Plan shall expire 20 years from the Date of Grant.
Notwithstanding anything contained in this Plan to the contrary, if, in the
opinion of a majority of the Board of Directors of the Company, it is probable
that the Company will consummate one of the transactions listed immediately
below within sixty (60) days of such opinion, then the Company may demand, by
written notice, that an Optionee exercise the vested portion of such Optionee's
Option in its entirety (including any portion as to which vesting has been
accelerated by the Plan Administrator under Section 5(f) below). Such Optionee
shall have thirty (30) days
4
<PAGE> 5
from the date of such notice to exercise such Optionee's Option hereunder; such
Optionee's entire Option shall terminate at the end of such 30-day period. The
events to which this demand procedure shall apply are as follows: (i) the
consummation of a firmly underwritten public offering of securities of the
Company, registered under the Securities Act of 1933, as amended, with an
aggregate offering price of not less than $10,000,000; or (ii) a Change in
Control of the Company, as defined in Section 5(n)(1) hereof.
(e) Vesting Schedule.
No Option shall be exercisable until it has vested. The vesting schedule
for each Option shall be specified by the Plan Administrator at the time of
grant of the Option; provided, that if no vesting schedule is specified at the
time of grant, the Option shall vest over 60 months at a rate of 1/60th per
month beginning on the month following the Date of Grant.
(f) Acceleration of Vesting.
The vesting of one or more outstanding Options may be accelerated by the
Plan Administrator at such times and in such amounts as it shall determine in
its sole discretion. The vesting of Options also shall be accelerated under the
circumstances described in Sections 5(m) and 5(n).
(g) Term of Option.
Vested Options shall terminate, to the extent not previously exercised,
upon the occurrence of the first of the following events: (i) the expiration of
the Option, as designated by the Plan Administrator in accordance with Section
5(d) above; (ii) the expiration of 90 days from the date of an Optionee's
termination of employment or contractual relationship with the Company or any
Related Corporation for any reason whatsoever other than death or Disability (as
defined below) unless, in the case of a Non-Qualified Stock Option, the exercise
period is extended by the Plan Administrator until a date not later than the
expiration date of the Option; or (iii) the expiration of one year from (A) the
date of death of the Optionee or (B) cessation of an Optionee's employment or
contractual relationship by reason of Disability (as defined below) unless, in
the case of a Non-Qualified Stock Option, the exercise period is extended by the
Plan Administrator until a date not later than the expiration date of the
Option. If an Optionee's employment or contractual relationship is terminated by
death, any Option held by the Optionee shall be exercisable only by the person
or persons to whom such Optionee's rights under such Option shall pass by the
Optionee's will or by the laws of descent and distribution of the state or
county of the Optionee's domicile at the time of death. "Disability" shall mean
that a person is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment that
5
<PAGE> 6
can be expected to result in death or that has lasted or can be expected to last
for a continuous period of not less than 12 months. The Plan Administrator shall
determine whether an Optionee has incurred a Disability on the basis of medical
evidence acceptable to the Plan Administrator. Upon making a determination of
Disability, the Committee shall, for purposes of the Plan, determine the date of
an Optionee's termination of employment or contractual relationship.
Unless accelerated in accordance with Section 5(f) above, unvested
Options shall terminate immediately upon termination of employment of the
Optionee by the Company for any reason whatsoever, including death or
Disability. If, in the case of an Incentive Stock Option, an Optionee's
relationship with the Company changes (e.g., from an Employee to a non-Employee,
such as a consultant), such change shall not constitute a termination of an
Optionee's employment with the Company but rather the Optionee's Incentive Stock
Option shall automatically be converted into a Non-Qualified Stock Option
(h) Exercise of Options.
Options shall be exercisable, either all or in part, at any time after
vesting, until termination. If less than all of the shares included in the
vested portion of any Option are purchased, the remainder may be purchased at
any subsequent time prior to the expiration of the Option term. No portion of
any Option for less than 50 shares (as adjusted pursuant to Section 5(m) below)
may be exercised; provided, that if the vested portion of any Option is less
than 50 shares, it may be exercised with respect to all shares for which it is
vested. Only whole shares may be issued pursuant to an Option, and to the extent
that an Option covers less than one share, it is unexercisable. Options or
portions thereof may be exercised by giving written notice to the Company, which
notice shall specify the number of shares to be purchased, and be accompanied by
payment in the amount of the aggregate exercise price for the Common Stock so
purchased, which payment shall be in the form specified in Section 5(i) below.
The Company shall not be obligated to issue, transfer or deliver a certificate
of Common Stock to any Optionee, or to his personal representative, until the
aggregate exercise price has been paid for all shares for which the Option shall
have been exercised and adequate provision has been made by the Optionee for
satisfaction of any tax withholding obligations associated with such exercise.
During the lifetime of an Optionee, Options are exercisable only by the
Optionee.
(i) Payment upon Exercise of Option.
Upon the exercise of any Option, the aggregate exercise price shall be
paid to the Company in cash or by certified or cashier's check. In addition,
upon approval of the Plan Administrator, an Optionee may pay for all or any
portion of the aggregate exercise price by (i) delivering to the Company shares
of Common
6
<PAGE> 7
Stock previously held by such Optionee, (ii) having shares withheld from the
amount of shares of Common Stock to be received by the Optionee or (iii)
delivery of an irrevocable subscription agreement obligating the Optionee to
take and pay for the shares of Common Stock to be purchased within one year of
the date of such exercise. The shares of Common Stock received or withheld by
the Company as payment for shares of Common Stock purchased upon the exercise of
Options shall have a fair market value at the date of exercise (as determined by
the Plan Administrator) equal to the aggregate exercise price (or portion
thereof) to be paid by the Optionee upon such exercise.
(j) Rights as a Shareholder.
An Optionee shall have no rights as a shareholder with respect to any
shares covered by an Option until such Optionee becomes a record holder of such
shares, irrespective of whether such Optionee has given notice of exercise.
Subject to the provisions of Sections 5(m) and 5(n) hereof, no rights shall
accrue to an Optionee and no adjustments shall be made on account of dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights declared on, or created in, the Common Stock for
which the record date is prior to the date the Optionee becomes a record holder
of the shares of Common Stock covered by the Option, irrespective of whether
such Optionee has given notice of exercise.
(k) Transfer of Option.
Options granted under this Plan and the rights and privileges conferred
by this Plan may not be transferred, assigned, pledged or hypothecated in any
manner (whether by operation of law or otherwise) other than by will or by
applicable laws of descent and distribution, and shall not be subject to
execution, attachment or similar process. Upon any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of any Option or of any right or
privilege conferred by this Plan contrary to the provisions hereof, or upon the
sale, levy or any attachment or similar process upon the rights and privileges
conferred by this Plan, such Option shall thereupon terminate and become null
and void.
(l) Securities Regulation and Tax Withholding.
(1) Shares shall not be issued with respect to an
Option unless the exercise of such Option and the issuance and delivery of such
shares shall comply with all relevant provisions of law, including, without
limitation, any applicable state securities laws, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations thereunder and the requirements of any stock exchange upon which
such shares may then be listed, and such issuance shall be further subject to
the approval of
7
<PAGE> 8
counsel for the Company with respect to such compliance, including the
availability of an exemption from registration for the issuance and sale of such
shares. The inability of the Company to obtain from any regulatory body the
authority deemed by the Company to be necessary for the lawful issuance and sale
of any shares under this Plan, or the unavailability of an exemption from
registration for the issuance and sale of any shares under this Plan, shall
relieve the Company of any liability with respect to the non-issuance or sale of
such shares.
As a condition to the exercise of an Option, the Plan Administrator may
require the Optionee to represent and warrant in writing at the time of such
exercise that the shares are being purchased only for investment and without any
then-present intention to sell or distribute such shares. At the option of the
Plan Administrator, a stop-transfer order against such shares may be placed on
the stock books and records of the Company, and a legend indicating that the
stock may not be pledged, sold or otherwise transferred unless an opinion of
counsel is provided stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on the certificates representing
such shares in order to assure an exemption from registration. The Plan
Administrator also may require such other documentation as may from time to time
be necessary to comply with federal and state securities laws. THE COMPANY HAS
NO OBLIGATION TO UNDERTAKE REGISTRATION OF OPTIONS OR THE SHARES OF STOCK
ISSUABLE UPON THE EXERCISE OF OPTIONS.
(2) As a condition to the exercise of any Option
granted under this Plan, the Optionee shall make such arrangements as the Plan
Administrator may require for the satisfaction of any federal, state or local
withholding tax obligations that may arise in connection with such exercise.
(3) The issuance, transfer or delivery of
certificates of Common Stock pursuant to the exercise of Options may be delayed,
at the discretion of the Plan Administrator, until the Plan Administrator is
satisfied that the applicable requirements of the federal and state securities
laws and the withholding provisions of the Code have been met.
(m) Stock Dividend. Reorganization or Liquidation.
(1) If (i) the Company shall at any time be involved
in a transaction described in Section 424(a) of the Code (or any successor
provision) or any "corporate transaction" described in the regulations
thereunder; (ii) the Company shall declare a dividend payable in, or shall
subdivide or combine, its Common Stock or (iii) any other event with
substantially the same effect shall occur, the Plan Administrator shall, with
respect to each outstanding Option, proportionately adjust the number of shares
of Common Stock and/or the exercise price per share so as to preserve the rights
of the Optionee substantially
8
<PAGE> 9
proportionate to the rights of the Optionee prior to such event, and to the
extent that such action shall include an increase or decrease in the number of
shares of Common Stock subject to outstanding Options, the number of shares
available under Section 4 of this Plan shall automatically be increased or
decreased, as the case may be, proportionately, without further action on the
part of the Plan Administrator, the Company or the Company's shareholders.
(2) If the Company is liquidated or dissolved, the
Plan Administrator shall allow the holders of any outstanding Options to
exercise all or any part of the unvested portion of the Options held by them;
provided, however, that such Options must be exercised prior to the effective
date of such liquidation or dissolution. If the Option holders do not exercise
their Options prior to such effective date, each outstanding Option shall
terminate as of the effective date of the liquidation or dissolution .
(3) The foregoing adjustments in the shares subject
to Options shall be made by the Plan Administrator, or by any successor
administrator of this Plan, or by the applicable terms of any assumption or
substitution document.
(4) The grant of an Option shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge,
consolidate or dissolve, to liquidate or to sell or transfer all or any part of
its business or assets.
(n) Change in Control; Declaration of Extraordinary Dividend.
(1) Change in Control. Subject to the right of the
Company to demand the exercise of Options under Section 5(d) of this Plan, if at
any time there is a Change in Control (as defined below) of the Company, all
Options shall accelerate and become fully vested and immediately exercisable for
the duration of the Option term. For purposes of this subsection (n)(1), "Change
in Control" shall mean either one of the following: (i) When any "person," as
such term is used in sections 13(d) and 14(d) of the Exchange Act (other than
the Company, a Subsidiary or a Company employee benefit plan, including any
trustee of such plan acting as trustee becomes, after the date of this Plan, the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 90% or more of the
combined voting power of the Company's then outstanding securities; or (ii) the
occurrence of a transaction requiring shareholder approval, and involving the
sale of all or substantially all of the assets of the Company or the merger of
the Company with or into another corporation.
9
<PAGE> 10
(2) Declaration of Extraordinary Dividend. If at any
time the Company declares an Extraordinary Dividend (as defined below), all
Options shall accelerate and thereupon become fully vested and immediately
exercisable for the duration of the Option term. For purposes of this subsection
(n)(2), "Extraordinary Dividend" shall mean a cash dividend payable to holders
of record of the Common Stock in an amount in excess of 10% of the then fair
market value of the Company's Common Stock. The fair market value of the
Company's Common Stock shall be determined in good faith by the Board of
Directors of the Company.
6. EFFECTIVE DATE; TERM
This Plan shall be effective as of February 8, 1990. Incentive Stock
Options may be granted by the Plan Administrator from time to time thereafter
until February 7, 2000. Non-Qualified Stock Options may be granted until this
Plan is terminated by the Board in its sole discretion. Termination of this Plan
shall not terminate any Option granted prior to such termination. Any Incentive
Stock Options granted by the Plan Administrator prior to the approval of this
Plan by a majority of the shareholders of the Company shall be granted subject
to ratification of this Plan by the shareholders of the Company within 12 months
after this Plan is adopted by the Board, and if shareholder ratification is not
obtained, each and every Incentive Stock Option shall become a Non-Qualified
Stock Option.
7. NO OBLIGATIONS TO EXERCISE OPTION.
The grant of an Option shall impose no obligation upon the Optionee to
exercise such Option.
8. NO RIGHT TO OPTIONS OR TO EMPLOYMENT.
Whether or not any Options are to be granted under this Plan shall be
exclusively within the discretion of the Plan Administrator, and nothing
contained in this Plan shall be construed as giving any person any right to
participate under this Plan. The grant of an Option shall in no way constitute
any form of agreement or understanding binding on the Company or any Related
Corporation, express or implied, that the Company or any Related Corporation
will employ or contract with an Optionee for any length of time.
9. STOCK SUBJECT TO SHAREHOLDER AGREEMENT.
Each Optionee shall be required, as a condition precedent to such
Optionee exercising any portion of such Optionee's Option, to execute and
deliver to the Company such optionee's written agreement to become a party to
and be bound by paragraphs 8.7 and 9 of that certain Preferred Stock Purchase
Agreement dated February 20, 1992 provided, that no such execution and delivery
shall be required
10
<PAGE> 11
after the consummation of a firmly underwritten public offering of securities of
the Company, registered under the Securities Act of 1933, as amended, with an
aggregate offering price of not less than $10,000,000 .
10. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Common Stock
issued upon the exercise of Options shall be used for general corporate
purposes, unless otherwise directed by the Board.
11. INDEMNIFICATION OF PLAN ADMINISTRATOR.
In addition to all other rights of indemnification they may have as
members of the Board, members of the Plan Administrator shall be indemnified by
the Company for all reasonable expenses and liabilities of any type or nature,
including attorneys' fees, incurred in connection with any action, suit or
proceeding to which they or any of them are a party by reason of, or in
connection with, this Plan or any Option granted under this Plan, and against
all amounts paid by them in settlement thereof (provided that such settlement is
approved by independent legal counsel selected by the Company), except to the
extent that such expenses relate to matters for which it is adjudged that such
Plan Administrator member is liable for willful misconduct; provided, that
within 15 days after the institution of any such action, suit or proceeding, the
Plan Administrator member involved therein shall, in writing, notify the Company
of such action, suit or proceeding, so that the Company may have the opportunity
to make appropriate arrangements to prosecute or defend the same.
12. AMENDMENT OF PLAN.
The Plan Administrator may, at any time, modify, amend or terminate this
Plan and Options granted under this Plan; provided, that no amendment with
respect to an outstanding Option shall be made over the objection of the
Optionee thereof; and provided further, that the approval of the holders of a
majority of the Company's outstanding shares of voting capital stock is required
within 12 months before or after the adoption by the Plan Administrator of any
amendment that will permit the granting of Options to a class of persons other
than those currently eligible to receive Options under this Plan or that would
cause this Plan to no longer comply with Securities and Exchange Commission Rule
16b-3, as amended, or any successor rule or other regulatory requirements.
Without limiting the generality of the foregoing, the Plan Administrator may
modify grants to persons who are eligible to receive Options under this Plan who
are foreign nationals or employed outside the United States to recognize
differences in local law, tax policy or custom.
11
<PAGE> 12
Date Initially Approved by Board of Directors of the Company March 8, 1990
Date 1st amendment approved by Board of Directors of the Company July 9, 1990
Date this amended and restated plan approved
by Board of Directors of the Company
------------------------------
Corporate Secretary
Date initially Approved by Shareholders of the Company: July 9, 1990
Date this amended and restated plan approved
by Shareholders of the Company
------------------------------
Corporate Secretary
12
<PAGE> 13
APPROVALS AND AMENDMENTS
Date Initially Approved by Board of Directors of the Company: March 8, 1990.
Date Initially Approved by shareholders of the Company: July 9, 1990.
Date 1st amendment approved by Board of Directors of the Company: July 9, 1990.
This amendment increased the number of shares authorized under the Plan from
281,191 to 317,825.
Date 2nd amendment approved by Board of Directors of the Company: April 5, 1991.
This amendment increased the number of shares authorized under the Plan from
317,825 to 417,825.
Date 3rd amendment approved by Board of Directors of the Company: December, 15,
1991. This amendment increased the number of shares authorized under the Plan
from 417,825 to 2,000,000.
Date this amended and restated plan approved by the shareholders of the Company:
July 31, 1992.
Date 1st amendment to amended and restated plan approved by Board of Directors
of the Company: June 18, 1996. This amendment increased the number of shares
authorized under the Plan from 2,000,000 to 35,000,000.
Date 2nd amendment to amended and restated plan approved by Board of Directors
of the Company: March 11, 1997. This amendment increased the number of shares
authorized under the plan from 35,000,000 to 38,000,000.
Date 3rd amendment to amended and restated plan approved by Board of Directors
of the Company: June 17, 1997. This amendment increased the number of shares
authorized under the plan from 38,000,000 to 50,000,000.
13
<PAGE> 1
THIS OPTION AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER STATE OR FEDERAL SECURITIES LAWS. THIS OPTION MAY NOT
BE TRANSFERRED EXCEPT BY WILL OR UNDER THE LAWS OF DESCENT AND DISTRIBUTION. THE
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT BE OFFERED OR SOLD,
PLEDGED (EXCEPT A PLEDGE PURSUANT TO THE TERMS OF WHICH ANY OFFER OR SALE UPON
FORECLOSURE WOULD BE MADE IN A MANNER THAT WOULD NOT VIOLATE THE REGISTRATION
PROVISIONS OF FEDERAL OR STATE SECURITIES LAWS) OR OTHERWISE DISTRIBUTED FOR
VALUE, NOR MAY THE SHARES OF COMMON STOCK ISSUED UPON EXERCISE HEREOF BE
TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT AN OPINION OF COUNSEL,
CONCURRED IN BY COUNSEL FOR THE COMPANY THAT NO VIOLATION OF SAID REGISTRATION
PROVISIONS WOULD RESULT THEREFROM.
INNOVA CORPORATION
1990 STOCK OPTION PLAN
(AS AMENDED)
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of ______________ (the "Date
of Grant") between INNOVA CORPORATION, a Washington corporation (the "Company"),
and ________________ (the "Optionee").
RECITALS:
A. The Company has approved and adopted the Innova Corporation
1990 Stock Option Plan (as amended) (the "Plan"), pursuant to which the Board of
Directors is authorized to grant to employees of the Company and other persons
selected by the Plan Administrator stock options to purchase common stock, $.01
par value, of the Company (the "Common Stock");
B. On ________ (the "Date of Grant"), the Board of Directors
authorized the grant to the Optionee of a Nonqualified Stock Option (as that
term is defined in the Plan) to purchase __________ shares of Common Stock (the
"Option");
AGREEMENT:
1 of 5
<PAGE> 2
NOW, THEREFORE, the Company hereby grants to Optionee the option
to purchase, upon the terms and conditions set forth herein and in the Plan,
__________ shares of Common Stock.
1. EXERCISE PRICE.
The exercise price for the Option shall be $___________ per share.
2. VESTING SCHEDULE.
The Option shall vest and become exercisable _____________________.
3. OPTION NOT TRANSFERABLE.
The Option is not transferable except by will or the laws of descent and
distribution.
4. INVESTMENT INTENT.
By accepting this Option, Optionee represents and agrees for himself and
all persons who acquire rights in this Option in accordance with the
Plan through Optionee, that none of the shares of Common Stock purchased
upon exercise of this Option will be distributed in violation of
applicable federal and state laws and regulations, and Optionee shall
furnish evidence satisfactory to the Company (including a written and
signed representation letter and a consent to be bound by all transfer
restrictions imposed by applicable law, legend condition, or otherwise)
to that effect, prior to delivery of the purchased shares of Common
Stock.
5. TERMINATION OF OPTION.
This Option shall terminate, to the extent not previously exercised, on
__________________.
In the event of the death of Optionee, any Option held by Optionee shall
be exercisable only by the person or persons to whom such Optionee's
rights under such Option shall pass by the Optionee's will or by the
laws of descent and distribution of the state or county of the
Optionee's domicile at the time of death.
Notwithstanding any other term of this Agreement to the contrary, if, in
the opinion of a majority of the Board of Directors of the Company, it
is probable that the Company will consummate one of the transactions
listed immediately below within sixty (60) days of such opinion, then
the Company may demand, by written notice, that the Optionee exercise
the vested portion of this Option in its entirety (including any portion
as to which vesting has been accelerated by the Plan Administrator under
Section 5(f) of the Plan). The Optionee shall have thirty (30) days from
the date of such notice to exercise this Option; this entire Option
shall terminate at the end of
2 of 5
<PAGE> 3
such 30-day period. The events to which this demand procedure shall
apply are as follows: (i) the consummation of a firmly underwritten
public offering of securities of the Company, registered under the
Securities Act of 1933, as amended, with an aggregate offering price of
not less than $10,000,000; or (ii) a Change in Control of the Company,
as defined in Section 5(n)(1) of the Plan.
6. STOCK.
In the case of any stock split, stock dividend or like change in the
nature of shares granted by this Agreement, the number of shares and
option price shall be proportionately adjusted as set forth in Section
5(m) of the Plan.
7. EXERCISE OF OPTION.
Each exercise of this Option shall be by means of a written notice of
exercise delivered to the Secretary of the Company at its principal
executive office in Seattle, Washington, specifying the number of shares
of Common Stock to be purchased and accompanied by payment in cash, or
by certified or cashier's check payable to the order of the Company, of
the full exercise price for the Common Stock to be purchased. Upon
approval of the Plan Administrator, as that term is defined in the Plan,
the Optionee may pay for all or any portion of the exercise price by (i)
delivery of previously held shares of Common Stock, (ii) having shares
withheld from the amount of shares of Common Stock to be received by the
Optionee or (iii) delivery of an irrevocable subscription agreement
obligating the Optionee to take and pay for the shares of Common Stock
to be purchased within one year of the date of such exercise. The shares
of Common Stock received or withheld by the Company as payment shall
have a fair market value equal to or greater than the full exercise
price. The Optionee agrees that he will also pay to the Company the
amount necessary for the Company to satisfy its withholding obligation
imposed by the Code.
8. OPTIONEE ACKNOWLEDGMENTS.
Optionee acknowledges that he has read and understands the terms of this
Agreement and the Plan, and that:
(a) The issuance of shares of Common Stock pursuant to the exercise of
this Option, and any resale of the shares of Common Stock, may only be
effected in compliance with applicable state and federal laws and
regulations.
(b) He is not entitled to any rights as a shareholder with respect to
any shares of Common Stock issuable hereunder until he becomes a
shareholder of record;
3 of 5
<PAGE> 4
(c) The shares of Common Stock subject hereto may be adjusted in the
event of certain changes in the capital structure of the Company or for
any other reason permitted by the Plan; and
(d) As a condition to the exercise of this Option, the Optionee will be
required to make such arrangements as the Plan Administrator may require
for the satisfaction of any federal, state or local withholding tax
obligations.
(e) This Agreement does not constitute an employment agreement nor does
it entitle Optionee to any specific employment or to employment for a
period of time and that Optionee's continued employment, if any, with
the Company shall be at will and is subject to termination in accordance
with the Company's prevailing policies and any other agreement between
Optionee and the Company.
9. PROFESSIONAL ADVICE.
The acceptance and exercise of the Option and the sale of Common Stock
issued pursuant to exercise of the Option may have consequences under
federal and state tax and securities laws which may vary depending on
the individual circumstances of the Optionee. Accordingly, the Optionee
acknowledges that he has been advised to consult his personal legal and
tax advisor in connection with this Agreement and his dealings with
respect to the Option or the Common Stock. Without limiting other
matters to be considered, the Optionee should consider whether, upon
exercise of the Option, the Optionee will file an election with the
Internal Revenue Service pursuant to Section 83(b) of the Code.
10. NOTICES.
Any notice required or permitted to be made or given hereunder shall be
mailed or delivered personally to the addresses set forth below, or as
changed from time to time by written notice to the other:
Company: Innova Corporation
3325 S. 116th Street
Seattle, WA 98168
Optionee: ___________________________
(address) ___________________________
___________________________
11. AGREEMENT SUBJECT TO PLAN.
This Option and this Agreement evidencing and confirming the same are
subject to the terms and conditions set forth in the Plan and in any
4 of 5
<PAGE> 5
amendments to the Plan existing now or in the future, which terms and
conditions are incorporated herein by reference. A copy previously has
been delivered to the Optionee. Should any conflict exist between the
provisions of the Plan and those of this Agreement, those of the Plan
shall govern and control. This Agreement comprises the entire
understanding between the Company and the Optionee with respect to the
Option and shall be construed and enforced under the laws of the State
of Washington.
Dated as of _____________
INNOVA CORPORATION
By ___________________________
Its: Chairman
OPTIONEE
------------------------------
------------------------------
Optionee's Signature
Summary of option terms:
Date of grant _______________
Vesting start date _______________
No. of shares _______________
Exercise price $______________
Vesting months _______________
Final exercise date _______________
5 of 5
<PAGE> 1
THIS WARRANT (AND, IF EXERCISED, THE UNDERLYING WARRANT STOCK) HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS AND HAS BEEN TAKEN FOR INVESTMENT PURPOSES ONLY
AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF.
IT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED (EXCEPT A PLEDGE PURSUANT TO THE
TERMS OF WHICH ANY OFFER OR SALE UPON FORECLOSURE WOULD BE MADE IN A MANNER THAT
WOULD NOT VIOLATE THE REGISTRATION PROVISIONS OF FEDERAL OR STATE SECURITIES
LAWS) IN THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION WITHOUT AN OPINION
OF COUNSEL FOR THE HOLDER REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
TRANSFER MAY BE MADE WITHOUT SUCH REGISTRATION AND QUALIFICATION.
Warrant to Purchase Common Stock
of
Innova Corporation
___________ Shares of Common Stock,
$_______ per Share.
For valuable consideration, receipt of which is hereby
acknowledged ______________________ (the "Holder"), is entitled to purchase from
INNOVA CORPORATION, a Washington corporation (the "Company"), up to
______________________________ (____________) shares of the Common Stock of the
Company, par value $0.01 per share (the "Stock"), at a purchase price of $______
per share upon exercise of this Warrant at any time after the commencement of,
and prior to the expiration of, the Exercise Period, all subject to the
provisions of this Warrant. This Warrant is issued by the Company (the
"Warrants") on the date hereof pursuant to the _______________ between the
Company and Holder dated ____________ __, ____.
Section 1. Definitions.
In addition to the terms defined above, the following terms shall have the
following meanings:
1.1 "Affiliate" shall mean, as to any Person, any other Person
which directly or indirectly controls, or is under common control with, or is
controlled by, such Person and, if such Person is an individual, any member of
the immediate family (including parents, spouse and children) of such
individual, any trust whose principal beneficiary is such individual or one or
more members of such individual's immediate family and any Person who is
controlled by any such member or trust. As used in this definition, "control"
(including with its correlative meanings, "controlled by" and "under common
control with") shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of management or policies of the subject
1
<PAGE> 2
Person (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise); provided that, in any event, any
Person which owns directly or indirectly 10% or more of the securities having
ordinary voting power for the election of directors or other governing body of a
corporation or 10% or more of the partnership or other ownership interests of
any other Person (other than as a limited partner of such other Person) will be
deemed an Affiliate of such corporation or other Person.
1.2 "Capital Stock" means the class of Company securities that
includes the Warrant Stock.
1.3 "Exercise Price" means the purchase price payable for each
share of Warrant Stock upon exercise of this Warrant. On the date of this
Warrant, the Exercise Price is $0.1076 per share of Common Stock.
1.4 "Exercise Period" means the period of time commencing on
______ __, ____ and continuing through and until ______ __, ____.
1.5 "Person" means any individual, corporation, partnership,
trust, unincorporated organization, governmental authority or other entity.
1.6 "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
1.7 "Warrant" means any warrant to purchase shares of Warrant
Stock as evidenced by this certificate or any Warrant certificate issued
pursuant to paragraph 4.4 or 5.1 hereof.
1.9 "Warrant Stock" means the Common Stock or, upon the
application of Section 3 of this Warrant, other securities to be issued upon
exercise of this Warrant. All Warrant Stock shall be fully paid and
nonassessable upon issuance by the Company in accordance with the terms of this
Warrant.
Section 2. Exercise of Warrant.
2.1 Method of Exercise. This Warrant may be exercised by delivery
of the following to the Company at the address set forth in paragraph 5.4 or
such other address as the Company may designate by written notice to the Holder
prior to the end of the Exercise Period: (a) this Warrant; (b) a completed and
executed Subscription in the form attached as Exhibit A; and (c) payment of the
Exercise Price of the Warrant Stock, which payment shall be in the form of cash,
certified or bank check, or any other means of payment acceptable to the
Company.
2
<PAGE> 3
2.2 Issuance of Certificates. Within a reasonable time not in
excess of thirty (30) days after the Warrant has been exercised pursuant to
paragraph 2.1 above, the Company shall deliver to the Holder stock certificates
for the Warrant Stock. The stock certificates shall be issued in the name of and
delivered to the Holder at the address designated in the completed Subscription.
2.3 No Fractional Shares. No fractional shares shall be issued
upon exercise of this Warrant. In lieu of such fractional shares, the Company
shall pay the Holder an amount in cash equal to such fraction multiplied by the
Exercise Price.
2.4 Expiration. This Warrant shall expire and be of no further
force or effect, to the extent not previously exercised in accordance with
paragraph 2.1, on the day after the end of the Exercise Period.
2.5 Reservation of Warrant Stock. The Company shall take all
steps necessary to authorize and reserve a sufficient number of shares of
authorized but unissued Capital Stock as required to permit the exercise in full
of this Warrant. The Company shall authorize and direct the transfer agent for
such securities to reserve such number of authorized but unissued securities as
shall be requisite for such purpose. The Company shall keep a copy of this
Warrant on file with the transfer agent.
Section 3. Adjustments to Warrant Stock and Exercise Price.
3.1 Adjustment of Exercise Price. If the Company shall at any
time after the date of this Warrant: (a) pay any dividend in shares of its
securities or make a distribution in shares of its securities or other property
with respect to all of its outstanding shares of Capital Stock; (b) subdivide
its outstanding shares of Capital Stock; (c) combine its outstanding shares of
Capital Stock into a smaller number of shares of Capital Stock; or (d)
reclassify its outstanding shares of Capital Stock; the Exercise Price in effect
at the time of the record date for such dividend or distribution, or the
effective date of such subdivision, combination or reclassification, shall be
proportionately adjusted so that the Holder shall, upon exercise of the Warrant
after such event, be entitled to receive the aggregate number and kind of
securities which, if such Warrant had been exercised immediately prior to such
event, the Holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustments shall be made successively whenever any event
listed above shall occur.
3.2 Number of Warrant Stock Adjusted. After any
adjustment of the Exercise Price pursuant to Section 3.1 hereof,
the number of shares of Warrant Stock issuable at the new
3
<PAGE> 4
Exercise Price shall be adjusted to the number obtained by: (a) multiplying the
number of shares of Warrant Stock issuable upon exercise of this Warrant
immediately before such adjustment by the Exercise Price in effect immediately
before such adjustment; and (b) dividing the product so obtained by the new
Exercise Price.
3.3 Reorganization. Etc. Upon any reorganization of the Company,
consolidation or merger of the Company with or into another entity, or any sale
or conveyance to another entity of all or substantially all of the property of
the Company, then, as a condition of such reorganization, consolidation, merger,
sale or conveyance, the Company or its successor, as the case may be, shall
forthwith enter into a supplemental agreement to make lawful and adequate
provision whereby the Holder shall have the right to receive, upon exercise of
the Warrant at the applicable Exercise Price, the kind and amount of shares and
other securities and property which would have been received upon such
reorganization, consolidation, merger, sale or conveyance by a holder of a
number of shares of Capital Stock equal to the number of shares issuable upon
exercise of the Warrant immediately prior to such reorganization, consolidation,
merger, sale or conveyance.
Section 4. Transferability of Warrant.
4.1 Investment Intent. The Holder is acquiring this Warrant for
its own account for investment and not with a view to, or for sale in connection
with, any distribution or sale of any part thereof and with no present intention
of selling, granting participation in or otherwise distributing the same. The
Holder acknowledges that this Warrant and the underlying Warrant Shares have not
been registered under the Securities Act or qualified under applicable state
securities laws and confirms to the Company that it understands the restrictions
on resale imposed by the Securities Act. The Holder understands that, except as
set forth in paragraph 4.3 below, the Warrant is neither transferable nor
assignable, and therefore the Holder may never be able to sell or dispose of
this Warrant and may have to bear the risk of investment in the Warrant for a
substantial period of time or forever.
4.2 No Registration Rights. In addition, the Holder acknowledges
that the Company has not granted any registration rights hereunder that would be
applicable to the later sale of any Warrant Stock, including but not limited to
any "piggyback" or "demand" registration rights.
4.3 Transfer Without Registration. Notwithstanding paragraphs 4.1
and 4.2, the Holder may transfer this Warrant and the Warrant Stock, in whole
pursuant to a transaction which does not violate registration provisions of the
Securities Act and any applicable provisions of state law. Prior to any such
transfer,
4
<PAGE> 5
the Holder shall notify the Company of its intention to effect such transfer,
indicating the circumstances of the proposed transfer, and furnish the Company
with an opinion of the Holder's counsel, in form and substance reasonably
satisfactory to counsel for the Company, to the effect that the proposed
transfer may be made without registration under the Securities Act or
qualification under any applicable state securities laws. The Company shall
promptly notify the Holder if the opinion of counsel furnished to the Company is
reasonably satisfactory to counsel for the Company.
4.4 Registration of Transfer. Upon surrender of any certificate
representing any Warrant, properly endorsed for transfer, the Company shall
(subject to the restrictions on transferability contained in this Section 4)
execute and deliver a new certificate in exchange therefor, representing in the
aggregate the amount of securities represented by the surrendered certificate,
and the Company forthwith shall cancel such surrendered certificate. Each such
new certificate shall be registered in the name and shall (subject to the
immediately preceding sentence) represent the whole amount of securities
represented by the surrendered certificate and shall be substantially identical
in form to the surrendered certificate.
Section 5. Miscellaneous Provisions.
5.1 Replacement of Certificates. The Company shall issue a new
certificate evidencing any Warrant or Warrant Stock in place of any previously
issued certificate alleged to have been lost, stolen or destroyed, upon such
terms and conditions as the Board of Directors may reasonably prescribe,
including the presentation of reasonable evidence of such loss, theft or
destruction (provided that an affidavit of the Holder shall be satisfactory for
such purpose, unless more is required by the Company's transfer agent or
registrar) and the giving of such indemnity as the Company's Board of Directors
may reasonably request for the protection of the Company or its transfer agent
or registrar against any liability that may arise out of the issuance of the
replacement certificate. Upon surrender of any previously issued certificate
that has been mutilated, the Company shall issue a new certificate in place
thereof.
5.2 Legend. The Holder understands that the Company may place the
following legend on any certificate evidencing this Warrant or any Warrant
Stock:
THESE SECURITIES ARE NOT REGISTERED UNDER STATE OR FEDERAL
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED (EXCEPT A
PLEDGE PURSUANT TO THE TERMS OF WHICH OFFER OR SALE UPON
FORECLOSURE WOULD BE MADE IN A MANNER THAT WOULD NOT VIOLATE THE
REGISTRATION PROVISIONS OF FEDERAL OR STATE SECURITIES LAWS) OR
OTHERWISE DISTRIBUTED FOR VALUE, NOR MAY THESE
5
<PAGE> 6
SECURITIES BE TRANSFERRED WITHOUT OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
TRANSFER MAY BE MADE WITHOUT REGISTRATION UNDER THE
SECURITIES ACT.
The certificate representing such securities, and each certificate issued in
transfer thereof, may also bear any legend required under applicable state
securities laws.
5.3 No Rights as Stockholder. Nothing contained in this Warrant
shall be construed as conferring upon the Holder the right to vote, to receive
dividends or to consent to or receive notice as a stockholder in respect of any
meeting of stockholders for the election of directors of the Company or any
other matter, or any rights whatsoever as a stockholder of the Company.
5.4 Notices. Any notice or other communication in connection with
this Warrant shall be in writing and shall be deemed effective when initially
transmitted by courier or facsimile transmission and five (5) days after mailing
by registered or certified mail:
If to the Company: 3325 S. 116th Street
Seattle, WA 98168
Attention: Chief Financial Officer
Facsimile: (206) 439-2701
If to the Holder: ______________________
______________________
______________________
or to such person or address as either of the parties shall furnish in writing
to the other party from time to time in accordance with the provisions hereof.
5.5 Identity of Transfer Agent. Upon the appointment of any
transfer agent for any Capital Stock, the Company shall notify the Holder of the
name and address of such transfer agent.
5.6 Binding Effect. All the covenants and provisions of this
Warrant that are by and for the benefit of the Company shall bind and inure to
the benefit of its successors and assigns hereunder.
5.7 Applicable Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of Washington.
5.8 Benefits of this Agreement. Nothing in this Warrant shall be
construed to give any person or entity other than the Company and the Holder any
legal or equitable right,
6
<PAGE> 7
remedy or claim under this Warrant; this Warrant shall be for the sole and
exclusive benefit of the Company and the Holder.
5.9 Amendment. The terms of this Warrant may not be amended
without the prior written consent of the Holder, the Company, and the holders of
Warrants representing a majority of the Warrant Stock then issuable upon
exercise of all outstanding Warrants; provided, however, that the commencement
of the
5.10 Warrant Stock. As a condition to the exercise of this
Warrant, the Company may require customary representations from the Holder to
assure that the issuance of the Warrant Stock hereunder upon exercise be exempt
from the registration or qualification requirements under the Securities Act or
any state securities laws.
DATED: ______________
INNOVA CORPORATION
By:____________________________
Its:________________________
HOLDER
________________________
7
<PAGE> 8
EXHIBIT A
Subscription
(To be signed only upon exercise of the Warrant)
To Innova Corporation:
The undersigned, the Holder of the Warrant enclosed herewith,
hereby irrevocably elects to exercise the purchase rights represented by such
Warrant for, and to purchase thereunder, _________ shares of Common Stock and
herewith renders payment of _________________ Dollars ($___________) therefor,
and requests that the certificates for such securities be issued in the name and
delivered to the address listed below.
The undersigned represents that (i) the undersigned is an
accredited investor, as defined under the Securities Act, (ii) the undersigned
is acquiring such securities for its own account for investment and not with a
view to or for sale in connection with any distribution thereof and (iii) that
the representations and warranties set forth in the Note and Warrant
Subscription Agreement, dated as of November ____, 1995, with respect to the
Warrants and the Warrant Stock, as defined therein, are true and correct with
respect to the undersigned as of the date hereof.
DATED: ______________________
----------------------------
(Name)
----------------------------
(Address)
8
<PAGE> 1
THIS WARRANT (AND, IF EXERCISED, THE UNDERLYING WARRANT SHARES) HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS AND HAS BEEN TAKEN FOR INVESTMENT PURPOSES ONLY
AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF.
IT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED (EXCEPT A PLEDGE PURSUANT TO THE
TERMS OF WHICH ANY OFFER OR SALE UPON FORECLOSURE WOULD BE MADE IN A MANNER THAT
WOULD NOT VIOLATE THE REGISTRATION PROVISIONS OF FEDERAL OR STATE SECURITIES
LAWS) IN THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION WITHOUT AN OPINION
OF COUNSEL FOR THE HOLDER REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
TRANSFER MAY BE MADE WITHOUT SUCH REGISTRATION AND QUALIFICATION.
WARRANT TO PURCHASE SERIES A PREFERRED STOCK
OF
INNOVA CORPORATION
_______ Shares of Series A Preferred Stock, Three and one-half
cents ($.035) per Share.
For valuable consideration, receipt of which is hereby
acknowledged, ___________ (the "Holder") is entitled to purchase from INNOVA
CORPORATION, a Washington corporation (the "Company"), up to
_______________________________ (_______) shares of the Series A Preferred Stock
of the Company, par value $0.01 per share (the "Series A Preferred Stock"), at a
purchase price of three and one-half cents ($.035) per share upon exercise of
this Warrant at any time after the date of this Warrant and prior to the
expiration of the Exercise Period, all subject to the provisions of this
Warrant.
Section 1. Definitions.
In addition to the terms defined above, the following terms shall have the
following meanings:
1.1 "Capital Stock" means the class of Company securities that
includes the Warrant Stock.
1.2 "Exercise Price" means the purchase price payable for each
share of Warrant Stock upon exercise of this Warrant. On the date of this
Warrant, the Exercise Price is three and one-half cents ($.035) per share of
Series A Preferred Stock.
1.3 "Exercise Period" means the period of time beginning on the
date of this Warrant and continuing through and until May 31, 1999.
1
<PAGE> 2
1.4 "Person" means any individual, corporation, partnership,
trust, unincorporated organization, governmental authority or other entity.
1.5 "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
1.6 "Warrant" means any warrant to purchase shares of Warrant
Stock as evidenced by this certificate or any Warrant certificate issued
pursuant to paragraph 2.2, 4.4 or 5.1.
1.7 "Warrant Stock" means the Series A Preferred Stock or, upon
the application of Section 3 of this Warrant, other securities to be issued upon
exercise of this Warrant. All Warrant Stock shall be fully paid and
nonassessable upon issuance by the Company.
Section 2. Exercise of Warrant.
2.1 Method of Exercise. This Warrant may be exercised by delivery
of the following to the Company at the address set forth in paragraph 5.4 or
such other address as the Company may designate by written notice to the Holder
prior to the end of the Exercise Period: (a) this Warrant; (b) a completed and
executed Subscription in the form attached as Exhibit A; and (c) payment of the
Exercise Price of the Warrant Stock, which payment shall be in the form of cash,
certified or bank check, or any other means of payment acceptable to the
Company.
2.2 Issuance of Certificates. Within a reasonable time not in
excess of thirty (30) days after the Warrant has been exercised pursuant to
paragraph 2.1 above, the Company shall deliver to the Holder stock certificates
for the Warrant Stock. The stock certificates shall be issued in the name of and
delivered to the Holder at the address designated in the completed Subscription.
2.3 No Fractional Shares. No fractional shares shall be issued
upon exercise of this Warrant. In lieu of such fractional shares, the Company
shall pay the Holder an amount in cash equal to such fraction multiplied by the
Exercise Price.
2.4 Expiration. This Warrant shall expire and be of no further
force or effect, to the extent not exercised in accordance with paragraph 2.1,
on the day after the end of the Exercise Period.
2.5 Reservation of Warrant Stock. The Company shall take all
steps necessary to authorize and reserve a sufficient number of shares of
authorized but unissued Capital Stock as required to permit the exercise in full
of this Warrant. The Company shall authorize and direct the transfer agent for
such securities to reserve such number of authorized but unissued
2
<PAGE> 3
securities as shall be requisite for such purpose. The Company shall keep a copy
of this Warrant on file with the transfer agent.
Section 3. Adjustments to Warrant Stock and Exercise Price.
3.1 Adjustment of Exercise Price. If the Company shall at any
time after the date of this Warrant: (a) pay any dividend in shares of its
securities or make a distribution in shares of its securities or other property
with respect to all of its outstanding shares of Capital Stock; (b) subdivide
its outstanding shares of Capital Stock; (c) combine its outstanding shares of
Capital Stock into a smaller number of shares of Capital Stock; or (d)
reclassify its outstanding shares of Capital Stock; the Exercise Price in effect
at the time of the record date for such dividend or distribution, or the
effective date of such subdivision, combination or reclassification, shall be
proportionately adjusted so that the Holder shall, upon exercise of the Warrant
after such event, be entitled to receive the aggregate number and kind of
securities which, if such Warrant had been exercised immediately prior to such
event, the Holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustments shall be made successively whenever any event
listed above shall occur.
3.2 Number of Warrant Shares Adjusted. After any adjustment of
the Exercise Price pursuant to Section 3.1 hereof, the number of Warrant Shares
issuable at the new Exercise Price shall be adjusted to the number obtained by:
(a) multiplying the number of Warrant Shares issuable upon exercise of this
Warrant immediately before such adjustment by the Exercise Price in effect
immediately before such adjustment; and (b) dividing the product so obtained by
the new Exercise Price.
3.3 Reorganization, Etc. Upon any reorganization of the Company,
consolidation or merger of the Company with or into another entity, or any sale
or conveyance to another entity of all or substantially all of the property of
the Company, then, as a condition of such reorganization, consolidation, merger,
sale or conveyance, the Company or its successor, as the case may be, shall
forthwith enter into a supplemental agreement to make lawful and adequate
provision whereby the Holder shall have the right to receive, upon exercise of
the Warrant at the applicable Exercise Price, the kind and amount of shares and
other securities and property which would have been received upon such
reorganization, consolidation, merger, sale or conveyance by a holder of a
number of shares of Capital Stock equal to the number of shares issuable upon
exercise of the Warrant immediately prior to such reorganization, consolidation,
merger, sale or conveyance.
3
<PAGE> 4
Section 4. Transferability of Warrant.
4.1 Investment Intent. The Holder is acquiring this Warrant for
its own account for investment and not with a view to, or for sale in connection
with, any distribution or sale of any part thereof and with no present intention
of selling, granting participation in or otherwise distributing the same. The
Holder acknowledges that this Warrant and the underlying Warrant Shares have not
been registered under the Securities Act or qualified under applicable state
securities laws and confirms to the Company that it understands the restrictions
on resale imposed by the Securities Act. The Holder understands that, except as
set forth in paragraph 4.3 below, the Warrant is neither transferable nor
assignable, and therefore the Holder may never be able to sell or dispose of
this Warrant and may have to bear the risk of investment in the Warrant for a
substantial period of time or forever.
4.2 Registration Rights. In addition, the Holder acknowledges
that the Company has not, in connection with the issuance of this Warrant,
granted any registration rights that would be applicable to the later sale of
any Warrant Shares, including but not limited to any "piggyback" or "demand"
registration rights, and therefore is under no obligation to provide such
services. If the Company should, however, engage in a public offering of any
Capital Stock and should determine, in its sole discretion, that the
registration of the Warrant Shares in such offering would not in any way
jeopardize the ability of the Company or the shareholders or warrant holders of
the Company who were shareholders prior the date of this Warrant (the "Founding
Shareholders") to sell the stock intended to be offered, the amount of proceeds
to be received by the Company or the Founding Shareholders in connection with
such offering or the price of the stock to be offered, the Company acknowledges
that it would use its best efforts to include the Warrant Shares in such
offering, subject to the Holder's tender, in advance, of all costs and taxes
incurred in connection with the registration of such shares in the offering.
4.3 Transfer Without Registration. Notwithstanding paragraphs 4.1
and 4.2, the Holder may transfer this Warrant and the Warrant Stock, in whole:
(a) to any person who qualifies as an "accredited investor" within the meaning
of Regulation D promulgated under the Securities Act; or (b) otherwise in
compliance with the provisions of the Securities Act and any applicable
provisions of state law. Prior to any such transfer, the Holder shall notify the
Company of its intention to effect such transfer, indicating the circumstances
of the proposed transfer, and furnish the Company with an opinion of the
Holder's counsel, in form and substance reasonably satisfactory to counsel for
the Company, to the effect that the proposed transfer may be made without
registration under the Securities Act or qualification under any applicable
state securities laws. The
4
<PAGE> 5
Company shall promptly notify the Holder if the opinion of counsel furnished to
the Company is reasonably satisfactory to counsel for the Company. Unless the
Company notifies the Holder within fifteen (15) business days after its receipt
of such opinion that such opinion is not reasonably satisfactory to counsel for
the Company, the Holder may proceed to effect the transfer.
4.4 Registration of Transfer. Upon surrender of any certificate
representing any Warrant, properly endorsed for transfer, the Company shall
(subject to the restrictions on transferability contained in this Section 4)
execute and deliver a new certificate in exchange therefor, representing in the
aggregate the amount of securities represented by the surrendered certificate,
and the Company forthwith shall cancel such surrendered certificate. Each such
new certificate shall be registered in the name and shall (subject to the
immediately preceding sentence) represent the whole amount of securities
represented by the surrendered certificate and shall be substantially identical
in form to the surrendered certificate.
Section 5. Miscellaneous Provisions.
5.1 Replacement of Certificates. The Company shall issue a new
certificate evidencing any Warrant or Warrant Stock in place of any previously
issued certificate alleged to have been lost, stolen or destroyed, upon such
terms and conditions as the Board of Directors may reasonably prescribe,
including the presentation of reasonable evidence of such loss, theft or
destruction (provided that an affidavit of the Holder shall be satisfactory for
such purpose, unless more is required by the Company's transfer agent or
registrar) and the giving of such indemnity as the Company's Board of Directors
may reasonably request for the protection of the Company or its transfer agent
or registrar against any liability that may arise out of the issuance of the
replacement certificate. Upon surrender of any previously issued certificate
that has been mutilated, the Company shall issue a new certificate in place
thereof.
5.2 Legend. The Holder understands that the Company may place the
following legend on any certificate evidencing this Warrant or any Warrant
Stock:
THESE SECURITIES ARE NOT REGISTERED UNDER STATE OR FEDERAL
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED (EXCEPT A
PLEDGE PURSUANT TO THE TERMS OF WHICH OFFER OR SALE UPON
FORECLOSURE WOULD BE MADE IN A MANNER THAT WOULD NOT VIOLATE THE
REGISTRATION PROVISIONS OF FEDERAL OR STATE SECURITIES LAWS) OR
OTHERWISE DISTRIBUTED FOR VALUE, NOR, IF REASONABLY REQUESTED BY
THE COMPANY, MAY THESE SECURITIES BE TRANSFERRED WITHOUT OPINION
OF COUNSEL REASONABLY
5
<PAGE> 6
SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER MAY BE MADE
WITHOUT REGISTRATION UNDER THE SECURITIES ACT.
The certificate representing such securities, and each certificate issued in
transfer thereof, may also bear any legend required under applicable state
securities laws.
5.3 No Rights as Stockholder. Nothing contained in this Warrant
shall be construed as conferring upon the Holder the right to vote, to receive
dividends or to consent to or receive notice as a stockholder in respect of any
meeting of stockholders for the election of directors of the Company or any
other matter, or any rights whatsoever as a stockholder of the Company.
5.4 Notices. Any notice or other communication in connection with
this Warrant shall be in writing and shall be deemed effective when initially
transmitted by courier or facsimile transmission and five (5) days after mailing
by registered or certified mail:
If to the Company: 3325 S. 116th Street
Seattle, WA 98168
Attention: Chief Executive Officer
Facsimile: (206) 439-2701
If to the Holder: _________________________
_________________________
_________________________
Facsimile: (___) ___-____
or to such person or address as either of the parties shall furnish in writing
to the other party from time to time in accordance with the provisions hereof.
5.5 Identity of Transfer Agent. Upon the appointment
of any transfer agent for any Capital Stock, the Company shall
notify the Holder of the name and address of such transfer agent.
5.6 Binding Effect. All the covenants and provisions
of this Warrant that are by and for the benefit of the Company
shall bind and inure to the benefit of its successors and assigns
hereunder.
5.7 Applicable Law. This Warrant shall be governed by
and construed in accordance with the laws of the State of
Washington.
5.8 Benefits of this Agreement. Nothing in this Warrant shall be
construed to give any person or entity other than the Company and the Holder any
legal or equitable right, remedy or claim under this Warrant; this Warrant shall
be for the sole and exclusive benefit of the Company and the Holder.
6
<PAGE> 7
DATED: _________________.
INNOVA CORPORATION
By: _________________________
Its: _________________
7
<PAGE> 8
EXHIBIT A
Subscription
(To be signed only upon exercise of the Warrant)
To Innova Corporation:
The undersigned, the Holder of the Warrant enclosed herewith,
hereby irrevocably elects to exercise the purchase rights represented by such
Warrant for, and to purchase thereunder, ______________ shares of Series A
Preferred Stock and herewith renders payment of _____________________________
Dollars ($____________) therefor, and requests that the certificates for such
securities be issued in the name and delivered to the address listed below.
The undersigned represents that he or she is acquiring such
securities for his or her own account for investment and not with a view to or
for sale in connection with any distribution thereof.
DATED: _________________________
------------------------------------
(Name)
------------------------------------
(Address)
8
<PAGE> 1
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
- --------------------------------------------------------------------------------
WARRANT TO PURCHASE STOCK
WARRANT TO PURCHASE 516,000 ISSUE DATE: APRIL 29, 1997
SHARES OF THE COMMON EXPIRATION DATE: APRIL 30, 2002
STOCK OF INNOVA CORPORATION INITIAL EXERCISE PRICE: $0.29 PER SHARE
THIS WARRANT CERTIFIED THAT, for the agreed upon value of $1.00 and for other
good and valuable consideration. GREYROCK BUSINESS CREDIT, A DIVISION OF
NATIONSCREDIT COMMERCIAL CORPORATION ("Holder") is entitled to purchase the
number of fully paid and non-assessable shares of the class of securities (the
"Shares") of the corporation (the "Company") at the initial exercise price per
Share (the "Warrant Price") all as set forth above and as adjusted pursuant to
Article 2 of this Warrant, subject to the provisions and upon the terms and
conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering a duly
executed Notice of Exercise in substantially the form attached as Appendix 1 to
the principal office of the Company. Unless Holder is exercising the conversion
right set forth in Section 1.2, Holder shall also deliver to the Company a check
for the aggregate Warrant Price for the Shares being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.4.
1.3 FAIR MARKET VALUE. If the Shares are traded in a public market, the fair
market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
1.4 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder exercises or
converts this Warrant, the Company shall deliver to Holder certificates for the
Shares acquired
1
<PAGE> 2
and, if this Warrant has not been fully exercised or converted and has not
expired, a new Warrant representing the Shares not so acquired.
1.5 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of
mutilation, or surrender and cancellation of this Warrant, the Company at its
expense shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor.
1.6 REPURCHASE ON SALE, MERGER OR CONSOLIDATION OF THE COMPANY.
1.6.1 "ACQUISITION". For the purpose of this Warrant, "Acquisition" means any
sale, license, or other disposition of all or substantially all of the assets of
the Company, or any reorganization, consolidation, or merger of the Company
where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.6.2 ASSUMPTION OF WARRANT. If upon the closing of any Acquisition the
successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.6.3 NONASSUMPTION. If upon the closing of any Acquisition the successor
entity does not assume the obligations of this Warrant and Holder has not
otherwise exercised this Warrant in full, then the unexercised portion of this
Warrant shall be deemed to have been automatically converted pursuant to Section
1.2 and thereafter Holder shall participate in the acquisition on the same terms
as other holders of the same class of securities of the Company.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a dividend on
its common stock (or the Shares if the Shares are securities other than common
stock) payable in common stock, or other securities, subdivides the outstanding
common stock into a greater amount of common stock, or, if the Shares are
securities other than common stock, subdivides the Shares in a transaction that
increases the amount of common stock into which the Shares are convertible, then
upon exercise of this Warrant, for each Share acquired, Holder shall receive,
without cost to Holder, the total number and kind of securities to which Holder
would have been entitled had Holder owned the Shares of record as of the date
the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any reclassification,
exchange, substitution, or other event that results in a change of the number
and/or class of the securities issuable upon exercise or conversion of this
Warrant, Holder shall be entitled to receive, upon exercise or conversion of
this Warrant, the number and kind of securities and property that Holder would
have received for the Shares if this Warrant had been exercised immediately
before such reclassification, exchange, substitution, or other event. Such an
event shall include any automatic conversion of the outstanding or issuable
securities of the Company of the same class or series as the Shares to common
stock pursuant to the terms of the Company's Articles of Incorporation upon the
closing of a registered public offering of the Company's common stock. The
Company or its successor shall promptly issue to Holder a new Warrant for such
new securities or other property. The new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in
2
<PAGE> 3
this Article 2 including, without limitation, adjustments to the Warrant Price
and to the number of securities or property issuable upon exercise of the new
Warrant. The provisions of this Section 2.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are combined or
consolidated, by reclassification or otherwise, into a lesser number of shares,
the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the number of
Shares issuable upon exercise of this Warrant or, if the Shares are Preferred
Stock, the number of shares of common stock issuable upon conversion of the
Shares, shall be subject to adjustment, from time to time in the manner set
forth on Exhibit A in the event of Diluting Issuances (as defined on Exhibit A).
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Articles of
Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all of the provisions of this Article 2
and in taking all such action as may be necessary or appropriate to protect
Holder's rights under this Article against impairment.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon exercise or
conversion of the Warrant and the number of Shares to be issued shall be rounded
down to the nearest whole Shares. If a fractional share interest arises upon any
exercise or conversion of the Warrant, the Company shall eliminate such
fractional share interest by paying Holder amount computed by multiplying the
fractional interest by fair market value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant Price,
the company at its expense shall promptly compute such adjustment, and furnish
Holder with a certificate of its Chief Financial Officer setting forth such
adjustment and the facts upon which such adjustment is based. The Company shall,
upon written request, furnish Holder a certificate setting forth the Warrant
Price in effect upon the date thereof and the series of adjustments leading to
such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
SECTION 3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this Warrant is
not greater than (i) the price per share at which the Shares were last issued in
an arms-length transaction in which at least $500,000 of the Shares were sold
and (ii) the fair market value of the Shares as of the date of this Warrant.
(b) All Shares which may be issued upon the exercise of the purchase right
represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and non-assessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to declare
any dividend or distribution upon its common stock, whether in cash, property,
stock, or other securities and whether or not a regular cash dividend; (b) to
offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other rights; (c)
to effect any reclassification or recapitalization of common stock; (d) to merge
or consolidate with or into any other corporation, or sell, lease, license, or
convey all or substantially all
3
<PAGE> 4
of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of
registration rights the opportunity to participate in an underwritten public
offering of the company's securities for cash, then, in connection with each
such event, the Company shall give Holder (1) at least 20 days prior written
notice of the date on which a record will be taken for such dividend,
distribution, or subscription rights (and specifying the date on which the
holders of common stock will be entitled thereto) or for determining rights to
vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in
the case of the matters referred to in (c) and (d) above at least 20 days prior
written notice of the date when the same will take placer (and specifying the
date on which the holders of common stock will be entitled to exchange their
common stock for securities or other property deliverable upon the occurrence of
such event); and (3) in the case of the matter referred to in (e) above, the
same notice as is given to the holders of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or any of
the Shares, the Company shall deliver to the Holder (a) promptly after mailing,
copies of all notices or other written communications to the shareholders of the
Company, (b) within ninety (90) days after the end of each fiscal year of the
Company, the annual audited financial statements of the Company certified by
independent public accountants of recognized standing and (c) within forty-five
(45) days after the end of each of the first three quarters of each fiscal year,
the Company's quarterly, unaudited financial statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The Company agrees
that the Shares or, if the Shares are convertible into common stock of the
Company, such common stock, shall be subject to the registration rights set
forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM: NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or in
part, at any time and from time to time on or before the Expiration Date set
forth above. The Company shall give Holer written notice of Holder's right to
exercise this Warrant in the form attached as Appendix 2 not more than 90 days
and not less than 30 days before the Expiration Date. If the notice is not so
given, the Expiration Date shall automatically be extended until 30 days after
the date the Company delivers the notice to Holder.
4.2 LEGENDS. This warrant and the Shares (and the securities issuable, directly
or indirectly, upon conversion of the Shares, if any) shall be imprinted with a
legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the Shares
issuable upon exercise of this Warrant (and the securities issuable, directly or
indirectly, upon conversion of the Shares, if any) may not be transferred or
assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if reasonably requested by the Company).
The Company shall not require Holder to provide an opinion of counsel if the
transfer is to an affiliate of Holder or if there is no material question as to
the availability of current information as referenced in Rule 144(c). Holder
represents that it has complied with
4
<PAGE> 5
Rule 144(d) and (e) in reasonable detail, the selling broker represents that it
has complied with Rule 144(f), and the Company is provided with a copy of
Holder's notice of proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2, Holder may
transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion of
the Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 WAIVER. This Warrant and any term hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the parties concerning
the terms and provisions of this Warrant, the party prevailing in such dispute
shall be entitled to collect from the other party all costs incurred in such
dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without given effect to its
principles regarding conflicts of law.
INNOVA CORPORATION
By /s/ Jean-Francois Grenon
----------------------------------
Chairman of the Board, President or
Vice President
By /s/ John Hemingway
----------------------------------
Secretary or Ass't Secretary
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _________ shares of the
Common/Series ___ Preferred [strike one] Stock of ____________ pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to ______ of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name as is specified below:
-----------------------------
(NAME)
-----------------------------
-----------------------------
(ADDRESS)
3. The undersigned represents it is * acquiring the shares solely for its own
account and not as a nominee for any other party and not with a view toward the
resale
5
<PAGE> 6
or distribution thereof except in compliance with applicable securities
laws.
* AN ACCREDITED INVESTOR AND IS
- --------------------------------
(Signature)
- --------------------------------
(Date)
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear_____________________:
This is to advise you that the Warrant issued to you described below will
expire on ______________________, 19__.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any questions
you may have concerning exercise of the Warrant. This is your only notice of
pending expiration.
(Name of Issuer)
By _____________________________
its ____________________________
EXHIBIT A
ANTI-DILUTION PROVISIONS
In the event of the issuance (a "Diluting Issuance") by the Company, after the
Issue Date of the Warrant, of securities at a price per share less than the
Warrant Price, or, if the Shares are common stock, less than the then conversion
price of the Company's Series __ Preferred Stock, then the number of shares of
common stock issuable upon conversion of the Shares, or if the Shares are common
stock, the number of Shares issuable upon exercise of the warrant, shall be
adjusted as a result of Diluting Issuances in accordance with the Holder's
standard form of Anti-Dilution Agreement in effect on the Issue Date.
Under no circumstances shall the aggregate Warrant Price payable by the Holder
upon exercise of the Warrant increase as a result of any adjustment arising from
a Diluting Issuance.
EXHIBIT B
REGISTRATION RIGHTS
The Shares (if common stock), or the common stock issuable upon conversion of
the Shares, shall be deemed "registrable securities" or otherwise entitled to
"piggy back" registration rights in accordance with the terms of the following
agreement (the "Agreement") between the Company and its investor(s):
Registration Rights Agreement dated May 26, 1994, as amended.
The Company agrees that no amendments will be made to the Agreement which
would have an adverse impact on Holder's registration rights thereunder without
the consent of Holder. By acceptance of the Warrant to which this Exhibit B is
attached, Holder shall be deemed to be a party to the Agreement.
6
<PAGE> 7
ANTIDILUTION AGREEMENT
ISSUER: INNOVA CORPORATION
ADDRESS: 3325 SOUTH 116TH STREET
SEATTLE, WASHINGTON 98168
DATE: APRIL 29, 1997
THIS AGREEMENT is entered into as of the above date by and between GREYROCK
BUSINESS CREDIT, a division of NationsCredit Commercial Corporation
("Purchaser"), whose address is 10880 Wilshire Blvd. Suite 950, Los Angeles, CA
90024, and the above Company, whose address is set forth above.
RECITALS
A. Concurrently with the execution of this Antidilution Agreement, the
Purchaser is purchasing from the Company a Warrant to Purchase Stock (the
"Warrant") pursuant to which Purchaser has the right to acquire from the Company
the Shares (as defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company desire
to set forth the adjustment in the number of Shares issuable upon exercise of
the Warrant as a result of a Diluting Issuance (as defined in Exhibit A to the
Warrant).
C. Capitalized terms used herein shall have the same meaning as set
forth in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. DEFINITIONS. As used in this Antidilution Agreement, the following
terms have the following respective meanings:
(a) "Option" means any right, option, or warrant to subscribe for,
purchase, or otherwise acquire common stock or Convertible Securities.
1
<PAGE> 8
(b) "Convertible Securities" means any evidence of indebtedness, shares
of stock, or other securities directly or indirectly convertible into or
exchangeable for common stock.
(c) "Issue" means to grant, issue, sell, assume, or fix a record date
for determining persons entitled to receive, any security (including Options),
whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all common stock (including
reissued shares) issued (or deemed to be issued pursuant to Section 2) after the
date of the Warrant. Additional Common Shares does not include, however, any
common stock issued in a transaction described in Sections 2.1 and 2.2 of the
Warrant; any common stock Issued upon conversion of preferred stock outstanding
on the date of the Warrant; the Shares; or common stock Issued as incentive or
in a nonfinancing transaction to employees, officers, directors, or consultants
to the Company.
(e) The shares of common stock ultimately Issuable upon exercise of an
Option (including the shares of common stock ultimately Issuable upon conversion
or exercise of a Convertible Security Issuable pursuant to an Option) are deemed
to be Issued when the Option is Issued. The shares of common stock ultimately
Issuable upon conversion or exercise of a Convertible Security (other than a
Convertible Security Issued pursuant to an Option) shall be deemed Issued upon
Issuance of the Convertible Security.
2. DEEMED ISSUANCE OF ADDITIONAL COMMON SHARES. The shares of common
stock ultimately Issuable upon exercise of an Option (including the shares of
common stock ultimately Issuable upon conversion or exercise of a Convertible
Security Issuable pursuant to an Option) are deemed to be Issued when the Option
is Issued. The shares of common stock ultimately Issuable upon conversion or
exercise of a Convertible Security (other than a Convertible Security Issued
pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible
Security. The maximum amount of common stock Issuable is determined without
regard to any future adjustments permitted under the instrument creating the
Options or Convertible Securities.
3. ADJUSTMENT OF WARRANT PRICE FOR DILUTING ISSUANCES.
3.1 WEIGHTED AVERAGE ADJUSTMENT. If the Company Issues Additional Common
Shares after the date of the Warrant and the consideration per Additional Common
Share (determined pursuant to Section 9) is less than the Warrant Price in
effect immediately before such Issue, the Warrant Price in effect immediately
before such Issue shall be reduced, concurrently with such Issue, to a price
2
<PAGE> 9
(calculated to the nearest hundredth of a cent) determined by multiplying the
Warrant Price by a fraction:
(a) the numerator of which is the amount of common stock outstanding
immediately before such Issue plus the amount of common stock that the aggregate
consideration received by the Company for the Additional Common Shares would
purchase at the Warrant Price in effect immediately before such Issue, and
(b) the denominator of which is the amount of common stock outstanding
immediately before such Issue plus the number of such Additional Common Shares.
3.2 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the Warrant
Price, the number of Shares issuable upon exercise of the Warrant shall be
increased to equal the quotient obtained by dividing (a) the product resulting
from multiplying (i) the number of Shares issuable upon exercise of the Warrant
and (ii) the Warrant Price, in each case as in effect immediately before such
adjustment, by (b) the adjusted Warrant Price.
3.3 SECURITIES DEEMED OUTSTANDING. For the purpose of this Section 3,
all securities issuable upon exercise of any outstanding Convertible Securities
or Options, warrants, or other rights to acquire securities of the Company shall
be deemed to be outstanding.
4. NO ADJUSTMENT FOR ISSUANCES FOLLOWING DEEMED ISSUANCES. No adjustment
to the Warrant Price shall be made upon the exercise of Options or conversion of
Convertible Securities.
5. ADJUSTMENT FOLLOWING CHANGES IN TERMS OF OPTIONS OR CONVERTIBLE
SECURITIES. If the consideration payable to, or the amount of common stock
Issuable by, the Company increases or decreases, respectively, pursuant to the
terms of any outstanding Options or Convertible Securities, the Warrant Price
shall be recomputed to reflect such increase or decrease. The recomputation
shall be made as of the time of the Issuance of the Options or Convertible
Securities. Any changes in the Warrant Price that occurred after such Issuance
because other Additional Common Shares were Issued or deemed Issued shall also
be recomputed.
6. RECOMPUTATION UPON EXPIRATION OF OPTIONS OR CONVERTIBLE SECURITIES.
The Warrant Price computed upon the original Issue of any Options or Convertible
Securities, and any subsequent adjustments based thereon, shall be recomputed
when any Options or rights of conversion under Convertible Securities expire
without having been exercised. In the case of Convertible Securities or Options
for
3
<PAGE> 10
common stock, the Warrant Price shall be recomputed as if the only Additional
Common Shares Issued were the shares of common stock actually Issued upon the
exercise of such securities, if any, and as if the only consideration received
therefor was the consideration actually received upon the Issue, exercise or
conversion of the Options or Convertible Securities. In the case of Options for
Convertible Securities, the Warrant Price shall be recomputed as if the only
Convertible Securities Issued were the Convertible Securities actually Issued
upon the exercise thereof, if any, and as if the only consideration received
therefor was the consideration actually received by the Company (determined
pursuant to Section 9), if any, upon the Issue of the Options for the
Convertible Securities.
7. LIMIT ON READJUSTMENTS. No readjustment of the Warrant Price pursuant
to Sections 5 or 6 shall increase the Warrant Price more than the amount of any
decrease made in respect of the Issue of any Options or Convertible Securities.
8. 30-DAY OPTIONS. In the case of any Options that expire by their terms
not more than 30 days after the date of Issue thereof, no adjustment of the
Warrant Price shall be made until the expiration or exercise of all such
Options.
9. COMPUTATION OF CONSIDERATION. The consideration received by the
Company for the Issue of any Additional Common Shares shall be computed as
follows:
(a) Cash shall be valued at the amount of cash received by the Company,
excluding amounts paid or payable for accrued interest or accrued dividends.
(b) Property. Property other than cash shall be computed at the fair
market value thereof at the time of the Issue as determined in good faith by the
Board of Directors of the Company.
(c) Mixed Consideration. The consideration for Additional Common Shares
Issued together with other property of the Company for consideration that covers
both shall be determined in good faith by the Board of Directors.
(d) Options and Convertible Securities. The consideration per Additional
Common Share for Options and Convertible Securities shall be determined by
dividing:
(i) the total amount, if any, received or receivable by the Company for
the Issue of the Options or Convertible Securities, plus the minimum amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such
4
<PAGE> 11
consideration) payable to the Company upon exercise of the Options or conversion
of the Convertible Securities, by
(ii) the maximum amount of common stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such number) ultimately Issuable upon the exercise of
such Options or the conversion of such Convertible Securities.
10. GENERAL.
10.1 GOVERNING LAW. This Antidilution Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
10.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
10.3 ENTIRE AGREEMENT. Except as set forth below, this Antidilution
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
10.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Purchaser at Purchaser's address as set forth in the heading
to this Agreement, or at such other address as Purchaser shall have furnished to
the Company in writing, or (b) if to the Company, at the Company's address set
forth in the heading to this Agreement, or at such other address as the Company
shall have furnished to the Purchaser in writing.
10.5 SEVERABILITY. In case any provision of this Antidilution Agreement
shall be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Antidilution Agreement shall
not in any way be affected or impaired thereby.
10.6 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Antidilution Agreement.
5
<PAGE> 12
10.7 COUNTERPARTS. This Antidilution Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
10.8 TERMINATION. This Antidilution Agreement will terminate upon
consummation of the Company's initial underwritten public offering of its common
stock.
COMPANY:
INNOVA CORPORATION
BY /s/ JEAN FRANCOIS GRENON
-------------------------------------
President or Vice President
BY /s/ JOHN HEMINGWAY
-------------------------------------
Secretary or Ass't Secretary
PURCHASER:
GREYROCK BUSINESS CREDIT
BY /s/ RICHARD SUHL
--------------------------------------
TITLE President
-----------------------------------
6
<PAGE> 1
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of May 26, 1994, by and among INNOVA
CORPORATION, a Washington corporation (the "Company"), Bachow Investment
Partners III, L.P., a Delaware limited partnership ("BlP"), Paul S. Bachow
Co-Investment Fund, L.P., a Delaware Limited Partnership ("PSB Fund") and Paul
S. Bachow ("Bachow"). BIP, PSB Fund and Bachow are sometimes individually
referred to herein as a "B&A Investor" and collectively referred to as the "B&A
Investors."
The parties to this Agreement are parties to a certain Purchase
Agreement of even date herewith (the "Purchase Agreement"). In order to induce
the B&A Investors to enter into the Purchase Agreement, the Company has agreed
to provide the registration rights set forth in this Agreement. The execution
and delivery of this Agreement is a condition to the Closing under the Purchase
Agreement. Unless otherwise provided in this Agreement, capitalized terms used
herein shall have the meanings set forth in Section 8 hereof. The registration
rights granted hereby are intended to be of equal priority with the registration
rights granted on the date hereof pursuant to the Third Amendment to Preferred
Stock Purchase Agreement of even date herewith (such registration rights, "Equal
Registration Rights"). In consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Piggyback Registrations.
Whenever and as often as the Company proposes to register any of
its securities under the Securities Act or is required to register the
securities of any of its shareholders under the Securities Act, and the
registration form to be used may be used for the registration of Registrable
Securities (a "Piggyback Registration"), the Company will give prompt written
notice (in any event within three business days after its receipt of notice of
any exercise of demand registration rights other than under this Agreement) to
all holders of Registrable Securities ("Holders") of its intention to effect
such a registration and will include in such registration ali Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 30 days after the Holder's receipt of the Company's
notice. Notwithstanding the foregoing, the holders of Registrable Securities
will not have the right of inclusion in a Piggyback Registration that is not
underwritten if at the time of such registration (i) the Registrable Securities
can be sold to the public free of restriction pursuant to Rule 144(k) or (ii)
the Registrable Securities are registered under the Securities Act as provided
in this Agreement, free of any restriction on sale to the public.
1
<PAGE> 2
(a) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters in good faith advise the Company in writing that
in their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering, the Company
will include in such registration (i) first, the securities the Company proposes
to sell, (ii) second, the Registrable Securities requested to be included in
such registration by the Holders and any other securities requested to be
included in such registration by holders pursuant to Equal Registration Rights,
pro rata among the holders with Equal Registration Rights ("Equal Holders") and
Holders on the basis of the number of shares owned by each such holder, and
(iii) third, other securities requested to be included in such registration by
holders whose rights to have their securities included in such registration are
granted after the date hereof.
(b) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities, and the managing underwriters in good faith advise the
Company in writing that in their opinion the number of securities requested to
be included in such registration exceeds the number which can be sold in such
offering, the Company will include in such registration (i) first, the
securities requested to be included therein by the holders requesting such
registration, the Registrable Securities requested to be included therein by the
Holders, and the securities requested to be included therein by other holders
pursuant to Equal Registration Rights, pro rata among the Equal Holders and the
Holders on the basis of the number of securities so requested to be included
therein owned by each such holder, and (ii) second, other securities requested
to be included in such registration by holders whose rights to have their
securities included in such registration are granted after the date hereof.
(c) Other Registrations. If a registration statement with respect
to Registrable Securities pursuant to this Section 1 or pursuant to Section 2
hereof has been declared effective by the SEC and was not subject to a stop
order, the Company shall not, during the four (4)-month period following the
effective date thereof, without the prior written consent of the B&A Investors,
file, cause to be effected or cooperate with any other Person who proposes to
file any registration statement with respect to any of its equity securities or
securities convertible or exchangeable into or exercisable for its equity
securities under the Securities Act (except on Form S-8 or any successor form),
whether on its own behalf or at the request of any holder or holders of such
securities, except with respect to the exercise of rights granted by the Company
prior to the date hereof entitling the holder of securities issued by the
Company to request registration of such securities under the Securities Act.
2
<PAGE> 3
2. Demand Registration Rights.
At any time and from time to time after the initial registration
under the Securities Act of any securities issued by the Company (an "Initial
Public Offering"), the Holders of at least 25% of the Registrable Securities may
request registration under the Securities Act of all or part of the Registrable
Securities held by them on Form S-1 or any similar long-form registration
("Long-Form Registrations") or on Form S-2, Form S-3 or any similar short-form
registration ("Short-Form Registrations") if available, as provided in this
Section 2. Each request for a Demand Registration (as hereinafter defined) shall
specify the number of shares to be registered and the anticipated per share
price range for such offering. Within 15 days after receipt of any such request,
the Company will give written notice thereof to all other Holders, if any. The
Company will include in the registration statement filed by it all other
Registrable Securities specified in a written request for inclusion given by the
Holders thereof to the Company within 15 days after receipt of the Company's
notice. All registrations filed pursuant to this Section 2 are referred to
herein as "Demand Registrations".
(a) Long-Form Registrations. Holders will be entitled to request
two Long-Form Registrations hereunder. A registration will not count as one of
the permitted Long-Form Registrations unless (i) it is declared effective and no
stop order is issued or other action taken by or at the request of the SEC to
terminate or withdraw the offering made thereby and (ii) the Holders are able to
register and sell at least two-thirds (2/3) of the Registrable Securities
requested to be included in such registration.
(b) Short-Form Registrations. In addition to the Long-Form
Registrations provided pursuant to Section 2(a), Holders will be entitled to
request an unlimited number of Short-Form Registrations hereunder; provided,
however, the Company will not be obligated to effect any Demand Registration
hereunder on Form S-2 or Form S-3 (or any equivalent successor form) if the
anticipated aggregate offering price of the Registrable Securities covered
thereby does not exceed $1,000,000. Demand Registrations will be Short-Form
Registrations whenever the Company is permitted to use any applicable short
form. As long as the Company is subject to the reporting requirements of the
Securities Exchange Act, the Company will use its best efforts to make
Short-Form Registrations on Form S-3 available for the sale of Registrable
Securities.
(c) Priority on Demand Registrations. Without the prior written
consent of Holders of a majority of Registrable Securities, the Company will not
include in any Demand Registration any securities held by Persons whose right to
be included therein was not granted on or prior to the date hereof. If a Demand
Registration is an underwritten offering and the managing underwriters advise
the Company in writing that, in their opinion, the number of Registrable
Securities and
3
<PAGE> 4
other securities requested, and permitted hereunder, to be included in such
offering exceeds the number of shares which can be sold in an orderly manner in
such offering within a price range acceptable to the Holders of a majority of
the Registrable Securities requesting registration, the Company will include in
such registration only the number of shares which the underwriters determine can
be sold. In such event, Holders and Equal Holders requesting to have their
securities included in such registration pursuant to registration rights granted
on or prior to the date hereof will have priority in the offering over holders
of other securities whose rights to be included in such registration are granted
after the date hereof, and the number of shares of securities to be included in
the offering will be pro rated among Holders and Equal Holders requesting
inclusion, based on the ratio of the number of Registrable Securities or other
securities owned by each such holder to the number owned by all such holders
(i.e., the Holders and Equal Holders) seeking to sell shares in the offering.
Subsequently, such computation will be done if the number of shares which any
Holder or Equal Holder would be eligible to sell under the proration formula is
greater than the number of shares such Holder or Equal Holder proposes to sell.
(d) Restrictions on Long-Form Registrations. The Company will not
be obligated to effect any Demand Registration hereunder within the four
(4)-month period after the effective date of an Initial Public Offering or a
previous Demand Registration and, in the case of an Initial Public Offering, for
such longer period as may be requested by the underwriter managing the Initial
Public Offering, up to a maximum additional two (2) months. The Company may
postpone for up to four (4) months the filing or the effectiveness of a
registration statement for a Demand Registration if the Company and its
investment bankers certify, in writing, to the Holders that the filing or
effectiveness of such Demand Registration would reasonably be expected to have a
material adverse effect on any proposal or plan by the Company or any of its
Subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business), merger, other corporate reorganization, tender offer or
similar transaction which is material to the Company and the premature
disclosure of which would likely have a severe adverse effect on the
consummation thereof or the purchasing of which would render the Company unable
to comply with the requirement of the SEC Form on which the Demand Registration
has been or is to be filed.
3. Holdback Agreements.
(a) No holder shall effect any public sale or distribution of
equity securities of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and the 180-day period beginning on the effective date of any underwritten
registration which includes at least two-thirds (2/3) of the Registrable
Securities requested to be included in such registration (except as part of such
underwritten registration), unless the underwriters managing the registered
public offering otherwise agree; except, however, sales
4
<PAGE> 5
pursuant to Rule 144 shall be prohibited only for a 90-day period following the
effective date of such an underwritten registration.
(b) The Company agrees to (i) not effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and the 180-day period beginning on the effective date of any underwritten
registration pursuant to Section 1 (except as part of such underwritten
registration or pursuant to registrations on Form S-8 or any successor form) or
Section 2, unless the underwriters managing the registered public offering
otherwise agree, and (ii) use its best efforts to cause each holder of 5% or
more of the outstanding Common Stock (other than the B&A Investors), and each
officer or director of the Company who is a holder of Common Stock, or any
securities convertible into or exchangeable or exercisable for Common Stock,
purchased from the Company at any time after the date of this Agreement (other
than in a registered public offering), to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144 or Rule 144A) of any such
securities during the seven days prior to and during the 120-day period
beginning on the effective date of any underwritten registration pursuant to
Section 1 (except as part of such underwritten registration, if otherwise
permitted) or Section 2, unless the underwriters managing the registered public
offering otherwise agree.
4. Registration Procedures.
4.1 Procedures. Whenever the holders of Registrable Securities
have requested that any Registrable Securities be registered pursuant to this
Agreement, the Company will effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof, and pursuant thereto the Company will:
(a) expeditiously prepare and file with the SEC a registration
statement with respect to such Registrable Securities and any amendments thereto
as may be necessitated in response to comments of the SEC staff or otherwise to
achieve compliance with the Securities Act, the securities laws of each
jurisdiction in which the securities are proposed to be offered and sold and all
rules and regulations adopted under any of the foregoing, including amendments
in response to requests or demands from the SEC staff or the staff of any state
securities agency having jurisdiction, and use its best efforts to cause such
registration statement to become effective as soon as possible after request
therefor by the Holders. Before filing a registration statement or any
amendments or supplements thereto, the Company will furnish to the counsel
selected by the Holders of a majority of the Registrable Securities covered by
such registration statement copies of all such documents proposed to be filed,
and any documents incorporated therein by reference, and cooperate fully with
the Holders and their counsel in drafting or revising any such documents;
5
<PAGE> 6
(b) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective until all
Registrable Securities have been sold in accordance with the intended method of
disposition, provided such undertakings expire nine (9) months after
effectiveness of such registration statement (except the undertakings shall not
expire as to a registration on Form S-3, on any successor form or on any other
form that can be updated by filing documents with the SEC pursuant to the
Securities Exchange Act or by incorporating such documents by reference into
such registration statement), and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to each seller of Registrable Securities such number
of copies of such registration statement, each amendment and supplement thereto,
the prospectus constituting a part of such registration statement (including
each preliminary prospectus), all exhibits to such registration statement and
such other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such seller in
compliance with applicable law;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller;
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, will prepare all
necessary supplements or amendments to such prospectus to comply with all legal
requirements pertaining thereto;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASDAQ system;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into agreements (including, without limitation,
underwriting agreements in customary form, which may contain, among other
things,
6
<PAGE> 7
representations, warranties, covenants, allocations of expense, closing
conditions, indemnification rights and other provisions which are conventional
or required by the underwriters under the circumstances), adopt any necessary
corporate resolutions necessary for the filing or completion of the offering
(including resolutions regarding other corporate matters) and obtain all
opinions of its counsel and comfort letters from its independent accountants in
customary form and covering such matters as are customarily covered therein as
may be required under the terms of the underwriters agreement or as the Holders,
the underwriters or any of their respective counsel may from time to time
request, and take all such other actions as the Holders of a majority of the
Registrable Securities being sold or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such Registrable
Securities (including, without limitation, effecting a stock split or a
combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to meet with, answer
all questions of and supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with such
registration statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve (12) months beginning with the first day of the Company's first
full calendar quarter after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(k) permit any Holder who or which, in its sole and exclusive
judgment, might be deemed to be an underwriter or a controlling person of the
Company, to participate in the preparation of such registration or comparable
statement and to require the insertion therein of material, furnished to the
Company in writing, which in the reasonable judgment of such Holder and its
counsel should be included, provided that such material shall be furnished under
such circumstances as shall cause it to be subject to the indemnification
provisions provided pursuant to Section 6(b) hereof;
(l) in the event of the issuance of any Stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order;
7
<PAGE> 8
(m) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Securities;
(n) otherwise take all other actions necessary from time to time
as, in the reasonable opinion of the Holders and their counsel, may reasonably
be necessary or desirable to allow Holders thereof to effectuate the sale of
their Registrable Securities pursuant to such registration. All documents or
instruments prepared and/or filed and all actions taken or omitted by the
Company, its officers, directors, employees, agents, counsel, accountants or
others for or on its behalf pursuant to or in compliance with the provisions of
this Section 4.1 shall in all respects be satisfactory, in form and substance,
to the Holders whose Registrable Securities are proposed to be sold in any
offering contemplated hereby, the underwriters conducting the offering and their
respective counsel, accountants and other professional advisors.
If any such registration or comparable statement refers to any Holder by
name or otherwise as the holder of any securities of the Company and if, in its
sole and exclusive judgment, such Holder is or might be deemed to be a
controlling person of the Company, such Holder shall have the right to require
(i) the insertion therein of language, in form and substance satisfactory to
such Holder and presented to the Company in writing, to the effect that the
holding by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such Holder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to such Holder by name or otherwise is not, in
the opinion of such Holder's counsel experienced in the practice of securities
law, required by the Securities Act or any similar Federal statute then in
force, the deletion of the reference to such Holder; provided that with respect
to this clause (ii) such Holder shall furnish to the Company an opinion of
counsel to such effect, which opinion of counsel shall be reasonably
satisfactory to the Company.
4.2 Selection of Investment Bankers. In the case of any Piggyback
Registration which is an underwritten offering, the Company or Person requesting
registration may select the investment banker(s) and manager(s) to administer
the offering, provided that such investment banker(s) and manager(s) are
acceptable to the holders of a majority of Registrable Securities and securities
of Equal Holders participating in the Piggyback Registration. In the case of any
Demand Registration, the holders of a majority of Registrable Securities and
securities of Equal Holders participating in such registration shall have the
right, in consultation with the Company, to select the investment banker(s) and
manager(s) to administer the offering, subject to the approval of the Company
not unreasonably withheld, delayed or conditioned.
8
<PAGE> 9
5. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding discounts and commissions referred to in
Section 5(b) hereof) and other Persons retained by the Company (all such
expenses being herein called "Registration Expenses"), will be borne by the
Company.
(b) Each Holder of Registrable Securities shall be responsible
for the underwriting discounts and commissions allocable to the sale of such
Holder's securities and for the fees and expenses of such Holder's own counsel,
accountants and other professional advisors.
6. Indemnification.
(a) The Company shall indemnify, to the extent permitted by law,
each Holder of Registrable Securities, its officers and directors and each
Person who controls such Holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by or
arising out of (i) any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any document incorporated into
any of the foregoing by reference; (ii) any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading; (iii) written information which contains any material
misstatement or omission furnished by the Company to register the Registrable
Securities in any jurisdiction; (iv) the failure of the Company to file any
amendment or supplement to any registration statement or prospectus as required
by the Securities Act, the Securities Exchange Act or any other applicable law
or (v) any and all Registration Expenses; and the Company shall reimburse each
such Holder and other Person entitled to indemnification hereunder for any
reasonable legal fees or other expenses incurred in investigating or defending
any such loss, claim, liability, action or proceeding; provided that the Company
shall not be liable to any such indemnified Person hereunder if and to the
extent that any such loss, claim, damage, liability or expense is caused by or
contained in any information furnished in writing to the Company by such Holder
expressly for use therein or by such Holder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Company has furnished such Holder with a sufficient number of copies
of the same. In connection with an underwritten offering, the Company will
indemnify such underwriters, their officers and directors and each Person who
controls such underwriters (within the meaning of the Securities Act) to
9
<PAGE> 10
the extent customarily provided in an underwriting agreement for a public
securities offering.
(b) In connection with any registration statement in which a
Holder is participating, each such Holder will furnish to the Company in writing
such information and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus and, to the extent
permitted by law, will indemnify the Company, its directors and officers and
each Person who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting from any
untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such Holder
for the specific purpose of including the same in the registration statement;
provided that the obligation to indemnify will be individual to each Holder and
will be limited to the net amount of proceeds received by such Holder from the
sale of Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification, provided that the failure of an indemnified
person to give notice as provided herein shall not relieve the indemnifying
party of its obligation under this Section 6, and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its written consent (but such consent will
not be unreasonably withheld). An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim. If a conflict of interest exists between defendants in any such action,
the indemnifying party will be responsible for the fees and all other charges of
all counsel and experts employed, and all costs of presenting evidence, in such
action.
(d) The indemnification provided for under this Agreement is
cumulative with and in addition to, not exclusive or in lieu of, all other
rights and remedies which may be available to the B&A Investors or other Holders
hereunder,
10
<PAGE> 11
under any other agreement with the Company, at law or in equity, and such right
of indemnification and other rights and remedies will remain in full force and
effect regardless of any investigation made by or on behalf of, or knowledge of
or attributable to, the indemnified party or any officer, director or
controlling Person of such indemnified party, and will survive the transfer of
securities and will be equally applicable to any other federal or state law or
regulation requiring registration or qualification of the Registrable Securities
other than the Securities Act and the Securities Exchange Act. The Company shall
also make such provisions as are reasonably requested by any indemnified party
for contribution to such party in the event the Company's indemnification is
unavailable for any reason.
7. Participation in Underwritten Registrations.
No Person may participate in any registration hereunder which is
underwritten unless such Person (a) agrees to sell such Person's securities on
the basis provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements and (b) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
8. Definitions.
"Common Stock" means the Company's Common Stock.
"Holder" means a Person who or which acquires or owns Registrable
Securities.
"Person" means an individual, proprietorship, partnership, joint
venture, corporation, limited liability company, association, trust,
unincorporated organization or other entity or enterprise in any form or a
government or any department, agency or political subdivision thereof.
"Registrable Securities" means (i) any Common Stock issued or
issuable upon the conversion of any Class B Preferred issued (a) pursuant to the
Convertible Debenture and Security Agreement, dated April 7, 1994, issued by the
Company in the original principal amount of $1,000,000, (b) pursuant to the
Purchase Agreement or in connection therewith, including, without limitation,
upon exercise of the Options, (ii) any Common Stock issued or issuable with
respect to the securities referred to in clause (i) of this sentence by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization, and (iii) any
other shares of Common Stock held by the Persons holding the securities referred
to in clauses (i) or (ii) of this Section. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities
11
<PAGE> 12
when they have been distributed to the public pursuant to an offering registered
under the Securities Act or sold to the public through a broker, dealer or
market maker in compliance with Rule 144 under the Securities Act (or any
similar rule then in force). For purposes of this Agreement, a Person will be
deemed to be a holder of Registrable Securities whenever such Person has the
right to acquire, directly or indirectly, such Registrable Securities (upon
conversion or exercise in connection with a transfer of securities or otherwise,
but disregarding any restrictions or limitations upon the exercise of such
right), whether or not such acquisition has actually been effected.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal law then in force, or any successor legislation thereto.
"SEC" means the United States Securities and Exchange Commission
and any governmental body or agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar federal law then in force, or any successor
legislation thereto.
"Class B Preferred" means the Company's shares of that separate
class designated as "Series B Convertible Preferred Stock".
Unless otherwise stated, other capitalized terms contained herein have
the meanings set forth in the Purchase Agreement.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the Holders in this Agreement.
(b) Adjustments Affecting Registrable Securities. The Company
will not cause or permit any stock split, combination of shares or other
transaction resulting in an adjustment or similar effect on Registrable
Securities which could reasonably be expected to adversely affect the ability of
the Holders to include Registrable Securities in a registration undertaken
pursuant to this Agreement or which could reasonably be expected to adversely
affect the marketability of such Registrable Securities in any such
registration.
(c) Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law or in equity. The parties hereto agree
and acknowledge
12
<PAGE> 13
that money damages will not be an adequate remedy for any breach of the
provisions of this Agreement by the Company and that, in addition to the
recovery of damages or the pursuit of any other right or remedy available at
law, under the Purchase Agreement or otherwise, any Holder may in its sole
discretion apply to any court of law or equity of competent jurisdiction
(without posting any bond or other security) and obtain specific performance and
other injunctive relief in order to enforce or prevent violation of the
provisions of this Agreement.
(d) Amendments and Waivers. Except as otherwise provided herein,
the provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and the Holders of a majority of Registrable
Securities.
(e) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors, assigns, heirs and legal
representatives of the parties hereto, whether so expressed or not. In addition,
whether or not any express assignment has been made, the provisions of this
Agreement which are for the benefit of Holders or purchasers of Registrable
Securities are also for the benefit of, and enforceable by, any subsequent
Holder.
(f) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
(h) Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington.
(j) Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be delivered personally to the recipient, sent to the
recipient by reputable overnight courier service (charges prepaid) or mailed to
the recipient by first class mail (postage prepaid). Such notices, demands and
other communications will
13
<PAGE> 14
be sent to the Company and to the B&A Investors at their respective addresses
indicated below:
To the Company:
Innova Corporation
Gateway North, Building 2
3325 South 116th Street
Seattle, Washington 98168
Attention: Thomas S. Huseby,
President and Chief Executive Officer
To the B&A Investors:
c/o Bachow & Associates, Inc.
3 Bala Plaza East, Suite 502
Bala Cynwyd, PA 19004
Attention: Paul S. Bachow, President
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Notices will be deemed to have been given hereunder when delivered personally,
three days after deposit in the U.S. Mail and one day after deposit with a
reputable overnight courier service.
(k) Gender, Number. Words used herein, regardless of the number
and gender specifically used, shall be deemed and construed to include any other
number (singular or plural) or gender (masculine, feminine or neuter), as the
context may require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INNOVA CORPORATION
By: /s/ Thomas S. Huseby
----------------------------------
Name: Thomas S. Huseby
Title: President and CEO
14
<PAGE> 15
BACHOW INVESTMENT PARTNERS, III, LP
By: Bala Equity Partners, L.P., its general
partner
By: /s/ Paul S. Bachow
----------------------------------
Name: Paul S. Bachow
Title: President
PAUL S. BACHOW CO-INVESTMENT
FUND, L.P.
By: Bachow Co-Investment L.P., its
general partner
By: /s/ Paul S. Bachow
----------------------------------
Name: Paul S. Bachow
Title: President
/s/ Paul S. Bachow
----------------------------------
PAUL S. BACHOW
15
<PAGE> 16
AMENDMENT TO REGISTRATION AGREEMENT
This Amendment to Registration Agreement (the "Amendment") is entered
into as of April 26, 1996, by and among the undersigned for purposes of amending
the Registration Agreement (the "Agreement"), dated as of May 26, 1994, by and
among Innova Corporation (the "Company") and the undersigned in connection with
the addition of additional parties to the Registration Agreement in connection
with the sale of additional securities by the Company pursuant to the Series D
Preferred Stock Purchase Agreement dated as of April 26, 1996, with reference to
the following facts:
WHEREAS, the undersigned and the Company wish to grant to the Series D
Purchasers registration rights equivalent to those granted to the undersigned
pursuant to the Registration Agreement;
WHEREAS, pursuant to Section 9(d), the Agreement may be amended by the
Company and the Holders of the majority of the Registerable Securities;
WHEREAS, the undersigned constitute the Holders of a majority of the
Registerable Securities.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
conditions set forth in this Amendment, the undersigned hereby agree as follows:
10. The Registration Agreement is hereby amended to provide that the
term "Holders" shall include the Series D Investors. The term "Registerable
Securities" shall include the stock in the Company held by the Series D
Investors and the term "Equal Registration Rights" as used therein shall refer
to the rights granted to the Series D Investors pursuant to the Registration
Agreement.
11. This Amendment may be executed in one or more counterparts, each of
which may be deemed to be an original instrument, but all of which together
shall constitute but one instrument, and only one set of rights and obligations
shall arise therefrom.
12. Except as expressly amended hereby, the Registration Rights
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have entered into this Amendment as
of the date first set forth above.
16
<PAGE> 17
INNOVA CORPORATION
By: /s/ John Hemingway
--------------------------------------
Its: CFO
-------------------------------------
BACHOW INVESTMENT PARTNERS III, L.P.
By: Bala Equity Partners, L.P., its general partner
By: Bala Equity, Inc., its general partner
By: /s/ Paul S. Bachow
------------------------------
Paul S. Bachow, President
PAUL S. BACHOW CO-INVESTMENT FUND, L.P.
By: Bachow Co-Investment, L.P., its general
partner
By: Bachow Co-Investment, Inc., its general
partner
By: /s/ Paul S. Bachow
------------------------------
Paul S. Bachow, President
/s/ Paul S. Bachow
------------------------------
PAUL S. BACHOW
17
<PAGE> 18
AMENDMENT TO REGISTRATION AGREEMENT
This Amendment to Registration Agreement (the "Amendment") is entered
into as of April 30, 1997, by and among the undersigned for purposes of amending
the Registration Agreement (the "Agreement"), dated as of May 26, 1994, as
amended, by and among Innova Corporation (the "Company") and the undersigned in
connection with the addition of additional parties to the Registration Agreement
in connection with the sale of warrants to purchase Common Stock by the Company
pursuant to the Amendment to Loan Documents Between Greyrock Business Credit, a
Division of NationsCredit Corporation ("Warrant Holder"), and Innova dated as of
April 30, 1997, with reference to the following facts:
WHEREAS, the undersigned and the Company wish to grant to the Warrant
Holder registration rights equivalent to those granted to the undersigned
pursuant to the Registration Agreement;
WHEREAS, pursuant to Section 9(d), the Agreement may be amended by the
Company and the Holders of the majority of the Registerable Securities;
WHEREAS, the undersigned constitute the Holders of a majority of the
Registerable Securities.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
conditions set forth in this Amendment, the undersigned hereby agree as follows:
13. The Registration Agreement is hereby amended to provide that the
term "Holders" shall include the Warrant Holder. The term "Registerable
Securities" shall include the Common Stock issuable upon exercise of the Warrant
and the term "Equal Registration Rights" as used therein shall refer to the
rights granted to the Warrant Holder pursuant to the Registration Agreement.
14. This Amendment may be executed in one or more counterparts, each of
which may be deemed to be an original instrument, but all of which together
shall constitute but one instrument, and only one set of rights and obligations
shall arise therefrom.
15. Except as expressly amended hereby, the Registration Rights
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have entered into this Amendment as
of the date first set forth above.
18
<PAGE> 19
INNOVA CORPORATION
By: /s/ John Hemingway
--------------------------------------
Its: CFO
-------------------------------------
BACHOW INVESTMENT PARTNERS III, L.P.
By: Bala Equity Partners, L.P., its general partner
By: Bala Equity, Inc., its general partner
By: /s/ Jay D. Seid
------------------------------
Jay D. Seid, Vice President
PAUL S. BACHOW CO-INVESTMENT FUND, L.P.
By: Bachow Co-Investment, L.P., its general
partner
By: Bachow Co-Investment, Inc., its general
partner
By: /s/ Jay D. Seid
------------------------------
Jay D. Seid, Vice President
/s/ Paul S. Bachow
------------------------------
PAUL S. BACHOW
WOODSIDE FUND
By V. Frank Mendicino
-------------------------------------
Its General Partner
-----------------------------------
19
<PAGE> 20
WOODSIDE FUND II
By /s/ V. Frank Mendicino
-------------------------------------
Its General Partner
-----------------------------------
WOODSIDE FUND III
By /s/ V. Frank Mendicino
-------------------------------------
Its General Partner
-----------------------------------
UVCC FUND II
By: Arete Ventures, Inc.
By /s/ Bernard Tarr
------------------------------------
Its Vice President
-----------------------------------
UVCC II PARALLEL FUND, L.P.
By: Arete Ventures, Inc.
By /s/ Bernard Tarr
------------------------------------
Its Vice President
-----------------------------------
POMONA CAPITAL II, L.P.
By: Pomona Associates II, L.P.,
General Partner
By: Pomona Associates II, L.L.C.
General Partner
By /s/ Frances N. Janis
-------------------------------------
20
<PAGE> 21
Its Vice President & Secretary
-----------------------------------
21
<PAGE> 1
BUSINESS PARK NET LEASE
ARTICLE I SALIENT LEASE TERMS
THIS BUSINESS PARK NET LEASE (this "Lease") is dated for reference purposes only
as of April 16, 1996.
1.1 RENT GATEWAY NORTH Properties. L.L.C.
PAYMENT: c/o CitiBank
Dept. Code WA-069
P.0, Box 7445
San Francisco, CA 94120-7445
1.2 PARTIES Lessor: Gateway Corporate Properties. L.L.C., a
AND Delaware limited liability corporation
NOTICE c/o Divco Western Property Management,L.L.C.
ADDRESSES: Attn: Jordan Aberman
111 West St. John Street, Suite #1010
San Jose, California 95113
LESSEE: Innova Corporation. a WASHINGTON corporation
Attn: President
3325 South 116TH Street, Suite 161
SEATTLE, Washington 98168
1.3 PREMISES: (A) Name and Location of Complex:
Gateway North
South 116th Street and East Marginal Way
Tukwila, Washington
(B) Leased Premises: 3325 South 116th Street,
Suite 161 Tukwila, WA 98168
(C) Approximately 35,929 RENTABLE (EXCLUDING
MEZZANINE LEVEL WHICH IS APPROX. 3,000
SQ.FT.) SQUARE FEET WHICH SHALL BE DEEMED TO
BE THE ACTUAL SQUARE FOOTAGE OF THE LEASED
PREMISES
1.4 TERM: (A) Commencing November 1, 1996
(B) Sixty months
1.5 RENT (A) Minimum Monthly: SEE ADDENDUM.
(B) Advance Rent: $23,864.00
1.6 SECURITY
DEPOSIT: $23,864.00
1.7 USE: Premises used solely for: General office and the
assembly and storage of radios.
1.8 INITIAL PRO RATA %: 13.49% (35,929 shell/266,356). 266,356 SHALL BE
DEEMED TO BE THE ACTUAL SQUARE FOOTAGE OF THE
COMPLEX.
1.8(A) PRO RATA %
OF BUILDING: 70.20% (35,929 shell/51,179). 51,179 SHALL BE DEEMED
TO BE THE ACTUAL SQUARE FOOTAGE OF THE BUILDING.
1.9 DECLARATION OF Date of Recordation April 22, 1993
RESTRICTIONS: Book n/a__________Page n/a_________
Document Number 9304222029
1.10 BROKER(S): Trammell Crow Company N.W.
1.11 CONTENTS: This Lease consists of.
Sections I through 49.14
Addenda: I & 11
Exhibits:
A - Legal Description of Complex
B - Plan of Complex and Floor Plan of Leased Premises
C - Construction Obligations
D - Acknowledgment of Commencement of Term
E - Rules and Regulations
F - HAZARDOUS MATERIALS LIST
In addition to he terms defined throughout this lease, the above terms
are incorporated in this Lease as indicated above and referenced herein.
1
<PAGE> 2
ARTICLE 2 PREMISES
2.1 Demising Clause. Lessor hereby leases to Lessee, and Lessee hires
from Lessor a portion of the Complex as hereinafter defined.
2.2 Description. The "Complex" is that parcel of real property, or
parcels of real property in common ownership with, and contiguous to, the parcel
of which the Leased Premises forms a part, which is described with particularity
in Exhibit "A" attached hereto and made a part hereof by reference, and
described generally in Section 1.3(A) hereof. The premises leased herein are
described in Section 1.3(B) and delineated on Exhibit "B," which is attached
hereto and made a part hereof by reference, consisting of the approximate amount
of square footage as specified in Section 1.3(C) hereof. The term "Building"
shall refer to the Building in which the Leased Premises are located. The
portion leased herein to Lessee is hereinafter referred to as the "Leased
Premises." Lessor reserves the area beneath and above the Building as well as
the exterior thereof together with the right to install, maintain, use, repair
and replace pipes, ducts, conduits, wires, and structural elements leading
through the Leased Premises serving other parts of the Complex, so long as such
items are concealed by walls, flooring or ceilings. Such reservation in no way
affects the maintenance obligations imposed herein.
2.3 Covenants, Conditions and Restrictions. The parties agree that this
Lease is subject to the effect of (a) any covenants, conditions, restrictions,
easements, mortgages or deeds of trust, ground leases, rights of way of record,
and any other matters or documents of record; (b) any zoning laws of the city,
county and state where the Complex is situated; and (c) general and special
taxes not delinquent. Lessee agrees that as to its leasehold estate, Lessee and
all persons in possession or holding under Lessee will conform to and will not
violate the terms of any covenants, conditions or restrictions of record which
may now or hereafter encumber the property (hereinafter the "restrictions").
This Lease is subordinate to the restrictions and any amendments or
modifications thereto. Lessor will comply with and perform all of the duties
imposed by the Restrictions to the extent applicable.
2.4 Declaration of Restrictions. The Leased Premises are subject to a
Declaration of Restrictions as referenced in Section 1.9 hereof.
ARTICLE 3 TERM
3.1 Commencement Date. The term of this Lease shall commence on the
date specified in Section 1.4(A) hereof and shall be for the term specified in
Section 1.4(B) hereof, plus any partial month at the commencement of the term.
3.2 Acknowledgment of Commencement. After delivery of the Leased
Premises to Lessee, Lessee shall execute a written acknowledgment of the date of
commencement in the form attached hereto as Exhibit "D" and by this reference it
shall be incorporated herein.
ARTICLE 4 PRE-TERM POSSESSION
4.1 Conditions of Entry. In the event the Leased Premises are to be
constructed or remodeled by Lessor, Lessor may notify Lessee when the Leased
Premises are ready for Lessee's fixturing or Lessee's work, which may be prior
to substantial completion of the Leased Premises by Lessor. Lessee may thereupon
enter the Leased Premises for such purposes at its own risk, to make such
improvements as Lessee shall have the right to make, to install fixtures,
supplies, inventory and other property. Lessee agrees that it shall not in any
way interfere with the progress of Lessor's work by such entry. Should such
entry prove an impediment to the progress of Lessor's work, in Lessor's
judgment, Lessor may demand that Lessee forthwith vacate the Leased Premises
until such time as Lessor's work is complete, and Lessee shall immediately
comply with this demand.
4.2 During the course of any pre-term possession, whether such pre-term
period arises because of an obligation of construction on the part of Lessor, or
otherwise, all terms and conditions of this Lease, except for rent and
commencement, shall apply, particularly with reference to indemnity by Lessee of
Lessor under Article 14 herein for all occurrences within or about the Leased
Premises.
ARTICLE 5 DELAY IN DELIVERY OF POSSESSION
5.1 Delay. If Lessor, for any reason whatsoever, cannot deliver
possession of the Leased Premises to Lessee at the commencement of the Lease
term, this Lease shall not be void or voidable, nor shall Lessor be liable for
any loss or damage resulting therefrom, but in that event, there shall be a
proportionate reduction of rent covering the period between the commencement of
the Lease term and the time when Lessor can deliver possession. The Lease term
shall be extended by such delay for an equal period.
ARTICLE 6 MINIMUM RENT
6.1 Payment. Lessee shall pay to Lessor at the address specified in
Section 1.1, or at such other place as Lessor may otherwise designate, as
"Minimum Monthly Rent" for the Leased Premises the amount specified in Section
1.5(A) hereof, payable in advance on the first day of each month during the
Lease term. If the Lease term commences on other than the first day of a
calendar month, the rent for the first partial month shall be prorated
accordingly.
6.2 All payments of Minimum Monthly Rent (including sums defined as
rent in Section 29.2) shall be in lawful money of the United States, and payable
without deduction, offset, counterclaim, prior notice or demand.
6.3 Advance Rent. The amount specified in Section 1.5(B) hereof is paid
herewith to Lessor upon execution of this Lease as advance rent, receipt of
which is hereby acknowledged, provided, however, that such amount shall be held
by Lessor as a "Security Deposit" pursuant to Section 17.1 hereof until it is
applied by Lessor to the first Minimum Monthly Rent due hereunder.
6.4 Late Payment. If during any twelve (12) month period Lessee fails
on more than one occasion to make any payment of Minimum Monthly of Minimum
Monthly Rent to Lessor on the date when it is due, then Lessor may, by giving
written notice to Lessee, require that Lessee pay the Lessee pay the Minimum
Monthly Rent to Lessor quarterly in advance.
2
<PAGE> 3
ARTICLE 7 TAXES
7.1 Definition. In this Article 7 the terms "Real Property Taxes" and
"Taxes" are used interchangeably. "Real Property Taxes" as used in this Lease
shall include all Real Property Taxes on the Building, the Complex, the land on
which the Building is situated, and the various estates in the Building and the
land, including this Lease, as well as all personal property taxes levied on the
property used in the operation of the Building or land, whether or not now
customary or within the contemplation of the parties to this Lease. "Taxes" also
shall include the reasonable cost to Lessor of contesting the amount, validity,
or applicability of any Taxes mentioned in this section. Further included in the
definition of Taxes herein shall be general and special assessments, fees of
every kind and nature, commercial rental tax, levy, penalty or tax (other than
inheritance or estate taxes) imposed by any authority having the direct or
indirect power to tax, as against any legal or equitable interest of Lessor in
the Leased Premises or in the real property of which the Leased Premises are a
part, as against Lessor's right to rent or other income therefrom, or as against
Lessor's business of leasing the Leased Premises, any tax, fee, or charge with
respect to the possession, leasing, transfer of interest, operation, management,
maintenance, alteration, repair, use, or occupancy by Lessee, of the Leased
Premises or any portion thereof, the Building, or the Complex, or any tax
imposed in substitution, partially or totally, for any tax previously included
within the definition of Taxes herein, or any additional tax, the nature of
which may or may not have been previously included within the definition of
Taxes. The term "Real Property Taxes" or "Taxes" shall not include any tax which
may be levied upon or against the net income or profits of Lessor or its
successors or assigns.
7.2 Assessments. With respect to any general or special assessments
which may be levied upon or against the Leased Premises, the Building, the
Complex, or the underlying realty, or which may be evidenced by improvement or
other bonds, and which may be paid in annual or semi-annual installments, only
the current amount of such installment, prorated for any partial year, and
statutory interest, shall be included within the computation of Taxes for which
Lessee is responsible hereunder.
7.3 Separate Assessment. If the Leased Premises are assessed separately
by the county assessor or other taxing agency, Lessee shall pay to such agency
at least ten (10) days prior to the date when such Taxes would be delinquent,
all Real Property Taxes as hereinabove defined applicable to the Leased Premises
or arising under Section 7.1 above. In the event the Leased Premises share
parking and Common Areas with other premises, the provisions of Section 7.4
below shall apply to Taxes thereon.
7.4 Proration. If the Leased Premises are not separately assessed as an
individual tax unit as described in the previous section, Lessee shall pay, as
additional rent, to Lessor, within ten (10) days after receipt of billing, its
pro rata share of all Real Property Taxes stated in the tax bill in which the
Leased Premises are included, including the parking and Common Areas, as well as
the improvements on all of said land, or otherwise arising under the provisions
of this Article. Pro rata share is defined as that fraction the numerator of
which is the Rentable square footage in the Leased Premises and the denominator
of which is the Rentable square footage included within the tax bill.
7.5 Estimated Payments. Lessor may, at its option, estimate the amount
of Taxes next due and collect from Lessee on a monthly or quarterly basis, at
Lessor's option, the amount of Lessee's estimated tax obligation. On or before
March 1 of each year during the term, Lessor shall provide Lessee with a
reconciliation of Lessee's account with respect to such estimated tax payments.
In event it is established upon such reconciliation that Lessee has not paid
sufficient amount in estimated tax payments to cover its pro rata share for the
year in question, Lessee shall pay to Lessor the full amount of any such
shortage within ten (10) days of date of billing. If it is established that
Lessee has made an overpayment of its tax obligation upon such reconciliation,
Lessee shall receive, at Lessor's option, either a credit applicable to the next
ensuing estimated tax payments, or a credit to a tax reserve account to be held
by Lessor for application to sums due in respect of reassessment or escape
assessments applicable to the period in question, but yet to be billed.
7.6 Personal Property Taxes. Lessee shall pay prior to delinquency all
Taxes assessed against and levied upon trade fixtures, furnishings, equipment
and all other personal property of Lessee contained in the Leased Premises or
elsewhere. When possible, Lessee shall cause such trade fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the real property of Lessor. If any of Lessee's said personal property
shall be assessed with Lessor's real property, Lessee shall pay Lessor Taxes
attributable to Lessee within ten (10) days after receipt of a written statement
setting forth the Taxes applicable to Lessee's property.
7.7 Net Rent. It is the intention of Lessor and Lessee that the rental
received by Lessor be net of any Taxes of any sort to be paid by Lessor, subject
to the exclusions stated in Section 7.1. In the event it shall not be lawful
for Lessee to reimburse Lessor for any of the Taxes covered by this Article, the
Minimum Monthly Rent payable to Lessor under the terms of this Lease shall be
increased by the amount of the portion allocable to Lessee so as to net to
Lessor the amount which would have been receivable by Lessor if such tax had not
been imposed.
ARTICLE 8 COMMON AREAS AND COMMON AREA COSTS
8.1 Definition of Common Areas. The term "Common Areas" as used herein
means all areas and facilities outside the Leased Premises, within the exterior
boundaries of the Complex, that are provided and designated by Lessor from time
to time for the general use and convenience of Lessee and of other tenants of
Lessor having the common use of such areas, and their respective authorized
representatives and invitees. Common Areas include, without limitation,
driveways, parking areas, sidewalks, and landscaped areas, all as generally
described on Exhibit "B" attached hereto. Exhibit "B" is tentative and Lessor
reserves the right to make alterations thereto from time to time.
8.2 Rights and Duties of Lessor. Lessor shall, in a manner
substantially similar to other industrial parks in the south Seattle industrial
market, maintain the Common Areas, establish and enforce reasonable rules and
regulations concerning such areas, close any of the Common Areas to whatever
extent required in the opinion of Lessor's counsel to prevent a dedication of
any of the Common Areas or the accrual of any rights of any person or of the
public to the Common Areas, close temporarily any of the Common Areas for
maintenance purposes, and make changes to the Common Areas including, without
limitation, changes in the location of driveways, entrances, exits, vehicular
parking spaces, parking area, the designation of areas for the exclusive use of
others, the direction of the flow of traffic or construction of additional
Buildings thereupon. Lessee hereby acknowledges that Lessor is under no
obligation to provide security for the Common Areas but may do so at its option.
3
<PAGE> 4
8.3 Payment by Lessee. Lessee shall pay to Lessor, as additional rent,
its proportionate share of Common Area Costs as hereinafter defined, within ten
(10) days of receiving a bill therefor from Lessor, but no more frequently than
monthly. Lessee's proportionate share (or "pro rata %") shall be that fraction
of Common Area Costs the numerator of which is the number of RENTABLE square
feet in the Leased Premises and the denominator of which is the SQUARE
FOOTAGE (PRESENTLY 266,356 SQUARE FEET) of buildings in the Complex having the
use of the Common Areas. Lessee's initial pro rata % of Common Area Costs is
stated in Section 1.8. Lessor may bill Lessee estimated charges in accordance
with Section 8.5. Notwithstanding the preceding provisions of this Section 8.3,
Lessee's proportionate share as to certain expenses included in Common Area
Costs may be calculated differently to yield a higher percentage share for
Lessee as to certain expenses in the event Lessor permits other tenants in the
Complex to incur such expenses directly rather than have Lessor incur the
expense in common for the Complex. In such case Lessee's proportionate share of
the applicable expense shall be calculated as having as its denominator the
gross leasable area of all Premises in the Complex less the gross leasable area
of tenants who have incurred such expense directly. In any case where Lessee,
with Lessor's consent, incurs such expenses directly, Lessee's proportionate
share of Common Area Costs will be calculated specially so that expenses of the
same character which are incurred by Lessor for the benefit of other tenants in
the Complex shall not be pro-rated to Lessee. Nothing herein shall imply that
Lessor will permit Lessee or any other tenant of the Complex to incur Common
Area Costs. Any such permission shall be in the sole discretion of Lessor, which
Lessor may grant or withhold in its arbitrary judgment.
8.4 Definition of Common Area Costs. "Common Area Costs" means all sums
(including "Capital Costs" as hereinafter defined and to the extent stated
herein) expended by Lessor for the supervision, maintenance, repair, replacement
and operation of the Complex, painting the exterior walls of the buildings in
the Complex, as well as liability insurance premiums and security services for
the Complex, community association dues or assessments and/or property owner's
association dues and assessments which may be imposed upon Lessor by virtue of
any recorded instrument affecting title to the Complex, plus an allowance of
THREE PERCENT (3%) OF THE GROSS RENTAL REVENUE OF THE COMPLEX TO LESSOR FOR A
MANAGEMENT FEE. Capital Costs are defined as those expenditures which do not
normally recur more frequently than at five (5) year intervals in the normal
course of operation and maintenance of the Complex. Notwithstanding anything
above which may be to the contrary, Common Area Costs shall include a portion of
all Capital Costs, representing any costs of capital improvements made by Lessor
to the Complex for the purpose of reducing recurring expenses or utility costs
and from which Lessee can expect a reasonable benefit, or that are required by
governmental law, ordinance, regulation or mandate, not applicable to the
Complex at the time of the original construction. The portion thereof to be
included each year in Common Area Costs shall be that fraction allocable to the
calendar year in question calculated by amortizing the cost over the reasonably
useful life of such improvement, as determined by Lessor, with interest on the
unamortized balance at ten percent (10%) per annum or such higher rate as may
have been paid by Lessor for funds borrowed for the purpose of constructing such
improvements, but in no event to exceed the highest rate permissible by law.
8.5 Estimated Payments. Lessor shall have the right, at its option, to
estimate Lessee's pro rata share of Common Area Costs due in the future from
Lessee and to collect from Lessee on a monthly or quarterly basis, as Lessor may
elect, the amount of Lessee's estimated pro rata share of such costs. Lessor
shall provide Lessee with a reconciliation of Lessee's account at least
annually, and if such reconciliation shall indicate that Lessee's account is
insufficient to satisfy Lessee's pro rata share of Common Area Costs for the
period estimated, Lessee shall immediately pay to Lessor any deficiency. Any
excess in such account indicated by the reconciliation shall be credited to
Lessee's account to reduce the estimated payments for the next ensuing period.
8.6 Refuse Disposal. Lessee shall arrange and pay for Refuse Disposal
service at the Leased Premises. Lessee shall pay Lessor, within ten (10) days of
being billed therefor, for the removal from the Leased Premises, the Building,
or the Complex, of any refuse or rubbish which Lessee shall fail to have
removed.
8.7 Lessee's Right to Audit Annual Reconciliations. Within thirty (30)
days after receipt of Lessor's annual reconciliation, Lessee shall have the
right, after at least ten (10) days prior written notice to Lessor, to examine
and conduct an audit at the offices of Lessor or its property manager, the books
and records of Lessor pertaining solely to the Common Area Costs for the
immediately preceding calendar year covered in such annual reconciliation
statement. Such audit shall be conducted by an independent certified accounting
firm retained by Lessee, but subject to the reasonable approval of Lessor. All
expenses of the audit shall be borne by Lessee. If Lessee's audit reveals a
discrepancy in the comparative annual reconciliation statement, Lessee shall
deliver a copy of the audit and supporting calculations to Lessor within thirty
(30) days after completion of the audit. If Lessee or Lessor are unable to
resolve the discrepancy within thirty (30) days after Lessor's receipt of the
audit, either Lessee or Lessor may upon written notice to the other have the
matter decided by A DIFFERENT independent certified public accounting firm
(I.E., OTHER THAN THE FIRM ENGAGED BY LESSEE TO CONDUCT THE AUDIT) approved by
Lessee and Lessor (the "CPA Firm"), which approval shall not be unreasonably
withheld or delayed. The CPA Firm shall review the applicable records and each
party shall be entitled to deliver written evidence to the CPA Firm to support
such party's position within twenty (20) days after the appointment of the CPA
Firm. The CPA Firm shall render its findings within thirty (30) days after its
appointment, which determination shall be binding on the parties. If the
determination of the CPA Firm is five percent (5%) or less than the amount
determined by Lessor, then Lessee shall bear all costs and expenses for such CPA
Firm. If the determination of the CPA Firm is more than five percent (5%) of the
amount determined by Lessor, then Lessor shall bear all costs and expenses for
the CPA Firm and the cost for Lessee's audit by an outside accounting firm (if
one was obtained).
ARTICLE 9 ASSIGNMENT AND SUBLETTING
9.1 Lease is Personal. The purpose of this Lease is to transfer
possession of the Leased Premises to Lessee for Lessee's personal use in return
for certain benefits, including rent, to be transferred to the Lessor. Lessee's
right to assign or sublet as stated in this Article is subsidiary and incidental
to the underlying purpose of this Lease. Lessee acknowledges and agrees that it
has entered into this Lease in order to acquire the Leased Premises for its own
personal use and not for the purpose of obtaining the right to convey the
leasehold to others.
9.2 "Transfer of the Leased Premises" Defined. The terms "Transfer of
the Leased Premises" or "Transfer" as used herein shall include any assignment
of all or any part of this Lease (including assignment by operation of law),
subletting of all or any part of the Leased Premises or transfer of possession,
or right of possession or contingent right of possession of all or any portion
of the Leased Premises, including without limitation, concession, mortgage,
devise, hypothecation, agency, franchise or management agreement, or to suffer
any other person (the agents and servants of Lessee excepted) to occupy or use
the said Leased Premises or any portion thereof. If Lessee is a corporation
which is not deemed a public corporation, or is an unincorporated association or
partnership, or Lessee consists of more than one party, the transfer, assignment
or hypothecation of any stock or interest in such corporation, association,
partnership or ownership interest, in the aggregate in excess of FIFTY PERCENT
(50%) shall be deemed a Transfer of the Leased Premises; provided, however, that
the foregoing limitation shall not apply to a Transfer to an affiliate of Lessee
as permitted in section 9.4(c) below. In ADDITION, IF LESSEE BECOMES A PUBLICLY
HELD CORPORATION WHOSE STOCK IS REGULARLY TRADED ON A NATIONAL STOCK EXCHANGE OR
IS REGULARLY TRADED in THE OVER-THE-COUNTER MARKET AND QUOTED ON THE NASDAQ, THE
RESTRICTION OF THE TRANSFER OF SHARES IN LESSEE THAT ARE SOLD, IF AND WHEN IT
BECOMES A PUBLICLY HELD CORPORATION AND SUBSEQUENT SHARES REGULARLY TRADED ON
SUCH EXCHANGES, SHALL NOT BE DEEMED A TRANSFER REQUIRING THE CONSENT OF LESSOR.
9.3 No Transfer Without Consent. Lessee shall not suffer a Transfer of
the Leased Premises or any interest therein, or any part thereof, or any right
or privilege appurtenant thereto without the prior written consent of Lessor,
and a consent to one Transfer of the Leased Premises shall not be deemed to be a
consent to any subsequent Transfer of the Leased Premises. Any Transfer of the
Leased Premises without such consent shall be void, and shall, at the option of
Lessor, terminate this Lease.
9.4 When Consent Granted.
(a) The consent of Lessor to a Transfer may not be unreasonably
withheld, provided should Lessor withhold its consent for any of the following
reasons, which list is not exclusive, such withholding shall be deemed to be
reasonable:
(i) Financial strength of the proposed transferee is not at
least equal to that of Lessee at the time of execution of this Lease;
(ii) A proposed transferee whose occupation of the Leased
Premises would cause a diminution in the reputation of the Complex or the other
businesses located therein;
4
<PAGE> 5
(iii) A proposed transferee whose impact on the common
facilities or the other occupants of THE Complex would be disadvantageous; or
(iv) A proposed transferee whose occupancy will require a
variation in the terms of the Lease.
(b) [INTENTIONALLY RESERVED]
(c) Notwithstanding the foregoing, Lessee shall have the right,
without the consent of Lessor, but upon prior written notice to Lessor, to
assign this Lease to a company incorporated or to be incorporated by Lessee,
provided that Lessee owns or beneficially controls all the issued and
outstanding shares of capital stock of the company.
9.5 Procedure for Obtaining Consent.
(a) Lessor need not commence its review of any proposed Transfer,
or respond to any request by Lessee with respect to such, unless and until it
has received from Lessee adequate descriptive information concerning the
business to be conducted by the proposed transferee, the transferee's financial
capacity, and such other information as may reasonably be required in order to
form a prudent judgment as to the acceptability of the proposed Transfer,
including, without limitation, the following:
(i) The past two years' Federal Income Tax returns of the
proposed transferee (or in the alternative the past two years' audited annual
Balance Sheets and Profit and Loss statements, certified correct by a Certified
Public Accountant);
(ii) Banking references of the proposed transferee;
(iii) A resume of the business background and experience of the
proposed transferee;
(iv) At least five (5) business references for the proposed
transferee;
(v) An executed copy of the instrument by which Lessee proposes
to effectuate the Transfer.
(vi) A certified statement, including the calculation, of the
amount of unamortized cost of Lessee's leasehold improvements to the Leased
Premises.
(b) Lessee shall reimburse Lessor as additional rent for Lessor's
reasonable costs and attorneys' fees incurred in conjunction with the processing
and documentation of any proposed Transfer of the Leased Premises, whether or
not consent is granted.
9.6 Recapture. By written notice to Lessee (the "Termination Notice")
within twenty (20) business days following submission to Lessor by Lessee of the
information specified in Section 9.5, Lessor may (1) terminate this Lease in the
event of an assignment of this Lease or sublet of the entire Leased Premises, or
(2) terminate this Lease as to the portion of the Leased Premises to be sublet,
if the sublet is to be of less than the entire Leased Premises. Upon the
termination date of this Lease, if Lessor exercises its rights under this
Section 9.6, Lessor shall pay to Lessee the unamortized cost of Lessee's
leasehold improvements multiplied by that fraction the numerator of which is the
Rentable Area for assignment or sublease, and the denominator of which is the
Rentable Area of the entire Leased Premises before such Transfer. In the event
Lessor elects to terminate under the provisions hereof, and the area to be
terminated is less than the entire Leased Premises, an amendment to this Lease
shall be executed in which Lessee's obligations for rent and other charges shall
be reduced in proportion to the reduction in the size of the Leased Premises
caused thereby to the portion of the Leased Premises offered for sublease by
restating the description of the Leased Premises, and its monetary obligations
hereunder shall be reduced by multiplying such obligations by a fraction, the
numerator of which is the Rentable Area of the Leased Premises offered for
sublease and the denominator of which is the Rentable Area of the Leased
Premises immediately prior to such termination. For purposes hereof, the term
"Rentable Area" of a floor shall mean all areas available or held for the
exclusive use and occupancy of the occupants or future occupants of the Complex,
measured from the inside finished surface of the dominant portion of the
permanent outer Building walls, excluding stairs, elevator shafts, flues, pipe
shafts, vertical ducts, and the like, and their enclosing walls, which serve
more than one floor of the Building, but not stairs, dumbwaiters, lifts, and the
like, exclusively serving a tenant occupying offices on more than one floor. No
deductions shall be made for columns and projections necessary to the Building.
For purposes hereof, the Rentable Area of an office on a floor shall be computed
by multiplying (a) the number of square feet computed by measuring to the
finished surface of the office side of corridor and other permanent walls, to
the center of partitions that separate the office from similar adjoining areas,
and to the inside finished surface of the permanent outer Building walls
("Usable Area") by (b) that fraction the numerator of which is Rentable Area and
the denominator of which is Usable Area.
9.7 Effect of Transfer. If Lessor consents to a Transfer, the following
conditions shall apply:
(a) Each and every covenant, condition or obligation imposed upon
Lessee by this Lease and each and every right, remedy or benefit afforded Lessor
by this Lease shall not be impaired or diminished as a result of such Transfer.
(b) On a monthly basis, any sums of money, or other economic
consideration received by Lessee from the Transferee in such month (whether or
not for a period longer than one month), including higher rent, bonuses, key
money, or the like which exceed, in the aggregate, the total sums which Lessee
pays Lessor under this Lease in such month, or the prorated portion thereof if
the Leased Premises transferred is less than the entire Leased Premises, shall
be payable FIFTY PERCENT (50%) to Lessor and FIFTY PERCENT (50%) to Lessee, and
Lessor's share shall be paid with Lessee's payment of Minimum Monthly Rent.
(c) No Transfer, whether or not consent of Lessor is required
hereunder, shall relieve Lessee of its primary obligation to pay the rent and to
perform all other obligations to be performed by Lessee hereunder. The
acceptance of rent by Lessor
5
<PAGE> 6
<PAGE> 7
from any person shall not be deemed to be a waiver by Lessor of any provision of
this Lease or to be a consent to any Transfer of the Leased Premises.
(d) If Lessor consents to a sublease, such sublease shall not
extend beyond the expiration of the term of this Lease.
(e) No Transfer shall be valid and no transferee shall take
possession of the Leased Premises or any part thereof unless, within ten (10)
days after the execution of the documentary evidence thereof, Lessee shall
deliver to Lessor a duly executed duplicate original of the Transfer instrument
in form satisfactory to Lessor which provides that (i) the transferee assumes
Lessee's obligations for the payment of rent and for the full and faithful
observance and performance of the covenants, terms and conditions contained
herein, (ii) such transferee will, at Lessor's election, attorn directly to
Lessor in the event Lessee's Lease is terminated for any reason on the terms set
forth in the instrument of transfer and (iii) such instrument of transfer
contains such other assurances as Lessor reasonably deems necessary.
ARTICLE 10 PROPERTY INSURANCE
10.1 Use of Premises. No use shall be made or permitted to be made on
the Leased Premises, nor acts done, which will increase the existing rate of
insurance upon the Building in which the Leased Premises are located or upon any
other Building in the Complex or cause the cancellation of any insurance policy
covering the Building, or any part thereof, nor shall Lessee sell, or permit to
be kept, used or sold, in or about the Leased Premises, any article which may be
prohibited by the standard form of "All-Risk" fire insurance policies. Lessee
shall, at its sole cost and expense, comply with any and all requirements
pertaining to the Leased Premises, of any insurance organization or company,
necessary for the maintenance of reasonable property damage and commercial
general liability insurance, covering the Leased Premises, the Building, or the
Complex.
10.2 Increase in Premiums. Lessee agrees to pay Lessor, as additional
rent, any increases in such premiums resulting from the nature of Lessee's
occupancy or any act or omission of Lessee. All payments of additional rent by
Lessee to Lessor pursuant to this Section 10.2 shall be made within ten (10)
days after receipt by Lessee of Lessor's billing therefor.
10.3 Pro Rata Share of Premiums.
(a) Lessee shall pay to Lessor, during the term hereof, as
additional rent, its pro rata share of the insurance premiums for any property
insurance carried by Lessor covering the Complex (the "Complex Insurance
Premium"). Such pro rata share is defined as that fraction of the insurance
premiums the numerator of which is the RENTABLE square footage in the Leased
Premises and the denominator of which is the total square footage in all
premises to which the Complex Insurance Premium is applicable. In the event that
the property insurance carried by Lessor covering the Complex is a blanket
policy in which other properties not related to the Complex are included, the
Complex Insurance Premium shall be calculated as that portion of such blanket
policy insurance premium which, in Lessor's good faith judgment, is properly
allocable to the Complex. The sum due under this subsection shall be in addition
to that which may be due under the previous section of this Lease.
(b) Lessee shall pay any such premium portion to Lessor within ten
(10) days after receipt by Lessee of Lessor's billing therefor.
10.4 Estimated Payments. Lessor may, at its option, estimate the amount
of insurance premiums for property insurance to be due in the future from Lessee
and collect from Lessee on a monthly or quarterly basis, at Lessor's option, the
amount of Lessee's estimated insurance premium obligation. Prior to March 1 of
each year, Lessor shall provide Lessee with a reconciliation of Lessee's account
along with a billing for any shortage in the event of a deficiency or statement
for credit applicable to the next ensuing insurance premium payments, if an
overpayment has been made by Lessee.
10.5 Personal Property Insurance. Lessee shall maintain in full force
and effect on all of its fixtures, furniture and equipment and other business
personal property in the Leased Premises a policy or policies providing
protection against any peril included within the classification "All Risk" to
the extent of at least ninety percent (90%) of their replacement cost, or that
percentage of the replacement cost required to negate the effect of a
coinsurance provision, whichever is greater. No such policy shall have a
deductible in a greater amount than One Thousand Dollars ($1,000.00). Lessee
shall also insure in the same manner the physical value of all its leasehold
improvements and alterations in the Leased Premises. During the term of this
Lease, the proceeds from any such policy or policies of insurance shall be used
for the repair or replacement of the fixtures, equipment, and leasehold
improvements so insured. Lessor shall have no interest in said insurance, and
will sign all documents necessary or proper in connection with the settlement of
any claim or loss by Lessee. Lessee shall also maintain business interruption
insurance and insurance for all plate glass upon the Leased Premises. All
insurance specified in this Section 10.5 to be maintained by Lessee shall be
maintained by Lessee at its sole cost.
ARTICLE 11 LIABILITY INSURANCE
11.1 Lessee's Insurance. Lessee shall, at Lessee's expense, obtain and
keep in force during the term of this Lease, a commercial general liability
insurance policy insuring Lessee against the risks of bodily injury and property
damage, personal injury, contractual liability, completed operations, products
liability, host liquor liability, owned and nonowned automobile liability
arising out of the ownership, use, occupancy or maintenance of the Leased
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than ONE MILLION DOLLARS
($1,000,000.00) per occurrence with a TWO MILLION DOLLAR ($2,000,000.00) annual
aggregate and an umbrella policy of THREE MILLION DOLLARS ($3,000,000.00) any
one occurrence. Lessor and any lender and any other party in interest designated
by Lessor shall be named as additional insured(s). The policy shall contain
cross-liability endorsements and shall insure performance by Lessee of the
indemnity provisions of this Lease; shall be primary, not contributing with, and
not in excess of coverage which Lessor may carry; shall state that Lessor is
entitled to recovery for the negligence of Lessee even though Lessor is named as
an additional insured; shall provide for severability of interest; shall provide
that an act or omission of one of the insured or additional insureds which would
void or otherwise reduce coverage shall
6
<PAGE> 8
<PAGE> 9
not void or reduce coverages as to the other insured or additional insureds; and
shall afford coverage after the term of this Lease (by separate policy or
extension if necessary) for all claims based on acts, omissions, injury or
damage which occurred or arose (or the onset of which occurred or arose) in
whole or in part during the term of this Lease. The limits of said insurance
shall not limit any liability of Lessee hereunder. Not more frequently than
every three (3) years, if, in the reasonable opinion of Lessor, the amount of
liability insurance required hereunder is not adequate, Lessee shall promptly
increase said insurance coverage as required by Lessor, but in no event shall
said increase in the amount of said coverage be greater than five percent (5%)
per year commencing on the Commencement Date of this Lease.
11.2 Workers' Compensation Insurance. Lessee shall carry
Workers' Compensation Insurance as required by law, including an employers'
liability endorsement.
ARTICLE 12 INSURANCE POLICY REQUIREMENTS
12.1 General Requirements. All insurance policies required to be
carried by Lessee hereunder shall conform to the following requirements:
(a) The insurer in each case shall carry a designation in "Best's
Insurance Reports" as issued from time to time throughout the term as follows:
Policyholders' rating of A; financial rating of not less than VII;
(b) The insurer shall be qualified to do business in the state in
which the Leased Premises are located;
(c) The policy shall be in a form and include such endorsements as
are acceptable to Lessor;
(d) Certificates of insurance shall be delivered to Lessor at
commencement of the term and certificates of renewal, at least thirty (30) days
prior to the expiration of each policy;
(e) Each policy shall require that Lessor be notified in writing by
the insurer at least thirty (30) days prior to any cancellation or expiration of
such policy, or any reduction in the amounts of insurance carried.
ARTICLE 13 LESSEE INSURANCE DEFAULT
13.1 Rights of Lessor. In the event that Lessee fails to obtain any
insurance required of it under the terms of this Lease, Lessor may, at its
option, but is not obligated to, obtain such insurance on behalf of Lessee and
bill Lessee, as additional rent, for the cost thereof. Payment shall be due
within ten (10) days of receipt of the billing therefor by Lessee.
ARTICLE 14 INDEMNIFICATION, WAIVER OF CLAIMS AND SUBROGATION
14.1 Intent and Purpose. This Article 14 is written and agreed to in
respect of the intent of the parties to assign the risk of loss, whether
resulting from negligence of the parties or otherwise, to the party who is
obligated hereunder to cover the risk of such loss with insurance. Thus, the
indemnity and waiver of claims provisions of this Lease have as their object, so
long as such object is not in violation of public policy, the assignment of risk
for a particular casualty to the party carrying the insurance for such risk,
without respect to the causation thereof.
14.2 Waiver of Subrogation. Lessor and Lessee release each other, and
their respective authorized representatives, from any claims for damage to any
person or to the Leased Premises and the Building and other improvements in
which the Leased Premises are located, and to the furniture, fixtures, and other
business personal property, Lessee's improvements and alterations of either
Lessor or Lessee, in or on the Leased Premises and the Building and other
improvements in which the Leased Premises are located, including loss of income,
that are caused by or result from risks insured or required under the terms of
this Lease to be insured against under any property insurance policies carried
or to be carried by either of the parties.
14.3 Form of Policy. Each party shall cause each such insurance policy
obtained by it to provide that the insurance company waives all rights of
recovery by way of subrogation against either party in connection with any
damage covered by such policy. Neither party shall be liable to the other for
any damage caused by any peril included within the classification "All Risk"
which is insured against under any property insurance policy carried under the
terms of this Lease. If any such insurance policy cannot be obtained with a
waiver of subrogation without payment of an additional premium charge above
that charged by the insurance companies issuing such policies without waiver of
subrogation, the party receiving the benefit shall elect to either forfeit the
benefit or shall pay such additional premium to the insurance carrier requiring
such additional premium.
14.4 Indemnity. Lessee, as a material part of the consideration to be
rendered to Lessor, shall indemnify, defend, protect and hold harmless Lessor
against all actions, claims, demands, damages, liabilities, losses, penalties,
or expenses of any kind which may be brought or imposed upon Lessor or which
Lessor may pay or incur by reason of injury to person or property, from whatever
cause, all or in any way connected with the condition or use of the Leased
Premises, or the improvements or personal property therein or thereon, including
without limitation any liability or injury to the person or property of Lessee,
its agents, officers, employees or invitees. Lessee agrees to indemnify, defend
and protect Lessor and hold it harmless from any and all liability, loss, cost
or obligation on account of, or arising out of, any such injury or loss however
occurring, including breach of the provisions of this Lease and the negligence
of the parties hereto. Nothing contained herein shall obligate Lessee to
indemnify Lessor against its own sole or gross negligence or willful acts, for
which Lessor shall indemnify Lessee.
Lessor's Indemnity. Lessor, as a material part of the consideration to
be rendered to Lessee, shall indemnify, defend, protect and hold harmless Lessee
against all actions, claims, demands, damages, liabilities, losses, penalties,
or expenses of any kind which may be brought or imposed upon Lessee or which
Lessee may pay or incur by reason of injury to person or property, from whatever
cause, all or in any way connected with the condition or use of the Common
Areas, or the improvements or personal property therein or thereon, including
without limitation any liability or injury to the person or property of Lessor,
its agents, officers, employees or invitees. Lessor agrees to indemnify, defend
and protect Lessee and hold it harmless from any and all liability, loss, cost
or obligation on account of, or arising out of, any such injury or loss however
occurring, including the negligence of the parties hereto. Nothing contained
herein shall obligate Lessor to indemnify Lessee against its own sole or gross
negligence or willful acts, for which Lessee shall indemnify Lessor.
14.5 Defense of Claims. In the event any action, suit or proceeding is
brought against Lessor by reason of any such occurrence, Lessee, upon Lessor's
request, will at Lessee's expense resist and defend such action, suit or
proceeding, or cause the same to be resisted and defended by counsel designated
either by Lessee or by the insurer whose policy covers the occurrence and in
either case approved by Lessor. The obligations of Lessee under this Section
arising by reason of any occurrence taking place during the Lease term shall
survive any termination of this Lease.
14.6 Waiver of Claims. Except to the extent caused by Lessor's sole
gross negligence or intentional misconduct, Lessee, as a material part of the
consideration to be rendered to Lessor, hereby waives all claims against Lessor
for damages or injury, as described below, from any cause arising at any time,
including breach of the provisions of this Lease and the negligence of the
parties hereto:
7
<PAGE> 10
(a) damages to goods, wares, merchandise and loss of business in,
upon or about the Leased Premises and injury to Lessee, its agents, employees,
invitees or third persons, in, upon or about the Leased Premises; and
(b) (notwithstanding anything to the contrary contained in this
Lease, including, without limitation, the definition of "Common Area Costs" in
Section 8.4, which includes "policing") damages to goods, wares, merchandise and
loss of business, in, upon or about the Leased Premises or the Complex, and
injury to Lessee, its agents, employees, invitees or third persons in, upon or
about the Leased Premises or the Complex, where such damage or injury results
from Lessor's failure to police or provide security for the Complex or Lessor's
negligence in connection therewith.
14.7 References. Wherever in this Article the term Lessor or Lessee is
used and such party is to receive the benefit of a provision contained in this
Article, such term shall refer not only to that party but also to its officers,
directors, employees, partners and agents.
ARTICLE 15 DESTRUCTION
15.1 Rights of Termination. In the event the Leased Premises suffers
(a) an "uninsured property loss" (as hereinafter defined), or (b) a property
loss which cannot be repaired within one hundred twenty (120) days from the date
of destruction under the laws and regulations of state, federal, county or
municipal authorities, or other authorities with jurisdiction, Lessor may
terminate this Lease as at the date of the damage upon written notice to Lessee
following the casualty. In the event of a property loss to the Leased Premises
which cannot be repaired within one hundred and sixty-five (165) days of the
occurrence thereof, Lessee shall have the right to terminate the Lease by
written notice to Lessor within twenty (20) days following notice from Lessor
that the time for restoration shall exceed one hundred and sixty-five (165)
days. For purposes of this Lease, the term "uninsured property loss" shall mean
any loss arising from a peril not covered by the standard form of "All Risk"
property insurance policy.
15.2 Repairs. In the event of a property loss which may be repaired
within one hundred twenty (120) days from the date of the damage, or, in the
alternative, in the event the parties do not elect to terminate this Lease under
the terms of Section 15.1 above, then this Lease shall continue in full force
and effect and Lessor shall forthwith undertake to make such repairs to
reconstitute the Leased Premises to as near the condition as existed prior to
the property loss as practicable. Such partial destruction shall in no way annul
or void this Lease except that Lessee shall be entitled to a proportionate
reduction of Minimum Monthly Rent following the property loss and until the time
the Leased Premises are restored. Such reduction shall be an amount which
reflects the degree of interference with Lessee's business. So long as Lessee
conducts its business in the Leased Premises, there shall be no abatement until
the parties agree on the amount thereof. If the parties cannot agree within
forty-five (45) days of the property loss, the matter shall be submitted to
arbitration under the rules of the American Arbitration Association. Upon the
resolution of the dispute, the settlement shall be retroactive and Lessor shall
within ten (10) days thereafter refund to Lessee any sums due in respect of the
reduced rental from the date of the property loss. Lessor's obligations to
restore shall in no way include any construction originally performed by Lessee
or subsequently undertaken by Lessee, but shall include solely that property
constructed by Lessor prior to commencement of the term hereof.
15.3 Repair Costs. The cost of any repairs to be made by Lessor,
pursuant to Section 15.2 of this Lease, shall be paid by Lessor utilizing
available insurance proceeds. Lessee shall reimburse Lessor upon completion of
the repairs for any deductible for which no insurance proceeds will be obtained
under Lessor's insurance policy, or if other premises are also repaired, a pro
rata share based on total costs of repair equitably apportioned to the Leased
Premises. Lessee shall, however, not be responsible to pay any deductible or its
share of any deductible to the extent that Lessee's payment would be in excess
of $10,000 if Lessee's consent has not been received by Lessor, unless such
denial of consent by Lessee is unreasonable. Lessee shall not be responsible for
any portion of the deductible if the damage is not to the Leased Premises,
unless such damage is caused by Lessee, its contractors, agents, employees, or
invitees.
15.4 Waiver. Lessee hereby waives all statutory or common law rights of
termination in respect to any partial destruction or property loss which Lessor
is obligated to repair or may elect to repair under the terms of this Article.
Further, in event of a property loss occurring during the last two (2) years of
the original term hereof or of any extension, Lessor need not undertake any
repairs and may cancel this Lease unless Lessee has the right under the terms of
this Lease to extend the term for an additional period of at least five (5)
years and does so within thirty (30) days of the date of the property loss.
15.5 Lessor's Election. In the event that the Complex or Building in
which the Leased Premises is situated be destroyed to the extent of not less
than thirty-three and one-third percent (33-1/3%) of the replacement cost
thereof, Lessor may elect to terminate this Lease, whether the Leased Premises
be injured or not, in the same manner as in Section 15.1 above. At all events, a
total destruction of the Complex of which the Leased Premises form a part, or
the Leased Premises itself, shall terminate this Lease.
ARTICLE 16 ACCORD AND SATISFACTION
16.1 Acceptance of Payment. No payment by Lessee or receipt by Lessor
of a lesser amount of Minimum Monthly Rent or any other sum due hereunder, shall
be deemed to be other than on account of the earliest due rent or payment, nor
shall any endorsement or statement on any check or any letter accompanying any
such check or payment be deemed an accord and satisfaction, and Lessor may
accept such check or payment without prejudice to Lessor's right to recover the
balance of such rent or payment or pursue any other remedy available in this
Lease, at law or in equity. Lessor may accept any partial payment from Lessee
without invalidation of any contractual notice required to be given herein (to
the extent such contractual notice is required) and without invalidation of any
notice required to be given pursuant to California Code of Civil Procedure
Section 1161, et seq., or of any successor statute thereto.
8
<PAGE> 11
ARTICLE 17 SECURITY DEPOSIT
17.1 Payment on Lease Execution. Lessee shall pay Lessor upon execution
hereof the sum specified in Section 1.6. This sum is designated as a Security
Deposit and shall remain the sole and separate property of Lessor until actually
repaid to Lessee (or at Lessor's option the last assignee, if any, of Lessee's
interest hereunder), said stun not being earned by Lessee until all conditions
precedent for its payment to Lessee have been fulfilled. As this sum both in
equity and at law is Lessor's separate property, Lessor shall not be required to
(1) keep said deposit separate from his general accounts, or (2) pay interest,
or other increment for its use. If Lessee fails to pay rent or other charges
when due hereunder, or otherwise defaults with respect to any provision of this
Lease, including and not limited to Lessee's obligation to restore or clean the
Leased Premises following vacation thereof, Lessee, at Lessor's election, shall
be deemed not to have earned the right to repayment of those portions thereof
used or applied by Lessor for the payment of any rent or other charges in
default, or for the payment of any other sum to which Lessor may become
obligated by reason of Lessee's default, or to compensate Lessor for any loss or
damage which Lessor may suffer thereby. Lessor may retain such portion of the
Security Deposit as it reasonably deems necessary to restore or clean the Leased
Premises following vacation by Lessee. The Security Deposit is not to be
characterized as rent until and unless so applied in respect of a default by
Lessee.
17.2 Restoration of Deposit. If Lessor elects to use or apply all or
any portion of the Security Deposit as provided in Section 17.1, Lessee shall
within ten (10) days after written demand therefor pay to Lessor in cash, an
amount equal to that portion of the Security Deposit used or applied by Lessor,
and Lessee's failure to so do shall be a material breach of this Lease. The ten
(10) day notice specified in the preceding sentence shall insofar as not
prohibited by law, constitute full satisfaction of notice of default provisions
required by law or ordinance.
ARTICLE 18 USE
18.1 Permitted Use. The Leased Premises may be used and occupied only
for the purposes specified in Section 1.7 hereof, and for no other purpose or
purposes. Lessee shall promptly comply with all laws, ordinances, orders and
regulations affecting the Leased Premises, their cleanliness, safety, occupation
and use.
ARTICLE 19 COMPLIANCE WITH LAWS AND REGULATIONS
19.1 Lessee's Obligations. Lessee, shall, at its sole cost and expense,
comply with all of the requirements of all municipal, state and federal
authorities now in force, or which may hereafter be in force, pertaining to the
Leased Premises, and shall faithfully observe in the use of the Leased Premises
all municipal ordinances and state and federal statutes now in force or which
may hereafter be in force. The judgment of any court of competent jurisdiction,
or the admission of Lessee in any action or proceeding against Lessee, whether
Lessor be a party thereto or not, that any such ordinance or statute pertaining
to the Leased Premises has been violated, shall be conclusive of that fact as
between Lessor and Lessee.
19.2 Condition of Leased Premises. Subject to Lessor's work, if any, as
referred to in Exhibit "C" to this Lease, Lessee hereby accepts the Leased
Premises in the condition existing as of the date of occupancy, subject to all
applicable zoning, municipal, county and state laws, ordinances, rules,
regulations, orders, restrictions of record, and requirements in effect during
the Term or any part of the Term hereof regulating the Leased Premises.
19.3 Hazardous Materials.
(a) Hazardous Materials Defined. As used herein, the term
"Hazardous Materials" shall mean (i) any hazardous or toxic wastes, materials or
substances, and any other pollutants or contaminants, which are or may become
regulated by any applicable local, state or federal laws, including but not
limited to, 33 U.S.C. Section 1251 et seq., 42 U.S.C. Section 6901 et seq., 42
U.S.C. Section 7401 et seq., 42 U.S.C. Section 9601 et seq., and California
Health and Safety Code Section 25100 et seq., and 25300 et seq., California
Water Code, Section 13020 et seq., or any successor(s) thereto (collectively
"Environmental Laws"); (ii) petroleum; (iii) asbestos; (iv) polychlorinated
biphenyls; and (v) radioactive materials.
(b) Use, etc., of Hazardous Materials. Lessee agrees that during
the Term of this Lease, there shall be no use, presence, disposal, storage,
generation (collectively "Hazardous Use"), or intentional Release, as defined in
42 U.S.C. Section 9601 (22), or any successor(s) thereto, or threatened Release
of Hazardous Materials on, from or under the Leased Premises except to the
extent that, and in accordance with such conditions as, Lessor may have
previously approved in writing. Lessor consents to Lessee's use of office and
janitorial supplies typically used in the ordinary course of business and the
list of materials set forth in Exhibit F (Hazardous Materials List) attached
hereto for use in the manner for which they were designed and in such limited
amounts as may be normal and customary in such a facility, provided that such
usage and storage is in full compliance with Environmental Laws, and all
judicial and administrative decisions pertaining thereto. Lessee shall not be
entitled to install any tanks under, on or about the Leased Premises for the
storage of Hazardous Materials without the express written consent of Lessor,
which may be given or withheld in Lessor's sole arbitrary judgment. For the
purposes of this Section 19.3, the terms Hazardous Use and Release shall include
Hazardous Use(s) and/or Release(s) of Hazardous Materials on, from or under the
Leased Premises by LESSEE OR ANY OF LESSEE'S PARTIES (HEREINAFTER DEFINED),
WHETHER KNOWN OR UNKNOWN TO LESSEE, AT ANY TIME DURING LESSEE'S OCCUPANCY OF ANY
PORTION OF THE LEASED PREMISES, INCLUDING, WITHOUT LIMITATION, DURING ANY PERIOD
IN WHICH LESSEE (OR ANY OF ITS AFFILIATES) OCCUPIED ANY PORTION OF THE LEASED
PREMISES UNDER A SUBLEASE OR OTHER OCCUPANCY AGREEMENT PRIOR TO THE COMMENCEMENT
DATE OF THIS LEASE).
(c) Hazardous Materials Report; When Required. Lessee shall submit
to Lessor a written report with respect to Hazardous Materials ("Report") in the
form prescribed in subparagraph (d) below on the following dates:
(i) Within ten (10) days after the Commencement Date,
(ii) Within ten (10) days after each anniversary of the
Commencement Date during the Term,
(iii) At any time within ten (10) days after written request
by Lessor, and
(iv) At any time when there has been or is planned any
condition which constitutes or would constitute a change in the information
submitted in the most recent Report, including any notice of violation as
referred to in subparagraph (d)(vii) below.
9
<PAGE> 12
(d) Hazardous Materials Report; Contents. The Report shall contain,
without limitation, the following information:
(i) Whether on the date of the Report and (if applicable)
during the period since the last Report there has been any Hazardous Use on,
from or under the Leased Premises.
(ii) If there was such Hazardous Use, the exact identity of the
Hazardous Materials, the dates upon which such materials were brought upon the
Leased Premises, the dates upon which the Hazardous Materials were removed
therefrom, and the quantity, location, use and purpose thereof.
(iii) If there was such Hazardous Use, any governmental permits
maintained by Lessee with respect to such Hazardous Materials, the issuing
agency, original date of issue, renewal dates (if any) and expiration date.
Copies of any such permits and applications therefor shall be attached.
(iv) If there was such Hazardous Use, any governmental
reporting or inspection requirements with respect to such Hazardous Materials,
the governmental agency to which reports are made and/or which conducts
inspections, and the dates of all such reports and/or inspections (if
applicable) since the last Report. Copies of any such Reports shall be attached.
(v) If there was such Hazardous Use, identification of any
operation or business plan prepared for any government agency with respect to
Hazardous Use.
(vi) Any liability insurance carried by Lessee with respect to
Hazardous Materials, the insurer, policy number, date of issue, coverage
amounts, and date of expiration. Copies of any such policies or certificates of
coverage shall be attached.
(vii) Any notices of violation of Environmental Laws, written
or oral, received by Lessee from any governmental agency since the last Report,
the date, name of agency, and description of violation. Copies of any such
written notices shall be attached.
(viii) Such other pertinent information or documents as are
requested by Lessor in writing.
(e) Release of Hazardous Materials: Notification and Cleanup. If at
any time during the term Lessee knows or believes that any Release of any
Hazardous Materials has come or will come to be located upon, about, or beneath
the Leased Premises, then Lessee shall, as soon as reasonably possible, either
prior to the Release or following the discovery thereof by Lessee, give verbal
and follow-up written notice of that condition to Lessor. Lessee covenants to
investigate, clean up and otherwise remediate any Release of Hazardous Materials
at Lessee's cost and expense; such investigation, cleanup and remediation shall
be performed only after Lessee has obtained Lessor's written consent, which
shall not be unreasonably withheld; provided, however, that Lessee shall be
entitled to respond immediately to an emergency without first obtaining Lessor's
written consent. All cleanup and remediation shall be done to the reasonable
satisfaction of Lessor. It is the express intention of the parties hereto that
Lessee shall be liable under this Section 19.3(e) for any and all conditions
covered hereby which were caused or created by Lessee or any of its officers,
partners, members, managers, directors, employees, contractors, agents, and
invitees (collectively, "Lessee's Parties").
(f) Inspection and Testing by Lessor. Lessor shall have the right
at all times during the term of this Lease to (i) inspect the Leased Premises,
and to (ii) conduct tests and investigations to determine whether Lessee is in
compliance with the provisions of this Section. Except in case of emergency,
Lessor shall give reasonable notice to Lessee before conducting any inspections,
tests, or investigations. The cost of all such inspections, tests and
investigations shall be borne by Lessee, if Lessor reasonably believes them to
be necessary. Neither any action nor inaction on the part of Lessor pursuant to
this Section 19.3(f) shall be deemed in any way to release Lessee from, or in
any way modify or alter, Lessee's responsibilities, obligations, and/or
liabilities incurred pursuant to Section 19.3 hereof.
(g) Indemnity. Lessee shall indemnify, defend and hold Lessor
harmless from and against any and all claims, judgments, damages, penalties,
fines, liabilities, losses, suits, administrative proceedings and costs
(including, but not limited to, attorneys' and consultants' fees) arising from
or related to Hazardous Use or Release of Hazardous Materials on or about the
Leased Premises caused by the acts or omissions of Lessee or any of Lessee's
Parties.
10
<PAGE> 13
19.4 [INTENTIONALLY RESERVED]
19.5 Indemnity. Lessee agrees to indemnify, defend, protect and hold
harmless Lessor, its directors, officers, employees, partners, and agents from
and against any and all losses, claims, demands, actions, damages (whether
direct or consequential), penalties, liabilities, costs and expenses, including
all attorneys' fees and legal expenses, arising out of any violation or alleged
violation of any of the laws or regulations referred to in Section 19.1, or
breach of any of the provisions of Section 19.1.
ARTICLE 20 UTILITIES
20.1 Payment by Lessee. Lessee, from the time it first enters the
Leased Premises for the purpose of setting fixtures, or from the commencement of
this Lease, whichever date shall first occur, and throughout the term of this
Lease, shall pay all charges including connection fees for water, gas, heat,
sewer, power, telephone services and any other utility supplied to or consumed
in or on the Leased Premises. Lessee shall not allow refuse, garbage or trash to
accumulate outside of the Leased Premises except on the day of scheduled
scavenger pick-up services, and then only in areas designated for that purpose
by Lessor. Lessor shall not be responsible or liable for any interruption in
utility services, nor shall such interruption affect the continuation or
validity of this Lease.
20.2 Separate Meters. Lessor reserves the right to install separate
meters for any utility servicing the Leased Premises for which a meter is not
presently installed, in which event Lessee shall make payments, when due,
directly to the utility involved.
20.3 Joint Meters. If any utility services are not separately metered
to Lessee, Lessee shall pay a proportion to be reasonably determined by Lessor
of all charges jointly metered with other leased premises or occupants in the
Complex. All payments to Lessor in respect thereof shall be due within ten (10)
days after receipt of the billing by Lessee.
ARTICLE 21 ALTERATIONS
21.1 Consent of Lessor; Ownership. Lessee shall not make, or suffer to
be made, any alterations to the Leased Premises, or any part thereof, without
the written consent of Lessor first had and obtained. Lessor shall not
unreasonably withhold consent unless alteration involves or affects structural
components of the Building, utilities serving the Building or other tenants, or
involves a disruption of the Building's fire/safety system. Any additions to, or
alterations of, the Leased Premises, except trade fixtures, shall upon
expiration or termination of this Lease become a part of the realty and belong
to Lessor. Except as otherwise provided in this Lease, Lessee shall have the
right to remove its trade fixtures placed upon the Leased Premises provided that
Lessee restores the Leased Premises as indicated below.
21.2 Requirements. Any alterations, additions or installations
performed by Lessee (hereinafter collectively "alterations") shall be subject to
strict conformity with the following requirements:
(a) All alterations shall be at the sole cost and expense of
Lessee;
(b) Prior to commencement of any work of alteration, Lessee shall
submit detailed plans and specifications, including working drawings
(hereinafter referred to as "Plans"), of the proposed alterations, which shall
be subject to the consent of Lessor in accordance with the terms of Section
21.1 above;
(c) Following approval of the Plans by Lessor, Lessee shall give
Lessor at least ten (10) days' prior written notice of commencement of work in
the Leased Premises so that Lessor may post notices of non-responsibility in or
upon the Leased Premises as provided by law;
(d) No alterations shall be commenced without Lessee having
previously obtained all appropriate permits and approvals required by and of
governmental agencies;
(e) All alterations shall be performed in a skillful and
workmanlike manner, consistent with the best practices and standards of the
construction industry, and pursued with diligence in accordance with the Plans
previously approved by Lessor and in full accord with all applicable laws and
ordinances. All material, equipment, and articles incorporated in the
alterations is to be new, and of recent manufacture, and of the most suitable
grade for the purpose intended;
(f) Lessee must obtain the prior written approval from Lessor for
Lessee's contractor prior to commencement of the work. Lessee's contractor shall
maintain all of the insurance reasonably required by Lessor, including, without
limitation, commercial general liability and workers' compensation. The limits
of such insurance shall be the same as those specified in Article 11;
(g) As a condition of approval of the alterations, Lessor may
require performance and labor and materialmen's payment bonds issued by a surety
approved by Lessor, in a sum equal to the cost of the alterations guarantying
the completion of the alterations free and clear of all liens and other charges
in accordance with the Plans. Such bonds shall name Lessor as beneficiary;
(h) The alterations must be performed in a manner such that they
will not interfere with the quiet enjoyment of the other lessees in the Complex.
21.3 Liens. Lessee shall keep the Leased Premises and the Complex in
which the Leased Premises are situated free from any liens arising out of any
work performed, materials furnished or obligations incurred by Lessee. In the
event a mechanic's or other lien is filed against the Leased Premises or the
Complex of which the Leased Premises forms a part as a result of a claim arising
through Lessee, Lessor may demand that Lessee furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to at least one hundred fifty percent
(150%) of the amount of the contested lien claim or demand, indemnifying Lessor
against liability for the
11
<PAGE> 14
same and holding the Leased Premises free from the effect of such lien or claim.
Such bond must be posted within ten (10) days following notice from Lessor. In
addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in any action to foreclose such lien if Lessor shall decide it is
to its best interest to do so. Lessor may pay the claim prior to the enforcement
thereof, in which event Lessee shall reimburse Lessor in full, including
attorneys' fees, for any such expense, as additional rent, with the next due
rental.
21.4 Restoration. Lessee shall return the Leased Premises to Lessor at
the expiration or earlier termination of this Lease in good and sanitary order,
condition and repair, free of rubble and debris, broom clean, reasonable wear
and tear excepted. However, Lessee shall ascertain from Lessor at least thirty
(30) days prior to the termination of this Lease, whether Lessor desires the
Leased Premises, or any part thereof, restored to its condition prior to the
making of permitted alterations, installations and improvements, and if Lessor
shall so desire, then Lessee shall forthwith restore said Leased Premises or the
designated portions thereof as the case may be, to its original condition,
entirely at its own expense, excepting normal wear and tear. If, at the time
Lessee asks for Lessor's consent to alter the Leased Premises, Lessee requests
in writing that Lessor decide whether the requested alteration will have to be
removed at the end of the Lease, then the Lessor will provide a decision at the
time the alteration request is granted. All damage to the Leased Premises
caused by the removal of such trade fixtures and other personal property that
Lessee is permitted to remove under the terms of this Lease and/or such
restoration shall be repaired by Lessee at its sole cost and expense prior to
termination.
ARTICLE 22 MAINTENANCE AND REPAIRS
22.1 Obligations of Lessor and Lessee. Lessee shall, at its sole cost
and expense, keep and maintain the Leased Premises and appurtenances, and every
part thereof in good and sanitary order, condition and repair including all
necessary replacements. Notwithstanding the foregoing, Lessor shall perform all
necessary repairs, maintenance and replacement of the foundation, roof and
structural parts of the Building. The cost thereof shall be paid by Lessor and
reimbursed by Lessee on a pro rata basis in the manner provided in this Lease
with respect to Common Area Costs, including amortization of Capital Costs.
Lessee's pro rata share shall be a fraction, the numerator of which shall be the
number of square feet in the Leased Premises, and the denominator of which shall
be the number of square feet in the Building. All such amounts shall be due
within ten (10) days after Lessee's receipt of billing. Lessee shall, at its
sole cost, keep and maintain all utilities, fixtures and mechanical equipment
used by Lessee in good order, condition and repair. In the case of equipment
installed by Lessor for Lessee, or installed by Lessee and being or to become
the property of Lessor, such as heating, ventilating and air conditioning
equipment, or other mechanical equipment, Lessee shall maintain a service
contract for its regular maintenance with a service company acceptable to
Lessor, at Lessee's expense. Evidence of such a service contract will be
provided to Lessor at its request.
22.2 HVAC System. Notwithstanding the provisions of the preceding
Section, Lessor may elect at any time upon written notice to Lessee to perform
the maintenance of the heating, ventilating and air conditioning system
(hereinafter "HVAC") for the account of Lessee. In such event, Lessee shall pay
the full cost of the maintenance contract for the HVAC in the Leased Premises
within ten (10) days of receipt of billing therefor from Lessor, as well as for
costs of repair or replacement of parts thereof as necessary, in the reasonable
judgment of Lessor. Lessor may, at its option, elect to have the HVAC in the
Leased Premises maintained in common with other equipment in the Complex. In
such event Lessee shall pay its pro rata share of such maintenance costs which
share shall be established in an equitable manner by Lessor based upon the
relative tonnage in the Leased Premises compared to the total tonnage under
contract, or some other reasonable means of allocation as selected by Lessor.
Lessor's good faith judgment as to the allocation of the charges described in
this paragraph shall be conclusive. Included in the charges to be allocated to
Lessee shall be, without limitation: the maintenance contract upon the HVAC,
extended warranties and any repairs and replacements not covered by the
maintenance contract or warranty. Lessor may elect to replace the HVAC system,
if necessary, and in such event the cost thereof shall be amortized in the
manner provided in this Lease with respect to amortization of other Capital
Costs. Lessee shall pay to Lessor, within ten (10) days after receipt of
billing, its pro rata share of such amortization, established on an equitable
basis according to the relative tonnage in the Leased Premises as compared to
the entire area served by the system. Notwithstanding the preceding contained
in Articles 22.1 or 22.2, there is another option that Lessor, at its option,
may elect: Lessor may elect to contract with a HVAC service provider for
quarterly filter changes and periodic inspections of the HVAC equipment
("Periodic Inspections"). The costs of such Periodic Inspections are to be
billed back to Lessee. If the service contract Lessor enters into covers more
HVAC equipment than that which is serving the Leased Premises, then Lessee shall
pay their share as determined by numerator being the tonnage of HVAC equipment
serving the Leased Premises and the denominator being the total tonnage of all
of the HVAC equipment covered by the service contract. HVAC related costs, other
than Periodic Inspections, necessary to maintain the HVAC system in top
operating condition (repairs, replacements, coil cleaning, etc.) shall be the
responsibility of Lessee. All costs due by Lessee to Lessor in this section
shall be due within ten (10) days after receipt of billing.
22.3 Condition of Premises. Except as to the construction obligations
of Lessor, if any, stated in Exhibit "C" to this Lease, Lessee shall accept the
Leased Premises in "as is" condition as of the date of execution of this Lease
by Lessee, and Lessee acknowledges that the Leased Premises in such condition
are in good and sanitary order, condition and repair.
22.4 Waiver. Lessee waives all rights it may have under law to make
repairs at Lessor's expense.
ARTICLE 23 CONDEMNATION
23.1 Definitions.
(a) "Condemnation" means (i) the exercise of any governmental
power, whether by legal proceedings or otherwise, by a condemnor and/or (ii) a
voluntary sale or transfer by Lessor to any condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.
(b) "Date of taking" means the date the condemnor has the right to
possession of the property being condemned.
(c) "Award" means all compensation, sums or anything of value
awarded, paid or received on a total or partial condemnation.
(d) "Condemnor" means any public or quasi-public authority, or
private corporation or individual, having the power of condemnation.
23.2 Total Taking. If the Leased Premises are totally taken by
condemnation, this Lease shall terminate on the date of taking.
23.3 Partial Taking
(a) If any portion of the Leased Premises is taken by condemnation,
this Lease shall remain in effect, except that Lessee can elect to terminate
this Lease if any of the Lease Premises is taken.
12
<PAGE> 15
(b) If any part of the Common Areas of the Complex are taken by
condemnation, this Lease shall remain in full force and effect so long as there
is no material interference with the access to the Leased Premises, except that
if thirty percent (30%) or more of the Common Area is taken by condemnation,
either party shall have the election to terminate this Lease pursuant to this
Section.
(c) If any of the Building in which the Leased Premises are
located is taken, Lessor shall have the election to terminate this Lease in the
manner prescribed herein.
23.4 Termination or Abatement. If either party elects to terminate this
Lease under the provisions of Section 23.3 (such party is hereinafter referred
to as the "Terminating Party"), it must terminate by giving notice to the other
party (the "Nonterminating Party") within thirty (30) days after the nature and
extent of the taking have been finally determined (the "Decision Period"). The
Terminating Party shall notify the Nonterminating Party of the date of
termination, which date shall not be earlier than sixty (60) days after the
Terminating Party has notified the Nonterminating Party of its election to
terminate nor later than the date of taking. If Notice of Termination is not
given within the Decision Period, the Lease shall continue in full force and
effect except that Minimum Monthly Rent shall be reduced by subtracting
therefrom an amount calculated by multiplying the Minimum Monthly Rent in effect
prior to the taking by a fraction the numerator of which is the number of square
feet taken from the Leased Premises and the denominator of which is the number
of square feet in the Leased Premises prior to the taking.
23.5 Restoration. If there is a partial taking of the Leased Premises
and this Lease remains in full force and effect pursuant to this Article,
Lessor, at its cost, shall accomplish all necessary restoration so that the
Leased Premises is returned as near as practical to its condition immediately
prior to the date of the taking, but in no event shall Lessor be obligated to
expend more for such restoration than the extent of funds actually paid to
Lessor by the condemnor.
23.6 Award. Any award arising from the condemnation or the settlement
thereof shall belong to and be paid to Lessor except that Lessee shall receive
from the award compensation for the following if specified in the award by the
condemning authority, so long as it does not reduce Lessor's award in respect of
the real property: Lessee's trade fixtures, tangible personal property,
goodwill, loss of business and relocation expenses. At all events, Lessor shall
be solely entitled to all award in respect of the real property, including the
bonus value of the leasehold. Lessee shall not be entitled to any award until
Lessor has received the above sum in full.
ARTICLE 24 EMPLOYEE PARKING
24.1 Designated Areas. Lessor shall have the right by written notice to
Lessee, to designate specific areas of the Complex for employee parking. If
Lessor so designates an employee parking area, then automobiles of Lessee, its
employees and agents shall not park within the parking area except in areas
delineated by Lessor as "employee parking." Lessee shall be entitled to park in
common with other tenants of Lessor. Lessee agrees not to overburden the parking
facilities and agrees to cooperate with Lessor and other tenants in the use of
parking facilities. Lessor reserves the right in its absolute discretion, to
determine whether parking facilities are becoming crowded and, in such event, to
allocate and assign parking spaces among Lessee and other Lessees. Upon request,
Lessee shall provide Lessor with the license plate numbers of all employees.
ARTICLE 25 ABANDONMENT
25.1 Lessee to Occupy. Lessee shall not abandon the Leased Premises at
any time during the Lease term, nor permit the Leased Premises to remain
unoccupied for a period longer than ten (10) consecutive days during the Lease
term, and if Lessee shall abandon, vacate or surrender the Leased Premises, or
be dispossessed by process of law, or otherwise, any personal property belonging
to Lessee and remaining on the Leased Premises after such ten (10) day period
shall, at the option of Lessor, be deemed abandoned. Notwithstanding the
preceding, Lessee will not be considered to have abandoned the Leased Premises
if the Lessee is continuing to make timely payments of rent, additional rents,
and estimated payments and is fulfilling all other obligations required of
Lessee by this Lease.
ARTICLE 26 ENTRY BY LESSOR
26.1 Rights of Lessor. Lessee shall permit Lessor and Lessor's agents
and any mortgagee under a mortgage or beneficiary under a deed of trust
encumbering the Building containing the Leased Premises and such party's agents
to enter the Leased Premises at all reasonable times for the purpose of
inspecting the same or for the purpose of maintaining the Building, or for the
purpose of making repairs, alterations or additions to any portion of the
Building, including the erection and maintenance of such scaffolding, canopies,
fences and props as may be required, or for the purpose of posting notices of
non-responsibility for alterations, additions or repairs, or for the purpose of
placing upon the Building any usual or ordinary "for sale" signs, without any
rebate of Rent and without any liability to Lessee for any loss of occupation or
quiet enjoyment of the Leased Premises thereby occasioned, and shall permit
Lessor, at any time within ninety (90) days prior to the expiration of this
Lease, to place upon the Leased Premises any usual or ordinary "to let" or "to
lease" signs. This Section in no way affects the maintenance obligations of the
parties hereto.
ARTICLE 27 SIGNS
27.1 Approval, Installation and Maintenance. Lessee shall not place on
the Leased Premises or on the Complex, any exterior signs or advertisements nor
any interior signs or advertisements that are visible from the exterior of the
Leased Premises, without Lessor's prior written consent, which Lessor reserves
the right to withhold for any aesthetic reason in its sole judgment. The cost of
installation and regular maintenance of any such signs approved by Lessor shall
be at the sole expense of Lessee. At the termination of this Lease, or any
extension thereof, Lessee shall remove all his signs, and all damage caused by
such removal shall be repaired at Lessee's expense.
ARTICLE 28 DEFAULT
28.1 Definition. The occurrence of any of the following shall
constitute a material default and breach of this Lease by Lessee:
(a) Any failure by Lessee to pay the rental or to make any other
payment required to be made by Lessee hereunder within ten (10) days
after delivery by Lessor to Lessee of a notice of default and the
failure of Lessee to cure within said (10) day period the default. The
foregoing notice and opportunity to cure is in lieu of and not in
addition to any notice and cure under applicable law;
13
<PAGE> 16
(b) The abandonment of the Leased Premises by Lessee in violation
of Section 25.1 hereof;
(c) A failure by Lessee to observe and perform any other provision
of this Lease to be observed or performed by Lessee, where such failure
continues for ten (10) days after written notice thereof by Lessor to Lessee;
provided, however, that if the nature of the default is such that the same
cannot reasonably be cured within the ten (10) day period allowed, Lessee shall
not be deemed to be in default if Lessee shall, within such ten (10) day period,
commence to cure and thereafter diligently prosecute the same to completion;
(d) Either (1) the appointment of a receiver (except a receiver
appointed at the instance or request of Lessor) to take possession of all or
substantially all of the assets of Lessee, or (2) a general assignment by Lessee
for the benefit of creditors, or (3) any action taken or suffered by Lessee
under any insolvency or bankruptcy act shall constitute a breach of this Lease
by Lessee. In such event, Lessor may, at its option, declare this Lease
terminated and forfeited by Lessee, and Lessor shall be entitled to immediate
possession of the Leased Premises. Upon such notice of termination, this Lease
shall terminate immediately and automatically by its own limitation;
(e) Any two (2) failures by Lessee to observe and perform any
provision of this Lease during any twelve (12) month period of the term, as such
may be extended, shall constitute, at the option of Lessor, a separate and
noncurable default.
ARTICLE 29 REMEDIES UPON DEFAULT
29.1 Termination and Damages. In the event of any default by Lessee,
then in addition to any other remedies available to Lessor herein or at law or
in equity, Lessor shall have the immediate option to terminate this Lease and
all rights of Lessee hereunder by giving written notice of such intention to
terminate. In the event that Lessor shall elect to so terminate this Lease, then
Lessor may recover from Lessee:
(a) The worth at the time of award of any unpaid rent which had
been earned at the time of such termination; plus
(b) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss Lessee proves could have been
reasonably avoided; plus
(c) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Lessee proves could be reasonably avoided; plus
(d) Any other amount necessary to compensate Lessor for all the
detriment proximately caused by Lessee's failure to perform its obligations
under this Lease or which in the ordinary course of events would be likely to
result therefrom; and
(e) At Lessor's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by the applicable
law in the state in which the Leased Premises are located.
29.2 Definitions.
(a) The term "rent," as used in this Lease, shall be deemed to be
and to mean the Minimum Monthly Rent and all other sums required to be paid by
Lessee pursuant to the terms of this Lease.
(b) As used in subsections 29.1(a) and (b) above, the "worth at
the time of award" is computed by allowing interest at the rate of ten percent
(10%) per annum. As used in subsection 29.1(c) above, the "worth at the time of
award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank for the region in which the Complex is located at the time
of award plus one percent (1%).
29.3 Personal Property.
(a) In the event of any default by Lessee, Lessor shall also have
the right, with or without terminating this Lease, to reenter the Leased
Premises and remove all persons and property from the Leased Premises; such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Lessee.
(b) In the event of default, all of Lessee's fixtures, furniture,
equipment, improvements, additions, alterations and other personal property
shall remain upon the Leased Premises and in that event, and continuing during
the length of such default, Lessor shall have the sole right to take exclusive
possession of such property and to use it, rent or charge free, until all
defaults are cured or, at Lessor's option, at any time during the term of this
Lease, to require Lessee to forthwith remove such property. The rights stated
herein are in addition to Lessor's rights described in Section 30.1.
29.4 Recovery of Rent; Reletting.
(a) In the event of the vacation or abandonment of the Leased
Premises by Lessee or in the event that Lessor shall elect to reenter as
provided in Section 29.3 above, or shall take possession of the Leased Premises
pursuant to legal proceeding or pursuant to any notice provided by law, then if
Lessor does not elect to terminate this Lease as provided in Section 29.1 above,
this Lease shall continue in effect for so long as Lessor does not terminate
Lessee's right to possession, and Lessor may enforce all its rights and remedies
under this Lease, including, without limitation, Lessor's right from time to
time, without terminating this Lease, to either recover all rental as it becomes
due or relet the Leased Premises or any part thereof for such term or terms and
at such rental or rentals and upon such other terms and conditions as Lessor, in
its sole discretion, may deem advisable with the right to make alterations and
repairs to the Leased Premises. Acts of maintenance or preservation or efforts
to relet the Leased Premises or the appointment of a receiver upon initiation of
Lessor or other legal proceeding granting Lessor or its agent possession to
protect Lessor's interest under this Lease shall not constitute a termination of
Lessee's right to possession.
14
<PAGE> 17
(b) In the event that Lessor shall elect to so relet, then rentals
received by Lessor from such reletting shall be applied: first, to the payment
of any indebtedness other than rent due hereunder from Lessee to Lessor; second,
to the payment of any cost of such reletting; third, to the payment of the cost
of any alterations and repairs to the Leased Premises; fourth, to the payment
of rent due and unpaid hereunder; and the residue, if any, shall be held by
Lessor and applied in payment of future rent as the same may become due and
payable hereunder. Should that portion of such rentals received from such
reletting during any month, which is applied by the payment of rent hereunder,
be less than the rent payable during that month by Lessee hereunder, then Lessee
shall pay such deficiency to Lessor immediately upon demand therefor by Lessor.
Such deficiency shall be calculated and paid monthly. Lessee shall also pay to
Lessor, as soon as ascertained, any costs and expenses incurred by Lessor in
such reletting or in making such alterations and repairs not covered by the
rentals received from such reletting.
(c) No reentry or taking possession of the Leased Premises or any
other action under this Section shall be construed as an election to terminate
this Lease unless a written notice of such intention be given to Lessee or
unless the termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any reletting without termination by Lessor because of any
default by Lessee, Lessor may at any time after such reletting elect to
terminate this Lease for any such default.
(d) Lessor has the remedy described in California Civil Code
Section 1951.4 (Lessor may continue Lease in effect after Lessee's breach and
abandonment and recover rent as it becomes due, if Lessee has right to sublet or
assign, subject only to reasonable limitations).
29.5 No Waiver. Efforts by Lessor to mitigate the damages caused by
Lessee's default in this Lease shall not constitute a waiver of Lessor's right
to recover damages hereunder, nor shall Lessor have any obligation to mitigate
damages except as required under applicable law.
29.6 Curing Defaults. Should Lessee fail to repair, maintain, and/or
service the Leased Premises, or any part or contents thereof at any time or
times, or perform any other obligations imposed by this Lease or otherwise, then
after having given Lessee reasonable notice of the failure or failures and a
reasonable opportunity, which in no case shall exceed thirty (30) days provided
that Lessee can demonstrate to Lessor's satisfaction that Lessee commenced to
cure the default within ten (10) days of Lessor's notice and has been diligently
pursuing the completion, to remedy the failure, Lessor may perform or contract
for the performance of the repair, maintenance, or other Lessee obligation, and
Lessee shall pay Lessor for all direct and indirect costs incurred in connection
therewith within thirty (30) days of receiving a bill therefor from Lessor.
29.7 Cumulative Remedies. The various rights, options, election powers,
and remedies of Lessor contained in this Article and elsewhere in this Lease
shall be construed as cumulative and no one of them exclusive of any others or
of any legal or equitable remedy which Lessor might otherwise have in the event
of breach or default, and the exercise of one right or remedy by Lessor shall
not in any way impair its right to any other right or remedy.
ARTICLE 30 FORFEITURE OF PROPERTY AND LESSOR'S LIEN
30.1 Removal of Personal Property. Lessee agrees that as at the date
of termination of this Lease or repossession of the Leased Premises by Lessor,
by way of default or otherwise, it shall remove all personal property to which
it has the right to ownership pursuant to the terms of this Lease.
ARTICLE 31 SURRENDER OF LEASE
31.1 No Merger. The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, shall not work as a merger, and shall,
at the option of Lessor, terminate all or any existing subleases or
subtenancies, or may, at the option of Lessor, operate as an assignment to it of
any or all such subleases or subtenancies.
ARTICLE 32 LESSOR'S EXCULPATION
32.1 Limited Liability. In the event of default, breach, or violation
by Lessor (which term includes Lessor's partners, co-venturers, co-tenants,
officers, directors, employees, agents, or representatives) of any Lessor's
obligations under this Lease, Lessor's liability to Lessee shall be limited to
its ownership interest in the Leased Premises (or its interest in the Complex,
if applicable) or the proceeds of a public sale of such interest pursuant to
foreclosure of a judgment against Lessor, and applicable insurance coverage for
the recovery of any judgment against Lessor. Lessor may, at its option, and
among its other alternatives, relieve itself of all liability under this Lease
by conveying the Leased Premises to Lessee. Notwithstanding any such conveyance,
Lessee's leasehold and ownership interest shall not merge.
32.2 No Recourse. Lessor (as defined in Section 32.1) shall not be
personally liable for any deficiency beyond its interest in the Leased Premises
and applicable insurance coverage for the recovery of any judgment against
Lessor.
15
<PAGE> 18
<PAGE> 19
ARTICLE 33 ATTORNEYS' FEES
33.1 Actions, Proceedings, etc. Lessee hereby agrees to pay, as
additional rent, all reasonable attorneys' fees and disbursements, and all other
court costs or expenses of legal proceedings or other legal services which
Lessor may incur or pay out by reason of, or in connection with:
(a) any action or proceeding brought by Lessor wherein
Lessor obtains a final judgment or award against Lessee (including arbitration)
on account of any default by Lessee in the observance or performance of any
obligation under this Lease including, but not limited to, matters involving
payment of rent and additional rent, alterations or other Lessee's work and
subletting or assignment;
(b) any action or proceeding brought by Lessee against
Lessor (or any officer, partner, or employee of Lessor) in which Lessee fails to
secure a final judgment against Lessor;
(c) any other appearance by Lessor (or any officer,
partner, or employee of Lessor) as a witness or otherwise in any action or
proceeding whatsoever involving or affecting Lessee or this Lease;
(d) any assignment, sublease, or leasehold mortgage
proposed or granted by Lessee (whether or not permitted under this Lease), and
all negotiations with respect thereto; and
(e) any alteration of the Leased Premises by Lessee, and
all negotiations with respect thereto.
In any action or proceeding referred to in subsection (a),
Lessee shall be entitled to recover its attorneys' fees and costs if Lessee is
the prevailing party against Lessor.
33.2 Survival. Lessee's obligations under this Section shall survive
the expiration or any other termination of this Lease. This Section is intended
to supplement (and not to limit) other provisions of this Lease pertaining to
indemnities and/or attorney's fees.
33.3 Counsel Fees. Should it be necessary for Lessor to employ legal
counsel to enforce any of the provisions of this Lease, Lessee agrees to pay,
as additional rent, all attorneys' fees and court costs reasonably incurred
thereby, whether or not Lessor commences any legal action or proceeding.
ARTICLE 34 NOTICES
34.1 Writing. All notices, demands and requests required or permitted
to be given or made under any provision of this Lease, shall be in writing and
shall be given or made by personal service or by mailing same by registered or
certified mail, return receipt requested, postage prepaid, or by reputable
courier which provides written evidence of delivery, addressed to the
respective party at the address set forth in Section 1.2 of this Lease or at
such other address as the party may from time to time designate, by a written
notice, sent to the other in the manner aforesaid.
34.2 Effective Date. Any such notice, demand or request ("notice")
shall be deemed given or made on the third day after the date so mailed.
Notwithstanding the foregoing, notice given by personal delivery to the party
at its address as aforesaid shall be deemed given on the day on which delivery
is made. Notice given by a reputable courier service which provides written
evidence of delivery shall be deemed given on the business day immediately
following deposit with the courier service.
34.3 Authorization to Receive. Each person and/or entity whose
signature is affixed to this Lease as Lessee or as guarantor of Lessee's
obligations ("obligor") designates such other obligor its agent for the purpose
of receiving any notice pertaining to this Lease or service of process in the
event of any litigation or dispute arising from any obligation imposed by this
Lease.
ARTICLE 35 SUBORDINATION
35.1 Priority of Encumbrances. This Lease shall be subordinate to
any ground lease, mortgage, deed of trust, or any other hypothecation for
security now or hereafter placed upon the real property of which the Leased
Premises are a part and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Lessee's right to quiet possession
of the Leased Premises shall not be disturbed if Lessee is not in default and
so long as Lessee shall pay the rent and observe and perform all the provisions
of this Lease, unless this Lease is otherwise terminated pursuant to its terms.
If any mortgagee, trustee or ground lessor shall elect to have this Lease prior
to the lien of its mortgage, deed of trust or ground lease, and shall give
written notice thereof to Lessee, this Lease shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease is dated prior or
subsequent to the date of said mortgage, deed of trust or ground lease or the
date of recording thereof.
35.2 Execution of Documents. Lessee agrees to execute any documents
required to effectuate such subordination or to make this Lease prior to the
lien of any mortgage, deed of trust or ground lease, as the case may be, and
failing to do so within ten (10) days after written demand, does hereby make,
constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in
Lessee's name, place and stead, to do so. It is understood by all parties that
Lessee's failure to execute the subordination documents referred to above may
cause Lessor serious financial damage by causing the failure of a financing or
sale transaction.
35.3 Attornment. If the holder of any ground lease, mortgage, deed
of trust or security described above (or its successor-in-interest), enforces
its remedies provided by law or under the pertinent mortgage, deed of trust or
security instrument and succeeds to Lessor's interest in the Leased Premises,
Lessee shall, upon request of any person succeeding to the interest of such
lender as result of such enforcement, automatically become the lessee of said
successor-in-interest without change in the terms or other provisions of this
Lease, provided, however, that said successor-in-interest shall not be (i)
bound by any payment of rent for more than thirty (30) days in advance, except
prepayment in the nature of security for the performance by Lessee of its
obligations under this Lease, (ii) bound by any modification or amendment of
this Lease to shorten the term or decrease the monthly rent without the consent
of such lender or such successor-in-interest, (iii) liable for any act or
omission of any previous landlord (including Lessor), (iv) subject to any
offset, defense, recoupment or counterclaim that Lessee may have given to any
previous landlord (including Lessor), or (v) liable for any
16
<PAGE> 20
deposit that Lessee may have given to any previous landlord (including Lessor)
that has not, as such, been transferred to said successor-in-interest. Within
ten (10) days after receipt of request by said successor-in-interest, Lessee
shall execute and deliver an instrument or instruments confirming such
attornment, including a non-disturbance, attornment and subordination agreement
in a form required by any such successor-in-interest.
ARTICLE 36 ESTOPPEL CERTIFICATES
36.1 Execution by-Lessee. Within ten (10) days after receipt of written
request by Lessor, Lessee shall execute and deliver to Lessor an estoppel
certificate acknowledging such facts regarding this Lease as Lessor may
reasonably require, including without limitation, that (i) (all provided that
the following is true and correct) this Lease is in full force and effect,
binding and enforceable in accordance with its terms and unmodified (or if
modified, specifying the written modification documents); (ii) no default exists
on the part of Lessor or Lessee under this Lease; (iii) there are no events
which with the passage of time, or the giving of notice, or both, would create a
default under this Lease; (iv) no rent in excess of one month's rent has been
paid in advance; (v) Lessee has not received any written notice of any other
sale, assignment, transfer, mortgage or pledge of this Lease or the rent due
hereunder; and (vi) Lessee has no defense, setoff, recoupment or counterclaim
against Lessor. Any such estoppel certificate may be relied upon by Lessor, any
lender or any prospective purchaser of the Building or Complex or any interest
therein. Failure to comply with this Article shall be a material breach of this
Lease by Lessee giving Lessor all rights and remedies under Article 29 hereof,
as well as a fight to damages caused by the loss of a loan or sale which may
result from such failure by Lessee.
36.2 Financing. If Lessor desires to finance or refinance the Leased
Premises, or any part thereof, or the Building, Lessee hereby agrees to deliver
to any lender designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender. Such statements shall include the past three
(3) years' financial statements of Lessee. All such financial statements shall
be received by Lessor in confidence and shall be used only for the purposes
herein set forth.
ARTICLE 37 WAIVER
37.1 Effect of Waiver. The waiver by Lessor of any breach of any Lease
provision shall not be deemed to be a waiver of such Lease provision or any
subsequent breach of the same or any other term, covenant or condition therein
contained. The subsequent acceptance of rent hereunder by Lessor shall not be
deemed to be a waiver of any preceding breach by Lessee of any provision of this
Lease, other than the failure of Lessee to pay the particular rental so
accepted, regardless of Lessor's knowledge of such preceding breach at the time
of acceptance of such rent.
ARTICLE 38 HOLDING OVER
38.1 Month-to-Month Tenancy on Acceptance. If Lessee should remain in
possession of the Leased Premises after the expiration of the Lease term and
without executing a new Lease, then, upon acceptance of rent by Lessor, such
holding over shall be construed as a tenancy from month to month, subject to all
the conditions, provisions and obligations of this Lease as existed during the
last month of the term hereof, so far as applicable to a month to month tenancy,
except that the Minimum Monthly Rent shall be equal to one and a half times the
Minimum Monthly Rent payable immediately prior to the expiration or sooner
termination of the Lease.
ARTICLE 39 SUCCESSORS AND ASSIGNS
39.1 Binding Effect. The covenants and conditions herein contained
shall, subject to the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators and assigns of all of the parties hereto;
and all of the parties hereto shall be jointly and severally liable hereunder.
ARTICLE 40 TIME
40.1 Time of the Essence. Time is of the essence of this Lease with
respect to each and every article, section and subsection hereof.
ARTICLE 41 EFFECT OF LESSOR'S CONVEYANCE
41.1 Release of Lessor. If, during the term of this Lease, Lessor shall
sell its interest in the Building or Complex of which the Leased Premises forms
a part, or the Leased Premises, then from and after the effective date of the
sale or conveyance, Lessor shall be released and discharged from any and all
obligations and responsibilities under this Lease, except those already accrued.
ARTICLE 42 TRANSFER OF SECURITY
42.1 Transfer to Purchaser. If any security be given by Lessee to
secure the faithful performance of all or any of the covenants of this Lease on
the part of Lessee, Lessor may transfer and/or deliver the security, as such, to
the purchaser of the reversion, in the event that the reversion be sold, and
thereupon Lessor shall be discharged from any further liability in reference
thereto.
ARTICLE 43 CORPORATE AUTHORITY
43.1 Authorization to Execute. If Lessee is a corporation, each
individual executing this Lease on behalf of said corporation represents and
warrants that he is duly authorized to execute and deliver this Lease on behalf
of said corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the Bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. Further, Lessee shall, within thirty (30) days after execution
of this Lease, deliver to Lessor a certified copy of a resolution of the Board
of Directors of said corporation authorizing or ratifying the execution of this
Lease.
17
<PAGE> 21
ARTICLE 44 WAIVER OF CALIFORNIA CODE SECTIONS
44.1 Waiver by Lessee. In this Lease, numerous provisions have been
negotiated by the parties, some of which provisions are covered by statute.
Whenever a provision of this Lease and a provision of any statute or other law
cover the same matter, the provisions of this Lease shall control. Therefore,
Lessee waives (for itself and all persons claiming under Lessee) the provisions
of Civil Code Sections 1932(2) and 1933(4) with respect to the destruction of
the Leased Premises; Civil Code Sections 1941 and 1942 with respect to Lessor's
repair duties and Lessee's right to repair; Code of Civil Procedure Section
1265.130, allowing either party to petition the Superior Court to terminate this
Lease in the event of a partial taking of the Leased Premises by condemnation as
herein defined; and any right of redemption or reinstatement of Lessee under any
present or future case law or statutory provision (including Code of Civil
Procedure Sections 473 and 1179 and Civil Code Section 3275) in the event Lessee
is dispossessed from the Leased Premises for any reason. This waiver applies to
future statutes enacted in addition to or in substitution for the statutes
specified herein.
ARTICLE 45 WASTE
45.1 Waste or Nuisance. Lessee shall not commit, or suffer to be
committed, any waste upon the Leased Premises, or any nuisance, or other act or
thing which may disturb the quiet enjoyment of any other tenant or occupant of
the Complex in which the Leased Premises are located.
ARTICLE 46 BANKRUPTCY
46.1 Bankruptcy Events. If at any time during the term of this Lease
there shall be filed by or against Lessee in any court pursuant to any statute
either of the United States or of any State a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or trustee
of all or a portion of Lessee's property, or if a receiver or trustee takes
possession of any of the assets of Lessee, or if the leasehold interest herein
passes to a receiver, or if Lessee makes an assignment for the benefit of
creditors or petitions for or enters into an arrangement (any of which are
referred to herein as "a bankruptcy event"), then the following provisions shall
apply:
(a) At all events any receiver or trustee in bankruptcy or Lessee
as debtor in possession ("debtor") shall either expressly assume or reject this
Lease within sixty (60) days following the entry of an "Order for Relief."
(b) In the event of an assumption of the Lease by a debtor,
receiver, or trustee, such debtor, receiver, or trustee shall immediately after
such assumption (1) cure any default or provide adequate assurances that
defaults will be promptly cured; and (2) compensate Lessor for actual pecuniary
loss or provide adequate assurances that compensation will be made for actual
pecuniary loss; and (3) provide adequate assurance of future performance.
For the purposes of this paragraph 46.1 (b), adequate assurance of
future performance of all obligations under this Lease shall include, but is not
limited to:
(i) written assurance that rent and any other consideration due
under the Lease shall first be paid before any other of Lessee's costs of
operation of its business in the Leased Premises are paid;
(ii) written agreement that assumption of this Lease will not
cause a breach of any provision hereof including, but not limited to, any
provision relating to use or exclusivity in this or any other Lease, or
agreement relating to the Leased Premises, or if such a breach is caused, the
debtor, receiver or trustee will indemnify Lessor against such loss (including
costs of suit and attorney's fees), occasioned by such breach;
(c) Where a default exists under the Lease, the party assuming the
Lease may not require Lessor to provide services or supplies incidental to the
Lease before its assumption by such trustee or debtor, unless Lessor is
compensated under the terms of the Lease for such services and supplies provided
before the assumption of such Lease.
(d) The debtor, receiver, or trustee may only assign this Lease if
adequate assurance of future performance by the assignee is provided, whether or
not there has been a default under the Lease. Any consideration paid by any
assignee in excess of the rental reserved in the Lease shall be the sole
property of, and paid to, Lessor. Upon assignment by the debtor or trustee, the
obligations of the Lease shall be deemed to have been assumed, and the assumptor
shall execute an assignment agreement on request of Lessor.
(e) Lessor shall be entitled to the fair market value for the
Leased Premises and the services provided by Lessor (but in no event less than
the rental reserved in the Lease) subsequent to the commencement of a bankruptcy
event.
(f) Lessor specifically reserves any and all remedies available to
Lessor in Article 29 hereof or at law or in equity in respect of a bankruptcy
event by Lessee to the extent such remedies are permitted by law.
(g) Nothing in this Article 46 shall be deemed to limit any rights
which Lessee may have under the law.
ARTICLE 47 LATE CHARGES
47.1 Late Payment by Lessee. Lessee acknowledges that late payment by
Lessee to Lessor of rent or any other payment due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult and impractical to fix. Such costs include, without
limitation, processing and accounting charges, and late charges that may be
imposed on Lessor by the terms of any encumbrance and note secured by any
encumbrance covering the Leased Premises. Therefore, if any installment of rent,
or any other payment due hereunder from Lessee is not received by Lessor when
due, Lessee shall pay to Lessor an additional sum of $500.00 as a late charge;
provided, however, that if such payment has not been received within ten (10)
days after Lessor's delivery of written notice of default to Lessee, then Lessee
shall pay to Lessor a late charge of ten percent (10%) of such past due payment.
The parties agree that this late charge represents a fair and reasonable
estimate of the cost that Lessor will incur by reason of late payment by Lessee.
Acceptance of any late charge shall not constitute a waiver of Lessee default
with respect to the overdue amount, or prevent Lessor from exercising any other
rights or remedies available to Lessor.
18
<PAGE> 22
ARTICLE 48 MORTGAGEE PROTECTION
48.1 Notice and Right to Cure Default. Lessee agrees to give any
mortgagee(s) and/or trust deed holders, by registered mail, a copy of any notice
of default served upon Lessor, provided that prior to such notice Lessee has
been notified, in writing (by way of Notice of Assignment of Rents and Leases,
or otherwise), of the address of such mortgagees and/or trust deed holders.
Lessee further agrees that if Lessor shall have failed to cure such default
within the time provided for in this Lease, then the mortgagees and/or trust
deed holders shall have an additional thirty (30) days within which to cure such
default or, if such default cannot be cured within that time, then such
additional time as may be necessary if within such thirty (30) days, any
mortgagee and/or trust deed holder has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings, if necessary to effect such cure), in
which event this Lease shall not be terminated while such remedies are being so
diligently pursued.
ARTICLE 49 MISCELLANEOUS PROVISIONS
49.1 Captions. The captions of this Lease are for convenience only and
are not a part of this lease and do not in any way limit or amplify the terms
and provisions of this Lease.
49.2 Number and Gender. Whenever the singular number is used in this
Lease and when required by the context, the same shall include the plural, the
plural shall include the singular, and the masculine gender shall include the
feminine and neuter genders, and the word "person" shall include corporation,
firm or association. If there be more than one Lessee, the obligations imposed
under this Lease upon Lessee shall be joint and several.
49.3 Modifications. This instrument contains all of the agreements,
conditions and representations made between the parties to this Lease and may
not be modified orally or in any other manner than by an agreement in writing
signed by all of the parties to this Lease.
49.4 Payments. Except as otherwise expressly stated, each payment
required to be made by Lessee shall be in addition to and not in substitution
for other payments to be made by Lessee.
49.5 Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
49.6 No Offer. The preparation and submission of a draft of this Lease
by either party to the other shall not constitute an offer, nor shall either
party be bound to any terms of this Lease or the entirety of the Lease itself
until both parties have fully executed a final document and an original
signature document has been received by both parties. Until such time as
described in the previous sentence, either party is free to terminate
negotiations with no obligation to the other.
49.7 Disputed Sums. Under the terms of this Lease numerous charges are
and may be due from Lessee to Lessor including, without limitation, Common Area
charges, real estate taxes, insurance reimbursement and other items of a similar
nature including advances made by Lessor in respect of Lessee's default at
Lessor's option. In the event that at any time during the term there is a bona
fide dispute between the parties as to the amount due for any of such charges
claimed by Lessor to be due, the amount demanded by Lessor shall be paid by
Lessee until the resolution of the dispute between the parties or by litigation.
Failure by lessee to pay the disputed sums until resolution shall constitute a
default under the terms of the Lease.
49.8 Lessee's Remedies. Notwithstanding anything to the contrary
contained in this Lease, if any provision of this Lease expressly or impliedly
obligates Lessor not to unreasonably withhold its consent or approval, an action
for declaratory judgment or specific performance will be Lessee's sole right and
remedy in any dispute as to whether Lessor has breached such obligation.
49.9 Light, Air and View. No diminution of light, air, or view by any
structure which may hereafter be erected (whether or not by Lessor) shall
entitle Lessee to any reduction of Rent, result in any liability of Lessor to
Lessee, or in any other way affect this Lease or Lessee's obligations hereunder.
49.10 Public Transportation Information. To the extent required by law,
Lessee shall establish and maintain during the Term hereof a program to
encourage maximum use of public transportation by personnel of Lessee employed
on the Leased Premises, including without limitation the distribution to such
employees of written materials explaining the convenience and availability of
public transportation facilities adjacent or proximate to the Complex,
staggering working hours of employees, and encouraging use of such facilities,
all at Lessee's sole reasonable cost and expense. Lessee shall comply with all
requirements of any local transportation management ordinance.
49.11 Rules and Regulations. Lessee agrees to comply with all
reasonable rules and regulations adopted and promulgated by Lessor and
applicable to all tenants in the Complex for the lawful, orderly, clean, safe,
aesthetic, quiet, and beneficial use, operation, maintenance, management, and
enjoyment of the Complex.
49.12 Joint and Several Liability. Should Lessee consist of more than
one person or entity, they shall be jointly and severally liable on this Lease.
49.13 Survival of Obligations. All obligations of Lessee which may
accrue or arise during the term of this Lease or as a result of any act or
omission of Lessee during said term shall, to the extent they have not been
fully performed, satisfied or discharged, survive the expiration or termination
of this Lease.
49.14 Real Estate Brokers. Lessor and Lessee each represents and
warrants to the other party that it has not authorized or employed, or acted by
implication to authorize or employ, any real estate broker or salesman to act
for it in connection with this Lease, except for the Broker identified in
Article 1. Lessor and Lessee shall each indemnify, defend and hold the other
party harmless from and against any and all claims by any real estate broker or
salesman whom the indemnifying party authorized or employed, or acted by
implication to authorize or employ, to act for the indemnifying party in
connection with this Lease. The real estate broker identified in Article 1 shall
be paid by Lessor in accordance with the terms of a separate agreement between
the Lessor and the broker.
49.15 Authority. Lessor represents and warrants to Lessee that Divco
Western Property Management is the duly authorized agent for Lessor with
authority to execute this Lease on behalf of Lessor and that the person signing
this Lease on behalf of Lessee has been duly authorized to execute and deliver
this Lease on behalf of Lessor.
19
<PAGE> 23
IN WITNESS WHEREOF, Lessor AND Lessee HAVE executed this Lease as of the day and
year first written above.
LESSOR: GATEWAY NORTH PROPERTIES, L.L.C.,
A DELAWARE LIMITED LIABILITY CORPORATION
By Divco Western Property Management, L.L.C.,
its duly authorized agent
By: /s/ JORDAN ABERMAN
--------------------------------------
Jordan Aberman
Its: Manager
-------------------------------------
Date: 8/6/96
------------------------------------
LESSEE: INNOVA CORPORATION,
A WASHINGTON CORPORATION
By: /s/ JOHN HEMINGWAY
--------------------------------------
Print: John Hemingway
-----------------------------------
Its: CFO
-------------------------------------
Date: 7/30/96
------------------------------------
FOR OFFICE USE ONLY:
PREPARED BY:______________
REVIEWED BY:______________
APPROVED BY:______________
20
<PAGE> 24
NOTARY
LESSOR
STATE OF CALIFORNIA )
) ss.
COUNTY OF SANTA CLARA )
On this 6th day of August, 1996, before me, the undersigned, a Notary Public
and for the State of California, duly commissioned and sworn, personally
appeared Jordan Abernon, to me known to be the Manager of Divco Western
Property Management, L.L.C., the limited liability corporation that executed
the within and foregoing instrument, and acknowledged said instrument to be the
free and voluntary act and deed of said corporation, for the uses and purposes
therein mentioned and on oath stated that he/she was authorized to execute said
instrument.
WITNESS my hand and official seal hereto affixed the day and year in
this certificate above written.
GREAT MICHAEL QUINONEZ /s/ MICHAEL QUINONEZ
SEAL Comm. #1055930 -----------------------------
OF THE NOTARY PUBLIC -- CALIFORNIA Michael Quinonez
STATE OF SANTA CLARA COUNTY Notary Public in and for
CALIFORNIA Comm. Exp. April 18, 1999 the State of California
My Appointment Expires 4/18/99
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 30th day of July, 1996, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared John M. Hemingway, to me known to be the Chief Financial
Officer of Innova Corporation, the corporation that executed the within and
foregoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of said corporation, for the uses and purposes therein
mentioned and on oath stated that he/she was authorized to execute said
instrument.
WITNESS my hand and official seal hereto affixed the day and year in
this certificate above written.
JOHN V. GLEASON /s/ JOHN GLEASON
NOTARY PUBLIC ------------------------------
COMMISSION EXPIRES John Gleason
JUNE 30, 1998 Notary Public in and for
STATE OF WASHINGTON the State of Washington
My Appointment Expires 6/30/98
<PAGE> 25
ADDENDUM TO LEASE
This Addendum to Lease ("Addendum") shall constitute part of that certain Lease
("Lease") dated as of APRIL 16, 1996 by and between GATEWAY NORTH PROPERTIES,
L.L.C. ("Lessor") and INNOVA CORPORATION, INC. ("Lessee"), and the terms hereof,
shall, for all purposes, be incorporated into the Lease. Whenever any
inconsistency appears between the main portion of the Lease and this Addendum,
the provisions of the Addendum shall prevail.
I. LEASE CLAUSE ADDITIONS:
Paragraph 1.5 (A) - Rent
The Minimum Monthly Rent pursuant to Paragraph 1.5(a) is subject to adjustment
per the following schedule:
Months 0 1 - 12 Twenty-three thousand eight hundred and sixty-four dollars
($23,864.00) per month; plus NNN.
Months 13 - 24 Twenty-five thousand six hundred and fifteen dollars
($25,615.00) per month plus NNN.
Months 25 - 36 Twenty-seven thousand three hundred and sixty-seven dollars
($27,367.00) per month plus NNN.
Months 37 - 48 Twenty-nine thousand four hundred and sixty-nine dollars
($29,469.00) per month plus NNN.
Months 49 - 60 Thirty thousand six hundred and seventy-six dollars
($30,676.00) per month plus NM.
page 1 of 1
<PAGE> 26
EXHIBIT A
LEGAL DESCRIPTION
New Parcels A, B, and C of the City of Tukwila Boundary Line Adjustment
#89-8-BLA as recorded under King County recording #9003121480, records of King
County, Washington.
<PAGE> 27
EXHIBIT B
[GATEWAY NORTH
28 ACRE BUSINESS PARK - SITE PLAN]
<PAGE> 28
EXHIBIT B-1
[GATEWAY NORTH
BUILDING 2 - FLOOR PLAN]
<PAGE> 29
EXHIBIT "C"
CONSTRUCTION OBLIGATIONS
INNOVA CORPORATION, INC.
Lessor, as part of this Lease Agreement, agrees to construct tenant improvements
in accordance with the following description and the floor plan attached hereto
as Exhibit "C-1". Any item or quantity of work exceeding the improvements
outlined below and on Exhibit "C-1" shall be performed by Lessor's contractor at
Lessee's sole expense, and shall include, without limitation, architectural
fees, permits, construction materials, labor, Contractor's overhead and profit
and Washington State Sales Tax. Working (construction) drawings for special
installations shall be furnished to Lessor by Lessee, who shall be responsible
for the design, function and maintenance of the special improvements, whether or
not installed by Lessor at Lessee's request.
The tenant improvements to be installed by Lessor within the Premises prior to
the commencement of the Lease Term on a time is of the essence basis shall
consist of the following:
(THIS DESCRIPTION AND EXHIBIT C-1 will BE INSERTED IN SUBSEQUENT LEASE DRAFT)
page 1 of 1
<PAGE> 30
EXHIBIT "C"
CONSTRUCTION OBLIGATIONS
INNOVA CORPORATION, INC.
Lessor, as part of this Lease Agreement, agrees to construct tenant improvements
in accordance with the following description and the floor plan attached hereto
as Exhibit "C-1". Any item or quantity of work exceeding the improvements
outlined below and on Exhibit "C-1" shall be performed by Lessor's contractor at
Lessee's sole expense, and shall include, without limitation, architectural
fees, permits, construction materials, labor, Contractor's overhead and profit
and Washington State Sales Tax. Working (construction) drawings for special
installations shall be furnished to Lessor by Lessee, who shall be responsible
for the design, function and maintenance of the special improvements, whether or
not installed by Lessor at Lessee's request.
The tenant improvements to be installed by Lessor within the Premises prior to
the commencement of the Lease Term on a time is of the essence basis shall
consist of the following:
1. Construct a standard demising wall along building gridline #13.
2. Separate gas and electrical services so that the sections of the
building between grid lines #9 through #13 are independent from grid
lines #13 through #16. Electrical panels and transformers serving the
area within building grid lines #13 through #16 are to be located
within gridlines #13 through #16.
3. Relocate existing double doors and metal frame to column line #9. Frame
and install wood trim to threshold where door was removed and paint
(paint supplied by Lessee).
4. On column line #9 in what was formerly the Corinthian reception room,
install a building standard door with hardware and finish to match
existing. Paint east wall of former Corinthian reception room to match
the remainder of the room.
5. Phasing: The demising wall is to be built first. Then the doors are to
be installed.
6. Dust: When working on the wall along gridline #9, the only attempt to
limit dust will be the draping of plastic sheeting over the section of
wall that is undergoing alteration.
7. This space is leased in "as is" condition. Other than those
improvements outlined in this Exhibit, no other improvements are the
obligation of Lessor to perform. The walls of the former Corinthian
space could clearly use a coat of paint, but other than that noted in
number 4 above, no paint will be provided by Lessor.
Page 1 of 1
<PAGE> 31
EXHIBIT C-1
[MAP]
<PAGE> 32
DOOR SCHEDULE:
1 3'-0" X 8'-0" S.C. WOOD AND FRAME, 2 PAIR BUTTS, LATCHSET, SILENCERS,
WALL STOP FINISH AND HARDWARE TO MATCH EXISTING IN OFFICES
NOTES:
1. ONLY WORK BEING DONE IS AN ADDITION OF A DEMISING WALL AT GRIDLINE 13,
2 DOORS AT GRIDLINE 9 AND A SEPARATION OF UTILITIES.
2. VERIFY EX. UTILITIES FOR EX. INNOVA SPACE (GRIDLINES 1-9) ARE SEPARATED
FROM ALL OTHER UTILITIES.
3. CREATE SEPARATION OF UTILITIES (ELECTRIC AND GAS) FOR NEW INNOVA SPACE
(GRIDLINES 9-13) AND EX. VACANT SPACE (GRIDLINES 13-16.)
4. NO CHANGE IN ENERGY CODE, DUE TO NO CHANGE IN LIGHTING PLAN OR EX.
BUILDING ENVELOPE.
Innova Exhibit C-la
<PAGE> 33
EXHIBIT "D"
ACKNOWLEDGMENT OF COMMENCEMENT
This Acknowledgment is made as of ________________, with reference to
that certain Lease Agreement (hereinafter referred to as the "lease") dated
_____________________, by and between_______________, as "Lessor" therein, and
___________________________, as "Lessee", for the demised premises situated
at_______________________.
The undersigned hereby confirms the following:
1. That the Lessee accepted possession of the Demised Premises (as
described in said lease) on___________________ , and acknowledges that the
premises are as represented by the Lessor and in good order, condition and
repair; and that the improvements, if any, required to be constructed for Lessee
by Lessor under this lease have been so constructed and are satisfactorily
completed in all respects.
2. That all conditions of said lease to be performed by Lessor
prerequisite to the full effectiveness of said lease have been satisfied and
that Lessor had fulfilled all of its duties of an inducement nature.
3. That in accordance with the provisions of Article 3 of said lease
the commencement date of the term is_______________________________ , and that,
unless sooner terminated, the original term thereof expires
on______________________.
4. That said lease is in full force and effect and that the same
represents the entire agreement between Lessor and Lessee concerning said lease.
5. That there are no existing defenses which Lessee has against the
enforcement of said lease by Lessor, and no offsets or credits against rentals.
6. That the minimum rental obligation of said lease is presently in
effect and that all rentals, charges and other obligations on the part of Lessee
under said lease commenced to accrue on____________________________.
7. That the undersigned Lessee has not made any prior assignment,
hypothecation or pledge of said lease or of the rents thereunder.
LESSEE:
BY:_________________________________
BY:_________________________________
<PAGE> 34
EXHIBIT "E"
GATEWAY NORTH
RULES AND REGULATIONS
1. Any directory provided by Lessor for the building will be for the
display of the name and location of Lessees, and Lessor reserves the
right to exclude any other names.
2. Lessee shall not place any new or additional locks on any doors of the
Premises or rekey any existing locks without the consent of Lessor.
3. Lessor reserves the right to exclude or expel from the common areas any
person who, in the judgment of Lessor, is intoxicated, under the
influence of drugs or who shall in any manner violate any of the rules
and regulations.
4. Lessee shall not do or permit to be done within the Premises anything
which would unreasonably annoy or interfere with the rights of other
tenants of the building.
5. Lessee shall not permit its employees or invitees to loiter in or about
the common areas, or to obstruct any of the parking, truck maneuvering
or other common areas, or to place, empty or throw any rubbish, litter,
trash or material of any nature upon any common area.
6. No storage of materials, equipment or property of any kind is permitted
outside the Premises and any such property may be removed by Lessor at
Lessee's risk and expense.
7. Lessee shall not make or permit any use of the Premises which may be
dangerous to life, limb or property or any noise, odor or vibrations to
emit from the Premises which are objectionable to Lessor or other
occupants of the Building, or to create, maintain or permit a nuisance
or any violation or any regulation of any governmental agency thereon.
8. Lessee shall not commit or permit to be committed any waste, damage or
injury to the Premises, the Building or parking, loading and other
common areas adjoining and shall promptly repair the same at its
expense.
9. Lessee understands that any equipment required for maintenance of the
Premises is Lessee's responsibility and that Lessor has no equipment
available for Lessee's use therefore, e.g. ladders or lifts for
relamping, etc.
10. Lessee shall use the Premises and shall operate its equipment on the
Premises in a safe and prudent manner, and any damage or cracks
occurring in the floor of the Premises shall be promptly repaired by
Lessee at its expense.
11. Lessee shall not at any time display a "For Rent" sign upon the
Premises.
12. Lessee shall be responsible for keeping a copy of the lease and
Lessor's current rules and regulations upon the Premises.
13. Lessee agrees to cause its employees to park only in such areas as may
be designated by Lessor from time to time for employee parking.
1 of 2
<PAGE> 35
14. Lessee shall not waste electricity or water and agrees to cooperate
fully with Lessor to assure the most effective and economical use of
utilities services as may be provided to the Building by Lessor.
15. Lessee shall keep Lessor advised of the current telephone numbers of
Lessee's employees who may be contacted in an emergency, i.e. fire,
break-in, vandalism, etc. If Lessor shall deem it necessary to respond
to such emergency in Lessee's behalf, Lessee shall pay all costs
incurred for services ordered by Lessor to secure or otherwise protect
the Premises and the contents thereof, including a premium charge for
any time spent by Lessor's employees in responding to such emergency.
2 of 2
<PAGE> 36
EXHIBIT "F"
HAZARDOUS MATERIALS LIST
INNOVA CORPORATION, INC.
ACETONE: QUANTITY LESS THAN TWO GALLONS
ISOPROPANOL: QUANTITY LESS THAN TWO GALLONS
"FLUX-OFF": QUANTITY LESS THAN TWO GALLONS
<PAGE> 1
LEASE AMENDMENT NO. 1
This LEASE AMENDMENT No. 1 (this "Amendment") is entered into as of
January 28, 1997, by and between INNOVA CORPORATION, a Washington corporation
("Lessee"), and GATEWAY NORTH PROPERTIES, L.L.C., a Delaware limited liability
company ("Lessor"), with reference to the following facts:
A. Lessor and Lessee are the current parties to that certain Lease,
dated as of April 16, 1996 (the "Lease"), for the lease by Lessee of space in a
building located at 3325 South 116th Street, Suite 161, as more particularly
described in the Lease (the "Leased Premises"). All capitalized terms referred
to in this Amendment shall have the same meaning defined in the Lease, except
where expressly defined to the contrary in this Amendment.
B. Lessee and Lessor desire to amend the Lease to expand the Leased
Premises, and to make certain other changes to the Lease, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants hereinafter contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Confirmation. Lessee acknowledges and agrees that: (a) Lessee is in
sole possession of the Leased Premises demised under the Lease; (b) all work,
improvements and furnishings required by Lessor under the Lease have been
completed and accepted by Lessee; (c) all free rent and any other concession
required under the Lease have been granted, used and otherwise satisfied; and
(d) it has no offset, claim, recoupment or defense against the payment of rent
and other sums and the performance of all obligations of Lessee under the Lease.
2. Expansion. Commencing on January 1, 1999, the Leased Premises
identified in Article 1.3(c) of the Lease shall be expanded from 35,929 square
feet (excluding mezzanine level which is approximately 3,000 square feet) to
approximately 55,129 square feet (excluding mezzanine level which is
approximately 3,000 square feet)(See Exhibit A attached hereto). The parties
- 1 -
<PAGE> 2
agree that the foregoing square footage figures shall be deemed the actual
square footage figures for the applicable space.
3. Minimum Monthly Rent. Commencing on January 1, 1999, the Minimum
Monthly Rent identified in Article 1.5(A) of the Lease shall follow the
following schedule:
January 1, 1999 through October 31, 1999, Thirty-nine thousand eight
hundred and forty-seven dollars ($39,847.00).
November 1, 1999 through October 31, 2000, Forty-one thousand nine
hundred and forty-nine dollars ($41,949.00)per month.
November 1, 2000 through October 31, 2001, Forty-three thousand one
hundred and fifty-six dollars ($43,156.00) per month.
4. Pro Rata Share of Complex. Commencing on January 1,1999, the Initial
Pro Rata % identified in Article 1.8 of the Lease is 20.70% (55,129/266,356).
5. Pro Rata Share of Building. Commencing on January 1, 1999, the Pro
Rata % of Building identified in Article 1.8(a) is 70.20% (35,929/51,179)of the
3325 South 116th Street building and 38.21% (19,200/50,254)of the 3425 South
116th Street building.
6. NOTICE OF YAMATO LEASE DEFAULTS. While Yamato TRANSPORT U.S.A., INC.
("YAMATO") IS A TENANT OF GATEWAY NORTH PROPERTIES, L.L.C. AND WHILE INNOVA
CORPORATION IS A SUB-TENANT OF YAMATO, LESSOR SHALL COPY LESSEE IN THE EVENT OF
ANY LEASE DEFAULT BY YAMATO AND SHALL ALLOW LESSEE THE OPPORTUNITY TO CURE THE
DEFAULT. LESSEE'S OPPORTUNITY TO CURE A YAMATO LEASE DEFAULT SHALL BE WITHIN THE
TIME FRAME PROVIDED FOR IN THE YAMATO LEASE AND SHALL RUN CONCURRENTLY WITH
YAMATO'S CURE PERIOD AND NOT AS AN ADDITIONAL PERIOD.
7. General Provisions.
7.1 Further Assurances. Lessor and Lessee each agree to
execute any and all documents and agreements reasonably requested by the other
party to further evidence or effectuate this Amendment.
- 2 -
<PAGE> 3
7.2 Successors and Assigns. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their successors and
assigns.
7.3 Reaffirmation. As amended hereby, the Lease shall remain
in full force and effect.
7.4 Conflicts. In case of any conflict between any term or
provision of this Amendment and the Lease, the term or provision of this
Amendment shall govern.
7.5 Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
when taken together shall constitute one agreement.
IN WITNESS WHEREOF, this Amendment has been executed as of the date
first set forth above.
LESSOR: GATEWAY NORTH PROPERTIES, L.L.C.,
a Delaware limited liability company
By: Divco West Group, L.L.C.,
a Delaware limited liability company,
Its Agent
By: /s/ SCOTT SMITHERS
------------------------------------------
Name: Scott Smithers
------------------------------------------
Its: President
------------------------------------------
Date: 2/20/97
------------------------------------------
LESSEE: Innova Corporation,
a Washington corporation
By: /s/ JOHN HEMINGWAY
---------------------------------------------
Name: John Hemingway
---------------------------------------------
Its: CFO
---------------------------------------------
Date: 2/11/97
---------------------------------------------
- 3 -
<PAGE> 4
NOTARY
LESSOR
STATE OF CALIFORNIA )
) ss.
COUNTY OF SANTA CLARA )
On this 20th day of February, 1997, before me, the undersigned, a
Notary Public in and for the State of California, duly commissioned and sworn,
personally appeared Scott Smithers, to me known to be the President of Divco
West Group, L.L.C., the limited liability corporation that executed the within
and foregoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of said corporation, for the uses and purposes therein
mentioned and on oath stated that he/she was authorized to execute said
instrument.
WITNESS my hand and official seal hereto affixed the day and year in
this certificate above written.
Michael Quinonez
-----------------------------------------
Notary Public in and for the State of
California
[SEAL} -----------------------------------------
My Appointment Expires
4-18-99
-----------------------------------------
LESSEE
STATE OF CALIFORNIA )
) ss.
COUNTY OF SANTA CLARA )
On this 11th day of February, 1997, before me, the undersigned, a
Notary Public in and for the State of Washington, duly commissioned and sworn,
personally appeared John Hemingway, to me known to be the CFO of Innova
Corporation the corporation that executed the within and foregoing instrument,
and acknowledged said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein mentioned and on oath stated
that he/she was authorized to execute said instrument.
WITNESS my hand and official seal hereto affixed the day and year in
this certificate above written.
[ILLEGIBLE]
-----------------------------------------
Notary Public in and for the State of Washington
My Appointment Expires 11/29/99
- 4 -
<PAGE> 1
[KIDDER MATHEWS & SEGNER INC LOGO]
SUBLEASE AGREEMENT
1. PARTIES. This Sublease is entered into as of the 21ST day of JANUARY,
1997, by and between YAMATO TRANSPORT USA, INC., A NEW YORK CORPORATION,
"Sublessor", and INNOVA CORPORATION, A WASHINGTON CORPORATION, "Sublessee", as
a Sublease under the Master Lease dated MAY 12, 1993, entered into by
SEAGATE/GATEWAY NORTH PROPERTIES, as Landlord, and YAMATO TRANSPORT USA, INC.,
as Tenant. A copy of said Master Lease is attached hereto, marked Exhibit A,
ALSO THE LANDLORD'S CONSENT AGREEMENT, MARKED EXHIBIT B, and incorporated
herein by reference.
2. Provisions Constituting Sublease.
(a) This Sublease is subject to all of the terms and conditions of the
Master Lease in Exhibit A, except as specifically exempted herein and Sublessee
shall assume and perform the obligations of Sublessor and Tenant in said Master
Lease, to the extent said terms and conditions are applicable to the premises
subleased pursuant to this Sublease. THIS SUBLEASE IS ALSO SUBJECT TO ALL OF
THE TERMS AND CONDITIONS OF THE CONSENT TO THIS SUBLEASE TO BE OBTAINED FROM
THE LESSOR UNDER THE MASTER LEASE ("LESSOR"). Sublessee shall not commit nor
permit to be committed on the subleased premises any act or omission which
shall violate any term or condition of the Master Lease. In the event of the
termination of Sublessor's interest as Tenant under the Master Lease for any
reason, then this Sublease shall terminate coincidentally therewith without any
liability of Sublessor to Sublessee. SUBLESSEE SHALL BE ENTITLED TO THE BENEFIT
OF ALL OF THE OBLIGATIONS OF LESSOR PURSUANT TO THE MASTER LEASE WITH RESPECT
TO THE BUILDING AND THE DEMISED PREMISES, INCLUDING BUT NOT LIMITED TO THE
OBLIGATIONS TO REPAIR AND RESTORE AND PROVIDE OR RENDER WORK OR SERVICES, AND
SUBLESSEE AGREES THAT SUCH OBLIGATIONS SHALL BE THE RESPONSIBILITY OF LESSOR
AND NOT THOSE OF SUBLESSOR. IN THE EVENT LESSOR SHALL FAIL OR REFUSE TO COMPLY
WITH ANY OF THE TERMS OF THE MASTER LEASE, SUBLESSEE SHALL HAVE THE RIGHT, IN
ITS OWN NAME AND AT ITS OWN COST, TO REQUIRE AND OBTAIN PERFORMANCE BY LESSOR
PURSUANT TO THE TERMS OF THE MASTER LEASE. SUBLESSEE SHALL LOOK SOLELY TO
LESSOR FOR THE PERFORMANCE OF ALL SERVICES REQUIRED TO BE PERFORMED BY LESSOR
UNDER THE MASTER LEASE, AND SHALL NOT UNDER ANY CIRCUMSTANCES SEEK NOR REQUIRE
SUBLESSOR TO PERFORM ANY OF SUCH SERVICES, NOR SHALL SUBLESSEE MAKE ANY CLAIM
UPON SUBLESSOR FOR ANY DAMAGES WHICH ARISE BY REASON OF THE NEGLIGENCE, WHETHER
BY OMISSION OR COMMISSION OF LESSOR.
(b) All of the terms and conditions contained in the Master Lease in
Exhibit A are incorporated herein, except for paragraphs 1.4, 1.5, 1.6, 3.1,
3.2, 4.1, 5.1, 6.1, 6.2, 19.2, AND ADDENDUM PARAGRAPHS I, II, III, AND EXHIBIT
C, as terms and conditions of this Sublease (with each reference therein to
Landlord and Tenant to be deemed to refer to Sublessor and Sublessee) and along
with all of the following paragraphs set out in this Sublease, shall be the
complete terms and conditions of this Sublease.
3. PREMISES. Landlord subleases to Sublessee and Sublessee hires from said
Sublessor the following described premises situated in the City of SEATTLE,
County of KING, State of WASHINGTON, and described as APPROXIMATELY 19,200
SQUARE FEET OF OFFICE AND WAREHOUSE SPACE LOCATED AT GATEWAY NORTH, BUILDING 6,
3425 SOUTH 116TH STREET, SUITE 109, SEATTLE, WASHINGTON.
4. TERM.
4.1 TERM. THE TERM OF THIS SUBLEASE SHALL COMMENCE ON FEBRUARY 1, 1997
("COMMENCEMENT DATE"), OR WHEN LESSOR CONSENTS TO THIS SUBLEASE (IF SUCH
CONSENT IS REQUIRED UNDER THE MASTER LEASE), WHICHEVER SHALL LAST OCCUR, AND
END ON DECEMBER 31, 1998 ("TERMINATION DATE"), UNLESS OTHERWISE SOONER
TERMINATED IN ACCORDANCE WITH THE PROVISIONS OF THIS SUBLEASE. IN THE EVENT THE
TERM COMMENCES ON A DATE OTHER THAN THE COMMENCEMENT DATE, SUBLESSOR AND
SUBLESSEE SHALL EXECUTE A MEMORANDUM SETTING FORTH THE ACTUAL DATE OF
COMMENCEMENT OF THE TERM. POSSESSION OF THE PREMISES ("POSSESSION") SHALL BE
DELIVERED TO SUBLESSEE ON THE COMMENCEMENT OF THE TERM. IF FOR ANY REASON
SUBLESSOR DOES NOT DELIVER POSSESSION TO SUBLESSEE ON THE COMMENCEMENT OF THE
TERM, SUBLESSOR SHALL NOT BE SUBJECT TO ANY LIABILITY FOR SUCH FAILURE, THE
TERMINATION DATE SHALL NOT BE EXTENDED BY THE DELAY, AND THE VALIDITY OF THIS
SUBLEASE SHALL NOT BE IMPAIRED, BUT RENT SHALL ABATE UNTIL DELIVERY OF
POSSESSION. NOTWITHSTANDING THE FOREGOING, IF SUBLESSOR HAS NOT DELIVERED
POSSESSION TO SUBLESSEE WITHIN SIXTY (60) DAYS AFTER THE COMMENCEMENT DATE,
THEN AT ANY TIME THEREAFTER AND BEFORE DELIVERY OF POSSESSION, SUBLESSEE MAY
GIVE WRITTEN NOTICE TO SUBLESSOR OF SUBLESSEE'S INTENTION TO CANCEL THIS
SUBLEASE. SAID NOTICE SHALL SET FORTH AN EFFECTIVE DATE FOR SUCH CANCELLATION
WHICH SHALL BE AT LEAST FIVE (5) DAYS AFTER DELIVERY OF SAID NOTICE TO
SUBLESSOR. IF SUBLESSOR DELIVERS POSSESSION TO SUBLESSEE ON OR BEFORE SUCH
EFFECTIVE DATE, THIS SUBLEASE SHALL REMAIN IN FULL FORCE AND EFFECT. IF
SUBLESSOR FAILS TO DELIVER POSSESSION TO SUBLESSEE ON OR BEFORE SUCH EFFECTIVE
DATE, THIS SUBLEASE SHALL BE CANCELLED, IN WHICH CASE ALL CONSIDERATION
PREVIOUSLY PAID BY SUBLESSEE TO SUBLESSOR ON ACCOUNT OF THIS SUBLEASE SHALL BE
RETURNED TO SUBLESSEE, THIS SUBLEASE SHALL THEREAFTER BE OF NO FURTHER FORCE OR
EFFECT, AND SUBLESSOR SHALL HAVE NOT FURTHER LIABILITY TO SUBLESSEE ON ACCOUNT
OF SUCH DELAY OR CANCELLATION. IF SUBLESSOR PERMITS SUBLESSEE TO TAKE
POSSESSION PRIOR TO THE COMMENCEMENT OF THE TERM, SUCH EARLY POSSESSION SHALL
NOT ADVANCE THE TERMINATION DATE AND SHALL BE SUBJECT TO THE PROVISIONS OF THIS
SUBLEASE, INCLUDING WITHOUT LIMITATION THE PAYMENT OF RENT.
12886 Interurban Avenue South, Seattle, WA 98168
(206) 248-7300
<PAGE> 2
SUBLEASE AGREEMENT - PAGE 2
5. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly installments of NINE THOUSAND NINE HUNDRED EIGHTY-FOUR AND NO/100
Dollars ($9,984.00), in advance, on the first day of each month of the term
hereof. Sublessee shall pay Sublessor upon the execution hereof the sum of NINE
THOUSAND NINE HUNDRED EIGHTY-FOUR AND NO/100 Dollars ($9,984.00) as rent for
THE FIRST MONTH OF THE SUBLEASE. Rent for any period during the term hereof
which is for less than one (1) month shall be a pro-rata portion of the monthly
installment. Rent shall be payable without notice or demand and without
deduction, offset, or abatement, in lawful money of the United States of
America to Sublessor at the address stated herein or to such other persons or
at such other places as Sublessor may designate in writing.
OPERATING COSTS. IF THE MASTER LEASE REQUIRES SUBLESSOR TO PAY TO
LESSOR ALL OR A PORTION OF THE EXPENSES OF OPERATING THE BUILDING AND/OR
PROJECT OF WHICH THE PREMISES ARE A PART ("OPERATING COSTS"), INCLUDING BUT NOT
LIMITED TO TAXES, UTILITIES, OR INSURANCE, THEN SUBLESSEE SHALL PAY TO
SUBLESSOR AS ADDITIONAL RENT ONE HUNDRED PERCENT (100%) OF THE AMOUNTS PAYABLE
BY SUBLESSOR FOR OPERATING COSTS INCURRED DURING THE TERM. SUCH ADDITIONAL RENT
SHALL BE PAYABLE WHEN OPERATING COSTS ARE PAYABLE BY SUBLESSOR FOR OPERATING
COSTS INCURRED DURING THE TERM. SUCH ADDITIONAL RENT SHALL BE PAYABLE WHEN
OPERATING COSTS ARE PAYABLE BY SUBLESSOR TO LESSOR. IF THE MASTER LEASE
PROVIDES FOR THE PAYMENT BY SUBLESSOR OF OPERATING COSTS ON THE BASIS OF AN
ESTIMATE THEREOF, THEN AS AND WHEN ADJUSTMENTS BETWEEN ESTIMATED AND ACTUAL
OPERATING COSTS ARE MADE UNDER THE MASTER LEASE, THE OBLIGATIONS OF SUBLESSOR
AND SUBLESSEE HEREUNDER SHALL BE ADJUSTED IN A LIKE MANNER; AND IF ANY SUCH
ADJUSTMENT SHALL OCCUR AFTER THE EXPIRATION OR EARLIER TERMINATION OF THE TERM,
THEN THE OBLIGATIONS OF SUBLESSOR AND SUBLESSEE UNDER THIS PARAGRAPH SHALL
SURVIVE SUCH EXPIRATION OR TERMINATION. SUBLESSOR SHALL, UPON REQUEST BY
SUBLESSEE, FURNISH SUBLESSEE WITH COPIES OF ALL STATEMENTS SUBMITTED BY LESSOR
OF ACTUAL OR ESTIMATED OPERATING COSTS DURING THE TERM.
6. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof the sum of NINE THOUSAND NINE HUNDRED EIGHTY-FOUR AND NO/100 DOLLARS
($9,984.00), as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this
Sublease, Sublessor may use, apply or retain all or any portion of said deposit
for the payment of any rent or other charge in default or for the payment of
any other sum to which Sublessor may become obligated by reason of Sublessee's
default, or to compensate Sublessor for any loss or damage which Sublessor may
suffer thereby. If Sublessor so uses or applies all or any portion of said
deposit, Sublessee shall within ten (10) days after written demand therefore
deposit cash with Sublessor in an amount sufficient to restore said deposit to
the full amount hereinabove stated, and Sublessee's failure to do so shall be a
breach of this Sublease, and Sublessor may at its option terminate this
Sublease. Sublessor shall not be required to keep said deposit separate from
its general accounts. If Sublessee performs all of Sublessee's obligations
hereunder, said deposit or so much thereof as has not theretofore been applied
by Sublessor, shall be returned, without payment of interest or other increment
for its use, to Sublessee (or, at Sublessor's option, to the last assignee, if
any, or Sublessee's interest hereunder) within fifteen (15) days after the
expiration of the term hereof, or after Sublessee has vacated the Premises,
whichever is later.
7. USE. The Premises shall be used and occupied only for GENERAL OFFICE
AND LIGHT MANUFACTURING AND ASSEMBLY OF MICROWAVE TRANSMITTERS and for no other
purpose without prior written consent of Sublessor and Landlord. Sublessee's
business shall be established and conducted throughout the term hereof in a
first class manner. Sublessee shall not use the Premises for, or carry on, or
permit to be carried on, any offensive, noisy, or dangerous trade, business,
manufacture or occupation or permit any auction sale to be held or conducted on
or about the Premises. Sublessee shall not do or suffer anything to be done
upon the Premises which will cause structural injury to the Premises or the
building of which the Premises form a part. The Premises shall not be
overloaded and no machinery, apparatus or other appliance shall be used or
operated in or upon the Premises which will in any manner injure, vibrate, or
shake the Premises or the building of which it is a part. No use shall be made
of the Premises which will in any way impair the efficient operation of the
sprinkler system (if any) within the building containing the Premises.
Sublessee shall not leave the Premises unoccupied or vacant during the term. No
musical instrument of any sort, or any noise-making device will be operated or
allowed upon the Premises for the purpose of attracting trade or otherwise.
Sublessee shall not use or permit the use of the Premises or any part thereof
for any purpose which will increase the existing rate of insurance upon the
building in which the premises are located, or cause a cancellation of any
insurance policy covering the building or any part thereof. If any act on the
part of Sublessee or use of the Premises by Sublessee shall cause, directly or
indirectly, any increase of Sublessor's or Landlord's insurance expense, said
additional expense shall be paid by Sublessee to Sublessor upon demand. No such
payment by Sublessee shall limit Sublessor in the exercise of any other rights
or remedies, or constitute a waiver of Sublessor's right to require Sublessee
to discontinue such act or use.
8. NOTICES. All notices or demands of any kind required or desired to be
given to Sublessor or Sublessee hereunder shall be in writing and shall be
deemed delivered forty-eight (48) hours after depositing the notice or demand
in the United States mail, certified or registered, postage prepaid, RETURN
RECEIPT REQUESTED, addressed to the Sublessor or Sublessee, respectively, at
the addresses set forth after their signatures at the end of this Sublease. All
rent and other payments due under this Sublease or the Master Lease shall be
made by Sublessee to Sublessor at the same address.
9. COMMISSION. Upon execution of this Sublease, Sublessor shall pay
Kidder, Mathews & Segner, Inc. a real estate commission in the amount of
$-----. FIVE PERCENT (5%) OF THE TOTAL BASE RENT THROUGH THE TERM.
10. AGENCY DISCLOSURE. At the signing of this Agreement, Agent (include
agent's name and broker's office name JOHN GLEASON OF DIVCO WEST represented
SUBLESSEE The listing
12886 Interurban Avenue South, Seattle, WA 98168
(206) 248-7300
<PAGE> 3
agent, if any (include agent's name and broker's office name) DOUG KLEIN OF
KIDDER, MATHEWS & SEGNER, INC. represented SUBLESSOR. In the event different
agents from Kidder, Mathews & Segner, Inc. represent Landlord and Tenant, each
party signing this Agreement consents to the designated broker of Kidder,
Mathews & Segner, Inc. acting as a dual agent. In the event the same agent(s)
from Kidder, Mathews & Segner, Inc. represent both Landlord and Tenant, each
party signing this Agreement consents to those representing both Landlord and
Tenant acting as dual agents.
11. SUBLESSOR WORK. THE PREMISES ARE PROVIDED TO SUBLESSEE ON AN "AS-IS"
BASIS. PRIOR TO SUBLEASE COMMENCEMENT, SUBLESSEE AND SUBLESSOR WILL PERFORM A
WALK THROUGH OF THE PREMISES NOTING THE CONDITION OF THE PREMISES WHICH SHALL
THEN BECOME EXHIBIT "C".
12. SUBLESSOR DEFAULT. SUBLESSOR AGREES THAT SUBLESSEE MAY (BUT SHALL NOT BE
OBLIGATED TO) CURE ANY DEFAULT BY SUBLESSOR REGARDING SUBLESSOR'S OBLIGATIONS
UNDER THE MASTER LEASE IF SUBLESSOR FAILS TO CURE SUCH DEFAULT IN A TIMELY
MANNER AND SUBLESSOR SHALL FURTHER PERMIT SUBLESSEE TO DEDUCT THE COST OF
CURING SUCH DEFAULT THEREOF FROM FUTURE PAYMENT OBLIGATIONS OWED BY SUBLESSEE
TO SUBLESSOR.
13. INSURANCE. THROUGHOUT THE TERM OF THIS SUBLEASE, SUBLESSEE SHALL MAINTAIN
THE INSURANCE REQUIRED PURSUANT TO PARAGRAPH 10.5 OF THE MASTER LEASE FOR ALL
OF SUBLESSEE'S FIXTURES, FURNITURE, EQUIPMENT AND OTHER PERSONAL PROPERTY.
THROUGHOUT THE TERM OF THIS SUBLEASE, SUBLESSEE SHALL MAINTAIN THE LIABILITY
INSURANCE REQUIRED PURSUANT TO ARTICLES 11 AND 12 OF THE MASTER LEASE AND
SUBLESSOR SHALL BE NAMED AS AN ADDITIONAL INSURED ON SUCH POLICY.
SUBLESSOR:
YAMATO TRANSPORT USA, INC.
Address: 19-26 Hazen Street By: /s/ Yoshifumi Hirai
Flushing, NY 11370 Its: President
Date: 2/12/97
SUBLESSEE:
INNOVA CORPORATION,
A WASHINGTON CORPORATION
Address: 3325 South 116th Street By: /s/ John Hemmingway
Suite 161 Its: CFO
Seattle, WA 98168 Date: 2/7/97
12886 Interurban Avenue South, Seattle, WA 98168
(206) 248-7300
<PAGE> 4
CORPORATE
STATE OF NEW JERSEY, |
| ss.
COUNTY OF HUDSON |
On this 13th day of February A.D. 1997, before me personally appeared
Yoshifumi Hirai to me known to be the _____________________________________
and _______________________________________ to me known to be the President
of Yamato Transport USA INC. the corporation that executed the within and
foregoing instrument, and acknowledged the same instrument to be the free and
voluntary act and deed of said corporation, for the uses and purposes therein
mentioned, and on oath stated that they were authorized to execute said
instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official
seal, the day and year first above written.
/s/ Grace Laurora
---------------------------
GRACE LAURORA
NOTARY PUBLIC OF NEW JERSEY
My commission expires Aug. 11, 2001
Notary Public in and for the State of New Jersey, residing at Secaucus.
CORPORATE
STATE OF WASHINGTON, |
| ss.
COUNTY OF KING |
On this 11th day of February A.D. 1997, before me personally appeared
John Hemingway to me known to be the _____________________________________
and _______________________________________ to me known to be the CEO of
Innova Corporation the corporation that executed the within and foregoing
instrument, and acknowledged the same instrument to be the free and voluntary
act and deed of said corporation, for the uses and purposes therein mentioned,
and on oath stated that they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official
seal, the day and year first above written.
/s/ Barbara J. Melly
----------------------
BARBARA J. MELLY
Notary Public in and for the State of Washington, residing at Seattle.
INDIVIDUAL
STATE OF WASHINGTON, |
| ss.
COUNTY OF KING |
This is to certify on this __________ day of _____________________ A.D.
19____, before me the undersigned, a Notary Public in and for the State of
Washington, duly commissioned and qualified, personally appeared
_______________________________________________________________________________
_______________________________________________________________________________
_____________________________ to me known to be the individual ____ described
in and who executed the within and foregoing instrument, and acknowledged to me
that _________________ signed and sealed the same as __________________________
free and voluntary act and deed, for the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official
seal, the day and year first above written.
---------------------------------------
Notary Public in and for the State of Washington, residing at ________.
INDIVIDUAL
STATE OF |
| ss.
COUNTY OF |
This is to certify on this __________ day of _____________________ A.D.
19____, before me the undersigned, a Notary Public in and for the State of ____,
duly commissioned and qualified, personally appeared
_______________________________________________________________________________
_______________________________________________________________________________
_____________________________ to me known to be the individual ____ described
in and who executed the within and foregoing instrument, and acknowledged to me
that _________________ signed and sealed the same as __________________________
free and voluntary act and deed, for the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official
seal, the day and year first above written.
---------------------------------------
Notary Public in and for the State of __________, residing at _________.
<PAGE> 5
EXHIBIT A
BUSINESS PARK NET LEASE
TABLE OF CONTENTS
1. SALIENT LEASE TERMS . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. PRE-TERM POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . 3
5. DELAY IN DELIVERY OF POSSESSION . . . . . . . . . . . . . . . . . . 3
6. MINIMUM RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
8. COMMON AREAS AND COMMON AREA COSTS . . . . . . . . . . . . . . . . 5
9. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . 7
10. PROPERTY INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . 10
11. LIABILITY INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . 11
12. INSURANCE POLICY REQUIREMENTS . . . . . . . . . . . . . . . . . . . 12
13. LESSEE INSURANCE DEFAULT . . . . . . . . . . . . . . . . . . . . . 12
14. INDEMNIFICATION, WAIVER OF CLAIMS AND SUBROGATION . . . . . . . . . 12
15. DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
16. ACCORD AND SATISFACTION . . . . . . . . . . . . . . . . . . . . . . 15
17. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . 15
18. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
19. COMPLIANCE WITH LAWS AND REGULATIONS . . . . . . . . . . . . . . . 16
20. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
21. ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
22. MAINTENANCE AND REPAIRS . . . . . . . . . . . . . . . . . . . . . . 21
23. CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
24. EMPLOYEE PARKING . . . . . . . . . . . . . . . . . . . . . . . . . 23
25. ABANDONMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
26. ENTRY BY LESSOR . . . . . . . . . . . . . . . . . . . . . . . . . . 23
27. SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
28. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
29. REMEDIES UPON DEFAULT . . . . . . . . . . . . . . . . . . . . . . . 24
30. FORFEITURE OF PROPERTY AND LESSOR'S LIEN . . . . . . . . . . . . . 26
31. SURRENDER OF LEASE . . . . . . . . . . . . . . . . . . . . . . . . 27
32. LESSOR'S EXCULPATION . . . . . . . . . . . . . . . . . . . . . . . 27
33. ATTORNEYS' FEES . . . . . . . . . . . . . . . . . . . . . . . . . . 27
34. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
35. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
36. ESTOPPEL CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . 29
37. WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
38. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
39. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . 30
40. TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
41. EFFECT OF LESSOR'S CONVEYANCE . . . . . . . . . . . . . . . . . . . 30
42. TRANSFER OF SECURITY . . . . . . . . . . . . . . . . . . . . . . . 30
43. CORPORATE AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . 30
44. WAIVER OF CALIFORNIA CODE SECTIONS . . . . . . . . . . . . . . . . 30
45. WASTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
46. BANKRUPTCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
47. LATE CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
48. MORTGAGEE PROTECTION . . . . . . . . . . . . . . . . . . . . . . . 32
49. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . 32
50. WAIVER OF TESTIMONY . . . . . . . . . . . . . . . . . . . . . . . . 34
i
<PAGE> 6
BUSINESS PARK NET LEASE
ARTICLE 1. SALIENT LEASE TERMS
THIS LEASE is dated for reference purposes only this 12th day of May 1993.
1.1. Rent Seagate/Gateway North Properties
Payment: c/o Kemper/Bedford Ventures Account
P.O. Box 60000
File No. 32253
San Francisco, CA 94160-2253
1.2. Parties Lessor: Seagate/Gateway North Properties,
an Illinois General Partnership
and c/o Kemper Real Estate Mgmt. Co., Inc.
Notice 12720 Gateway Drive, Suite 107
Addresses: Seattle, WA 98168
Kemper Real Estate Management Co., Inc.
3470 Mt. Diablo Blvd.
Lafayette, CA 94549
Lessee: YAMATO TRANSPORT U.S.A., INC., a New York
Corporation
Notices: Yamato Transport 19-26 Hazen Street
Flushing, NY 11370
(If more than one party, then the
obligations hereunder shall be joint and
several.) (Section 49.12)
1.3. Premises: (A) Name and Location of the Complex:
Gateway North
Building 6
3425 S. 116th Street
Seattle, WA 98168
(B) Leased Premises: Suite 109
(C) Approximately 19,200 Square Feet
(Section 2.2)
1.4. Term: (A) Commencing October 1, 1993
(B) Sixty-Three (63) Months
(Section 3.1)
1.5. Rent: (A) Minimum Monthly:
See Addendum I, Paragraph 1.5(A)
(Section 6.1)
(B) Advance Rent: $7,850.00
(Section 6.2)
1.6. Security Deposit: $10,775.00
(Section 17.1)
1.7. Use: Premises used solely for General Office,
Storage, and shipment of air and ocean
freight. (Section 18.1)
1.8. Initial Pro Rata 7.21% (19,200/266,356)
(Section 8.3)
1.8(a) Pro Rata %
of Building 38.21% (19,200/50,254)
1
<PAGE> 7
1.9 Declaration of
Restrictions: Date of Recordation ____________________
Book ______________ Page _______________
Document Number ________________________
1.10. Contents: This lease consists of:
Pages 1 through 34
Articles 1 through 50.1
Addenda I, II, III, IV, V
Exhibits:
A - Legal Description of Complex
B - Plan of Complex
B1- Footprint of Building
C - Construction Obligations
C1- Floor Plan of Leased Premises
D - Acknowledgement of Commencement
of Term
E - Rules and Regulations
The above terms are incorporated in this Lease as indicated above and
referenced herein.
Definitions of the terms in this Lease appear in the following
sections: alterations, 21.2; Award, 23.1(c); bankruptcy event, 46.1; Building,
2; Capital Costs, 8.4; Common Area Costs, 8.4; Common Areas, 8.1; Complex, 2;
Complex Insurance Premium, 10.3(a); Condemnation, 23.1(a) ; Condemnor, 23.1(d);
Date of taking, 23.1(b); debtor, 46.1(a) Decision Period, 23.4; Environmental
Laws, 19.3; Hazardous Materials, 19.3(a); Hazardous Use, 19.3(b); Leased
Premises, 2; Minimum Monthly Rent, 6.1; Nonterminating Party, 23.4; notice,
34.2; obligor, 34.3; person, 49.2; Plans, 21.2(b); pro rata percent, 8.3; Real
Property Taxes, or Taxes, 7.1; rent, 29.2(a); Report, or Hazardous Materials
Report, 19.3(c); restrictions, 2.3; Terminating Party, 23.4; Termination Notice,
9.6; Transfer of the Leased Premises, or Transfer, 9.2; uninsured property loss,
15.1; Wetlands, 12.4; Wetlands Laws, 12.4.
ARTICLE 2. PREMISES
2.1. Demising Clause. Lessor hereby leases to Lessee, and Lessee hires
from Lessor a portion of the Complex as hereinafter defined.
2.2. Description. The "Complex" is that parcel of real property, or
parcels of real property in common ownership with, and contiguous to, the parcel
of which the Leased Premises forms a part, which is described with particularity
in Exhibit "A" attached hereto and made a part hereof by reference, and
described generally in Section 1.3 (A) hereof. The premises leased herein are
described in Section 1.3 (B) and delineated on Exhibit "B", which is attached
hereto and made a part hereof by reference, consisting of the approximate amount
of square footage as specified in Section 1.3 (C) hereof. The term "Building"
shall refer to the Building in which the Leased Premises are located. The
portion leased herein to Lessee is hereinafter referred to as the "Leased
Premises". Lessor reserves the area beneath and above the Building as well as
the exterior thereof together with the right to install, maintain, use, repair
and replace pipes, ducts, conduits, wires, and structural elements leading
through the Leased Premises serving other parts of the Complex, so long as such
items are concealed by walls, flooring or ceilings. Such reservation in no way
affects the maintenance obligations imposed herein.
2.3. Covenants, Conditions and Restrictions. The parties agree that
this Lease is subject to the effect of (a) any covenants, conditions,
restrictions, easements, mortgages or deeds of trust, ground leases, rights of
way of record, and any other matters or documents of record; (b) any zoning laws
of the city, county and state where the Complex is situated; and (c) general and
special taxes not delinquent. Lessee agrees that as to its leasehold estate,
Lessee and all persons in possession or holding
2
<PAGE> 8
under Lessee will conform to and will not violate the terms of any covenants,
conditions or restrictions of record which may now or hereafter encumber the
property (hereinafter the "restrictions"). This Lease is subordinate to the
restrictions and any amendments or modifications thereto.
2.4 Declaration of Restrictions. The Leased Premises are subject to a
Declaration of Restrictions as referenced in Section 1.9 hereof.
ARTICLE 3. TERM
3.1 Commencement Date. The term of this Lease shall commence on the
date specified in Section 1.4(A) hereof and shall be for the term specified in
Section 1.4(B) hereof, plus any partial month at the commencement of the term.
3.2 Acknowledgment of Commencement. After delivery of the Leased
Premises to Lessee, Lessee shall execute a written acknowledgment of the date of
commencement in the form attached hereto as Exhibit "D" and by this reference
it shall be incorporated herein.
ARTICLE 4. PRE-TERM POSSESSION
4.1 Conditions of Entry. In the event the Leased Premises are to be
constructed or remodelled by Lessor, Lessor may notify Lessee when the Leased
Premises are ready for Lessee's fixturing or Lessee's work, which may be prior
to substantial completion of the Leased Premises by Lessor. Lessee may, but
shall be under no obligation to, thereupon enter the Leased Premises for such
purposes at its own risk, to make such improvements as Lessee shall have the
right to make, to install fixtures, supplies, inventory and other property.
Lessee agrees that it shall not in any way interfere with the progress of
Lessor's work by such entry. Should such entry prove an impediment to the
progress of Lessor's work, in Lessor's reasonable judgment, Lessor may demand
that Lessee forthwith vacate the Leased Premises until such time as Lessor's
work is complete, and Lessee shall immediately comply with this demand.
During the course of any pre-term possession, whether such pre-term
period arises because of an obligation of construction on the part of Lessor, or
otherwise, all terms and conditions of this Lease, except for rent and
commencement, shall apply, particularly with reference to indemnity by Lessee of
Lessor under Article 14 herein for all occurrences within or about the Leased
Premises.
ARTICLE 5. DELAY IN DELIVERY OF POSSESSION
5.1 Delay. If Lessor, for any reason whatsoever, cannot deliver
possession of the Leased Premises to Lessee at the commencement of the Lease
term, this Lease shall not be void or voidable, nor shall Lessor be liable for
any loss or damage resulting therefrom, but in that event, there shall be a
proportionate reduction of rent covering the period between the commencement of
the Lease term and the time when Lessor can deliver possession. The Lease term
shall be extended by such delay for an equal period. Notwithstanding the
foregoing, in the event that Lessor cannot deliver possession of the Leased
Premises within sixty (60) days of the commencement date set forth in Section
1.4(A) (the "Commencement Date") except as a result of "Force Majeure" or
"Lessee Delay" (as defined below), Lessee may, upon written notice to Lessor,
terminate this Lease and receive a refund of all monies paid by Lessee
hereunder.
As used herein, a "Force Majeure" occurrence means any delay resulting from or
caused by an Act of God, fire, earthquake, flood, explosion, action of the
elements, war, invasion, insurrection, riot, mob violence, sabotage, malicious
mischief, inability to procure or general shortage of labor, equipment,
facilities, materials or supplies in the open market, failure of transportation,
strike, lockout, action of labor unions, litigation not within the reasonable
control of Lessor, condemnation, requisition, law, order or regulation of
government or civil, military or naval authority, or any other cause (excluding
financial inability), whether similar or dissimilar to the foregoing, not within
the reasonable control of Lessor.
The term "Lessee Delay" shall mean any delay in the construction of the tenant
improvements to be constructed by Lessor pursuant to Exhibit "C" hereto (the
"Improvements") caused by (i) any changes in the nature or scope of the
Improvements requested by Lessee (including change orders, or changes in the
plans and specifications for the Improvements), (ii) Lessee's failure to timely
provide Lessor with any needed information on the Improvements, or (iii)
Lessee's failure to timely review and, to the extent necessary, approve any
space plans, bids, working drawings, construction drawings, finish
specifications, and any other plans and/or specifications for the Improvements.
The Improvements shall be delivered to Lessee when the Improvements are
"Substantially Complete" (as defined below) and are ready for Lessee's
occupancy. As used herein, the Improvements shall be deemed to be "Substantially
Complete" notwithstanding minor repairs or completion items ("punchlist items")
that do not materially interfere with Lessee's use and occupancy of the Leased
Premises, when the Improvements are certified as Substantially Complete by
Lessor's architect. In the event of any Lessee Delay, the Lease shall be deemed
to have commenced, and the obligations of Lessee under the Lease, including
without limitation the obligation to pay rent, shall be deemed to have
commenced, on the date the Lease would otherwise have commenced had it not been
for the Lessee Delay. Any costs and expenses incurred by Lessor as a result of
Lessee Delay, including without limitation space planning fees, permit
resubmittal fees, increased construction costs, and the like, shall be
reimbursed by Lessee to Lessor.
ARTICLE 6. MINIMUM RENT
6.1 Payment. Lessee shall pay to Lessor at the address specified in
Section 1.1, or at such other place as Lessor way otherwise designate, in
writing, as "Minimum Monthly Rent" for the Leased Premises the amount specified
in Section 1.5(A) hereof, payable in advance on the first day, but not later
than the tenth (10th) day, of each month during the Lease term. If the Lease
term commences on other than the first day of a calendar month, the rent for the
first partial month shall be prorated accordingly.
3
<PAGE> 9
All payments of Minimum Monthly Rent (including sums defined as rent in
Section 29.2) shall be in lawful money of the United States, and payable without
deduction, offset, counterclaim, prior notice or demand.
6.2 Advance Rent. The amount specified in Section 1.5(B) hereof is paid
herewith to Lessor upon execution of this Lease as advance rent, receipt of
which is hereby acknowledged, provided, however, that such amount shall be held
by Lessor as a "Security Deposit" pursuant to Section 17.1 hereof until it is
applied by Lessor to the first Minimum Monthly Rent due hereunder.
6.3 Late Payment. If during any twelve (12) month period Lessee fails
on more than two occasions to make any payment of Minimum Monthly Rent to
Lessor on the date when it is due, then Lessor may, by giving written notice to
Lessee, require that Lessee pay the Minimum Monthly Rent to Lessor quarterly in
advance.
ARTICLE 7. TAXES
7.1 Definition. In this Article 7 the terms "Real Property Taxes" and
"Taxes" are used interchangeably. "Real Property Taxes" as used in this Lease
shall include all Real Property Taxes on the Building, the Complex, the land on
which the Building is situated, and the various estates in the Building and the
land, including this Lease, as well as all personal property taxes per paragraph
7.6 below levied on the property used in the operation of the Building or land,
whether or not now customary or within the contemplation of the parties to this
Lease. "Taxes" also shall include the reasonable cost to Lessor of contesting
the amount, validity, or applicability of any Taxes mentioned in this section
pertaining to the Leased Premises. Further included in the definition of Taxes
herein shall be general and special assessments, fees of every kind and nature,
commercial rental tax, levy, penalty or tax (other than inheritance or estate
taxes) imposed by any authority having the direct or indirect power to tax, as
against any legal or equitable interest of Lessor in the Leased Premises or in
the real property of which the Leased Premises are a part, as against Lessor's
right to rent or other income therefrom, or as against Lessor's business of
leasing the Leased Premises, any tax, fee, or charge with respect to the
possession, leasing, transfer of interest, operation, management, maintenance,
alteration, repair, use, or occupancy by Lessee, of the Leased Premises or any
portion thereof, the Building, or the Complex, or any tax imposed in
substitution, partially or totally, for any tax previously included within the
definition of Taxes herein, or any additional tax, the nature of which may or
may not have been previously included within the definition of Taxes. The term
"Real Property Taxes" or "Taxes" shall not include any tax which may be levied
upon or against the net income or profits of Lessor or its successors or
assigns.
7.2 Assessments. With respect to any general or special assessments
which may be levied upon or against the Leased Premises, the Building, the
Complex, or the underlying realty, or which may be evidenced by improvement or
other bonds, and which may be paid in annual or semi-annual installments, only
the current amount of such installment, prorated for any partial year, and
statutory interest, shall be included within the computation of Taxes for which
Lessee is responsible hereunder.
7.3 Separate Assessment. If the Leased Premises are assessed separately
by the county assessor or other taxing agency, Lessee shall pay to such agency
at least ten (10) business days prior to the business date when such Taxes
would be delinquent, all Real Property Taxes as hereinabove defined applicable
to the Leased Premises or arising under Section 7.1 above. In the event the
Leased Premises share parking and Common Areas with other premises, the
provisions of Section 7.4 below shall apply to Taxes thereon.
4
<PAGE> 10
7.4 Proration. If the Leased Premises are not separately assessed as an
individual tax unit as described in the previous section, Lessee shall pay, as
additional rent, to Lessor, within ten (10) business days after receipt of
billing, its pro rata share of all Real Property Taxes stated in the tax bill in
which the Leased Premises are included, including the parking and Common Areas,
as well as the improvements on all of said land, or otherwise arising under the
provisions of this Article. Pro rata share is defined as that fraction the
numerator of which is the square footage in the Leased Premises and the
denominator of which is the gross leasable area included within the tax bill.
7.5 Estimated Payments. Lessor may, at its option, estimate the amount
of Taxes next due and collect from Lessee on a monthly or quarterly basis, at
Lessor's option, the amount of Lessee's estimated tax obligation. Such estimate
must be reasonable and based upon the prior year's costs. On or before March 1
of each year during the term, Lessor shall provide Lessee with a reconciliation
of Lessee's account with respect to such estimated tax payments. In event it is
established upon such reconciliation that Lessee has not paid sufficient amount
in estimated tax payments to cover its pro rata share for the year in question,
Lessee shall pay to Lessor the full amount of any such shortage within ten (10)
business days of date of billing, If it is established that Lessee has made an
overpayment of its tax obligation upon such reconciliation, Lessee shall
receive, a refund.
7.6 Personal Property Taxes. Lessee shall pay prior to delinquency all
Taxes assessed against and levied upon trade fixtures, furnishings, equipment
and all other personal property of Lessee contained in the Leased Premises or
elsewhere. When possible, Lessee shall cause such trade fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the real property of Lessor. If any of Lessee's said personal property
shall be assessed with Lessor's real property, Lessee shall pay Lessor Taxes
attributable to Lessee within ten (10) business days after receipt of a written
statement setting forth the Taxes applicable to Lessee's property.
7.7 Net Rent. It is the intention of Lessor and Lessee that the rental
received by Lessor be net of any Taxes of any sort to be paid by Lessor, subject
to the exclusions stated in Section 7.1. In the event it shall not be lawful for
Lessee to reimburse Lessor for any of the Taxes covered by this Article, the
Minimum Monthly Rent payable to Lessor under the terms of this Lease shall be
increased by the amount of the portion allocable to Lessee so as to net to
Lessor the amount which would have been receivable by Lessor if such tax had not
been imposed, which amount would be based upon the prior year's taxes.
ARTICLE 8. COMMON AREAS AND COMMON AREA COSTS
8.1 Definition of Common Areas. The term "Common Areas" as used herein
means all areas and facilities outside the Leased Premises, within the exterior
boundaries of the Complex, that are provided and designated by Lessor from time
to time for the general use and convenience of Lessee and of other tenants of
Lessor leaving the common use of such areas, and their respective authorized
representatives and invitees. Common Areas include, without limitation,
driveways, parking areas, sidewalks, and landscaped areas, all as generally
described on Exhibit "B" attached hereto. Exhibit "B" is tentative and Lessor
reserves the right to make alterations thereto from time to time, provided such
alterations do not materially adversely limit or otherwise materially adversely
impede Lessee's access to the Leased Premises.
8.2 Rights and Duties of Lessor. Lessor shall, in a manner it deems
proper in its reasonable opinion, maintain the Common Areas, estab-
5
<PAGE> 11
lish and enforce uniformly reasonable rules and regulations concerning such
areas, close any of the Common Areas to whatever extent required in the opinion
of Lessor's counsel to prevent a dedication of any of the Common Areas or the
accrual of any rights of any person or of the public to the Common Areas, close
temporarily any of the Common Areas for maintenance purposes, and make changes
to the Common Areas including, without limitation, changes in the location of
driveways, entrances, exits, vehicular parking spaces, parking area, the
designation of areas for the exclusive use of others, the direction of the flow
of traffic or construction of additional Buildings thereupon, provided such
changes do not materially adversely limit or otherwise materially adversely
impede Lessee's access to the Leased Premises. Lessee hereby acknowledges that
Lessor is under no obligation to provide security for the Common Areas but may
do so at its option.
8.3 Payment by Lessee. Lessee shall pay to Lessor, as additional
rent, its proportionate share of Common Area Costs as hereinafter defined,
within ten (10) business days of receiving a bill therefor from Lessor, but no
more frequently than monthly. Lessee's proportionate share (or "pro rata %")
shall be that fraction of Common Area Costs the numerator of which is the
number of square feet in the Leased Premises and the denominator of which is
the gross leasable area of buildings in the Complex having the use of the
Common Areas. Lessee's initial pro rata % of Common Area Costs is stated in
Section 1.8. Lessor may bill Lessee estimated charges in accordance with
Section 8.5. Notwithstanding the preceding provisions of this Section 8.3,
Lessee's proportionate share as to certain expenses included in Common Area
Costs may be calculated differently to yield a higher percentage share for
Lessee as to certain expenses in the event Lessor permits other tenants in the
Complex to incur such expenses directly rather than have Lessor incur the
expense in common for the Complex. In such case Lessee's proportionate share of
the applicable expense shall be calculated as having as its denominator the
gross leasable area of all Premises in the Complex less the gross leasable area
of all Premises in the Complex less the gross leasable area of tenants who have
incurred such expense directly. In any case where Lessee, with Lessor's
consent, incurs such expenses directly, Lessee's proportionate share of Common
Area Costs will be calculated specially so that expenses of the same character
which are incurred by Lessor for the benefit of other tenants in the Complex
shall not be pro-rated to Lessee. Nothing herein shall imply that Lessor will
permit lessee or any other tenant of the Complex to incur Common Area Costs.
Any such permission shall be in the sole discretion of Lessor, which Lessor may
grant or withhold in its arbitrary judgment.
8.4 Definition of Common Area Costs. "Common Area Costs" means all
sums (including "Capital Costs" as hereinafter defined and to the extent stated
herein) expended by lessor for the supervision, maintenance, repair, replacement
and operation of the Complex, painting the exterior walls of the buildings in
the Complex, as well as liability insurance premiums and security services for
the Complex, community association dues or assessments and/or property owner's
association dues and assessments which may be imposed upon Lessor by virtue of
any recorded instrument affecting title of the Complex, plus an allowance of
three percent (3%) of the gross rental revenue of the Complex to Lessor for a
management fee. Capital Costs are defined as those expenditures which do not
normally recur more frequently than at five (5) year intervals in the normal
course of operation and maintenance of the Complex. Notwithstanding anything
above which may be to the contrary, Common Area Costs shall include a portion of
all Capital Costs, representing any costs of capital improvements made by Lessor
to the Complex for the purpose of reducing recurring expenses or utility costs
and from which Lessee can expect a reasonable benefit, or that are required by
governmental law, ordinance, regulation or mandate, not applicable to the
Complex at the time of the original construction. The portion thereof to be
included each year in Common Area Costs shall be that fraction allocable to the
calendar year in question calculated by amortizing the cost over the reasonably
useful life of such improvement, as determined
6
<PAGE> 12
by Lessor, with interest on the unamortized balance at the Prime Rate published
by Bank of America in San Francisco, California plus one percent (1%) or such
higher rate as may have been paid by Lessor for funds borrowed for the purpose
of constructing such improvements, but in no event to exceed the highest rate
permissible by law.
8.5 Estimated Payments. Lessor shall have the right, at its option,
to estimate Lessee's pro rata share of Common Area Costs due in the future from
Lessee and to collect from Lessee on a monthly or quarterly basis, as Lessor
may elect, the amount of Lessee's estimated pro rata share of such costs. Such
estimate must be reasonable and based upon the prior year's costs. Lessor shall
provide Lessee with a reconciliation of Lessee's account at least annually, and
if such reconciliation shall indicate that Lessee's account is insufficient to
satisfy Lessee's pro rata share of Common Area Costs for the period estimated,
Lessee shall immediately pay to Lessor any deficiency. Upon receipt of written
notice from Lessee, Lessor shall provide Lessee with a detailed list of
expenses relating to such reconciliation. Any excess in such account indicated
by the reconciliation shall be refunded to Lessee.
8.6 Refuse Disposal. Lessee shall arrange and pay for Refuse Disposal
service at the Leased Premises. Lessee shall pay Lessor, within ten (10)
business days of being billed therefor, for the removal from the Leased
Premises, the Building, or the Complex, of any refuse or rubbish which Lessee
shall fail to have removed.
ARTICLE 9. ASSIGNMENT AND SUBLETTING
9.1 Lease is Personal. The purpose of this Lease is to transfer
possession of the Leased Premises to Lessee for Lessee's personal use in return
for certain benefits, including rent, to be transferred to the Lessor. Lessee's
right to assign or sublet as stated in this Article is subsidiary and
incidental to the underlying purpose of this Lease. Lessee acknowledges and
agrees that it has entered into this Lease in order to acquire the Leased
Premises for its own personal use and not for the purpose of obtaining the
right to convey the leasehold to others.
9.2 "Transfer of the Leased Premises" Defined. The terms "Transfer of
the Leased Premises" or "Transfer" as used herein shall include any assignment
of all or any part this Lease (including assignment by operation of law),
subletting of all or any part of the Leased Premises or transfer of possession,
or right of possession or contingent right of possession of all or any portion
of the Leased Premises, including without limitation, concession, mortgage,
devise, hypothecation, agency, franchise or management agreement, or to suffer
any other person (the agents and servants of Lessee excepted) to occupy or use
the said Leased Premises or any portion thereof. If Lessee is a corporation
which is not deemed a public corporation, or is an unincorporated association
or partnership, or Lessee consists of more than one party, the transfer,
assignment or hypothecation of any stock or interest in such corporation,
association, partnership or ownership interest, in the aggregate in excess of
fifty percent (50%), shall be deemed a Transfer of the Leased Premises.
9.3 No Transfer Without Consent. Lessee shall not suffer a Transfer
of the Leased Premises or any interest therein, or any part thereof, or any
right or privilege appurtenant thereto without the prior written consent of
Lessor, and a consent to one Transfer of the Leased Premises shall not be
deemed to be a consent to any subsequent Transfer of the Leased Premises. Any
Transfer of the Leased Premises without such consent shall be void, and shall,
at the option of Lessor, terminate this Lease.
9.4 When Consent Granted.
(a) The consent of Lessor to a Transfer may not be unreasonably
withheld, provided should Lessor withhold its consent for any of the following
reasons, which list is not exclusive, such withholding shall be deemed to be
reasonable:
7
<PAGE> 13
(i) Financial strength of the proposed transferee
is not at least equal to that of Lessee at the time of execution of this Lease;
(ii) A proposed transferee whose occupation of the
Leased Premises would cause a diminution in the reputation of the Complex or the
other businesses located therein;
(iii) A proposed transferee whose impact on the
common facilities or the other occupants of the Complex would be materially
disadvantageous; or
(iv) A proposed transferee whose occupancy will
require a variation in the terms of the Lease.
(b) Notwithstanding the foregoing, Lessee shall have the
right, without the consent of Lessor, but upon prior written notice to Lessor,
to assign this Lease to a parent company or a company incorporated or to be
incorporated by Lessee, provided that Lessee owns or beneficially controls all
the issued and outstanding shares of capital stock of the company.
9.5 Procedure for Obtaining Consent.
(a) Lessor need not commence its review of any proposed
Transfer, or respond to any request by Lessee with respect to such, unless and
until it has received from Lessee adequate descriptive information concerning
the business to be conducted by the proposed transferee, the transferee's
financial capacity, and such other information as may reasonably be required in
order to form a prudent judgment as to the acceptability of the proposed
Transfer, including without limitation, the following:
(i) The past two years' Federal Income Tax returns of
the proposed transferee (or in the alternative the past two years' audited
annual Balance Sheets and Profit and Loss statements, certified correct by a
Certified Public Accountant);
(ii) Banking references of the proposed transferee;
(iii) A resume of the business background and
experience of the proposed transferee;
(iv) At least two (2) business and two (2) personal
references for the proposed transferee;
(v) An executed copy of the instrument by which
Lessee proposes to effectuate the Transfer.
(vi) A certified statement, including the
calculation, of the amount of unamortized cost of Lessee's leasehold
improvements to the Leased Premises.
(b) Lessee shall reimburse Lessor as additional rent for
Lessor's reasonable costs and attorneys' fees incurred in conjunction with the
processing and documentation of any proposed Transfer of the Leased Premises,
whether or not consent is granted.
9.6 Recapture. By written notice to Lessee (the "Termination Notice")
within twenty (20) business days following submission
8
<PAGE> 14
to Lessor by Lessee of the information specified in Section 9.5, Lessor may (1)
terminate this Lease in the event of an assignment of this Lease or sublet of
the entire Leased Premises, or (2) terminate this Lease as to the portion of the
Leased Premises to be sublet, if the sublet is to be of less than the entire
Leased Premises. Upon the termination date of this Lease, if Lessor exercises
its rights under this Section 9.6, Lessor shall pay to Lessee the unamortized
cost of Lessee's leasehold improvements multiplied by that fraction the
numerator of which is the Rentable Area for assignment or sublease, and the
denominator of which is the Rentable Area of the entire Leased Premises before
such Transfer. In the event Lessor elects to terminate under the provisions
hereof, and the area to be terminated is less than the entire Leased Premises,
an amendment to this Lease shall be executed in which Lessee's obligations for
rent and other charges shall be reduced in proportion to the reduction in the
size of the Leased Premises caused thereby to the portion of the Leased Premises
offered for sublease by restating the description of the Leased Premises, and
its monetary obligations hereunder shall be reduced by multiplying such
obligations by a fraction, the numerator of which is the Rentable Area of the
Leased Premises offered for sublease and the denominator of which is the
Rentable Area of the Leased Promises immediately prior to such termination. For
purposes hereof, the term "Rentable Area" of a floor shall mean all areas
available or held for the exclusive use and occupancy of the occupants or future
occupants of the Complex, measured from the inside finished surface of the
dominant portion of the permanent outer Building walls, excluding stairs,
elevator shafts, flues, pipe shafts, vertical ducts, and the like, and their
enclosing walls, which serve more than one floor of the Building, but not
stairs, dumbwaiters, lifts, and the like, exclusively serving a tenant occupying
offices on more than one floor. No deductions shall be made for columns and
projections necessary to the Building. For purposes hereof, the Rentable Area of
an office on a floor shall be computed by multiplying (a) the number of square
feet computed by measuring to the finished surface of the office side of
corridor and other permanent walls, to the center of partitions that separate
the office from similar adjoining areas, and to the inside finished surface of
the permanent outer Building walls ("Usable Area") by (b) that fraction the
numerator of which is Rentable Area and the denominator of which is Usable Area.
9.7 Effect of Transfer. If Lessor consents to a Transfer, the following
conditions shall apply:
(a) Each and every covenant, condition or obligation imposed
upon Lessee by this Lease and each and every right, remedy or benefit afforded
Lessor by this Lease shall not be impaired or diminished as a result of such
Transfer.
(b) on a monthly basis, any sums of money, or other economic
consideration received by Lessee from the Transferee in such month (whether or
not for a period longer than one month), including higher rent, bonuses, key
money, or the like which exceed, in the aggregate, the total sums which Lessee
pays Lessor under this Lease in such month, or the prorated portion thereof if
the Leased Premises transferred is less than the entire Leased Premises, shall
be payable fifty percent (50%) to Lessor and fifty percent (50%) to Lessee, and
Lessor's share shall be paid with Lessee's payment of Minimum Monthly Rent,
(c) No Transfer, whether or not consent of Lessor is required
hereunder, shall relieve Lessee of its primary obligation to pay the rent and to
perform all other obligations to be performed by Lessee hereunder. The
acceptance of rent by Lessor from any person shall not be deemed to be a waiver
by Lessor of any provision of this Lease or to be a consent to any Transfer of
the Leased Promises.
9
<PAGE> 15
(d) If Lessor consents to a sublease, such sublease shall not
extend beyond the expiration of the term of this Lease,
(e) No Transfer shall be valid and no transferee shall take
possession of the Leased Premises or any part thereof unless, within ten
(10) business days after the execution of the documentary evidence thereof,
Lessee shall deliver to Lessor a duly executed duplicate original of the
Transfer instrument in form reasonably satisfactory to Lessor which provides
that (i) the transferee assumes Lessee's obligations for the payment of rent and
for the full and faithful observance and performance of the covenants, terms and
conditions contained herein, (ii) such transferee will, at Lessor's election,
attorn directly to Lessor in the event Lessee's Lease is terminated for any
reason on the terms set forth in the instrument of transfer and (iii) such
instrument of transfer contains such other assurances as Lessor reasonably deems
necessary.
ARTICLE 10. PROPERTY INSURANCE
10.1 Use of Premises. No use shall be made or permitted to be made on
the Leased Premises, nor acts done, which will increase the existing rate of
insurance upon the Building in which the Leased Premises are located or upon any
other Building in the Complex or cause the cancellation of any insurance policy
covering the Building, or any part thereof, nor shall Lessee sell, or permit to
be kept, used or sold, in or about the Leased Premises, any article which may be
prohibited by the standard form of "All-Risk" fire insurance policies. Lessee
shall, at its sole cost and expense, comply with any and all requirements
pertaining to the Leased Premises, of any insurance organization or company,
necessary for the maintenance of reasonable property damage and commercial
general liability insurance, covering the Leased Premises, the Building, or the
Complex.
10.2 Increase in Premiums. Lessee agrees to pay to Lessor, as
additional rent, any increase in premiums on policies which may be carried by
Lessor on the Leased Premises, the Building or the Complex, or any blanket
policies which include the Building or Complex, covering damage thereto and loss
of rent caused by fire and other perils above the rates for the least hazardous
type of occupancy for industrial warehousing, office and distribution
operations. Lessee further agrees to pay Lessor, as additional
rent, any increases in such premiums resulting from the nature of Lessee's
occupancy or any act or omission of Lessee. All payments of additional rent by
Lessee to Lessor pursuant to this Section 10.2 shall be made within ten
(10) business days after receipt by Lessee of Lessor's billing therefor.
10.3 Pro Rata Share of Premiums.
(a) Lessee shall pay to Lessor, during the term hereof, as
additional rent, its pro rata share of the insurance premiums for any property
insurance carried by Lessor covering the Complex (the "Complex Insurance
Premium"). Such pro rata share is defined as that fraction of the insurance
premiums the numerator of which is the total square footage in the Leased
Premises and the denominator of which is the total square footage in all
premises to which the Complex Insurance Premium is applicable. In the event that
the property insurance carried by Lessor covering the Complex is a blanket
policy in which other properties not related to the Complex are included, the
Complex Insurance Premium shall be calculated as that portion of such blanket
policy insurance premium which, in Lessor's good faith judgment, is properly
allocable to the complex. The sum due under this subsection shall be in addition
to that which may be due under the previous section of this Lease.
(b) Lessee shall pay any such premium portion to Lessor within
ten (10) business days after receipt by Lessee of Lessor's billing therefor.
Lessor shall provide Lessee with a certificate of insurance for the Complex
within thirty (30) days of receipt of Lessee's written request.
10
<PAGE> 16
10.4 Estimated Payments. Lessor may, at its option, estimate the
amount of insurance premiums for property insurance to be due in the future
from Lessee and collect from Lessee on a monthly or quarterly basis, at
Lessor's option, the amount of Lessee's estimated insurance premium obligation.
Said estimate shall be reasonable and based upon the prior year's premiums.
Prior to March 1 of each year, Lessor shall provide Lessee with a
reconciliation of Lessee's account along with a billing for any shortage in the
event of a deficiency or refund, if an overpayment has been made by Lessee.
10.5 Personal Property Insurance. Lessee shall maintain in full
force and effect on all of its fixtures, furniture and equipment and other
business personal property in the Leased Premises a policy or policies
providing protection against any peril included within the classification "All
Risk" to the extent of at least ninety percent (90%) of their replacement cost,
or that percentage of the replacement cost required to negate the effect of a
coinsurance provision, whichever is greater. No such policy shall have a
deductible in a greater amount than Ten Thousand Dollars ($10,000.00). Lessee
shall also insure in the same manner the physical value of all its leasehold
improvements and alterations in the Leased Premises. During the term of this
Lease, the proceeds from any such policy or policies of insurance shall be used
for the repair or replacement of the fixtures, equipment, and leasehold
improvements so insured. Lessor shall have no interest in said insurance, and
will sign all documents necessary or proper in connection with the settlement
of any claim or loss by Lessee. Lessee shall also maintain business
interruption insurance and insurance for all plate glass upon the Leased
Premises. All insurance specified in this Section 10.5 to be maintained by
Lessee shall be maintained by Lessee at its sole cost.
ARTICLE 11. LIABILITY INSURANCE
11.1 Lessee's Insurance. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease, a commercial general liability
insurance policy insuring Lessee against the risks of bodily injury and
property damage, personal injury, contractual liability, owned and nonowned
automobile liability arising out of the ownership, use, occupancy or
maintenance of the Leased Premises and all areas appurtenant thereto. Such
insurance shall be a combined single limit policy in an amount not less than
ONE MILLION DOLLARS ($1,000,000.00) per occurrence with a TWO MILLION DOLLAR
($2,000,000.00) annual aggregate and an umbrella policy of THREE MILLION
DOLLARS ($3,000,000.00) any one occurrence. Lessor and any lender or other
party in interest designated by Lessor shall be named as additional insured(s).
The policy shall contain cross-liability endorsements and shall insure
performance by Lessee of the indemnity provisions of this Lease; shall be
primary, not contributing with, and not in excess of coverage which Lessor may
carry; shall state that Lessor is entitled to recovery for the negligence of
Lessee even though Lessor is named as an additional insured; shall provide for
severability of interest; shall provide that an act or omission of one of the
insured or additional insureds which would void or otherwise reduce coverage
shall not void or reduce coverages as to the other insured or additional
insured; and shall afford coverage after the term of this Lease (by separate
policy or extension if necessary) for all claims based on acts, omissions,
injury or damage which occurred or arose (or the onset of which occurred or
arose) in whole or in part during the term of this lease. The limits of said
insurance shall not limit any liability of Lessee hereunder.
11
<PAGE> 17
11.2 Worker's Compensation Insurance. Lessee shall carry Workers'
Compensation Insurance as required by law, including an employers' liability
endorsement.
ARTICLE 12. INSURANCE POLICY REQUIREMENTS
12.1 General Requirements. All insurance policies required to be
carried by Lessee hereunder shall conform to the following requirements:
(a) The insurer in each case shall carry a designation in
"Best's Insurance Reports" as issued from time to time throughout the term as
follows: Policyholders' rating of A; financial rating of not less than VII;
(b) The insurer shall be qualified to do business in the state
in which the Leased Premises are located;
(c) The policy shall be in a form and include such
endorsements as are reasonably acceptable to Lessor;
(d) Certificates of insurance shall be delivered to Lessor at
commencement of the term and certificates of renewal, at least thirty (30) days
prior to the expiration of each policy;
(e) Each policy shall require that Lessor be notified in
writing by the insurer at least thirty (30) days prior to any cancellation or
expiration of such policy, or any reduction in the amounts of insurance carried.
ARTICLE 13. LESSEE INSURANCE DEFAULT
13.1 Rights of Lessor. In the event that Lessee fails to obtain any
insurance required of it under the terms of this Lease, Lessor may, at its
option, but is not obligated to, obtain such insurance on behalf of Lessee and
bill Lessee, as additional rent, for the cost thereof. Payment shall be due
within ten (10) business days of receipt of the billing therefor by Lessee.
ARTICLE 14. INDEMNIFICATION, WAIVER OF CLAIMS AND SUBROGATION
14.1 Intent and Purpose. This Article 14 is written and agreed to in
respect of the intent of the parties to assign the risk of loss, whether
resulting from negligence of the parties or otherwise, to the party who is
obligated hereunder to cover the risk of such loss with insurance, Thus, the
indemnity and waiver of claims provisions of this Lease have as their object, so
long as such object is not in violation of public policy, the assignment of risk
for a particular casualty to the party carrying the insurance for such risk,
without respect to the causation thereof.
14.2 Waiver of Subrogation. Lessor and Lessee release each other, and
their respective authorized representatives, from any claims for damage to any
person or to the Leased Premises and the Building and other improvements in
which the Leased Premises are located, and to the furniture, fixtures, and other
business personal property, Lessee's improvements and alterations of either
Lessor or Lessee, in or on the Leased Premises and the Building and other
improvements in which the Leased Premises are located, including loss of income,
that are caused by or result from risks insured or required under the terms of
this Lease to be insured against under any property insurance policies carried
or to be carried by either of the parties,
14.3 Form of Policy. Each party shall cause each such insurance policy
obtained by it to provide that the insurance company waives all rights of
recovery by way of subrogation against either party in connection with any
damage covered by such policy. Neither party shall be liable to the other for
any damage caused by any peril included within the classification "All Risk"
which
12
<PAGE> 18
is insured against under any property insurance policy carried under the terms
of this Lease. If any such insurance policy cannot be obtained with a waiver of
subrogation without payment of an additional premium charge above that charged
by the insurance companies issuing such policies without waiver of subrogation,
the party receiving the benefit shall elect to either forfeit the benefit or
shall pay such additional premium to the insurance carrier requiring such
additional premium.
14.4 Indemnity. Lessee, as a material part of the consideration
to be rendered to Lessor, shall indemnify, defend, protect and hold harmless
Lessor against all actions, claims, demands, damages, liabilities, losses,
penalties, or expenses of any kind which may be brought or imposed upon Lessor
or which Lessor may pay or incur by reason of injury to person or property,
from whatever cause, all or in any way connected with the condition or use of
the Leased Premises, or the improvements or personal property therein or
thereon, including without limitation any liability or injury to the person or
property of Lessee, its agents, officers, employees or invitees. Lessee agrees
to indemnify, defend and protect Lessor and hold its harmless from any and all
liability, loss, cost or obligation on account of, or arising out of, any such
injury or loss however occurring, including breach of the provisions of this
Lease and the negligence of the parties hereto. Nothing contained herein shall
obligate Lessee to indemnify Lessor against its own sole or gross negligence or
willful acts, for which Lessor shall indemnify Lessee.
14.5 Defense of Claims. In the event any action, suit or proceeding
is brought against Lessor by reason of any such occurrence, Lessee, upon
Lessor's request, will at Lessee's expense resist and defend such action, suit
or proceeding, or cause the same to be resisted and defended by counsel
designated either by Lessee or by the insurer whose policy covers the
occurrence and in either case reasonably approved by Lessor. The obligations of
Lessee under this Section arising by reason of any occurrence taking place
during the Lease term shall survive any termination of this Lease.
14.6 Waiver of Claims. Lessee, as a material part of the
consideration to be rendered to Lessor, hereby waives all claims against Lessor
for damages or injury, as described below, from any cause arising at any time,
including breach of the provisions of this Lease and the negligence of the
parties hereto:
(a) damages to goods, wares, merchandise and loss of business
in, upon or about the Leased Premises and injury to Lessee, its agents,
employees, invitees or third persons, in, upon or about the Leased Premises;
and
Nothing contained herein shall obligate Lessee to waive claims against
Lessor for damages or injury resulting from Lessor's own (i) sole negligence,
(ii) gross negligence, or (iii) willful acts.
14.7 References. Wherever in this Article the term Lessor or Lessee
is used and such party is to receive the benefit of a provision contained
in this Article, such term shall refer not only to that party but also to its
officers, directors, employees, partners and agents.
ARTICLE 15. DESTRUCTION
15.1 Rights of Termination. In the event the Leased Premises
suffers (a) an "uninsured property loss" (as hereinafter defined), or (b) a
property loss which cannot be repaired within
13
<PAGE> 19
one hundred twenty (120) days from the date of destruction under the laws and
regulations of state, federal, county or municipal authorities, or other
authorities with jurisdiction, Lessor may terminate this Lease as at the date of
the damage upon written notice to Lessee following the casualty. In the event of
a property loss to the Leased Premises which cannot be repaired within one
hundred twenty (120) days of the occurrence thereof, Lessee shall have the right
to terminate the Lease by written notice to Lessor within twenty (20) days
following notice from Lessor that the time for restoration shall exceed one
hundred twenty (120) days. For purposes of this Lease, the term "uninsured
property loss" shall mean any loss arising from a peril not covered by the
standard form of "All Risk" property insurance policy.
15.2 Repairs. In the event of a property loss which may be repaired
within one hundred twenty (120) days from the date of the damage, or, in the
alternative, in the event the parties do not elect to terminate this Lease under
the terms of Section 15.1 above, then this Lease shall continue in full force
and effect and Lessor shall forthwith undertake to make such repairs to
reconstitute the Leased Premises to as near the condition as existed prior to
the property loss as practicable. Such partial destruction shall in no way annul
or void this Lease except that Lessee shall be entitled to a proportionate
reduction of Minimum Monthly Rent following the property loss and until the
time the Leased Premises are restored. Such reduction shall be an amount which
reflects the degree of interference with Lessee's business. So long as Lessee
conducts its business in the Leased Premises, there shall be no abatement until
the parties agree on the amount thereof. If the parties cannot agree within
forty-five (45) days of the property loss, the matter shall be submitted to
arbitration under the rules of the American Arbitration Association. Upon the
resolution of the dispute, the settlement shall be retroactive and Lessor shall
within ten (10) days thereafter refund to Lessee any sums due in respect of the
reduced rental from the date of the property loss. Lessor's obligations to
restore shall in no way include any construction originally performed by Lessee
or subsequently undertaken by Lessee, but shall include solely that property
constructed by Lessor prior to commencement of the term hereof.
l5.3 Repair Coats. The cost of any repairs to be made by Lessor,
pursuant to Section 15.2 of this Lease, shall be paid by Lessor utilizing
available insurance proceeds. Lessee shall reimburse Lessor upon completion of
the repairs for any deductible for which no insurance proceeds will be obtained
under Lessor's insurance policy, or if other premises are also repaired, a pro
rata share based on total costs of repair equitably apportioned to the Leased
Premises. Lessee shall, however, not be responsible to pay any deductible or its
share of any deductible to the extent that Lessee's payment would be in excess
of $5,000 if Lessee's consent has not been received by Lessor, unless such
denial of consent by Lessee is unreasonable.
15.4 Waiver. Losses hereby waives all statutory or common law rights of
termination in respect to any partial destruction or property loss which Lessor
is obligated to repair or may elect to repair under the terms of this Article.
Further, in event of a property loss occurring during the last year of the
original term hereof or of any extension, Lessor need not undertake any repairs
and may cancel this Lease unless Lessee has the right under the terms of this
Lease to extend the term for an additional period of at least five (5) years
and does so within thirty (30) days of the date of the property loss.
15.5 Lessor's Election. In the event that the Complex or Building in
which the Leased Premises is situated be destroyed to the extent of not less
than thirty-three and one-third percent (33-1/3%) of the replacement cost
thereof, Lessor may elect to terminate this Lease, whether the Leased Premises
be injured or
14
<PAGE> 20
not, in the same manner as in Section 15.1 above. At all events, a total
destruction of the Complex of which the Leased Premises form a part, or the
Leased Promises itself, shall terminate this Lease.
ARTICLE 16. ACCORD AND SATISFACTION
16.1 Acceptance of Payment. No payment by Lessee or receipt by Lessor
of a lesser amount of Minimum Monthly Rent or any other sum due hereunder, shall
be deemed to be other than on account of the earliest due rent or payment, nor
shall any endorsement or statement on any check or any letter accompanying any
such check or payment be deemed an accord and satisfaction, and Lessor may
accept such check or payment without prejudice to Lessor's right to recover the
balance of such rent or payment or pursue any other remedy available in this
Lease, at law or in equity. Lessor may accept any partial payment from Lessee
without invalidation of any contractual notice required to be given herein (to
the extent such contractual notice is required) and without invalidation of any
notice required to be given.
15
<PAGE> 21
ARTICLE 18. USE
18.1 Permitted Use. The Leased Premises may be used and occupied only
for the purposes specified in Section 1.7 hereof, and for no other purpose or
purposes. Lessee shall promptly comply with all laws, ordinances, orders and
regulations affecting Lessee's use and/or occupancy of the Leased Premises,
their cleanliness, safety, occupation and use.
ARTICLE 19. COMPLIANCE WITH LAWS AND REGULATIONS
19.1 Lessee's Obligations. Lessee, shall, at its sole cost and expense,
comply with all of the requirements of all municipal, state and federal
authorities now in force, or which may hereafter be in force, pertaining to
Lessee's use and/or occupancy of the Leased Premises, and shall faithfully
observe in the use of the Leased Premises all municipal ordinances and state
and federal statutes now in force or which may hereafter be in force, The
judgment of any court of competent jurisdiction, or the admission of Lessee in
any action or proceeding against Lessee, whether Lessor be a party thereto or
not, that any such ordinance or statute pertaining to the Leased Premises has
been violated, shall be conclusive of that fact as between Lessor and Lessee.
19.2 Condition of Premises. Subject to Lessor's work, if any, as
referred to in Exhibit "C" to this Lease, and subject to Section IV of Addendum
to Lease, Lessee hereby accepts the Leased Premises in the condition existing
as of the date of occupancy, subject to all applicable zoning, municipal, county
and state laws, ordinances, rules, regulations, orders, restrictions of record,
and requirements in effect during the Term or any part of the Term hereof
regulating the Leased Premises.
19.3 Hazardous Materials.
(a) Hazardous Materials & Defined. As used herein, the term
"Hazardous Materials" shall mean (i) any hazardous or toxic wastes, materials or
substances, and any other pollutants or contaminants, which are or may become
regulated by any applicable local, state or federal laws, including but not
limited to, 00 U.S.C. Section 1251 et seq., 42 U.S.C. Section 6901 et seq., 42
U.S.C. Section 7401 et seq., 42 U.S.C. Section 9601 et seq., or any successor(s)
thereto (collectively "Environmental Laws"); (ii) petroleum; (iii) asbestos;
(iv) polychlorinated biphenyls; and (v) radioactive materials.
(b) Use, etc., of Hazardous Materials. Lessee agrees that during
the Term of this Lease, there shall be no use, presence, disposal, storage,
generation (collectively "Hazardous Use"), or intentional Release, as defined
in 42 U.S.C. Section 9601 (22), or any successors) thereto, or threatened
Release of Hazardous Materials brought onto the Complex or stored, generated or
used in the Leased Premises by Lessee, its employees, agents, contractors,
invitees, subtenants and/or assigns on, from or under the Leased Premises
except to the extend that, and in accordance with such conditions as, Lessor may
have previously approved in writing. It is further agreed that Lessee shall be
entitled to use and store only those Hazardous Materials which are necessary for
Lessee's business, provided that such usage and storage is in full compliance
with Environmental Laws, and all judicial and administrative decisions
pertaining thereto, Lessee shall not be entitled to install any tanks under, on
or about the Leased Premises for the storage of Hazardous Materials without the
express written consent of Lessor, which may be given or withheld in Lessor's
sole arbitrary judgment. For the purposes of this Section 19.3, the terms
Hazardous Use and Release shall include Hazardous Use (s) and/or Release (s) of
Hazardous Materials brought onto the Complex or stored, generated or used in the
Leased Premises by Lessee, its employees, agents, contractors, invitees,
subtenants and/or assigns on, from or under the Leased Premises by any and all
lessees, occupants, and/or users of the Leased Premises (except Lessor),
whether known or unknown to Lessee.
16
<PAGE> 22
<PAGE> 23
(c) Hazardous Materials Report; When Required. Lessee shall
submit to Lessor a written report with respect to Hazardous Materials ("Report")
in the form prescribed in subparagraph (d) below on the following dates:
(iii) At any time within ten (10) days after written request
by Lessor, and
(iv) At any time when there has been or is planned any
condition which constitutes or would constitute a change in the information
submitted in the most recent Report, including any notice of violation as
referred to in subparagraph (d) (vii) below.
(d) Hazardous Materials Report; Contents. The Report shall
contain, without limitation, the following information:
(i) Whether on the date of the Report and (if applicable)
during the period since the last Report there has been any Hazardous Use on,
from or under the Leased Premises.
(ii) If there was such Hazardous Use, the exact identity of
the Hazardous Materials, the dates upon which such materials were brought upon
the Leased Premises, the dates upon which the Hazardous Materials were removed
therefrom, and the quantity, location, use and purpose thereof.
(iii) If there was such Hazardous Use, any governmental
permits maintained by Lessee with respect to such Hazardous Materials, the
issuing agency, original date of issue, renewal dates (if any) and expiration
dates. Copies of any such permits and applications therefore shall be attached.
(iv) If there was such Hazardous Use, any governmental
reporting or inspection requirements with respect to such Hazardous Materials,
the governmental agency to which reports are made and/or which conducts
inspections, and the dates of all such reports and/or inspections (if
applicable) since the last Report. Copies of any such reports shall be attached.
(v) If there was such Hazardous Use, identification of any
operation or business plan prepared for any government agency with respect to
Hazardous Uses.
(vi) Any liability insurance carried by Lessee with respect
to Hazardous Materials, the insurer, policy number, date of issue, coverage
amounts, and date of expiration. Copies of any such policies or certificates of
coverage shall be attached.
(vii) Any notices of violation of Environmental Laws, written
or oral, received by Lessee from any governmental agency since the last Report,
the date, name of agency, and description of violation. copies of any such
written notices shall be attached
(viii) Such other pertinent information or documents as are
requested by Lessor in writing.
(e) Release of Hazardous Materials; Notification and Cleanup. If
at any time during the term Lessee knows or believes that any Release of
Hazardous Materials has come or will come to be located upon, about,
17
<PAGE> 24
or beneath the Leased Premises, then Lessee shall, as soon as reasonably
possible, either prior to the Release or following the discovery thereof by
Lessee, give verbal and follow-up written notice of that condition to Lessor.
Lessee covenants to investigate, clean up and otherwise remediate any Release by
Lessee, its employees, agents, representatives, contractors, invitees,
subtenants and/or assigns of Hazardous Materials at Lessee's cost and expense;
such investigation, cleanup and remediation shall be performed only after Lessee
has obtained Lessor's written consent, which shall not be unreasonably withheld;
provided, however, that Lessee shall be entitled to respond immediately to an
emergency without first obtaining Lessor's written consent. All cleanup and
remediation shall be done to the reasonable satisfaction of Lessor. It is the
express intention of the parties hereto that Lessee shall be liable under this
Section 19.3(e) for any and all conditions covered hereby which involve
Hazardous Materials brought onto the complex by Lessee, its employees, agents,
representatives, contractors, invitees, subtenants and/or assigns (except for
conditions caused by the acts or omissions of Lessor, its employees, agents,
representatives, contractors, invitees) or were caused or created by Lessee, its
employees, agents, representatives, contractors, invitees, subtenants and/or
assigns.
(f) Inspection and Testing by Lessor. Lessor shall have the right
at all times during the term of this Lease to (i) inspect the Leased Premises,
and to (ii) conduct tests and investigations to determine whether Lessee is in
compliance with the provisions of this Section. Except in case of emergency,
Lessor shall give reasonable notice to Lessee before conducting any inspections,
tests, or investigations. The cost of all such inspections, tests and
investigations shall be borne by Lessee, if Lessor reasonably believes them to
be necessary, Neither any action nor inaction on the part of Lessor pursuant to
this Section 19.3 (f) shall be deemed in any way to release Lessee from, or in
any way modify or alter, Lessee's responsibilities, obligations, and/or
liabilities incurred pursuant to Section 19.3 hereof.
(g) Indemnity. Lessee shall indemnify, defend and hold Lessor
harmless from and against any and all claims, judgments, damages, penalties,
fines, liabilities, losses, suits, administrative proceedings and costs
(including, but not limited to, attorneys' and consultants' fees) arising from
or related to Hazardous Use or Release of Hazardous Materials brought onto the
Complex by Lessee, its employees, agents, representatives, contractors,
invitees, subtenants and/or assigns (except for conditions caused by the acts or
omissions of Lessor, its employees, agents, representative, subcontractors or
invitees) caused by the acts or omissions of any persons or entities whatsoever,
whether related or unrelated to Lessee, or any other Hazardous Use or Release of
Hazardous Materials caused by the acts or omissions of Lessee, its employees,
agents, representatives, contractors, invitees, subtenants and/or assigns.
Lessee warrants that it is leasing the Premises "as-is, where-is," that it has
thoroughly inspected the Leased Premises prior to execution of the Lease, and
that it intends to act as an insurer with respect to the Hazardous Use or
Release of Hazardous Materials on, under or about the Leased Premises.
19.5 Indemnity. Lessee agrees to indemnify, defend, protect and hold
harmless Lessor, its directors, officers, employees, partners, and agents from
and against any and all losses, claims, demands, actions, damages (whether
direct or consequential), penalties, liabilities, costs and expenses, including
all reasonable attorney's fees and legal expenses, arising out of any violation
or alleged violation of any of the laws or regulations referred to in this
Article 19, or breach of the provisions of this Article by Lessee, its
employees, agents, representatives, contractors, invitees, subtenants and/or
assigns.
18
<PAGE> 25
ARTICLE 20. UTILITIES
20.1 Payment by Lessee. Lessee, from the time it first enters the
Leased Premises for the purpose of setting fixtures, or from the commencement of
this Lease, whichever date shall first occur, and throughout the term of this
Lease, shall pay all charges including connection fees for water, gas, heat,
sewer, power, telephone services and any other utility supplied to or consumed
in or on the Leased Premises. Lessee shall not allow refuse, garbage or trash to
accumulate outside of the Leased Premises except on the day of scheduled
scavenger pick-up services, and then only in areas reasonably designated for
that purpose by Lessor. Lessor shall not be responsible or liable for any
interruption in utility services, nor shall such interruption affect the
continuation or validity of this Lease,
20.2 Separate Meters. Lessor reserves the right to install separate
meters at Lessor's expense for any utility servicing the Leased Premises for
which a meter is not presently installed, in which event Lessee shall make
payments, when due, directly to the utility involved.
20.3 Joint Meters. If any utility services are not separately metered
to Lessee, Lessee shall pay a proportion to be reasonably determined by Lessor
of all charges jointly metered with other leased premises or occupants in the
Complex, All payments to Lessor in respect thereof shall be due within ten (10)
business days after receipt of the billing by Lessee.
ARTICLE 21. UTILITIES
21.1 Consent of Lessor; Ownership. Lessee shall not make, or suffer to
be made, any alterations to the Leased Premises, or any part thereof, without
the written consent of Lessor first had and obtained, which consent will not be
unreasonably withheld or delayed. Consent shall not be required for Alterations
costing less than Five Thousand Dollars ($5,000.00) per calendar year. Any
additions to, or alterations of the Leased Premises, except trade fixtures,
shall upon expiration or termination of this Lease become a part of the realty
and belong to Lessor. Except as otherwise provided in this Lease, Lessee shall
have the right to remove its trade fixtures placed upon the Leased Premises
provided that Lessee restores the Leased Premises as indicated below.
21.2 Requirements. Any alterations, additions or installations
performed by Lessee (hereinafter collectively "alterations") shall be subject to
strict conformity with the following requirements:
(a) All alterations shall be at the sole cost and expense of
Lessee;
19
<PAGE> 26
(b) Prior to commencement of any work of alteration, Lessee shall
submit detailed plans and specifications, including working drawings
(hereinafter referred to as "Plans"), of the proposed alterations, which shall
be subject to the reasonable consent of Lessor in accordance with the terms of
Section 21.1 above; which approval or disapproval shall be delivered to Lessee
within ten (10) business days;
(c) Following approval of the Plans by Lessor, Lessee shall give
Lessor at least ten (10) days' prior written notice of commencement of work in
the Leased Premises so that Lessor may post notices of non-responsibility in or
upon the Leased Premises as provided by law;
(d) No alterations shall be commenced without Lessee having
previously obtained all appropriate permits and approvals required by and of
Governmental agencies;
(e) All alterations shall be performed in a skillful and
workmanlike manner, consistent with the best practices and standards of the
construction industry, and pursued with diligence in accordance with the Plans
previously approved by Lessor and in full accord with all applicable laws and
ordinances. All material, equipment, and articles incorporated in the
alterations is to be of the most suitable grade for the purpose intended;
(f) Lessee must obtain the prior written approval from Lessor for
Lessee's contractor prior to commencement of the work which approval shall not
be unreasonably withheld or delayed. Lessee's contractor shall maintain all of
the insurance reasonably required by Lessor, including, without limitation,
commercial general liability and workers' compensation. The limits of such
insurance shall be the same as those specified in Article 11;
(g) [Reserved]
(h) The alterations must be performed in a manner such that they
will not interfere with the quiet enjoyment of the other lessees in the Complex.
21.3 Liens. Lessee shall keep the Leased Premises and the Complex in
which the Leased Premises are situated free from any liens arising out of any
work performed, materials furnished or obligations incurred by Lessee. In the
event a mechanic's or other lien is filed against the Leased Premises or the
Complex of which the Leased Premises forms a part as a result of a claim arising
through Lessee, and said lien is not discharged within ten (10) business days,
then Lessor may demand that Lessee furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to at least one hundred fifty percent
(150%) of the amount of the contested lien claim or demand, indemnifying Lessor
against liability for the same and holding the Leased Premises free from the
effect of such lien or claim. Such bond must be posted within ten (10) days
following notice from Lessor. In addition, Lessor may require Lessee to pay
Lessor's reasonable attorneys' fees and costs in participating in any action
to foreclose such lien if Lessor shall decide it is to its best interest to do
so. Lessor may pay the claim prior to the enforcement thereof, in which event
Lessee shall reimburse Lessor in full, including reasonable attorneys' fees, for
any such expense, as additional rent, with the next due rental.
21.4 Restoration. Subject to "Exhibit C" Lessor's Construction
Obligations, Lessee shall return the Leased Premises to Lessor at the
expiration or earlier termination of this Lease in good and sanitary order,
condition and repair, free of rubble and debris, broom clean, reasonable wear
and tear excepted. However, Lessee shall ascertain from Lessor the time it
requests the Lessor's consent, or in the case of Alterations costing less than
$5,000 prior to making such alteration, whether Lessor desires the Leased
Premises or any part thereof, restored to its original condition
- 20 -
<PAGE> 27
prior to the making of permitted alterations, installations and improvements,
and if Lessor shall so desire, it shall inform Lessee in writing and then Lessee
shall forthwith restore said Leased Premises or the designated portions thereof
as the case may be, to its original condition, entirely at its own expense,
excepting normal wear and tear prior to the expiration or earlier termination of
this Lease. All damage to the Leased Premises caused by the removal of such
trade fixtures and other personal property that Lessee is permitted to remove
under the terms of this Lease and/or such restoration shall be repaired by
Lessee at its sole cost and expense prior to termination.
ARTICLE 22. MAINTENANCE AND REPAIRS
22.1 Obligations of Lessor and Lessee. Lessee shall, at its sole cost
and expense, keep and maintain the Leased Premises and appurtenances, and every
part thereof in good and sanitary order, condition and repair including all
necessary replacements. Notwithstanding the foregoing, Lessor shall perform all
necessary repairs, maintenance and replacement of the foundation, roof and
structural parts of the Building, provided Lessor shall not unreasonably
interfere with the quiet enjoyment of Lessee. The cost thereof shall be paid by
Lessor and reimbursed by Lessee on a pro rata basis in the manner provided in
this Lease with respect to Common Area Costs, including amortization of Capital
Costs. Lessee's pro rata share shall be a fraction, the numerator of which shall
be the number of square feet in the Leased Premises, and the denominator of
which shall be the number of square feet in the Building. All such amounts shall
be due within ten (10) days after Lessee's receipt of billing. Lessee shall, at
its sole cost, keep and maintain all utilities, fixtures and mechanical
equipment used by Lessee in good order, condition and repair. In the case of
equipment installed by Lessor for Lessee, or installed by Lessee and being or to
become the property of Lessor, such as heating, ventilating and air conditioning
equipment, or other mechanical equipment, Lessee shall maintain a service
contract for its regular maintenance with a service company acceptable to
Lessor, at Lessee's expense. Evidence of such a service contract will be
provided to Lessor at its request.
22.2 HVAC System. Notwithstanding the provisions of the preceding
Section, Lessor shall perform the maintenance of the heating, ventilating and
air conditioning system (hereinafter "HVAC") for the account of Lessee. In such
event, Lessee shall pay the full cost of the maintenance contract for the HVAC
in the Leased Premises within ten (10) business days of receipt of billing
therefor from Lessor, as well as for costs of repair or replacement of parts
thereof as necessary, in the reasonable judgment of Lessor. Lessor may, at its
option, elect to have the HVAC in the Leased Premises maintained in common with
other equipment in the Complex. In such event Lessee shall pay its pro rata
share of such maintenance costs which share shall be established in an equitable
manner by Lessor based upon the relative tonnage in the Leased Premises compared
to the total tonnage under contract, or some other reasonable means of
allocation as selected by Lessor. Lessor's good faith judgment as to the
allocation of the charges described in this paragraph shall be conclusive.
Included in the charges to be allocated to Lessee shall be, without limitation:
the maintenance contract upon the HVAC, extended warranties and any repairs and
replacements not covered by the maintenance contract or warranty. Lessor may
elect to replace the HVAC system, if necessary, and in such event the cost
thereof shall be amortized in the manner provided in this Lease with respect to
amortization of other Capital Costs. Lessee shall pay to Lessor, within ten
(10 business days after receipt of billing, its pro rata share of such
amortization, established on an equitable basis according to the relative
tonnage in the Leased Premises as compared to the entire area served by the
system.
22.3 Condition of Premises. Except as to the construction obligations
of Lessor, if any, stated in Exhibit "C" to this Lease, Lessee shall accept
the Leased Premises in "as is" condition as of
- 21 -
<PAGE> 28
the date of execution of this Lease by Lessee, and Lessee acknowledges that the
Leased Premises in such condition are in good and sanitary order, condition and
repair.
22.4 Waiver. Lessee waives all rights it may have under law to make
repairs at Lessor's expense. If Lessor should be in default in the performance
of any of its obligations under this Lease, which default continues for a period
of more than thirty (30) days after receipt of written notice from Lessee
specifying such default, or if such default is of a nature to require more than
thirty (30) days for remedy and continues beyond the time reasonable necessary
to cure (provided Lessor must have undertaken procedures to cure such default
within such thirty (30) day period and diligently pursue such efforts to cure to
completion), Lessee may, at its option, upon written notice, incur any
reasonable expenses necessary to perform the obligation of Lessor specified in
such notice and bill Lessor therefor.
ARTICLE 23. CONDEMNATION
23.1 Definitions.
(a) "Condemnation" means (i) the exercise of any gov-
ernmental power, whether by legal proceedings or otherwise, by a condemnor
and/or (ii) a voluntary sale or transfer by Lessor to any condemnor, either
under threat of condemnation or while legal proceedings for condemnation are
pending.
(b) "Date of taking" means the date the condemnor has the
right to possession of the property being condemned.
(C) "Award" means all compensation, sums or anything of value
awarded, paid or received on a total or partial condemnation.
(d) "Condemnor" means any public or quasi-public authority,
or private corporation or individual, having the power of condemnation.
23.2 Total Taking. If the Leased Premises are totally taken by
condemnation, this Lease shall terminate on the date of taking.
23.3 Partial Taking; Common Areas.
(a) If any portion of the Leased Premises is taken by
condemnation, this Lease shall remain in effect, except that Lessee can elect to
terminate this Lease if 33-1/3% or more of the total number of square feet in
the Leased Premises is taken, or such taking can be reasonable construed to
impair the business operations of Lessee.
(b) If any part of the Common Areas of the Complex are taken
by condemnation, this Lease shall remain in full force and effect so long as
there is no material interference with the access to the Leased Premises, except
that if thirty percent (30%) or more of the Common Area is taken by
condemnation, either party shall have the election to terminate this Lease
pursuant to this Section.
(c) If fifty percent (50%) or more of the Building in which
the Leased Premises are located is taken, Lessor shall have the election to
terminate this Lease in the manner prescribed herein.
23.4 Termination or Abatement. If either party elects to terminate this
Lease under the provisions of Section 23,3 (such party is hereinafter referred
to as the "Terminating Party"), it must terminate by giving notice to the other
party (the "Nonterminating Party") within thirty (30) days after the nature and
extent of the taking have been finally determined (the "Decision Period"). The
Terminating Party shall notify the Nonterminating Party of the date of
termination, which date shall not be earlier than sixty (60) days after the
Terminating Party has notified the Nonterminating Party of its election to
terminate nor later than the date of taking. If Notice of Termination is not
given within the Decision Period, the Lease shall continue in full force and
effect except that Minimum Monthly Rent shall be reduced by subtracting
therefrom an amount calculated by multiplying the Minimum Monthly Rent in effect
prior to the taking by a fraction the numerator of which is the number of square
feet taken from the Leased Premises and the denominator of which is the number
of square feet in the Leased Premises prior to the taking.
- 22 -
<PAGE> 29
23.5 Restoration. If there is a partial taking of the Leased Premises
and this Lease remains in full force and effect pursuant to this Article,
Lessor, at its cost, shall accomplish all necessary restoration so that the
Leased Premises is returned as near as practical to its condition immediately
prior to the date of the taking, but in no event shall Lessor be obligated to
expend more for such restoration than the extent of funds actually paid to
Lessor by the condemnor.
23.6 Award. Any award arising from the condemnation or the settlement
thereof shall belong to and be paid to Lessor except that Lessee shall receive
from the award compensation for the following if specified in the award by the
condemning authority, so long as it does not reduce Lessor's award in respect of
the real property: Lessee's trade fixtures, tangible personal property,
goodwill, loss of business and relocation expenses and the unamortized cost of
any leasehold improvements made by Lessee. At all events, Lessor shall be solely
entitled to all award in respect of the real property, including the bonus value
of the leasehold. Lessee shall not be entitled to any award until Lessor has
received the above sum in full.
ARTICLE 24. EMPLOYEE PARKING
24.1 Designated Areas. Lessor shall have the right by written notice to
Lessee, to designate specific areas of the Complex for employee parking. If
Lessor so designates an employee parking area, then automobiles of Lessee, its
employees and agents shall not park within the parking area except in areas
delineated by Lessor as "employee parking." Lessee shall be entitled to park in
common with other tenants of Lessor. Lessee agrees not to overburden the parking
facilities and agrees to cooperate with Lessor and other tenants in the use of
parking facilities. Lessor reserves the right in its absolute discretion, to
determine whether parking facilities are becoming crowded and, in such event, to
allocate and assign parking spaces among Lessee and other Lessees. Upon request,
Lessee shall provide Lessor with the license plate numbers of all employees.
ARTICLE 25. ABANDONMENT
25.1 Lessee to Occupy. Lessee shall not abandon the Leased Premises at
any time during the Lease term, nor permit the Leased Premises to remain
unoccupied for a period longer than thirty (30) consecutive days during the
Lease term, and if Lessee shall abandon, vacate or surrender the Leased
Premises, or be dispossessed by process of law, or otherwise, any personal
property belonging to Lessee and remaining on the Leased Promises after such
thirty (30) day period shall, at the option of Lessor, be deemed abandoned.
ARTICLE 26. ENTRY BY LESSOR
26.1 Rights of Lessor. Lessee shall permit Lessor and Lessor's agents
to enter the Leased Premises, upon prior verbal notice, at all reasonable times
for the purpose of inspecting the same or for the purpose of maintaining the
Building, or for the purpose of making repairs, alterations or additions to any
portion of the Building, including the erection and maintenance of such
scaffolding, canopies, fences and props as may be required, or for the purpose
of posting notices of non-responsibility for alterations, additions or repairs,
without any rebate of Rent and without any liability to Lessee for any loss of
occupation or quiet enjoyment of the Leased Premises thereby occasioned, and
shall permit Lessor, at any time within ninety (90) days prior to the expiration
of this Lease, to place upon the Leased Premises any usual or ordinary "to let"
or "to lease" signs. This Section in no way affects the maintenance obligations
of the parties hereto, (provided that Lessor uses reasonable efforts to keep
interference with Lessee's business to a minimum, and further provided that
Lessor exercises due diligence in completing all repairs, alterations, additions
and maintenance).
23
<PAGE> 30
ARTICLE 27. SIGNS
27.1 Approval, Installation and Maintenance. Lessee shall not place on
the Leased Premises or on the Complex, any exterior signs or advertisements nor
any interior signs or advertisements that are visible from the exterior of the
Leased Premises, Without Lessor's prior written consent, which Lessor reserves
the right to withhold for any aesthetic reason in its sole judgment. The cost of
installation and regular maintenance of any such signs approved by Lessor shall
be at the sole expense of Lessee. At the termination of this Lease, or any
extension thereof, Lessee shall remove all his signs, and all damage caused by
such removal shall be repaired at Lessee's expense.
ARTICLE 28. DEFAULT
28.1 Definition. The occurrence of any of the following shall
constitute a material default and breach of this Lease by Lessee:
(a) Any failure by Lessee to pay the rental or to make any other
payment required to be made by Lessee hereunder when due;
(b) The abandonment of the Leased Premises by Lessee in violation
of Section 25.1 hereof;
(c) A failure by Lessee to observe and perform any other
provision of this Lease to be observed or performed by Lessee, where such
failure continues for ten (10) days after written notice thereof by Lessor to
Lessee; provided, however, that if the nature of the default is such that the
same cannot reasonably be cured within the ten (10) day period allowed, Lessee
shall not be deemed to be in default if Lessee shall, within such ten (10) day
period, commence to cure and thereafter diligently prosecute the same to
completion;
(d) Either (1) the appointment of a receiver (except a receiver
appointed at the instance or request of Lessor) to take possession of all or
substantially all of the assets of Lessee, or (2) a general assignment by Lessee
for the benefit of creditors, or (3) any action taken or suffered by Lessee
under any insolvency or bankruptcy act shall constitute a breach of this Lease
by Lessee. In such event, Lessor may, at its option, declare this Lease
terminated and forfeited by Lessee, and Lessor shall be entitled to immediate
possession of the Leased Premises. Upon such notice of termination, this Lease
shall terminate immediately and automatically by its own limitation;
(e) Any two (2) failures by Lessee to observe and perform the
same or similar provision of this Lease during any twelve (12) month period of
the term, as such may be extended, shall constitute, at the option of Lessor, a
separate and noncurable default.
ARTICLE 29. REMEDIES UPON DEFAULT
29.1 Termination and Damages. In the event of any default by Lessee,
then in addition to any other remedies available to Lessor herein or at law or
in equity, Lessor shall have the immediate option to terminate this Lease and
all rights of Lessee hereunder by giving written notice of such intention to
terminate. In the event that Lessor shall elect to so terminate this Lease, then
Lessor may recover from Lessee:
(a) The worth at the time of award of any unpaid rent which had
been earned at the time of such termination; plus
(b) The worth at the time of award of the amount by which the
unpaid rent which would have been earned after
24
<PAGE> 31
termination until the time of award exceeds the amount of such rental loss
Lessee proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Lessee proves could be reasonably avoided; plus
(d) Any other amount necessary to compensate Lessor for all the
detriment proximately caused by Lessee's failure to perform its obligations
under this Lease or which in the ordinary course of events would be likely to
result therefrom; and
(e) At Lessor's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by the applicable
law in the state in which the Leased Promises are located.
29.2 Definitions.
(a) The term "rent," as used in this Lease, shall be deemed to be
and to mean the Minimum Monthly Rent and all other sums required to be paid by
Lessee pursuant to the terms of this Lease.
(b) As used in subsections 29.1(a) and (b) above, the "worth at
the time of award" is computed by allowing interest at the rate of ten percent
(10%) per annum. As used in subsection 29.1(c) above, the "worth at the time of
award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank for the region in which the Complex is located at the time
of award plus one percent (1%).
29.3 Personal Property.
(a) In the event of any default by Lessee, Lessor shall also have
the right, with or without terminating this Lease, to reenter the Leased
Premises and remove all persons and property from the Leased Premises; such
property may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Lessee.
29.4 Recovery of Rent; Reletting.
(a) In the event of the vacation or abandonment of the Leased
Premises by Lessee or in the event that Lessor shall elect to reenter as
provided in Section 29.3 above, or shall take possession of the Leased Premises
pursuant to legal proceeding or pursuant to any notice provided by law, then if
Lessor does not elect to terminate this Lease as provided in Section 29.1 above,
this Lease shall continue in effect for so long as Lessor does not terminate
Lessee's right to possession, and Lessor may enforce all its rights and remedies
under this Lease, including, without limitation, Lessor's right from time to
time, without terminating this Lease, to either recover all rental as it becomes
due or relet the Leased Premises or any part thereof for such term or terms and
at such rental or rentals and upon such other terms and conditions as Lessor, in
its sole discretion, may deem advisable with the right to make alterations and
repairs to the Leased Premises. Acts
25
<PAGE> 32
of maintenance or preservation or efforts to relet the Leased Premises or the
appointment of a receiver upon initiation of Lessor or other legal proceeding
granting Lessor or its agent possession to protect Lessor's interest under this
Lease shall not constitute a termination of Lessee's right to possession.
(b) In the event that Lessor shall elect to so relet, then
rentals received by Lessor from such reletting shall be applied: first, to the
payment of any indebtedness other than rent due hereunder from Lessee to Lessor;
second, to the payment of any cost of such reletting; third, to the payment of
the cost of any alterations and repairs to the Leased Premises; fourth, to the
payment of rent due and unpaid hereunder; and the residue, if any, shall be held
by Lessor and applied in payment of future rent as the same may become due and
payable hereunder. Should that portion of such rentals received from such
reletting during any month, which is applied by the payment of rent hereunder,
be less than the rent payable during that month by Lessee hereunder, then Lessee
shall pay such deficiency to Lessor immediately upon demand therefor by Lessor.
Such deficiency shall be calculated and paid monthly. Lessee shall also pay to
Lessor, as soon as ascertained, any reasonable and documented costs and expenses
incurred by Lessor in such reletting or in making such alterations and repairs
not covered by the rentals received from such reletting.
(c) No reentry or taking possession of the Leased Premises or any
other action under this Section shall be construed as an election to terminate
this Lease unless a written notice of such intention be given to Lessee or
unless the termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any reletting without termination by Lessor because of any
default by Lessee, Lessor may at any time after such reletting elect to
terminate this Lease for any such default.
(d) Lessor has the remedy described in California Civil Code
Section 1951.4 (Lessor may continue Lease in effect after Lessee's breach and
abandonment and recover rent as it becomes due, if Lessee has right to sublet or
assign, subject only to reasonable limitations).
29.5 No Waiver. Efforts by Lessor to mitigate the damages caused by
Lessee's default in this Lease shall not constitute a waiver of Lessor's right
to recover damages hereunder.
29.6 Curing Defaults. Should Lessee fail to repair, maintain, and/or
service the Leased Premises, or any part or contents thereof at any time or
times, or perform any other obligations imposed by this Lease or otherwise, then
after having given Lessee reasonable notice of the failure or failures and a
reasonable opportunity, which in no case shall exceed ten (10) days, to remedy
the failure, Lessor may perform or contract for the performance of the repair,
maintenance, or other Lessee obligation, and Lessee shall pay Lessor for all
direct and indirect costs incurred in connection therewith within ten (10)
business days of receiving a bill therefor from Lessor.
29.7 Cumulative Remedies. The various rights, options, election powers,
and remedies of Lessor contained in this Article and elsewhere in this Lease
shall be construed as cumulative and no one of them exclusive of any others or
of any legal or equitable remedy which Lessor might otherwise have in the event
of breach or default, and the exercise of one right or remedy by Lessor shall
not in any way impair its right to any other right or remedy.
ARTICLE 30. - FORFEITURE OF PROPERTY AND LESSOR'S LIEN
30.1 Removal of Personal Property. Lessee agrees that as at the date of
termination of this Lease or repossession of the Leased Premises by Lessor, by
way of default or otherwise, it shall
26
<PAGE> 33
remove all personal property to which it has the right to ownership pursuant to
the terms of this Lease. Any and all such property of Lessee not removed by such
date shall, at the option of Lessor, irrevocably become the sole property of
Lessor. Lessee waives all rights to notice and all common law and statutory
claims and causes of action which it may have against Lessor subsequent to such
date as regards the storage, destruction, damage, loss of use and ownership of
the personal property affected by the terms of this Article. Lessee acknowledges
Lessor's need to relet the Leased Premises upon termination of this Lease or
repossession of the Leased Premises and understands that the forfeitures and
waivers provided herein are necessary to aid said reletting, and to prevent
Lessor incurring a loss for inability to deliver the Leased Premises to a
prospective lessee.
ARTICLE 31. SURRENDER OF LEASE
31.1 No Merger. The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, shall not work as a merger, and shall,
at the option of Lessor, terminate all or any existing subleases or
subtenancies, or may, at the option of Lessor, operate as an assignment to it of
any or all such subleases or subtenancies.
ARTICLE 32. LESSOR'S EXCULPATION
32.1 Limited Liability. In the event of default, breach, or violation
by Lessor (which term includes Lessor's partners, co-venturers, co-tenants,
officers, directors, employees, agents, or representatives) of any Lessor's
obligations under this Lease, Lessor's liability to Lessee shall be limited to
its ownership interest in the Leased Premises (or its interest in the Complex,
if applicable) or the proceeds of a public sale of such interest pursuant to
foreclosure of a judgment against Lessor.
32.2 No Recourse. Lessor (as defined in Section 32.1) shall not be
personally liable for any deficiency beyond its interest in the Leased Premises.
ARTICLE 33. ATTORNEYS' FEES
33.1 Actions, Proceedings, etc. Lessee hereby agrees to pay, as
additional rent, all attorneys' fees and disbursements, and all other court
costs or expenses of legal proceedings or other legal services which Lessor may
incur or pay out by reason of, or in connection with:
27
<PAGE> 34
(a) any action or proceeding brought by Lessor wherein Lessor
obtains a final judgment or award against Lessee (including arbitration) on
account of any default by Lessee in the observance or performance of any
obligation under this Lease including, but not limited to, matters involving
payment of rent and additional rent, alterations or other Lessee's work and
subletting or assignment;
(b) any action or proceeding brought by Lessee against Lessor
(or any officer, partner, or employee of Lessor) in which Lessee fails to
secure a final judgment against Lessor;
(c) any other appearance by Lessor (or any officer, partner,
or employee of Lessor) as a witness or otherwise in any action or proceeding
whatsoever involving or affecting Lessee or this Lease;
(d) any assignment, sublease, or leasehold mortgage proposed
or granted by Lessee (whether or not permitted under this Lease), and all
negotiations with respect thereto; and
(e) any alteration of the Leased Premises by Lessee, and all
negotiations with respect thereto.
In any action or proceeding referred to in subsection (a) or (b)
above, Lessee shall be entitled to recover its attorneys' fees and costs if
Lessee is the prevailing party against Lessor.
33.2 Survival. Lessor's and Lessee's obligations under this Section
shall survive the expiration or any other termination of this Lease. This
Section is intended to supplement (and not to limit) other provisions of this
Lease pertaining to indemnities and/or attorney's fees.
ARTICLE 34. NOTICES
34.1 Writing. All notices, demands and requests required or permitted
to be given or made under any provision of this Lease, shall be in writing and
shall be given or made by personal service or by mailing same by registered or
certified mail, return receipt requested, postage prepaid, or by reputable
courier which provides written evidence of delivery, addressed to the
respective party at the address set forth in Section 1.2 of this Lease or at
such other address as the party may from time to time designate, by a written
notice, sent to the other in the manner aforesaid.
34.2 Effective Date. Any such notice, demand or request ("notice")
shall be deemed given or made on the third day after the date so mailed.
Notwithstanding the foregoing, notice given by personal delivery to the party
at its address as aforesaid shall be deemed given on the day on which delivery
is made. Notice given by a reputable courier service which provides written
evidence of delivery shall be deemed given on the business day immediately
following deposit with the courier service.
34.3 Authorization to Receive. Each person and/or entity whose
signature is affixed to this Lease as Lessee or as guarantor of Lessee's
obligations ("obligor") designates such other obligor its agent for the purpose
of receiving any notice pertaining to this Lease or service of process in the
event of any litigation or dispute arising from any obligation imposed by this
Lease.
28
<PAGE> 35
ARTICLE 35. SUBORDINATION
35.1 Priority of Encumbrances. This Lease, at Lessor's option, shall
be subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation for security now or hereafter placed upon the real property of
which the Leased Premises are a part and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Lessee's right to quiet possession of the Leased Premises shall not be
disturbed if Lessee is not in default and so long as Lessee shall pay the rent
and observe and perform all the provisions of this Lease, unless this Lease is
otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground
lessor shall elect to have this Lease prior to the lien of its mortgage, deed
of trust or ground lease, and shall give written notice thereof to Lessee, this
Lease shall be deemed prior to such mortgage, deed of trust or ground lease,
whether this Lease is dated prior or subsequent to the date of said mortgage,
deed of trust or ground lease or the date of recording thereof.
35.2 Execution of Documents. Lessee agrees to execute any documents
reasonably required to effectuate such subordination or to make this Lease prior
to the lien of any mortgage, deed of trust or ground lease, as the case may be.
It is understood by all parties that Lessee's failure to execute the
subordination documents referred to above may cause Lessor serious financial
damage by causing the failure of a financing or sale transaction.
35.3 Attornment. Lessee shall attorn to any purchaser at any
foreclosure sale, or to any grantee or transferee designated in any Deed given
in lieu of foreclosure.
ARTICLE 36. ESTOPPEL CERTIFICATES
36.1 Execution by Lessee. Within thirty (30) days of request therefor
by Lessor, Lessee shall execute a written statement acknowledging the
commencement and termination dates of this Lease, that it is in full force and
effect, has not been modified (or if it has, stating such modifications), and
providing any other pertinent information as Lessor or its agent might
reasonably request. Failure to comply with this Article shall be a material
breach of this Lease by Lessee giving Lessor all rights and remedies under
Article 29 hereof, as well as a right to damages caused by the loss of a loan or
sale which may result from such failure by Lessee.
36.2 Financing. If Lessor desires to finance or refinance the
Leased Premises, or any part thereof, or the Building, Lessee hereby agrees to
deliver to any lender designated by Lessor such financial statements of Lessee
as may be reasonably required by such lender. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor in confidence and shall be used only for
the purposes herein set forth.
ARTICLE 37. WAIVER
37.1 Effect of Waiver. The waiver by Lessor of any breach of any Lease
provision shall not be deemed to be a waiver of such Lease provision or any
subsequent breach of the same or any other term, covenant or condition therein
contained. The subsequent acceptance of rent hereunder by Lessor shall not be
deemed to be a waiver of any preceding breach by Lessee of any provision of
this Lease, other than the failure of Lessee to pay the particular rental so
accepted, regardless of Lessor's knowledge of such preceding breach at the time
of acceptance of such rent.
29
<PAGE> 36
ARTICLE 38. HOLDING OVER
38.1 Month-to-Month Tenancy on Acceptance. If Lessee should remain in
possession of the Leased Premises after the expiration of the Lease term and
without executing a new Lease, then, upon acceptance of rent by Lessor, such
holding over shall be construed as a tenancy from month to month, subject to all
the conditions, provisions and obligations of this Lease as existed during the
last month of the term hereof, so far as applicable to a month to month tenancy,
except that the Minimum Monthly Rent shall be equal to twice the Minimum Monthly
Rent payable immediately prior to the expiration or sooner termination of the
Lease.
ARTICLE 39. SUCCESSORS AND ASSIGNS
39.1 Binding Effect. The covenants and conditions herein contained
shall, subject to the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators and assigns of all of the parties hereto;
and all of the parties hereto shall be jointly and severally liable hereunder.
ARTICLE 40. TIME
40.1 Time of the Essence. Time is of the essence of this Lease with
respect to each and every article, section and subsection hereof.
ARTICLE 41. EFFECT OF LESSOR'S CONVEYANCE
41.1 Release of Lessor. If, during the term of this Lease, Lessor
shall sell its interest in the Building or Complex of which the Leased Premises
forms a part, or the Leased Premises, then from and after the effective date of
the sale or conveyance, Lessor shall be released and discharged from any and all
obligations and responsibilities under this Lease, except those already accrued.
ARTICLE 42. TRANSFER OF SECURITY
42.1 Transfer to Purchaser. If any security be given by Lessee to
secure the faithful performance of all or any of the covenants of this Lease on
the part of Lessee, Lessor may transfer and/or deliver the security, as such, to
the purchaser of the reversion, in the event that the reversion be sold,
and thereupon Lessor shall be discharged from any further liability in reference
thereto.
ARTICLE 43. CORPORATE AUTHORITY
43.1 Authorization to Execute. If Lessee is a corporation, each
individual executing this Lease on behalf of said corporation represents and
warrants that he is duly authorized to execute and deliver this Lease on behalf
of said corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the Bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. Further, Lessee shall, within thirty (30) days after execution
of this Lease, deliver to Lessor a certified copy of a resolution of the Board
of Directors of said corporation authorizing or ratifying the execution of this
Lease.
ARTICLE 44. WAIVER OF CALIFORNIA CODE SECTIONS
44.1 Waiver by Lessee. In this Lease, numerous provisions have been
negotiated by the parties, some of which provisions are or may be covered by
statute. Whenever a provision of this Lease and a provision of any statute or
other law cover the same matter, the provisions of this Lease shall control.
Therefore, Lessee waives (for itself and all persons claiming under Lessee) the
provisions of any Washington State statute or case law providing for (i) a right
by the Lessee to terminate this Lease in the event of damage to or destruction
of Leased Premises, except as specifically provided for herein; (ii) any right
of Lessee to repair the Leased Premises and deduct the cost thereof from rent
due, except as specifically provided for herein; (iii) any right of Lessee to
terminate this Lease in the event of a partial taking of the Leased Premises
except as provided for herein; and (iv) any right of redemption or reinstatement
of Lessee under any present or future case law or statutory provision in the
event Lessee is legally dispossessed from the Leased Premises pursuant to
applicable Washington State law for any reason. This waiver applies to future
statutes referenced herein.
30
<PAGE> 37
ARTICLE 45. WASTE
45.1 Waste or Nuisance. Lessee shall not commit, or suffer to be
committed, any waste upon the Leased Premises, or any nuisance, or other act or
thing which may disturb the quiet enjoyment of any other tenant or occupant of
the Complex in which the Leased Premises are located.
ARTICLE 46. BANKRUPTCY
46.1 Bankruptcy Events. If at any time during the term of this Lease
there shall be filed by or against Lessee in any court pursuant to any statute
either of the United States or of any State a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or trustee
of all or a portion of Lessee's property, or if a receiver or trustee takes
possession of any of the assets of Lessee, or if the leasehold interest herein
passes to a receiver, or if Lessee makes an assignment for the benefit of
creditors or petitions for or enters into an arrangement (any of which are
referred to herein as "a bankruptcy event"), then the following provisions
shall apply:
(a) At all events any receiver or trustee in bankruptcy or Lessee as
debtor in possession ("debtor") shall either expressly assume or reject this
Lease within sixty (60) days following the entry of an "Order for Relief."
(b) In the event of an assumption of the Lease by a debtor,
receiver, or trustee, such debtor, receiver, or trustee shall immediately after
such assumption (1) cure any default or provide adequate assurances that
defaults will be promptly cured; and (2) compensate Lessor for actual pecuniary
loss or provide adequate assurances that compensation will be made for actual
pecuniary loss; and (3) provide adequate assurance of future performance.
For the purposes of this paragraph 46.1 (b), adequate assurance of
future performance of all obligations under this Lease shall include, but is not
limited to:
(i) written assurance that rent and any other consideration due
under the Lease shall first be paid before any other of Lessee's costs of
operation of its business in the Leased Premises are paid;
(ii) written agreement that assumption of this Lease will not
cause a breach of any provision hereof including, but not limited to, any
provision relating to use or exclusivity in this or any other Lease, or
agreement relating to the Leased Premises, or if such a breach is caused, the
debtor, receiver or trustee will indemnify Lessor against such loss (including
costs of suit and attorney's fees), occasioned by such breach;
(c) Where a default exists under the Lease, the party assuming the
Lease may not require Lessor to provide services or supplies incidental to the
Lease before its assumption by such trustee or debtor, unless Lessor is
compensated under the terms of
31
<PAGE> 38
the Lease for such services and supplies provided before the assumption of such
Lease.
(d) The debtor, receiver, or trustee may only assign this Lease if
adequate assurance of future performance by the assignee is provided, whether or
not there has been a default under the Lease. Any consideration paid by any
assignee in excess of the rental reserved in the Lease shall be the sole
property of, and paid to, Lessor. Upon assignment by the debtor or trustee, the
obligations of the Lease shall be deemed to have been assumed, and the assumptor
shall execute an assignment agreement on request of Lessor.
(e) Lessor shall be entitled to the fair market value for the Leased
Premises and the services provided by Lessor (but in no event less than the
rental reserved in the Lease) subsequent to the commencement of a bankruptcy
event.
(f) Lessor specifically reserves any and all remedies available to
Lessor in Article 29 hereof or at law or in equity in respect of a bankruptcy
event by Lessee to the extent such remedies are permitted by law.
ARTICLE 47. LATE CHARGES
47.1 Late Payment by Lessee. Lessee acknowledges that late payment by
Lessee to Lessor of rent or any other payment due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult and impractical to fix. Such costs include, without
limitation, processing and accounting charges, and late charges that may be
imposed on Lessor by the terms of any encumbrance and note secured by any
encumbrance covering the Leased Premises. Therefore, if any installment of rent,
or any other payment due hereunder from Lessee is not received by Lessor when
due, Lessee shall pay to Lessor an additional sum of ten percent (10%) of such
rent or other charge as a late charge. The parties agree that this late charge
represents a fair and reasonable estimate of the cost that Lessor will incur by
reason of late payment by Lessee. Acceptance of any late charge shall not
constitute a waiver of Lessee default with respect to the overdue amount, or
prevent Lessor from exercising any other rights or remedies available to Lessor.
ARTICLE 48. MORTGAGEE PROTECTION
48.1 Notice and Right to Cure Default. Lessee agrees to give any
mortgagee(s) and/or trust deed holders, by registered mail, a copy of any notice
of default served upon Lessor, provided that prior to such notice Lessee has
been notified, in writing (by way of Notice of Assignment of Rents and Leases,
or otherwise), of the address of such mortgagees and/or trust deed holders.
Lessee further agrees that if Lessor shall have failed to cure such default
within the time provided for in this Lease, then the mortgagees and/or trust
deed holders shall have an additional thirty (30) days within which to cure such
default or, if such default cannot be cured within that time, then such
additional time as may be necessary if within such thirty (30) days, any
mortgagee and/or trust deed holder has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings, if necessary to effect such cure), in
which event this Lease shall not be terminated while such remedies are being so
diligently pursued.
ARTICLE 49. MISCELLANEOUS PROVISIONS
49.1 Captions. The captions of this Lease are for convenience only
and are not a part of this Lease and do not in any way limit or amplify the
terms and provisions of this Lease.
32
<PAGE> 39
49.2 Number and Gender. Whenever the singular number is used in this
Lease and when required by the context, the same shall include the plural, the
plural shall include the singular, and the masculine gender shall include the
feminine and neuter genders, and the word "person" shall include corporation,
firm or association. If there be more than one Lessee, the obligations imposed
under this Lease upon Lessee shall be joint and several.
49.3 Modifications. This instrument contains all of the agreements,
conditions and representations made between the parties to this Lease and may
not be modified orally or in any other manner than by an agreement in writing
signed by all of the parties to this Lease.
49.4 Payments. Except as otherwise expressly stated, each payment
required to be made by Lessee shall be in addition to and not in substitution
for other payments to be made by Lessee.
49.5 Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
49.6 No Offer. The preparation and submission of a draft of this Lease
by either party to the other shall not constitute an offer, nor shall either
party be bound to any terms of this Lease or the entirety of the Lease itself
until both parties have fully executed a final document and an original
signature document has been received by both parties. Until such time as
described in the previous sentence, either party is free to terminate
negotiations with no obligation to the other.
49.7 Disputed Sums. Under the terms of this Lease numerous charges are
and may be due from Lessee to Lessor including, without limitation, Common Area
charges, real estate taxes, insurance reimbursement and other items of a similar
nature including advances made by Lessor in respect of Lessee's default at
Lessor's option. In the event that at any time during the term there is a bona
fide dispute between the parties as to the amount due for any of such charges
claimed by Lessor to be due, the amount demanded by Lessor shall be paid by
Lessee until the resolution of the dispute between the parties or by litigation.
Failure by Lessee to pay the disputed sums until resolution shall constitute a
default under the terms of the Lease.
49.8 Lessee's Remedies. Notwithstanding anything to the contrary
contained in this Lease, if any provision of this Lease expressly or impliedly
obligates Lessor not to unreasonably withhold its consent or approval, an action
for declaratory judgment or specific performance will be Lessee's sole right and
remedy in any dispute as to whether Lessor has breached such obligation.
Notwithstanding the foregoing, in the event of a dispute between the parties
regarding Lessor's consent to an assignment or sublease of the Leased Premises
under Article 9 or alterations of the Leased Premises under Article 21, the
parties agree to use the following procedure to resolve such a dispute:
a) A meeting shall be held promptly between the parties, attended by
individuals with decision-making authority, regarding the dispute, to attempt in
good faith to negotiate a resolution to the dispute.
b) If within ten (10) days after such meeting, the parties have not
succeeded in negotiating a resolution of the dispute, the dispute shall be
settled by arbitration under the Commercial Arbitration Rules of the American
Arbitration Association, and judgement upon the award rendered by the arbitrator
may be entered in any court having jurisdiction of such a dispute. The loser
shall pay all costs of the arbitration and all reasonable out-of-pocket costs of
the prevailing party.
49.9 Light, Air and View. No diminution of light, air, or view by any
structure which may hereafter be erected (whether or not by Lessor) shall
entitle Lessee to any reduction of Rent, result in any liability of Lessor to
Lessee, or in any other way affect this Lease or Lessee's obligations hereunder.
49.10 Public Transportation Information. If required by applicable
government authority, Lessee shall establish and maintain during the Term hereof
a program to encourage maximum use of public transportation by personnel of
Lessee employed on the Leased Premises, including without limitation the
distribution to such employees of written materials explaining the convenience
and availability of public transportation facilities adjacent or proximate to
the Complex, staggering working hours of employees, and encouraging use of such
facilities, all at Lessee's sole reasonable cost and expense. Lessee shall
comply with all requirements of any local transportation management ordinance.
33
<PAGE> 40
<PAGE> 41
49.11 Rules and Regulations. Lessee agrees to comply with all regulations
adopted and promulgated by Lessor and applicable to all tenants in the Complex
for the lawful, orderly, clean, safe, aesthetic, quiet, and beneficial use,
operation, maintenance, manage sent of the Complex which shall be uniformly
enforced.
49.12 Joint and Several Liability. Should Lessee consist of one person or
entity, they shall be jointly and severally liable lease.
49.13 Survival of Obligations. All obligations of Lessee which may
accrue or arise during the term of this Lease or as a result of any act or
omission of Lessee during said term shall, to the extent they have not been
fully performed, satisfied or discharged, survive the expiration or termination
of this Lease.
ARTICLE 50, WAIVER OF TESTIMONY
50.1 Lessor represents that the Leased Premises and the complex,
although owned by the named Lessor, are in fact managed in all respects by
Kemper Real Estate or an independent property manager, and that the named Lessor
has no operational knowledge of, or participation in the management of the
Leased Premises or the Complex, both of which are the responsibility of the
property manager or Kemper Real Estate Management Company.
Accordingly, since Kemper Real Estate Management Co., hereby
agrees to provide any discoverable information sought in any possible dispute
with Lessee with respect to the Leased Premises, the Complex, or this Lease and
in order to avoid unwarranted annoyance, embarrassment or undue burden or
expense and time consuming legal procedures, and as a material consideration for
Lessor entering into this Lease, Lessee does hereby waiver any right to obtain
depositions from either of Peter B. Bedford and/or Kirsten N. Bedford as
otherwise would be permitted under any other applicable law governing civil
proceedings. Lessee understands such waiver is a release of its lawful discovery
rights and nonetheless make such release voluntarily and after having fully
considered all of the implications and legal effects of such waiver.
Should any court issue a protective order under or any applicable
law governing civil proceedings in order to implement the provisions of this
paragraph, then the prevailing party in any such protective order proceeding
shall be entitled to an award of a reasonable attorney's fee in addition to any
other available relief.
Notwithstanding the foregoing, such waiver of any right to
obtain depositions from either of Peter B. Bedford and/or Kirsten N. Bedford as
otherwise would be permitted under any applicable law governing civil
proceedings, is expressly conditioned upon the provision that the representation
by Lessor that the Leased Premises and the Complex are in fact managed in all
respects by Kemper Real Estate Management Company, Inc. or an independent
property manager, and that the named Lessor has no operational knowledge of, or
participation in the management of the Leased Premises or the Complex, both of
which are the responsibility of the property manager or Kemper Real Estate
Management Company, Inc. is in all respects truthful and factual.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of
the day and year first written above.
Lessor: Lessee:
SEAGATE/GATEWAY NORTH YAMATO TRANSPORT U.S.A., INC.
PROPERTIES, an Illinois
General Partnership
By: /s/ [ILLEGIBLE]
--------------------------
Its: Secretary
-------------------------
By: Kemper Real Estate,Mgmt Co., Inc.
A Delaware Corporation,
its duly authorized agent
By: /s/ J. RANDALL MOORE
-----------------------------
J. Randall Moore
Vice President
34
<PAGE> 42
<PAGE> 43
NOTARY
STATE OF )
)ss.
COUNTY OF )
On this __________day of _______________, 19_, before me, the
undersigned, a Notary Public in and for the State of_______________, duly
commissioned and sworn, personally appeared_______________ to me known to be
the__________ of_______________, a , the corporation that executed the within
and foregoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of said corporation, for the uses and purposes therein
mentioned and on oath stated that he/she was authorized to execute said
instrument.
WITNESS my hand and official seal hereto affixed the day and year in
this certificate above written.
___________________________________________
Notary Public in and for
the State of_______________________________.
My Appointment Expires_____________________
NOTARY
STATE OF )
) ss.
COUNTY OF )
On this________ day of______________ a Notary Public in and for the
State of______________ and sworn, personally appeared________________ be
the_____________ of 19_, before me, the undersigned, duly commissioned to me
known to the corporation that executed the within and foregoing instrument, and
acknowledged said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes therein mentioned and on oath stated that
he/she was authorized to execute said instrument.
WITNESS my hand and official seal hereto affixed the day and year in this
certificate above written.
________________________________________
Notary Public in and for the State of
My Appointment Expires__________________
<PAGE> 44
ADDENDUM TO LEASE
This Addendum to Lease ("Addendum") shall constitute part of that certain Lease
("Lease") dated as of May 12, 1993 by and between Seagate/Gateway North
Properties ("Lessor") and Yamato Transport U.S.A., Inc. ("Lessee"), and the
terms hereof, shall, for all purposes, be incorporated into the Lease. Whenever
any inconsistency appears between the main portion of the Lease and this
Addendum, the provisions of the Addendum shall prevail.
I. LEASE CLAUSE ADDITIONS:
Paragraph 1.5(a) - Rent
The Minimum Monthly Rent pursuant to Paragraph 1.5(a) is subject to adjustment
per the following schedule:
<TABLE>
<CAPTION>
<S> <C>
Months 01 - 03 $0.00 per month; NNN
Months 04 - 12 Seven thousand eight hundred fifty dollars
($7,850.00) per month; NNN
Months 13 - 24 Eight thousand six hundred seventy five dollars
($8,675.00) per month; NNN
Months 25 - 36 Nine thousand five hundred dollars ($9,500.00) per month; NNN
Months 37 - 48 Nine thousand nine hundred eighty five dollars
($9,985.00) per month; NNN
Months 49 - 63 Ten thousand seven hundred seventy five dollars
($10,775.00) per month; NNN
</TABLE>
Pursuant to the rental schedule specified above, no Minimum Monthly Rent shall
be due for the first three months of the lease term commencing on the
commencement date, however, Lessee shall be obligated to perform all other
obligations as specified in the Lease, and the Lease shall remain in full force
and effect.
II. OPTION TO EXTEND THE TERMS - NEGOTIATED RENTAL - ONE ARBITRATOR
1. Notice of Exercise. Lessee shall have the right to extend the
initial term hereof for one additional period of three (3) years upon the same
terms and conditions as stated herein, except for Minimum Monthly Rent. Such
extension is herein referred to as "Extended Term." Lessee must exercise its
right, if at all, by written notification (the "Notice of Exercise") to Lessor
not less than 120 days prior to the expiration of the initial term hereof,
provided that Lessee is not in default of any of the provisions of this Lease.
2. Options are Personal. The option to extend granted herein is
personal to the original Lessee executing this Lease and notwithstanding
anything to the contrary contained in the Lease, the rights contained in this
Addendum are not assignable or transferable by such original Lessee. Lessor
grants the rights contained herein to Lessee in consideration of Lessee's strict
compliance with the provisions hereof, including, without limitation, the manner
of exercise of this option.
3. Fair Market Rental. If Lessee exercises the right to extend the term
then the Minimum Monthly Rent shall be adjusted to equal the Fair Market Rental
for the premises as of the date of the commencement of such Extended Term,
pursuant to the procedures hereinafter set forth. The term
Page 1 of 4
<PAGE> 45
"Fair Market Rental" means the Minimum Monthly Rent chargeable for the Leased
Premises based upon the following factors applicable to the Leased Premises or
any comparable premises:
(a) Rental rates being charged for comparable premises in the same
geographical location.
(b) The relative locations of the comparable premises.
(c) Improvements, or allowances provided for improvements, or to be
provided.
(d) Rental adjustments, if any, or rental concessions.
(e) Services and utilities provided or to be provided.
(f) Use limitations or restrictions.
(g) Any other relevant Lease terms or conditions.
In no event, however, shall the Fair Market Rental be less than the Minimum
Monthly Rent in effect immediately prior to the commencement date of the
Extended Term in question. The Fair Market Rental evaluation may include
provision for further rent adjustments during the Extended Term if such
adjustments are commonly required in the market place for similar types of
leases.
4. Determination of Fair Market Rental. Upon exercise of the right to
extend the term, and included within the Notice of Exercise, Lessee shall notify
Lessor of its opinion of Fair Market Rental as above defined for the Extended
Term. If Lessor disagrees with Lessee's opinion of the Fair Market Rental, it
shall so notify Lessee ("Lessor's Value Notice") within thirty (30) days after
receipt of Lessee's Notice of Exercise. If the parties are unable to resolve
their differences within ten (10) business days thereafter, either party may
apply for Arbitration as provided below. If neither party applies for
Arbitration within ten (10) business days after receipt by Lessee of Lessor's
Value Notice, Lessee shall be bound to the Fair Market Rental stated in Lessor's
Value Notice. Should either party elect to arbitrate, and if the arbitration is
not concluded before the commencement of the Extended Term, Lessee shall pay
Minimum Monthly Rent to Lessor in an amount equal to the Fair Market Rental set
forth in Lessor's Value Notice, until the Fair Market Rental is determined in
accordance with the arbitration provisions hereof ("Arbitration"). If the Fair
Market Rental as determined by Arbitration differs from that stated in Lessor's
Value Notice, then any adjustment required to correct the amount previously paid
by Lessee shall be made by payment by the appropriate party within thirty (30)
days after the determination of Fair Market Rental by Arbitration has been
concluded, as provided herein. Lessee shall be obligated to make payment during
the entire Extended Term of the Minimum Monthly Rent determined in accordance
with the Arbitration procedures hereunder.
5. Arbitration. In the event either party seeks Arbitration of Fair
Market Rental under the provisions hereof for the Extended Term, the other party
shall be bound to submit the matter for determination by Arbitration. The
Arbitration shall be conducted and determined in the County where the Leased
Premises are located.
6. Demand for Arbitration. A party demanding Arbitration hereunder
shall make its demand in writing ("Demand Notice") within ten (10) business days
after service of Lessor's Value Notice. A copy of the Demand Notice shall be
sent to the President of the Real Estate Board for the county in which the
Leased Premises are located. if there is no Real Estate Board of Board President
for the county in which the premises are located, then a copy of the Demand
Notice shall be sent to the Presiding judge of the highest trial court in such
county for the state in which the Leased
Page 2 of 4
<PAGE> 46
Premises are located. The Board President, or Presiding Judge, whichever is
applicable, is hereinafter referred to as the "Appointer".
The Appointer, acting in his personal, private capacity, shall appoint within
ten (10) days thereafter a real estate broker with at least seven (7) years'
experience leasing properties in the same county for the general type of use to
which the Leased Premises are devoted under the terms of this Lease, i.e.
Shopping Center, Office, Retail. The Arbitrator shall be a person who would be
qualified to serve as an expert witness and to give opinion testimony addressed
to the issue in a court of competent jurisdiction. Such a party is hereinafter
referred to as the "Arbitrator". The parties may, however, before sending the
Demand Notice to the Appointer, mutually agree upon an Arbitrator of their own
choice, in which event such appointment shall nullify the necessity of
appointment of an Arbitrator by an Appointer.
7. Decision of the Arbitrator. The Arbitrator so selected shall, within
ninety (90) days after his appointment, state in writing his determination as to
whether Lessor's valuation, or Lessee's valuation of Fair Market Rental, most
closely approximates his own. The Arbitrator may not state his own opinion of
Fair Market Rental, but is strictly limited to the selection of Lessor's Fair
Market Rental evaluation as stated in Lessor's Value Notice or Lessee's Fair
Market Rental evaluation as stated in the Notice of Exercise. The Arbitrator
shall have the right to consult experts and competent authorities with factual
information or evidence pertaining to a determination of Fair Market Rental, but
any such consultation shall be made in the presence of both parties with full
right to cross examine. The Arbitrator shall have no right to propose a middle
ground or any modification of either of the proposed valuations, and shall have
no power to modify the provisions of this Lease. The valuation so chosen as most
closely approximating that of the Arbitrator shall constitute the decision of
the Arbitrator and shall be final and binding upon the parties, absent fraud or
gross error. The Arbitrator shall render a decision and award in writing, with
counterpart copies to each party and judgement thereon may be entered in any
court of competent jurisdiction.
8. Successor Arbitrator; Fees and Expenses. In the event of failure,
refusal, or inability of the Arbitrator to act in a timely manner, a successor
shall be appointed in the same manner as such Arbitrator was first chosen
hereunder, if such Arbitrator was chosen by an Appointer. If chosen by mutual
agreement, the parties shall, in this succeeding instance, choose the Arbitrator
through means of the procedure for the Appointer. The fees and expenses of the
Arbitrator and the administrative hearing fee, if any, shall be divided equally
between the parties. Each party shall bear its own attorneys' fees and other
expenses including fees for witnesses in presenting evidence to the Arbitrator.
III. RIGHT OF FIRST OFFER:
Provided Lessee is not then in default, Lessor hereby grants to Lessee a right
of first offer (the "Offer Right") to lease the LARSON JUHL space (25,625 sq.
ft.) (the "Offer Space") indicated on Exhibit B-1. Lessee may only exercise the
Offer Right in conformity with the following procedure:
When Lessor becomes aware that the Offer Space is or will become available for
lease, Lessor shall give notice to Lessee (the "Lessor's Offer Notice") that
such Offer Space is or will be available for lease. Lessor's Offer Notice shall
specify when the Offer Space will be available for lease, and the base rental
rate, tenant improvement allowance, if any, and term of lease for the Offer
Space. Lessee shall have fifteen (15) business days following receipt of
Lessor's Offer Notice to respond to such notice, and to inform Lessor whether or
not Lessee is willing to lease the Offer Space at the time and upon the terms
set forth in Lessor's Offer Notice. In the event Lessee shall fail to respond to
Lessor's Offer Notice within such fifteen (15) business day period or does not
elect to
Page 3 of 4
<PAGE> 47
lease the Offer Space, Lessor shall have no obligation to lease the Offer Space
to Lessee, and may thereafter lease the Offer Space to any other interested
party, on whatever terms and conditions that Lessor may desire, in its sole and
absolute discretion, notwithstanding the terms and conditions of Lessor's Offer
Notice. In the event Lessee exercises its offer Right in the manner herein
prescribed, Lessee and Lessor shall proceed to negotiate, in good faith, the
construction obligations, Minimum Monthly Rent, term, and other terms of the
Lease to reflect the inclusion of the Offer Space in the Leased Premises. If the
parties fail to execute a lease agreement for the Offer Space within thirty (30)
days of Lessor's receipt of Lessee's notice, then Lessor may thereafter lease
the offer Space to any other interested party so long as the terms of such lease
are not substantially less favorable to Lessor than those previously proffered
to Lessee. "Substantially less favorable" terms shall include, without
limitation Minimum Monthly Rent and Tenant Improvements which are less than
ninety-five percent (95%) of that proffered to Lessee. Lessor shall continue to
offer the Offer Spaces to Lessee as they become available for lease throughout
the term of this Lease.
IV. COMPLIANCE WITH LAWS
To the best of Lessor's actual knowledge and except as disclosed in writing,
Lessor warrants that there has been no violation of any or all of the
Environmental Laws relating to the Complex by Lessor and that the building
contains no asbestos.
V. BROKERAGE INDEMNITY
Lessor and Lessee hereby agree to indemnify and hold the other harmless from and
against any liability, loss, cost or expense (including, without limitation,
attorney's fees) for any commission, fee or compensation of any kind due and
payable in connection with this Lease to any real estate broker, agent,
commission, salesman or other third party claiming through the indemnifying
party, including, without limitation, any and all claims, causes of action,
damages, costs and expenses (including attorney's fees) associated herewith.
Lessor will pay the commission of Kidder Mathews & Segner, Inc. and the
Richfield Group Inc. in connection with this Lease.
Page 4 of 4
<PAGE> 48
EXHIBIT A
LEGAL DESCRIPTION
New Parcels A, B, and C of the City of Tukwila Boundary Line Adjustment
#89-8-BLA as recorded under King County recording #9003121480, records of King
County, Washington.
<PAGE> 49
EXHIBIT B
[MAP]
Gateway North
28 Acre Business Park -- Site Plan
<PAGE> 50
EXHIBIT B-1
[MAP]
Gateway North
Building 6 -- Floor Plan
<PAGE> 51
EXHIBIT "C"
CONSTRUCTION OBLIGATIONS
YAMATO TRANSPORT U.S.A., INC, AND UPS YAMATO PARTNERSHIP U.S.A.
Lessor, as part of this Lease Agreement, agrees to construct tenant improvements
in accordance with the following description and the floor plan attached hereto
as Exhibit "C-1". Any item or quantity of work exceeding the improvements
outlined below and on Exhibit "C-1" shall be performed by Lessor at Lessee's
sole expense, and shall include, without limitation, architectural fees,
permits, construction materials, labor, Contractor's overhead and profit and
Washington State Sales Tax. Working (construction) drawings for special
installations shall be furnished to Lessor by Lessee, who shall be responsible
for the design, function and maintenance of the special improvements, whether or
not installed by Lessor at Lessee's request.
The tenant improvements to be installed by Lessor within the Premises prior to
the commencement of the Lease Term on a time is of the essence basis shall
consist of the following:
DEMISING WALL: The wall separating Tenant from adjacent space shall be built to
the roof structure. Drywall at the warehouse shall be fire-taped and painted.
INTERIOR PARTITIONS: All interior partitions are approximately 8'-6", taped,
mudded, and sanded smooth and painted.
CEILINGS: Eight foot six inch suspended 2' X 4' grid acoustic system in office
areas. Tegular, "second look" 2' X 2' design. Semi-recessed chrome sprinkler
escutcheons.
FLOORS: All office areas to have carpet per Lessor's Building Standard. Lessee
to pick color. Bathrooms shall have sheet vinyl. Warehouse area to have sealed
concrete floor.
LIGHTING: All office and corridor areas are to be provided with 75 to 150 foot
candle lighting at normal desk height. Fluorescent fixtures to be 2' x 4'
recessed fluorescent fixture, 3 tube type, energy saving ballast, and parabolic
lens.
HVAC SYSTEM: The HVAC system will be designed to maintain the following minimum
conditions:
A. 70 degrees F drybulb temperature in winter with relative humidity range
within 25 to 50%.
B. 76 degrees F drybulb temperature in summer with relative humidity range
within 50 to 55%.
DOORS AND HARDWARE: All office doors shall be 3'-0" X 8'-0" oak veneer
solid-core with matching oak veneer door frames.
PLUMBING AND RESTROOMS: Restrooms shall be in accordance with Lessor's Building
Standard and shall meet or exceed standard handicap codes.
MILLWORK: one Building Standard 5'-0" long coffee bar with one compartment sink,
hot and cold water. Coffee Bar includes counter and lower cabinets.
WINDOW COVERINGS: Sunflex 065 "Brushed Aluminum" horizontal blinds to be
installed at all exterior windows.
SIGNAGE: Signage to be installed at Lessee's expense in accordance with Building
Standard.
Page 1 of 1
<PAGE> 52
EXHIBIT C-1
[MAP]
<PAGE> 53
EXHIBIT "D"
ACKNOWLEDGMENT OF COMMENCEMENT
This Acknowledgment is made as of ________________________,
with reference to that certain Lease Agreement (hereinafter referred to as the
"Lease") dated, ____________, by and between____________________________________
_____________, as "Lessor" therein, and_____________________________________, as
"Lessee", for the demised premises situated at_________________________________
_______________________________.
The undersigned hereby confirms the following:
1. That the Lessee accepted possession of the Demised Premises (as
described in said lease) on __________________ and acknowledges that the
premises are as represented by the Lessor and in good order, condition and
repair; and that the improvements, if any, required to be constructed for Lessee
by Lessor under this lease have been so constructed and are satisfactorily
completed in all respects subject to punchlist items.
2. That all conditions of said lease to be performed by Lessor
prerequisite to the full effectiveness of said lease have been satisfied and
that Lessor had fulfilled all of its duties of an inducement nature.
3. That in accordance with the provisions of Article 3 of said lease
the commencement date of the term is _______________, and that, unless sooner
terminated, the original term thereof expires on ___________________
4. That said lease is in full force and effect and that the same
represents the entire agreement between Lessor and Lessee concerning said lease.
5. That there are no existing defenses which Lessee has against the
enforcement of said lease by Lessor, and no offsets or credits against rentals.
6. That the minimum rental obligation of said lease is presently in
effect and that all rentals, charges and other obligations on the part of Lessee
under said lease commenced to accrue on __________________________.
7. That the undersigned Lessee has not made any prior assignment,
hypothecation or pledge of said lease or of the rents thereunder.
LESSEE:
By:_________________________________
<PAGE> 54
EXHIBIT "E"
GATEWAY NORTH
RULES AND REGULATIONS
1. Any directory provided by Lessor for the building will be for the
display of the name and location of Lessees, and Lessor reserves the
right to exclude any other names.
2. Lessee shall not place any new or additional locks on any doors of the
Leased Premises or rekey any existing locks without the consent of
Lessor.
3. Lessor reserves the right to exclude or expel from the common areas any
person who, in the reasonable judgment of Lessor, is intoxicated, under
the influence of drugs or who shall in any manner violate any of the
rules and regulations.
4. Lessee shall not do or permit to be done within the Leased Premises
anything which would unreasonably annoy or interfere with the rights of
other tenants of the building.
5. Lessee shall not permit its employees or invitees to loiter in or about
the common areas, or to obstruct any of the parking truck maneuvering
or other common areas, or to place, empty or throw any rubbish, litter,
trash or material of any nature upon any common area.
6. No storage of materials, equipment or property of any kind is permitted
outside the Leased Premises and any such property may be removed by
Lessor at Lessee's risk and expense.
7. Lessee shall not make or permit any use of the Leased Premises which
may be dangerous to life, limb or property or any noise, odor or
vibrations to emit from the Leased Premises which are objectionable to
Lessor or other occupants of the Building, or to create, maintain or
permit a nuisance or any violation or any regulation of any
governmental agency thereon.
8. Lessee shall not commit or permit to be committed any waste, damage or
injury to the Leased Premises, the Building or parking, loading and
other common areas adjoining and shall promptly repair the same at its
expense.
9. Lessee understands that any equipment required for maintenance of the
Leased Premises is Lessee's responsibility and that Lessor has no
equipment available for Lessee's use therefore, e.g. ladders or lifts
for relamping, etc.
10. Lessee shall use the Leased Premises and shall operate its equipment on
the Leased premises in a safe and prudent manner, and any damage or
cracks occurring in the floor of the Leased Premises shall be promptly
repaired by Lessee at its expense.
11. Lessee shall not at any time display a "For Rent" sign upon the Leased
Premises.
12. Lessee shall be responsible for keeping a copy of the lease and
Lessor's current rules and regulations upon the Leased Premises.
13. Lessee agrees to cause its employees to park only in such areas as may
be designated by Lessor from time to time for employee parking.
Page 1 of 2
<PAGE> 55
14. Lessee shall not waste electricity or water and agrees to cooperate
fully with Lessor to assure the most effective and economical use of
utilities services as may be provided to the building by Lessor.
15. Lessee shall keep Lessor advised of the current telephone numbers of
Lessee's employees who may be contacted in an emergency, I.E. fire,
break-in, vandalism, etc. If Lessor shall deem it necessary to respond
to such emergency in Lessee's behalf, Lessee shall pay all costs
incurred for services ordered by Lessor to secure or otherwise protect
the Leased Premises and the contents thereof, including a reasonable
premium charge for any time spent by Lessor's employees in responding
to such emergency.
Page 2 of 2
<PAGE> 1
NOTE: The symbol ***** indicates where confidential portions have been
omitted and filed separately with the Securities and Exchange
Commission.
COOPERATION AGREEMENT
This Cooperation Agreement has been entered into as of this 3lst day of October
1996,
By and between
SAT (Societe Anonyme de Telecommunications)
Networks and Telecommunications Division
11 rue Watt
B.P. 370
75626 PARIS CEDEX 13
FRANCE
hereinafter referred to as "SAT"
and
INNOVA
Gateway North, Building 2, 3325 South 116th Street, Seattle,
Washington, 98168
USA
hereinafter referred to as "INNOVA"
WITNESSETH
WHEREAS since October 1992, the parties have led a fruitful cooperation in
relation with the development, manufacture and commercialization of digital high
frequency radiolinks, starting from INNOVA's design known as XP3 design.
WHEREAS INNOVA, on the basis of a new design, known as "XP4 design" is engaged
in the process of developing digital high frequency radio links in the frequency
range 13/38 GHz with bit rates 2 x 2, 4 x 2 and 8 x 2 Mbit/s.
WHEREAS SAT has completed the design or QPSK and 16-QAM modems operating a( 34
Mbps.
WHEREAS the Parties wish now to pursue their cooperation with the intention to
make available to both of them a comprehensive range of high frequency
radiolinks and - to that effect - enter into a cooperation agreement providing
for coordinated development of products and grant of distribution fights and
manufacturing licenses by each Party to the other to manufacture and/or
commercialize products of said range when developed.
NOW THEREFORE, in consideration of the aforesaid premises and initial
covenants expressed in this Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged by SAT and INNOVA. the Parties hereto agree as follows:
31/10/96 Page 1
<PAGE> 2
ARTICLE I - DEFINITTONS
Capitalized terms used herein have the following meanings:
1.1 "Products" shall mean die digital high frequency radio links (comprised
of a SIU unit, an ARU unit and an antenna), as well as the Hitless
Feature and the Supervisory System, whose development is complete or is
to be achieved hereunder by either of the parties with frequency ranges
and with bit rates as defined in Annex 1, and with the specifications;
of Innova developed Products described in Annex 2 of the Master
Purchase Agreement, and the specifications of SAT developed Products
described in Annex 5.
1.2 "SIU unit" shall mean the indoor unit of each Product.
1.3 "ARU unit" shall mean the outdoor unit of each Product (excluding
antenna).
1.4 "Hitless Feature" shall mean the hitless protection function to be
developed by SAT hereunder for enhancing a number of the Products as
listed in Annex 1, the specifications of which are set forth in Annex
5.
1.5 "Supervisory System" shall mean the software to be developed by SAT
hereunder for the purpose of allowing management of a network composed
of Products, the specifications of which are set forth in Annex 5.
1.6 "Development Program" shall mean the obligations of each of the parties
to exert their commercially reasonable efforts toward achieving or
completing the respective development of tasks assigned to them under
Annex I as to the Products, the Hitless Feature and the Supervisory
System.
1.7 "IPR" (Intellectual Property Rights) shall mean patents, patent
applications registered or unregistered designs, copyrights and all
other intellectual property protection (other than trademarks) wherever
in the world enforceable.
1.8 "Foreground Technology" shall mean all technical information generated
by the parties after the date of this Agreement pursuant to the
Development Program and all IPR issuing therefrom, pertaining to the
Products and Improvements thereto.
1.9 "Background Technology" shall mean any technical information, including
all IPR pertaining thereto existing at the date of this Agreement. that
is directly relevant to the Development Program but excluding any
Foreground Technology.
1.10 "INNOVA Developed Products" includes those Products as to which
development responsibility is assigned to INNOVA under Annex I
(excluding 13 GHz Products if INNOVA is released from responsibility
therefore under footnote 2 to Annex 1).
1.11 "SAT Developed Products" includes those Products as to which development
responsibility is assigned to SAT under Annex 1.
ARTICLE 2 - OBJECTIVES
The following objectives are the basis of the cooperation between the
Parties and shall govern the interpretation and implementation of the
terms of this Agreement:
(i) to reduce the investments required by each Party in research and
development and in setting up and maintaining commercial marketing and
distribution networks.
31/10/96 Page 2
<PAGE> 3
(ii) to increase the sales of both Parties by enabling each Party to
add the other's range of Products to its own.
ARTICLE 3 - DEVELOPMENT PROGRAM
3.1 Each Party shall exert commercially reasonable efforts to complete the
development activities allocated to it in Annex I in accordance with
the Time Schedule set forth in the same Annex. Failure to comply with
the said Time Schedule and cost objectives shall not be deemed a breach
of or have any other consequences under this Agreement (except as
stated in Section 9.2(i)), provided the non-complying party actually
exerted commercially reasonable efforts to reach compliance.
3.2 In connection with their respective development activities under this
Agreement, the Parties shall, to the extent commercially reasonable,
endeavour to maximize compatibility and commonality in Product design
and component standardization and to adopt a common Product
architecture, common technological solutions and a common approach to
mechanical designs and standards to the end that Products will be
compatible with the different practices used in each Party's domestic
market.
3.3 SAT also agrees to assist INNOVA, at INNOVA's request, for the purpose
of optimizing the design of tile INNOVA Developed Products. preparing
their manufacturability and the incorporation of tile Hitless Feature,
by sending experts at INNOVA's request to INNOVA's location for periods
to be mutually agreed.
3.4 To insure maximum efficiency in carrying-out the Development Program
activities and facilitate the communication of relevant information and
experiences between them, tile efforts of the Parties will be guided
and coordinated through a Coordinating Committee which will be
organized and function as hereinafter provided in Article 8 below.
3.5 All development costs and expenses incurred by each party in performing
tasks allocated to it under tile Development Program shall be borne by
that Party, except that for experts sent by SAT in accordance with
paragraph 3.3 above, INNOVA shall reimburse SAT for expenses thus
incurred at cost (salaries, social charges, travel, lodging and
subsistence).
3.6 Quality-Assurances
(i) Audits:
Each party may at any reasonable time carry out QA audits in other
Party's and/or other Party subcontractor's facilities in order to
assess the conformance level of that Party to international Quality
Standards ISO 9001 and/or ISO 9002. The auditing Party shall give to
the other one reasonable prior notice of the dates oil which these
audits will take place. All audits and inspections shall be performed
in such a manner as not to delay (lie current work of the Audited
Party.
(ii) Design Evaluation and Control:
Verification of design prototypes in accordance with mutually agreed
specifications and test level will be accomplished through periodic
design reviews. These reviews will be held as needed and will be
attended by those functions necessary to adequately ensure design
compliance.
Prior to these reviews and not later than two (2) weeks before, the
Party in charge of the design will have made available the relevant
test reports to the other Party.
31/10/96 Page 3
<PAGE> 4
ARTICLE 4 - OWNERSHIP OF TECHNOLOGY - RIGHT OF USE FOR DEVELOPMENT
Each Party will retain all IPR in its existing Background Technology
and in the Foreground Technology developed by that Party hereunder,
including the Improvements referred to in paragraph 6.5 below. Each
Party will also be entitled to ownership of all IPR in any Foreground
Technology developed jointly by the Parties hereunder with respect to
the Products.
To the extent necessary or useful for the performance of other Party's
obligations under the Development Program, each Party's Background
Technology and Foreground Technology shall be made available to such
other Party and such other Party is granted a temporary license to use
the same on a cost-free basis for the limited purpose of performance of
its obligations under the Development Program. With regard to the other
Party's use thereof for manufacturing purposes, provisions of Article 6
herebelow shall apply.
ARTICLE 5 - DISTRIBUTION RIGHTS
5.1 For each Product whose development is complete and manufacture started
by the Party to which its development is allocated by Annex I (in this
Article the "Supplying Party") said party hereby appoints the other
party (in this Article "the Purchasing Party") as its distributor as
follows :
SAT shall have (i) exclusive distribution rights to the Products in
SAT's exclusive territories (as defined below) and (ii) subject to
specific arrangements for U.K. described below, non exclusive
distribution rights to the Products in the rest of the world except
INNOVA's exclusive territories (as defined below).
SAT's exclusive territories include France (including DOM-TOM),
Andorra, Monaco, Hungary, Poland and Italy. Accordingly, INNOVA shall
not sell itself the Products and, to the extent it may legally do so,
shall not permit any reseller of Products, whether on an OEM, private
label or distribution basis to (i) advertise the Products or canvas or
solicit orders for the Products (ii) open branches for the supply
and/or support of the Products or (iii) maintain distribution depots
for the Products, in SAT's exclusive territories. INNOVA recognizes
SATs right to enter into distribution agreements for the Products with
third parties in non-exclusive territories.
INNOVA shall have (i) exclusive distribution rights to the Products in
INNOVA's exclusive territories (as defined below) and (ii) subject to
specific arrangements for U.K. described below, non exclusive
distribution rights to the Products in the rest of the world except
SAT's exclusive territories.
INNOVA's exclusive territories include USA, Canada. New-Zealand,
Australia and Mexico. Accordingly, SAT shall not sell itself the
Products and, to the extent it may legally do so, shall not permit any
reseller of Products, whether on an OEM. private label or distribution
basis to (i) advertise the Products or canvas or solicit orders for the
Products (ii) open branches for the supply and/or support of the
Products or (iii) maintain distribution depots for the Products, in
INNOVA's exclusive territories. SAT recognizes INNOVA's right to enter
into distribution agreements for the Products with third parties in
non-exclusive territories.
Specific arrangements for U.K.:
INNOVA retains the right to appoint its subsidiary "INNOVA Europe
Limited." as exclusive distributor of INNOVA developed Products in U.K.
but undertakes to cause "INNOVA Europe Limited." to supply, subject to
the terms and conditions or this Agreement taken as a whole, INNOVA
Developed Products on a non-exclusive basis to SAT as an authorized
reseller for U.K.
On its part, SAT does not grant INNOVA the right to distribute SAT
Developed Products in U.K. but undertakes to supply, subject to the
terms and conditions of this Agreement taken as a whole, SAT Developed
Products on a non-exclusive basis to "INNOVA Europe Limited." as an
authorized reseller for U.K.
31/10/96 Page 4
<PAGE> 5
Provisions of Section 5.4. below as well as the pricing and other Wins
and conditions set forth in Annex 2 hereof shall apply to transactions
hereabove contemplated between SAT and "INNOVA Europe Limited."
5.2 Products to be supplied by the Supplying Party to the Purchasing Party
hereunder shall be supplied for a price (hereinafter "Transfer Price")
representing an agreed percentage of the market price (hereinafter
"Market Price") determined by the parties for each of the Products.
Annex 2 hereto sets forth the agreed percentages for calculating the
Transfer Price, based on the Market Price of such Product as mutually
determined by the Parties for the first twenty-four months after the
effective date of this Agreement. Thereafter for each successive period
of twelve: (12) months during the term of this Agreement and thirty
(30) days before expiration of the current period, the Parties shall
meet and review the available market data and determine in good faith
the Market Price of each Product applicable for the new twelve months
period. In addition, the Parties may agree to review the Transfer
Prices at any other time, but no earlier than twelve (12) months after
the effective date of this Agreement. The conclusions of each such
meeting shall be reduced to writing in the form of an amendment to this
Agreement concerning the Transfer Prices.
The Transfer Price for each Product is meant "CIP airport of final
destination" (Seattle or Paris airport as the case may be) according to
1990 Incoterms of the International Chamber of Commerce.
US dollar shall be the accounting, invoicing and payment currency for
all transactions effected under this Article.
5.3 Notwithstanding any other provisions of this Agreement, in no event
shall the Supplying Party grant to any reseller of Products sold by the
Supplying Party, whether on an OEM, private label or distribution
basis, pricing or other terms and conditions of purchase more favorable
than those granted to the Purchasing Party under like circumstances
without offering immediately those more favorable terms and conditions
as to subsequent transactions with the Purchasing Party.
5.4 The Purchasing Party shall sell the Products under trademarks and
product names of the Purchasing Party or the Purchasing Party's
customers. To that effect, the Supplying Party agrees that all Products
supplied by the Supplying Party shall bear such logos and trademarks as
instructed by the Purchasing Party.
Nothing contained in this Agreement shall be construed as granting
either Party a license under any trade marks and trade names of the
other Party without the prior written consent of that Party.
5.5 Additional terms and conditions applicable to the purchase of Products
hereunder are set forth in Annex 2. Unless otherwise agreed in relation
to a specific project and acknowledged by both parties in writing, the
terms and conditions set forth in this Article 5 and Annex 2 hereto
shall be applicable to all orders for the purchase of Products. Such
terms and conditions shall apply in preference to and supersede any
terms and conditions referred to hi the Purchasing Party's purchase
orders or the Supplying Party's conditions of sale.
ARTICLE 6 - MANUFACTURING LICENCES
6.1 Subject to the limitations and conditions set forth below, each Party
hereby grants to the other party (in this Article "the Licensed Party")
licenses (which licenses shall be exclusive with respect to each Party's
exclusive territories) (without right to sublicense) to use, solely in
the respective exclusive territories of the Licensed Party as described
in Article 5. 1, the Background and Foreground Technology owned by the
First Party (in this Article "the Licensing Party") for the sole and
only purpose of manufacturing (partially or entirely) per paragraph 6.2,
(lie Product developed by the Licensing Party.
31/10/96 Page 5
<PAGE> 6
Such licenses include the right of direct access to manufacturers of
custom design parts or components included in the Products, the right
to make adaptations, enhancements and improvements to the object of the
license as well as the right to have boards or subassemblies
manufacturing subcontracted worldwide and the right to sell the
Products so manufactured (and to sublicense the Supervisory System) on
an exclusive or non-exclusive basis respectively in the exclusive and
non exclusive territories allocated to the Licensed Party in Article
5. 1.
6.2 The licenses thus granted are either "unconditional", meaning that they
may be exercised by the Licensed Party at any time after completion of
development of the object of the license ("Unconditional Licenses") or
"conditional", meaning that they may not be exercised until certain
circumstances have taken place as described in more detail in
subparagraph (b) below ("Conditional Licenses").
(a) Unconditional Licenses include
(i) a license from INNOVA to SAT to use the interfaces and all
Background and Foreground Technology pertaining to the SIU and the
SIU-to-ARU interface developed by INNOVA for the INOVA Developed
Products, for the purpose of developing any product below 15 GHz. This
license will become a license for the purpose of manufacturing any
product below 15 GHz within SAT's exclusive territories as soon as all
the information, specified in Annex 3, relevant to the license of the
16,x2 M/s 13 GHz, product as described in (a) (ii) is given by SAT to
INNOVA.
(ii) a license from SAT to INNOVA to use the interfaces and all
Background and Foreground Technology pertaining to the SIU and the
SIU-to-ARU interface developed by SAT for the SAT Developed Products,
for the purpose of deve1oping and manufacturing any product above 15
GHz within INNOVA's exclusive territories.
(iii) a license from INNOVA to SAT to use INNOVA's Background and
Foreground Technology pertaining to 18/23/26/38GHz Products with bit
rates 2 x 2, 4 x 2 and 8 x 2 for tile purpose of manufacturing in
France and installing in France quantities of the above defined
Products which do not exceed oil a quarterly basis thirty percent (30%)
of SAT's quarterly sales of radio links.
(iv) a license front SAT to INNOVA to use for all purposes SAT's
Background and Foreground Technology pertaining to the Hitless Feature.
(v) a license from SAT to INNOVA to use for all purposes SAT's
Background and Foreground Technology pertaining to the Supervisory
System (object code and such portion of the source code which is
relevant to INNOVA's applications).
(b) Conditional Licenses include :
(i) a license from INNOVA to SAT to use INNOVA's Background and
Foreground Technology pertaining to 13 and 15 GHz Products with bit
rates 2 x 2, 4 x 2 and 8 x 2 for the purpose of manufacturing such
Products in France.
(ii) a license from INNOVA to SAT to use INNOVA's Background and
Foreground Technology pertaining to 18, 23, 26 and 38 GHz Products with
bit rates 2 x 2. 4 x 2 and 8 x 2 for the purpose of manufacturing in
France quantities of the above derailed Products without the quantity
limitations set forth for the same tinder (a)(iii) above (Unconditional
License).
(iii) a license from SAT to INNOVA to use SAT's Background and
Foreground Technology pertaining to 7, 8, 13 and 15 GHz Products with
bit rates 8 x 2 and 16 x 2 (I + 1) for the purpose of manufacturing
such products in the U.S.A.
(c) Exercise Rights for Conditional Licenses
31/10/96 Page 6
<PAGE> 7
The rights under the licenses described in (b)(i) above they be
exercised by the Licensed Party only after SAT has placed with INNOVA
in the framework of a master purchase agreement to be concluded
immediately upon signature hereof (the Master Purchase Agreement),
accepted deliveries for and fully paid for purchase orders specifying
the supply of an aggregate quantity of at least ***** (*****) terminals
with bit rata (es 2 x 2, 4 x 2 and 8 x 2 upon terms and conditions set
forth in Article 5 and Annex 2 hereof.
Subject to the cure provisions below, the rights under each of the
licenses described in (b)(ii) and (iii) above may be exercised by the
Licensed Party only after one (or more) of the following conditions has
taken place and only with respect to the particular Product(s) to which
the following conditions pertain:
- discontinuation of manufacture by the Licensing Party of any
Product to which the Conditional License applies, and of which the
Licensed Party has either ordered and paid for more than *****
units in the six months preceding discontinuation. or has continued
-- within one month after the Licensing Party's notice of planned
discontinuation -- to purchase more than ***** units within 12
months following such notice.
- delay (for any reason other than as specified in Section 10.2) of
at least three (3) months after the agreed shipment date in the
delivery to the Licensed Party of at least twenty five percent (25
%) of the agreed quantities of Products to which the Conditional
License applies and for which a purchase order has been placed and
acknowledged under Article 5.
- refusal (or lack of acknowledgment for a period exceeding 21 days)
of a purchase order placed by the Licensed Party under and in
accordance with the provisions of Article 5, except under the
circumstances in which rejection is permitted by Annex 2.
- a failure to comply with the "most favoured customer" clause set
forth in Article 5.3 in respect of any Product(s) to which the
Conditional License applies,
- an imposition of Transfer Prices exceeding those currently stated
in Annex 2, unless mutually agreed upon.
- When a new ETSI standard becomes applicable, and after discussions
between the Parties to determine how and at what Market and
calculated Transfer Price the Product to which the Conditional
License applies can be inside compliant to this new ETSI standard,
one of the following conditions has taken place :
- the Product can be made compliant at the agreed recalculated
Transfer Price, yet two (2) months after the Licensed Party's
requests, the Licensing Party has not confirmed in writing its
intention to make the Product compliant with the new ETSI
standard; or
- the Product can be made compliant at the agreed recalculated
Transfer Price, yet the Product is not compliant nine (9)
months after the date when the new ETSI standard becomes
applicable.
For the purpose of this provision the relevant ETSI standards shall
be those cited in Annex III of the Master Purchase Agreement.
None of the above conditions shall result in a Conditional License
becoming exercisable unless, thirty (30) days after receipt by the
Licensing Party of a written notice to remedy such condition, the
Licensing Party has not cured such condition.
None of the above conditions shall result in a Conditional License
becoming exercisable if the condition has taken place with respect to a
quantity of Products having an aggregate purchase price below *****
(*****) US Dollars in any single incident.
31/10/96 Page 7
<PAGE> 8
None of the above conditions shall result in a Conditional License
becoming exercisable as long as the Licensed Party is in a state of
material breach of this Agreement.
6.3. In order to allow each Licensed Party to exercise without delay its
rights under the Unconditional or Conditional Licenses granted to it as
set forth in paragraphs 6.1 and 6.2 above as soon as authorized under
this Agreement, each Licensing Party undertakes to deliver to the
Licensed Party as soon as available (and at the latest one month after
first manufacturing release of the corresponding Product) all technical
data (and thereafter any amendments thereto) required for the proper
exercise of such rights in the form and language in which they exist in
the Licensing Party's files. Such technical data shall include at a
minimum the information listed in Annex 3 hereto.
In addition to the technical data, the Licensing Party shall make
available to the Licensed Party on request reasonable technical
assistance for the purpose of assisting the Licensed Party in starting
its manufacture of Licensed Products. Financial and other conditions of
such assistance shall be mutually agreed in advance. All the costs
(salaries, benefits, travel, lodging and subsistence when applicable)
of Innova staff sent to SATs locations at SAT's request to support SAT
for the grant of licenses by Innova to SAT shall be paid by SAT.
Each Licensed Party acknowledges and agrees that technical data
received from the Licensing Party in respect of Products to which a
Conditional License applies may not be used for commercial production
or any other purpose unless and until one (or more) of the conditions
precedent to such use as defined in paragraph 6.2 above takes place.
6.4 If a Licensed Party manufactures and sells Products without having the
right to do so under any of the above Conditional Licenses, and thirty
(30) days after receipt of the Licensing Party's written notice by the
Licensed Party that a violation of any of the Conditional Licenses has
occurred, the Licensed Party manufactures and sells 100 additional
terminals, then the Licensed Party shall pay to the Licensing Party a
penalty of $5,000,000. It is thereby agreed that this penalty is a
reasonable compensation for the minimum damages estimated to be
suffered by the Licensing Party in such a case and shall be the entire
compensation for the manufacture and sale of (terminals after receipt
of the notice by the Licensed Party, provided however that nothing in
this paragraph shall be construed to limit the Licensing Party's right
to pursue any remedies it may have under the terms of this Agreement or
in equity for any other breach of this Agreement including, but not
limited to, damages incurred as the result of terminals manufactured
and sold by the Licensed Party in violation of any of the conditional
Licenses prior to receipt of the notice described herein; and provided
further that the Licensed Party shall not be liable for damages for the
manufacture and sale of less than 100 terminals prior to receipt of
said notice and that manufacture and sale of less than 100 terminals
shall not be grounds for the termination of this Agreement. Upon
payment of the penalty, both Parties agree to resume enforcement of all
provisions of this Agreement, it clearly being understood that if the
penalty has not been paid within 30 days after demand by the Licensing
Party, the Licensing Party may, in its sole discretion, terminate the
Agreement.
6.5 In consideration of the Licenses granted to it, each Licensed Party
agrees to pay to the Licensing Party for each Unconditional or
Conditional License (except for the reciprocal licenses pertaining to
the SIU-to-ARU interfaces defined for the Products and the SIU unit and
mentioned in (a) (i) and (ii) above, for which no payments are
required):
(i) a lump sum upon receipt of the full set of technical data
required for exercising its rights under such licenses and
(ii) for the initial term of this Agreement, a percentage or per
unit royalty proportionate to sales.
The lump sum and royalty applicable to each Unconditional or
Conditional License and the terms and conditions under which payments
are to be circulated and retained to the Licensing Party are set forth
in Annex 4 hereto.
31/10/96 Page 8
<PAGE> 9
6.6 Throughout the term of this Agreement, each Party shall inform the
other Party of improvements, adaptations or enhancements
("Improvements") which it makes to its own Products as well as to
Products manufactured under (lie other Party's license, as soon as such
Improvements have been introduced into its serial production at its
manufacturing facilities. Information pertaining to Improvements shall
be delivered in the form of additions to or modifications of the
technical data referred to in paragraph 6.3 above and each Party
receiving it shall be entitled to use the corresponding Improvements in
its manufacturing and selling activities to the same extent and under
the same circumstances as it is entitled to manufacture and sell the
Product to which the Improvements relate under the terms and conditions
set forth in this Article.
Under no circumstances shall the Parties have any obligation to provide
information with respect to, nor shall this Agreement have any
application to, any technological improvements associated with any new
product or product line having design. functionality or performance
characteristics materially different from the Products as specified in
Annex 2 of the Master Purchase Agreement and Annex 5 of the Cooperation
Agreement.
6.7 Each Party disclaims any warranty or duty to indemnify with respect to
any future claim or suit against the other Party for infringement of
patents, copyrights and the like owned by third parties in connection
with the other Party's use of the first Party's Foreground or
Background Technology under the manufacturing licenses.
In the event that either Party is sued or thereafter with a suit for
any alleged infringement of a third party's patents, copyrights or the
like on account of such Party's use in the manufacture, sale, operation
or other utilization of Background or Foreground Technology of the
other Party, the first Party shall promptly notify the other Party
thereof in order that the latter may assist in the defense and
settlement of such litigation.
ARTICLE 7 - INTERTRADING
7.1 Each Party shall make available to the other Party on terms and
conditions to be agreed upon the subsystems, modules and piece parts or
its manufacture which are included in its Products.
7.2 Each Party shall use all commercially reasonable efforts to ensure that
where component parts and/or software modules specifically designed for
the Products arc to be procured from third parties, the same shall be
available to the other Party on terms not less favourable than those
granted to the first Party.
ARTICLE 8 - COORDINATING COMMITTEE
8.1 The cooperation among the Parties shall be coordinated by a
Coordinating Committee composed of representatives of the Parties,
which shall supervise and coordinate all aspects of the cooperation
contemplated by this Agreement.
Each Party shall appoint two (2) representatives and an even number of
alternates. Each Party may replace its representatives and alternates.
Each Party shall have one vote on the Coordinating Committee whose
decisions shall be taken unanimously. Meetings of the Coordinating
Committee shall in principle be held alternatively at the location or
each Party, every two months.
8.2 The Coordinating Committee shall issue and distribute to the Parties
periodic reports on the progress of work in relation with the
Development Program including information on technical standards,
technical specifications, time schedule or implementation,
manufacturing cost of the Products or other relevant issues and ensure
that the technical data resulting from each Party's activity under the
Development Program are regularly and timely communicated to the other
Party as provided for in paragraph 6.3 above.
31/10/96 Page 9
<PAGE> 10
8.3 The Coordinating Committee in its discretion may appoint, for the
purposes of carrying on its various tasks and functions, special
committees or task Forces composed of persons who may or may not be
members of the Coordinating Committee, but who will report thereto.
8.4 The Party at whose location the meeting is to be held shall have the
responsibility to prepare the meeting of the Coordinating Committee,
propose the agenda and draft the report for approval by the other
Party.
8.5 The Coordinating Committee shall, to the extent possible, resolve any
conflicts among the Parties and refer to the head management of each of
the Parties any subsisting disputes. The Coordinating Committee shall
also be responsible for making to the Parties recommendations about
re-allocation of tasks and corresponding amendments to this Agreement,
in the event that circumstances so require.
ARTICLE 9 - TERM
9.1 This Agreement shall be effective and shall constitutes a binding
agreement immediately upon signing by both Parties, without need for
further action. Unless terminated earlier as provided in 9.2 below,
this Agreement shall remain in force for a term of five (5) years and
thereafter continue for successive periods of five (5) years, unless
terminated by not less than one (1) year's prior written notice
indicating a Party's decision to terminate at the end of the initial
term or of any subsequent term, provided that upon expiration of the
initial Term of this Agreement, all licenses herein granted which have
become exercisable in accordance with the terms hereof prior to such
expiration shall be deemed perpetual and fully paid tip Unconditional
Licenses.
9.2 A Party may terminate this Agreement upon three (3) months prior
written notice if:
(i) If by the end of the first twenty four (24) months period after the
effective date hereof (subject to Section 10.2), the tasks allocated to
the other Party under the Development Program have not been
substantially achieved. A task is described substantially achieved when
a prototype has been built and tested to demonstrate its compliance
with a mutually agreed specification or with a relevant ETSI standard
when existing, or
(ii) In the event that the other party this to pay on the due date the
price of Products purchased hereunder and/or lump sums or royalties
payable under the manufacturing licenses herein granted and such
failure has not been remedied sixty (60) days after receipt of a
written notice from the first party, or
(iii) If the other Party this to perform or observe any other material
obligation or restriction imposed by the Master Purchase Agreement or
this Cooperation Agreement and such failure has not been remedied sixty
(60) days after receipt of a written notice from the First party.
9.3 In the case of termination permitted under subparagraph 9.2. (i) above,
the distribution rights and manufacturing licenses granted hereunder
which have become exercisable in accordance with the terms hereof prior
to such termination shall remain in force to the extent necessary to
permit the terminating or terminated Party to fulfill any outstanding
contracts with or commitments to its customers, for delivery of
products within 12 months of termination, subject in the case of
manufacturing licenses to the continued payment of royalties provided
for under Annex 6 hereto. In the event of termination permitted under
subparagraph 9.2 (ii) or (iii) above, the distribution rights and
manufacturing licenses granted to the terminated Party except for the
right to fulfill outstanding contracts., shall terminate forthwith, and
the distribution rights granted to the terminating Party shall survive
termination until expiration of the current five (5) years period
mentioned in paragraph 9.1. above and all manufacturing licenses
granted to the terminating Party and which have become exercisable in
accordance with the terms hereof prior to such termination shall be
deemed perpetual and fully paid tip Unconditional Licenses.
31/10/96 Page 10
<PAGE> 11
ARTICLE 10 - GENERAL
10.1 Confidentiality
The Parties acknowledge that by reason of their relationship hereunder
reach Party may have access to certain information and materials
concerning the other Party's business, plans, customers, technology and
products that are confidential and of substantial value to the other
party, which value would be impaired if such information were disclosed
to third parties. The terms and conditions of this Agreement shall be
confidential information hereunder. Each Party agrees that it will not
disclose to any third Party, any such confidential information revealed
to it by tile other Party; provided that INNOVA shall be permitted to
disclose the terms of this Agreement and the Master Purchase Agreement
to the extent reasonably necessary in order to fulfill its disclosure
obligations and otherwise pursue its efforts to obtain private or
public equality or debt financing. Each Party shall take every
reasonable precaution to protect the confidentiality of such
information. Upon request by one Party, the other party shall advise
whether or not it considers any particular information or materials to
be confidential. Neither Party shall publish any technical description
of the items developed by the other Party beyond the description
published by the other Party. In the event of expiration or termination
of this Agreement, there shall be no use or disclosure by either Party
of any confidential information of tile other Party for a period of
rive (5) years.
10.2 Force Majeure.
Non performance of either Party shall be excused to the extent that
performance is rendered impossible by strike, fire, flood, governmental
acts or orders or restrictions, failure of supplier, or any other
reason where failure to perform is beyond the reasonable control of and
is not caused by the negligence of the non performing Party.
10.3 Independent Contractors.
The relationship of INNOVA and SAT established by this Agreement is
that of independent contractors, and nothing contained in this
Agreement shall be construed to (i) give either party the power to
direct and control the day-to-day activities of the other, (ii)
constitute the parties as partners, joint venturers, co-owners or
otherwise as participants in a joint or common undertaking, or (iii)
allow either Party to create or assume any obligation on behalf of the
other Party for any purpose whatsoever.
10.4 Governing Law.
This Agreement shall be governed by the laws of Swiss Federal Code of
Obligations.
10.5 Arbitration.
Any disputes arising out of or in connection with this Agreement shall
be finally settled by binding arbitration conducted in Geneva,
Switzerland, under the Rules of Conciliation and Arbitration of die
International Chamber of Commerce by three arbitrators appointed in
accordance with said Rules.
10.6 Entire Agreement.
This Agreement (including the annexes hereto) sets forth the entire
agreement and understanding of the parties relating to the subject
matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement shall be effective
unless in writing signed by both Parties.
10.7 Assignability and binding effect.
Either Party's rights and obligations under this Agreement may not be
assigned except with tile prior written consent of the other Party.
Notwithstanding the foregoing sentence, this Agreement shall be binding
upon and inure to the benefit of the Parties' successors.
10.8 Notices.
Any notice required or permitted by this Agreement shall be in writing
and shall be sent by registered mail or commercial express delivery
service, addressed to the other Party at the address shown at the
31/10/96 Page 11
<PAGE> 12
beginning of this Agreement or a( such other address for which such
Party gives notice hereunder. Such notice shall be deemed to have been
given six (6) days after deposit with the mail or express delivery
service.
10.9 Severability.
If any of the terms and conditions of this Agreement shall be or become
unenforceable for any cause or reason whatsoever, the ensuing lack of
enforceability shall not affect the other provisions hereof and in such
event, the Parties hereto shall endeavour to substitute forthwith such
other enforceable provisions as will most closely correspond to the
legal and economic contents of the said terms and conditions.
10.10 Waivers.
None of the terms or conditions of this Agreement shall be deemed or
construed to have been waived by either of the Parties is unless such
waiver is set forth in a written instrument properly signed by such
Party.
10.11 Previous agreements.
Both Parties agree to jointly review the existing agreements between
the Parties, in order to determine which ones or portions of should
remain in force or could be terminated. The conclusion of such review
shall be reduced to writing in the form of an amendment to these
agreements, signed by both Parties.
10.12 Interpretation.
Neither the recitals at the beginning of this Agreement nor the
captions to the various provisions hereof shall be relied upon in
interpreting this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in
two (2) original counterparts as of the date first above written.
For INNOVA CORPORATION For SAT (Societe Anonyme
de Telecommunications)
By /s/ JEAN FRANCOIS GRENON By /s/ MARC MATHIEU
------------------------ ----------------------------
(Signature) (Signature)
JEAN FRANCOIS GRENON MARC MATHIEU
------------------------ ----------------------------
(print name) (print name)
PRESIDENT EXECUTIVE V.P.
------------------------ ----------------------------
(title) (title)
10.13 Review Meeting Prior to Innova's IPO
Both parties agree to jointly review Paragraph 6.7.5 (exercise rights
for Conditional Licenses) ninety (90) days prior to Innova's Public
Offering of its shares. The conclusion of such review shall be reduced
to writing the form of an amendment to these agreements, signed by both
parties.
<PAGE> 13
ANNEX I
ITEMS TO BE DEVELOPED
ALLOCATION OF DEVELOPMENT TASKS
AND TIME SCHEDULE
<TABLE>
<CAPTION>
PRODUCTS TO BE DEVELOPED BY TIME SCHEDULE
<S> <C> <C>
2x2 and 4x2 Mbit/s
- - 23/26/38 GHz INNOVA 3rd quarter 1996 (1)
- - 15/18 GHz INNOVA 4th quarter 1996
- - 13 GHz INNOVA 1st quarter 1997 (2)
4x2 and 8x2 Mbit/s
15/18/23/26/38 GHz INNOVA 4th quarter 1996
- - 13 GHz INNOVA 1st quarter 1997 (2)
8x2 and 16x2 Mbit/s(l + 1)
- - 7/8 GHz QPSK SAT 1st quarter 1997
- - 13 GHz QPSK SAT 1st quarter 1997
- - 15 GHz QPSK SAT 2nd quarter 1997
- - 26 GHz 4-FSK SAT/INNOVA 3rd quarter 1997
HITLESS FEATURE
(for 2x2, 4x2 and 8x2 Mbit/s) SAT 1st quarter 1997
SUPERVISORY SYSTEM SAT 3rd quarter 1997 (objective to
be agreed upon by both Parties after
technical discussions)
</TABLE>
Both parties agree to discuss in the beginning of 1997 the extension of the
Product range to other frequency bands, bit rates and modulation schemes. The
specifications of Products shall not be expanded unless expressly agreed in
writing by both Parties.
(1) according to INNOVA, these developments are complete at the date of
signature of this agreement and the products ready for type acceptance by SAT.
(2) SAT reserves the right to develop the 2, 4 and 8x2 Mb/s Product at 13 GHz
and will advise INNOVA of its intention by December 1st. If SAT decides to do
so, then INNOVA will be released from its obligations concerning the development
of products in this frequency blind. Otherwise, the above schedule shall apply.
31/10/96 Page 13
<PAGE> 14
ANNEX 2
PRICES AND OTHER TERMS AND CONDITIONS
APPLICABLE TO THE PURCHASE OF PRODUCTS
1. MARKET PRICES AND TRANSFER PRICES
For each Product, the Transfer Price per link (1+0) shall be obtained
by applying to the Market Price stated in the schedule below (which is
applicable for only 24 months after the effective date of this
Agreement), a discount equal to ***** percent (*****%) except that in
no event during such 24-month period shall the Transfer Price of INNOVA
developed Products at 2xEl and 4xE I bit rates exceed US $12,000 per
link (1+0) as an incentive for SAT to shift front XP3 and STD 10 to XP4
as soon as possible.
INNOVA Developed Products - excluding antenna and cables -
<TABLE>
<CAPTION>
- 23, 26. 38 GHz, 2xEI & 4xEI Market Price Transfer Price
------------ --------------
<S> <C> <C>
Small Qty (i) (1+0) US $ 17,500 US $ *****
Large Qty (i) (1+0) US $ 15,000 US $ ***** (ii)
- 13, 15, 18 GHz, 2xEI & 4.x EI Market Price Transfer Price
------------ --------------
Small Qty (i) (1+0) US $ 17,500 US $ ***** (iii)
INNOVA developed Lens Horn Antennas: Transfer Price
--------------
23 & 38 GHz, 24 cm US $ *****
23 & 38 GHz, 34 cm US $ *****
</TABLE>
- For Product providing 4xEI & 8xEI tributaries, Market Price and
Transfer Price are ***** higher than those of products providing
2xEI & 4xEI tributaries.
SAT Developed Products - excluding antenna and cables -
<TABLE>
<CAPTION>
- 7/8, 13, 15 GHz QPSK 8xEI & 16xEI Market Price Transfer Price
------------ --------------
<S> <C> <C>
Annual Qty (iv) less than
50 links (1+0) US $ 36,000 US $ *****
Annual Qty (iv) greater than
50 links (1+0) US $ 30,000 US $ *****
</TABLE>
Notes
(i) prices for small or large quantity apply for annual quantities
respectively below or above ***** (1+0) links, for any product
mix front 13 to 38 GHz, whatever the bit rate. At the
beginning of each year, each Party will forecast its annual
quantity requirements, which will determine the applicable
price for the year.
(ii) applicable for deliveries after 31st December 1997. For
deliveries until 30th June 1997, prices for (small quantity)
shall apply for any. quantity. For deliveries front 1st July
up to 31st December 1997 a maximum Transfer Price of US $*****
shall apply. However, INNOVA shall use commercially
reasonable efforts to reduce this Transfer Price before 1st
January 1998 if cost reductions enable it.
(iii) prices for 18 GHz will be the same as 23, 26 or 38 GHz for
deliveries after 3 1St of December 1997; 13 and 15 GHz
Products will be (licit manufactured by SAT.
(iv) for any product mix front 7 GHz tip to 15 GHz, whatever the
bit rate.
31/10/96 Page 14
<PAGE> 15
2. Additional terms and conditions of purchase of Products
(a) Maximum production capacity required to be allocated by INNOVA
to SAT:
For 1997:
up to ***** terminals per month in January thru March,
up to ***** terminals per month in April thru June,
up to ***** terminals per month in July thru September,
up to ***** terminals per month in October thru December.
For 1998 and beyond:
*****% of Innova's capacity but in any case not less than
***** terminals per month.
INNOVA shall have the right to reject purchase orders in whole or in
part to the extent that they would exceed INNOVA's maximum required
production allocation.
(b) Purchase orders
All orders for Products submitted by the Purchasing Party shall be
initiated by written purchase orders sent to the Supplying Party
(subject to Section 5.5 of tile Cooperation Agreement); provided,
however, that an order may initially be placed by (telecopy if a
confirming written purchase order is received by the Supplying Party
within fifteen (15) days after and said telecopy order).
Standard delivery lead time shall be two (2) months after receipt of
order. The Supplying Party is required to agree to the standard
delivery laid time only for orders placed in compliance with the
forecasts described below.
The Purchasing Party shall therefore submit purchase orders to the
Supplying Party at least seventy (70) days prior to the requested
delivery date(s). However the Purchasing Party may request and tile
Supplying Party may agree to earlier delivery on a case by case basis.
The Supplying Party shall notify the Purchasing Party of the acceptance
or rejection of an order and of the assigned delivery date for accepted
orders within five (5) days after receipt of tile purchase order. The
Supplying Party may reject purchase orders only if they are not
submitted at least 70 days in advance, not within the amounts forecast,
or otherwise not in conformity with the Terms and conditions of this
Article.
The Purchasing Party shall provide the Supplying Party within thirty
(30) days after start of manufacture of each Product with a first
nonbinding forecast showing six (6) months projections for prospective
orders for that Product. Thereafter the forecasts shall be revised
every month - thus becoming rolling forecasts - to reflect adjustments
in the Purchasing Party's projections. In the event that INNOVA cannot
manufacture part of SATs forecasts due to capacity constraints, it may
in its sole discretion elect to allow SAT to manufacture a mutually
agreed quantity of Products.
Forecasts: SAT will prepare, on a monthly basis, 6 month rolling
forecasts of its requirements for Products and, by the 1st of each
calendar month, will place firm purchase orders (subject to the change
order provisions below) covering the first two (2) months of such
forecasts. Such forecasts may be adjusted on a monthly basis, but
any adjustments to the forecasts are to be limited in accordance with
the following parameters:
- first two (2) months - +0%-0% firm purchase orders (subject to
change order provisions herein)
- between two (2) and three (3) months before delivery +20, -40% of
prior months forecast, forecast only
- between three (3) and four (4) months before delivery +40%, -60%
of prior months forecast, forecast only
- beyond four (4) months before delivery +100%, -100% of prior months
forecast, forecast only
31/10/96 Page 15
<PAGE> 16
(c) Change orders
The Purchasing Party may utilize written change orders without penalty
for
1) orders that have not yet been accepted by the Supplying Party.
2) orders that have been accepted by the Supplying Party but not
yet been shipped, but only under the following circumstances
and subject to the following conditions:
(i) The Purchasing Party may delay delivery for up to three (3)
months of any accepted order, provided that the Purchasing
Party's change order is received by the Supplying Party at
least thirty (30) days before the scheduled delivery date.
(ii) The Purchasing Party may cancel any order that has been
accepted by the Supplying Party, provided that the written
change order is received by the Supplying Party at least forty
five (45) days before the scheduled delivery date.
(iii) The Purchasing Party may request reasonable changes in the
Product mix and/or quantity in an order that has been accepted
by the Supplying Party, provided that the written change order
is received by the Supplying Party at least thirty (30) days
before the scheduled delivery date and that substantial
changes in Product mix and/or quantity are mutually agreed
upon.
(iv) No specific limits on rescheduling or cancellation of orders
will be imposed by the Supplying Party to the Purchasing Party
if such rescheduling or cancellation has been requested by the
Purchasing Party's customer(s) for reasons directly
attributable to Supplying Party's negligent performance.
(d) Payments
Payment of the Transfer Price for the Products shall be made
by the Purchasing Party to the Supplying Party in US Dollars
by wire transfer, check or other instruments agreed upon by
the parties. Save in case of rejection, where provisions of
clause (e) below will apply, payment terms shall be sixty (60)
days after date of invoice.
If the Purchasing Party becomes delinquent in the payment of
any invoice beyond its due date, interest shall accrue without
prior notice upon the unpaid balance at the rate of one
percent (1%) per month from said due date. In addition the
Supplying Party reserves the right to retain further
deliveries and/or to demand revised payment terms for any
further order.
(e) Packing
Unless otherwise specified by the Purchasing Party, all
products delivered pursuant to this Agreement shall be
suitably packed for air freight shipment in standard shipping
cartons bearing the Purchasing Party's trademark (but not the
Supplying Party's), marked for shipment at the Purchasing
Party's address set forth above. and delivered to the
Purchasing Party "CIP Airport of final destination", at which
time title to such Products shall pass to the Purchasing
Party.
(f) Entry Inspection
The Purchasing Party shall inspect the Products upon receipt
thereof and may reject any Product that is not accompanied by
a set of measurement sheets pertaining to the Product and a
certificate warranting compliance with relevant agreed
specifications or fails to meet said relevant specifications.
Any Product not rejected within thirty (30) days after receipt
of that Product by the Purchasing Party ("the Rejection
Period") smile be denied accepted. If any Product is shipped
by the Purchasing Party to its customer prior to expiration of
the Rejection Period, then that Product shall be deemed
accepted upon shipment by the Purchasing Party. To reject a
31/10/96 Page 16
<PAGE> 17
Product, the Purchasing Party shall, within the Rejection
Period, notify the Supplying Party of its rejection and
request a Material Return Authorization ("MRA") number. The
Supplying Party shall provide the MRA number to the Purchasing
Party within five (5) days after receipt of the request.
Within five (5) days after receipt of the MRA number, the
Purchasing Party shall return to the Supplying Party the
rejected Product. As promptly as possible but no later than
five (5) days after receipt by the Supplying Party of rejected
Products, the Supplying Party shall, at its option and
expense, either repair or replace the Products. The Purchasing
Party shall pay all shipping charges in connection with the
return to the Supplying Party of repaired or rejected
Products. The Supplying Party shall pay all shipping charges
in connection with the return to the Purchasing Party of
repaired or replacement Products. Rejection of a Product shall
entitle the Purchasing Party to retain payment of the price of
such Product until it is made compliant either through
replacement or repair.
(g) Delays in delivery
In the event that the Supplying Party fails for reasons other
than causes of force majeure to deliver "CIP Airport of final
destination" each batch of Products or spare parts at the
respective dates agreed between the Parties, then the
Purchasing Party may claim from the Supplying Party, following
a period of grace of fifteen (15) days, liquidated damages
equivalent to 0.1% (point one per cent) of the corresponding
price of tile delayed batch per day of delay with a maximum of
ten percent (10%).
(h) Warranty
The Products to be supplied hereunder shall be Warranted to be
free from defects in materials and workmanship under normal
use and service for a period of twenty four (24) months after
the date of the "CIP Airport of final destination" delivery,
provided always that
(i) the said warranty shall not extend to natural wear and tear or
to any damage arising in consequence of installation and/or
operation performed not in accordance with the Supplying
Party's procedures and/or instructions or repair to the
Products not performed by the Supplying Party.
(ii) the said warranty shall be applied on a unit by unit basis,
excepted in the case of epidemic failures.
(iii) in case of service affecting epidemic failures tile period of
warranty will be extended for all delivered Products of the
same type tip to twelve (12) months after correction of the
last defect due to said epidemic failures For the purpose of
this provision, an epidemic failure is deemed to occur when
the failure rate of one type or the Products exceeds seven
percent (7%) of the total delivered quantity over any period
of six (6) consecutive months.
(iv) the Purchasing Party shall have notified the Supplying Party
of the defects in writing or by telefax promptly after the
Purchasing Party was informed of the defects.
The defects will be made good at the Supplying Party's expense
by repair or replacement at the Supplying Party's option. The
Supplying Party shall warrant repaired or replaced items under
the same conditions as above, for a period expiring either
simultaneously with the initial warranty of the Products or
twelve (12) months after installation of such repaired or
replaced item, whichever is later. Transportation and
insurance costs for defective parts returned to the Supplying
Party shall be at the Purchasing Party's charge and
transportation and insurance costs for parts replaced or
repaired by the Supplying Party shall be at the Supplying
Party's charge. The Supplying Party shall complete all
warranty services within fourteen (14) days of the Supplying
Party's receipt of defective Products from the Purchasing
Party. The property in any parts replaced shall revisit in
the Supplying Party.
31/10/96 Page 17
<PAGE> 18
The foregoing shall constitute the sole warranty and sole
remedy of the Purchasing Party and the sole liability of the
Supplying Party. The warranty of this article is in lieu of
all other warranties, express or implied. Any enlargement of
this warranty by the Purchasing Party in dealing with
customers shall be for the Purchasing Party's exclusive
responsibility unless otherwise agreed between the Parties on
a case by case basis.
(i) Post warranty provisions
All parts and labour required to repair or replace detective
parts for the Products returned to the Supplying Party after
the warranty period set forth above has expired, shall be
charged to the Purchasing Party in accordance with the
Supplying Party's prior quotation. The Supplying Party
warrants that to the extent items are repaired by the
Supplying Party, they shall be free from defects in
workmanship and materials tender normal use and service for a
period of twelve (12) months to commence Upon the Supplying
Party's return shipment to the Purchasing Party. The
Purchasing Party shall bear all transportation costs for the
Product repaired out of warranty. Repair or replacement
service shall be performed within fourteen (14) days of the
Supplying Party's receipt of detective Products.
The Supplying Party warrants to the Purchasing Party a minimum
ten (10) year (or extended period for individually agreed
requirements) product support and maintenance service, after
the date of the on-site acceptance by the Purchasing Party's
customer of each Product.
(j) Patent indemnification
The Supplying Party will keep the Purchasing Party harmless
against any claim of infringement of letters patent,
registered design or copyright by the use or sale of any of
the Products supplied by the Supplying Party to the Purchasing
Party and indemnify all costs and damages which the Purchasing
Party may incur in any action for such infringement or for
which the Purchasing Party may become liable in any such
actions.
Provided that this indemnity is conditional on the Purchasing
Party giving notice in writing to the Supplying Party of any
claim being made or action threatened or brought against the
Purchasing Party within a reasonable time or the Purchasing
Party becoming aware of such claim or action and refraining
from making any admission which might be prejudicial to the
Supplying Party and on the Purchasing Party permitting the
Supplying Party at the Supplying Party's own expense to
conduct any litigation that may elastic and all negotiations
for a settlement of the claim.
In the event that a final injunction is obtained against the
use of infringing Products by the Purchasing Party and/or its
customers, the Supplying Party will, at its expense, obtain
for the Purchasing Party and/or its customers the right to
continue using said Products, replace or modify same so that
they become non-infringing, or if such remedies are not
reasonably available, grant to the Purchasing Party a refined
equal to the amount paid by the Purchasing Party to the
Supplying Party for the infringing Product.
Notwithstanding the provisions of this Section, the Supplying
Party assumes no liability for (i) infringements covering
completed equipment or any assembly, circuit combination,
method or process in which any of the Products may be used but
not covering the Products when used alone; (ii) trademark
infringements involving any marking or branding not applied by
the Supplying Party or involving any mining or branding
applied at the request of the Purchasing Party; or (iii)
infringements involving the modification or servicing of the
Products, or any part thereof, Unless such modification or
servicing was done by the Supplying Party.
31/10/96 Page 18
<PAGE> 19
ANNEX 3
TECHNICAL DATA REQUIRED IN THE FRAMEWORK
OF MANUFACTURING LICENCES
- - Definition files, including:
* electrical and mechanical diagrams, schematics and drawings,
* bills of materials and components
* PCB layouts and manufacturing films,
* software source and object codes, list of Development tools and
source and object code of specific development tools, if any (to
the extent such technical data may lawfully be transferred under
the terms of applicable licenses).
- - Manufacturing files including
* alignment and test specifications, modules and boards level as well
as terminal and system level,
* list of alignment and test equipment,
* definition and manufacturing files (including software source code
if any) of specific manufacturing tools or test benches.
Notes:
1. files shall be supplied both on paper form and electronic format
when applicable,
2. up-dated versions shall be supplied, as soon as available,
following each new release of either the definition or the
manufacturing file.
3. Both Parties agree to use all reasonable efforts to assist the
other in becoming licensees where required to utilize any
technology not owned by the other Party but necessary for the
manufacture of Products.
31/10/96 Page 19
<PAGE> 20
ANNEX 4
PAYMENTS UNDER MANUFACTURING LICENCES
1. LUMP SUMS AND ROYALTIES AGREED FOR EACH OF THE
UNCONDITIONAL/CONDITIONAL LICENSES.
The amounts and percentages set forth herebelow are based upon the
combination of a variety of criteria taken into account by the Parties:
the balance between the development efforts allocated to each Party,
the marketing significance of each technology to be developed, SAT's
assistance to manufacturability of the Products developed by INNOVA,
the conditions to be fulfilled precedent to the exercise of Conditional
Licenses and the mutual grant back rights on Improvements exchanged
between the Parties.
Lump sums
<TABLE>
<CAPTION>
a) INNOVA developed Products
-------------------------
<S> <C> <C>
2x2 and 4x2 Mbit/s 13 GHz US $*****
15 GHz US $*****
18 GHz US $*****
23 GHz US $*****
26 GHz US $*****
38 GHz US $*****
4x2 and 8x2 Mbit/s 13 GHz US $*****
15 GHz US $*****
18 GHz US $*****
23 GHz US $*****
26 GHz US $*****
38 GHz US $*****
b) SAT developed Products
8x2 and l6x2 Mbit/s 13 GHz US $*****
15 GHz US $*****
26 GHz US $*****
c) Hitless Feature
4x2 and 8x2 Mbit/s US $*****
d) Supervisory System US $*****
</TABLE>
ROYALTIES
a) Products
The royalty payable for each Product manufactured under license shall be
equal to *****% of the Transfer Price then in effect according to Annex 2
(or any revisions thereof) multiplied by the number of Products sold by the
Licensed Party after deduction of *****% of the-purchase price paid by the
Licensed Party for all subassemblies, components or other parts purchased
from the Licensing Party and incorporated in the Products sold by the
Licensed Party.
31/10/96 Page 20
<PAGE> 21
b) Hitless Feature
US $ ***** per Product incorporating the function.
c) Supervisory System
US $ ***** for each copy of the software.
2. Remittance of lump sums and royalties.
(a) Due date
The lump sum specified for each item in paragraph I above shall be
payable to the Licensing Party sixty (60) days after receipt by the
Licensed Party of the full set of relevant technical data as specified
in paragraph 6.3 of the Agreement and Annex 3 thereto.
Royalties shall accrue from the date of shipment by the Licensed Party
to its customers of each item in respect of which royalties apply and
shall be payable within sixty (60) days following the end of each
calendar half year.
All payments shall be remitted in US Dollars.
The Licensed Party may deduct from its payments the withholding taxes
payable to its Tax Administration, provided that in respect of all
such deductions, the Licensed Party shall promptly furnish the
Licensing Party with evidence of such tax remittance to allow the
Licensing Party to claim any applicable tax credit against its
national (French or US as the case may be) income tax.
(b) Reports
The Licensed Party shall deliver to the Licensing Party half yearly
reports showing the nature and quantity of items to which royalties
apply which have been shipped by the Licensed Party to its customers
during the preceding half year. The first report shall be delivered
thirty (30) days after the end of the calendar half year following the
date from which the Licensed Party is first authorised under the
Agreement to exercise its rights under any of the Licenses granted by
the Licensing Party. If no items in respect of which royalties apply
have been shipped by the Licensed Party to its customers during the
half year covered by the report, the report shall so state.
(c) Verifications
The Licensed Party shall keep records adequate to verify all reports
or payments due to the Licensing Party under this Agreement and a
certified public accountant acceptable to both Parties shall have
access on reasonable notice and at regular business hours to such
records to the extent necessary to verify said reports and payments.
Such records shall be retained by the Licensed Party and be so made
available for inspection at any time for a period equal to the period
during which the Licensed Party may exercise its rights under licenses
herein granted plus two (2) years, except as to any year for which an
audit has been completed and settlement made to the written
satisfaction of the Licensing Party. The Licensing Party shall bear
all expenses relating to such audit.
31/10/96 Page 21
<PAGE> 22
ANNEX 5
TO BE AGREED LATER
31/10/96 Page 22
<PAGE> 1
NOTE: The symbol ***** indicates where confidential portions have been omitted
and filed separately with the Securities and Exchange Commission.
MASTER PURCHASE AGREEMENT
This Agreement is made and entered into this 31st day of October 1996 by and
between SAT (Societe Anonyme de Telecommunications) Networks and
Telecommunications Division, 11 rue Watt, BP 370, 75626 PARIS CEDEX 13 France
(hereinafter "SAT") and INNOVA Corporation, Gateway North, Building 2, 3225
South 116th Street, Seattle, Washington, 98168 USA (hereinafter "INNOVA").
Whereas a Cooperation Agreement dated 31-10-1996 ("the Cooperation Agreement")
was entered into by the Parties for the purpose of making available to both of
them a comprehensive range of high frequencies radiolinks through coordinated
development of Products and reciprocal grant of distribution and manufacturing
rights of Products developed by each Party:
Whereas SAT, anticipating important demands from its customers for the Products
developed by INNOVA under the Cooperation Agreement wishes to be able to place
purchase orders with INNOVA for substantial quantities of those Products.
Whereas INNOVA is willing to take appropriate measures to satisfy SAT's
requirements without delay provided SAT makes a firm commitment regarding a
minimum amount of purchase orders to be placed over a period of one year after
completion of SAT's acceptance testing.
Whereas both parties recognize that, due to market constraints, any such
commitment must be subjected to completion by INNOVA of its development tasks
in accordance with the Time Schedule set forth in the Cooperation
Agreement and conformity of INNOVA Developed Products with specifications and
standards to be followed for sales on the European market.
1. PURCHASE AGREEMENT
SAT hereby agrees, subject to conditions set forth in Article 4 below, to
purchase from INNOVA INNOVA Developed Products in the types and quantities shown
in Annex I hereto. To fulfill this commitment, SAT shall issue purchase orders
for such types and quantities over a maximum period of one (1) year ("the
Purchase Period") after the "Acceptance Date" as defined in Article 2 below.
SAT agrees to issue its first rolling forecast and therefore purchase order
during the last week of November 1996.
It is mutually agreed that SAT, in order to adapt to its customers' actual
requirements, may request changes in the Product mix shown in Annex I by
sending INNOVA a three (3) months prior written or telefaxed notice of the
changes requested.
2. VERIFICATION AND ACCEPTANCE DATE
A thorough verification that each types of Products shown in Annex I fulfills
the requirements of the technical specifications and standards to be followed
in the European market, as shown in detail in Annex II and Annex III hereto,
shall be performed in SAT's premises in Paris (France) in the presence of
INNOVA's engineers, if INNOVA so wishes, and in accordance with acceptance
procedures to be mutually agreed. Each Party shall bear any expenses incurred
by it in relation with the above described verification. The Parties will agree
by December 1st 1996 on acceptance testing procedures.
SAT shall act promptly and in a commercially reasonable manner to complete such
verification and notify INNOVA of the results thereof. Such verification is
deemed by both parties to require a maximum period of forty-five (45) days
after delivery to SAT of the relevant product for acceptance testing. Unless
otherwise notified by SAT, the relevant product is deemed accepted fifty (50)
days after the delivery to SAT for acceptance.
31/10/96 Page 1
<PAGE> 2
SAT reserves the right to perform acceptance testing in INNOVA's
premises in the USA, with 15 days advance notice before the scheduled
delivery dale to SAT for acceptance testing.
The date upon which verification that all types of Products listed in
Annex I are in full compliance with the technical specifications of
Annex II and standards of Annex III shall have been performed
successfully is termed the "Acceptance Date".
3. CHANGES IN STANDARDS
INNOVA recognizes that sales anticipated by SAT cannot be achieved
unless the current release of Products designated in Annex I remain in
compliance with the then-relevant technical standards established in
the European market.
4. CONDITIONS OF SAT'S COMMITMENT
SAT's obligation to purchase Products under Article I above is subject
to:
(i) the Acceptance Date as to each INNOVA Developed Product taking
place not later than:
- May 1, 1997, for the INNOVA-Developed Products operating at
15, 18, 23, 26 and 38 GHz;
- August 1, 1997, for the INNOVA-Developed Products operating at
13 GHz, provided SAT has not notified INNOVA by December 1,
1996, of its intention to develop the 2, 4, and 8x2 MB/s
product at 13 GHz.
and,
(ii) if SAT has made a proposal for the sale of a total quantity of
more than ***** (*****) units of Products to Bouygues Telecom, the
INNOVA Developed Products that are the subject of such proposal shall
be in compliance with the additional requirements (Bouygues Telecom
Radiolink Requirements) detailed in Annex IV.
Should any one or both of the above conditions not be fulfilled, then
SAT's obligation to purchase Products, above and beyond those orders
already issued, shall be deemed null and void in its entirety, unless
otherwise agreed in writing between the Parties.
In the event the Acceptance Date as to any INNOVA Developed Product has
taken place not later than the dates in Paragraph 4(i) above, then
SAT's commitment to place purchase orders under Article I shall
thereafter be subject to all INNOVA supplied Products designated in
Annex I remaining in compliance with the then-current ETSI standard at
the time of delivery.
Should INNOVA fail to do so, then, from the date upon which INNOVA's
failure shall have been recorded by written notice to INNOVA specifying
such failures which failure is not cured within thirty (30) days after
INNOVA's receipt of such notice, SAT shall cease to be bound by any
obligation to place any purchase orders in addition to those already
placed, unless otherwise agreed in writing between the Parties.
In addition, any default by INNOVA in meeting any other material
obligations under the Cooperation Agreement, if not remedied within
forty five (45) days after receipt of a notice to remedy sent by SAT,
shall entitle SAT to suspend any placing of any purchase orders in
addition to those already placed and/or, at SAT's sole option, to
terminate this agreement by written notice without liability of any
kind to INNOVA.
5. PURCHASE ORDERS TERMS
31/10/96 Page 2
<PAGE> 3
All purchase orders issued by SAT to comply with the purchase
commitment taken hereunder shall be placed under the terms and
conditions set forth in the Cooperation Agreement.
All deliveries shall be made "CIP Paris (France) airport" according to
the 1990 Incoterms published by the International Chamber of Commerce.
The applicable prices shall be the prices mentioned in Annex 2 of the
Cooperation Agreement.
Initial ordering information is described in Annex V.
6. INDIRECT AND CONSEQUENTIAL LIABILITY
Under no circumstances shall either Party be unable to the other Party
for indirect or consequential loss or damages.
7. GOVERNING LAW
This Agreement shall be governed by tile laws of Swiss Federal Code of
Obligations.
8. DISPUTES
Any disputes arising out of or in connection with this Agreement shall
be finally settled by binding arbitration conducted in Geneva
(Switzerland) under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by three arbitrators appointed in
accordance with said Rules.
9. INTERPRETATION
Neither the recitals at the beginning of this Agreement nor the
captions to the various provisions hereof sha1l be relied upon in
interpreting this Agreement. Capitalized terms not otherwise defined
herein have the meanings assigned to them in the Cooperation Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in
two (2) original counterparts as of the date first above written.
For INNOVA CORPORATION For SAT (Societe Anonyme
de Telecommunications)
By /s/ JEAN FRANCOIS GRENON By /s/ MARC MATHIEU
------------------------ ----------------------------
(Signature) (Signature)
JEAN FRANCOIS GRENON MARC MATHIEU
------------------------ ----------------------------
(print name) (print name)
PRESIDENT EXECUTIVE V.P.
------------------------ ----------------------------
(title) (title)
31/10/96 Page 3
<PAGE> 4
ANNEX I
________________________________________________________________________________
Additional quantities(*)
1 + 0 1 + 1 Total 1 + 0 1 + 1 Total
________________________________________________________________________________
13 GHz 2x2 & 4x2 ***** *****
4x2 & 8x2 ***** *****
- --------------------------------------------------------------------------------
(1 + 0 terminals) Subtotal ***** ***** *****
- --------------------------------------------------------------------------------
15 GHz 2x2 & 4x2 ***** ***** ***** *****
4x2 & 8x2 ***** ***** ***** *****
- --------------------------------------------------------------------------------
(1 + 0 terminals) Subtotal ***** ***** ***** ***** ***** *****
- --------------------------------------------------------------------------------
18 GHz 2x2 & 4x2 ***** ***** ***** *****
4x2 & 8x2 ***** ***** ***** *****
- --------------------------------------------------------------------------------
(1 + 0 terminals) Subtotal ***** ***** ***** ***** ***** *****
- --------------------------------------------------------------------------------
23 GHz 2x2 & 4x2 ***** ***** ***** *****
4x2 & 8x2 ***** ***** ***** *****
- --------------------------------------------------------------------------------
(1 + 0 terminals) Subtotal ***** ***** ***** ***** ***** *****
- --------------------------------------------------------------------------------
26 GHz 2x2 & 4x2 ***** ***** ***** *****
4x2 & 8x2 ***** ***** ***** *****
- --------------------------------------------------------------------------------
(1 + 0 terminals) Subtotal ***** ***** ***** ***** ***** *****
- --------------------------------------------------------------------------------
38 GHz 2x2 & 4x2 ***** ***** ***** *****
4x2 & 8x2 ***** ***** ***** *****
- --------------------------------------------------------------------------------
(1 + 0 terminals) Subtotal ***** ***** ***** ***** ***** *****
- --------------------------------------------------------------------------------
(1 + 0 terminals) Grand Total ***** *****
________________________________________________________________________________
(*) The Parties are obligated to order and supply additional quantities only if
Innova develops and provides the 13 GHz version.
31/10/96 Page 4
<PAGE> 5
ANNEX 11
Technical specification XP4:
31/10/96 Page 5
<PAGE> 6
ANNEX III
ETSI Draft Standards
23 GHz: pr ETS 300 198, grade B as soon as defined
13/15/18 GHz: preliminary version DE/TM 4039 (class I systems), issue November
1996,
26 GHz: pr ETS 300 431 grade B.
38 GHz: pr ETS 300 197. grade B as soon as defined
EMC standard: pr ETS 300 385,
Environmental conditions: pr ETS 300 019 parts 1 & 2.
31/10/96 Page 6
<PAGE> 7
ANNEX IV
BOUYGUES TELECOM RADIO LINK REQUIREMENTS
In addition with the relevant ETSI specification parameters, Bouygues Telecom
has the following requirements.
1 - RECOVERY TIME AFTER FADING
This test is intended to verify the data recovery after a fade. It is performed
as described below at three frequencies (low, mid and upper channel) at ambient
temperature.
1. Set the received level of one ARU to a value below the BER 10-3 threshold,
establishing loss of synchronisation.
2. Wait up to 10 minutes with loss of synchronisation.
3. Slowly increase the signal level (speed less than 0.5 dB/sec) to the
relevant ETSI BER 10(-3) level.
4. By observing the SIU record the time taken to re-establish the link (data
recovery). The recovery time must be less than 2 seconds.
2 - RESIDUAL BIT ERROR RATE (RBER) vs TEMPERATURE
This test is performed at a receive signal level +15 dB above the relevant ETSI
10(-3) level with the following temperature cycle.
[GRAPHIC]
With the above conditions, the errors accrued over any 15 hours period must
be less than 9, which corresponds to RBER less than 1 x 10(-10).
31/10/96 Page 7
<PAGE> 8
3 - INTERFERER MEASUREMENTS
In addition with the requirements of ETSI specifications, Bouygues Telecom has
the following specification:
1. Set the received level of one ARU relating to the ETSI BER 10-6 threshold.
2. Introduce separately interferers at the levels as indicated in the
following table.
3. The BER with any interferer must be less than 10-5.
<TABLE>
<CAPTION>
Frequency 3rd Adjacent &
Data Rate GHz Co channel 1st Adjacent 2nd Adjacent more
- --------- ---------- ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
2xE1 38 -100 dBm -77 dBm -59 dBm -49 dBm
2xE1 23 -103 dBm -80 dBm -62 dBm -52 dBm
4xE1 38 -98 dBm -75 dBm -57 dBm -47 dBm
4xE1 23 -100 dBm -77 dBm -59 dBm -49 dBm
</TABLE>
4 - NODAL TEST INTERFERENCE (Non-Contractual)
The following test is an additional test proposed by Bouygues Telecom to
accommodate the potential interference conditions expected in a real network and
applies levels as expected to exist within Bouygues Telecom Network.
1. Set the received level of one ARU relating to the ETSI BER 10-6 threshold.
2. Simultaneously introduce interferers at the levels as indicated in the
following table.
3. The BER in these conditions must be less than 10-5.
<TABLE>
<CAPTION>
Frequency 3rd Adjacent &
Data Rate GHz Co channel 1st Adjacent 2nd Adjacent more
- --------- ---------- ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
2xE1 38 -100 dBm -77 dBm -59 dBm -49 dBm
2xE1 23 -103 dBm -80 dBm -62 dBm -52 dBm
4xE1 38 -98 dBm -82 dBm -57 dBm -47 dBm
4xE1 23 -100 dBm -84 dBm -59 dBm -49 dBm
</TABLE>
31/10/96 Page 8
<PAGE> 9
ANNEX V
XP4 Unit Prices and Ordering Information
The following are the initial Transfer Prices of the Units and are
consistent with the low quantity Terminal Prices (less than 250 Links) specified
in the Cooperation Agreement. Innova will issue the large quantity detailed
price list by April 1st 1997.
Specific Ordering Part Numbers for the Outdoor ARU Units to cover various
tuning ranges within each band, transmit to receive spacing and traffic
capacities etc., are attached.
<TABLE>
<CAPTION>
ORDERING NUMBER DESCRIPTION TRANSFER PRICE $US
- --------------- ----------- ------------------
<S> <C> <C>
841-20x381-xxx Outdoor ARU Unit - 38 GHz $*****
841-2Ox261-xxx Outdoor ARU Unit - 26 GHz $*****
841-2Ox234-xxx Outdoor ARU Unit - 23 GHz $*****
841-20xl8l-xxx Outdoor ARU Unit - 19 GHz $*****
841-20xl5l-xxx Outdoor ARU Unit - 15 GHz $*****
841-20xl3l-xxx Outdoor ARU Unit - 13 GHz $*****
841-301023-001 Indoor SIU Unit - 2x/4xEl $*****
unbal
841-301024-001 Indoor SIU Unit - 4x/8xEl $*****
unbal
841-101011-001 24cm Horn Antenna - 38 GHz $*****
841-102001-001 34cm Horn Antenna - 38 GHz $*****
841-101111-001 24cm Horn Antenna - 23 GHz $*****
841-102111-001 34cm Horn Antenna - 23 GHz $*****
</TABLE>
31/10/96 Page 9
<PAGE> 10
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (13, 15 & 18 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 04:57 PM Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Sect Parameter 13 GHz Specification 15 GHz Specification 18 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1.0 Data Interfaces
-------------------------------------------------------------------------------------------------------------------------------
1.10 Frequency Range 12.75 to 13.25 GHz 14.4 to 15.35 GHz 17.7 to 19.7 GHz
-------------------------------------------------------------------------------------------------------------------------------
1.11 Tuning Range per Option 300 MHz max 300 MHz max 350 MHz max
-------------------------------------------------------------------------------------------------------------------------------
Per Marketing Per Marketing Per Marketing
Ordering Numbers Ordering Numbers Ordering Numbers
& Options. T-R & Options. T-R & Options. T-R
spacings 266 MHZ spacings 420 and 730 spacings 1010 MHz
1.12 Frequency Plans Supported MHz
-------------------------------------------------------------------------------------------------------------------------------
1.13 Link ID Codes 255 255 255
-------------------------------------------------------------------------------------------------------------------------------
1.14 Heat Extraction System Convection Cooling Convection Cooling Convection Cooling
-------------------------------------------------------------------------------------------------------------------------------
1.15 Installation & Maintenance Front Acess, except Front Acess, except Front Acess, except
Access Req for options for options for options
-------------------------------------------------------------------------------------------------------------------------------
Draft Tech Std PDH Draft Tech Std PDH Draft Tech Std PDH
1.16 Technical Standards DRS Class 1 DRS Class 1 DRS Class 1
-------------------------------------------------------------------------------------------------------------------------------
1.17 EMC Standard pr ETS 300 385 pr ETS 300 385 pr ETS 300 385
-------------------------------------------------------------------------------------------------------------------------------
pr ETS 300 019 pr ETS 300 019 pr ETS 300 019
1.18 Environmental Standard parts 1 & 2 parts 1 & 2 parts 1 & 2
-------------------------------------------------------------------------------------------------------------------------------
2.0 Transmitter
-------------------------------------------------------------------------------------------------------------------------------
2.10 Type Direct Modulation Direct Modulation Direct Modulation
-------------------------------------------------------------------------------------------------------------------------------
+18 dBm min, +18 dBm min, +18 dBm min,
2.11 Power Output Standard typical +20 dBm typical +20 dBm typical +20 dBm
-------------------------------------------------------------------------------------------------------------------------------
+25 dBm min, +25 dBm min, +25 dBm min,
2.12 Power Output High Power Option typical +27 dBm typical +27 dBm typical +27 dBm
-------------------------------------------------------------------------------------------------------------------------------
Mininum Setable Power Mininum Setable Power Mininum Setable Power
2.13 Power Output Reduction Range Output -10 dBm Output -10 dBm Output -10 dBm
-------------------------------------------------------------------------------------------------------------------------------
2.14 Power Output Control Setability 0.5 dB steps 0.5 dB steps 0.5 dB steps
-------------------------------------------------------------------------------------------------------------------------------
+/- 2dB typ, +/- 3dB +/- 2dB typ, +/- 3dB +/- 2dB typ, +/- 3dB
2.15 Power Output Level Stability including Temp including Temp including Temp
------------------------------------------------------------------------------------------------------------------------------
2.16 Power Output with Transmit Muted Less than -30 dBm Less than -30 dBm Less than -30 dBm
-------------------------------------------------------------------------------------------------------------------------------
2.17 Transmit Mute ON/OFF switch Time 50 m sec 50 m sec 50 m sec
-------------------------------------------------------------------------------------------------------------------------------
2.18 Frequency Accuracy +/- 10 ppm maximum +/- 10 ppm maximum +/- 10 ppm maximum
-------------------------------------------------------------------------------------------------------------------------------
2.19 Channel Selection Digital Synthesizer Digital Synthesizer Digital Synthesizer
-------------------------------------------------------------------------------------------------------------------------------
2.20 Synthesizer Step size 0.25 MHz 0.25 MHz 0.25 MHz
-------------------------------------------------------------------------------------------------------------------------------
2.21 Modulation 4 Level FSK 4 Level FSK 4 Level FSK
-------------------------------------------------------------------------------------------------------------------------------
2.22 Emission Bandwidth
-------------------------------------------------------------------------------------------------------------------------------
2.23 2x2 Mbits/s 3.5 MHz @ 2xE1 3.5 MHz @ 2xE1 3.5 MHz @ 2xE1
-------------------------------------------------------------------------------------------------------------------------------
2.24 2x2 Mbits/s 7 MHz @ 4xE1 7 MHz @ 4xE1 7 MHz @ 4xE1
-------------------------------------------------------------------------------------------------------------------------------
2.25 8x2 Mbits/s 14 MHz @ 8xE1 14 MHz @ 8xE1 14 MHz @ 8xE1
-------------------------------------------------------------------------------------------------------------------------------
3.0 Receiver
-------------------------------------------------------------------------------------------------------------------------------
3.10 Receiver Noise Figure 5 dB typical 6 dB typical 7 dB typical
-------------------------------------------------------------------------------------------------------------------------------
3.11 IF Frequencies 630 MHz and 70 MHz 630 MHz and 70 MHz 630 MHz and 70 MHz
-------------------------------------------------------------------------------------------------------------------------------
3.12 Demod Type Line/DISC Line/DISC Line/DISC
-------------------------------------------------------------------------------------------------------------------------------
Digital Synthesized Digital Synthesized Digital Synthesized
3.13 Channel Selection Demod Demod Demod
-------------------------------------------------------------------------------------------------------------------------------
3.14 Step size 0.25 MHz minimum 0.25 MHz minimum 0.25 MHz minimum
-------------------------------------------------------------------------------------------------------------------------------
3.15 Maximum Rx Input -20 dBm -20 dBm -20 dBm
-------------------------------------------------------------------------------------------------------------------------------
3.16 Threshold @ BER=10-6
-------------------------------------------------------------------------------------------------------------------------------
3.17 2x2 Mbits/s -84 dBm max -84 dBm max -83 dBm max
-------------------------------------------------------------------------------------------------------------------------------
3.18 4x2 Mbits/s -81 dBm max -81 dBm max -80 dBm max
-------------------------------------------------------------------------------------------------------------------------------
3.19 8x2 Mbits/s -78 dBm max -78 dBm max -77 dBm max
-------------------------------------------------------------------------------------------------------------------------------
3.20 Threshold @ BER=10-3
-------------------------------------------------------------------------------------------------------------------------------
3.21 2x2 Mbits/s -88 dBm max -88 dBm max -87 dBm max
-------------------------------------------------------------------------------------------------------------------------------
3.22 4x2 Mbits/s -85 dBm max -85 dBm max -84 dBm max
-------------------------------------------------------------------------------------------------------------------------------
3.23 8x2 Mbits/s -82 dBm max -82 dBm max -81 dBm max
-------------------------------------------------------------------------------------------------------------------------------
3.24 Multiple Interferrers Performance ETSI and MPT 1409 ETSI and MPT 1420 ETSI and MPT 1414
-------------------------------------------------------------------------------------------------------------------------------
3.25 Receiver Image Rejection 80 dB Minimun 80 dB Minimun 80 dB Minimun
-------------------------------------------------------------------------------------------------------------------------------
3.26 Receiver Spurious rejection +30dBc at +/- two +30dBc at +/- two +30dBc at +/- two
Channels or greater Channels or greater Channels or greater
-------------------------------------------------------------------------------------------------------------------------------
Page 1 Printed 28/10/96 Innova Corp 000-000021-SPC Rev 09SAT Confidential Information
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Design FAT Factory Type Install & Packing &
Specification Notes Evaluation All Units Sample Test Approved Commission Shipping
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
These tuning ranges support many ETSI and
FCC frequency plans * * *
- -------------------------------------------------------------------------------------------------------------------------------
* *
- -------------------------------------------------------------------------------------------------------------------------------
Marketing Ordering Numbers including tuning
ranges for all planned options and is released
as a separate document *
- -------------------------------------------------------------------------------------------------------------------------------
Speed Key selected * * *
- -------------------------------------------------------------------------------------------------------------------------------
No fans permissible in either the Indoor or
Outdoor Units. In some applications a moving air
system will be provided by the customers
equipment housing *
- -------------------------------------------------------------------------------------------------------------------------------
Access to the connectors at the front of the
Indoor Units is required. Options are EOW, Data
Chan, NMI, Aux Alarms *
- -------------------------------------------------------------------------------------------------------------------------------
Pending 13, 15, 18 GHz draft June 1996 * *
- -------------------------------------------------------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
* *
- -------------------------------------------------------------------------------------------------------------------------------
Measured at the Antenna Interface with the ARU * * *
- -------------------------------------------------------------------------------------------------------------------------------
Measured at the Antenna Interface with the ARU * *
- -------------------------------------------------------------------------------------------------------------------------------
Power adjustment range is most important at 38
MHz where a range of 40dB is desirable * *
- -------------------------------------------------------------------------------------------------------------------------------
*
- -------------------------------------------------------------------------------------------------------------------------------
* *
- -------------------------------------------------------------------------------------------------------------------------------
Required to meet ETSI spec. for spurious
transmitter output *
- -------------------------------------------------------------------------------------------------------------------------------
of reducing this spec. * *
- -------------------------------------------------------------------------------------------------------------------------------
least 5 years * * *
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
*
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
*
- -------------------------------------------------------------------------------------------------------------------------------
Depends upon design approach *
- -------------------------------------------------------------------------------------------------------------------------------
Depends upon design approach *
- -------------------------------------------------------------------------------------------------------------------------------
Depends upon design approach *
- -------------------------------------------------------------------------------------------------------------------------------
*
- -------------------------------------------------------------------------------------------------------------------------------
ETSI spec. for a single carrier Input * *
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------------------------------------------------------
ETSI standards to be released * * *
- -------------------------------------------------------------------------------------------------------------------------------
*
- -------------------------------------------------------------------------------------------------------------------------------
Inferrer is unmodulated * *
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
XP4 SERIES TERMINAL SPECIFICATION (13, 15 & 18 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 (04:46 PM) Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
SECT PARAMETER 13 GHz SPECIFICATION 15 GHz SPECIFICATION 18 GHz SPECIFICATION
---------------------------------------------------------------------------------------------------------------------------
4.0 ANTENNA DIPLEXING
-------------------------------------------------------------------------------------------------------------------------------
4.10 Diplexer Type Waveguide Structure Waveguide Structure Waveguide Structure
-------------------------------------------------------------------------------------------------------------------------------
4.11 Transmit to Receive Isolation >50 dB >50 dB >50 dB
-------------------------------------------------------------------------------------------------------------------------------
4.12 Transmit Port Insertion Loss <3 dB <3 dB <3 dB
-------------------------------------------------------------------------------------------------------------------------------
4.13 Receive Port Insertion Loss <3 dB <3 dB <3 dB
-------------------------------------------------------------------------------------------------------------------------------
4.14 Antenna Port Interface Antennas Antennas Antennas
-------------------------------------------------------------------------------------------------------------------------------
4.15 Antenna Interface Return Loss 15 dB min 15 dB min 15 dB min
-------------------------------------------------------------------------------------------------------------------------------
5.0 RESIDUE BIT ERROR RATE
-------------------------------------------------------------------------------------------------------------------------------
5.10 +10dB ref. BER=10(6) spec. to -30dBm >BER=10(-10) with FEC >BER=10(-10) with FEC >BER=10(-10) with FEC
-------------------------------------------------------------------------------------------------------------------------------
5.11 FEC Added Delay Time (2x2Mbits/s) Less than 1 milli Less than 1 milli Less than 1 milli
second @ 2Mbits/s second @ 2Mbits/s second @ 2Mbits/s
-------------------------------------------------------------------------------------------------------------------------------
5.12 FEC Added Delay Time (4x2Mbits/s) Less than 0.3 milli Less than 0.3 milli Less than 0.3 milli
second @ 2Mbits/s second @ 2Mbits/s second @ 2Mbits/s
-------------------------------------------------------------------------------------------------------------------------------
5.13 FEC Added Delay Time (8x2Mbits/s) Less than 0.3 milli Less than 0.3 milli Less than 0.3 milli
second @ 2Mbits/s second @ 2Mbits/s second @ 2Mbits/s
-------------------------------------------------------------------------------------------------------------------------------
6.0 SERVICE CHANNELS & ALARM CONTRACTS
-------------------------------------------------------------------------------------------------------------------------------
6.10 Voice Interface (Option Board) One Circuit One Circuit One Circuit
-------------------------------------------------------------------------------------------------------------------------------
6.11 Connector RJ 11 RJ 11 RJ 11
-------------------------------------------------------------------------------------------------------------------------------
+7dBm Transmit,-14 dBm +7dBm Transmit,-14 dBm +7dBm Transmit,-14 dBm
Receive, 600 ohms Receive, 600 ohms Receive, 600 ohms
Balanced, +/- 3 dB Balanced, +/- 3 dB Balanced, +/- 3 dB
from 300Hz to 3100 Hz from 300Hz to 3100 Hz from 300Hz to 3100 Hz
6.12 Interface 4Wire Balanced ref 1000Hz ref 1000Hz ref 1000Hz
-------------------------------------------------------------------------------------------------------------------------------
6.13 Data Interface (Option Board) Up to 9600 Baud - Up to 9600 Baud - Up to 9600 Baud -
Asynchronous Asynchronous Asynchronous
-------------------------------------------------------------------------------------------------------------------------------
6.14 No. of Circuits One Circuit One Circuit One Circuit
-------------------------------------------------------------------------------------------------------------------------------
6.15 Connector RJ48 RJ48 RJ48
-------------------------------------------------------------------------------------------------------------------------------
6.16 Network Mang,mt Interface (Option Board)
-------------------------------------------------------------------------------------------------------------------------------
6.17 Multi unit looping plugs RJ48 RJ48 RJ48
-------------------------------------------------------------------------------------------------------------------------------
6.18 No. of plugs Two Two Two
-------------------------------------------------------------------------------------------------------------------------------
6.19 XPView Interface
-------------------------------------------------------------------------------------------------------------------------------
6.20 Format RS 232 RS 232 RS 232
-------------------------------------------------------------------------------------------------------------------------------
6.21 Connector DB9 Female DB9 Female DB9 Female
(with EMC Filter) (with EMC Filter) (with EMC Filter)
-------------------------------------------------------------------------------------------------------------------------------
6.22 RSL Monitor
-------------------------------------------------------------------------------------------------------------------------------
BNC@ARU with shorting BNC@ARU with shorting BNC@ARU with shorting
6.23 Connector weather cap weather cap weather cap
-------------------------------------------------------------------------------------------------------------------------------
6.24 Standard Alarm Relay Outputs
-------------------------------------------------------------------------------------------------------------------------------
6.25 Number of Relays Five Five Five
-------------------------------------------------------------------------------------------------------------------------------
6.26 Contact Type Dry C Relay for each Dry C Relay for each Dry C Relay for each
Alarm Alarm Alarm
-------------------------------------------------------------------------------------------------------------------------------
6.27 Contact Rating 80 Volts DC, 100 m/s 80 Volts DC, 100 m/s 80 Volts DC, 100 m/s
-------------------------------------------------------------------------------------------------------------------------------
6.28 Connector DB 15 Connector DB 15 Connector DB 15 Connector
-------------------------------------------------------------------------------------------------------------------------------
6.29 Auxiliary Alarm Interface (Option Board)
-------------------------------------------------------------------------------------------------------------------------------
6.30 Number of alarms Four Four Four
-------------------------------------------------------------------------------------------------------------------------------
6.31 Interface Relay outputs, Relay outputs, Relay outputs,
Ground lead inputs Ground lead inputs Ground lead inputs
-------------------------------------------------------------------------------------------------------------------------------
6.32 Connector DB 15 Connector DB 15 Connector DB 15 Connector
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Design FAT Factory Type Install & Packing &
Specification Notes Evaluation All Units Sample Test Approval Commission Shipping
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4.0
---------------------------------------------------------------------------------------------------------------------------
4.10
---------------------------------------------------------------------------------------------------------------------------
4.11 *
---------------------------------------------------------------------------------------------------------------------------
4.12 *
---------------------------------------------------------------------------------------------------------------------------
4.13 *
---------------------------------------------------------------------------------------------------------------------------
4.14
---------------------------------------------------------------------------------------------------------------------------
4.15 ETSI standard to be released *
---------------------------------------------------------------------------------------------------------------------------
5.0
---------------------------------------------------------------------------------------------------------------------------
5.10 * * *
---------------------------------------------------------------------------------------------------------------------------
5.11 *
---------------------------------------------------------------------------------------------------------------------------
5.12 *
---------------------------------------------------------------------------------------------------------------------------
5.13
---------------------------------------------------------------------------------------------------------------------------
6.0
---------------------------------------------------------------------------------------------------------------------------
6.10 * * *
---------------------------------------------------------------------------------------------------------------------------
6.11
---------------------------------------------------------------------------------------------------------------------------
6.12
---------------------------------------------------------------------------------------------------------------------------
6.13 * *
---------------------------------------------------------------------------------------------------------------------------
6.14 *
---------------------------------------------------------------------------------------------------------------------------
6.15
---------------------------------------------------------------------------------------------------------------------------
6.16
---------------------------------------------------------------------------------------------------------------------------
6.17 *
---------------------------------------------------------------------------------------------------------------------------
6.18 *
---------------------------------------------------------------------------------------------------------------------------
6.19
---------------------------------------------------------------------------------------------------------------------------
6.20 *
---------------------------------------------------------------------------------------------------------------------------
6.21 *
---------------------------------------------------------------------------------------------------------------------------
6.22 *
---------------------------------------------------------------------------------------------------------------------------
6.23 SIU test point low priority,
can be monitored with XPView * * *
---------------------------------------------------------------------------------------------------------------------------
6.24
---------------------------------------------------------------------------------------------------------------------------
6.25 One normally unenergised,
four normally energised * *
---------------------------------------------------------------------------------------------------------------------------
6.26 *
---------------------------------------------------------------------------------------------------------------------------
6.27 *
---------------------------------------------------------------------------------------------------------------------------
6.28 *
---------------------------------------------------------------------------------------------------------------------------
6.29 * *
---------------------------------------------------------------------------------------------------------------------------
6.30
---------------------------------------------------------------------------------------------------------------------------
6.31 *
---------------------------------------------------------------------------------------------------------------------------
6.32 *
---------------------------------------------------------------------------------------------------------------------------
Page 2 Printed 28/10/96 Innova Corp. 000-000021 - SPC Rev 09 SAT Confidential Information
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (13, 15 & 18 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 (04:46 PM) Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Sect Parameter 13 GHz Specification 15 GHz Specification 18 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7.0 Data Interfaces
-------------------------------------------------------------------------------------------------------------------------------
7.10 Line code HDB3 HDB3 HDB3
-------------------------------------------------------------------------------------------------------------------------------
7.11 Connector Type BNC 75 ohm unbalanced BNC 75 ohm unbalanced BNC 75 ohm unbalanced
-------------------------------------------------------------------------------------------------------------------------------
7.12 RJ48 120 ohm balanced RJ48 120 ohm balanced RJ48 120 ohm balanced
-------------------------------------------------------------------------------------------------------------------------------
7.13 Compatability (2 Mbits/s or T1 Interface) CCITT G.703 CCITT G.703 CCITT G.703
-------------------------------------------------------------------------------------------------------------------------------
7.14 Input Rate Frequency Tolerance CCITT G.703 CCITT G.703 CCITT G.703
-------------------------------------------------------------------------------------------------------------------------------
7.15 Data Output Pulse Mask CCITT G.703 CCITT G.703 CCITT G.703
-------------------------------------------------------------------------------------------------------------------------------
7.16 Data Output Return Loss CCITT G.703 CCITT G.703 CCITT G.703
-------------------------------------------------------------------------------------------------------------------------------
7.17 Maximum Input Jitter CCITT G.823/824 CCITT G.823/824 CCITT G.823/824
-------------------------------------------------------------------------------------------------------------------------------
7.18 Maximum Output Jitter CCITT G.823/824 CCITT G.823/824 CCITT G.823/824
-------------------------------------------------------------------------------------------------------------------------------
7.19 Jitter Transfer CCITT G.823/824 CCITT G.823/824 CCITT G.823/824
-------------------------------------------------------------------------------------------------------------------------------
7.20 AIS Frequency CCITT G.703 CCITT G.703 CCITT G.703
-------------------------------------------------------------------------------------------------------------------------------
7.21 AIS Injection Point BER=10(3) or Frame Loss BER=10(3) or Frame Loss BER=10(3) or Frame Loss
-------------------------------------------------------------------------------------------------------------------------------
7.22 AIS Hystesterisis BER 10 (4) BER 10 (4) BER 10 (4)
-------------------------------------------------------------------------------------------------------------------------------
7.23 Input Pulse Dynamic Range 10 dB 10 dB 10 dB
-------------------------------------------------------------------------------------------------------------------------------
8.0 Indoor to Outdoor Cable
-------------------------------------------------------------------------------------------------------------------------------
8.10 Number of Cables One One One
-------------------------------------------------------------------------------------------------------------------------------
8.11 Cable Type RG223 21.6 o 72V DC up to 40 metres (125ft) up to 40 metres (125ft) up to 40 metres
-------------------------------------------------------------------------------------------------------------------------------
8.12 RG223 43 to 72V DC up to 80 metres (250ft) up to 80 metres (250ft) up to 80 metres
-------------------------------------------------------------------------------------------------------------------------------
8.13 Cable Type Belden 9913 21.6 to 72DC up to 150 metres (500ft) up to 150 metres (500ft) up to 150 metres
-------------------------------------------------------------------------------------------------------------------------------
8.14 Belden 9913 43 to 72V DC up to 300 metres (1000ft) up to 300 metres (1000ft) up to 300 metres
-------------------------------------------------------------------------------------------------------------------------------
8.15 Cable Impedence 50 ohms 50 ohms 50 ohms
-------------------------------------------------------------------------------------------------------------------------------
8.16 ARU & SIU Return Loss at signal
frequencies 15 dB min 15 dB min 15 dB min
-------------------------------------------------------------------------------------------------------------------------------
8.17 Connector Type Outdoor End-Type N male Outdoor End-Type N male Outdoor End-Type N
-------------------------------------------------------------------------------------------------------------------------------
8.18 Indoor End-Type N male Indoor End-Type N male Indoor End-Type N
-------------------------------------------------------------------------------------------------------------------------------
8.19 DC Voltage on Cable -21.6 to -72 Volts -21.6 to -72 Volts -21.6 to -72 Volts
-------------------------------------------------------------------------------------------------------------------------------
9.0 Primary Power
-------------------------------------------------------------------------------------------------------------------------------
9.10 Protection Circuit Slow Blow Fuse Slow Blow Fuse Slow Blow Fuse
-------------------------------------------------------------------------------------------------------------------------------
9.11 Voltage Range 21.6 to 72 V DC Max 21.6 to 72 V DC Max 21.6 to 72 V DC Max
-------------------------------------------------------------------------------------------------------------------------------
9.12 Polarity Positive Grounded Positive Grounded Positive Grounded
-------------------------------------------------------------------------------------------------------------------------------
Keyed DC power Keyed DC power Keyed DC power
9.13 Reverse Polarity Protection connector connector connector
-------------------------------------------------------------------------------------------------------------------------------
less than 45 Watts, less than 45 Watts, less than 45 Watts,
9.14 Watts per Terminal - 1xT1 Std Power Option Std Power Option Std Power Option
-------------------------------------------------------------------------------------------------------------------------------
less than 45 Watts, less than 45 Watts, less than 45 Watts,
9.15 Watts per Terminal - 8xE1 or 8xT1 Std Power Option Std Power Option Std Power Option
-------------------------------------------------------------------------------------------------------------------------------
less than 45 Watts, less than 45 Watts, less than 45 Watts,
9.16 Watts per Terminal - 4x2 or 2x2 or 4xT1 Std Power Option Std Power Option Std Power Option
-------------------------------------------------------------------------------------------------------------------------------
20 amps @ 60V; 20 amps @ 60V; 20 amps @ 60V;
9.17 Switch on Inrush current duration < 100mS duration < 100mS duration < 100mS
-------------------------------------------------------------------------------------------------------------------------------
IEC 1000-4-4 and IEC 1000-4-4 and IEC 1000-4-4 and
9.18 DC Supply ripple input IEC 1000-4-5 IEC 1000-4-5 IEC 1000-4-5
-------------------------------------------------------------------------------------------------------------------------------
From 15 volts to From 15 volts to From 15 volts to
24 volts in 10 sec 24 volts in 10 sec 24 volts in 10 sec
9.19 Brown Out Restart Range or less or less or less
-------------------------------------------------------------------------------------------------------------------------------
10.0 Weights
-------------------------------------------------------------------------------------------------------------------------------
Less than 6 lbs Less than 6 lbs Less than 6 lbs
10.10 Outdoor Units - ARU (2.8 kg) (2.8 kg) (2.8 kg)
-------------------------------------------------------------------------------------------------------------------------------
Less than 4 lbs Less than 4 lbs Less than 4 lbs
10.11 Indoor Units - SIU Rack Mount (1RU) (1.8 kg) (1.8 kg) (1.8 kg)
-------------------------------------------------------------------------------------------------------------------------------
Less than 19 lbs Less than 19 lbs Less than 19 lbs
10.12 24cm Horn Antenna with pole mount (8.7 kg) (8.7 kg) (8.7 kg)
-------------------------------------------------------------------------------------------------------------------------------
Less than 30 lbs Less than 30 lbs Less than 30 lbs
10.13 34cm Horn Antenna with pole mount (13.7 kg) (13.7 kg) (13.7 kg)
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Design FAT Factory Type Install & Packing &
Specification Notes Evaluation All Units Sample Test Approval Commission Shipping
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
* *
- ------------------------------------------------------------------------------------------------------------------------------------
* *
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
* *
- ------------------------------------------------------------------------------------------------------------------------------------
Uses BER No 1 set to 10(3) * *
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Limited by DC resistance of cable * *
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
Limited by DC resistance of cable * *
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Must provide fire protection for DC input fed
directly up the cable. Provide spare fuses in the
SIU Installation ldt * *
- ------------------------------------------------------------------------------------------------------------------------------------
Measure at SIU Shelf DC terminals. Covers the
nominal 48v and 60v applications * * *
- ------------------------------------------------------------------------------------------------------------------------------------
* *
- ------------------------------------------------------------------------------------------------------------------------------------
Depends upon connector or terminal type *
- ------------------------------------------------------------------------------------------------------------------------------------
Measure at the input to the Indoor Unit over the
full voltage range * *
- ------------------------------------------------------------------------------------------------------------------------------------
Measure at the input to the Indoor Unit over the
full voltage range * *
- ------------------------------------------------------------------------------------------------------------------------------------
Measure at the input to the Indoor Unit over the
full voltage range * *
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
Returns to normal operation within 30 seconds *
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
Page 3 Printed 28/10/96 Innova Corp 000-000021-SPC Rev 09SAT Confidential Information
</TABLE>
<PAGE> 13
<TABLE>
XP4 SERIES TERMINAL SPECIFICATION (13, 15 & 18 GHz)
- ------------------------------------------------------------------
Rev 09 SAT 28-Oct-96 04:46 PM Originated By
- ------------------------------------------------------------------ ------------------------------
SECT PARAMETER 13 GHz Specification 15 GHz Specification 18 GHz Specification
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
11.0 ENVIRONMENT - OPERATING & TRANSPORT & STORAGE
-----------------------------------------------------------------------------------------------------------------------------
OPERATING
-----------------------------------------------------------------------------------------------------------------------------
11.10 Temperature Outdoor Units -30 to +55 oC -30 to +55 oC -30 to +55 oC
-----------------------------------------------------------------------------------------------------------------------------
11.11 Temperature Indoor Units -10 to +55 oC -10 to +55 oC -30 to +55 oC
-----------------------------------------------------------------------------------------------------------------------------
11.12 ARU Cold Start Time to Normal Operation Within 1 Hour at -30 oC Within 1 Hour at -30 oC Within 1 Hour at -30 oC
-----------------------------------------------------------------------------------------------------------------------------
11.13 Altitude 15,000 feet 15,000 feet 15,000 feet
-----------------------------------------------------------------------------------------------------------------------------
11.14 Relative Humidity up to 95% at +40oC up to 95% at +40oC up to 95% at +40oC
-----------------------------------------------------------------------------------------------------------------------------
0-500 Hz with amptitude/ 0-500 Hz with amptitude/ 0-500 Hz with amptitude/
acceleration up acceleration up acceleration up
11.15 Vibration to 0.15mm/2g to 0.15mm/2g to 0.15mm/2g
-----------------------------------------------------------------------------------------------------------------------------
11.16 Transport & storage
-----------------------------------------------------------------------------------------------------------------------------
11.17 Temperature -30 to + 70 oC -30 to + 70 oC -30 to + 70 oC
-----------------------------------------------------------------------------------------------------------------------------
0-500 Hz with amptitude/
0-500 Hz with amptitude/ 0-500 Hz with amptitude/ acceleration up
11.18 Vibration acceleration up acceleration up to 0.38mm/5g
-----------------------------------------------------------------------------------------------------------------------------
Half sinusolidal with a Half sinusolidal with a Half sinusolidal with a
11.19 Shock peak of 20g up to peak of 20g up to peak of 20g up to 1ms
-----------------------------------------------------------------------------------------------------------------------------
11.20 Relative Humidity up to 95% at +40oc up to 95% at +40oc up to 95% at +40oc
-----------------------------------------------------------------------------------------------------------------------------
12.0 CONTROL & MONITORING FACILITIES
-----------------------------------------------------------------------------------------------------------------------------
Software based control Software based control Software based control
12.10 Type system system system
-----------------------------------------------------------------------------------------------------------------------------
12.11 Display 7 Segment LED 7 Segment LED 7 Segment LED
-----------------------------------------------------------------------------------------------------------------------------
12.12 This line not used
-----------------------------------------------------------------------------------------------------------------------------
12.13 XPView Display of all Display of all Display of all
performance functions performance functions performance functions
-----------------------------------------------------------------------------------------------------------------------------
12.14 Display of all alarm Display of all alarm Display of all alarm
functions functions functions
-----------------------------------------------------------------------------------------------------------------------------
12.15 Configuration of Configuration of Configuration of
alarm functions alarm functions alarm functions
-----------------------------------------------------------------------------------------------------------------------------
12.16 Configuration of all Configuration of all Configuration of all
terminal functions terminal functions terminal functions
-----------------------------------------------------------------------------------------------------------------------------
12.17 Recall of last Recall of last Recall of last
configuration configuration configuration
-----------------------------------------------------------------------------------------------------------------------------
12.18 Local and Far End Local and Far End Local and Far End
Display Display Display
-----------------------------------------------------------------------------------------------------------------------------
12.19 Loop Back Facilities
-----------------------------------------------------------------------------------------------------------------------------
12.20 Far End Loop Back Each Tributary Each Tributary Each Tributary
Independently Independently Independently
-----------------------------------------------------------------------------------------------------------------------------
12.21 Far End Loop Back Each Tributary Each Tributary Each Tributary
Independently Independently Independently
-----------------------------------------------------------------------------------------------------------------------------
13.0 CO AND ADJACENT CHANNEL C/1
-----------------------------------------------------------------------------------------------------------------------------
13.10 Performance Degradation Criteria 1 dB Degradation from 1 dB Degradation from 1 dB Degradation from
BER=10(6) Spec BER=10(6) Spec BER=10(6) Spec
-----------------------------------------------------------------------------------------------------------------------------
13.11 Co-Channel C/1
-----------------------------------------------------------------------------------------------------------------------------
13.12 2x2 Mbits/s 23 dB 23 dB 23 dB
-----------------------------------------------------------------------------------------------------------------------------
13.13 4x2 Mbits/s 23 dB 23 dB 23 dB
-----------------------------------------------------------------------------------------------------------------------------
13.14 8x2 Mbits/s 23 dB 23 dB 23 dB
-----------------------------------------------------------------------------------------------------------------------------
13.15 Adjacent Channel C/1
-----------------------------------------------------------------------------------------------------------------------------
13.16 2x, 4x, 8x E1 -3 dB -3 dB -3 dB
-----------------------------------------------------------------------------------------------------------------------------
14.0 RECEIVE SIGNAL MONITORS
-----------------------------------------------------------------------------------------------------------------------------
+0.1 volt per dB over +0.1 volt per dB over +0.1 volt per dB over
range; 1 volt equals range; 1 volt equals range; 1 volt equals
14.10 Receive Signal Level @ ARU (BNC) -80 dBm. -80 dBm. -80 dBm.
-----------------------------------------------------------------------------------------------------------------------------
+/- 2 dB typical, +/- 2 dB typical, +/- 2 dB typical,
14.11 Threshold up to -30 dBm +/- 3 dB max +/- 3 dB max +/- 3 dB max
-----------------------------------------------------------------------------------------------------------------------------
14.12 Above -30 up to -20 dBm Un calibrated (-40un) Un calibrated (-40un) Un calibrated (-40un)
-----------------------------------------------------------------------------------------------------------------------------
Page 4 Printed 28/10/967 000-000021-SPC Reve 09SAT Confidential Information
</TABLE>
<TABLE>
Design FAT All Factory Type Install & Packing &
SPECIFICATION NOTES Evaluation Units Sample Test Approval Commission Shipping
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
11.0 ENVIRONMENT - OPERATING & TRANSPORT & STORAGE
-----------------------------------------------------------------------------------------------------------------------------
OPERATING
-----------------------------------------------------------------------------------------------------------------------------
11.10 ETSI 300019 Part T.4 Class 4.1 *
-----------------------------------------------------------------------------------------------------------------------------
11.11 ETSI 300019 Part T.3 Class 3.1 *
-----------------------------------------------------------------------------------------------------------------------------
11.12 After a minimum soak time of 2 Hours at -30oC * *
-----------------------------------------------------------------------------------------------------------------------------
11.13
-----------------------------------------------------------------------------------------------------------------------------
11.14 Non condensing with terminal in operation *
-----------------------------------------------------------------------------------------------------------------------------
11.15 *
-----------------------------------------------------------------------------------------------------------------------------
11.16
-----------------------------------------------------------------------------------------------------------------------------
11.17
-----------------------------------------------------------------------------------------------------------------------------
11.18
-----------------------------------------------------------------------------------------------------------------------------
11.19
-----------------------------------------------------------------------------------------------------------------------------
11.20 Packed for export
-----------------------------------------------------------------------------------------------------------------------------
12.0 CONTROL & MONITORING FACILITIES
-----------------------------------------------------------------------------------------------------------------------------
12.10
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Speed Key Functions are RSL, BER, Transmit
Freq, Transmit Power, Link ID Code & Trib
12.11 Alarm Configuration * *
-----------------------------------------------------------------------------------------------------------------------------
12.12
-----------------------------------------------------------------------------------------------------------------------------
12.13 Connection via the RS 232 Port * *
-----------------------------------------------------------------------------------------------------------------------------
12.14 * *
-----------------------------------------------------------------------------------------------------------------------------
12.15 * *
-----------------------------------------------------------------------------------------------------------------------------
12.16 * *
-----------------------------------------------------------------------------------------------------------------------------
12.17 * *
-----------------------------------------------------------------------------------------------------------------------------
12.18 * *
-----------------------------------------------------------------------------------------------------------------------------
12.19
-----------------------------------------------------------------------------------------------------------------------------
12.20 E1 or T1 * *
-----------------------------------------------------------------------------------------------------------------------------
12.21 E1 or T1 * *
-----------------------------------------------------------------------------------------------------------------------------
13.0 CO AMD ADJACENT CHANNEL C/1
-----------------------------------------------------------------------------------------------------------------------------
13.10 *
-----------------------------------------------------------------------------------------------------------------------------
13.11
-----------------------------------------------------------------------------------------------------------------------------
13.12 * * *
-----------------------------------------------------------------------------------------------------------------------------
13.13 * * *
-----------------------------------------------------------------------------------------------------------------------------
13.14 * * *
-----------------------------------------------------------------------------------------------------------------------------
13.15
-----------------------------------------------------------------------------------------------------------------------------
13.16 * * *
-----------------------------------------------------------------------------------------------------------------------------
14.0 RECEIVE SIGNAL MONITORS
-----------------------------------------------------------------------------------------------------------------------------
14.10 0.1 Volts per dB sensitivity for digital
voltmeter use * * *
-----------------------------------------------------------------------------------------------------------------------------
14.11 * * *
-----------------------------------------------------------------------------------------------------------------------------
14.12 * * *
-----------------------------------------------------------------------------------------------------------------------------
Page 4 Printed 28/10/967 000-000021-SPC Reve 09SAT Confidential Information
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (13, 15 & 18 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 04:46 PM Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
?m Sect Parameter 13 GHz Specification 15 GHz Specification 18 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
15.0 Spurious Response (at Antenna flange)
---------------------------------------------------
15.10 Transmitter & Receiver Emissions
-------------------------------------------------------------------------------------------------------------------------------
15.11 -90 dBW 30 MHz to 21.2 GHz 30MHz to 21.2 GHz 30 MHz to 21.2 GHz
-------------------------------------------------------------------------------------------------------------------------------
15.12 -60 dBW 21.2 GHz to 55 GHz 21.2 GHz to 80 GHz 21.2 GHz to 80 GHz
-------------------------------------------------------------------------------------------------------------------------------
15.13 Receiver Spurious Response Rejection
-------------------------------------------------------------------------------------------------------------------------------
15.14 Level of unmodulated interference +30 dB ref. Wanted +30dB ref. Wanted +35 dB ref. Wanted
Threshold Level Threshold Level Threshold Level
-------------------------------------------------------------------------------------------------------------------------------
15.15 Range of Interference 30 MHz to 55 GHz 30 MHz to 55 GHz 30 MHz to 55GHz
-------------------------------------------------------------------------------------------------------------------------------
15.16 Excluded Range +/- 2 times the +/- 2 times the +/- 2 times the
relevant chan spacing relevant chan spacing relevant chan spacing
-------------------------------------------------------------------------------------------------------------------------------
15.17 Degradation Not worse than BER Not worse than Not worse than
BER=10 (5) BER=10 (5) BER=10 (5)
-------------------------------------------------------------------------------------------------------------------------------
16.0 Speed Key Functions (for a previously configured terminal)
-------------------------------------------------------------------------------------------------------------------------------
16.10 Receive Level Displayed in 1 dB Displayed in 1 dB Displayed in 1 dB
Increments Increments Increments
-------------------------------------------------------------------------------------------------------------------------------
16.11 Bit Error Rate Displays BER as Displays BER as Displays BER as
Xx10 (x) Xx10 (x) Xx10 (x)
-------------------------------------------------------------------------------------------------------------------------------
16.12 Tx Freq Display and Change Display and Change Display and Change
-------------------------------------------------------------------------------------------------------------------------------
16.13 Tx Power Display and Change Display and Change Display and Change
-------------------------------------------------------------------------------------------------------------------------------
16.14 Trib Alarm Status Display and Change Display and Change Display and Change
-------------------------------------------------------------------------------------------------------------------------------
16.15 Transmission Capacity 2x, 4x, 8x Display and Change Display and Change Display and Change
-------------------------------------------------------------------------------------------------------------------------------
16.16 Link ID Code Display and Change Display and Change Display and Change
-------------------------------------------------------------------------------------------------------------------------------
16.17 Speed Key Access PIN 4 digits default, 4 digits default, 4 digits default,
enter only enter only enter only
-------------------------------------------------------------------------------------------------------------------------------
17.0 Fault Alarmed Functions
-------------------------------------------------------------------------------------------------------------------------------
17.10 Transmit Power Low or Fail Low or Fail Low or Fail
-------------------------------------------------------------------------------------------------------------------------------
17.11 Transmit Frequency Lock Out of lock Out of lock Out of lock
-------------------------------------------------------------------------------------------------------------------------------
17.12 Receive Level Below set threshold Below set threshold Below set threshold
-------------------------------------------------------------------------------------------------------------------------------
17.13 Receive Frequency Lock Out of lock Out of lock Out of lock
-------------------------------------------------------------------------------------------------------------------------------
17.14 Link ID Code Wrong code detected Wrong code detected Wrong code detect
-------------------------------------------------------------------------------------------------------------------------------
17.15 Trib 1 thru 8 Transmit Normal or inverted Normal or inverted Normal or inverted
-------------------------------------------------------------------------------------------------------------------------------
17.16 not used
-------------------------------------------------------------------------------------------------------------------------------
17.17 not used
-------------------------------------------------------------------------------------------------------------------------------
17.18 not used
-------------------------------------------------------------------------------------------------------------------------------
17.19 BER Service Effecting Alarm Above set level Above set level Above set level
-------------------------------------------------------------------------------------------------------------------------------
17.20 BER early warning degradation Alarm Above set level Above set level Above set level
-------------------------------------------------------------------------------------------------------------------------------
17.21 Hardware Failure Sum of other internal Sum of other internal Sum of other internal
hardware faults hardware faults hardware faults
-------------------------------------------------------------------------------------------------------------------------------
17.22 Local Aux Alarm Input Non radio alarm Non radio alarm No radio alarm
transport transport transport
-------------------------------------------------------------------------------------------------------------------------------
17.23 Remote Aux Alarm Input Non radio alarm Non radio alarm No radio alarm
transport transport transport
-------------------------------------------------------------------------------------------------------------------------------
17.24 Alarm Detection Delay Time up to 1 second up to 1 second up to 1 second
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Design FAT Factory Type Install & Packing &
Specification Notes Evaluation All Units Sample Test Approval Commission Shipping
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
* * *
- ---------------------------------------------------------------------------------------------------------------------------------
* * *
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
* * *
- ----------------------------------------------------------------------------------------------------------------------------------
* * *
- ----------------------------------------------------------------------------------------------------------------------------------
* * *
- ----------------------------------------------------------------------------------------------------------------------------------
* * *
- ----------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
* * *
- ---------------------------------------------------------------------------------------------------------------------------------
Based on an approximation from the measured
Block Error Rate Derived from the FEC * * *
- ---------------------------------------------------------------------------------------------------------------------------------
* *
- ----------------------------------------------------------------------------------------------------------------------------------
* *
- ----------------------------------------------------------------------------------------------------------------------------------
* *
- ----------------------------------------------------------------------------------------------------------------------------------
All capacities not available on all units * *
- ---------------------------------------------------------------------------------------------------------------------------------
* *
- ----------------------------------------------------------------------------------------------------------------------------------
Key access to change a value can be restricted
by selection via XPView, so that Speed Key
function is View Only. This may be used after
installation & commissioning has been
completed * *
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
* *
- ---------------------------------------------------------------------------------------------------------------------------------
* *
- ---------------------------------------------------------------------------------------------------------------------------------
* *
- ---------------------------------------------------------------------------------------------------------------------------------
* *
- ---------------------------------------------------------------------------------------------------------------------------------
* *
- ---------------------------------------------------------------------------------------------------------------------------------
"n" alarm without data, "l" alarm with data * *
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
This BER No 1 is usually set to BER=10 (3) * *
- ---------------------------------------------------------------------------------------------------------------------------------
This BER No 2 is usually set to BER=10 (6) as an
early indication of errors * *
- ---------------------------------------------------------------------------------------------------------------------------------
* *
- ---------------------------------------------------------------------------------------------------------------------------------
* * *
- ---------------------------------------------------------------------------------------------------------------------------------
* *
- ---------------------------------------------------------------------------------------------------------------------------------
Alarm delays designed to eliminate intermittent
alarms and confirm hard failures with priority
based on interaction between alarms and
maintenance considerations *
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
000-000021-SPC Rev 095AT
Page 5 Printed 28/10/96 Innova Corp Confidential Information
<PAGE> 15
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (13, 15 & 18 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 04:46 PM Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Sect Parameter 13 GHz Specification 15 GHz Specification 18 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
18.0 Configurable Functions via XPView
-------------------------------------------------------------------------------------------------------------------------------
18.10 Site Name & Corporate Name 18 characters each 18 characters each 18 characters each
-------------------------------------------------------------------------------------------------------------------------------
18.11 Transmit Power Level 0.5 dB steps 0.5 dB steps 0.5 dB steps
-------------------------------------------------------------------------------------------------------------------------------
18.12 Receive Level Alarm 1 dB steps, -60 to -80 1 dB steps, -60 to -80 1 dB steps, -60 to -80
dBm inclusive dBm inclusive dBm inclusive
-------------------------------------------------------------------------------------------------------------------------------
18.13 BER early warning degradation Alarm Xx10(-3,-4,-5,-6) Xx10(-3,-4,-5,-6) Xx10(-3,-4,-5,-6)
-------------------------------------------------------------------------------------------------------------------------------
18.14 BER Service Effecting Alarm Xx10(-3,-4,-5,-6) Xx10(-3,-4,-5,-6) Xx10(-3,-4,-5,-6)
-------------------------------------------------------------------------------------------------------------------------------
18.15 Link ID Code 1 to 255 1 to 255 1 to 255
-------------------------------------------------------------------------------------------------------------------------------
18.16 AIS Insert Enable or Disable Enable or Disable Enable or Disable
-------------------------------------------------------------------------------------------------------------------------------
18.17 Transmit Mute On or Off On or Off On or Off
-------------------------------------------------------------------------------------------------------------------------------
18.18 Data Loopback On or Off On or Off On or Off
-------------------------------------------------------------------------------------------------------------------------------
18.19 FEC Enable or Disable Enable or Disable Enable or Disable
-------------------------------------------------------------------------------------------------------------------------------
18.20 Alarm Relay Names 8 characters max 8 characters max 8 characters max
per relay per relay per relay
-------------------------------------------------------------------------------------------------------------------------------
18.21 Trib 1 thru 8 Normal or Invert Normal or Invert Normal or Invert
-------------------------------------------------------------------------------------------------------------------------------
18.22 not used
-------------------------------------------------------------------------------------------------------------------------------
18.23 not used
-------------------------------------------------------------------------------------------------------------------------------
18.24 not used
-------------------------------------------------------------------------------------------------------------------------------
18.25 Transmit Freq Start xx,xxx,xx MHz (two xx,xxx,xx MHz (two xx,xxx,xx MHz (two
decimal places) decimal places) decimal places)
-------------------------------------------------------------------------------------------------------------------------------
18.26 Transmit Freq End xx,xxx,xx MHz (two xx,xxx,xx MHz (two xx,xxx,xx MHz (two
decimal places) decimal places) decimal places)
-------------------------------------------------------------------------------------------------------------------------------
18.27 Transmit to Transmit Spacing Places) Places) Places)
-------------------------------------------------------------------------------------------------------------------------------
18.28 Number of frequency plans stored 25 max 25 max 25 max
-------------------------------------------------------------------------------------------------------------------------------
18.29 P.I.N.s 4 digits 4 digits 4 digits
-------------------------------------------------------------------------------------------------------------------------------
18.30 PIN Access Levels Keys only Keys only Keys only
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
FAT Factory Type Install & Packing &
Specification Notes Design Evaluation All Units Sample Test Approval Commission Shipping
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
18.0 Configurable Functions via XPView
-------------------------------------------------------------------------------------------------------------------------------
18.10 Site Name & Corporate Name
-------------------------------------------------------------------------------------------------------------------------------
18.11 available *
-------------------------------------------------------------------------------------------------------------------------------
18.12 *
-------------------------------------------------------------------------------------------------------------------------------
18.13 Early warning BER alarm *
-------------------------------------------------------------------------------------------------------------------------------
18.14 High Error Rate BER Alarm *
-------------------------------------------------------------------------------------------------------------------------------
18.15 *
-------------------------------------------------------------------------------------------------------------------------------
18.16 *
-------------------------------------------------------------------------------------------------------------------------------
18.17 *
-------------------------------------------------------------------------------------------------------------------------------
18.18 Both Local and Remote loopback
for each Trib * *
-------------------------------------------------------------------------------------------------------------------------------
18.19 * *
-------------------------------------------------------------------------------------------------------------------------------
18.20 Visible on XPView only * *
-------------------------------------------------------------------------------------------------------------------------------
18.21 "n" alarm without data, "l" alarm
with data *
-------------------------------------------------------------------------------------------------------------------------------
18.22
-------------------------------------------------------------------------------------------------------------------------------
18.23
-------------------------------------------------------------------------------------------------------------------------------
18.24
-------------------------------------------------------------------------------------------------------------------------------
18.25 * *
-------------------------------------------------------------------------------------------------------------------------------
18.26 * *
-------------------------------------------------------------------------------------------------------------------------------
18.27 * *
-------------------------------------------------------------------------------------------------------------------------------
18.28 * *
-------------------------------------------------------------------------------------------------------------------------------
18.29 Can be Enabled, Disabled or Locked * * *
-------------------------------------------------------------------------------------------------------------------------------
18.30 By XPView * *
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (13, 15 & 18 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 04:46 PM Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Sect Parameter 13 GHz Specification 15 GHz Specification 18 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
19.0 Mechanical
-------------------------------------------------------------------------------------------------------------------------------
19.10 ARU
-------------------------------------------------------------------------------------------------------------------------------
19.12 Diameter 8.9" (22.6 cm) 8.9" (22.6 cm) 8.9" (22.6 cm)
-------------------------------------------------------------------------------------------------------------------------------
19.14 Depth 4.8" (12.2 cm) 4.8" (12.2 cm) 4.8" (12.2 cm)
-------------------------------------------------------------------------------------------------------------------------------
19.16 SIU Horizontal 19" EIA Rack (1RU)
-------------------------------------------------------------------------------------------------------------------------------
19.18 Height 1.72" (4.37 cm) 1.72" (4.37 cm) 1.72" (4.37 cm)
-------------------------------------------------------------------------------------------------------------------------------
19.20 Depth 10" (25.4 cm) 10" (25.4 cm) 10" (25.4 cm)
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
FAT Factory Type Install & Packing &
Specification Notes Design Evaluation All Units Sample Test Approval Commission Shipping
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
19.0 Mechanical
-------------------------------------------------------------------------------------------------------------------------------
19.10
-------------------------------------------------------------------------------------------------------------------------------
19.12 *
-------------------------------------------------------------------------------------------------------------------------------
19.14 *
-------------------------------------------------------------------------------------------------------------------------------
19.16
-------------------------------------------------------------------------------------------------------------------------------
19.18 EIA standard for a 1.75" rack unit *
-------------------------------------------------------------------------------------------------------------------------------
19.20 Industry standard of 10" max *
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Sect Parameter 13 GHz Specification 15 GHz Specification 18 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
20.0 Antennas
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FAT Factory Type Install & Packing &
Specification Notes Design Evaluation All Units Sample Test Approval Commission Shipping
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
20.0 Antennas
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (23, 26 & 38 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 05:04 PM Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Sect Parameter 23 GHz Specification 26 GHz Specification 38 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1.0 General
-------------------------------------------------------------------------------------------------------------------------------
1.10 Frequency Range 21.2 to 23.6 GHz max 24.5 to 26.5 GHz max 37.0 to 40.0 GHz max
-------------------------------------------------------------------------------------------------------------------------------
1.11 Tuning Range per Option 300MHz max 300MHz max 350MHz max
-------------------------------------------------------------------------------------------------------------------------------
Per Marketing Ordering Per Marketing Ordering Per Marketing Ordering
Numbers & Options. T-R Numbers & Options. T-R Numbers & Options. T-R
spacings of 1008 MHz, spacing 1008 MHz spacings 1260 MHz
1.12 Frequency Plans Supported 1200 MHz, 1232 MHz
-------------------------------------------------------------------------------------------------------------------------------
1.13 Link ID Codes 255 255 255
-------------------------------------------------------------------------------------------------------------------------------
1.14 Heat Extraction System Convection Cooling Convection Cooling Convection Cooling
-------------------------------------------------------------------------------------------------------------------------------
Front Access, except Front Access, except Front Access, except
1.15 Installation & Maintenance Access Reqd for options for options for options
-------------------------------------------------------------------------------------------------------------------------------
pr ETS 300 431
1.16 Technical Standards pr ETS 300 198 grade B pr ETS 300 197
-------------------------------------------------------------------------------------------------------------------------------
1.17 EMC Standard pr ETS 300 385 pr ETS 300 385 pr ETS 300 385
-------------------------------------------------------------------------------------------------------------------------------
pr ETS 300 019 pr ETS 300 019 pr ETS 300 019
1.18 Environmental Standard parts 1 & 2 parts 1 & 2 parts 1 & 2
-------------------------------------------------------------------------------------------------------------------------------
2.0 Transmitter
-------------------------------------------------------------------------------------------------------------------------------
2.10 Type Direct Modulation Direct Modulation Direct Modulation
-------------------------------------------------------------------------------------------------------------------------------
+17 dBm min, +17 dBm min, +16 dBm min,
2.11 Power Output typical +19 dBm typical +19 dBm typical +18 dBm
-------------------------------------------------------------------------------------------------------------------------------
Minimum Setable Minimum Setable Minimum Setable
2.12 Power Output Reduction Range Power Output -10 dBm Power Output -10 dBm Power Output -10 dBm
-------------------------------------------------------------------------------------------------------------------------------
2.13 Power Output Control Setability 0.5 dB steps 0.5 dB steps 0.5 dB steps
-------------------------------------------------------------------------------------------------------------------------------
+/- 2dB typ, +/- 2dB typ, +/- 2dB typ,
2.14 Power Output Level Setability +/- 3 dB including Temp +/- 3 dB including Temp +/- 3 dB including Temp
-------------------------------------------------------------------------------------------------------------------------------
2.15 Power Output with Transmit Muted Less than -30 dBm Less than -30 dBm Less than -30 dBm
-------------------------------------------------------------------------------------------------------------------------------
2.16 Transmit Mute ON/OFF switch Time 50 m sec 50 m sec 50 m sec
-------------------------------------------------------------------------------------------------------------------------------
2.17 Frequency Accuracy +/- 10 ppm maximum +/- 10 ppm maximum +/- 10 ppm maximum
-------------------------------------------------------------------------------------------------------------------------------
2.18 Channel Selection Digital Synthesizer Digital Synthesizer Digital Syntehsizer
-------------------------------------------------------------------------------------------------------------------------------
2.19 Synthesizer Step size 0.25 MHz 0.25 MHz 0.25 MHz
-------------------------------------------------------------------------------------------------------------------------------
2.20 Modulation 4 Level FSK 4 Level FSK 4 Level FSK
-------------------------------------------------------------------------------------------------------------------------------
2.21 Emission Bandwidth
-------------------------------------------------------------------------------------------------------------------------------
2.22 2x2 Mbits/s 3.5 MHz @ 2xE1 3.5 MHz @ 2xE1 3.5 MHz @ 2xE1
-------------------------------------------------------------------------------------------------------------------------------
2.23 4x2 Mbits/s 7 MHz @ 4xE1 7 MHz @ 4xE1 7 MHz @ 4xE1
-------------------------------------------------------------------------------------------------------------------------------
2.24 8x2 Mbits/s 14 MHz @ 8xE1 14 MHz @ 8xE1 14 MHz @ 8xE1
-------------------------------------------------------------------------------------------------------------------------------
3.0 Receiver
-------------------------------------------------------------------------------------------------------------------------------
3.10 Receiver Noise Figure 7 dB typical 7 dB typical 8 dB typical
-------------------------------------------------------------------------------------------------------------------------------
3.11 IF Frequencies 630 MHz and 70 MHz 630 MHz and 70 MHz 630 MHz and 70 MHz
-------------------------------------------------------------------------------------------------------------------------------
3.12 Demod type Lim/disc. Lim/disc. Lim/disc.
-------------------------------------------------------------------------------------------------------------------------------
Digitally Synthesized Digitally Synthesized Digitally Synthesized
3.13 Channel Selection Demod Demod Demod
-------------------------------------------------------------------------------------------------------------------------------
3.14 Step size 0.25 MHz minimum 0.25 MHz minimum 0.25 MHz minimum
-------------------------------------------------------------------------------------------------------------------------------
3.15 Maximum Rx input -20 dBm -20 dBm -20 dBm
-------------------------------------------------------------------------------------------------------------------------------
3.16 Threshold @ BER=10-6
-------------------------------------------------------------------------------------------------------------------------------
3.17 2x2 Mbits/s -80 dBm max -82 dBm max -77 dBm max
-------------------------------------------------------------------------------------------------------------------------------
3.18 4x2 Mbits/e -77 dBm max -79 dBm max -75 dBm max
-------------------------------------------------------------------------------------------------------------------------------
3.19 8x2 Mbits/s -74 dBm max -76 dBm max -72 dBm max
-------------------------------------------------------------------------------------------------------------------------------
3.20 Threshold @ BER=10-3
-------------------------------------------------------------------------------------------------------------------------------
3.21 2x2 Mbits/s -85 dBm max -87 dBm max -82 dBm max
-------------------------------------------------------------------------------------------------------------------------------
3.22 4x2 Mbits/s -82 dBm max -84 dBm max -80 dBm max
-------------------------------------------------------------------------------------------------------------------------------
3.23 8x2 Mbits/s -79 dBm max -81 dBm max -76 dBm max
-------------------------------------------------------------------------------------------------------------------------------
3.24 Multiple Interferrers Performance ETSI and MPT 1409 ETSI and MPT 1420 ETSI and MPT 1414
-------------------------------------------------------------------------------------------------------------------------------
3.25 Receiver Image Rejection 80 dB Minimum 80 dB Minimum 80 dB Minimum
-------------------------------------------------------------------------------------------------------------------------------
+30dBc at +/- two +30dBc at +/- two +30dBc at +/- two
3.26 Receiver Spurious rejection Channels or greater Channels or greater Channels or greater
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Design FAT Factory Type Install & Packing &
Specification Notes Evaluation All Units Sample Test Approval Commission Shipping
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
These tuning ranges support many ETSI and FCC
frequency plans * * *
- ------------------------------------------------------------------------------------------------------------------------------------
with 700 MHz T-R spacing * *
- ------------------------------------------------------------------------------------------------------------------------------------
Marketing Ordering Number include tuning ranges
for all planned options and is released as a
separate document *
- ------------------------------------------------------------------------------------------------------------------------------------
Speed Key selected * * *
- ------------------------------------------------------------------------------------------------------------------------------------
No fans permissible in either the Indoor or Outdoor
Units. In some applications a moving air system
will be provided by the customers equipment housing *
- ------------------------------------------------------------------------------------------------------------------------------------
Access to the connectors at the front of the Indoor
Units is required. Options are EOW, Data chan,
NMI, Aux Alarms. *
- ------------------------------------------------------------------------------------------------------------------------------------
Grade B to be defined at 23 and 38 * *
- ------------------------------------------------------------------------------------------------------------------------------------
* * *
- ------------------------------------------------------------------------------------------------------------------------------------
* * *
- ------------------------------------------------------------------------------------------------------------------------------------
* *
- ------------------------------------------------------------------------------------------------------------------------------------
Measured at the Antenna Interface with the ARU * * *
- ------------------------------------------------------------------------------------------------------------------------------------
Power adjustment range is most important at
38 GHz where a range of 40 dB is desirable * *
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
* *
- ------------------------------------------------------------------------------------------------------------------------------------
Required to meet ETSI spec. for spurious
transmitter output *
- ------------------------------------------------------------------------------------------------------------------------------------
of reducing this spec. * *
- ------------------------------------------------------------------------------------------------------------------------------------
least 5 years * * *
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
* * *
- ------------------------------------------------------------------------------------------------------------------------------------
* * *
- ------------------------------------------------------------------------------------------------------------------------------------
* * *
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
controlling receiver specification *
- ------------------------------------------------------------------------------------------------------------------------------------
Depends upon design approach *
- ------------------------------------------------------------------------------------------------------------------------------------
Depends upon design approach *
- ------------------------------------------------------------------------------------------------------------------------------------
Depends upon design approach *
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
ETSI spec. for a single carrier input * *
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
* * *
- ------------------------------------------------------------------------------------------------------------------------------------
* * *
- ------------------------------------------------------------------------------------------------------------------------------------
* * *
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
* * *
- ------------------------------------------------------------------------------------------------------------------------------------
* * *
- ------------------------------------------------------------------------------------------------------------------------------------
* * *
- ------------------------------------------------------------------------------------------------------------------------------------
ETSI standards to be released * *
- ------------------------------------------------------------------------------------------------------------------------------------
*
- ------------------------------------------------------------------------------------------------------------------------------------
Interferer is unmodulated * *
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
000-000001-SPC Rev 09SAT
Page 1 Printed 28/10/95 Innova Corp Confidential Information
<PAGE> 17
<TABLE>
XP4 Series Terminal Specification (23, 26 & 38 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 (05:04 PM) Originated By
---------------------------------------------------------- ------------------
---------------------------------------------------------------------------------------------------------------------------
Sect Parameter 23 GHz Specification 26 GHz Specification 38 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ANTENNA DIPLEXING
-------------------------------------------------------------------------------------------------------------------------------
4.10 Diplexer Type Waveguide Structure Waveguide Structure Waveguide Structure
-------------------------------------------------------------------------------------------------------------------------------
4.11 Transmit to Receive Isolation >50 dB >50 dB >50 dB
-------------------------------------------------------------------------------------------------------------------------------
4.12 Transmit Port Insertion Loss <3 dB <3 dB <3 dB
-------------------------------------------------------------------------------------------------------------------------------
4.13 Receive Port Insertion Loss <3 dB <3 dB <3 dB
-------------------------------------------------------------------------------------------------------------------------------
4.14 Antenna Port Interface Antennas Antennas Antennas
---------------------------------------------------------------------------------------------------------------------------------
4.15 Antenna Interface Return Loss 10 dB min 10 dB min 10 dB min
---------------------------------------------------------------------------------------------------------------------------------
5.0 RESIDUE Bk ERROR RATE
---------------------------------------------------------------------------------------------------------------------------------
5.10 +10dB ref. BER=10(6) spec. to -30dBm >BER=10(10) with FEC >BER=10(10)with FEC >BER=10(10)with FEC
---------------------------------------------------------------------------------------------------------------------------------
Less than 1 mill second Less than 1 mill second Less than 1 mill second
5.11 FEC Added Delay Time (2x2 Mbits/s) @ 2 Mbits/s @ 2 Mbits/s @ 2 Mbits/s
---------------------------------------------------------------------------------------------------------------------------------
Less than 0.3 mill second Less than 0.3 mill second Less than 0.3 mill second
5.12 FEC Added Delay Time (4x2 Mbits/s) @ 2 Mbits/s @ 2 Mbits/s @ 2 Mbits/s
---------------------------------------------------------------------------------------------------------------------------------
Less than 0.3 mill second Less than 0.3 mill second Less than 0.3 mill second
5.13 FEC Added Delay Time (8x2 Mbits/s) @ 2 Mbits/s @ 2 Mbits/s @ 2 Mbits/s
---------------------------------------------------------------------------------------------------------------------------------
6.0 SERVICE CHANNELS & ALARM CONTRACTS
---------------------------------------------------------------------------------------------------------------------------------
6.10 Voice Interface (Option Board) One Circuit One Circuit One Circuit
---------------------------------------------------------------------------------------------------------------------------------
6.11 Connector RJ 11 RJ 11 RJ 11
---------------------------------------------------------------------------------------------------------------------------------
+7 dBm Transmit, -14 dBm +7 dBm Transmit, -14 dBm +7 dBm Transmit, -14 dBm
Receive, 600 ohms Receive, 600 ohms Receive, 600 ohms
Balanced, +/-3 dB from Balanced, +/-3 dB from Balanced, +/-3 dB from
300Hz to 3100 Hz 300Hz to 3100 Hz 300Hz to 3100 Hz
6.12 Interface 4Wire Balanced ref 1000Hz ref 1000Hz ref 1000Hz
---------------------------------------------------------------------------------------------------------------------------------
Up to 9800 Baud - Up to 9800 Baud - Up to 9800 Baud -
6.13 Data Interface (Option Board) Asynchronous Asynchronous Asynchronous
---------------------------------------------------------------------------------------------------------------------------------
6.14 No of Circuits One Circuit One Circuit One Circuit
---------------------------------------------------------------------------------------------------------------------------------
6.15 Connector RJ48 RJ48 RJ48
---------------------------------------------------------------------------------------------------------------------------------
6.16 Network Mang.mt Interface (Option Board)
---------------------------------------------------------------------------------------------------------------------------------
6.17 Multi unit looping plugs RJ48 RJ48 RJ48
---------------------------------------------------------------------------------------------------------------------------------
6.18 No of Plugs Two Two Two
---------------------------------------------------------------------------------------------------------------------------------
6.19 XPView Interface
---------------------------------------------------------------------------------------------------------------------------------
6.20 Format RS232 RS 232 RS232
---------------------------------------------------------------------------------------------------------------------------------
OB9 Female (with EMC OB9 Female (with EMC OB9 Female (with EMC
6.21 Connector Filter) Filter) Filter)
---------------------------------------------------------------------------------------------------------------------------------
6.22 RSL Monitor
---------------------------------------------------------------------------------------------------------------------------------
BNC@ARU with shorting BNC@ARU with shorting BNC@ARU with shorting
6.23 Connector weather cap weather cap weather cap
---------------------------------------------------------------------------------------------------------------------------------
6.24 Standard Alarm Relay Outputs
---------------------------------------------------------------------------------------------------------------------------------
6.25 Number of Relays Five Five Five
---------------------------------------------------------------------------------------------------------------------------------
Dry C Relay for each Dry C Relay for each Dry C Relay for each
6.26 Contact Type Alarm Alarm Alarm
---------------------------------------------------------------------------------------------------------------------------------
6.27 Contact Rating 80 Volts DC, 100 m/z 80 Volts DC, 100 m/z 80 Volts DC, 100 m/z
---------------------------------------------------------------------------------------------------------------------------------
6.28 Connector DB 15 Connector DB 15 Connector DB 15 Connector
---------------------------------------------------------------------------------------------------------------------------------
6.29 Auditory Alarm Interface (Option Board)
---------------------------------------------------------------------------------------------------------------------------------
6.30 Number of alarms Four Four Four
---------------------------------------------------------------------------------------------------------------------------------
Relay outputs, Ground Relay outputs, Ground Relay outputs, Ground
6.31 Interface Lead Inputs Lead Inputs Lead Inputs
---------------------------------------------------------------------------------------------------------------------------------
6.32 Connector DB 15 Connector DB 15 Connector DB 15 Connector
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
XP4 Series Terminal Specification (23, 26 & 38 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 (05:04 PM)
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Design FAT Factory Type Install Packing
Specification Notes Evaluation All Units Sample Test Approval & Commission & Shipping
<C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------------------
4.10
-------------------------------------------------------------------------------------------------------------------------------
4.11 *
-------------------------------------------------------------------------------------------------------------------------------
4.12 *
-------------------------------------------------------------------------------------------------------------------------------
4.13 *
-------------------------------------------------------------------------------------------------------------------------------
4.14
---------------------------------------------------------------------------------------------------------------------------------
4.15 ETSI standard to be released *
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
5.10 * * *
---------------------------------------------------------------------------------------------------------------------------------
5.11 *
---------------------------------------------------------------------------------------------------------------------------------
5.12 *
---------------------------------------------------------------------------------------------------------------------------------
5.13
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
6.10 * * *
---------------------------------------------------------------------------------------------------------------------------------
6.11
---------------------------------------------------------------------------------------------------------------------------------
6.12
---------------------------------------------------------------------------------------------------------------------------------
6.13 * *
---------------------------------------------------------------------------------------------------------------------------------
6.14
---------------------------------------------------------------------------------------------------------------------------------
6.15
---------------------------------------------------------------------------------------------------------------------------------
6.16
---------------------------------------------------------------------------------------------------------------------------------
6.17 *
---------------------------------------------------------------------------------------------------------------------------------
6.18 *
---------------------------------------------------------------------------------------------------------------------------------
6.19
---------------------------------------------------------------------------------------------------------------------------------
6.20 *
---------------------------------------------------------------------------------------------------------------------------------
6.21 *
---------------------------------------------------------------------------------------------------------------------------------
6.22
---------------------------------------------------------------------------------------------------------------------------------
SIU test point low priority
6.23 can be monitored with XPView * * *
---------------------------------------------------------------------------------------------------------------------------------
6.24 *
---------------------------------------------------------------------------------------------------------------------------------
One normally unenergized, four
6.25 normally energized * *
---------------------------------------------------------------------------------------------------------------------------------
6.26 *
---------------------------------------------------------------------------------------------------------------------------------
6.27 *
---------------------------------------------------------------------------------------------------------------------------------
6.28 *
---------------------------------------------------------------------------------------------------------------------------------
6.29 * *
---------------------------------------------------------------------------------------------------------------------------------
6.30
---------------------------------------------------------------------------------------------------------------------------------
6.31 *
---------------------------------------------------------------------------------------------------------------------------------
6.32 *
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (23, 26 & 38 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 (05:04 PM) Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Sect Parameter 23 GHz Specification 26 GHz Specification 38 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7.0 Data Interfaces
-------------------------------------------------------------------------------------------------------------------------------
7.10 Line Code HDB3 HDB3 HDB3
-------------------------------------------------------------------------------------------------------------------------------
7.11 Connector Type BNC 75 ohm unbalanced BNC 75 ohm unbalanced BNC 75 ohm unbalanced
-------------------------------------------------------------------------------------------------------------------------------
7.12 RJ48 120 ohm balanced RJ48 120 ohm balanced RJ48 120 ohm balanced
-------------------------------------------------------------------------------------------------------------------------------
7.13 Compatability (2 Mbits/s or CCITT G.703 CCITT G.703 CCITT G.703
T1 Interface)
-------------------------------------------------------------------------------------------------------------------------------
7.14 Input Rate Frequency Tolerance CCITT G.703 CCITT G.703 CCITT G.703
-------------------------------------------------------------------------------------------------------------------------------
7.15 Data Output Pulse Mask CCITT G.703 CCITT G.703 CCITT G.703
-------------------------------------------------------------------------------------------------------------------------------
7.16 Data Output Return Loss CCITT G.703 CCITT G.703 CCITT G.703
-------------------------------------------------------------------------------------------------------------------------------
7.17 Maximum Input Jitter CCITT G.823/824 CCITT G.823/824 CCITT G.823/824
-------------------------------------------------------------------------------------------------------------------------------
7.18 Maximum Output Jitter CCITT G.823/824 CCITT G.823/824 CCITT G.823/824
-------------------------------------------------------------------------------------------------------------------------------
7.19 Jitter Transfer CCITT G.823/824 CCITT G.823/824 CCITT G.823/824
-------------------------------------------------------------------------------------------------------------------------------
7.20 AIS Frequency CCITT G.703 CCITT G.703 CCITT G.703
-------------------------------------------------------------------------------------------------------------------------------
7.21 AIS Injection Point BER=10(3) or Frame Loss BER=10(3) or Frame Loss BER=10(3) or Frame Loss
-------------------------------------------------------------------------------------------------------------------------------
7.22 AIS Hysterisis BER=10(4) BER=10(4) BER=10(4)
-------------------------------------------------------------------------------------------------------------------------------
7.23 Input Pulse Dynamic Range 10 dB 10 dB 10 dB
-------------------------------------------------------------------------------------------------------------------------------
8.0 Indoor to Outdoor Cable
-------------------------------------------------------------------------------------------------------------------------------
8.10 Number of Cables One One One
-------------------------------------------------------------------------------------------------------------------------------
8.11 Cable Type RG223 21.6 to 72V DC up to 40 metres up to 40 metres up to 40 metres
(125 ft) (125 ft)
-------------------------------------------------------------------------------------------------------------------------------
8.12 RG223 43 to 72V DC up to 80 metres up to 80 metres up to 80 metres
(250 ft) (250 ft)
-------------------------------------------------------------------------------------------------------------------------------
8.13 Cable Type Belden 9913 21.6 to up to 150 metres up to 150 metres up to 150 metres
72V DC (500 ft) (500 ft)
-------------------------------------------------------------------------------------------------------------------------------
8.14 Belden 9913 43 to up to 300 metres up to 300 metres up to 300 metres
72V DC (1000 ft) (1000 ft)
-------------------------------------------------------------------------------------------------------------------------------
8.15 Cable Impedence 50 Ohms 50 Ohms 50 Ohms
-------------------------------------------------------------------------------------------------------------------------------
8.16 ARU & SIU Return Loss 15 dB min 15 dB min 15 dB min
at signal frequencies
-------------------------------------------------------------------------------------------------------------------------------
8.17 Connector Type Outdoor End - Outdoor End - Outdoor End -
Type N male Type N male Type N
-------------------------------------------------------------------------------------------------------------------------------
8.18 Indoor End - Indoor End - Indoor End -
Type N male Type N male Type N
-------------------------------------------------------------------------------------------------------------------------------
8.19 DC Voltage on Cable -21.6 to -72 Volts -21.6 to -72 Volts -21.6 to -72 Volts
-------------------------------------------------------------------------------------------------------------------------------
9.0 Primary Power
-------------------------------------------------------------------------------------------------------------------------------
9.10 Protection Circuit Slow Blow Fuse Slow Blow Fuse Slow Blow Fuse
-------------------------------------------------------------------------------------------------------------------------------
9.11 Voltage Range 21.6 to 72 V DC Max 21.6 to 72 V DC Max 21.6 to 72 V DC Max
-------------------------------------------------------------------------------------------------------------------------------
9.12 Polarity Positive Grounded Positive Grounded Positive Grounded
-------------------------------------------------------------------------------------------------------------------------------
9.13 Reverse Polarity Protection Keyed DC power Keyed DC power Keyed DC power
connector connector connector
-------------------------------------------------------------------------------------------------------------------------------
9.14 Watts per Terminal -1xT1 less than 45 Watts less than 45 Watts less than 45 Watts
-------------------------------------------------------------------------------------------------------------------------------
9.15 Watts per Terminal - 8xE1 or 8xT1 less than 45 Watts less than 45 Watts less than 45 Watts
-------------------------------------------------------------------------------------------------------------------------------
9.16 Watts per Terminal - 4x2 or 2x2 or 4xT1 less than 45 Watts less than 45 Watts less than 45 Watts
-------------------------------------------------------------------------------------------------------------------------------
9.17 Switch on Inrush current 20 amps @ 60V; duration 20 amps @ 60V; duration 20 amps @ 60V; duration
(less than) 100mS (less than) 100mS (less than) 100mS
-------------------------------------------------------------------------------------------------------------------------------
9.18 DC Supply ripple input IEC 1000-4-4 and IEC 1000-4-4 and IEC 1000-4-4 and
IEC 1000-4-5 IEC 1000-4-5 IEC 1000-4-5
-------------------------------------------------------------------------------------------------------------------------------
9.19 Brown Out Restart Range From 15 volts to 24 From 15 volts to 24 From 15 volts to 24
volts in 10 sec or less volts in 10 sec or less volts in 10 sec or less
-------------------------------------------------------------------------------------------------------------------------------
10.0 Weights
-------------------------------------------------------------------------------------------------------------------------------
10.10 Outdoor Units - ARU Less than 6 lbs Less than 6 lbs Less than 6 lbs
(2.8 kg) (2.8 kg) (2.8 kg)
-------------------------------------------------------------------------------------------------------------------------------
10.11 Indoor Units - SIU Rack Mount (1RU) Less than 4 lbs Less than 4 lbs Less than 4 lbs
(1.8 kg) (1.8 kg) (1.8 kg)
-------------------------------------------------------------------------------------------------------------------------------
10.12 24cm Horn Antenna with pole mount Less than 19 lbs Less than 19 lbs Less than 19 lbs
(8.7 kg) (8.7 kg) (8.7 kg)
-------------------------------------------------------------------------------------------------------------------------------
10.13 34cm Horn Antenna with pole mount Less than 30 lbs Less than 30 lbs Less than 30 lbs
(13.7 kg) (13.7 kg) (13.7 kg)
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Design FAT Factory Type Install & Packing &
Specification Notes Evaluation All Units Sample Test Approval Commission Shipping
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
* *
- --------------------------------------------------------------------------------------------------------------------------
* *
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
* *
- --------------------------------------------------------------------------------------------------------------------------
Uses BER No1 set to 10(3) * *
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Limited by DC resistance of cable * *
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
Limited by DC resistance of cable * *
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Must provide fire protection for DC Input
fed directly up the cable. Provide spare
fuses in the SIU installation kit * *
- --------------------------------------------------------------------------------------------------------------------------
Measured at SIU Shelf DC terminals. Covers
the nominal 48v and 60v applications * * *
- --------------------------------------------------------------------------------------------------------------------------
* *
- --------------------------------------------------------------------------------------------------------------------------
Depends upon connector or terminal type *
- --------------------------------------------------------------------------------------------------------------------------
Measure at the input to the indoor Unit
over the full voltage range * *
- --------------------------------------------------------------------------------------------------------------------------
Measure at the input to the indoor Unit
over the full voltage range * *
- --------------------------------------------------------------------------------------------------------------------------
Measure at the input to the indoor Unit
over the full voltage range * *
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
Returns to normal operation
within 30 seconds *
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 3 Printed 28/10/96 Innova Corp. 000-000001-SPC Rev 09SAT
Confidential Information
<PAGE> 19
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (23, 26 & 38 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 (05:04 PM) Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Sect Parameter 23 GHz Specification 26 GHz Specification 38 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11.0 Environment - Operating & Transport & Storage
-------------------------------------------------------------------------------------------------------------------------------
Operating
-------------------------------------------------------------------------------------------------------------------------------
11.10 Temperature Outdoor Units -30 to +55 degrees -30 to +55 degrees -30 to +55 degrees
centigrade centigrade centigrade
-------------------------------------------------------------------------------------------------------------------------------
11.11 Temperature Indoor Units -10 to +50 degrees -10 to +50 degrees -10 to +50 degrees
centigrade centigrade centigrade
-------------------------------------------------------------------------------------------------------------------------------
11.12 ARU Cold Start Time to Normal Operation Within 1 Hour at -30 Within 1 Hour at -30 Within 1 Hour at -30
degrees centigrade degrees centigrade degrees centigrade
-------------------------------------------------------------------------------------------------------------------------------
11.13 Altitude 15,000 feet 15,000 feet 15,000 feet
-------------------------------------------------------------------------------------------------------------------------------
11.14 Relative Humidity up to 95% at +40 up to 95% at +40 up to 95% at +40
degrees centigrade degrees centigrade degrees centigrade
-------------------------------------------------------------------------------------------------------------------------------
11.15 Vibration 0-500 Hz with 0-500 Hz with 0-500 Hz with
amplitude/acceleration amplitude/acceleration amplitude/acceleration
up to 0.15mm/2g up to 0.15mm/2g up to 0.15mm/2g
-------------------------------------------------------------------------------------------------------------------------------
11.16 Transport & storage
-------------------------------------------------------------------------------------------------------------------------------
11.17 Temperature -30 to + 70 -30 to + 70 -30 to + 70
degrees centigrade degrees centigrade degrees centigrade
-------------------------------------------------------------------------------------------------------------------------------
11.18 Vibration 0-500 Hz with 0-500 Hz with 0-500 Hz with
amplitude/acceleration amplitude/acceleration amplitude/acceleration
up to up to up to 0.38mm/5g
-------------------------------------------------------------------------------------------------------------------------------
11.19 Shock Half sinusoildal with Half sinusoildal with Half sinusoildal with
a peak of 20g up to a peak of 20g up to a peak of 20g up to
11ms
-------------------------------------------------------------------------------------------------------------------------------
11.20 Relative Humidity up to 95% at +40 up to 95% at +40 up to 95% at +40
degrees centigrade degrees centigrade degrees centigrade
-------------------------------------------------------------------------------------------------------------------------------
12.0 Control & Monitoring Facilities
-------------------------------------------------------------------------------------------------------------------------------
12.10 Type Software based Software based Software based
control system control system control system
-------------------------------------------------------------------------------------------------------------------------------
12.11 Display 7 Segment LED 7 Segment LED 7 Segment LED
-------------------------------------------------------------------------------------------------------------------------------
12.12 This line not used
-------------------------------------------------------------------------------------------------------------------------------
12.13 XPView Display of all Display of all Display of all
performance performance performance
functions functions functions
-------------------------------------------------------------------------------------------------------------------------------
12.14 Display of all Display of all Display of all
alarm functions alarm functions alarm functions
-------------------------------------------------------------------------------------------------------------------------------
12.15 Configuration of Configuration of Configuration of
alarm functions alarm functions alarm functions
-------------------------------------------------------------------------------------------------------------------------------
12.16 Configuration of all Configuration of all Configuration of all
terminal functions terminal functions terminal functions
-------------------------------------------------------------------------------------------------------------------------------
12.17 Recall of last Recall of last Recall of last
configuration configuration configuration
-------------------------------------------------------------------------------------------------------------------------------
12.18 Local and Far End Local and Far End Local and Far End
Display Display Display
-------------------------------------------------------------------------------------------------------------------------------
12.19 Loop Back Facilities
-------------------------------------------------------------------------------------------------------------------------------
12.20 Far End Loop Back Each Tributary Each Tributary Each Tributary
Independently Independently Independently
-------------------------------------------------------------------------------------------------------------------------------
12.21 Local Loop Back Each Tributary Each Tributary Each Tributary
Independently Independently Independently
-------------------------------------------------------------------------------------------------------------------------------
13.0 Co and Adjacent Channel C/1
-------------------------------------------------------------------------------------------------------------------------------
13.10 Performance Degradation Criteria 1 dB Degradation 1 dB Degradation 1 dB Degradation
from BER=10(6) Spec from BER=10(6) Spec from BER=10(6) Spec
-------------------------------------------------------------------------------------------------------------------------------
13.11 Co-Channel C/1
-------------------------------------------------------------------------------------------------------------------------------
13.12 2x2 Mbits/s 23dB 23 dB 23 dB
-------------------------------------------------------------------------------------------------------------------------------
13.13 4x2 Mbits/s 23dB 23 dB 23 dB
-------------------------------------------------------------------------------------------------------------------------------
13.14 8x2 Mbits/s 23dB 23 dB 23 dB
-------------------------------------------------------------------------------------------------------------------------------
13.15 Adjacent Channel C/1
-------------------------------------------------------------------------------------------------------------------------------
13.16 2x, 4x, 8x E1 -3 dB -3 dB -3 dB
-------------------------------------------------------------------------------------------------------------------------------
14.0 Receive Signal Monitors
-------------------------------------------------------------------------------------------------------------------------------
14.10 Receive Signal Level @ ARU (BNC) +0.1 volt per dB +0.1 volt per dB +0.1 volt per dB
over range; 1 volt over range; 1 volt over range; 1 volt
equals -80 dBm. equals -80 dBm. equals -80 dBm.
-------------------------------------------------------------------------------------------------------------------------------
14.11 Threshold up to -30 dBm +/- 2 dB typical, +/- 2 dB typical, +/- 2 dB typical,
+/- 3 dB max +/- 3 dB max +/- 3 dB max
-------------------------------------------------------------------------------------------------------------------------------
14.12 Above -30 up to -20 dBm Un calibrated Un calibrated Un calibrated
(-40un) (-40un) (-40un)
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Design FAT Factory Type Install & Packing &
Specification Notes Evaluation All Units Sample Test Approval Commission Shipping
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ETSI 300019 ?????? * *
- ---------------------------------------------------------------------------------------------------------------------------------
ETSI 300019 Part 1.3 ???? * *
- ---------------------------------------------------------------------------------------------------------------------------------
After a minimum soak time of 2 Hours at -30
degrees centigrade * *
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Non condensing with terminal in operation *
- ---------------------------------------------------------------------------------------------------------------------------------
*
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Packed for export
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Speed Key Functions are RSL, BER, Transmit
Freq, Transmit Power, Link ID Code & Trib Alarm
Configuration * *
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Connection via the RS 232 Port * *
- ---------------------------------------------------------------------------------------------------------------------------------
* *
- ---------------------------------------------------------------------------------------------------------------------------------
* *
- ---------------------------------------------------------------------------------------------------------------------------------
* *
- ---------------------------------------------------------------------------------------------------------------------------------
* *
- ---------------------------------------------------------------------------------------------------------------------------------
* *
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
E1 or T1 * *
- ---------------------------------------------------------------------------------------------------------------------------------
E1 or T1 * *
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
*
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
* * *
- ---------------------------------------------------------------------------------------------------------------------------------
* * *
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
* * *
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
0.1 Volts per dB sensitivity for digital voltmeter * * *
use
- ---------------------------------------------------------------------------------------------------------------------------------
* * *
- ---------------------------------------------------------------------------------------------------------------------------------
* * *
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (23, 26 & 38 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 05:04 PM Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Sect Parameter 23 GHz Specification 26 GHz Specification 38 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
15.0 Spurious Response (at Antenna flange)
-------------------------------------------------------------------------------------------------------------------------------
15.10 Transmitter & Receiver Emissions
-------------------------------------------------------------------------------------------------------------------------------
15.11 -90 dBW 30 MHz to 21.2 GHz 30 MHz to 21.2 GHz 30 MHz to 21.2 GHz
-------------------------------------------------------------------------------------------------------------------------------
15.12 -60 dBW 21.2 MHz to 55 GHz 21.2 MHz to 80 GHz 21.2 MHz to 80 GHz
-------------------------------------------------------------------------------------------------------------------------------
15.13 Receiver Spurious Response Rejection
-------------------------------------------------------------------------------------------------------------------------------
15.14 Level of unmodulated Interference +30 dB ref. Wanted +30 dB ref. Wanted +30 dB ref. Wanted
Threshold Level Threshold Level Threshold Level
-------------------------------------------------------------------------------------------------------------------------------
15.15 Range of Interference 30 MHz to 55 GHz 30 MHz to 80 GHz 30 MHz to 80 GHz
-------------------------------------------------------------------------------------------------------------------------------
15.16 Excluded Range +/- 2 times the +/- 2 times the +/- 2 times the
relevant chan spacing relevant chan spacing relevant chan spacing
-------------------------------------------------------------------------------------------------------------------------------
15.17 Degradation Not worse than Not worse than Not worse than
BER = 10(5) BER = 10(5) BER = 10(5)
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (23, 26 & 38 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 (05:04 PM) Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
FAT Factory Type Install & Packing &
Specification Notes Design Evaluation All Units Sample Test Approval Commission Shipping
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
15.0 Spurious Response (at Antenna flange)
-------------------------------------------------------------------------------------------------------------------------------
15.10
-------------------------------------------------------------------------------------------------------------------------------
15.11 * * *
-------------------------------------------------------------------------------------------------------------------------------
15.12 * * *
-------------------------------------------------------------------------------------------------------------------------------
15.13
-------------------------------------------------------------------------------------------------------------------------------
15.14 * * *
-------------------------------------------------------------------------------------------------------------------------------
15.15 * * *
-------------------------------------------------------------------------------------------------------------------------------
15.16 * * *
-------------------------------------------------------------------------------------------------------------------------------
15.17 * * *
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (23, 26 & 38 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 05:04 PM Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Sect Parameter 23 GHz Specification 26 GHz Specification 38 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
16.0 Speed Key Functions (for a previously configured terminal)
-------------------------------------------------------------------------------------------------------------------------------
16.10 Receive Level Displayed in 1 dB Displayed in 1 dB Displayed in 1 dB
Increments Increments Increments
-------------------------------------------------------------------------------------------------------------------------------
16.11 Bit Error Rate Displays BER as Displays BER as Displays BER as
Xx10(x) Xx10(x) Xx10(x)
-------------------------------------------------------------------------------------------------------------------------------
16.12 Tx Freq Display and Change Display and Change Display and Change
-------------------------------------------------------------------------------------------------------------------------------
16.13 Tx Power Display and Change Display and Change Display and Change
-------------------------------------------------------------------------------------------------------------------------------
16.14 Trib Alarm Status Display and Change Display and Change Display and Change
-------------------------------------------------------------------------------------------------------------------------------
16.15 Transmission Capacity 2x, 4x, 8x Display and Change Display and Change Display and Change
-------------------------------------------------------------------------------------------------------------------------------
16.16 Link ID Code Display and Change Display and Change Display and Change
-------------------------------------------------------------------------------------------------------------------------------
16.17 Speed Key Access PIN 4 digits default, 4 digits default, 4 digits default,
enter only enter only enter only
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (23, 26 & 38 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 05:04 PM Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
FAT Factory Type Install & Packing &
Specification Notes Design Evaluation All Units Sample Test Approval Commission Shipping
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
16.0
-------------------------------------------------------------------------------------------------------------------------------
16.10 * * *
-------------------------------------------------------------------------------------------------------------------------------
Based on an approximation from the
measured Block Error Rate derived
16.11 from the FEC * * *
-------------------------------------------------------------------------------------------------------------------------------
16.12 * *
-------------------------------------------------------------------------------------------------------------------------------
16.13 * *
-------------------------------------------------------------------------------------------------------------------------------
16.14 * *
-------------------------------------------------------------------------------------------------------------------------------
16.15 All capacities not available on all units * *
-------------------------------------------------------------------------------------------------------------------------------
16.16 * *
-------------------------------------------------------------------------------------------------------------------------------
PIN can only be changed via XPView. Speed
Key access to change a value can be
restricted by selection via XPView, so
that Speed Key function is View Only.
This may be used after installation &
16.17 commissioning has been completed * *
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (23, 26 & 38 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 05:04 PM Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Sect Parameter 23 GHz Specification 26 GHz Specification 38 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
17.0 Fault Alarmed Functions
-------------------------------------------------------------------------------------------------------------------------------
17.10 Transmit Power Low or Fall Low or Fall Low or Fall
-------------------------------------------------------------------------------------------------------------------------------
17.11 Transmit Frequency Lock Out of lock Out of lock Out of lock
-------------------------------------------------------------------------------------------------------------------------------
17.12 Receive Level Below set threshold Below set threshold Below set threshold
-------------------------------------------------------------------------------------------------------------------------------
17.13 Receive Frequency Lock Out of lock Out of lock Out of lock
-------------------------------------------------------------------------------------------------------------------------------
17.14 Link ID Code Wrong code detected Wrong code detected Wrong code detected
-------------------------------------------------------------------------------------------------------------------------------
17.15 Trib 1 thru 8 Transmit Normal or inverted Normal or inverted Normal or inverted
-------------------------------------------------------------------------------------------------------------------------------
17.16 not used
-------------------------------------------------------------------------------------------------------------------------------
17.17 not used
-------------------------------------------------------------------------------------------------------------------------------
17.18 not used
-------------------------------------------------------------------------------------------------------------------------------
17.19 BER Service Effecting Alarm Above set level Above set level Above set level
-------------------------------------------------------------------------------------------------------------------------------
17.20 BER early warning degradation Alarm Above set level Above set level Above set level
-------------------------------------------------------------------------------------------------------------------------------
17.21 Hardware Failure Sum of other internal Sum of other internal Sum of other internal
hardware faults hardware faults hardware faults
-------------------------------------------------------------------------------------------------------------------------------
17.22 Local Aux Alarm Input Non radio alarm Non radio alarm Non radio alarm
transport transport transport
-------------------------------------------------------------------------------------------------------------------------------
17.23 Remove Aux Alarm Input Non radio alarm Non radio alarm Non radio alarm
transport transport transport
-------------------------------------------------------------------------------------------------------------------------------
17.24 Alarm Detection Delay Time up to 1 second up to 1 second up to 1 second
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (23, 26 & 38 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 05:04 PM Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
FAT Factory Type Install & Packing &
Specification Notes Design Evaluation All Units Sample Test Approval Commission Shipping
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
17.0
-------------------------------------------------------------------------------------------------------------------------------
17.10 * *
-------------------------------------------------------------------------------------------------------------------------------
17.11 * *
-------------------------------------------------------------------------------------------------------------------------------
17.12 * *
-------------------------------------------------------------------------------------------------------------------------------
17.13 * *
-------------------------------------------------------------------------------------------------------------------------------
17.14 * *
-------------------------------------------------------------------------------------------------------------------------------
17.15 "n" alarm without data, "l" alarm
with data * *
-------------------------------------------------------------------------------------------------------------------------------
17.16
-------------------------------------------------------------------------------------------------------------------------------
17.17
-------------------------------------------------------------------------------------------------------------------------------
17.18
-------------------------------------------------------------------------------------------------------------------------------
17.19 This BER No 1 is usually set to
BER = 10(3) * *
-------------------------------------------------------------------------------------------------------------------------------
17.20 This BER No 2 is usually set to
BER = 10(6) as an early indication
of errors * *
-------------------------------------------------------------------------------------------------------------------------------
17.21 * *
-------------------------------------------------------------------------------------------------------------------------------
17.22 * * *
-------------------------------------------------------------------------------------------------------------------------------
17.23 * *
-------------------------------------------------------------------------------------------------------------------------------
17.24 Alarm delays designed to eliminate
intermittent alarms and confirm hard
failures with priority based on
interaction between alarms and
maintenance considerations *
-------------------------------------------------------------------------------------------------------------------------------
Page 5 Printed 28/10/96 Innova Corp 000-000001-SPC Rev 09SAT Confidential Information
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (23, 26 & 38 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 05:04 PM Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Sect Parameter 23 GHz Specification 26 GHz Specification 38 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Configurable Functions via XPView
-------------------------------------------------------------------------------------------------------------------------------
18.10 Site Name & Corporate Name 18 characters each 18 characters each 18 characters each
-------------------------------------------------------------------------------------------------------------------------------
18.11 Transmit Power Level 0.5 dB steps 0.5 dB steps 0.5 dB steps
-------------------------------------------------------------------------------------------------------------------------------
18.12 Receive Level Alarm 1 dB steps, -60 to 1 dB steps, -60 to 1 dB steps, -60 to
-80 dBm inclusive -80 dBm inclusive -80 dBm inclusive
-------------------------------------------------------------------------------------------------------------------------------
18.13 BER early warning degradation Alarm Xx10(-3,-4,-5,-6) Xx10(-3,-4,-5,-6) Xx10(-3,-4,-5,-6)
-------------------------------------------------------------------------------------------------------------------------------
18.14 BER Service Effecting Alarm Xx10(-3,-4,-5,-6) Xx10(-3,-4,-5,-6) Xx10(-3,-4,-5,-6)
-------------------------------------------------------------------------------------------------------------------------------
18.15 Link ID Code 1 to 255 1 to 255 1 to 255
-------------------------------------------------------------------------------------------------------------------------------
18.16 AIS Insert Enable or Disable Enable or Disable Enable or Disable
-------------------------------------------------------------------------------------------------------------------------------
18.17 Transmit Mute On or Off On or Off On or Off
-------------------------------------------------------------------------------------------------------------------------------
18.18 Data Loopback On or Off On or Off On or Off
-------------------------------------------------------------------------------------------------------------------------------
18.19 FEC Enable or Disable Enable or Disable Enable or Disable
-------------------------------------------------------------------------------------------------------------------------------
18.20 Alarm Relay Names 8 characters max 8 characters max 8 characters max
per relay per relay per relay
-------------------------------------------------------------------------------------------------------------------------------
18.21 Trib 1 thru 8 Normal or invert Normal or invert Normal or invert
-------------------------------------------------------------------------------------------------------------------------------
18.22 not used
-------------------------------------------------------------------------------------------------------------------------------
18.23 not used
-------------------------------------------------------------------------------------------------------------------------------
18.24 not used
-------------------------------------------------------------------------------------------------------------------------------
18.25 Transmit Freq Start xx,xxx.xx MHz xx,xxx.xx MHz xx,xxx.xx MHz
(Two decimal places) (Two decimal places) (Two decimal places)
-------------------------------------------------------------------------------------------------------------------------------
18.26 Transmit Freq End xx,xxx.xx MHz xx,xxx.xx MHz xx,xxx.xx MHz
(Two decimal places) (Two decimal places) (Two decimal places)
-------------------------------------------------------------------------------------------------------------------------------
18.27 Transmit to Transmit Spacing 1.00 to 99.75 MHz 1.00 to 99.75 MHz 1.00 to 99.75 MHz
(Two decimal places) (Two decimal places) (Two decimal places)
-------------------------------------------------------------------------------------------------------------------------------
18.28 Number of frequency plans stored 25 max 25 max 25 max
-------------------------------------------------------------------------------------------------------------------------------
18.29 P.I.N.s 4 digits 4 digits 4 digits
-------------------------------------------------------------------------------------------------------------------------------
18.30 PIN Access Levels Keys only Keys only Keys only
-------------------------------------------------------------------------------------------------------------------------------
9.0 Mechanical
-------------------------------------------------------------------------------------------------------------------------------
19.10 ARU
-------------------------------------------------------------------------------------------------------------------------------
19.12 Diameter 8.9" (22.6 cm) 8.9" (22.6 cm) 8.9" (22.6 cm)
-------------------------------------------------------------------------------------------------------------------------------
19.14 Depth 4.8" (12.2 cm) 4.8" (12.2 cm) 4.8" (12.2 cm)
-------------------------------------------------------------------------------------------------------------------------------
19.15 SIU Horizontal 19" EIA Rack (1RU)
-------------------------------------------------------------------------------------------------------------------------------
19.16 Height 1.72" (4.37 cm) 1.72" (4.37 cm) 1.72" (4.37 cm)
-------------------------------------------------------------------------------------------------------------------------------
19.20 Depth 10" (25.4 cm) 10" (25.4 cm) 10" (25.4 cm)
-------------------------------------------------------------------------------------------------------------------------------
20.0 Antennas
-------------------------------------------------------------------------------------------------------------------------------
20.10 Type Dielectrically Dielectrically Dielectrically
Loaded Horn Loaded Horn Loaded Horn
-------------------------------------------------------------------------------------------------------------------------------
20.11 Antenna Size 24 cm 24 cm 24 cm
-------------------------------------------------------------------------------------------------------------------------------
20.12 Frequency Range 21.2 GHz to 23.6 GHz 24.5 GHz to 26.5 GHz 37.0 GHz to 40.0 GHz
-------------------------------------------------------------------------------------------------------------------------------
20.13 Radiation Pattern Innova Standard Innova Standard Innova Standard
Performance Mask Performance Mask Performance Mask
-------------------------------------------------------------------------------------------------------------------------------
20.14 Nominal Gain 32 dBl 33 dBl 37 dBl
-------------------------------------------------------------------------------------------------------------------------------
20.15 Gain Variation over Band +/- 1 dB +/- 1 dB +/- 1 dB
-------------------------------------------------------------------------------------------------------------------------------
20.16 Half Power Beam Width 4.0 Degrees 4.0 Degrees 2.4 Degrees
-------------------------------------------------------------------------------------------------------------------------------
20.17 Cross polarization 26 dB min 26 dB min 26 dB min
discrimination
-------------------------------------------------------------------------------------------------------------------------------
20.18 Electrical Interface Innova type to mount Innova type to mount Innova type to mount
to ARU Unit to ARU Unit to ARU Unit
-------------------------------------------------------------------------------------------------------------------------------
20.19 Pole Mount Diameter (Std) 1.5 inches to 4.5 1.5 inches to 4.5 1.5 inches to 4.5
inches diameter inches diameter inches diameter
-------------------------------------------------------------------------------------------------------------------------------
20.20
-------------------------------------------------------------------------------------------------------------------------------
20.21 Azimuth Adjustment Range 360 degrees 360 degrees 360 degrees
-------------------------------------------------------------------------------------------------------------------------------
20.22 Elevation Adjustment Range +/- 50 degrees +/- 50 degrees +/- 50 degrees
-------------------------------------------------------------------------------------------------------------------------------
20.23 Antenna Size 34 cm 34 cm 34 cm
-------------------------------------------------------------------------------------------------------------------------------
20.24 Frequency Range 21.2 GHz to 23.6 GHz 24.5 GHz to 26.5 GHz 37.0 GHz to 39.5 GHz
-------------------------------------------------------------------------------------------------------------------------------
20.25 Radiation Pattern Innova High Innova High Innova High
Performance Mask Performance Mask Performance Mask
-------------------------------------------------------------------------------------------------------------------------------
20.26 Nominal Gain 36 dBl 37 dBl 40 dBl
-------------------------------------------------------------------------------------------------------------------------------
20.27 Gain Variation over Band +/- 1 db +/- 1 db +/- 1 db
-------------------------------------------------------------------------------------------------------------------------------
20.28 Half Power Beam Width 2.7 Degrees 2.7 Degrees 1.6 Degrees
-------------------------------------------------------------------------------------------------------------------------------
20.29 Cross polarization 26 dB min 26 dB min 26 dB min
discrimination
-------------------------------------------------------------------------------------------------------------------------------
20.30 Electrical Interface Innova type to mount Innova type to mount Innova type to mount
to ARU Unit to ARU Unit to ARU Unit
-------------------------------------------------------------------------------------------------------------------------------
20.31 Pole Mount Diameter (Std) 1.5 inches to 4.5 1.5 inches to 4.5 1.5 inches to 4.5
inches diameter inches diameter inches diameter
-------------------------------------------------------------------------------------------------------------------------------
20.32
-------------------------------------------------------------------------------------------------------------------------------
20.33 Azimuth Adjustment Range 360 degrees 360 degrees 360 degrees
-------------------------------------------------------------------------------------------------------------------------------
20.34 Elevation Adjustment Range +/- 50 degrees +/- 50 degrees +/- 50 degrees
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Design FAT Factory Type Install & Packing &
Specification Notes Evaluation All Units Sample Test Approval Commission Shipping
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
0.5 dB steps preferred, up to *
max power available
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
Early warning BER alarm *
- --------------------------------------------------------------------------------------------------------------------------
High Error Rate BER Alarm *
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
Both Local and Remote loopback * *
- --------------------------------------------------------------------------------------------------------------------------
* *
- --------------------------------------------------------------------------------------------------------------------------
Visible on XPView only * *
- --------------------------------------------------------------------------------------------------------------------------
"n" alarm without data, "l" alarm *
with data
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
* *
- --------------------------------------------------------------------------------------------------------------------------
* *
- --------------------------------------------------------------------------------------------------------------------------
* *
- --------------------------------------------------------------------------------------------------------------------------
* *
- --------------------------------------------------------------------------------------------------------------------------
Can be Enabled, Disabled or Locked * * *
- --------------------------------------------------------------------------------------------------------------------------
XPView * *
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
EIA standard for a 1.75" rack unit *
- --------------------------------------------------------------------------------------------------------------------------
Industry standard of 10" max *
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
* *
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
* *
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
*
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 6 Printed 28/10/96 Innova Corp. 000-000001-SPC Rev 09SAT
Confidential Information
<PAGE> 22
EXHIBIT 23.2
COMBINED INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULE AND CONSENT
The Board of Directors
Innova Corporation:
The audits referred to in our report dated April 30, 1997, except as to
Note 17, which is as of June 17, 1997, included the related financial statement
schedule, listed in Item 16 herein, as of December 31, 1996, and for each of
years in the two-year period ended March 31, 1996 and for the nine month fiscal
period ended December 31, 1996, included in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" and "Selected Financial Data" in the
prospectus.
/s/ KPMG PEAT MARWICK LLP
Seattle, Washington
June 17, 1997
<PAGE> 23
<TABLE>
<CAPTION>
XP4 Series Terminal Specification (13, 15 & 18 GHz)
----------------------------------------------------------
Rev 09 SAT 28-Oct-96 (04:46 PM) Originated By [ ]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Sect Parameter 13 GHz Specification 15 GHz Specification 18 GHz Specification
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7.0 Data Interfaces
-------------------------------------------------------------------------------------------------------------------------------
7.10 Line code HDB3 HDB3 HDB3
-------------------------------------------------------------------------------------------------------------------------------
7.11 Connector Type BNC 75 ohm unbalanced BNC 75 ohm unbalanced BNC 75 ohm unbalanced
-------------------------------------------------------------------------------------------------------------------------------
7.12 RJ48 120 ohm balanced RJ48 120 ohm balanced RJ48 120 ohm balanced
-------------------------------------------------------------------------------------------------------------------------------
7.13 Compatability (2 Mbits/s or T1 Interface) CCITT G.703 CCITT G.703 CCITT G.703
-------------------------------------------------------------------------------------------------------------------------------
7.14 Input Rate Frequency Tolerance
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Design FAT Factory Type Install & Packing &
Specification Notes Evaluation All Units Sample Test Approval Commission Shipping
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
OEM PURCHASE
AND
LIMITED LICENSING
AGREEMENT
1
NOTE: The symbol ***** indicates where confidential
portions have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE> 2
Table of Contents
<TABLE>
<S> <C>
1. DEFINITIONS..............................................................5
2. RIGHT TO PURCHASE THE PRODUCTS...........................................8
3. LIMITATIONS ON NERA'S RIGHTS TO PRODUCTS.................................8
4. LIMITED ASSEMBLY AND MANUFACTURING LICENSES..............................9
5. PRODUCTS................................................................11
6. EFFECTIVE PERIOD OF THE AGREEMENT.......................................11
7. PRICES..................................................................11
8. TRANSPORTATION..........................................................12
9. TERMS OF PAYMENT........................................................12
10. SPECIFICATIONS OR DRAWINGS AND CHANGES..................................12
11. PRODUCT DOCUMENTATION...................................................14
12. QUALITY ASSURANCE.......................................................14
13. PURCHASE ORDERS.........................................................15
14. SHIPPING, BILLING AND PACKAGING.........................................17
15. LATE DELIVERY...........................................................18
16. TRANSFER OF TITLE.......................................................18
17. INNOVA'S WARRANTY.......................................................18
18. REPAIRS NOT COVERED UNDER INNOVA'S WARRANTY.............................20
19. CONTINUING AVAILABILITY OF MAINTENANCE, REPLACEMENT AND REPAIR
PARTS.......................................................................21
20. PRODUCT SUPPORT.........................................................21
21. TRAINING................................................................22
22. MARKING.................................................................22
23. TERMINATION OF THE AGREEMENT............................................22
24. TERMINATION OF A PURCHASE ORDER.........................................23
</TABLE>
2
<PAGE> 3
25. EFFECT OF TERMINATION...................................................23
26. CONFIDENTIALITY.........................................................24
27. INFRINGEMENT............................................................24
28. PROPRIETARY INFORMATION.................................................24
29. PUBLICITY...............................................................25
30. INSIGNIA................................................................25
31. COMPLIANCE WITH LAW.....................................................25
32. FORCE MAJEURE...........................................................25
33. ASSIGNMENT..............................................................26
34. LIABILITY...............................................................27
35. INDEMNITY...............................................................27
36. CHOICE OF LAW...........................................................28
37. DISPUTE AND ARBITRATION.................................................28
38. NOTICES.................................................................28
39. LICENSES................................................................29
40. TOXIC SUBSTANCES........................................................29
41. RADIATION STANDARDS.....................................................30
42. POSSIBLE TECHNOLOGY TRANSFER............................................30
43. INCORPORATION AND APPROVALS.............................................30
44. ENTIRE AGREEMENT........................................................30
45. NON-WAIVER..............................................................31
46. DEVELOPMENT COMMITMENTS.................................................31
APPENDIX "A" - PRICES.......................................................32
APPENDIX "B" - TECHNICAL SPECIFICATIONS.....................................33
APPENDIX "C" - CONFIDENTIALITY .............................................34
APPENDIX "D" - CUSTOM COMPONENTS............................................35
APPENDIX "E" - SOFTWARE LICENSE.............................................36
3
<PAGE> 4
APPENDIX "F" - ESCROW ACCOUNT...............................................37
4
<PAGE> 5
OEM PURCHASE
AND
LIMITED LICENSING AGREEMENT
This OEM Purchasing and Limited Licensing Agreement ("the Agreement") is entered
into between:
NERA ASA, a company organised and existing according to the laws of Norway, with
its principal office located at Kokstadveien 23, N-5061 Kokstad, Norway
("NERA");
and
INNOVA, a company organised and existing according to the laws of Washington,
U.S., with its principal office located at 3325 S. 116th St., Seattle, WA U.S.
(INNOVA);
WHEREAS, NERA and INNOVA desire to capture an aggregate, annual minimum volume
of ***** (*****) low-to-medium capacity radio relay transceivers operating
from 7 GHz to 40 GHz;
WHEREAS, INNOVA wishes to supply NERA and NERA Associated Companies with certain
models of radio-relay Products, and NERA and NERA Associated Companies wish to
purchase from INNOVA certain models of its radio-relay Products, according to
the terms and conditions contained herein;
NOW, THEREFORE, the Parties hereby agree as follows:
1. DEFINITIONS
In this Agreement the following words and expressions shall have the following
meanings assigned to them:
"Agreement" means this Agreement including Appendices "A", "B", "C", "D", "E"
and "F". annexed hereto;
"Calibration and FAT Technical Information" means INNOVA's testing and equipment
specifications, procedures and other technical information for the calibration
and Final Acceptance Testing of Equipment Systems, all of which are Proprietary
Information of INNOVA;
5
<PAGE> 6
"Custom Components" means those specific parts listed Appendix "D" annexed
hereto;
"Day" or "days" means calendar day or days, including weekends and statutory
holidays, but excluding INNOVA's Christmas and Easter plant shutdowns, each
lasting one (1) week;
"Epidemic Fault" shall have the meaning assigned to it in Article 17(E);
"Equipment Systems" means INNOVA's radio-relay Equipment, including all related
software, comprised of an Outdoor Unit and an Indoor Unit, as listed in Appendix
"A", described in the Technical Specifications hereof in Appendix "B"; and
"Equipment System" shall mean each individual line (either Outdoor Unit or
Indoor Unit) of Equipment Systems, as differentiated by frequency and data rate,
included in the Equipment Systems; and Equipment System(s) shall be for the
purpose of this Agreement entirely equivalent in Definition to Level 1
Product(s);
"Equipment Kit" means a complete kit of all the Equipment Modules which comprise
an Equipment System; and Equipment Kits shall be for the purpose of this
Agreement entirely equivalent in Definition to Level 2 Products;
"Equipment Modules" means the individual equipment modules which comprise the
Equipment Kit and which may be separately ordered as a replaceable unit from
INNOVA; and Equipment Modules shall be for the purpose of this Agreement
entirely equivalent in Definition to Level 3 Products;
"Information" means any specifications, drawings, sketches, models, samples,
computer programs, and technical information in written form or otherwise;
"Insignia" means trademarks, trade names, logos, symbols and/or decorative or
packaging designs;
"Modification Request" or "MR" shall have the meaning assigned to it in Article
10(F);
"Module Manufacturing Technical Information" means INNOVA's parts
specifications, parts lists, procedures, software and other technical
information for manufacture of Equipment Modules, all of which are Proprietary
Information of INNOVA; Module Manufacturing Technical Information shall be for
the purpose of this Agreement entirely equivalent in Definition to Level 4
Products;
"Module Testing Technical Information" means INNOVA's Factory Test procedures
and associated technical information for testing only of Equipment Modules, all
of which are Proprietary Information of INNOVA;
6
<PAGE> 7
"NERA Associated Companies" means all of the companies within the world-wide
group of NERA companies that directly or indirectly share a parent company,
being a company which directly or indirectly exercises 50% or more of the voting
rights attached to their respective issued share capital, with NERA,
"Parties" means both INNOVA and NERA, and Party means either INNOVA or NERA;
"Price(s)" means the price(s) for the Equipment Systems, Equipment Kits and
Equipment Modules and for the product support and training services described in
Articles 18, 20 and 21 hereof, as listed in Appendix "A";
"Product" shall mean any of Level 1, Level 2, Level 3, or Level 4 Product and
are specified in Appendix "B", Technical Specifications,
"Product Documentation" means tile Technical Specifications Included In Appendix
"B", as well as INNOVA's operations and maintenance manual, INNOVA's
installation manual, and INNOVA's product application documents, all of which
are listed and identified in Appendix "B"; and
"Proprietary Information" shall have the meaning assigned to it in Article 28;
"Purchase Orders" shall have the meaning assigned to it in Article 13;
"Replaceable Unit" means an Equipment Module of the Equipment System which may
be separately ordered as a spare part from INNOVA;
"Technical Specifications" means those specifications for tile Equipment Systems
and Equipment Modules included in Appendix "B";
"Term" means tile period defined in Article 6;
"Territory" means every country in the world. NERA acknowledges that Innova has
appointed SAT as its representative in France, Andorra, Monaco, Hungary, Poland
and Italy and sales in these countries will be coordinated with SAT on a case by
case basis.
7
<PAGE> 8
2. RIGHT TO PURCHASE THE PRODUCTS
NERA and INNOVA hereby agree that INNOVA hereby offers the Products for sale to
NERA and to the NERA Associated Companies, and that the NERA Associated
Companies shall be entitled to purchase the Products from INNOVA, for the
Prices, during the Term, and Subject to the further terms and conditions
contained herein. INNOVA hereby acknowledges to NERA that all rights granted to
NERA in this Agreement concerning the exercise of this right to purchase the
Products may be exercised by both NERA and by the NERA Associated Companies.
3. LIMITATIONS ON NERA'S RIGHTS TO PRODUCTS
A. The sale of Products to NERA and the transfer of title for each Sale of
Equipment Systems by NERA shall not include a sale of any software, or
any updates and modifications thereto, which may be included therein
(collectively, "Software"). Instead, the sale of Products to NERA is on
the basis of a Software license to NERA, and, where applicable, the
sale of Equipment Systems by NERA shall be on the basis of a license
for NERA to transfer the Software to its customers upon execution of a
Software license by NERA's customers in accordance with Appendix "E".
INNOVA shall retain full title to the Software and all copies thereof,
and NERA and its customers may use the Software only in accordance with
the provisions of their executed Software licenses. Neither NERA nor
its customers shall have any access to or rights in the Software source
codes unless otherwise mutually agreed to in writing by the Parties.
NERA and NERA customers shall, however, be granted full access to the
Software under the Software license for the life expectancy of the
Products so being supported.
B. Neither NERA nor its customers shall have the right to copy, modify or
remanufacture any Product or part thereof, except as expressly
permitted herein. This provision, however, shall not obstruct the
possibility of NERA and NERA's customers to develop and adapt necessary
interfaces for the Products to operate with other equipment.
C. The Parties acknowledge and agree that INNOVA would not enter into this
Agreement if the disclosure of Technical Specifications and other
Proprietary Information of INNOVA hereunder merely allows NERA to
complete the development of its own competing product(s), and such
competing product(s) thereafter allow NERA to terminate its
relationship with INNOVA. Therefore, NERA undertakes during the term of
this Agreement and for two (2) years thereafter, not to develop or have
developed, manufacture or sell any product based on Products of INNOVA
or specific technology of INNOVA disclosed in the Technical
Specifications.
8
<PAGE> 9
4. LIMITED ASSEMBLY AND MANUFACTURING LICENSES
INNOVA hereby grants to NERA certain nonexclusive, non-transferrable rights and
licenses, without right to Sublicense, during the term of this Agreement, as
follows:
A. The royalty-free right to calibrate and perform Final Acceptance
Testing (FAT), at NERA's facility, of Equipment Kits (Level 2
Products), purchased from INNOVA, for such Equipment System, in
accordance with the procedures and specifications contained in the
Calibration and FAT Technical Information, subject to the terms and
conditions hereof.
(1) NERA shall purchase Equipment Kits for such Equipment System
from INNOVA, at the Prices for Level 2 Products set forth in
Appendix "A", and in accordance with the ordering and shipping
procedures set forth in this Agreement. All Equipment Kits
shall be used solely for finishing (i.e., calibration and FAT)
by NERA into Equipment Systems, and may not be sold or
otherwise transferred by NERA to a third party) (including any
NERA Associated Company).
(2) If any Equipment Kits Supplied to NERA fail to perform
pursuant to tile warranty in Section 17.A below due to a
defective Custom Component, NERA shall obtain replacement
Custom Components from INNOVA in accordance with the
procedures in article 17 below. If such failure is due to
defects in any Equipment Module other than Custom Components,
NERA may obtain the replacement Equipment Modules needed to
correct such failure from INNOVA, in accordance with the
procedures in Article 17 below.
(3) The Calibration and FAT Technical Information shall be
delivered to NERA by INNOVA at such time as agreed by the
Parties but no later than 30 days after INNOVA's receipt of
NERA's initial purchase order as defined in Section 13.A of
this Agreement.
B. The royalty-free right at a mutually agreed upon time and for selected
Equipment Modules (Level 3 Products) to perform additional testing of
such Equipment Modules, at NERA's facility, in accordance with the
procedures and specifications contained in the Module Testing Technical
Information, subject to tile terms and conditions hereof.
(1) NERA shall purchase all Custom Components and Equipment
Modules from INNOVA at the Prices for Level 3 Products Set
forth in Appendix "A" and in accordance with the ordering and
shipping procedures set forth in this Agreement.
9
<PAGE> 10
(2) All Equipment Modules and Components procured by NERA shall be
used solely for (a) initial assembly by NERA into Equipment
Systems, or (b) as Replaceable Units for Equipment Systems.
(3) The Module Testing Technical Information shall be delivered to
NERA by INNOVA at Such time as mutually agreed upon in writing
by the Parties,
C. The right to manufacture the Equipment Modules (Level 4 Products) for
such Equipment System, either at such time as mutually agreed upon in
writing by the Parties or if one of the conditions listed below in
Section 4.C.1 then applies, in accordance with the Module Manufacturing
Technical Information, subject to the terms and conditions hereof.
(1) The occurrence of one of the following is a condition to the
effectiveness of the license granted above;
(a) The bankruptcy, termination of business, termination
of manufacturing and promotion by INNOVA of the
Products under this Agreement or dissolution of
INNOVA; or
(b) Innova has been unable to Supply Equipment Systems
(or Equipment Modules pursuant to section 4.3 above)
in excess of 2 months after confirmed delivery time
for firm purchase orders pursuant to section 13
below.
In the event of a license triggered by the conditions in the
preceding paragraph (b), such license shall only be effective
until such time as INNOVA is able to cure its inability to
supply Equipment Systems (or Equipment Modules, as the case
may be) as therein described.
(2) The Module Manufacturing Technical Information for all
Equipment Modules, the source code for the Software not
included in the Module Manufacturing Technical Information and
the Module Testing Technical Information for all Equipment
Modules shall be placed into escrow by INNOVA with a neutral
third party escrow agent for release to NERA in the event one
of the conditions for release, as set forth in this Section
4.C.1 have been met, and otherwise in accordance with the
terms of a separate escrow agreement, substantially in the
form attached hereto as Appendix "F".
(3) Royalties are included in the pricing shown in Appendix A
10
<PAGE> 11
(4) INNOVA will grant to NERA, 30 days after receipt by INNOVA of
NERA's initial purchase order as defined in Section 13.A of
this Agreement, the right to manufacture and test the Indoor
Units for use with Outdoor Unit Equipment Kits provided by
INNOVA, under license. This grant is subject to mutual
agreement between the Parties regarding the purchase by
INNOVA from NERA of Indoor Units.
5. PRODUCTS
Changes to the Products as described in Appendix "A" and for which the
Technical Specifications are given in Appendix "B" may be mutually agreed by the
Parties from time to time in writing.
6. EFFECTIVE PERIOD OF THE AGREEMENT
The term of this Agreement shall commence on the date it is signed by both
Parties, and shall, except as otherwise provided herein, continue in effect
thereafter for a period of five (5) calendar years ("the Term"). The Parties may
extend the Term for periods of one (1) year by written agreement reached at
least ninety (90) days prior to the end of the Term.
7. PRICES
A. The Prices are set out in Appendix "A" and will be reviewed on an
annual basis. Price(s) may be adjusted by the mutual written consent of
the Parties' authorised representatives according to the competitive
situation for the Products in certain markets.
B. The Parties agree that INNOVA shall at all times grant to NERA the
prices, delivery times, and other terms and conditions for the purchase
and sale of the Products which it grants to its most favoured
customers. If INNOVA offers the Products, or substantially similar
products, to any third party, at prices, delivery times and at other
terms and conditions which are more favourable than those contained
herein, then INNOVA shall offer NERA the opportunity to accept those
prices, delivery times and other terms and conditions as well, unless
the Parties have agreed prior to INNOVA making any such offer to a
third party that it shall not be offered to NERA as well.
11
<PAGE> 12
8. TRANSPORTATION
Unless requested to do otherwise by NERA, INNOVA shall ship the Products ordered
by NERA pursuant to a Purchase Order, according to the following delivery terms:
FCA Seattle, Washington, U.S. (Incoterms, 1990 edition). When requested to do so
by NERA, INNOVA shall arrange shipment of the Products ordered by NERA to the
destination specified by NERA using tile lowest published common carrier (rail,
trucks, or freight forwarder) acceptable to NERA, with transportation and
special packaging charges prepaid by INNOVA and added to the invoice as a
separate item.
9. TERMS OF PAYMENT
NERA shall be responsible for paying the net amount of an invoice received from
INNOVA within forty-five (45) days from the date of the receipt by NERA or its
agent of the Products to which the invoice relates, at the FCA point. Without
prejudice to any other remedy for non-payment, any late payments shall be
Subject to an interest of one percent (1%) per month.
10. SPECIFICATIONS OR DRAWINGS AND CHANGES
A. INNOVA warrants to NERA that the Technical Specifications annexed
hereto as Appendix "B" constitute the technical and mechanical
specifications for the Products. Any changes to the Technical
Specifications initiated by either Party and approved by the other
Party, which approval shall not be unreasonably withheld, shall result
in amendments being made to Appendix "B", and such amended
specifications shall then be considered to be the Technical
Specifications for the purposes of the Agreement.
B. INNOVA may make changes to the Products provided that (a) the change
does not reduce the reliability or affect the form, fit or function
(as defined in paragraph "D" hereof) of the Products, (b) the changes
do not negate the approval of any public telecommunication authorities
regarding the Products or any other Products in which it is
incorporated by NERA, and (c) NERA is notified by INNOVA in writing of
the change at least thirty (30) days in advance.
C. Any change that INNOVA proposes to make to the Products which could
reduce its reliability or affect its form, fit or function (as defined
in paragraph "D" hereof), or which could negate the approval of the
relevant public telecommunication authorities, shall require that
INNOVA give advance written notice to and receive prior approval from
NERA, which approval shall not be unreasonably withheld, in accordance
with the following procedure: In order for NERA to be able to review
the proposed changes, INNOVA shall give NERA at least ninety (90) days
advance written notice thereof except in those cases where an extremely
unsatisfactory
12
<PAGE> 13
condition requires immediate action. In such a case, verbal
notification to NERA shall be given, followed by INNOVA's immediate
written confirmation. If NERA does not respond by the end of the notice
period INNOVA may proceed with the implementation of the change.
D. For the purpose of this Article 10, changes in "form" shall mean
changes in appearance visible to the user (the customer and/or
maintenance personnel); changes in Fit shall mean changes in
Replaceable Units of the Products so that they are not physically
interchangeable; and changes in "function" shall mean changes that
affect adversely tile operational characteristics of the Products or
require the operator to change the method of operation.
E. Products resulting from any changes in the architecture of the
Equipment Systems, significant new INNOVA research and development, or
any changes in Equipment Systems which are so substantial that INNOVA
designates the resulting product as a new product for INNOVA's
marketing and inventory purposes, shall not be deemed to be Products
under this Agreement.
F. NERA may propose changes or enhancements to the design of the Products
or to Replaceable Units thereof by submitting a Modification Request
("MR") to INNOVA. The MR shall include details of the suggested
changes, including but not limited to priority, functional
requirements, development work statements, physical drawings, etc. and
the reason for the request. NERA shall also specifically refer in the
MR to any intellectual property rights inherent in the MR to which NERA
claims ownership. INNOVA shall accept or reject an MR ten (10) days
after its receipt. A rejection shall be justified by INNOVA on
reasonable grounds. INNOVA shall, upon the receipt and acceptance of an
MR, submit a formal response within sixty (60) days or less after its
acceptance, depending on the complexity of the MR, in the form of a
written proposal to NERA, specifically documenting all cost and price
factors, implementation schedules, documentation changes and test
procedure changes, as well as service and repair changes associated
with the MR. The mutual agreement of the Parties shall be required in
order to implement the MR. Any intellectual property rights owned by
NERA inherent in an MR, accepted by INNOVA, shall belong to NERA,
subject to INNOVA's nonexclusive, perpetual, irrevocable, world-wide,
royalty-free, transferable license to copy and use the MR in any way in
connection with INNOVA's business.
13
<PAGE> 14
11. PRODUCT DOCUMENTATION
A. INNOVA agrees to furnish NERA, at no charge, with an electronic copy of
the Product Documentation, as currently listed in Appendix "B" annexed
hereto, as well as with any succeeding amendments to any of the Product
Documentation.
B. NERA may use, reproduce, reformat, modify and distribute the Product
Documentation. NERA agrees to reproduce INNOVA's copyright notice
contained in any Product Documentation which is reproduced by NERA
without change thereto. NERA shall have the right to place only NERA's
own copyright notice on any reformatted or modified Product
Documentation and NERA shall assume responsibility for any statements
therein to the extent of any such reformatting or modification. The
Parties intend that NERA's copyright notice on any such reformatted or
modified Product Documentation shall be interpreted to protect the
underlying copyright of INNOVA to the Product Documentation to the
extent such underlying rights are owned by INNOVA. The Product
Documentation may be produced, stored, or reproduced by NERA using
electronic media.
12. QUALITY ASSURANCE
A. When producing the Products, Innova shall comply with:
1) A quality system that meets standard ISO 9001 "Model for quality
assurance in design/development, production, installation and
servicing"
2) The Quality Plan and specific quality criteria contained in related
development and production agreements.
B. Whenever it is requested, Innova shall give NERA the opportunity during
the production process to inspect the Products or have them inspected.
C. For inspection during the production process, Innova shall supply
testing and measuring equipment free of charge, provide staff to assist
and allow the documents specified in the above mentioned standard ISO
9001 to be inspected.
D. Innova shall always make a final inspection and performance test of the
Products as the final production step in order to verify that the
Products are compliant with the Product Documentation.
E. If and in so far as the Products are produced by a sub contractor
working for Innova, NERA shall be granted unrestricted access to the
sub contractors relevant facilities and the Quality System procedures
to verify compliance with the procedures and the Product Documentation,
The sub contractor shall make available for reasonable use by NERA the
test and measuring equipment necessary for verification purposes.
Personnel shall be made available for operation of such equipment as
required.
14
<PAGE> 15
F. Unless otherwise agreed in writing by the Parties the products shall be
deemed accepted by NERA upon delivery to NERA's freight forwarder in
Seattle.
13. PURCHASE ORDERS
A. Frame Purchase Commitment
NERA hereby agrees to purchase from INNOVA, subject to the Purchase
Order and Change Order conditions set forth below, products in the
value of five million U.S. dollars (U.S. $5 Million) over a twelve (12)
months period commencing with the signing of this Agreement, and to
place an initial firm purchase order no later than thirty (30) days
after the signing of this Agreement.
B. Rolling Forecasts
NERA will prepare, on a monthly basis, 6 month rolling forecasts of its
requirements for Products and, by the 1st of each calendar month, will
place firm purchase orders (subject to the change order provisions
below) covering the first two (2) months of such forecasts. Such
forecasts may be adjusted on a monthly basis, but any adjustments to
the forecasts are to be limited in accordance with the following
parameters:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rolling Forecast by Month 1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------
Firm Orders X X
--------------------------------------------------------------------------------------------------------
Forecast and % Limits n/a n/a +20/-40 +40/-60 +/-100 none
--------------------------------------------------------------------------------------------------------
</TABLE>
Forecasts by NERA exceeding 300 Terminals per month are subject to
INNOVA's approval.
C. Purchase Orders
All orders for Products submitted by NERA shall be initiated by written
purchase orders sent to INNOVA; provided however, that an order may
initially be placed by telecopy if a confirming written purchase order
is received by the INNOVA within fifteen (15) days after said telecopy
order.
1. The terms and conditions of this Agreement shall apply to all
such Purchase Orders placed by NERA for the Products. Purchase
Orders shall be sent to the following address:
3325 S. 116th St.
Seattle, WA 98168
U.S.A.
Tel.: 206-439-9121
Fax: 206-244-2350
15
<PAGE> 16
INNOVA shall appoint a NERA Account Manager who shall be available by
telephone every working day during normal working hours to discuss
matters related to Purchase Orders placed by NERA.
Purchase Orders sent to INNOVA by NERA shall specify the following
information:
a) a description of the ordered Products, including any
numerical/alphabetical identification contained in Appendix
"A" annexed hereto;
b) the quantity of the Replaceable Units of the Products ordered;
c) the requested delivery date;
d) the applicable Price;
e) the location to which the Products are to be shipped;
f) the location to which invoices shall be rendered for payment;
and
2. INNOVA shall promptly accept Purchase Orders issued to it by NERA in
accordance with this Agreement and the Purchase Order. INNOVA shall
acknowledge to NERA in writing the receipt and the accuracy of any
Purchase Order together with a firm shipping date within ten (10) days
of its receipt, subject to all necessary information having been
provided to INNOVA by NERA sufficient for INNOVA to start the
manufacturing process. INNOVA shall furthermore advise NERA immediately
upon receipt of a Purchase Order if it is incomplete or otherwise
insufficient for INNOVA to start the manufacturing process.
Standard delivery lead time shall be within two (2) months after
receipt of order for orders placed in compliance with the forecasts
described below. However NERA may request and INNOVA may agree to
earlier delivery on a case by case basis. Unforecasted requirements
will be quoted at time of request on a best effort basis.
D. Change Orders
NERA may utilize written change orders without penalty for:
1. orders that have not yet been accepted by INNOVA;
2. orders that have been accepted by Innova but not yet been shipped, but
only under the following circumstances and subject to the following
conditions:
(i) NERA may delay delivery for up to three (3) months of any
accepted order, provided that the NERA change order is
received by Innova at least thirty (30) days before the
scheduled delivery date.
16
<PAGE> 17
(ii) NERA may cancel any order that has been accepted by INNOVA,
provided that the written change order is received by INNOVA
at least forty five (45) days before the scheduled delivery
date.
(iii) NERA may request reasonable changes in the Product mix and/or
quantity in an order that has been accepted by INNOVA,
provided that tile written change order is received by INNOVA
at least thirty (30) days before the scheduled delivery date
and that Substantial changes in Product mix and/or quantity
are mutually agreed upon.
(iv) No specific limits on rescheduling or cancellation of orders
will be imposed by INNOVA on NERA if such rescheduling or
cancellation has been requested by NERA's customer(s) for
reasons directly attributable to INNOVA's negligent
performance.
14. SHIPPING, BILLING AND PACKAGING
A. For Purchase Orders received from NERA, INNOVA shall take the following
actions:
a) ship Purchase Orders complete unless INNOVA is instructed
otherwise by NERA;
b) ship the Products to the destination designated in-accordance
with the specific shipping instructions;
c) enclose a packing list with each shipment and, when more than
one package is shipped, identify the one containing the
packing list;
d) mark Purchase Order number and part number on all packages and
shipping papers;
e) render invoices in duplicate or as otherwise specified,
showing the Purchase Order number, through-routing information
and weight;
f) render separate invoices for each shipment or Purchase Order;
g) forward bills of lading and shipping notices with NERA's
invoices; and
h) send INNOVA's invoice, bills and notices to the address shown
on the Purchase Order.
Shipping and routing instructions may be altered as mutually agreed
upon by INNOVA and NERA with written notice.
B. INNOVA shall package and mark the Products prior to shipment in
accordance with all legal and regulatory requirements relating to,
without limitation, safety, health, and protection of the environment,
which apply in the countries of manufacture, shipment, transfer and
destination for each shipment, to the extent that these requirements
are known by or may reasonably be expected to be known by INNOVA.
17
<PAGE> 18
C. NERA may at all times, at NERA's expense and at INNOVA's risk, return
to INNOVA or to another address specified by INNOVA to NERA in advance
all packaging materials used by INNOVA in order to protect the Products
during shipment.
15. LATE DELIVERY
INNOVA agrees to deliver the Products in accordance with the delivery schedule
for the Products as set out in Appendix "A" annexed hereto. In the event INNOVA
exceeds the maximum interval for the delivery of the Products as set out in
Appendix "A", or fails to comply with its standard delivery terms with respect
to a Purchase Order, INNOVA shall be liable, after an initial grace period of
two weeks, to pay a penalty to NERA equivalent to 1.5% of the invoice amount of
the undelivered part of the Purchase Order for each week that such undelivered
part of the shipment is late, up to a maximum of 10% of the invoice amount of
the aforesaid undelivered part of the Purchase Order. Such penalty will only be
due in the event NERA itself is subject to penalty payments to its customers due
to the late delivery. In addition to all other rights and remedies available to
NERA, and without any liability or obligation to NERA, NERA shall have the
right to: (a) after reaching the maximum penalty, terminate such Purchase
Order, or, (b) extend the delivery date for such Purchase Order to a later date,
subject, however, to the right to terminate the Purchase Order if delivery is
not made or performance is not completed by such extended date.
16. TRANSFER OF TITLE
Title to the Products shall transfer from INNOVA to NERA when full payment
therefor has been received by INNOVA.
17. INNOVA'S WARRANTY
A. INNOVA warrants to NERA that the Products delivered pursuant to a
Purchase Order shall comply with the Agreed Quality Level, and that for
a period of two (2) years from the date of shipment the Products
delivered shall be free from defects in material and workmanship and
shall conform to the Technical Specifications, and that from the time
of delivery the Products shall be free of any security interest, lien
or any other encumbrance whatsoever.
B. Defective Products or Replaceable Units may be returned to INNOVA for
repair or replacement at NERA's election, with the risk of in-transit
loss and damage borne by and freight paid by NERA. Unless otherwise
agreed upon by the Parties, INNOVA shall complete any necessary repairs
and ship the repaired or replaced Products or Replaceable Units, as the
case may be, to NERA within thirty (30) days of receipt of the
Replaceable Units of defective Products. INNOVA shall bear the risk of
in-transit loss and damage and shall prepay and bear the cost of
18
<PAGE> 19
freight for shipments to NERA of repaired or replaced Products or Replaceable
Units.
C. If the Products or Replaceable Units returned to INNOVA for repair as
provided for in this Article are determined by INNOVA to be beyond
repair, INNOVA shall within seven (7) days of receipt so notify NERA
and, unless otherwise agreed to by INNOVA and NERA, ship the
replacement Replaceable Units of Products without charge within
thirty-five (35) days of such notification.
D. Any replacement, repair, modifications, installation or other service
performed by INNOVA shall be warranted for a period of two (2) years as
herein provided, as from the date performance of the service is
completed and accepted by NERA.
E. Without limiting in any way paragraphs A, B, C, or D of this Article
15, INNOVA warrants that the Products shall be free of Epidemic Faults.
Epidemic Faults shall, for the purpose of this Agreement, be defined as
defects or failures of the same Replaceable Unit occurring for the same
reason and which affect traffic or normal operation. In the event of
the occurrence of an Epidemic Fault in more than five per cent (5%) of
the same Replaceable Units of the Products shipped to NERA or at its
direction during any consecutive six (6) month period during the Term,
INNOVA shall within seven (7) days of receiving notice (or within ten
(10) days of receiving notice during the month of July of each year
during the Term) from NERA of the existence of an Epidemic Fault
provide it with a plan as to how it intends to respond thereto and,
furthermore, at its sole expense and immediately thereafter, undertake
and provide NERA with a root-cause analysis of the Epidemic Fault.
INNOVA shall, if requested to do so by NERA, furnish NERA with new and
corrected Replaceable Units of the Products to replace all Replaceable
Units affected by such Epidemic Fault, and shall reimburse NERA for all
labour expenses incurred by NERA or its agents, which are reasonable
under the circumstances, resulting from replacement of the Replaceable
Units, including travel costs and other related disbursements. However,
NERA may also at its sole discretion decide to return all Replaceable
Units affected by an Epidemic Fault to INNOVA for repair or replacement
and NERA shall then be entitled to have the repaired or replaced
Replaceable Units delivered to NERA or at its direction, all at
INNOVA's expense. NERA shall communicate its decision to INNOVA within
seven (7) days of receiving INNOVA's root cause analysis. Depending
upon NERA's decision, INNOVA shall either:
a) supply new and corrected Replaceable Units of the Products as
soon as possible but not later than fourteen (14) days after
receiving notice from NERA; or
b) shall supply repaired shipments of the corrected Replaceable
Units of the Products as soon as possible but not later than
twenty-eight (28) days after the return of the Replaceable
Units to INNOVA; or
19
<PAGE> 20
c) shall supply replacement shipments of the Replaceable Units as
soon as possible but not later than twenty-eight (28) days
after INNOVA receives notice from NERA.
F. INNOVA warrants to NERA that there are no dissimilar metal interfaces
in the Products which may cause the Products to malfunction. However
should the Products nonetheless at any time contain any such dissimilar
metal interfaces, INNOVA shall eliminate such interfaces, including
dissimilar metal interfaces in the Products which it has already
shipped, as soon as reasonably possible at its own expense.
18. REPAIRS NOT COVERED UNDER INNOVA'S WARRANTY
A. With respect to repairs to the Products or to Replaceable Units thereof
in addition to repairs provided for under Article 17 hereof, INNOVA
shall provide NERA with repairs on all such Products ordered hereunder,
or on its compatible Replaceable Units, until ten (10) years after the
delivery or replacement of the Products or Replaceable Unit. The
Products to be repaired under this Article 18 shall be sent by NERA to
a location designated by INNOVA, and unless otherwise agreed upon by
the Parties, INNOVA shall ship the repaired Products or Replaceable
Units which meet the Technical Specifications, within thirty (30) days
of receipt of the defective Products or Replaceable Unit. With the
concurrence of and subject to the scheduling of NERA, repairs may be
made by INNOVA on site. All repair prices for the Products and the
Replaceable Units are listed in Appendix "A".
B. If the Products or Replaceable Units are returned for repair as
provided for in this Article 18, and are determined by INNOVA to be
beyond repair, INNOVA shall so notify NERA within seven (7) days of
their receipt (or within ten (10) days of their receipt during the
month of July). If requested to do so by NERA, INNOVA shall sell to
NERA a Replaceable Unit at the Parties' then current contract price or,
if no such price is in effect, at a reasonable price agreed upon by the
Parties at that time. If requested to do so by NERA, INNOVA shall take
the necessary steps to dispose of the irreparable Products in a
responsible manner.
C. Any Products or Replaceable Units which are repaired or replaced under
this Article 18 shall be warranted by INNOVA for a period of two (2)
years from the date of repair or replacement, as the case may be.
D. It is expressly understood and agreed by the Parties that this
Agreement does not grant INNOVA an exclusive right to repair any or all
of the Products or Replaceable Units purchased hereunder for which NERA
may require repair, and NERA may contract with others for these
services at its own risk and account.
20
<PAGE> 21
E. All transportation costs for the Products or Replaceable Units sent to
and from INNOVA for repair under this Article 18 shall be borne by
NERA. Prices for repairs under this Article 18 shall be mutually agreed
to by the Parties from time to time.
19. CONTINUING AVAILABILITY OF MAINTENANCE, REPLACEMENT AND REPAIR PARTS
A. INNOVA agrees to offer for sale to NERA, until ten (10) years after the
delivery of the Products, functionally equivalent maintenance,
replacement, and repair parts for the Replaceable Units of the
Products, which originate from INNOVA.
B. INNOVA's inability to supply such maintenance, replacement or repair
parts or to obtain another source of supply for NERA within the ten
(10) year period referred to in paragraph A hereof, shall constitute
non-compliance with this Article 19 and INNOVA shall, at NERA's request
and without obligation or charge to NERA, provide NERA with the
technical information and any other rights required, to the extent
INNOVA has such rights, so that NERA can manufacture, have
manufactured, or obtain such parts from other sources. The technical
information referred to in the previous sentence includes the drawings,
specifications or other manufacturing or purchasing documents necessary
for the manufacture of the aforesaid parts.
20. PRODUCT SUPPORT
A. NERA shall be entitled to have access to a telephone, telecopier and
electronic mail fault reporting service from INNOVA on a twenty-four
(24) hour basis, and to receive an informed response within the next
working day, or within two (2) working days in the event the request is
made in July. INNOVA shall provide NERA with bid and proposal support
whereby INNOVA shall, for example, prepare responses to point-to-point
requirements for NERA, at an hourly rate as specified in Appendix "A",
if the questions asked by NERA require review or study in order to be
answered. NERA shall give INNOVA fourteen (14) days notice of its need
for bid and proposal support.
B. NERA and INNOVA may also agree for supply of additional field service
and assistance, which is not specifically provided for in this
Agreement, on such terms as they may mutually agree. The availability
or performance of this technical support service shall not be construed
as offering or affecting INNOVA's obligations elsewhere provided for in
this Agreement.
21
<PAGE> 22
21. TRAINING
If requested to do so by NERA, INNOVA shall provide instructions at an hourly
rate per instructor as specified in Appendix "A", plus hotel, food, and
transportation costs at rates which comply with INNOVA's standard rates
therefor, at the times and the locations agreed to by the Parties. INNOVA shall
provide instructors and the necessary written instructional material of INNOVA's
standard format to train NERA's personnel in the application, installation,
operation, maintenance and repair of the Products furnished hereunder. Any such
request for training shall be submitted by NERA to INNOVA on at least thirty
(30) days notice.
22. MARKING
A. All the Products furnished hereunder to NERA by INNOVA shall be marked
for identification purposes in accordance with the Technical
Specifications and with the INNOVA's applicable model/serial numbers.
INNOVA agrees to maintain accurate records of such numbers in order to
document, among other things, the month and year of shipment of the
Products.
B. In addition, INNOVA agrees to add any other identification marking to
the Products which might be requested by NERA from time to time or as
specified in Section 30 of this Agreement. Charges, if any, for such
additional identification marking shall be as agreed upon by INNOVA and
NERA on a case by case basis.
23. TERMINATION OF THE AGREEMENT
This Agreement may be terminated as follows:
A. In the event a Party breaches any of its material obligations under
this Agreement (such as, but not limited to, the occurrence of Epidemic
Faults, not adhering to agreed time schedules or delivery dates, the
Technical Specifications, payment obligations, or other material
requirements concerning the Products), the other Party is entitled to
give written notice to the breaching Party specifying such breach, and
if the breach is remediable, shall give the breaching Party an
opportunity to remedy the breach to the reasonable satisfaction of the
other Party, within a reasonable period of time, which shall not be in
excess of thirty (30) days. Failing such remedy, the Party issuing the
notice of breach is entitled to take any action open to it under this
Agreement and in law, including the suspension of payments, work, or
deliveries, as the case may be, or immediate termination by notice in
writing, and/or to claim damages, it being understood and agreed,
however, that neither Party shall be liable to the other Party for any
consequential
22
<PAGE> 23
damages howsoever arising out of any such breach even if it has been advised of
the possibility thereof.
B. In the event a Party becomes insolvent, bankrupt or makes an assignment
for the benefit of its creditors, the other Party may terminate this
Agreement immediately by notice in writing.
C. In the event the control of either Party passes to a person or persons
other than those now exercising control, the other Party may terminate
this Agreement immediately by notice in writing. No such right of
termination shall arise on account of: a) changes in the composition
of a Party's Board of Directors in the normal course: or b) a
reduction of the control held by a Party's Current controlling
shareholders in the public stock markets, provided such sales do not
transfer control of such a Party to a single person or group of persons
acting in concert.
24. TERMINATION OF A PURCHASE ORDER
NERA may at any time, but not less than thirty (30) days prior to the scheduled
shipping date as specified in a Purchase Order, or as otherwise agreed to by the
Parties, terminate any or all Purchase Orders placed by it hereunder relating to
orders to NERA from Lucent Technology. Unless otherwise specified herein, NERA's
liability to INNOVA with respect to such terminated Purchase Order shall be
limited to (a) INNOVA's purchase price for all material not useable in INNOVA's
other operations or saleable to INNOVA's other customers within sixty (60) days
of termination, plus (b) the actual costs incurred by INNOVA in procuring and
manufacturing the Products not useable in INNOVA's other operations or saleable
to INNOVA's other customers within sixty (60) days of the notice of
termination, and which is in process at the date of receipt of the notice of
termination. INNOVA agrees to make every reasonable attempt to sell such
material, use or sell the Products, and reschedule any order for same, in order
to minimise the liability of NERA, and NERA shall make its best efforts to
assist INNOVA therein. However, no such termination charges will be invoiced if,
within sixty (60) days of notice of termination being received, the Products
equivalent to that referred to in the Purchase Order being terminated is
re-ordered by NERA. NERA agrees to render payment hereunder upon receipt of an
itemised invoice pursuant to Article 7. If requested, INNOVA agrees to
substantiate such termination charges with proof satisfactory to NERA.
25. EFFECT OF TERMINATION
A. All of the Parties' obligations hereunder incurred either prior to the
termination of this Agreement, or the termination of any Purchase Order
placed hereunder by NERA, as the case may be, shall survive such
cancellation or termination. Without limiting the generality of the
foregoing, the termination of this Agreement or of a
23
<PAGE> 24
Purchase Order shall not relieve or release either Party from fulfilling any
outstanding undertaking or commitment including, without limitation, the
effecting of payments, work or deliveries of the Products.
B. In the event of the termination of this Agreement, and until the
occurrence of the actual termination date, NERA shall be entitled to
order Products from INNOVA in accordance with the terms and conditions
of this Agreement, and INNOVA agrees to honour such Purchase Orders.
C. In the event of termination of this Agreement the provisions of sub
paragraph 3.C and paragraphs 17, 18, 19, 26, 27, 28, 35, 36 and 37
shall Survive.
26. CONFIDENTIALITY
See Appendix C
27. INFRINGEMENT
Upon the occurrence of any infringement or alleged infringement of any
patent, trademark, copyright, trade secret or other proprietary interest, which
is based on the manufacture, normal use or sale of any proprietary interest in
any Products furnished to NERA hereunder or in contemplation hereof, INNOVA
shall indemnify NERA for any direct loss, damage, expense, or liability that it
may incur by reason of any such infringement or, except where it arises solely
from INNOVA's adherence to NERA's written instructions or directions which
involve the use of specific types of components in the manufacture of the
Products.
Each Party shall indemnify the other Party for all costs and damages
(including reasonable attorney's fees) which it incurs as a result of any action
or suit brought against the other Party for which it is responsible hereunder.
Each Party shall notify the other Party promptly of any claim of infringement
for which the other is or may be responsible, and shall co-operate with the
other in every reasonable way to facilitate the defence such claim.
28. PROPRIETARY INFORMATION
Any Information obtained by one Party from the other Party hereunder or in
contemplation hereof, shall remain the property of the Party from which it
originates ("the Proprietary Information"). All copies of such Proprietary
Information in written, graphic or other tangible form shall be returned to the
originating Party upon request. Unless such Proprietary Information was
previously known to the receiving Party free of any obligation to keep it
confidential, or has been or is subsequently made public by the originating
Party, it shall be kept confidential by the receiving Party, shall be used
solely in the filling of Purchase Orders, or in performing its other obligations
hereunder, and may be used for other purposes only upon such terms as may be
agreed upon in writing by the Parties.
24
<PAGE> 25
29. PUBLICITY
The Parties agree to submit to each other for their mutual and prior approval
all advertising, sales promotion, press releases and other publicity material
relating to the provision of the Products and the services performed under
this Agreement for NERA, in which either Parties' names or marks are mentioned
or language from which the connection of said names or marks therewith may be
inferred or implied. The Parties further agree not to publish or use such
advertising, sales promotion, press releases, or publicity matters without each
other's prior written approval. This paragraph shall not apply to or prevent
either Party from making such disclosures as may be required by law, in
connection with financing efforts or otherwise.
30. INSIGNIA
NERA shall not use INNOVA's Insignia unless otherwise agreed in advance by both
Parties on a case-by-case basis. NERA shall provide to INNOVA, within 30 days of
signature of this Agreement by both Parties, detailed instructions and
description of NERA's Insignia. INNOVA shall affix NERA's Insignia to the
Products and their packaging. The manner in which such Insignia are affixed must
be approved in writing by NERA. NERA shall retain all right, title and interest
to and in any and all Insignia furnished to INNOVA. Any Products rejected or not
purchased by NERA which utilises NERA Insignia shall have all such Insignia
removed by INNOVA prior to any other sale, use or disposition thereof. INNOVA
agrees to indemnify and hold NERA harmless from any claim, loss or damage
arising out of INNOVA's failure to do so.
31. COMPLIANCE WITH LAW
Both Parties shall comply with the provisions of all applicable laws,
ordinances, regulations and codes in the performance of their obligations
hereunder. The Parties agree to indemnify each other for, and defend each other
against, any loss or damage sustained because of the other's non-compliance.
32. FORCE MAJEURE
A. The expression "Force Majeure" shall mean and include the occurrence of
any unforeseen event that is beyond a Party's reasonable control and as
a consequence of which it cannot reasonably be required to execute one
or more of its material obligations pursuant to this Agreement, such
as, without limitation, acts of God, war, civil war, insurrection,
strikes, governmental acts, regulations or decrees, freight embargoes,
and natural phenomena such as earthquakes, floods, and epidemics.
25
<PAGE> 26
B. The Party affected by Force Majeure shall give prompt written notice to
the other Party thereof specifying, to the extent known, the time of
commencement, the expected end, and the reason(s) and circumstances of
the Force Majeure, and it shall be excused from the performance of its
obligations affected thereby to the extent it is prevented or
restricted in its performance. The Party affected by Force Majeure
shall use its best efforts (a) to avoid or remove the causes of Force
Majeure with the utmost dispatch, (b) to mitigate the consequences of
Force Majeure for the other Party, and (c) to resume performance upon
cessation of the event(s) causing the Force Majeure unless otherwise
agreed or unless this Agreement and/or any Purchase Order affected
thereby has been terminated. Without limiting the foregoing, INNOVA
shall in the event it is wholly or partially excused from supply due to
Force Majeure, use its best efforts to ascertain the continued supply
of the Products through one or more of its associated companies or
third parties, at terms and conditions similar to those contained in
this Agreement.
C. Upon the occurrence of an event constituting Force Majeure, which has a
duration or an expected duration of one week or more, each party shall
be entitled, without penalty, to cancel outstanding Purchase Orders by
notice in writing. If Force Majeure affects INNOVA, NERA shall be free
to place orders for the Products or reasonable replacements therefor
with one or more third parties over such period of time as NERA may
reasonably expect that the Force Majeure shall continue, or over such
longer period, if any, as may be necessary in order to obtain
reasonable replacements at competitive prices and other competitive
terms and conditions. If NERA has so suspended its obligations, the
Parties shall consult at the end of the Force Majeure about the
appropriate ways and means to resume INNOVA's provision of the Products
to NERA under this Agreement. If Force Majeure affects NERA, INNOVA
shall be free to apply the Products as it sees. If INNOVA has so
suspended its obligations, the Parties shall mutually consult and
agree, when the event constituting Force Majeure has ceased, upon ways
and means to permit NERA to resume its purchase of the Products from
INNOVA under this Agreement.
33. ASSIGNMENT
A. Any assignment by INNOVA to a third party of its rights or obligations
under this Agreement, in whole or in part, shall be void unless NERA's
written consent is first obtained or the assignment is confined solely
to payments due or to become due. It is expressly agreed that any such
assignment of payments due or to become due shall be void to the extent
that INNOVA attempts to impose upon NERA obligations additional to the
making of such payments, or to preclude NERA from dealing solely and
directly with INNOVA in all matters pertaining hereto, including the
negotiation of amendments or settlements of amounts due.
26
<PAGE> 27
B. NERA shall only have the right to assign its rights or obligations
under this Agreement, in whole or in part, to any of the NERA
Associated Companies, subject to the acceptance by such assignee of
the terms and conditions contained herein.
34. LIABILITY
All work performed by INNOVA for NERA in connection with the Products under this
Agreement shall be performed by INNOVA as an independent contractor and not as
NERA's agent.
35. INDEMNITY
A. All individuals furnished by one Party to the other Party to provide
services hereunder shall be considered solely as the furnishing Party's
employees or agents, and that the furnishing Party shall be responsible
for payment of all their unemployment, social security and other
payroll taxes, including contributions as required by law.
B. INNOVA shall indemnify and hold harmless NERA, its officers, directors,
employees, successors and assigns, against and from any claims, damages
or liabilities suffered by NERA which result from defects in the
Products purchased by NERA, or from any negligent act or omission of
INNOVA or its agents, employees, or subcontractors, unless such claims,
damages or liabilities are:
a) due to the use of the Products in combination with other
Products not supplied to NERA by INNOVA and not compatible
with such Products; or
b) caused by changes or alterations made to the Products by
parties other than INNOVA; or
c) due to the use of the Products in a manner contrary to its
intended purpose; or
d) due to any fault, defect or malfunction in the Products which
occurs due to misuse, neglect, lack of maintenance,
modification unauthorised by INNOVA, or installation practices
not in compliance with the practices referred to in Appendix
"B".
C. A Party's liability hereunder shall in no event be considered to extend
to consequential damages of any nature whatsoever, including loss of
profit and/or revenue. Consequential damages shall in this case be such
damage, loss or injury which does not flow directly and immediately
from any breach by a Party of its obligations hereunder, whether or not
the other Party could or could [not have reasonably foreseen such
consequences or results.
27
<PAGE> 28
D. Each Party agrees to provide the other Party with expert witnesses and
such other support as is reasonable and necessary to defend or assist
in the defence of a claim brought against the other Party which
involves or could conceivably involve the liability of the former
Party, by way of indemnity or otherwise, under this Agreement.
36. CHOICE OF LAW
The construction, interpretation, and performance of this Agreement shall be
governed by the laws of Switzerland and the Canton of Geneva.
37. DISPUTE AND ARBITRATION
A. Any and all disputes, disagreements, or questions, be they of fact or
law, which might arise between the Parties in connection with the
interpretation of any provision of this Agreement or the compliance or
non-compliance therewith, or the validity or enforcement thereof, or
the performance or non-performance of either Party to the Agreement,
and which cannot be amicably settled by the Parties within a reasonable
period, shall be finally resolved by arbitration in accordance with the
ICC Rules as are in effect as of the date of the notice, by three (3)
Arbitrators selected and acting according to these Rules, the decision
of which shall be final and binding upon both Parties, and not subject
to appeal at any stage of the proceedings.
B. The arbitration including the rendering of the award shall take place
at Geneva. The language to be used in the arbitration shall be English.
C. The decision of the Arbitrators may be entered in any court of
competent jurisdiction and executed forthwith.
D. Each party shall bear the cost of preparing its own case. The Board of
Arbitrators shall determine how the costs of the Arbitration shall be
borne.
38. NOTICES
Any notice or demand which under the terms of this Agreement or under any
applicable statute must or may be given or made by NERA or INNOVA shall be in
writing and shall be given or made by telecopier or similar communication or by
certified or registered mail addressed to the respective parties as follows:
28
<PAGE> 29
To NERA: NERA ASA
Attention: Purchasing Director
Kokstadveien 23
N-5061 Kokstad
Bergen
Norway
Tel: +47 55 22 51 00
Fax: +47 55 22 52 99
To INNOVA: INNOVA CORP
Attention: Chief Executive Officer
3325 S. 116th St.
Seattle, WA 98168 U.S.
Tel.: 206-439-9121
Fax: 206-439-2700
39. LICENSES
The Parties acknowledges that no licenses, express or implied, under any patents
are granted by one Party to the other Party hereunder.
40. TOXIC SUBSTANCES
A. INNOVA hereby warrants to NERA that all Replaceable Units of the
Products furnished by INNOVA as described in this Agreement are safe
for their foreseeable use, are not defined as and do not contain
hazardous or toxic substances or materials under applicable
International Standards, Practice or Law, and present no abnormal
hazards to persons or the environment. INNOVA also warrants that it has
no knowledge of any other laws that prohibit the disposal of the
Products--as normal refuse without special precautions.
B. INNOVA agrees to defend, indemnify and hold NERA harmless for any
expenses (including but not limited to, the cost of substitute material
including accumulated depredation) that NERA may incur by reason of the
recall or prohibition against continued use or disposal of the Products
furnished by INNOVA to NERA, whether such recall or prohibition is
directed by INNOVA or occurs under compulsion of law.
C. NERA agrees to co-operate with INNOVA to facilitate and minimise the
expense of any recall or prohibition against the use or disposal of the
Products directed by INNOVA or under compulsion of law.
29
<PAGE> 30
D. NERA shall make its best efforts to identify and advise INNOVA of any
toxic substance requirements which may apply in any countries to which
the Products may be delivered under the Agreement.
41. RADIATION STANDARDS
Whenever applicable, the Products shall comply with IEC 215 specifications and
the Products must be labelled with the appropriate CE mark.
42. POSSIBLE TECHNOLOGY TRANSFER
INNOVA acknowledges to NERA that, should the Products be required to meet in
country or other content requirements in order for it to be sold in certain
significant market, however defined, INNOVA shall be willing to negotiate some
degree of technology transfer
to a third party, subject to reasonable terms and conditions acceptable to
INNOVA, to permit NERA to make a resulting sale of the Products.
43. INCORPORATION AND APPROVALS
A. NERA warrants to INNOVA that it is validly incorporated and existing
under the laws of Norway, that the individual(s) signing this Agreement
on behalf of NERA are entitled to bind NERA in this respect, and that
all necessary approvals and authorisations have been obtained for it to
enter into this Agreement.
B. INNOVA warrants to NERA that it is validly incorporated and existing
under the laws of Washington, U.S., that the individual(s) signing this
Agreement on behalf of INNOVA are entitled to bind INNOVA in this
respect, and that all necessary approvals and authorisations have been
obtained for it to enter into this Agreement.
44. ENTIRE AGREEMENT
A. This Agreement supersedes all prior oral or written understandings
between the Parties concerning the subject matter hereof and
constitutes the entire agreement between NERA and INNOVA and may not be
modified or amended other than by a written instrument executed by both
parties. A Purchase Order placed by NERA hereunder shall incorporate
the typed, stamped or written provisions or data (printed provisions on
INNOVA's and NERA's forms shall be deemed deleted) found thereon and in
subordinated documents (such as shipping releases) so long as the
typed, stamped or written provisions or data merely supplement but do
not vary the provisions of this Agreement. Whenever typed, stamped or
written provisions of an accepted Purchase Order conflict with this
Agreement, this Agreement shall govern.
30
<PAGE> 31
B. The Parties may agree to extend this Agreement by adding Appendices A1,
A2, AS etc. covering different types of Products, with relevant prices
and delivery times, and Appendices B1, B2, Be etc. with the
corresponding technical specifications, as long as the aforesaid
Appendices are executed by authorised representatives of the Parties.
45. NON-WAIVER
No waiver of the terms and conditions of this Agreement, or the failure
of either Party to enforce any such term or condition on one or more
occasions, shall be construed as a waiver of the same or of any other
term or condition of this Agreement on any occasion.
46. DEVELOPMENT COMMITMENTS
A. The Parties shall make their best efforts to develop a compatible
transmission management network (otherwise known as TMN Q) interface
between INNOVA's Products and NERA's SDH Products.
B. The Parties shall make their best efforts to develop a 16xE1 Indoor
Unit utilizing NERA's existing 16xE1 multiplexer and hitless switching
circuits and modifying INNOVA's Outdoor Unit to accommodate the
resulting traffic.
C. The Parties shall make their best efforts to develop a 7/8 GHz radio
relay transceiver utilising both NERA and INNOVA know-how and existing
circuits to minimize development time.
The allocation of Development tasks is subject to continuing discussions between
NERA and INNOVA.
This Agreement is signed in duplicate.
For INNOVA Corporation
For NERA ASA
By: /s/ Jean Francois Grenon BY: /s/ [Illegible]
-------------------------- --------------------------
Title: President & CEO Title: E.V.P.
----------------------- -----------------------
May 30, 1997
31
<PAGE> 32
APPENDIX "A" - PRICES
The Prices in $US are attached together with a detailed listing of Ordering
Numbers and Information to cover all available frequency plans and sub bands. As
new options become available this listing will be updated
32
<PAGE> 33
Confidential 5/22/97
XP4 UNIT, EQUIPMENT KIT & CUSTOM COMPONENT PRICES
Refer to the specific Ordering Part Numbers to cover the various
tuning ranges within each band, transmit to receive spacing and traffic
capacities, etc. All prices are FCA Innova's Factory in Seattle, WA, USA.
UNIT & EQUIPMENT KIT PRICES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Ordering Number Description Factory Price $US Factory Price Factory Price
(Level 1) $US $US
(Level 2) (Level 2/3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
841-20x38x-xxx Outdoor Unit - 38 GHz $***** $***** $*****
- -----------------------------------------------------------------------------------------------------------
841-20x26x-xxx Outdoor Unit - 26 GHz $***** $***** $*****
- -----------------------------------------------------------------------------------------------------------
841-20x23x-xxx Outdoor Unit - 23 GHz $***** $***** $*****
- -----------------------------------------------------------------------------------------------------------
841-20x18x-xxx Outdoor Unit - 18 GHz $***** $***** $*****
- -----------------------------------------------------------------------------------------------------------
841-20x15x-xxx Outdoor Unit - 15 GHz $***** $***** $*****
- -----------------------------------------------------------------------------------------------------------
841-20x13x-xxx Outdoor Unit - 13 GHz $***** $***** $*****
- -----------------------------------------------------------------------------------------------------------
841-301023-xxx Indoor Unit - 2x/4x E1 $***** $***** Supplied by Nera
- -----------------------------------------------------------------------------------------------------------
841-301024-xxx Indoor Unit - 4x/8x E1 $***** $***** Supplied by Nera
- -----------------------------------------------------------------------------------------------------------
840-400103-xxx 1+1 Protection Switch $***** n/a n/a
Shelf
- -----------------------------------------------------------------------------------------------------------
840-600004-xxx 1+1 RF Single $***** n/a n/a
Antenna Mount
- -----------------------------------------------------------------------------------------------------------
840-300002-001 NMI Interface (SNMP) $***** n/a n/a
option
- -----------------------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE OF TERMINAL PRICING WITHOUT ANTENNA OR NMI OPTION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Terminal Configuration Factory Price $US Factory Price $US Factory Price $US
(Level 1) (Level 2) (Level 2/3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
38, 26 or 23 GHz, Non Protected, 2x/4x E1 $***** $***** $*****
- -----------------------------------------------------------------------------------------------------------
13, 15 or 18 GHz, Non Protected, 2x/4x E1 $***** $***** $*****
- -----------------------------------------------------------------------------------------------------------
38, 26 or 23 GHz, Non Protected, 4x/8x E1 $***** $***** $*****
- -----------------------------------------------------------------------------------------------------------
13, 15 or 18 GHz, Non Protected, 4x/8x E1 $***** $***** $*****
- -----------------------------------------------------------------------------------------------------------
38, 26 or 23 GHz, 1+1 Protected, 2x/4x E1 $***** $***** $*****
- -----------------------------------------------------------------------------------------------------------
13, 15 or 18 GHz, 1+1 Protected, 2x/4x E1 $***** $***** $*****
- -----------------------------------------------------------------------------------------------------------
38, 26 or 23 GHz, 1+1 Protected, 4x/8x E1 $***** $***** $*****
- -----------------------------------------------------------------------------------------------------------
13, 15 or 18 GHz, 1+1 Protected, 4x/8x E1 $***** $***** $*****
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Level 1 is fully tested and supplied by Innova. Level 2 is Semi Knock Down kits
excluding Calibration and Factory Acceptance Tests (FAT). Level 2/3 is Semi
Knock Down ODU kits but IDU's manufactured by Nera under a separate agreement
with Innova. In this case a IDU Royalty of $***** per ODU has been included in
the pricing at this level 2/3 only.
CUSTOM COMPONENTS
The prices for Custom Components are included in Appendix D
<PAGE> 34
MARKETING CUSTOMER ORDERING NUMBERS 23-May-97
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Order Number Description Capacity Where Used Transmit Freq Range Receive Freq Range T to R Spacing
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
38 GHz Units
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-011 ARU 38 Band 1, TX Low 2x/4xE1 ETSI 37,048 to 37,348 MHz 38,308 to 38,608 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-012 ARU 38 Band 1, TX High 2x/4xE1 ETSI 38,308 to 38,608 MHz 37,048 to 37,348 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-021 ARU 38 Band 2, TX Low 2x/4xE1 ETSI 37,328 to 37,628 MHz 35,588 to 38,888 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-022 ARU 38 Band 2, TX High 2x/4xE1 ETSI 38,588 to 38,888 MHz 37,328 to 37,628 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-031 ARU 38 Band 3, TX Low 2x/4xE1 ETSI 37,608 to 37,908 MHz 38,868 to 39,168 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-032 ARU 38 Band 3, TX High 2x/4xE1 ETSI 38,868 to 39,168 MHz 37,608 to 37,908 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-041 ARU 38 Band 4, TX Low 2x/4xE1 ETSI 37,888 to 38,188 MHz 39,148 to 39,448 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-042 ARU 38 Band 4, TX High 2x/4xE1 ETSI 39,148 to 39,448 MHz 37,888 to 38,188 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-051 ARU 38 Band 5, TX Low 2x/4xE1 ETSI 37,468 to 37,768 MHz 38,728 to 39,028 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-052 ARU 38 Band 5, TX High 2x/4xE1 ETSI 38,728 to 39,028 MHz 37,468 to 37,768 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-011 ARU 38 Band 1, TX Low 4x/8xE1 ETSI 37,048 to 37,348 MHz 38,308 to 38,608 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-012 ARU 38 Band 1, TX High 4x/8xE1 ETSI 38,308 to 38,608 MHz 37,048 to 37,348 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-021 ARU 38 Band 2, TX Low 4x/8xE1 ETSI 37,328 to 37,628 MHz 38,588 to 38,888 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-022 ARU 38 Band 2, TX High 4x/8xE1 ETSI 38,588 to 38,888 MHz 37,328 to 37,628 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-031 ARU 38 Band 3, TX Low 4x/8xE1 ETSI 37,608 to 37,908 MHz 38,868 to 39,168 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-032 ARU 38 Band 3, TX High 4x/8xE1 ETSI 38,868 to 39,168 MHz 37,608 to 37,908 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-041 ARU 38 Band 4, TX Low 4x/8xE1 ETSI 37,888 to 38,188 MHz 39,148 to 39,448 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-042 ARU 38 Band 4, TX High 4x/8xE1 ETSI 39,148 to 39,448 MHz 37,888 to 38,188 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-051 ARU 38 Band 5, TX Low 4x/8xE1 ETSI 37,468 to 37,768 MHz 38,728 to 39,028 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201381-052 ARU 38 Band 5, TX High 4x/8xE1 ETSI 38,728 to 39,028 MHz 37,468 to 37,768 MHz 1260 MHz
- --------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
840-201382-011 ARU 38 Band 1, TX Low 4xT1 FCC 38,600 to 38,950 MHz 39,300 to 39,650 MHz 700 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201382-012 ARU 38 Band 1, TX High 4xT1 FCC 39,300 to 39,650 MHz 38,600 to 38,950 MHz 700 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201382-021 ARU 38 Band 2, TX Low 4xT1 FCC 38,950 to 39,300 MHz 39,650 to 40,000 MHz 700 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201382-022 ARU 38 Band 2, TX High 4xT1 FCC 39,650 to 40,000 MHz 38,950 to 39,300 MHz 700 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201382-011 ARU 38 Band 1, TX Low 4x/8xT1 FCC 38,600 to 38,950 MHz 39,300 to 39,650 MHz 700 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201382-012 ARU 38 Band 1, TX High 4x/8xT1 FCC 39,300 to 39,650 MHz 38,600 to 38,950 MHz 700 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201382-021 ARU 38 Band 2, TX Low 4x/8xT1 FCC 38,950 to 39,300 MHz 39,650 to 40,000 MHz 700 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201382-022 ARU 38 Band 2, TX High 4x/8xT1 FCC 39,650 to 40,000 MHz 38,950 to 39,300 MHz 700 MHz
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 35
MARKETING CUSTOMER ORDERING NUMBERS 23-May-97
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Order Number Description Capacity Where Used Transmit Freq Range Receive Freq Range T to R Spacing
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
23 GHz Units
- --------------------------------------------------------------------------------------------------------------------------------
840-201232-011 ARU 23 Band 1 TX Low 2x/4xE1 ETSI 21,214 to 21,514 MHz 22,446 to 22,746 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201232-012 ARU 23 Band 1 TX High 2x/4xE1 ETSI 22,446 to 22,746 MHz 21,214 to 21,514 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201232-021 ARU 23 Band 2 TX Low 2x/4xE1 ETSI 21,494 to 21,794 MHz 22,726 to 23,026 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201232-022 ARU 23 Band 2 TX High 2x/4xE1 ETSI 22,726 to 23,026 MHz 21,494 to 21,794 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201232-031 ARU 23 Band 3 TX Low 2x/4xE1 ETSI 21,774 to 22,074 MHz 23,006 to 23,306 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201232-032 ARU 23 Band 3 TX High 2x/4xE1 ETSI 23,006 to 23,306 MHz 21,774 to 22,074 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201232-041 ARU 23 Band 4 TX Low 2x/4xE1 ETSI 22,054 to 22,354 MHz 23,286 to 23,586 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201232-042 ARU 23 Band 4 TX High 2x/4xE1 ETSI 23,286 to 23,586 MHz 22,054 to 22,354 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201232-051 ARU 23 Band 5 TX Low 2x/4xE1 SCT 21,353 to 21,653 MHz 22,585 to 22,885 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201232-052 ARU 23 Band 5 TX High 2x/4xE1 SCT 22,585 to 22,885 MHz 21,353 to 21,653 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201234-011 ARU 23 Band 1 TX Low 2x/4xE1 ETSI 22,000 to 22,300 MHz 23,008 to 23,308 MHz 1008 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201234-012 ARU 23 Band 1 TX High 2x/4xE1 ETSI 23,008 to 23,308 MHz 22,000 to 22,300 MHz 1008 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201234-021 ARU 23 Band 2 TX Low 2x/4xE1 ETSI 22,290 to 22,590 MHz 23,298 to 23,598 MHz 1008 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201234-022 ARU 23 Band 2 TX High 2x/4xE1 ETSI 23,298 to 23,598 MHz 22,290 to 22,590 MHz 1008 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201235-011 ARU 23 Band 1 TX Low 2x/4xE1 SCT 21,800 to 22,100 MHz 23,000 to 23,300 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201235-012 ARU 23 Band 1 TX High 2x/4xE1 SCT 23,000 to 23,300 MHz 21,800 to 22,100 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201235-021 ARU 23 Band 2 TX Low 2x/4xE1 SCT 22,100 to 22,400 MHz 23,300 to 23,600 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201235-022 ARU 23 Band 2 TX High 2x/4xE1 SCT 23,300 to 23,600 MHz 22,100 to 22,400 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202232-011 ARU 23 Band 1 TX Low 4x/8xE1 ETSI 21,214 to 21,514 MHz 22,446 to 22,746 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202232-012 ARU 23 Band 1 TX High 4x/8xE1 ETSI 22,446 to 22,746 MHz 21,214 to 21,514 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202232-021 ARU 23 Band 2 TX Low 4x/8xE1 ETSI 21,494 to 21,794 MHz 22,726 to 23,026 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202232-022 ARU 23 Band 2 TX High 4x/8xE1 ETSI 22,726 to 23,026 MHz 21,494 to 21,794 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202232-031 ARU 23 Band 3 TX Low 4x/8xE1 ETSI 21,774 to 22,074 MHz 23,006 to 23,306 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202232-032 ARU 23 Band 3 TX High 4x/8xE1 ETSI 23,006 to 23,306 MHz 21,774 to 22,074 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202232-041 ARU 23 Band 4 TX Low 4x/8xE1 ETSI 22,054 to 22,354 MHz 23,286 to 23,586 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202232-042 ARU 23 Band 4 TX High 4x/8xE1 ETSI 23,286 to 23,586 MHz 22,054 to 22,354 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202232-051 ARU 23 Band 5 TX Low 4x/8xE1 SCT 21,353 to 21,653 MHz 22,585 to 22,885 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202232-052 ARU 23 Band 5 TX High 4x/8xE1 SCT 22,585 to 22,885 MHz 21,353 to 21,653 MHz 1232 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202234-011 ARU 23 Band 1 TX Low 4x/8xE1 ETSI 22,000 to 22,300 MHz 23,008 to 23,308 MHz 1008 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202234-012 ARU 23 Band 1 TX High 4x/8xE1 ETSI 23,008 to 23,308 MHz 22,000 to 23,000 MHz 1008 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202234-021 ARU 23 Band 2 TX Low 4x/8xE1 ETSI 22,290 to 22,590 MHz 23,298 to 23,598 MHz 1008 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202234-022 ARU 23 Band 2 TX High 4x/8xE1 ETSI 23,298 to 23,598 MHz 22,290 to 22,590 MHz 1008 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202235-011 ARU 23 Band 1 TX Low 4x/8xE1 SCT 21,800 to 22,100 MHz 23,000 to 23,300 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
N-ORD-NO.WK4
Innova Corp 05/23/97 Page 2
<PAGE> 36
MARKETING CUSTOMER ORDERING NUMBERS 23-May-97
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Order Number Description Capacity Where Used Transmit Freq Range Receive Freq Range T to R Spacing
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
840-202235-012 ARU 23 Band 1 Tx High 4x/8xE1 SCT 23,000 to 23,300 MHz 21,800 to 22,100 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202235-021 ARU 23 Band 2 TX Low 4x/8xE1 SCT 22,100 to 22,400 MHz 23,300 to 23,600 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202235-022 ARU 23 Band 2 Tx High 4x/8xE1 SCT 23,300 to 23,600 MHz 22,100 to 22,400 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
840-201233-011 ARU 23 Band 1 TX Low 4x/T1 FCC 21,200 to 21,500 MHz 22,400 to 22,700 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201233-012 ARU 23 Band 1 Tx High 4x/T1 FCC 22,400 to 22,700 MHz 21,200 to 21,500 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201233-021 ARU 23 Band 2 TX Low 4x/T1 FCC 21,500 to 21,800 MHz 22,700 to 23,000 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201233-022 ARU 23 Band 2 Tx High 4x/T1 FCC 22,700 to 23,000 MHz 21,500 to 21,800 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201233-031 ARU 23 Band 3 TX Low 4x/T1 FCC 21,800 to 22,100 MHz 23,000 to 23,300 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201233-032 ARU 23 Band 3 Tx High 4x/T1 FCC 23,000 to 23,300 MHz 21,800 to 22,100 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201233-041 ARU 23 Band 4 TX Low 4x/T1 FCC 22,100 to 22,400 MHz 23,300 to 23,600 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201233-042 ARU 23 Band 4 Tx High 4x/T1 FCC 23,300 to 23,600 MHz 22,100 to 22,400 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202233-011 ARU 23 Band 1 TX Low 4x/8xT1 FCC 21,200 to 21,500 MHz 22,400 to 22,700 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202233-012 ARU 23 Band 1 Tx High 4x/8xT1 FCC 22,400 to 22,700 MHz 21,200 to 21,500 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202233-021 ARU 23 Band 2 TX Low 4x/8xT1 FCC 21,500 to 21,800 MHz 22,700 to 23,000 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202233-022 ARU 23 Band 2 Tx High 4x/8xT1 FCC 22,700 to 23,000 MHz 21,500 to 21,800 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202233-031 ARU 23 Band 3 TX Low 4x/8xT1 FCC 21,800 to 22,100 MHz 23,000 to 23,300 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202233-032 ARU 23 Band 3 Tx High 4x/8xT1 FCC 23,000 to 23,300 MHz 21,800 to 22,100 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202233-041 ARU 23 Band 4 TX Low 4x/8xT1 FCC 22,100 to 22,400 MHz 23,300 to 23,600 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202233-042 ARU 23 Band 4 Tx High 4x/8xT1 FCC 23,300 to 23,600 MHz 22,100 to 22,400 MHz 1200 MHz
- --------------------------------------------------------------------------------------------------------------------------------
24 GHz Outdoor ARU Units
- --------------------------------------------------------------------------------------------------------------------------------
840-201241-011 ARU 24 Band 1 TX Low 4x/T1 FCC 24,250 to 24,450 MHz 25,050 to 25,250 MHz 800 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201241-012 ARU 24 Band 1 Tx High 4x/T1 FCC 25,050 to 25,250 MHz 24,250 to 24,450 MHz 800 MHz
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Innova Corp 05/23/97 Page 3 N-ORD-NO.WK4
<PAGE> 37
MARKETING CUSTOMER ORDERING NUMBERS 23-May-97
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Order Number Description Capacity Where Used Transmit Freq Range Receive Freq Range T to R Spacing
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
26 GHz Outdoor ARU Units
- --------------------------------------------------------------------------------------------------------------------------------
840-201261-011 ARU 26 Band 1 TX Low 2x/4xE1 ETSI 24,549 to 24,849 MHz 25,557 to 25,857 MHz 1008 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-201261-012 ARU 26 Band 1 Tx High 2x/4xE1 ETSI 25,557 to 25,857 MHz 24,549 to 24,849 MHz 1008 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-201261-021 ARU 26 Band 2 TX Low 2x/4xE1 ETSI 24,849 to 25,149 MHz 25,857 to 26,157 MHz 1008 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-201261-022 ARU 26 Band 2 Tx High 2x/4xE1 ETSI 25,857 to 26,157 MHz 24,849 to 25,149 MHz 1008 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-201261-031 ARU 26 Band 3 TX Low 2x/4xE1 ETSI 25,149 to 25,445 MHz 26,157 to 26,453 MHz 1008 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-201261-032 ARU 26 Band 3 Tx High 2x/4xE1 ETSI 26,157 to 26,453 MHz 25,149 to 25,445 MHz 1008 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-202261-011 ARU 26 Band 1 TX Low 4x/8xE1 ETSI 24,549 to 24,849 MHz 25,557 to 25,857 MHz 1008 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-202261-012 ARU 26 Band 1 Tx High 4x/8xE1 ETSI 25,557 to 25,857 MHz 24,549 to 24,849 MHz 1008 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-202261-021 ARU 26 Band 2 TX Low 4x/8xE1 ETSI 24,849 to 25,149 MHz 25,857 to 26,157 MHz 1008 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-202261-022 ARU 26 Band 2 Tx High 4x/8xE1 ETSI 25,857 to 26,157 MHz 24,849 to 25,149 MHz 1008 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-202261-031 ARU 26 Band 3 TX Low 4x/8xE1 ETSI 25,149 to 25,445 MHz 26,157 to 26,453 MHz 1008 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-202261-032 ARU 26 Band 3 Tx High 4x/8xE1 ETSI 26,157 to 26,453 MHz 25,149 to 25,445 MHz 1008 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
18 GHz Outdoor ARU Units
- --------------------------------------------------------------------------------------------------------------------------------
840-201181-011 ARU 18 Band 1 TX Low 2x/4xE1 ETSI 18,325 to 18,665 MHz 19,335 to 19,675 MHz 1010 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-201181-012 ARU 18 Band 1 TX High 2x/4xE1 ETSI 19,335 to 19,675 MHz 18,325 to 18,665 MHz 1010 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-201181-021 ARU 18 Band 2 TX Low 2x/4xE1 ETSI 17,985 to 18,325 MHz 18,995 to 19,335 MHz 1010 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-201181-022 ARU 18 Band 2 TX High 2x/4xE1 ETSI 18,995 to 19,335 MHz 17,985 to 18,325 MHz 1010 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-201181-031 ARU 18 Band 3 TX Low 2x/4xE1 ETSI 17,700 to 18,040 MHz 18,710 to 19,050 MHz 1010 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-201181-032 ARU 18 Band 3 TX High 2x/4xE1 ETSI 18,710 to 19,050 MHz 17,700 to 18,040 MHz 1010 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-202181-011 ARU 18 Band 1 TX Low 4x/8xE1 ETSI 18,325 to 18,665 MHz 19,335 to 19,675 MHz 1010 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-202181-012 ARU 18 Band 1 TX High 4x/8xE1 ETSI 19,335 to 19,675 MHz 18,335 to 18,665 MHz 1010 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-202181-021 ARU 18 Band 2 TX Low 4x/8xE1 ETSI 17,985 to 18,325 MHz 18,995 to 19,335 MHz 1010 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-202181-022 ARU 18 Band 2 TX High 4x/8xE1 ETSI 18,995 to 19,335 MHz 17,985 to 18,325 MHz 1010 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-202181-031 ARU 18 Band 3 TX Low 4x/8xE1 ETSI 17,700 to 18,040 MHz 18,710 to 19,050 MHz 1010 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-202181-032 ARU 18 Band 3 TX High 4x/8xE1 ETSI 18,710 to 19,050 MHz 17,700 to 18,040 MHz 1010 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-201183-011 ARU 18 Band 1 TX Low 2x/4xE1 SCT 18,580 to 18,755 MHz 18,920 to 19,095 MHz 340 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-201183-012 ARU 18 Band 1 TX High 2x/4xE1 SCT 18,920 to 19,095 MHz 18,580 to 18,755 MHz 340 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-201183-021 ARU 18 Band 2 TX Low 2x/4xE1 SCT 18,750 to 18,925 MHz 19,090 to 19,265 MHz 340 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
840-201183-012 ARU 18 Band 2 TX High 2x/4xE1 SCT 19,090 to 19,265 MHz 18,750 to 18,925 MHz 340 Mhz
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Innova Corp 05/23/97 Page 4 N-ORD-NO.WK4
<PAGE> 38
MARKETING CUSTOMER ORDERING NUMBERS 23-May-97
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Order Number Description Capacity Where Used Transmit Freq Range Receive Freq Range T to R Spacing
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
840-201182-011 ARU 18 Band 1 TX Low 4xT1 FCC DEMS 18,870 to 18,920 MHz 19,210 to 19,260 MHz 340 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201182-012 ARU 18 Band 1 TX High 4xT1 FCC DEMS 19,210 to 19,260 MHz 18,870 to 18,920 MHz 340 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202182-011 ARU 18 Band 1 TX Low 4x/8xT1 FCC DEMS 18,870 to 18,920 MHz 19,210 to 19,260 MHz 340 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202182-012 ARU 18 Band 1 TX High 4X/8XT1 FCC DEMS 19,210 to 19,260 MHz 18,870 to 18,920 MHz 340 MHz
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
840-201184-011 ARU 18 Band 1 TX Low 4xT1 FCC/IC 18,580 to 18,750 MHz 18,920 to 19,090 MHz 340 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201184-012 ARU 18 Band 1 TX High 4xT1 FCC/IC 18,920 to 19,090 MHz 18,580 to 18,750 MHz 340 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201184-021 ARU 18 Band 2 TX Low 4xT1 FCC/IC 18,750 to 18,920 MHz 19,090 to 19,260 MHz 340 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201184-022 ARU 18 Band 2 TX High 4xT1 FCC/IC 19,090 to 19,260 MHz 18,750 to 18,920 MHz 340 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202184-011 ARU 18 Band 1 TX Low 4x/8xT1 FCC/IC 18,580 to 18,750 MHz 18,920 to 19,090 MHz 340 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202184-012 ARU 18 Band 1 TX High 4x/8xT1 FCC/IC 18,920 to 19,090 MHz 18,580 to 18,750 MHz 340 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202184-021 ARU 18 Band 2 TX Low 4x/8xT1 FCC/IC 18,750 to 18,920 MHz 19,090 to 19,260 MHz 340 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202184-022 ARU 18 Band 2 TX High 4x/8xT1 FCC/IC 19,090 to 19,260 MHz 18,750 to 18,920 MHz 340 MHz
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
840-202185-011 ARU 18 Band 1 TX Low 4x/8xT1 FCC/IC 17,700 to 18,140 MHz 19,260 to 19,700 MHz 1560 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-202185-012 ARU 18 Band 1 TX High 4x/8xT1 FCC/IC 19,260 to 19,700 MHz 17,700 to 18,140 MHz 1560 MHz
- --------------------------------------------------------------------------------------------------------------------------------
15 Ghz Outdoor ARU Units
- --------------------------------------------------------------------------------------------------------------------------------
840-201151-011 ARU 15 Band 1 TX Low 2x/4xE1 SCT 14,500 to 14,617 MHz 15,228 to 15,345 MHz 728 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201151-012 ARU 15 Band 1 TX High 2x/4xE1 SCT 15,228 to 15,345 MHz 14,500 to 14,617 MHz 728 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201152-011 ARU 15 Band 1 TX Low 2x/4xE1 SCT 14,630 to 14,770 MHz 14,945 to 15,085 MHz 315 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201152-012 ARU 15 Band 1 TX High 2x/4xE1 SCT 14,945 to 15,085 MHz 14,630 to 14,770 MHz 315 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201152-021 ARU 15 Band 2 TX Low 2x/4xE1 SCT 14,770 to 14,910 MHz 15,085 to 15,225 MHz 315 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201152-022 ARU 15 Band 2 TX High 2x/4xE1 SCT 15,085 to 15,225 MHz 14,770 to 14,910 MHz 315 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201154-011 ARU 15 Band 1 TX Low 2x/4xE1 ETSI 14,501 to 14,718 MHz 14,921 to 15,138 MHz 420 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201154-012 ARU 15 Band 1 TX High 2x/4xE1 ETSI 14,921 to 15,138 MHz 14,501 to 14,718 MHz 420 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201154-021 ARU 15 Band 2 TX Low 2x/4xE1 ETSI 14,711 to 14,928 MHz 15,131 to 15,348 MHz 420 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201154-022 ARU 15 Band 2 TX High 2x/4xE1 ETSI 15,131 to 15,348 MHz 14,711 to 14,928 MHz 420 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201155-011 ARU 15 Band 1 TX Low 2x/4xE1 ETSI 14,403 to 14,634 MHz 14,893 to 15,124 MHz 490 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201155-012 ARU 15 Band 1 TX High 2x/4xE1 ETSI 14,893 to 15,124 MHz 14,403 to 14,634 MHz 490 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201155-021 ARU 15 Band 2 TX Low 2x/4xE1 ETSI 14,627 to 14,858 MHz 15,117 to 15,348 MHz 490 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201155-022 ARU 15 Band 2 TX High 2x/4xE1 ETSI 15,117 to 15,348 MHz 14,627 to 14,858 MHz 490 MHz
- --------------------------------------------------------------------------------------------------------------------------------
840-201153-011 ARU 15 Band 1 TX Low 4xT1 CAN 14,660 to 14,875 MHz 15,135 to 15,350 MHz 475 MHz
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Innova Corp 05/23/97 Page 5 N-RD-NO.WK4
<PAGE> 39
Marketing Customer Ordering Numbers 23-May-97
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Order Number Description Capacity Where Used Transmit Freq Range Receive Freq Range T to R Spacing
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
840-201153-012 ARU 15 Band 1 TX High 4xT1 CAN 15135 to 15350 MHz 14660 to 14875 MHz 475 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-202151-011 ARU 15 Band 1 TX Low 4x/8xE1 ETSI
- ------------------------------------------------------------------------------------------------------------------------------------
840-202151-012 ARU 15 Band 1 TX High 4x/8xE1 ETSI
- ------------------------------------------------------------------------------------------------------------------------------------
840-202151-021 ARU 15 Band 2 TX Low 4x/8xE1 ETSI
- ------------------------------------------------------------------------------------------------------------------------------------
840-202151-022 ARU 15 Band 2 TX High 4x/8xE1 ETSI
- ------------------------------------------------------------------------------------------------------------------------------------
840-202151-031 ARU 15 Band 3 TX Low 4x/8xE1 ETSI
- ------------------------------------------------------------------------------------------------------------------------------------
840-202151-032 ARU 15 Band 3 TX High 4x/8xE1 ETSI
- ------------------------------------------------------------------------------------------------------------------------------------
840-202154-011 ARU 15 Band 1 TX Low 4x/8xE1 ETSI 14501 to 14718 MHz 14921 to 15138 MHz 420 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-202154-012 ARU 15 Band 1 TX High 4x/8xE1 ETSI 14921 to 15138 MHz 14501 to 14718 MHz 420 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-202154-021 ARU 15 Band 2 TX Low 4x/8xE1 ETSI 14711 to 14928 MHz 15131 to 15348 MHz 420 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-202154-022 ARU 15 Band 2 TX High 4x/8xE1 ETSI 15131 to 15348 MHz 14711 to 14928 MHz 420 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-202155-011 ARU 15 Band 1 TX Low 4x/8xE1 ETSI 14403 to 14634 MHz 14893 TO 15124 MHz 490 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-202155-012 ARU 15 Band 1 TX High 4x/8xE1 ETSI 14893 to 15124 MHz 14403 to 14634 MHz 490 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-202155-021 ARU 15 Band 2 TX Low 4x/8xE1 ETSI 14627 to 14858 MHz 15117 to 15348 MHz 490 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-202155-022 ARU 15 Band 2 TX High 4x/8xE1 ETSI 15117 to 15348 MHz 14627 to 14858 MHz 490 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-202153-011 ARU 15 Band 1 TX Low 4/8xT1 CAN 14660 to 14875 MHz 15135 to 15350 MHz 475 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-202153-012 ARU 15 Band 1 TX High 4/8xT1 CAN 15135 to 15350 MHz 14660 to 14875 MHz 475 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13 GHz Outdoor ARU Units
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
840-201131-011 ARU 13 BAND 1 TX Low 2x/4xE1 ETSI 12751 to 12849 MHz 13017 to 13115 MHz 266 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-201131-012 ARU 13 Band 1 TX High 2x/4xE1 ETSI 13017 to 13115 MHz 12751 to 12849 MHz 266 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-201131-021 ARU 13 Band 2 TX Low 2x/4xE1 ETSI 12807 to 12919 MHz 13073 to 13185 MHz 266 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-201131-022 ARU 13 Band 2 TX High 2x/4xE1 ETSI 13073 to 13185 MHz 12807 to 12919 MHz 266 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-201131-031 ARU 13 Band 3 TX Low 2x/4xE1 ETSI 12877 to 12975 MHz 13143 to 13241 MHz 266 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-201131-032 ARU 13 Band 3 TX High 2x/4xE1 ETSI 13143 to 13241 MHz 12877 to 12975 MHz 266 MHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-202131-011 ARU 13 Band 1 TX Low 4x/8xE1 ETSI
- ------------------------------------------------------------------------------------------------------------------------------------
840-202131-012 ARU 13 Band 1 TX High 4x/8xE1 ETSI
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Innova Corp 05/23/97 Page 6 N-ORD-NO.WK4
<PAGE> 40
MARKETING CUSTOMER ORDERING NUMBERS 23-May-97
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Order Number Description Capacity Where Used Transmit Freq Range Receive Freq Range T to R Spacing
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pole Mount Kits
- ------------------------------------------------------------------------------------------------------------------------------------
840-600002-001 ARU 38 Remote Pole Mount Kit 38 GHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-600002-004 ARU 26 Remote Pole Mount Kit 26 GHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-600002-002 ARU 23 Remote Pole Mount Kit 23 GHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-600002-003 ARU 18 Remote Pole Mount Kit 18 GHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-600002-005 ARU 15 Remote Pole Mount Kit 15 GHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-600002-006 ARU 13 Remote Pole Mount Kit 13 GHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-600004-001 Single Ant Pole Mount Kit 38 GHz 38 GHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-600004-004 Single Ant Pole Mount Kit 26 GHz 26 GHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-600004-002 Single Ant Pole Mount Kit 23 GHz 23 GHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-600004-003 Single Ant Pole Mount Kit 18 GHz 18 GHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-600004-005 Single Ant Pole Mount Kit 15 GHz 15 GHz
- ------------------------------------------------------------------------------------------------------------------------------------
840-600004-006 Single Ant Pole Mount Kit 13 GHz 13 GHz
- ------------------------------------------------------------------------------------------------------------------------------------
Common Units
- ------------------------------------------------------------------------------------------------------------------------------------
840-301021-002 SIU Shelf, 4xT1 Balanced 4xT1
- ------------------------------------------------------------------------------------------------------------------------------------
840-301024-002 SIU Shelf, 4x, 8x T1 Balanced 8xT1
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
840-301023-001 SIU Shelf, 2x, 4xE1 Unbalanced 4xE1
- ------------------------------------------------------------------------------------------------------------------------------------
840-301024-001 SIU Shelf, 4x, 8x E1 Unbalanced 8xE1
- ------------------------------------------------------------------------------------------------------------------------------------
840-301023-002 SIU Shelf, 2x, 4xE1 Balanced 4xE1
- ------------------------------------------------------------------------------------------------------------------------------------
840-301024-002 SIU Shelf, 4x, 8x E1 Balanced 4xE1
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
840-601001-XXX XPView Software XP4
- ------------------------------------------------------------------------------------------------------------------------------------
840-601002-001 XPView User Fee per SIU XPView
- ------------------------------------------------------------------------------------------------------------------------------------
840-900200-004 XPView Manual
- ------------------------------------------------------------------------------------------------------------------------------------
840-900201-001 XP4 Reference Manual, T1 Tech Apps Data
- ------------------------------------------------------------------------------------------------------------------------------------
840-900201-002 XP4 Reference Manual, E1 Tech Apps Data
- ------------------------------------------------------------------------------------------------------------------------------------
840-300002-001 NMI Interface Plug in Option SNMP
- ------------------------------------------------------------------------------------------------------------------------------------
840-400103-001 1+1 Prot Switch - 4x Unbal BNC XP4 Std Installation Option
- ------------------------------------------------------------------------------------------------------------------------------------
840-400103-002 1+1 Prot Switch - 4x Bal RJ48 XP4 Std Installation Option
- ------------------------------------------------------------------------------------------------------------------------------------
840-400104-001 1+1 Prot Switch - 8x DB25 Unbal XP4i Front Installation Option
- ------------------------------------------------------------------------------------------------------------------------------------
840-400104-002 1+1 Prot Switch - 8x DB25 Bal XP4i Front Installation Option
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Innova Corp 05/23/97 Page 7 N-ORD-NO.WK4
<PAGE> 41
APPENDIX "B" - TECHNICAL SPECIFICATIONS
The Technical Specifications for the XP4 Product Range for both E1 and T1 data
formats are attached.
33
<PAGE> 42
INNOVA XP4 RADIO SPECIFICATIONS - E1 FORMAT Revision Date: May 22nd 97
- -------------------------------------------------------------------------------
INNOVA XP4 SERIES OF DIGITAL
MICROWAVE RADIOS
E1 FORMAT
DRAMATICALLY CHANGING THE ECONOMICS OF WIRELESS NETWORKS
Innova Corporation, 3325 South 116th Street, Seattle, WA, 98168, USA.
Tel +206 439 9121 Fax +206 439 2701
- -------------------------------------------------------------------------------
Innova continuously invests in improving its products and reserves the right to
alter the features and specifications without notice at any time.
Page 1 of 6
<PAGE> 43
<TABLE>
INNOVA XPA RADIO SPECIFICATIONS - E1 FORMAT Revision Date: May 22nd 97
- ---------------------------------------------------------------------------------------------------------
General 13GHz 15GHz 18GHz
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Frequency Range 12.75 - 13.25 GHz 14.4 - 15.35 GHz 17.7 - 19.7 GHz
- ---------------------------------------------------------------------------------------------------------
Tuning Range * * 300 MHz for 1010 T-R*
- ---------------------------------------------------------------------------------------------------------
Link ID Codes 255 255 255
- ---------------------------------------------------------------------------------------------------------
T-R Spacing (MHz) 266 420, 737.5 340, 1010
- ---------------------------------------------------------------------------------------------------------
* Tuning Range is dependent on T-R spacing & Channel Plan required.
Contact your local Innova Representative for further details.
- ---------------------------------------------------------------------------------------------------------
Transmitter 13GHz 15GHz 18GHz
- ---------------------------------------------------------------------------------------------------------
Power Output (Std) +19 dBm +19 dBm +18 dBm
- ---------------------------------------------------------------------------------------------------------
Power Control Range 30 dB in 0.5 dB steps 30 dB in 0.5 dB steps 30 dB in 0.5 dB steps
- ---------------------------------------------------------------------------------------------------------
Transmitter Mute Level Less than -30 dBm Less than -30 dBm Less than -30 dBm
- ---------------------------------------------------------------------------------------------------------
Frequency Accuracy (plus or minus)10 ppm (plus or minus)10 ppm (plus or minus)10 ppm
- ---------------------------------------------------------------------------------------------------------
Channel Selection Digital Synthesizer Digital Synthesizer Digital Synthesizer
- ---------------------------------------------------------------------------------------------------------
Frequency Synthesis Phase Lock Loop Phase Lock Loop Phase Lock Loop
- ---------------------------------------------------------------------------------------------------------
Synthesizer Resolution 0.25 MHz 0.25 MHz 0.25 MHz
- ---------------------------------------------------------------------------------------------------------
Modulation 4 FSK 4 FSK 4 FSK
- ---------------------------------------------------------------------------------------------------------
Emission Bandwidth
- ---------------------------------------------------------------------------------------------------------
2E1 3.5 MHz 3.5 MHz 3.5 MHz
- ---------------------------------------------------------------------------------------------------------
4E1 7 MHz 7 MHz 7 MHz
- ---------------------------------------------------------------------------------------------------------
8E1 14 MHz 14 MHz 14 MHz
- ---------------------------------------------------------------------------------------------------------
16E1 / E3 28 MHz 28 MHz 28 MHz
- ---------------------------------------------------------------------------------------------------------
Receiver 13GHz 15GHz 18GHz
- ---------------------------------------------------------------------------------------------------------
BER 10(-6) Threshold
- ---------------------------------------------------------------------------------------------------------
2E1 -83 dBm -83 dBm -82 dBm
- ---------------------------------------------------------------------------------------------------------
4E1 -81 dBm -81 dBm -80 dBm
- ---------------------------------------------------------------------------------------------------------
8E1 -78 dBm -78 dBm -77 dBm
- ---------------------------------------------------------------------------------------------------------
16E1 / E3 -75 dBm -75 dBm -74 dBm
- ---------------------------------------------------------------------------------------------------------
BER 10(-3) Threshold
- ---------------------------------------------------------------------------------------------------------
2E1 -86 dBm -86 dBm -85 dBm
- ---------------------------------------------------------------------------------------------------------
4E1 -84 dBm -84 dBm -83 dBm
- ---------------------------------------------------------------------------------------------------------
8E1 -81 dBm -81 dBm -80 dBm
- ---------------------------------------------------------------------------------------------------------
16E1 / E3 -78 dBm -78 dBm -77 dBm
- ---------------------------------------------------------------------------------------------------------
Residual Bit Error Rate
- ---------------------------------------------------------------------------------------------------------
2E1, 4E1, 8E1 RBER (less than or equal to) 10(-10) when RSL is between 15 & 40 dB above BER 10(-3)
threshold with FEC enabled
- ---------------------------------------------------------------------------------------------------------
16E1, E3 RBER (less than or equal to) 10(-11) when RSL is between 15 & 40 dB above BER 10(-3)
threshold with FEC enabled
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Innova continuously invests in improving its products and reserves the right
to alter the features and specifications without notice at any time.
</TABLE>
<TABLE>
INNOVA XP4 RADIO SPECIFICATIONS - E1 FORMAT Revision Date: May 22nd 97
- ---------------------------------------------------------------------------------------------------------
General 23GHz 26GHz 38GHz
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Frequency Range 21.2 - 23.6 GHz 24.5 - 26.5 GHz 37.0 - 39.5 GHz
- ---------------------------------------------------------------------------------------------------------
Tuning Range 300 MHz 300 MHz 300 MHz
- ---------------------------------------------------------------------------------------------------------
Link ID Codes 255 255 255
- ---------------------------------------------------------------------------------------------------------
T-R Spacing (MHz) 1008, 1200, 1232 1008 1260
- ---------------------------------------------------------------------------------------------------------
* Tuning Range is dependent on T-R spacing & Channel Plan required.
Contact your local Innova Representative for further details.
- ---------------------------------------------------------------------------------------------------------
Transmitter 23GHz 26GHz 38GHz
- ---------------------------------------------------------------------------------------------------------
Power Output (Std) +17 dBm +17 dBm +16 dBm
- ---------------------------------------------------------------------------------------------------------
Power Control Range 30 dB in 0.5 dB steps 30 dB in 0.5 dB steps 30 dB in 0.5 dB steps
- ---------------------------------------------------------------------------------------------------------
Transmitter Mute Level Less than -30 dBm Less than -30 dBm Less than -30 dBm
- ---------------------------------------------------------------------------------------------------------
Frequency Accuracy (plus or minus)10 ppm (plus or minus)10 ppm (plus or minus)10 ppm
- ---------------------------------------------------------------------------------------------------------
Channel Selection Digital Synthesizer Digital Synthesizer Digital Synthesizer
- ---------------------------------------------------------------------------------------------------------
Frequency Synthesis Phase Lock Loop Phase Lock Loop Phase Lock Loop
- ---------------------------------------------------------------------------------------------------------
Synthesizer Resolution 0.25 MHz 0.25 MHz 0.25 MHz
- ---------------------------------------------------------------------------------------------------------
Modulation 4 FSK 4 FSK 4 FSK
- ---------------------------------------------------------------------------------------------------------
Emission Bandwidth
- ---------------------------------------------------------------------------------------------------------
2E1 3.5 MHz 3.5 MHz 3.5 MHz
- ---------------------------------------------------------------------------------------------------------
4E1 7 MHz 7 MHz 7 MHz
- ---------------------------------------------------------------------------------------------------------
8E1 14 MHz 14 MHz 14 MHz
- ---------------------------------------------------------------------------------------------------------
16E1 / E3 28 MHz 28 MHz 28 MHz
- ---------------------------------------------------------------------------------------------------------
Receiver 23GHz 26GHz 38GHz
- ---------------------------------------------------------------------------------------------------------
BER 10(6) Threshold Grade A Grade B
- ---------------------------------------------------------------------------------------------------------
2E1 -80 dBm -79 dBm -82 dBm -77 dBm
- ---------------------------------------------------------------------------------------------------------
4E1 -77 dBm -76 dBm -79 dBm -75 dBm
- ---------------------------------------------------------------------------------------------------------
8E1 -74 dBm -73 dBm -76 dBm -72 dBm
- ---------------------------------------------------------------------------------------------------------
16E1 / E3 -71 dBm -70 dBm -73 dBm -69 dBm
- ---------------------------------------------------------------------------------------------------------
BER 10(3) Threshold
- ---------------------------------------------------------------------------------------------------------
2E1 -85 dBm -84 dBm -87 dBm -82 dBm
- ---------------------------------------------------------------------------------------------------------
4E1 -82 dBm -81 dBm -84 dBm -80 dBm
- ---------------------------------------------------------------------------------------------------------
8E1 -79 dBm -78 dBm -81 dBm -76 dBm
- ---------------------------------------------------------------------------------------------------------
16E1 / E3 -76 dBm -75 dBm -78 dBm -72 dBm
- ---------------------------------------------------------------------------------------------------------
Residual Bit Error Rate
- ---------------------------------------------------------------------------------------------------------
2E1, 4E1, 8E1 RBER (less than or equal to) 10(-10) when RSL is between 15 & 40 dB above BER 10(-3)
threshold with FEC enabled
- ---------------------------------------------------------------------------------------------------------
16E1, E3 RBER (less than or equal to) 10(-11) when RSL is between 15 & 40 dB above BER 10(-3)
threshold with FEC enabled
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Innova continuously invests in improving its products and reserves the right
to alter the features and specifications without notice at any time.
</TABLE>
Page 2 of 6
<PAGE> 44
INNOVA XP4 RADIO SPECIFICATIONS - E1 Format Revision Date: May 22nd 97
- --------------------------------------------------------------------------------
CO & ADJACENT CHANNEL PERFORMANCE
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C>
Performance Degradation Criteria 1 dB degradation in BER 10(-6) degree threshold
- -------------------------------------------------------------------------------------------------
Co-Channel C/I (all capacities) 23 dB
- -------------------------------------------------------------------------------------------------
Adjacent Channel C/I (all capacities) -3 dB
- -------------------------------------------------------------------------------------------------
RSL MONITORING
- -------------------------------------------------------------------------------------------------
Calibrated RSL Range -40 to -80 dBm
- -------------------------------------------------------------------------------------------------
RSL Accuracy Over Calibrated Range +/-2 dB typical, +/-3 dB max
- -------------------------------------------------------------------------------------------------
Voltage at ODU BNC Monitoring Point +0.1 Vdc per +1 dB (reference: -80 dBm = 1.0 Vdc)
- -------------------------------------------------------------------------------------------------
</TABLE>
DATA INTERFACES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
TRAFFIC ELECTRICAL PHYSICAL LINE CODE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2x/4x Balanced (120 ohms) ITU-R G.703 RJ-45 HDB3
- -------------------------------------------------------------------------------------------------
2x/4x Unbalanced (75 ohms) ITU-R G.703 BNC HDB3
- -------------------------------------------------------------------------------------------------
4x/8x Unbal/Balanced ITU-R G.703 DB25 HDB3
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
AGC MONITOR ELECTRICAL PHYSICAL
- -------------------------------------------------------------------------------------------------
0 to 10 Vdc BNC on ODU
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
AUX DATA CHANNEL OPTION ELECTRICAL PHYSICAL RATE
- -------------------------------------------------------------------------------------------------
Balanced Data Port #1 EIA RS422 DB9 Female 72 kbit/s
- -------------------------------------------------------------------------------------------------
Unbalanced Data Port #2 EIA RS232 DB9 Female 72 kbit/s
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
RELAY ALARM OUTPUTS ELECTRICAL PHYSICAL
- -------------------------------------------------------------------------------------------------
5 Relays Floating Form 'C' Relay DB15
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
EXTERNAL INPUT ELECTRICAL PHYSICAL
- -------------------------------------------------------------------------------------------------
1 input TTL 0V detector DB15
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
XPVIEW INTERFACE ELECTRICAL PHYSICAL RATE
- -------------------------------------------------------------------------------------------------
XPVIEW Port EIA RS232 DB9 Female 9600 bit/s
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
SNMP NETWORK ELECTRICAL PHYSICAL
MANAGEMENT OPTION
- -------------------------------------------------------------------------------------------------
VT100 Config. Port EIA RS232 RJ-45
- -------------------------------------------------------------------------------------------------
Management SLIP Port 1 EIA RS232/422 RJ-45
- -------------------------------------------------------------------------------------------------
Management SLIP Port 2 EIA RS232/422 RJ-45
- -------------------------------------------------------------------------------------------------
Coaxial Ethernet Port Ethernet BNC
- -------------------------------------------------------------------------------------------------
Thinwire Ethernet Port Ethernet RJ-45
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
Innova continuously invests in improving its products and reserves the right to
alter the features and specifications without notice at any time.
Page 3 of 6
<PAGE> 45
<TABLE>
<CAPTION>
INNOVA XP4 RADIO SPECIFICATIONS - E1 FORMAT Revision Date: May 22nd 97
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IDU to ODU CABLE
- --------------------------------------------------------------------------------------------------------------------------------
Number of Cables One
- --------------------------------------------------------------------------------------------------------------------------------
Cable Type Primary Power Distance
- --------------------------------------------------------------------------------------------------------------------------------
RG-223/U Cable 21.6 to 72 Vdc </= 50 m (150 ft)
- --------------------------------------------------------------------------------------------------------------------------------
RG-223/U Cable 43 to 72 Vdc </= 100 m (300 ft)
- --------------------------------------------------------------------------------------------------------------------------------
Belden 9913 Cable 21.6 to 72 Vdc </= 150 m (500 ft)
- --------------------------------------------------------------------------------------------------------------------------------
Belden 9913 Cable 43 to 72 Vdc </= 300 m (1000 ft)
- --------------------------------------------------------------------------------------------------------------------------------
PRIMARY POWER
- --------------------------------------------------------------------------------------------------------------------------------
Protection Circuit 3.15 A Slow-Blow
Fuse
- --------------------------------------------------------------------------------------------------------------------------------
Voltage 24V, 48V or 60V Battery Supplies
- --------------------------------------------------------------------------------------------------------------------------------
Polarity Positive Ground Only
- --------------------------------------------------------------------------------------------------------------------------------
Voltage Tolerance +20% to -10%
- --------------------------------------------------------------------------------------------------------------------------------
ODU Dissipation 34 W
- --------------------------------------------------------------------------------------------------------------------------------
IDU (2x/4x, 4x/8x, 16x) 11 W without option boards
- --------------------------------------------------------------------------------------------------------------------------------
IDU (16xE1 Mux) 11 W without option boards
- --------------------------------------------------------------------------------------------------------------------------------
1+1 Protection Switch 4 W
- --------------------------------------------------------------------------------------------------------------------------------
SNMP NMI Option Board 3 W
- --------------------------------------------------------------------------------------------------------------------------------
WEIGHT
- --------------------------------------------------------------------------------------------------------------------------------
ODU 2.8 kg (6 lb)
- --------------------------------------------------------------------------------------------------------------------------------
IDU (2x/4x. 4x/8x, 16x) 1.8 kg (4 lb)
- --------------------------------------------------------------------------------------------------------------------------------
IDU (16xE1 Mux) 1.8 kg (4 lb)
- --------------------------------------------------------------------------------------------------------------------------------
1+1 Protection Switch 1.4 kg (3 lb)
- --------------------------------------------------------------------------------------------------------------------------------
DIMENSIONS
- --------------------------------------------------------------------------------------------------------------------------------
ODU Radius: 225 mm (8.87") Depth: 122 mm (4.8")
- --------------------------------------------------------------------------------------------------------------------------------
IDU (2x/4x. 4x/8x, 16x) Width: 480 mm (19") Depth: 250 mm (9.8") Height: 45 mm (1.75")
- --------------------------------------------------------------------------------------------------------------------------------
IDU (16xE1 Mux) Width: 480 mm (19") Depth: 250 mm (9.8") Height: 45 mm (1.75")
- --------------------------------------------------------------------------------------------------------------------------------
1+1 Protection Switch Width: 480 mm (19") Depth: 250 mm (9.8") Height: 45 mm (1.75")
- --------------------------------------------------------------------------------------------------------------------------------
IDU CONFIGURATION RACK UNITS REQD.
- --------------------------------------------------------------------------------------------------------------------------------
Non Protected (2x/4x. 4x/8x) 1 RU
- --------------------------------------------------------------------------------------------------------------------------------
1+1 Protected (2x/4x. 4x/8x) 3 RU
- --------------------------------------------------------------------------------------------------------------------------------
1+1 Protected (16xE1) 3 RU
- --------------------------------------------------------------------------------------------------------------------------------
Innova continuously invests in improving its products and reserves the right to alter the features and
specifications without notice at any time.
Page 4 of 6
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
INNOVA XP4 RADIO SPECIFICATIONS - E1 FORMAT Revision Date: May 22nd 97
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ENVIRONMENT
- --------------------------------------------------------------------------------------------------------------------------------
ODU -30 to + 55 degree C
- --------------------------------------------------------------------------------------------------------------------------------
IDU -10 to + 50 degree C
- --------------------------------------------------------------------------------------------------------------------------------
RELIABILITY
- ----------------------------------------------------------
Terminal MTBF 10 years
- ----------------------------------------------------------
MONITOR & CONTROL FEATURES
- --------------------------------------------------------------------------------------------------------------------------------
From IDU Speedkeys (Local or Remote XP4)
- --------------------------------------------------------------------------------------------------------------------------------
RSL Monitor
- --------------------------------------------------------------------------------------------------------------------------------
BER Monitor
- --------------------------------------------------------------------------------------------------------------------------------
Capacity Monitor & Set
- --------------------------------------------------------------------------------------------------------------------------------
Transmit Frequency Monitor & Set
- --------------------------------------------------------------------------------------------------------------------------------
Transmit Power Monitor & Set
- --------------------------------------------------------------------------------------------------------------------------------
Link ID Monitor & Set
- --------------------------------------------------------------------------------------------------------------------------------
Tributary Configuration Monitor & Set
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive Alarm Monitoring via Relay Outputs & LEDs
- --------------------------------------------------------------------------------------------------------------------------------
From XPVIEW Software (Local or Remote XP4)
- --------------------------------------------------------------------------------------------------------------------------------
RSL Monitor
- --------------------------------------------------------------------------------------------------------------------------------
BER Monitor
- --------------------------------------------------------------------------------------------------------------------------------
Capacity Monitor & Set
- --------------------------------------------------------------------------------------------------------------------------------
Transmit Frequency Monitor & Set
- --------------------------------------------------------------------------------------------------------------------------------
Transmit Power Monitor & Set
- --------------------------------------------------------------------------------------------------------------------------------
Link ID Monitor & Set
- --------------------------------------------------------------------------------------------------------------------------------
Tributary Configuration Monitor & Set
- --------------------------------------------------------------------------------------------------------------------------------
Tributary Use Inhibition
- --------------------------------------------------------------------------------------------------------------------------------
Set BER Alarm Thresholds
- --------------------------------------------------------------------------------------------------------------------------------
Set RSL Low Level Alarm
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive Alarm Monitoring via Relay Outputs & LEDs
- --------------------------------------------------------------------------------------------------------------------------------
Loopback Setting: RF, ODU Analogue, ODU Digital, IDU & Tributaries
- --------------------------------------------------------------------------------------------------------------------------------
Alarm Relay Mapping Changes
- --------------------------------------------------------------------------------------------------------------------------------
Password Administration
- --------------------------------------------------------------------------------------------------------------------------------
Code Downloads (both IDU & ODU)
- --------------------------------------------------------------------------------------------------------------------------------
Frequency Plan Addition, Deletion & Editing
- --------------------------------------------------------------------------------------------------------------------------------
Terminal Configuration Saving to Disk & Loading From Disk
- --------------------------------------------------------------------------------------------------------------------------------
Innova continuously invests in improving its products and reserves the right to alter the features and
specifications without notice at any time.
Page 5 of 6
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
INNOVA XP4 RADIO SPECIFICATIONS - E1 FORMAT Revision Date: May 22nd 97
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
XP4 Terminal Alarm Monitored
- --------------------------------------------------------------------------------------------------------------------------------
Transmitter Power Fail
- --------------------------------------------------------------------------------------------------------------------------------
Transmitter Frequency Unlocked
- --------------------------------------------------------------------------------------------------------------------------------
Receive Level Low
- --------------------------------------------------------------------------------------------------------------------------------
Receive Frequency Unlocked
- --------------------------------------------------------------------------------------------------------------------------------
Link ID Code Mismatch
- --------------------------------------------------------------------------------------------------------------------------------
Tributary [1-8] Fault
- --------------------------------------------------------------------------------------------------------------------------------
BER Early Warning
- --------------------------------------------------------------------------------------------------------------------------------
BER Alarm
- --------------------------------------------------------------------------------------------------------------------------------
Cable Fault
- --------------------------------------------------------------------------------------------------------------------------------
Local Auxiliary Input Alarm
- --------------------------------------------------------------------------------------------------------------------------------
Remote Auxiliary Input Alarm
- --------------------------------------------------------------------------------------------------------------------------------
Loopback Active Alarm
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Innova continuously invests in improving its products and reserves the right to alter the features and
specifications without notice at any time.
Page 6 of 6
</TABLE>
<PAGE> 48
Innova XP4 Radio Specifications - T1 Format Revision Date: May 22nd 97
- --------------------------------------------------------------------------------
Innova XP4 Series of Digital
Microwave Radios
T1 Format
Dramatically Changing the Economics of Wireless Networks
Innova Corporation, 3325 South 116th Street, Seattle, WA, 98168, USA.
Tel +206 439 9121 Fax +206 439 2701
- --------------------------------------------------------------------------------
Innova continuously invests in improving its products and reserves the right to
alter the features and specifications without notice at any time.
Page 1 of 6
<PAGE> 49
Innova XP4 Radio Specifications - T1 Format Revision Date: May 22nd 97
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General 15GHz 18GHz 23GHz 24GHz 38GHz
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Frequency Range 14.4 - 15.35 GHz 17.7 - 19.7 GHz 21.2 - 23.6 GHz 24.25 - 25.25 GHz 37.0 - 39.5 GHz
Tuning Range * 300 MHz for 1010 T-R * 300 MHz 300 MHz 300 MHz
Link ID Codes 255 255 255 255 255
T-R Spacing (MHz) 475 340, 1560 1200 800 700
*Tunning Range is dependent on T-R spacing & Channel Plan required. Contact your local Innova Representative for further details.
</TABLE>
<TABLE>
<CAPTION>
Transmitter 15GHz 18GHz 23GHz 24GHz 38GHz
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Power Output (Std) +19 dBm +18 dBm +17 dBm +17 dBm +16 dBm
Power Control Range 30 dB in 0.5 30 dB in 0.5 30 dB in 0.5 30 dB in 0.5 30 dB in 0.5
dB steps dB steps dB steps dB steps dB steps
Transmitter Mute Level Less than -30 dBm Less than -30 dBm Less than -30 dBm Less than -30 dBm Less than -30 dBm
Frequency Accuracy (+/-)10 ppm (+/-)10 ppm (+/-)10 ppm (+/-)10 ppm (+/-)10 ppm
Channel Selection Digital Synthesizer Digital Synthesizer Digital Synthesizer Digital Synthesizer Digital Synthesizer
Frequency Synthesis Phase Lock Loop Phase Lock Loop Phase Lock Loop Phase Lock Loop Phase Lock Loop
Synthesizer Resolution 0.25 MHz 0.25 MHz 0.25 MHz 0.25 MHz 0.25 MHz
Modulation 4FSK 4FSK 4FSK 4FSK 4FSK
Emission Bandwidth
4T1 5 MHz 5 MHz 5 MHz 5 MHz 5 MHz
8T1 10 MHz 10 MHz 10 MHz 10 MHz 10 MHz
T3 25 MHz 25 MHz 25 MHz 25 MHz 25 MHz
</TABLE>
<TABLE>
<CAPTION>
Receiver 15GHz 18GHz 23GHz 24GHz 38GHz
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BER 10(-6) Threshold
4T1 -81 dBm -80 dBm -77 dBm -77 dBm -75 dBm
8T1 -78 dBm -77 dBm -74 dBm -74 dBm -72 dBm
DS3 -75 dBm -74 dBm -71 dBm -71 dBm -69 dBm
BER 10(-3) Threshold
4TI -84 dBm -83 dBm -82 dBm -82 dBm -80 dBm
8TI -81 dBm -80 dBm -79 dBm -79 dBm -76 dBm
DS3 -78 dBm -77 dBm -76 dBm -76 dBm -72 dBm
Residual Bit Error Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
4TI, 8TI RBER </= 10(-10) when RSL is between 15 & 40 dB above BER 10(-3) threshold with FEC enabled
DS3 RBER </= 10(-11) when RSL is between 15 & 40 dB above BER 10(-3) threshold with FEC enabled
</TABLE>
Innova continuously invests in improving its products and reserves the right to
alter the features and specifications without notice at any time.
Page 2 of 6
<PAGE> 50
<TABLE>
INNOVA XP4 RADIO SPECIFICATIONS - T1 FORMAT Revision Date: May 22nd 97
- -------------------------------------------------------------------------------------------------
CO & ADJACENT CHANNEL PERFORMANCE
<S> <C>
- -------------------------------------------------------------------------------------------------
Performance Degradation Criteria 1 dB degradation in BER 10(-6) threshold
- -------------------------------------------------------------------------------------------------
Co-Channel C/I (all capacities) 23 dB
- -------------------------------------------------------------------------------------------------
Adjacent Channel C/I (all capacities) -3 dB
- -------------------------------------------------------------------------------------------------
RSL MONITORING
- -------------------------------------------------------------------------------------------------
Calibrated RSL Range -40 to -80 dBm
- -------------------------------------------------------------------------------------------------
RSL Accuracy Over Calibrated Range +/- 2 dB typical, +/- 3 dB max
- -------------------------------------------------------------------------------------------------
Voltage at ODU BNC Monitoring Point +0.1 Vdc per +1 dB (reference: -80 dBm = 1.0 Vdc)
- -------------------------------------------------------------------------------------------------
DATA INTERFACES
- -------------------------------------------------------------------------------------------------
TRAFFIC ELECTRICAL PHYSICAL LINE CODE
- -------------------------------------------------------------------------------------------------
2x/4x Balanced (120 Ohms) ITU-R G.703 RJ-45 AMI/B8ZS
- -------------------------------------------------------------------------------------------------
4x/8x Balanced ITU-R G.703 DB25 AMI/B8ZS
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
AGC MONITOR ELECTRICAL PHYSICAL
- -------------------------------------------------------------------------------------------------
0 to 10Vdc BNC on ODU
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
AUXILIARY DATA CHANNEL ELECTRICAL PHYSICAL RATE
OPTION
- -------------------------------------------------------------------------------------------------
Balanced Data Port #1 EIA RS422 DB9 Female 72 kbit/s
- -------------------------------------------------------------------------------------------------
Unbalanced Data Port #2 EIA RS232 DB9 Female 72 kbit/s
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
RELAY ALARM OUTPUTS ELECTRICAL PHYSICAL
- -------------------------------------------------------------------------------------------------
5 Relays Floating Form `C' Relay DB15
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
EXTERNAL INPUT ELECTRICAL PHYSICAL
- -------------------------------------------------------------------------------------------------
1 input TTL 0V detector DB15
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
XPVIEW INTERFACE ELECTRICAL PHYSICAL RATE
- -------------------------------------------------------------------------------------------------
XPVIEW Port EIA RS 232 DB9 Female 9600 bit/s
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
SNMP NETWORK ELECTRICAL PHYSICAL
MANAGEMENT OPTION
- -------------------------------------------------------------------------------------------------
VT100 Config. Port EIA RS232 RJ-45
- -------------------------------------------------------------------------------------------------
Management SLIP Port 1 EIA RS232/422 RJ-45
- -------------------------------------------------------------------------------------------------
Management SLIP Port 2 EIA RS232/422 RJ-45
- -------------------------------------------------------------------------------------------------
Coaxial Ethernet Port Ethernet BNC
- -------------------------------------------------------------------------------------------------
Thinwire Ethernet Port Ethernet RJ-45
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Innova continuously invests in improving its products and reserves the right
to alter the features and specifications without notice at any time.
</TABLE>
Page 3 of 6
<PAGE> 51
<TABLE>
<CAPTION>
INNOVA XP4 RADIO SPECIFICATIONS - T1 FORMAT Revision Date: May 22nd 97
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
IDU to ODU CABLE
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Number of Cables One
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
CABLE TYPE PRIMARY POWER DISTANCE
- --------------------------------------------------------------------------------------------------------------------------------
RG-223/U Cable 21.6 to 72 Vdc </= 50 m (150 ft)
- --------------------------------------------------------------------------------------------------------------------------------
RG-223/U Cable 43 to 72 Vdc </= 100 m (300 ft)
- --------------------------------------------------------------------------------------------------------------------------------
Belden 9913 Cable 21.6 to 72 Vdc </= 150 m (500 ft)
- --------------------------------------------------------------------------------------------------------------------------------
Belden 9913 Cable 43 to 72 Vdc </= 300 m (1000 ft)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
PRIMARY POWER
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Protection Circuit 3.15 A Slow-Blow
Fuse
- --------------------------------------------------------------------------------------------------------------------------------
Voltage 24V, 48V or 60V Battery Supplies
- --------------------------------------------------------------------------------------------------------------------------------
Polarity Positive Ground Only
- --------------------------------------------------------------------------------------------------------------------------------
Voltage Tolerance +20% to -10%
- --------------------------------------------------------------------------------------------------------------------------------
ODU Dissipation 34 W
- --------------------------------------------------------------------------------------------------------------------------------
IDU (2x/4x, 4x/8x, 16x) 11 W without option boards
- --------------------------------------------------------------------------------------------------------------------------------
IDU (16xE1 Mux) 11 W without option boards
- --------------------------------------------------------------------------------------------------------------------------------
1+1 Protection Switch 4 W
- --------------------------------------------------------------------------------------------------------------------------------
SNMP NMI Option Board 3 W
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
WEIGHT
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
ODU 2.8 kg (6 lb)
- --------------------------------------------------------------------------------------------------------------------------------
IDU (2x/4x. 4x/8x, 16x) 1.8 kg (4 lb)
- --------------------------------------------------------------------------------------------------------------------------------
IDU (16xE1 Mux) 1.8 kg (4 lb)
- --------------------------------------------------------------------------------------------------------------------------------
1+1 Protection Switch 1.4 kg (3 lb)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
DIMENSIONS
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
ODU Radius: 225 mm (8.87") Depth: 122 mm (4.8")
- --------------------------------------------------------------------------------------------------------------------------------
IDU (2x/4x, 4x/8x, 16x) Width: 480 mm (19") Depth: 250 mm (9.8") Height: 45 mm (1.75")
- --------------------------------------------------------------------------------------------------------------------------------
IDU (16x/E1 Mux) Width: 480 mm (19") Depth: 250 mm (9.8") Height: 45 mm (1.75")
- --------------------------------------------------------------------------------------------------------------------------------
1+1 Protection Switch Width: 480 mm (19") Depth: 250 mm (9.8") Height: 45 mm (1.75")
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
IDU CONFIGURATION RACK UNITS REQD.
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Non Protected (2x/4x, 4x/8x) 1 RU
- --------------------------------------------------------------------------------------------------------------------------------
1+1 Protected (2x/4x, 4x/8x) 3 RU
- --------------------------------------------------------------------------------------------------------------------------------
1+1 Protected (16xE1) 3 RU
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Innova continuously invests in improving its products and reserves the right to
alter the features and specifications without notice at any time.
Page 4 of 6
<PAGE> 52
INNOVA XP4 RADIO SPECIFICATIONS - T1 Format Revision Date: May 22nd 97
- --------------------------------------------------------------------------------
OPERATING ENVIRONMENT
<TABLE>
- ------------------------------------------------------------------------------------------
<S> <C>
ODU -30 to +55 degrees C
- ------------------------------------------------------------------------------------------
IDU Units -10 to +50 degrees C
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
RELIABILITY
- -----------------------------------------------
Terminal MTBF 10 years
- -----------------------------------------------
MONITOR & CONTROL FEATURES
- ------------------------------------------------------------------------------------------
From IDU Speedkeys (Local or Remote XP4)
- ------------------------------------------------------------------------------------------
RSL Monitor
- ------------------------------------------------------------------------------------------
BER Monitor
- ------------------------------------------------------------------------------------------
Capacity Monitor & Set
- ------------------------------------------------------------------------------------------
Transmit Frequency Monitor & Set
- ------------------------------------------------------------------------------------------
Transmit Power Monitor & Set
- ------------------------------------------------------------------------------------------
Link ID Monitor & Set
- ------------------------------------------------------------------------------------------
Tributary Configuration Monitor & Set
- ------------------------------------------------------------------------------------------
Comprehensive Alarm Monitoring via Relay Outputs & LEDs
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
From XPVIEW Software (Local or Remote XP4)
- ------------------------------------------------------------------------------------------
RSL Monitor
- ------------------------------------------------------------------------------------------
BER Monitor
- ------------------------------------------------------------------------------------------
Capacity Monitor & Set
- ------------------------------------------------------------------------------------------
Transmit Frequency Monitor & Set
- ------------------------------------------------------------------------------------------
Transmit Power Monitor & Set
- ------------------------------------------------------------------------------------------
Link ID Monitor & Set
- ------------------------------------------------------------------------------------------
Tributary Configuration Monitor & Set
- ------------------------------------------------------------------------------------------
Tributary Use Inhibition
- ------------------------------------------------------------------------------------------
Set BER Alarm Thresholds
- ------------------------------------------------------------------------------------------
Set RSL Low Level Alarm
- ------------------------------------------------------------------------------------------
Comprehensive Alarm Monitoring via Relay Outputs & LEDs
- ------------------------------------------------------------------------------------------
Loopback Setting: RF, ODU Analogue, ODU Digital, IDU & Tributaries
- ------------------------------------------------------------------------------------------
Alarm Relay Mapping Changes
- ------------------------------------------------------------------------------------------
Password Administration
- ------------------------------------------------------------------------------------------
Code Downloads (both IDU & ODU)
- ------------------------------------------------------------------------------------------
Frequency Plan Addition, Deletion & Editing
- ------------------------------------------------------------------------------------------
Terminal Configuration Savings to Disk & Loading From Disk
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
Innova continuously invests in improving its products and reserves the right to
alter the features and specifications without notice at any time.
Page 5 of 6
<PAGE> 53
INNOVA XP4 RADIO SPECIFICATIONS - T1 Format Revision Date: May 22nd 97
- --------------------------------------------------------------------------------
XP4 TERMINAL ALARMS MONITORED
<TABLE>
- ------------------------------------------------------------------------------------------
<S> <C>
Transmitter Power Fail
- ------------------------------------------------------------------------------------------
Transmitter Frequency Unlocked
- ------------------------------------------------------------------------------------------
Receive Level Low
- ------------------------------------------------------------------------------------------
Receiver Frequency Unlocked
- ------------------------------------------------------------------------------------------
Link ID Code Mismatch
- ------------------------------------------------------------------------------------------
Tributary [1-8] Fault
- ------------------------------------------------------------------------------------------
BER Early Warning
- ------------------------------------------------------------------------------------------
BER Alarm
- ------------------------------------------------------------------------------------------
Cable Fault
- ------------------------------------------------------------------------------------------
Local Auxiliary Input Alarm
- ------------------------------------------------------------------------------------------
Remote Auxiliary Input Alarm
- ------------------------------------------------------------------------------------------
Loopback Active Alarm
- ------------------------------------------------------------------------------------------
</TABLE>
Innova continuously invests in improving its products and reserves the right to
alter the features and specifications without notice at any time.
Page 6 of 6
<PAGE> 54
APPENDIX "C" - CONFIDENTIALITY
The Non Disclosure Agreement is attached
<PAGE> 55
NON-DISCLOSURE AGREEMENT
1. Innova Corporation, located at 3325 South 116th Street, Seattle,
Washington, 98168 ("INNOVA") and NERA ASA, located at Kokstadveien 23, N-5061
Kokstad, Norway ("NERA") are considering entering into a business relationship
with one another. In this connection, it may be necessary for the parties to
provide each other technical data or other business information and/or
proprietary and confidential information, materials and/or products, including,
unless otherwise expressly agreed to the contrary, any knowledge that may be
imparted though examination and analysis thereof or working thereof, hereinafter
severally and collectively referred to as "Proprietary Information". All
Proprietary Information disclosed by one party to the other shall be identified
as such by the disclosing party by an appropriate legend, stamp, or other
written indication such as "Proprietary", "CONFIDENTIAL", or other similar
words. Any Proprietary Information not in tangible form when disclosed will be
subject to the restrictions on disclosure and use provided herein only if and to
the extent it is reduced to writing by the disclosing party, appropriately
marked, and transmitted to the receiving party within 30 days of the initial
disclosure date.
2. The parties understand and acknowledge that each party's Proprietary
Information has been developed through the expenditure of substantial time and
money, that the disclosing party desires to retain its Proprietary Information
in trust and confidence and to withhold access thereto from third parties, and
that the commitments set forth herein are a conditioned precedent to the
parties' agreement to disclose their respective Proprietary Information to each
other.
3. Each party therefore agrees: (a) to use all reasonable efforts to keep the
disclosing party's Proprietary Information will not, except as specifically
authorized in writing by the disclosing party (i) be disclosed or revealed
directly or indirectly to any third party other than an employee of the
receiving party who reasonably requires access thereto and who has undertaken an
obligation of confidentiality with respect to such Proprietary Information, or
(ii) be utilized by the receiving party for any purpose other than to evaluate
the feasibility of entering into a business relationship with the disclosing
party.
4. Upon request by the disclosing party, the receiving party will promptly
return to the disclosing party all drawings, specifications, data, and other
information in tangible form that contain or embody the disclosing party's
Proprietary Information, together with all copies thereof.
5. The receiving party shall not be under any obligation with respect to the
disclosing party's Proprietary Information (a) after three years following
receipt thereof, or (b) if and to the extent that the receiving party can prove
that such Proprietary Information;
<PAGE> 56
i. was already known to it without restriction at the time of receipt
from disclosing party, as shown by documents in the receiving party's
possession;
ii. was disclosed to it on a non-confidential basis by a third party
having the right to disclose same;
iii. either had been published or otherwise made available to the public at
the time of receipt by it from the disclosing party or subsequently became
published or available to the public other than by breach of this Agreement, but
in such event only as of said subsequent date; or
iv. was developed by the receiving party independently of any disclosure
to it by the disclosing party, as shown by the documents in the receiving
party's possession.
6. This Agreement expresses the entire agreement of the parties and cannot be
assigned, altered, changed, or otherwise modified unless mutually agreed to by
the parties hereto in writing. Nothing in this Agreement shall be construed to
obligate the parties to enter into any business arrangement, to disclose any
Proprietary Information, or to constitute the grant of a license to either party
under any patent, patent application, trademark, or copyright, or with respect
to any Proprietary Information of the disclosing party.
7. If any part of any provision of this Agreement shall be invalid or
unenforceable under applicable law, such part shall be ineffective to the extent
of such invalidity or unenforceability only, without in any way affecting the
remaining part of such provision or the remaining provisions of this Agreement.
No failure or delay by a party in exercising any right, power, or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other of further exercise thereof or the exercise
of any other right, power of privilege hereunder.
8. So agreed by the undersigned, effective date: May 30, 1997.
NERA ASA Innova Corporation
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
--------------------------- ----------------------------
Title: EVP Title: President & CEO
------------------------ ----------------------
<PAGE> 57
APPENDIX "D" - CUSTOM COMPONENTS
The list and prices for Custom Components is attached
<PAGE> 58
XP4 Custom Component Prices
<TABLE>
<S> <C>
Common PCAs
- --------------------------------------
PSU PCA $*****
Quadplexer PCA $*****
Microprocessor PCA $*****
Signal Distribution PCA $*****
Signal Processor PCA $*****
Transmitter PCA $*****
Receiver PCA $*****
13 GHz ODU
- --------------------------------------
Mechanical Kit $*****
Waveguide filters (2) $*****
Tx Module $*****
Tx Hybrid $*****
Rx Module $*****
Rx Hybrid $*****
15 GHz ODU
- --------------------------------------
Mechanical Kit $*****
Waveguide filters (2) $*****
Tx Module $*****
Tx Hybrid $*****
Rx Module $*****
Rx Hybrid $*****
18 GHz ODU
- --------------------------------------
Mechanical Kit $*****
Waveguide filters (2) $*****
Tx Module $*****
Tx Hybrid $*****
Rx Module $*****
Rx Hybrid $*****
23 GHz ODU
- --------------------------------------
Mechanical Kit $*****
Diplexer $*****
Tx Module $*****
Tx Hybrid $*****
Rx Module $*****
Rx Hybrid $*****
26 GHz ODU
- --------------------------------------
Mechanical Kit $*****
Diplexer $*****
Tx Module $*****
Tx Hybrid $*****
Rx Module $*****
Rx Hybrid $*****
38 GHz ODU
- --------------------------------------
Mechanical Kit $*****
Diplexer $*****
Tx Module $*****
Tx Hybrid $*****
Rx Module $*****
Rx Hybrid $*****
</TABLE>
<PAGE> 59
APPENDIX "E" - SOFTWARE LICENSE
Innova grants to NERA a license to use, copy and resell the Innova XPView
Software for use solely in conjunction with the Products covered by this
Agreement, provided NERA protects Innova's proprietary rights to the XPView
Software by requiring its purchasers or userS to accept a software license as
attached or equivalent to the attached "Software License Agreement". NERA
acknowledges that all rights to the XPView Software remain the exclusive
property of Innova.
<PAGE> 60
INNOVA CORPORATION
SOFTWARE LICENSE AGREEMENT
THIS IS A LEGAL AGREEMENT BETWEEN YOU ("Licensee") AND INNOVA CORPORATION
("Innova")). CAREFULLY READ ALL THE TERMS AND CONDITIONS OF THIS AGREEMENT PRIOR
TO OPENING THIS PACKAGE. By opening the sealed package to use the enclosed
Innova product (the "Software") and accompanying documentation (the
"Documentation"), Licensee agrees to be bound by the terms of this License
Agreement ("Agreement"). If Licensee does not agree to the terms of this
Agreement, Licensee must promptly destroy or return to Innova all copies of the
Software and Documentation, for a full refund from Innova.
1. LICENSE GRANT. Innova hereby grants to Licenses a nonexclusive license to
use the Software and Documentation on the following terms:
Licensee may: (i) use the Software on any single computer: (ii) use the Software
on another computer so long as not used simultaneously with the first computer;
and (iii) make one copy of the Software for backup and archival purposes,
provided any copy must contain all of the original Software's proprietary
notices. This license does not grant Licensee any right to any Software
enhancements or updates, or any access to or rights in or to file source for the
Software.
Licensee may not: (i) permit other individuals to use the Software [unless the
other party agrees to the terms and conditions of this Agreement and returns to
Innova a registration card, obtainable from Innoval, (ii) modify, translate,
remanufacture, reverse engineer decompile, disassemble, otherwise attempt to
derive source code from the Software (except to the extent that this restriction
is expressly prohibited by law), or create derivative works based upon the
Software or Documentation; (iii) copy the Software or Documentation (except as
provided above); (iv) rent, lease, sell, transfer, sublicense or otherwise
commercially exploit or transfer rights to the Software or Documentation, or (v)
remove, obscure or alter any proprietary notices or labels on the Software or
Documentation.
2. TITLE. Title, ownership rights, and intellectual property rights in and to
the Software and Documentation shall remain in Innova and/or its suppliers.
The Software is protected by the copyright laws of the United States and
international copyright treaties.
3. LIMITED WARRANTY. Innova warrants to Licensee that for a period of thirty
(30) days from the date of acquisition, the Software, if installed and operated
as directed on hardware for which it is designed, will substantially achieve the
functionality described in the Documentation. Innova does not warrant, however,
that Licensee's use of the Software will be uninterrupted or that the operation
of the Software will be error-free or secure. Innova also warrants that the
media containing the Software, if provided by Innova, is free from defects in
material and workmanship and will so remain for thirty (30) days from the date
Licensee acquires the Software. The agents and employees of Innova are not
authorized to make any warranties on behalf of Innova, and any representations
by them, oral or written, do not constitute warranties by Innova and should not
be relied upon. No action for any breach of the above limited warranty may be
brought more than one (1) year following the expiration date of the warranty.
Innova's sole liability for any breach of this warranty shall be, in Innova's
sole discretion: (i) to replace Licensee's defective media; or (ii) to advise
Licensee how to achieve substantially the same functionality with the Software
as described in the Documentation through a procedure different from that set
forth in the Documentation; or (iii) if the above remedies are, in Innova's sole
judgment, impracticable, to refund the license fee Licensee paid for the
Software. Only if Licensee informs Innova of the problem with the Software
during the applicable warranty period and provides evidence of the date Licensee
acquired the Software will Innova be obligated to honor this warranty.
NO OTHER WARRANTIES: TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, INNOVA
AND ITS SUPPLIERS DISCLAIM ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF TITLE, NONINFRINGEMENT,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH REGARD TO THE SOFTWARE
AND DOCUMENTATION.
If any modifications are made to the Software by Licensee during the warranty
period, if the Software media is subjected to accident, abuse, or improper use;
or if Licensee violates the terms of this license, then this warranty shall
immediately terminate. This warranty shall not apply if the Software is not used
in accordance with the Documentation, or is used on or together with hardware or
software other than the unmodified version of hardware and software with which
the Software was designed to be used as described in the Documentation. THIS
LIMITED WARRANTY GIVES LICENSEE SPECIFIC LEGAL RIGHTS. LICENSEE MAY HAVE OTHERS,
WHICH VARY FROM STATE/JURISDICTION TO STATE/JURISDICTION.
4. LIMITATION OF LIABILITY. UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL
THEORY, WHETHER IN NEGLIGENCE, TORT. CONTRACT OR OTHERWISE, SHALL INNOVA OR ITS
SUPPLIERS, AGENTS OR RESELLERS BE LIABLE TO LICENSEE OR ANY OTHER PERSON FOR ANY
INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER,
INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF USE, INCOME, GOODWILL OR DATA;
WORK STOPPAGE; COMPUTER FAILURE OR MALFUNCTION; OR ANY AND
<PAGE> 61
ALL OTHER COMMERCIAL DAMAGES OR LOSSES; OR THAT RESULT FROM ERRORS, DEFECTS, OR
ANY FAILURE OF PERFORMANCE, EVEN IF INNOVA SHALL HAVE BEEN INFORMED OF THE
POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY OTHER PARTY. FURTHER, IN NO
EVENT SHALL INNOVA'S LIABILITY UNDER ANY PROVISION OF THIS AGREEMENT EXCEED THE
LICENSE FEE PAID TO INNOVA FOR THE SOFTWARE AND DOCUMENTATION. BECAUSE SOME
STATES/JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR
CONSEQUENTIAL OR INCIDENTAL DAMAGES, IN SUCH STATES/JURISDICTIONS INNOVA'S
LIABILITY IS LIMITED TO THE GREATEST EXTENT PERMITTED BY LAW.
5. TERMINATION. This license is effective until terminated. This license shall
terminate automatically if Licensee fails to comply with the provisions of this
Agreement. On termination, Licensee must within 5 days return to Innova or
destroy all copies of the Software and Documentation and confirm in writing to
Innova that it has done so.
6. U.S. GOVERNMENT RESTRICTED RIGHTS AND EXPORT RESTRICTIONS. The Software is
provided with RESTRICTED RIGHTS. Use, duplication, or disclosure by the
Government is subject to restrictions as set forth in subparagraph (c)(1)(ii) of
The Rights in Technical Data and Computer Software clause of DFARS 252.227-7013
or subparagraphs (c)(i) and (2) of the Commercial Computer Software-Restricted
Rights at 48 CFR 52.227-19. as applicable. Manufacturer is Innova Corporation,
3325 South 116th Street, Seattle, Washington 98168, U.S.A., (206) 439-9121.
Licensee acknowledges that use and distribution of the Software and
Documentation is subject to compliance with all laws, regulations, orders and
other restrictions on export from the U.S., of the Software or Documentation or
any technical information about or in them which are or may be imposed by the
government of the U.S. now or in the future. Licensee agrees not to transfer the
Software or Documentation or any technical information about or in them in
violation of such laws, regulations, orders or other restrictions on export.
Without limiting the generality of the foregoing, Licensee will not export or
re-export into (or to a national or resident of) a country to which the U.S. has
embargoed goods, or to anyone on the U.S. Treasury Department's list of
Specially Designated Nationals or the U.S. Commerce Department's Table of Denial
Orders, as such may be amended/updated from time to time. By using the Software,
Licensee is agreeing to the foregoing and is representing and warranting that
Licensee is not located in, or under the control of, a national or resident or
resident of any such country or on any such list.
7. GOVERNING LAW: ATTORNEYS' FEES. This agreement shall be governed by the
laws of the State of Washington, U.S.A. (without regard to its conflicts of laws
principles) and Licensee further consents to jurisdiction by the state and
federal courts sitting in the State of Washington, U.S.A. If either Innova or
Licensee employs attorneys to enforce any rights arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees.
8. ENTIRE AGREEMENT. This agreement constitutes the complete and exclusive
agreement between Innova and Licensee with respect to the subject matter hereof,
and supersedes all prior oral or written understandings, communications or
agreements not specifically incorporated herein. Innova is not bound by any
actions or statements of its agents or resellers, nor by any provision of any
purchase order, receipt, confirmation or other correspondence different from or
in addition to the terms and conditions of this Agreement, unless specifically
agreed to in writing by Innova. This agreement may not be modified except in a
writing duly signed by an authorized representative of Innova and Licensee. If
any provision of this Agreement is held to be unenforceable for any reason, such
provision shall be revised only to the extent necessary to make it enforceable,
and such decision shall not affect the enforceability of (i) of such provision
under other circumstances, or (ii) of the remaining provisions of this Agreement
under all circumstances.
9. CONFIDENTIAL INFORMATION. Licensee acknowledges that the Software and all
other information related to Innova's business, products or methods of
operations which is not generally known to the public is strictly confidential
and is a valuable asset of Innova, whether such information is copyrighted,
privileged, proprietary, trade secret, intellectual property or otherwise
(individually and collectively, "Confidential Information"), and agree that you
will not use or disclose such Confidential Information, directly or indirectly,
in whole or in part, other than as permitted by this Agreement. Confidential
Information does not include any information which: (i) is or becomes a matter
of general public knowledge through no breach of a duty of non-disclosure, (ii)
is independently developed or obtained by the receiving party as evidenced by
competent written proof, and/or (iii) is required to be disclosed by applicable
law.
<PAGE> 62
APPENDIX "F" - ESCROW ACCOUNT
The Escrow Account agreement is attached.
<PAGE> 63
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into between INNOVA CORPORATION, a Washington
Corporation ("Licensor"), DATA BASE, INC., a Washington corporation ("DATA
BASE"), and NERA ASA, a Norwegian Corporation ("Licensee").
A. Licensor is the owner of those confidential materials identified in
Exhibit A (collectively, "Confidential Materials"). Licensor and
Licensee have entered into an OEM Purchase and Limited Licensing
Agreement dated May 30th, 1997 (the "OEM Agreement").
B. The parties agree that if any of the events identified in Section
4.C.(1) of the OEM Agreement occurs (an "Escrow Default"), Licensee
shall have the right to obtain the Confidential Materials from DATA BASE
pursuant to this Agreement and use the Confidential Materials for the
limited purposes identified in Section 4.C of the Escrow Agreement. The
purpose of this Agreement is to assure Licensee of access to the
Confidential Materials in the event of an Escrow Default.
THEREFORE, in consideration of the mutual conditions and covenants set
forth in this Agreement, Licensor, Licensee and DATA BASE agree as
follows:
1. Deposit of Confidential Materials in Escrow. Licensor shall deposit
with DATA BASE, and DATA BASE, as escrow agent, agrees to accept from
Licensor, the Confidential Materials for storage and disposition in
accordance with the provisions of this Agreement. For each deposit, DATA
BASE will issue receipts to Licensee and Licensor.
2. Retention of Confidential Materials: Release to Licensor. DATA BASE
agrees to hold in safekeeping the Confidential Materials deposited
hereunder, and shall release or disclose any or all such Confidential
Materials only in accordance with the terms of this Agreement.
3. Release of Confidential Materials. DATA BASE shall release the
Confidential Materials only as follows:
(a) In the event of (1) a demand by Licensee pursuant to Subsection
4(a) hereof which is not disputed by Licensor in the manner and
within the time prescribed in Subsection 4(b) hereof, or (2) a
determination by the panel of arbitrators in accordance with
Section 5 hereof that Licensee is entitled to receive the
Confidential Materials due to an Escrow Default, then DATA BASE
shall release the Confidential Materials to Licensee, and
Licensee shall only use the Confidential Materials pursuant to
Section 4.C of the OEM Agreement. Upon release of the
Confidential Materials, Licensee shall issue a receipt to DATA
BASE.
(b) DATA BASE shall release such Confidential Materials to such
persons in such manner as shall be directed by order of any
court of competent jurisdiction pursuant to Section 6 or
otherwise.
1
<PAGE> 64
(c) DATA BASE shall release Confidential Materials upon the written
consent of both Licensor and Licensee.
4. Demand and Dispute
------------------
(a) In the event Licensee believes in good faith that an Escrow
Default has occurred, Licensee shall make written demand on DATA
BASE for the Confidential Materials. Such demand must be
accompanied by the following documents, each executed under oath
by an authorized officer or representative of Licensee:
(1) A certified copy of a notice from Licensee to Licensor
containing a statement that an Escrow Default has
occurred and that Licensee intends to seek release of
such Confidential Materials by DATA BASE pursuant to the
provisions of this Agreement.
(2) A certificate stating that:
(A) Licensee has given the notice described in
Paragraph (1) above to Licensor in the manner
prescribed in Section 10 hereof, and that ten
(10) days have elapsed from the giving of such
notice without response from Licensor or its
successor, if any;
(B) Licensee will pay all escrow fees accrued with
respect to the Confidential Materials;
(C) Licensee shall indemnify and hold harmless DATA
BASE from and against any and all losses,
demands, and expenses (including attorneys'
fees) that may be incurred by Licensee and/or
DATA BASE by reason of DATA BASE's compliance in
good faith with the terms of this Agreement,
and
(D) Licensee will submit to the dispute resolution
procedures described in Section 5 hereof and
abide by any decision rendered by the
arbitrators in connection therewith.
(b) Upon receipt of a demand and all required supporting
documents described in Subsection 4(a) hereof, DATA BASE
shall promptly give notice to Licensor of DATA BASE's
receipt of such demand and transmit with such notice a
copy of such demand and the document described in
Paragraph 4(a)(1) hereof. Licensor or its successor may
dispute such demand, at any time within ten (10) days
following DATA BASE's notice to Licensor hereunder, by
giving written notice to DATA BASE that (1) Licensee is
not entitled to release of the Confidential Materials
requested, and (2) Licensor will submit to the dispute
resolution procedures described in Section 5 hereof and
abide by any decision rendered by the arbitrators in
connection therewith.
2
<PAGE> 65
(c) If Licensor gives DATA BASE notice of dispute as provided in
Subsection 4(b) hereof, DATA BASE shall promptly give notice to
Licensee of DATA BASE's receipt of Licensor's notice of dispute
and transmit with such notice a copy of any documents received
from Licensor relating to such dispute.
5. Dispute Resolution. Promptly upon the giving of DATA BASE's notice
pursuant to Subsection 4(c) hereof, representatives of Licensor and
Licensee shall enter into good faith negotiations to resolve their
dispute. If such representatives are unable to agree to meet or are
unable to resolve the dispute in a mutually satisfactory manner within
five (5) working days after DATA BASE's notice to Licensee pursuant to
Subsection 4(c) hereof, either Licensor or Licensee may put the matter
to binding arbitration. Such arbitration proceedings shall be conducted
in Seattle, Washington, under the commercial rules then prevailing of
the American Arbitration Association, by a panel of not less than three
professional experts in the field of telecommunications technology. The
sole issue for arbitration shall be whether Licensee is entitled to the
Confidential Materials. If the arbitrators determine that Licensee is
entitled to the Confidential Materials, the arbitrators shall order the
release of the Confidential Materials for use by Licensee pursuant to
Section 4.C of the OEM Agreement. The prevailing party in the
arbitration proceedings shall be awarded reasonably attorneys' fees,
expert and non-expert witness costs and expenses, and all other
reasonable costs and expenses, unless the arbitrators for good cause
determine otherwise. The decision of the arbitrators shall be final and
binding on the Licensor and Licensee and may be entered and enforced in
any court of competent jurisdiction.
6. Submission to Arbitration by DATA BASE. Notwithstanding any other
provision of this Agreement, if (i) DATA BASE receives a written demand
from Licensee for release of Confidential Materials and DATA BASE is
uncertain whether such demand is effective or (ii) Licensor or any
successor has failed to exercise its right to dispute a demand for
release of Confidential Materials pursuant to Subsection 4(b) hereof or
DATA BASE is uncertain whether any such exercise of rights was timely or
otherwise effective, then DATA BASE may, in its sole discretion withhold
release of the Confidential Materials and require the parties to submit
to arbitration the issue of whether Licensee is entitled to release of
the requested Confidential Materials under the terms of the License
Agreement. Such arbitration shall be conducted in the manner and with
the effect specified in Section 5 hereof.
7. Fees. Licensee shall pay to DATA BASE, in advance, fee at the standard
rate prescribed from time to time by DATA BASE for performance of
services hereunder. Notwithstanding anything in this Agreement to the
contrary, DATA BASE may condition the release of any Confidential
Materials upon the payment of any of its escrow fee accrued hereunder.
8. No Duty to Inquire into Truth, Authenticity or Authority: Right to
Require Additional Documents. DATA BASE shall not be required to
inquire into the truth of any statements or representations contained in
any notices, certificates or other documents required or otherwise
provided hereunder, and shall be entitled to assume that the signatures
on such documents are genuine, that the persons signing on behalf of any
party thereto are duly authorized to execute the same, and that the
actions necessary to render any such documents binding on the party
purportedly executing the same have been duly undertaken. Without in any
way limiting the foregoing, DATA BASE may in its discretion require from
Licensor or Licensee additional documents which
3
<PAGE> 66
is deemed to be necessary or desirable in the course of performing its
obligations hereunder.
9. Indemnification by Licensor. Licensor agrees to indemnify and hold
harmless DATA BASE from and against any and all losses, damages, and
expenses (including attorneys' fees) that may be incurred by Licensor
and/or DATA BASE by reason of DATA BASE's compliance in good faith with
the terms of this Agreement.
10. Notices. Notices under this Agreement shall be in writing, and shall be
personally delivered, sent by internationally recognized courier or sent
by registered or certified mail, return receipt requested, in each case
to the intended recipient at the address set forth adjacent to such
party's signature hereto, or to such other address as such recipient
shall have designated by notice to the sending party. Notices shall be
deemed to have been given when personally delivered, as of the date and
time of delivery as shown in the courier's records or as of the close of
business on the third (3rd) business day (in the location of the
recipient) after mailing.
11. Assignment. DATA BASE may assign its rights under this Agreement to any
person or entity acquiring (by merger, purchase or otherwise)
substantially all of DATA BASE's escrow business at the facility in
which the Confidential Materials are stored hereunder, provided that
such assignee affirmatively assumes DATA BASE's obligations hereunder.
Upon DATA BASE giving Licensor and Licensee notice of such assignment,
such assignment shall relieve DATA BASE of all further obligations under
this Agreement.
12. Termination of DATA BASE's Business. In the event DATA BASE at any time
shall discontinue its escrow business or is unable to hold the
Confidential Materials in accordance with the terms of this Agreement
due to forces beyond its reasonable control, it shall give Licensor and
Licensee notice of termination. Licensor and Licensee shall, by joint
notice given within one hundred eighty (180) days of the giving of DATA
BASE's notice of termination, give DATA BASE instructions authorizing
DATA BASE promptly to deposit the Confidential Materials with such other
person as shall be stated in such joint notice. If Licensor and Licensee
fail to give such joint notice within such 180 days period, DATA BASE
may begin an interpleader action pursuant to Section 6 hereof and
deposit the Confidential Materials with the clerk of the court, in which
case DATA BASE shall have no further obligation with respect to the
Confidential Materials.
13. Modification: Termination. This Agreement may not be modified except in
writing signed by DATA BASE, Licensor and Licensee. This Agreement shall
terminate upon DATA BASE's release or deposit of all Confidential
Materials pursuant to the terms hereof. All exhibits attached to this
Agreement are hereby incorporated herein.
14. Governing Law. This Agreement shall be governed by the laws of the State
of Washington.
4
<PAGE> 67
DATA BASE: DATA BASE, INC.,
- --------- a Washington corporation
Address: By:
- ------- -----------------------------------
Data Base, Inc. Print Name:
307 South 140th Street ---------------------------
Seattle, WA 98168-3431 Title:
Attn.: Administrative Manager --------------------------------
Date:
---------------------------------
Licensor:
- --------
Address: By: /s/ J.F. GRENON
- ------- ----------------------------------
Innova Corporation Print Name: J.F. GRENON
3325 South 116th St. ---------------------------
Seattle, WA 98168 Title: President & CEO
Attn.: John Hemingway --------------------------------
Date: May 30, 1997
--------------------------------
Licensee:
- --------
Address: By: /s/ STEINAR NYGAARD
- ------- ----------------------------------
Nera ASA Print Name: STEINAR NYGAARD
Kokstadvn. 23, PO Box 10 --------------------------
N-5061 KOKSTAD Title: EVP
Bergen, Norway -------------------------------
Attn.: Date: May 30, 1997
---------------------- --------------------------------
5
<PAGE> 68
EXHIBIT A
---------
(Commercial Materials)
The "Module Manufacturing Technical Information", as defined in Section 1 of
the OEM Agreement.
6
<PAGE> 1
MEMORANDUM OF UNDERSTANDING
ON
MUTUAL DEVELOPMENT OF PRODUCTS
This Memorandum of Understanding (hereinafter "MOU") is entered into as of
November 17, 1995 by and between SAT Telecommunications Division located at 11
rue Watt, 75626 PARIS CEDEX 13, FRANCE (hereinafter "SAT") and INNOVA
Corporation located at 3325 South 116th Street, WA 98168 USA (hereinafter
"INNOVA").
WHEREAS, SAT and INNOVA both believe the market potential for digital microwave
radios is very large, not well served by existing participants, and potentially
quite profitable for both SAT and INNOVA.
WHEREAS, SAT and INNOVA both desire to broaden their product range of digital
microwave radios to cover the full range of frequency bands and transmission
bit rates necessary to meet developing market requirements.
WHEREAS, SAT has existing products which cover many of these frequency bands
and capacity requirements but of an earlier design.
WHEREAS, INNOVA is developing a new product range using a new product
architecture, but initially to cover only some of the required frequency bands
and bit rates, and
WHEREAS, SAT and INNOVA have conducted preliminary discussions to determine the
benefits of mutual cooperation in the development of a future product range.
NOW THEREFORE THE PARTIES HAVE AGREED AS FOLLOWS:
1. SAT and INNOVA will form a Joint Marketing Team which will consist of
marketing experts from each Party whose objectives are to:
1.1 To define the general requirements of the future broad product range.
This Joint Marketing Team will require inputs from both the SAT and
INNOVA Engineering to develop an overall future development plan for
review by both SAT and INNOVA.
1.2 To recommend a joint product development strategy for achieving this
broad product line based on the market needs and the existing products
for each
1
<PAGE> 2
company, irrespective of the capabilities of each company's engineering
departments.
2. SAT and INNOVA will form a Joint Product Development Team which will
consist of marketing, manufacturing and engineering representatives from
each company whose objectives are to:
2.1 To assess the current and potential capabilities of each company, and
based on the agreed upon joint product development strategy, recommend:
which company should perform which development activity and the
mechanisms to coordinate this product development.
2.2 To develop a definitive specification for the interface between the
Indoor and Outdoor Units of the future product range. This specification
will include a design analysis, test specification and test fixture
required to ensure future compatibility between any units developed by
each Party, ownership of the mutually developed interface specification
belonging equally to both Parties who shall each have unrestricted
rights to use it for any purposes in any country, including the right to
have made products by subcontractors. Other use of the interface by a
third party requires the mutual agreement of SAT and INNOVA. However, it
is the current intent of the Parties to have product lines which are not
identifical but rather complementary.
2.3 To recommend a plan for manufacturing of the future product range,
taking into full consideration the financial and marketing objectives of
the Parties and making available for each Party the option to purchase
products from the other Party.
3. SAT and INNOVA agree that all expenses incurred by either Party as a
result of this MOU or any development of product shall be the sole
responsibility of that Party, unless a co-funded development is decided
under a specific R&D agreement.
4. This MOU shall have an initial term of one (1) year after which it may
be renewed by mutual consent in writing of the Parties. However, the
restrictions on the use referred to in paragraph 2.2 will survive the
termination of this Agreement by an additional two years.
The first steps for each Party to perform in accordance with this MOU
include:
4.1 Form a Joint Marketing Team which will meet for the first time sometime
in October 1995 at a location to be determined by the team.
2
<PAGE> 3
4.2 Form a Joint Product Development Team which will meet for the first time
within one month of the initial recommendations of the Joint Marketing
Team.
5. Each Party agrees during the term of this MOU and two years after its
termination not to make available to third Parties information whether
technical commercial or financial received from the other Party, which
it has reasons to believe are confidential.
6. Nothing in this MOU shall be construed as prohibiting either Party from
engaging, alone or in cooperation with any third Parties, in any
activity which is not incompatible with the provisions hereof.
7. This MOU shall not be assigned or otherwise transferred by either Party
except upon the written consent of the other Party.
8. All agreements between SAT and INNOVA (Master Agreement dated October
23, 1992 OEM Distributor Agreement dated June 9, 1993 as later amended,
Processor for Hire Agreement dated December 7, 1994, as later amended)
remain in full force and effect according to their respective provisions
and unaffected in any manner by the signature of this MOU.
For and on behalf of For and on behalf of SAT
INNOVA CORPORATION (Societe Anonyme de
Telecommunications)
By /s/ V. FRANK MENDICINO By /s/ MARC MATHIEU
------------------------- --------------------------
(signature) (signature)
V. Frank Mendicino Marc Mathieu
---------------------------- -----------------------------
(name) (name)
Chairman Executive V.P.
---------------------------- -----------------------------
(title) (title)
11-17-95 11-11-95
---------------------------- -----------------------------
(date) (date)
3
<PAGE> 1
Gilles Dupuis
Director, Program Management and NPI
Northern Telecom Limited Tel: (514) 956-3529
9300 Trans Canada Highway Fax: (514) 956-3380
St. Laurent, Quebec
H4S 1K5
[NORTEL
NORTHERN TELECOM LOGO]
April 24, 1997
Frank Grenon
Chief Executive Officer
Innova Corporation
3325 South 116th Street,
Seattle, Washington
98168 USA
Subject: Heads of Agreement; Extension
Dear Sir,
This letter is to confirm that Innova Corporation and Northern Telecom Limited
have agreed to extend the Heads of Agreement signed between the parties on
December 13, 1996 to May 15, 1997.
The signatures below indicate the agreement of the parties with the content of
this letter.
NORTHERN TELECOM LIMITED Innova Corporation
/s/ GILLES DUPUIS /s/ FRANK GRENON
- ------------------------------- -------------------------------
Gilles Dupuis Frank Grenon
Director Radio Program Management & NPI CEO
Date: 97-04-25 Date: 4-25-97
cc: P.Boivin Nortel CCM
W.Silverman Nortel St-Laurent
J.Abitbol Nortel St-Laurent
B.Neuschwander Nortel St-Laurent
C.Pallemaerts Innova Corporation
NOTE: The symbol***** indicates where confidential
portions have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE> 2
<TABLE>
<S> <C> <C>
JUDITH ABITOL Northern Telecom Tel 514 956-3149
Research & OEM Contract Manager 9300 Trans Canada Highway Fax 514 956-3219
Transport Networks St. Laurent, Quebec Canada H4S 1K5
</TABLE>
[NORTEL
NORTHERN TELECOM LOGO]
FRANK GRENON
CHIEF EXECUTIVE OFFICER
INNOVA CORPORATION
3325 SOUTH 116TH STREET,
SEATTLE, WASHINGTON
98168 USA
February 27, 1997.
SUBJECT: HEADS OF AGREEMENT; EXTENSION
Dear Sir,
This letter is to confirm that Innova Corporation and Northern Telecom Limited
have agreed to extend the Heads of Agreement signed between the parties on
December 13, 1996 to April 15, 1997.
The signatures below indicate the agreement of the parties with the content of
this letter.
Thank you,
/s/ JUDITH ABITOL
- -------------------------------
Judith Abitol
NORTHERN TELECOM LIMITED Innova Corporation
/s/ GILLES DUPUIS /s/ FRANK GRENON
- ------------------------------- -------------------------------
Gilles Dupuis Frank Grenon
Director Radio Program Management & NPI CEO
Date: 97-02-27 Date: Feb. 27, 1997
cc: P.Boivin Nortel CCM
W.Silverman Nortel St-Laurent
G.Dupuis Nortel St-Laurent
B.Neuschwander Nortel St-Laurent
C.Pallemaerts Innova Corporation
<PAGE> 3
NOTE: The symbol ***** indicates where confidential portions have been omitted
and filed separately with the Securities and Exchange Commission.
HEADS OF AGREEMENT
SLOVTEL OEM PURCHASE AGREEMENT
MINIMUM REQUIREMENTS TO BE AGREED TO BY SUPPLIER
SCOPE
- -----
These Heads of Agreement between Northern Telecom Limited ("Nortel") and Innova
Corporation ("Innova") cover the purchase and sale of the products ("Products")
listed in Appendix A attached hereto. The Technical Specifications for the
Products are listed or referred to in Appendix B attached hereto. These Heads
of Agreement shall govern the sale and purchase of the Products until a
definitive OEM Purchase Agreement is entered into by the parties and such
definitive agreement once agreed upon will take effect from the date of the
Heads of Agreement.
The Parties agree to enter into a definitive OEM Agreement on or before March
1, 1997.
I. DELIVERY:
All Products shall be shipped FCA INNOVA's shipping location. (FCA is
interpreted in accordance with INCOTERMS 1990)
II. PRICES AND PAYMENT
The Prices to be paid by Nortel for the Products are those stipulated
in Appendix A.
Payment shall be due to INNOVA from Nortel, thirty-nine (39) calendar
days following the Delivery Date of the Products.
Nortel shall pay Seller (a) a service fee at the rate of Two percent
(2%) of the amount due for each month or portion thereof that the
amount remains unpaid; and (b) interest on any such late payment from
the due date thereof until the date paid at the lesser of eighteen
percent (18%) per annum or the maximum rate allowed by law.
III. SHIPPING METHOD
Nortel will use its own freight forwarder. Title and risk of loss will
pass to Nortel upon delivery of Products by Seller to freight
forwarder.
IV. DOCUMENTATION: These documents should be sent to Paul Nugent at Nortel
St. Laurent
The shipment documents are as follows: (Note: documents 4 and 5 may be
sent separately.)
1) In case of air-freight; One original and one copy of Airway Bill
2) Commercial Invoice issued by Innova in three (3) originals and three
(3) copies indicating P.O. Number and Shipping Mark;
3) Packing List in three (3) originals;
4) Certificate of Quality (or a Certificate of Conformance/Compliance)
including test data and a Certificate of Quantity, each in two (2)
originals;
5) Copy of fax/letter to Nortel advising particulars of shipment within
(48) hours after shipment;
6) Certificate of Origin in two (2) originals;
<PAGE> 4
V. PACKING AND SHIPPING MARK:
1) All the Products to be delivered by Seller shall be suitably packed in
accordance with Nortel's packing specs for long distance ocean, air and
inland transportation and well protected against repeated handling,
numerous loading and unloading.
Packaging shall conform to the following standards; ISTA Procedure 1A
Should the Products be damaged or lost due to Seller's failure to
materially comply with the above packing specifications and the
below-described marking specifications, and/or inadequate protective
measures before arrival at Port of Destination, Seller is liable, at
Nortel's option, for the repair or replacement of the Products.
2) Each of the accessories (i.e. cables, connectors, etc.,) in package or
bundle shall be labeled by Seller, indicating P.O. Number, package
number, name of main Product to which it is an accessory, names of
accessories and its position numbers on assembly drawings. Spare parts
and tools shall be marked with the words "Spare Parts" or "Tools"
besides the above particulars.
3) Seller shall mark the following on each shippable unit (be it crate,
pallet, box) with indelible paint in conspicuous printed English words:
P.O. Number, shipping mark, consignee, port of destination, Name of
Products, Case Number, Gross Weight (in Kg), Measurement (L x W x H in
cm).
4) The following documents shall be enclosed in each package of the
Products;
Detailed Packing List in two (2) copies; Installation card.
5) The following documents shall be provided to Nortel: certification of
conformance/compliance (as referred to in paragraph 4 of the
Documentation section), certification of inspection.
6) The Technical Documentation to be provided by Seller as set forth in
Appendix A, shall be properly packed to withstand numerous handling,
long distance transportation and to protect from damages of moisture
and rain. The surface of each package shall be marked with the following
printed words: P.O. Number, Shipping Mark, Consignee, Port of
Destination, Gross Weight (in Kg):
VI. WARRANTY
1) Seller warrants that the Products to be supplied shall be completely new
and shall comply with the Technical Specifications. This warranty shall
not apply to any defect which has been caused by Nortel and arises from
mishandling, misuse, neglect or improper testing or repair.
2) The Warranty Period applicable to the Products listed in Appendix A and
manufactured by Seller shall be twenty-six (26) months from the date of
Delivery. The items listed in Appendix A as being manufactured by third
parties (i.e. cabinets, power supplies, cross connects, and Andrew
antennas) shall have the pass-through warranty obtained from the
manufacturer.
3) Nortel is responsible for the quantity and type of equipment, cabling
and installation materials required to commission the Products, except
items which have been clearly indicated as being supplied by Seller and
which are listed in Appendix A. Should Innova fail to provide all the
Products listed in Appendix A, Innova will be responsible for
supplementing the shortage or deficiencies free of charge without
delay.
4) Seller shall repair or replace any defective Products free of charge
during the Warranty Period.
2
<PAGE> 5
5) Products with defects that affect all, substantially all, or
substantially all of a Production Lot and which result or could result
in some form of personal health or safety hazard, property damage or
which are service affecting will be repaired by the Seller free of
charge on installation site. Other repairs will be effected by the
return of the defective Products to Seller for repair or replacement at
Seller's option free of charge to Nortel.
After the warranty period has expired and for a period of an additional
Five (5) years, Seller agrees to repair or replace, at its option, free
of charge to Nortel, Products with defects that affect all,
substantially all, or substantially all of a Production Lot and which
result or could result in some form of personal health or safety
hazard, property damage or which are service affecting. Furthermore,
for health and safety hazards Seller will provide this warranty beyond
the additional five (5) year period.
All transportation and delivery costs for Products returned pursuant to
the previous paragraph from the original installation site to Seller
shall be borne by the Buyer unless the repair in question relates to
Products with defects that affect all, substantially all, or
substantially all of a Production Lot and which result or could result
in some form of personal health or safety hazard, property damage or
which are service affecting. All transportation and delivery costs from
the Seller to original installation site, including insurance, for
Products returned pursuant to previous paragraph shall be borne by
Seller.
Seller anticipates to maintain a repair/swap stock level of five percent
(5%) of installed base. Parts used for repair or replacement shall not
be those spare parts for maintenance supplied by Seller to Nortel.
However, under urgent circumstances, Seller may use Nortel's spare parts
to ensure normal running of the Product. Seller shall then promptly, at
its cost replace all the spare parts so used. The warranty period
applicable to replaced or repaired parts is 90 days from the date of
arrival at original installation site or the end of the Warranty Period,
whichever is longer.
Seller shall make the best efforts to repair or replace the defective
parts/components of the Products required under the terms of the
Warranty and return them duty free within Ten (10) working days counting
from the date of receipt at the Seller's location of the defective
portion of the Products.
IN EMERGENCY SITUATIONS, SELLER SHALL SHIP TO NORTEL TO DESTINATION
REQUESTED AT TIME OF NOTIFICATION, REPLACEMENT PARTS WITHIN FORTY-EIGHT
(48) HOURS FROM NOTIFICATION OF THE EMERGENCY OR RECEIPT OF THE
DEFECTIVE PRODUCTS AT SELLER'S PLANT, WHICHEVER IS SOONER (EMERGENCY IS
DEFINED AS A SITUATION AT THE CUSTOMER SITE THAT IS SERVICE AFFECTING OR
POTENTIALLY SERVICE AFFECTING AND FOR WHICH NORTEL MUST OBTAIN REPAIRED
OR REPLACEMENT PARTS WITHIN 48 HOURS).
6) SELLER represents and warrants that the Products will meet and comply
with the applicable standards identified or referenced in the Technical
Specifications. SELLER shall defend, indemnify and hold Nortel and its
customers harmless from any and all claims, suits or actions brought
against it for any damages, including reasonable attorney's fees, as a
result of the failure of Seller to comply with any of its above
obligations. [IN TECHNICAL SPECS ADD ETSI REFERENCE: PR ETS 300 385 FOR
EMISSION, AND MPT 1409 & MPT 1414 FOR PERFORMANCE (UK TYPE APPROVAL)]
SELLER shall supply to Nortel a list of all materials incorporated into
a Products which are classified as toxic or hazardous under applicable
laws and regulations to meet the Technical Specifications listed in
Appendix B, information on the safe handling of each Product, and any
pertinent information available to Innova concerning any adverse effects
on people or the environment that may result from the use of, exposure
to, or disposal of such Products. Seller warrants to Nortel that each
Product provided by Seller is safe for its normal use. Seller shall
indemnify Nortel for any expenses that they may incur by reason of
recall or prohibition of use of a Product due to a final determination
that the Products are not safe for its intended use. Nortel shall
cooperate with Seller to facilitate and minimize the expense of any
recall or prohibition against such use.
3
<PAGE> 6
THIS WARRANTY DOES NOT COVER:
Defect, damage, or malfunctions resulting from:
a. Use of the Products on other than their normal or
customary manner which is defined as being "fixed point to point
terrestrial applications in environmental conditions within the
Technical Specifications of the Product";
b. Misuse, accident, neglect, environmental or site
conditions not conforming to the Technical Specifications for
the Product;
c. Unauthorized alterations or repairs, use of unapproved
parts in the Products or the combination or interfacing of the
Products in each case in a manner not approved by Innova;
d. an event of Force Majeure as defined in section XII,
(sub-paragraph 1 only);
e. Failure of any item or service not supplied by Seller;
f. Damage which occurs during shipment of the Product; and
g. Failure of Nortel to maintain the Products substantially
in accordance with the Technical Documentation.
All claims for Product defects in and out of warranty will be made by
Nortel.
THE WARRANTIES IN THIS AGREEMENT ARE GIVEN IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE SPECIFICALLY EXCLUDED,
INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL INNOVA BE LIABLE FOR
INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES; PROVIDED,
HOWEVER, THAT IF THE LAW OF ANY JURISDICTION APPLICABLE TO THIS
AGREEMENT DOES NOT PERMIT SUCH DAMAGES TO BE COMPLETELY DISCLAIMED, THIS
CLAUSE SHALL BE INTERPRETED AS NECESSARY TO GIVE INNOVA THE FULL BENEFIT
OF ANY DISCLAIMER OR LIMITATION OF SAID DAMAGES AS PERMITTED UNDER SUCH
LAW.
VII. WARRANTIES OF OWNERSHIP:
Seller represents and warrants that it has developed, is the owner of
and/or possesses all necessary rights, including, without limitation,
rights in respect of third party software, to use, execute and market
the Products software required for the operation of the Products and
that it has the right to license Nortel, to receive, use, and execute
the Product software for the operation of the Products and to sublicense
end users to use the Product software for the operation of the Products.
VIII. QUALITY ASSURANCE PROGRAM:
Innova shall maintain, in the manufacture and the assembly of the
Products, a quality assurance program that meets the requirements of ISO
9001.
Innova shall inform Nortel of any process, component and supplier change
that may impact the performances or the quality of the Products.
4
<PAGE> 7
Nortel reserves the right to hold Factory Inspections and Audits at
Seller's site. Nortel also reserves the right to integrate its
Acceptance of Production Lots based on the ANSI/ASQLZ 1-4-1993
(corresponding to MIL-STD-105-E) with an AQL of 1% and the General
inspection level II.
IX. TECHNICAL ASSISTANCE:
Nortel will provide the first level of on-line technical assistance to
its customers, twenty-four (24) hours a day, seven (7) days a week. In
the event Nortel requires Seller's support for such purpose, Seller will
provide technical telephone assistance for a period of Fifteen (15)
years at no charge twenty-four (24) hours a day, seven (7) days a week,
with an application, installation, operation and routine service for the
Products with a telephone call back within 30 minutes.
Seller shall provide to Nortel, at Nortel's expense, reasonable
installation support as required. Seller shall provide to Nortel access
to all documentation for training and installation of the Products in
Hard copy.
X. INDEMNIFICATION:
Seller will indemnify and hold Nortel, harmless from and against any and
all claims, demands, suits or actions made or brought by Nortel, the end
user or third parties on account of the non-compliance of the Products
to the Technical specifications causes physical injury, including death,
or damage to property to the extent such physical injury, including
death, and damage to property is attributable to a breach of Seller's
warranty hereunder.
EXCEPT AS SPECIFICALLY PROVIDED HEREIN, INNOVA, WHETHER AS A RESULT OF
BREACH OF CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE), PATENT
INFRINGEMENT, COPYRIGHT INFRINGEMENT, OR OTHERWISE, SHALL NOT HAVE ANY
LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, EXCEPT AS EXPRESSLY
SET FORTH IN SECTION XI, INCLUDING BUT NOT LIMITED TO, LOSS OF PROFIT OR
REVENUES, LOSS OF USE OF THE PRODUCTS OR ANY ASSOCIATED EQUIPMENT, COST
OF CAPITAL, COST OF SUBSTITUTE PRODUCTS, FACILITIES OR SERVICE, OR
DOWNTIME COSTS.
XI. PATENT AND COPYRIGHT INDEMNITY
A. Innova shall defend Nortel against a claim that
Innova-manufactured Products infringe a patent or copyright
granted or registered in the jurisdiction which covers the
geographical location of the original installation site if and
only if (i) Nortel promptly notifies Innova in writing of the
claim, (ii) Innova has sole control of the defense and all
related settlement negotiations, and (iii) Nortel gives Innova
information and assistance for the defense. Innova shall
indemnify and hold harmless Nortel from all payments, which by
final judgments in such suits, may be assessed against Nortel on
account of such alleged infringement and shall pay resulting
settlements, costs and damages finally awarded against Nortel by
a court of law.
B. Nortel agrees that if Innova-manufactured Products become, or in
Innova's opinion are likely to become, the subject of such a
claim, Nortel will permit Innova, at its option and expense,
either to procure the right for Nortel to continue using such
Products or to replace or modify same so that they become
non-infringing, and, if neither of the foregoing alternatives is
available on terms which are acceptable to Innova, Nortel shall
have the right to return the entire unusable portion of such
infringing or potentially infringing Innova-manufactured
Products for the purchase price actually paid by Nortel to
Innova therefor.
5
<PAGE> 8
C. Innova disclaims any and all liability for any claim of patent or
copyright infringement (i) based upon adherence to specifications,
designs or instructions furnished by Nortel, (ii) any claim based
upon the combination, operation or use of any Innova-manufactured
Products supplied hereunder with products, software or data not
supplied by Innova, and (iii) any claim based upon alteration of the
Products made by any party other than Innova.
Nothing contained in this Agreement shall be deemed to grant, either
directly or indirectly or by implication, any license under any
patents or patent applications of Innova, except that Nortel shall
have the normal non-exclusive, royalty-free license to use that
which is implied, or otherwise arises by operation of law, in the
sale of the Products.
XII. FORCE MAJEURE
Except for payment of monies due, neither party shall be liable for
delays in delivery or performance or for failure to manufacture, deliver
or perform resulting from acts beyond the reasonable control of the
party responsible for performance. Such acts shall include, but not
limited to:
1. acts of God, acts of a public enemy, acts or failures to act by
the other party, acts of civil or military authority,
governmental priorities, strikes or other labor disturbances,
hurricanes, adverse weather conditions, earthquakes, fires,
floods, epidemics, embargoes, war, riots, and loss or damage to
goods in transit; or
2. inability to obtain necessary products, components, services or
facilities on account of causes beyond the reasonable control of
the delayed party or its suppliers.
In the event of any such delay, the date(s) of Delivery or performance
shall be extended for as many days as are reasonably required due to
the delay.
XIII. GENERAL
The UNCITRAL Convention on Contracts for the International Sale of Goods
shall govern the sale and purchase of Products except as expressly set
forth herein.
Innova and Nortel shall have a relationship of Seller and Purchaser.
This Agreement does not create an employer-employee, agency, joint
venture or partnership relationship between Innova and Nortel. Nothing
in this Agreement shall be interpreted as granting Nortel the right or
authority to make commitments of any kind for Innova, implied or
otherwise, without the prior written consent of Innova.
INNOVA Corporation
Gateway North Bldg. 2
3325 South 116th Street
Seattle, WA 98168
Tel.#: (206) 439-9121
Fax#: (206) 439-2700
Signature: /s/ COLIN PALLEMAERTS Date: 29th November 1996
-------------------------------------- ------------------
COLIN PALLEMAERTS
EVP Marketing
<PAGE> 9
NORTHERN TELECOM LIMITED
9300 Trans Canada Highway
St Laurent, Quebec, H4S 1K5
Tel#: (514) 956-1010
Fax#: (514) 956-3219
Signature: /s/ William Silverman Date: 13th December 1996
--------------------------------
WILLIAM SILVERMAN
Director of Supply Management
Signature: /s/ Gilles Dupuis Date: 13th December 1996
--------------------------------
GILLES DUPUIS
Director, Radio Program
Management & NPI
Signature: /s/ Bernard Neuschwander Date: 12th December 1996
--------------------------------
BERNARD NEUSCHWANDER
General Manager, Radio
<PAGE> 10
- -------------------------------------------------------------------------------
EXHIBIT A
PRODUCTS LIST
NORTEL / INNOVA
<TABLE>
<CAPTION>
---------------------------
PRICE MANUFACTURER
---------------------------
<S> <C> <C>
INNOVA MANUFACTURED PRODUCTS:
ARU 38 BAND (2/4E1, 4DS1, OR 4/8DS1) $***** INNOVA
ARU 23 BAND (2/4E1, 4DS1, OR 4/8DS1) ***** INNOVA
------------------------------------------------------ ---------------------------
1RU SIU SHELF, 2/4E 1/4DS1, INCLUDES N-TYPE CONNECTORS ***** INNOVA
------------------------------------------------------ ---------------------------
RS-422 SERVICE CHANNEL, PER SIU ***** INNOVA
24 cm HORN (10") ANTENNA, 38 GHz ***** INNOVA
------------------------------------------------------ --------------------------
34 cm HORN (14") ANTENNA, 38 GHz ***** INNOVA
------------------------------------------------------ ---------------------------
34 cm HORN (14") ANTENNA, 23 GHz ***** INNOVA
XPVIEW SOFTWARE, 1x PER END USER N/C INNOVA
XPVIEW USER FEE PER SIU N/C INNOVA
------------------------------------------------------ ---------------------------
NON-INNOVA MANUFACTURED PRODUCTS:
BELDEN 9913 CABLE, BULK WITHOUT CONNECTORS $0.68/ft. BELDEN
50 CM PARABOLIC ANTENNA (ANY BAND) 938.00 ANDREW
------------------------------------------------------ ---------------------------
1 2 M PARABOLIC ANTENNA (23 GHz ONLY) 2,175.00 ANDREW
------------------------------------------------------ ---------------------------
ELECTRICAL ENCLOSURE, 2' WITH INTEGRATION 1,733.00 HOFFMAN
CROSS CONNECT PANEL 150.00 ADC
------------------------------------------------------ ---------------------------
DOCUMENTATION:
------------------------------------------------------ ---------------------------
XP4 INSTALLATION GUIDE N/C INNOVA
TRAINING DOCUMENTATION N/C INNOVA
------------------------------------------------------ ---------------------------
REFERENCE MANUAL N/C INNOVA
------------------------------------------------------ ---------------------------
</TABLE>
<PAGE> 11
APPENDIX B
TECHNICAL SPECIFICATIONS
The documents enclosed have been supplied by Innova. If any further information
is required regarding the Technical Specifications the following people may be
contracted:
INNOVA: Nick Jeffery NORTEL: Peter Hornacek
Pat McDonald (Project engineer)
<PAGE> 1
EXHIBIT 11.1
INNOVA CORPORATION AND SUBSIDIARY
PRO FORMA EARNINGS (LOSS) PER SHARE CALCULATION
With SAB 83 Adjustment
<TABLE>
<CAPTION>
Nine month
fiscal period Three months ended
ended March 31,
December 31, -------------------
1996 1997
----------- -------------------
<C> <C>
SUMMARY INFORMATION
Net income (Loss) F/S: $(7,328,836) $(2,118,543)
Common shares outstanding @
beginning of period 881,900 940,392
Common stock issued upon exercise
of employee options* 10,684 1,310
- Mos. outstanding 4.5 1.5
Common stock issued upon exercise
of vendor options* 47,808
- Mos. outstanding 8.0
Stock warrants and options -
- not dilutive (SAB 83 effect
included in adjustment below)
*o/s prior to exercise included in SAB 83
adjustment below.
----------- -----------
Common shares outstanding @ end of period 940,392 941,702
----------- -----------
Weighted average outstanding common
stock 929,738 941,047
----------- -----------
Assumed conversion of redeemable
preferred stock at closing of IPO 8,682,310 8,682,310
SAB 83 adjustment: 474,487 471,458
----------- -----------
Shares used in computing pro forma
net loss per share 10,086,535 10,094,815
=========== ===========
Pro forma net loss per share $(0.73) $(0.21)
=========== ===========
</TABLE>
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Subsidiary Jurisdiction of Incorporation
- ---------- -----------------------------
<S> <C>
Innova Europe Limited United Kingdom
Techinnova S.A.de C.V. Mexico
</TABLE>
<PAGE> 1
EXHIBIT 23.2
COMBINED INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULE AND CONSENT
The Board of Directors
Innova Corporation:
The audits referred to in our report dated April 30, 1997, except as to
Note 17, which is as of June 17, 1997, included the related financial statement
schedule, listed in Item 16 herein, as of December 31, 1996, and for each of
years in the two-year period ended March 31, 1996 and for the nine month fiscal
period ended December 31, 1996, included in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" and "Selected Financial Data" in the
prospectus.
/s/ KPMG PEAT MARWICK LLP
Seattle, Washington
June 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 MAR-31-1997
<PERIOD-START> APR-01-1996 JUN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<EXCHANGE-RATE> 1 1
<CASH> 172,764 66,593
<SECURITIES> 0 0
<RECEIVABLES> 1,740,383 3,643,342
<ALLOWANCES> 0 0
<INVENTORY> 2,533,970 5,833,212
<CURRENT-ASSETS> 4,520,274 9,583,314
<PP&E> 5,293,010 6,734,489
<DEPRECIATION> 2,645,649 2,847,492
<TOTAL-ASSETS> 7,304,865 13,686,769
<CURRENT-LIABILITIES> 4,809,362 6,924,963
<BONDS> 506,180 1,271,503
0 0
39,312,836 44,299,301
<COMMON> 1,376,715 1,378,178
<OTHER-SE> (38,736,307) (40,233,433)
<TOTAL-LIABILITY-AND-EQUITY> 7,304,865 13,686,769
<SALES> 2,050,245 4,909,810
<TOTAL-REVENUES> 2,103,502 4,909,810
<CGS> 3,685,395 4,080,411
<TOTAL-COSTS> 3,738,652 4,080,411
<OTHER-EXPENSES> 5,550,356 2,749,525
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 249,294 198,818
<INCOME-PRETAX> (7,328,836) (2,118,543)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,328,836) (2,118,543)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,328,836) (2,118,543)
<EPS-PRIMARY> (0.73) (0.21)
<EPS-DILUTED> 0 0
</TABLE>
